CONVERTIBLE HOLDINGS INC, N-1A EL, 1997-06-06

CONVERTIBLE HOLDINGS INC
N-1A EL, 1997-06-06
INVESTORS, NEC

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As filed with the Securities and Exchange Commission on June 6, 1997
Securities Act File No. 33-
Investment Company Act File No. 811-4311

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 10 /x/
(Check appropriate box or boxes)

CONVERTIBLE HOLDINGS, INC./*/
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

800 SCUDDERS MILL ROAD 08536
PLAINSBORO, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800

ARTHUR ZEIKEL
MERRILL LYNCH CONVERTIBLE FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPIES TO:

COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
ATTENTION: FRANK P. BRUNO

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
after the effective date of this Registration Statement.
_______________________

An indefinite number of shares of common stock of the Registrant is
being registered by this Registration Statement under the Securities Act of
1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.

_______________________

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.
___________________

/*/Prior to the effective date of this Registration Statement, the Registrant
will change its name to Merrill Lynch Convertible Fund, Inc.

MERRILL LYNCH CONVERTIBLE FUND, INC
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
<S> <C> <C>
N-1A
ITEM NO. LOCATION
PART A
1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . Fee Table
3. Condensed Financial Information . . . . . . . . . . . . . Financial Highlights; Performance Data
4. General Description of Registrant . . . . . . . . . . . . Cover Page; Investment Objective and Policies;
Additional Information
5. Management of the Fund . . . . . . . . . . . . . . . . . Fee Table; Management of the Fund; Inside Back
Cover Page
5A. Management's Discussion of Fund Performance . . . . . . . Not Applicable
6. Capital Stock and Other Securities . . . . . . . . . . . Cover Page; Merrill Lynch Select Pricing/(Service
Mark)/System; Additional Information
7. Purchase of Securities Being Offered . . . . . . . . . . Cover Page; Merrill Lynch Select Pricing/(Service
Mark)/System; Fee Table; Purchase of Shares;
Shareholder Services; Additional Information;
Inside Back Cover Page
8. Redemption or Repurchase . . . . . . . . . . . . . . . . Merrill Lynch Select Pricing/(Service Mark)/
System; Fee Table; Purchase of Shares; Redemption
of Shares
9. Pending Legal Proceedings . . . . . . . . . . . . . . . . Not Applicable

PART B
10. Cover Page . . . . . . . . . . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . . . . . . . . . . . Back Cover Page
12. General Information and History . . . . . . . . . . . . . Additional Information
13. Investment Objective and Policies . . . . . . . . . . . . Investment Objective and Policies
14. Management of the Fund . . . . . . . . . . . . . . . . . Management of the Fund
15. Control Persons and Principal Holders of Securities . . . Management of the Fund; Additional Information
16. Investment Advisory and Other Services . . . . . . . . . Management of the Fund; Purchase of Shares;
General Information
17. Brokerage Allocation and Other Practices . . . . . . . . Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities . . . . . . . . . . . General Information
19. Purchase, Redemption and Pricing of Securities Being
Offered . . . . . . . . . . . . . . . . . . . . . . Purchase of Shares; Redemption of Shares;
Determination of Net Asset Value; Shareholder
Services
20. Tax Status . . . . . . . . . . . . . . . . . . . . . . . Dividends, Distributions and Taxes
21. Underwriters . . . . . . . . . . . . . . . . . . . . . . Purchase of Shares
22. Calculation of Performance Data . . . . . . . . . . . . . Performance Data
23. Financial Statements . . . . . . . . . . . . . . . . . . Financial Statements

</TABLE>

PART C

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

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 6, 1997

PROSPECTUS
- ----------------
AUGUST ___, 1997

MERRILL LYNCH CONVERTIBLE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 PHONE NO. (609) 282-2800

Merrill Lynch Convertible Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company that seeks to provide shareholders
with high total return by investing primarily in a portfolio of convertible
debt securities, convertible preferred stocks and synthetic convertible
securities. Total return is the combination of capital appreciation and
investment income. The investment philosophy of the Fund is based on the
belief that the characteristics of convertible securities make them
appropriate investments for an investment company seeking a high total return
from capital appreciation and investment income. The securities in which the
Fund invests may be issued by both United States and non-United States
issuers. The Fund may employ a variety of techniques to hedge against market
or currency risk or to enhance total return. There can be no assurance that
the investment objective of the Fund will be realized.

Investments on an international basis in foreign securities markets
involve risks and special considerations not typically associated with
investments in securities of United States issuers. See "Risk Factors and
Special Considerations."

Pursuant to the Merrill Lynch Select Pricing(Service Mark) System, the
Fund offers four classes of shares, each with a different combination of
sales charges, ongoing fees and other features. The Merrill Lynch Select
Pricing(Service Mark) System permits an investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. See "Merrill Lynch Select
Pricing(Service Mark) System" on page 3.

Shares may be purchased directly from Merrill Lynch Funds Distributor,
Inc. (the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081
((609) 282-2800), or from securities dealers that have entered into selected
dealer agreements with the Distributor, including Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"). To permit the Fund to invest
the net proceeds from the sale of its shares in an orderly manner, the Fund
may, from time to time, suspend the sale of its shares, except for dividend
reinvestments. The minimum initial purchase is $500 and the minimum
subsequent purchase is $50, except that for retirement plans the minimum
initial purchase is $100 and the minimum subsequent purchase is $1. Merrill
Lynch may charge its customers a processing fee (presently $5.35) for
confirming purchases and repurchases. Purchases and redemptions made
directly through the Fund's transfer agent are not subject to the processing
fee. See "Purchase of Shares" and "Redemption of Shares."

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

This Prospectus is a concise statement of information about the Fund
that is relevant to making an investment in the Fund. This Prospectus should
be retained for future reference. A statement containing additional
information about the Fund, dated August ___, 1997 (the "Statement of
Additional Information"), has been filed with the Securities and Exchange
Commission (the "Commission") and is available, without charge, by calling or
by writing the Fund at the above telephone number or address. The Statement
of Additional Information is hereby incorporated by reference into this
Prospectus.

MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR

FEE TABLE
A general comparison of the sales arrangements and other nonrecurring
and recurring expenses applicable to shares of the Fund follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class A(a)+ Class B(b) Class C Class D
----------- ---------- ------- ---------
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases (as
a percentage of offering price) . . . . 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend Reinvestments None None None None
Deferred Sales Charge (as a percentage of 4.0% during the first year,
original purchase price or redemption decreasing 1.0% annually to
proceeds, whichever is lower) . . . . . 0.0% after the fourth 1.0% for one
None(d) year(e) year(f) None(d)

Exchange Fee . . . . . . . . . . . . . . . . None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)(g):
Investment Advisory Fees(h) . . . . . . . . . 0.60% 0.60% 0.60% 0.60%
12b-1 Fees(i):
Account Maintenance Fees . . . . . . None 0.25% 0.25% 0.25%
Distribution Fees . . . . . . . . . None 0.75% 0.75% None
(Class B shares convert to
Class D shares
automatically after
approximately eight years
and cease being subject to
distribution fees)
Other Expenses:
Custodial Fees . . . . . . . . . . . .01% .01% .01% .01%
Shareholder Servicing Costs(j) . . . .04% .04% .04% .04%
Other . . . . . . . . . . . . . . . .29% .29% .29% .29%
------- ------- ------- -------
Total Other Expenses . . . . . . .34% .34% .34% .34%
------- ------- ------- -------
Total Fund Operating Expenses . . . . . . . .94% 1.94% 1.94% 1.19%
======= ======= ======= =======

</TABLE>

_______________

(a) Class A shares are sold to a limited group of investors including
existing Class A shareholders, certain retirement plans and certain
participants in fee-based programs. See "Purchase of Shares--Initial
Sales Charge Alternatives--Class A and Class D Shares" on page 24 and
"Shareholder Services--Fee-Based Programs" on page 32.
(b) Class B shares convert to Class D shares automatically approximately
eight years after initial purchase. See "Purchase of Shares--Deferred
Sales Charge Alternatives--Class B and Class C Shares" on page 25.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans in connection with certain
fee-based programs. Class A and Class D purchases of $1,000,000 or more
may not be subject to an initial sales charge. See "Purchase of Shares-
-Initial Sales Charge Alternatives--Class A and Class D Shares" on page
24.
(d) Class A and Class D shares are not subject to a contingent deferred
sales charge ("CDSC"), except that certain purchases of $1,000,000 or
more which are not subject to an initial sales charge may instead be
subject to a CDSC of 1.0% of amounts redeemed within the first year
after purchase. Such CDSC may be waived in connection with certain fee-
based programs. See "Shareholder Services--Fee-Based Programs" on page
32.
(e) The CDSC may be modified in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs" on page 32.
(f) The CDSC may be waived in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs" on page 32.
(g) Information is estimated for the fiscal year ending December 31, 1997.
(h) See "Management of the Fund--Management and Advisory Arrangements" on
page 21.
(i) See "Purchase of Shares--Distribution Plans" on page 28.
(j) See "Management of the Fund--Transfer Agency Services" on page 22.
+ Upon conversion of the Fund to open-end status, the Fund's outstanding
Capital Shares were designated Class A shares.

EXAMPLE:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
An investor would pay the following expenses on a $1,000 investment including
the maximum $52.50 initial sales charge (Class A and Class D shares only)
and assuming (1) the Total Fund Operating Expenses for each class set forth
on page 2, (2) a 5% annual return throughout the periods and (3) redemption
at the end of the period (including any applicable CDSC for Class B and
Class C shares):
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $62 $81 $102 $162
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60 $81 $105 $207*
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30 $61 $105 $226
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64 $88 $115 $189
An investor would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of the period:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $62 $81 $102 $162
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20 $61 $105 $207*
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20 $61 $105 $226
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64 $88 $115 $189

</TABLE>

_______________

* Assumes conversion to Class D shares approximately eight years after
purchase.

The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The expenses set forth under "Other Expenses" are based on
estimated amounts through the end of the Fund's first fiscal year as an open-
end investment company 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 PAST OR FUTURE EXPENSES OR
ANNUAL RATE OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATE OF RETURN MAY BE
MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and
Class C shareholders who hold their shares for an extended period of time may
pay more in Rule 12b-1 distribution fees than the economic equivalent of the
maximum front-end sales charge permitted under the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD"). Merrill Lynch may
charge its customers a processing fee (presently $5.35) for confirming
purchases and repurchases. Purchases and redemptions made directly through
the Fund's transfer agent are not subject to the processing fee. See
"Purchase of Shares" and "Redemption of Shares."

MERRILL LYNCH SELECT PRICING(SERVICE MARK) SYSTEM

The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(Service Mark) System. The shares of each class may be purchased at a
price equal to the next determined net asset value per share subject to the
sales charges and ongoing fee arrangements described below. Shares of
Class A and Class D are sold to investors choosing the initial sales charge
alternatives, and shares of Class B and Class C are sold to investors
choosing the deferred sales charge alternatives. The Merrill Lynch Select
Pricing(Service Mark) System is used by more than 50 registered investment
companies advised by Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Manager") or Fund Asset Management, L.P. ("FAM"), an affiliate of MLAM.
Funds advised by MLAM or FAM that utilize the Merrill Lynch Select
Pricing(Service Mark) System are referred to herein as "MLAM-advised mutual
funds."

Each Class A, Class B, Class C or Class D share of the Fund represents
an identical interest in the investment portfolio of the Fund and has the
same rights, except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees and Class B and Class C
shares bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The CDSCs, distribution fees and account maintenance fees that
are imposed on Class B and Class C shares, as well as the account maintenance
fees that are imposed on Class D shares, are imposed directly against those
classes and not against all assets of the Fund and, accordingly, such charges
will not affect the net asset value of any other class or have any impact on
investors choosing another sales charge option. Dividends paid by the Fund
for each class of shares will be calculated in the same manner at the same
time and will differ only to the extent that account maintenance and
distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Each class has
different exchange privileges. See "Shareholder Services--Exchange
Privilege."

Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges and distribution fees with respect
to the Class B and Class C shares in that the sales charges and distribution
fees applicable to each class provide for the financing of the distribution
of the shares of the Fund. The distribution-related revenues paid with
respect to a class will not be used to finance the distribution expenditures
of another class. Sales personnel may receive different compensation for
selling different classes of shares.

The following table sets forth a summary of the distribution
arrangements for each class of shares under the Merrill Lynch Select
Pricing(Service Mark) System, followed by a more detailed description of each
class and a discussion of the factors that investors should consider in
determining the method of purchasing shares under the Merrill Lynch Select
Pricing(Service Mark) System that the investor believes is the most
beneficial under his or her particular circumstances. More detailed
information as to each class of shares is set forth under "Purchase of
Shares."

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Account Maintenance Distribution Conversion
Class Sales Charge/(1)/ Fee Fee Feature
A Maximum 5.25% initial sales No No No
charge/(2)(3)/
B CSDC for a period of four years, at a 0.25% 0.75% B shares convert to D shares
rate of 4.0% during the first year, automatically after
decreasing 1.0% annually to 0.0%/(4)/ approximately eight years/(5)/
C 1.0% CDSC for one year/(6)/ 0.25% 0.75% No
D Maximum 5.25% initial sales charge/(3)/ 0.25% No No

</TABLE>
_______________
(1) Initial sales charges are imposed at the time of purchase as a
percentage of the offering price. CDSCs are imposed if the redemption
occurs within the applicable CDSC time period. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption
or the cost of the shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial
Sales Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of
Class A shares by certain retirement plans in connection with certain
fee-based programs. Class A and Class D share purchases of $1,000,000
or more may not be subject to an initial sales charge but instead may be
subject to a 1.0% CDSC if redeemed within one year. Such CDSC may be
waived in connection with certain fee-based programs. A 0.75% sales
charge for 401(k) purchases over $l,000,000 will apply. See "Class A"
and "Class D" below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the
conversion and holding periods for certain retirement plans was
modified. Also, Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made have a ten-year conversion
period. If Class B shares of the Fund are exchanged for Class B shares
of another MLAM-advised mutual fund, the conversion period applicable to
the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period
for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.

Class A: Upon the conversion of the Fund to open-end status, the Fund's
outstanding Capital Shares were designated Class A shares. No
sales charge was due as a result of the conversion. Class A
shares incur an initial sales charge when they are purchased and
bear no ongoing distribution or account maintenance fees.
Class A shares are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors who currently own Class A
shares of the Fund in a shareholder account are entitled to
purchase additional Class A shares of the Fund in that account.
Other eligible investors include participants in certain
fee-based programs. In addition, Class A shares will be offered
at net asset value to Merrill Lynch & Co., Inc. ("ML & Co.") and
its subsidiaries (the term "subsidiaries" when used herein with
respect to ML & Co. includes the Manager, FAM and certain other
entities directly or indirectly wholly owned and controlled by
ML & Co.), and their directors and employees and to members of
the Boards of MLAM-advised mutual funds. The maximum initial
sales charge is 5.25%, which is reduced for purchases of $25,000
and over and waived for purchases of Class A shares in
connection with certain fee-based programs. Purchases of
$1,000,000 or more may not be subject to an initial sales
charge, but if the initial sales charge is waived such purchases
may be subject to a 1.0% CDSC if the shares are redeemed within
one year after purchase. Such CDSC may be waived in connection
with certain fee-based programs. Sales charges are also reduced
under a right of accumulation which takes into account the
investor's holdings of all classes of all MLAM-advised mutual
funds. See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares."
Class B: Class B shares do not incur a sales charge when they are
purchased, but they are subject to an ongoing account
maintenance fee of 0.25% and an ongoing distribution fee of
0.75% of the Fund's average net assets attributable to the
Class B shares, as well as a CDSC if they are redeemed within
four years of purchase. Such CDSC may be modified in connection
with certain fee-based programs. Approximately eight years after
issuance, Class B shares will convert automatically into Class D
shares of the Fund, which are subject to an account maintenance
fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert
into Class D shares automatically after approximately ten years.
If Class B shares of the Fund are exchanged for Class B shares of
another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, as will
the Class D account maintenance fee of the acquired fund upon the
conversion, and the holding period for the shares exchanged will
be tacked onto the holding period for the shares acquired.
Automatic conversion of Class B shares into Class D shares will
occur at least once a month on the basis of the relative net asset
values of the shares of the two classes on the conversion date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed
a purchase or sale of the shares for Federal income tax purposes.
Shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares.
The conversion period for dividend reinvestment shares and for
certain retirement plans is modified as described under "Purchase
of Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares."

Class C: Class C shares do not incur a sales charge when they are
purchased, but they are subject to an ongoing account
maintenance fee of 0.25% and an ongoing distribution fee of
0.75% of the Fund's average net assets attributable to the
Class C shares. Class C shares are also subject to a 1.00% CDSC
if they are redeemed within one year of purchase. Such CDSC may
be waived in connection with certain fee-based programs.
Although Class C shares are subject to a CDSC for only one year
(as compared to four years for Class B), Class C shares have no
conversion feature and, accordingly, an investor who purchases
Class C shares will be subject to distribution fees that will be
imposed on Class C shares for an indefinite period subject to
annual approval by the Fund's Board of Directors and regulatory
limitations.

Class D: Class D shares incur an initial sales charge when they are
purchased and are subject to an ongoing account maintenance fee
of 0.25% of the Fund's average net assets attributable to
Class D shares. Class D shares are not subject to an ongoing
distribution fee or any CDSC when they are redeemed. The
maximum initial sales charge is 5.25%, which is reduced for
purchases of $25,000 or more. Purchases of $1,000,000 or more
may not be subject to an initial sales charge, but if the
initial sales charge is waived such purchases may be subject to
a 1.0% CDSC if the shares are redeemed within one year after
purchase. Such CDSC may be waived in connection with certain
fee-based programs. The schedule of initial sales charges and
reductions for Class D shares is the same as the schedule for
Class A shares, except that there is no waiver for purchases in
connection with certain fee-based programs. Class D shares also
will be issued upon conversion of Class B shares as described
above under "Class B." See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares."

The following is a discussion of the factors that investors should
consider in determining the method of purchasing shares under the Merrill
Lynch Select Pricing(Service Mark) System that the investor believes is most
beneficial under his particular circumstances.

Initial Sales Charge Alternatives. Investors who prefer an initial
sales charge alternative may elect to purchase Class D shares or, if an
eligible investor, Class A shares. Investors choosing the initial sales
charge alternative who are eligible to purchase Class A shares should
purchase Class A shares rather than Class D shares because there is an
account maintenance fee imposed on Class D shares. Investors qualifying for
significantly reduced initial sales charges may find the initial sales charge
alternative particularly attractive because similar sales charge reductions
are not available with respect to the CDSCs imposed in connection with
purchases of Class B or Class C shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for an extended
period of time also may elect to purchase Class A or Class D shares, because
over time the accumulated ongoing account maintenance and distribution fees
on Class B or Class C shares may exceed the initial sales charge and, in the
case of Class D shares, the account maintenance fee. Although some investors
who previously purchased Class A shares may no longer be eligible to purchase
Class A shares of other MLAM-advised mutual funds, those previously purchased
Class A shares, together with Class B, Class C and Class D share holdings,
will count toward a right of accumulation which may qualify the investor for
reduced initial sales charges on new initial sales charge purchases. In
addition, the ongoing Class B and Class C account maintenance and
distribution fees will cause Class B and Class C shares to have higher
expense ratios, pay lower dividends and have lower total returns than the
initial sales charge shares. The ongoing Class D account maintenance fees
will cause Class D shares to have a higher expense ratio, pay lower dividends
and have a lower total return than Class A shares.

Deferred Sales Charge Alternatives. Because no initial sales charges
are deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. The deferred sales charge alternatives may be
particularly appealing to investors who do not qualify for a reduction in
initial sales charges. Both Class B and Class C shares are subject to
ongoing account maintenance fees and distribution fees; however, the ongoing
account maintenance and distribution fees potentially may be offset to the
extent any return is realized on the additional funds initially invested in
Class B or Class C shares. In addition, Class B shares will be converted
into Class D shares of the Fund after a conversion period of approximately
eight years, and thereafter investors will be subject to lower ongoing fees.

Certain investors may elect to purchase Class B shares if they determine
it to be most advantageous to have all their funds invested initially and
intend to hold their shares for an extended period of time. Investors in
Class B shares should take into account whether they intend to redeem their
shares within the CDSC period and, if not, whether they intend to remain
invested until the end of the conversion period and thereby take advantage
of the reduction in ongoing fees resulting from the conversion into Class D
shares. Other investors, however, may elect to purchase Class C shares
if they determine that it is advantageous to have all their assets invested
initially and they are uncertain as to the length of time they intend to
hold their assets in MLAM-advised mutual funds. Although Class C
shareholders are subject to a shorter CDSC period at a lower rate, they
forego the Class B conversion feature, making their investment subject to
account maintenance and distribution fees for an indefinite period of time.
In addition, while both Class B and Class C distribution fees are subject to
the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares--Limitations on the Payment of Deferred
Sales Charges."

FINANCIAL HIGHLIGHTS

The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Deloitte & Touche LLP, independent auditors. Financial statements for the
fiscal year ended December 31, 1996 and the independent auditors' report
thereon are included in the Statement of Additional Information. Financial
information is not presented for Class B, Class C and Class D shares since no
shares of those classes were publicly issued as of the date of this
Prospectus. Prior to (August 4, 1997), the Class A shares were designated
Capital Shares and the Fund operated as a closed-end "dual purpose"
management investment company. Further information about the performance of
the Fund is contained in the Fund's most recent annual report to shareholders
which may be obtained, without charge, by calling or by writing the Fund at
the telephone number or address on the front cover of this Prospectus.

The following per share data and ratios have been derived from
information provided in the Fund's audited financial statements:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Class A Shares(1)
------------------------------------------------------------------------
For the Year Ended December 31,
--------------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1996## 1995 1994 1993 1992 1991
--------- --------- ---------- --------- --------- ---------

INCOME SHARES(2):
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year . . . $ 9.32 $ 9.30 $ 9.30 $ 9.30 $ 9.31 $ 9.30
--------- --------- ---------- --------- --------- ---------
Investment income--net . . . . . . . . . . 1.21 1.23 1.19 1.20 1.35 1.41

Dividends of investment income-net . . . . (1.22) (1.21) (1.19) (1.20) (1.36) (1.40)
--------- --------- ---------- --------- --------- ---------
Net asset value, end of year . . . . . . . $ 9.31 $ 9.32 $ 9.30 $ 9.30 $ 9.30 $ 9.31
========= ========= ========== ========= ========= =========
Market price per share, end of year . . . $ 9.625 $ 10.00 $10.00 $10.625 $11.25 $12.625
========= ========= ========== ========= ========= =========

TOTAL INVESTNENT RETURN**

Based on market value per share . . . . . 9.22% 13.58% 6.61% 7.20% 2.74% 34.37%
========= ========= ========== ========= ========= =========
Based on net asset value per share 13.35% 13.82% 13.28% 13.50% 15.17% 15.87%
========= ========= ========== ========= ========= =========

CAPITAL SHARES:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year . . . . $ 13.43 $ 11.13 $ 13.21 $12.87 $10.91 $ 7.67
--------- --------- ---------- --------- --------- ---------
Realized and unrealized gain (loss)
on investments and foreign currency
transactions-net . . . . . . . . . . . . . 2.78 2.66 (2.12) 1.43 2.03 3.24
Distributions of realized gain on
investments-net . . . . . . . . . . . . . (.64) (.36) (.01) (1.17) (.12) --
Effect of repurchase of Treasury Stock . . -- --+ .05 .08 .05 --
--------- --------- ---------- --------- --------- ---------
Net asset value, end of year . . . . . . . $ 15.57 $ 13.43 $11.13 $ 13.21 $12.87 $ 10.91
========= ========= ========== ========= ========= =========
Market value per share, end of year . . . $ 14.625 $ 11.625 $ 9.00 $10.875 $9.375 $ 6.875
========= ========= ========== ========= ========= =========

TOTAL INVESTMENT RETURN:**
Based on market value per share . . . . . 30.87% 33.20% (17.17%) 28.77% 38.11% 61.76%
========= ========= ========== ========= ========= =========
Based on net asset value per share . . . . 20.60% 24.44% (15.68%) 13.94% 19.48% 42.24%
========= ========= ========== ========= ========= =========

TOTAL FUND:
RATIOS TO AVERAGE NET ASSETS:
Total expenses** . . . . . . . . . . . . . .78% .79% .87% .80% .80% .83%
========= ========= ========== ========= ========= =========
Investment income-net . . . . . . . . . . 4.98% 5.40% 5.43% 5.10% 6.34% 7.24%
========= ========= ========== ========= ========= =========

SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) . . $289,993 $265,127 $238,466 $274,999 $289,366 $275,045
========= ========= ========== ========= ========= =========

Portfolio turnover . . . . . . . . . . . . 129.06% 87.69% 69.37% 116.03% 76.54% 54.90%
========= ========= ========== ========= ========= =========
Average commission rate paid++ . . . . . . $ .0447 __ __ __ __ __
========= ========= ========== ========= ========= =========

</TABLE>

(1) The above financial information reflects the Fund's performance as a
closed-end investment company and, therefore, may not be indicative
of its performance as an open-end investment company. Capital
Shares of the Fund existing at the time of its conversion to an
open-end investment company have been classified as Class A shares.
(2) Income Shares were redeemed on July 31, 1997.
** Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns
exclude the effects of sales loads.
*** Excluding taxes on undistributed net realized long-term capital
gains.
+ Amount is less than $.01 per capital share.
++ For fiscal years beginning on or after September 1, 1995, the Fund
is required to disclose its average commission rate per share for
purchases and sales of equity securities. The "Average commission
rate paid" includes commissions paid in foreign currencies, which
have been converted into U.S. dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may
significantly affect the rate shown.
+++ For the six months ended December 31, 1987.
# Annualized.
## Based on average shares outstanding during the period.

<TABLE>
<CAPTION>
Class A Shares(1)
------------------------------------------------
For the
Year
Ended
For the Year Ended December 31, June 30,
------------------------------------------------ ----------

Increase (Decrease) in Net Asset Value: 1990 1989 1988 1987+++ 1987
--------- --------- --------- ---------- -----------
Income Shares(2):
Per Share Operating Performance:
Net asset value, beginning of year . . . . . . . . . . . . $ 9.30 $ 9.32 $ 9.38 $ 9.64 $ 9.63
--------- --------- --------- ---------- -----------
Investment income--net . . . . . . . . . . . . . . . . . . 1.38 1.39 1.41 .65 1.31
Dividends of investment income-net . . . . . . . . . . . . (1.38) (1.41) (1.47) ( .91) (1.30)
--------- --------- --------- ---------- -----------
Net asset value, end of year . . . . . . . . . . . . . . . $ 9.30 $ 9.30 $ 9.32 $ 9.38 $ 9.64
========= ========= ========= ========== ===========

Market price per share, end of year . . . . . . . . . . . . $ 10.875 $ 11.50 $ 11.50 $ 10.50 $ 12.00
========= ========= ========= ========== ===========

Total Investment Return:**

Based on market value per share . . . . . . . . . . . . . . 9.23% 15.85% 27.63% (3.76%) 1.81%
========= ========= ========= ========== ===========
Based on net asset value per share . . . . . . . . . . . . 15.50% 15.60% 15.79% 7.02% 14.65%
========= ========= ========= ========== ===========

CAPITAL SHARES:
PER SHARE OPERATING PERFORMANCE:
$ 10.12 $ 8.69 $ 8.49 $ 11.88 $ 12.26
--------- --------- --------- ---------- -----------
Net asset value, beginning of year . . . . . . . . . . . .
Realized and unrealized gain (loss) on investments
and foreign currency transactions-net . . . . . . . . . . . (2.45) 1.43 .20 (3.39) ( .38)
Distributions of realized gain on investments-net . . . . . -- -- -- -- --
Effect of repurchase of Treasury Stock . . . . . . . . . . -- -- -- -- --
--------- --------- --------- ---------- -----------
Net asset value, end of year . . . . . . . . . . . . . . . $ 7.67 $ 10.12 $ 8.69 $ 8.49 $ 11.88
========= ========= ========= ========== ===========
Market value per share, end of year . . . . . . . . . . . . $ 4.25 $ 5.50 $ 4.25 $ 3.875 $ 7.125
========= ========= ========= ========== ===========
TOTAL INVESTMENT RETURN:**
Based on market value per share . . . . . . . . . . . . . . (22.73%) 29.41% 9.68% (45.61%) (10.76%)
========= ========= ========= ========== ===========
Based on net asset value per share . . . . . . . . . . . . (24.21%) 16.46% 2.36% (28.54%) 3.16%
========= ========= ========= ========== ===========

TOTAL FUND:
RATIOS TO AVERAGE NET ASSETS:
Total expenses** . . . . . . . . . . . . . . . . . . . . . .86% .80% .79% .83%# .75%
========= ========= ========= ========== ===========
Investment income-net . . . . . . . . . . . . . . . . . . . 7.39% 7.15% 7.55% 6.37%# 6.08%
========= ========= ========= ========== ===========

SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) . . . . . . . . . . $230,851 $ 264,339 $ 245,077 $ 243,073 $ 292,704
========= ========= ========= ========== ===========
Portfolio turnover . . . . . . . . . . . . . . . . . . . . 40.28% 50.47% 48.72% 23.09% 62.35%
========= ========= ========= ========== ===========

Average commission rate paid++ . . . . . . . . . . . . . . __ __ __ __ __
========= ========= ========= ========== ===========
</TABLE>

RISK FACTORS AND SPECIAL CONSIDERATIONS

CONVERSION TO OPEN-END STATUS

On (August 4, 1997), the Fund converted from a closed-end investment
company to an open-end investment company. Prior to the conversion of the
Fund to open-end status, the Fund was operated as a diversified, closed-end,
"dual-purpose" management investment company with different investment
objectives and policies from those described herein.

DERIVATIVE INVESTMENTS

The Fund may engage in transactions in certain instruments that may be
characterized as derivatives. These instruments include various types of
options, futures and options thereon, currency forwards and options and
indexed securities, including inverse securities. The Fund may engage in
these transactions for hedging purposes or, in certain cases, to enhance
total return.

Investments in indexed securities, including inverse securities, subject
the Fund to the risks associated with changes in the particular indices,
which may include losses of amounts invested. Transactions involving
options, futures, options on futures or currency may involve the loss of an
opportunity to profit from a price movement in the underlying asset beyond
certain levels or a price increase on other portfolio assets (in the case of
transactions for hedging purposes) or expose the Fund to potential losses
which exceed the amount originally invested by the Fund in such instruments.
For a further discussion of the risks associated with these investments, see
"Investment Objective and Policies--Description of Certain Investments," "--
Other Investment Policies and Practices--Portfolio Strategies Involving
Options, Futures and Foreign Exchange Transactions" and Appendix A to this
Prospectus, "Investment Practices Involving the Use of Options, Futures and
Foreign Exchange."

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in securities that lack
an established secondary trading market or otherwise are considered illiquid.
Liquidity of a security relates to the ability to dispose easily of the
security and the price to be obtained upon disposition of the security, which
may be less than would be obtained for a comparable more liquid security.
Investment of the Fund's assets in illiquid securities may restrict the
ability of the Fund to dispose of its investments in a timely fashion and for
a fair price as well as its ability to take advantage of market
opportunities. The risks associated with illiquidity will be particularly
acute in situations in which the Fund's operations require cash, such as when
the Fund redeems shares or pays dividends, and could result in the Fund
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments. Further, issuers whose securities are not
publicly traded are not subject to the disclosure and other investor
protection requirements that would be applicable if their securities were
publicly traded. Illiquid securities may trade at a discount from
comparable, more liquid investments. In making investments in such
securities, the Fund may obtain access to material, non-public information
which may restrict the Fund's ability to conduct portfolio transactions in
such securities. In addition, the Fund may invest in privately placed
securities that may or may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. See
"Investment Objective and Policies--Description of Certain Investments--
Illiquid Securities."

NO RATING CRITERIA FOR DEBT SECURITIES

The Fund has not established any rating criteria for the debt securities
in which it may invest and such securities may not be rated at all for
creditworthiness. Securities rated in the medium to low rating categories of
nationally recognized statistical rating organizations, such as Standard &
Poor's Ratings Services ("S&P") and Moody's Investors Service, Inc.
("Moody's"), and unrated securities of comparable quality (such lower rated
and unrated securities are referred to herein as "high yield/high risk
securities" or "junk bonds") are speculative with respect to the capacity to
pay interest and repay principal in accordance with the terms of the security
and generally involve a greater volatility of price than securities in higher
rating categories. See Appendix B to this Prospectus--"Ratings of Debt
Securities and Preferred Stock." In purchasing such securities, the Fund
will rely on the Manager's judgment, analysis and experience in evaluating
the creditworthiness of an issuer of such securities. The Manager will take
into consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. The Fund does not
intend to purchase debt securities that are in default.

The market values of high yield/high risk securities, or "junk bonds,"
tend to reflect individual issuer developments to a greater extent than do
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. Issuers of high yield/high risk securities may be
highly leveraged and may not have available to them more traditional methods
of financing. Therefore, the risk associated with acquiring the securities
of such issuers generally is 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 high yield/high risk securities may be
more likely to experience financial stress, especially if such issuers are
highly leveraged. During such periods, service of debt obligations also may
be adversely affected by specific issuer developments, or the issuer's
inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss due to default by
the issuer is significantly greater for the holders of high yield/high risk
securities because such securities may be unsecured and may be subordinated
to other creditors of the issuer.

High yield/high risk securities may have call or redemption features
which would permit an issuer to repurchase the securities from the Fund. If
a call were exercised by the issuer during a period of declining interest
rates, the Fund likely would have to replace such called securities with
lower yielding securities, thus decreasing the net investment income to the
Fund and dividends to shareholders.

The Fund may have difficulty disposing of certain high yield/high risk
securities, or "junk bonds," because there may be a thin trading market for
such securities. To the extent that a secondary trading market for high
yield/high risk securities does exist, it generally is not as liquid as the
secondary market for higher rated securities. Reduced secondary market
liquidity may have an adverse impact on market price and the Fund's ability
to dispose of particular issues when necessary to meet the Fund's liquidity
needs or in response to a specific economic event such as a deterioration in
the creditworthiness of the issuer. Reduced secondary market liquidity for
certain high yield/high risk securities also may make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing the
Fund's portfolio. Market quotations generally are available on many high
yield/high risk securities only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
The Fund's Directors, or the Manager will consider carefully the factors
affecting the market for high yield/high risk, lower rated securities in
determining whether any particular security is liquid or illiquid and whether
current market quotations are readily available.

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

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, which may involve risks that are not typically associated with
investments in securities of U.S. issuers.

Specific Risks. Investing on an international basis involves certain
risks not involved in domestic investments, including fluctuations in foreign
exchange rates, future political and economic developments, different legal
systems and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Securities prices in different countries
are subject to different economic, financial, political and social factors.
Since the Fund invests heavily in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the value of securities in the Fund and the unrealized
appreciation or depreciation of investments. Currencies of certain countries
may be volatile and, therefore, may affect the value of securities
denominated in such currencies. 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 foreign 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
foreign investments also may be subject to foreign withholding taxes. These
risks often are heightened for investments in smaller, emerging capital
markets.

As a result of these potential risks, the Manager 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 Manager, have
had no or limited prior experience.

Public Information. Many of the securities held by the Fund will not be
registered with the Commission, nor will the issuers thereof be subject to
the reporting requirements of such agency. Accordingly, there may be less
publicly available information about a foreign issuer than about a U.S.
issuer and such foreign 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 foreign capital markets. Foreign 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 domestic
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 foreign 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 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, could result in possible liability to the purchaser.

Government Supervision and Regulation. There generally is less
governmental supervision and regulation of exchanges, brokers and issuers in
foreign 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 foreign securities exchanges
generally are higher than in the United States.

Depositary Receipts. The Fund may purchase sponsored or unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs")
and Global Depositary Receipts ("GDRs") (collectively, "Depositary Receipts")
or other securities convertible into securities of foreign issuers.
Depositary Receipts may not necessarily be denominated in the same currency
as the underlying securities into which they may be converted. In addition,
the issuers of the securities underlying unsponsored Depositary Receipts are
not obligated to disclose material information in the United States, and,
therefore, there may be less information available regarding such issuers and
there may not be a correlation between such information and the market value
of the Depositary Receipts. Depositary Receipts also involve the risks of
other investments in foreign securities, as discussed above.

Restrictions on Foreign Investment. Some countries prohibit or impose
substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as the Fund. As
illustrations, certain countries require governmental approval prior to
investments by foreign persons, or limit the amount of investment by foreign
persons in a particular company, or limit the investment by foreign persons
in a company to only a specific class of securities that may have less
advantageous terms than securities of the company available for purchase by
nationals. Certain countries may restrict investment opportunities in
issuers or industries deemed important to national interests.

A number of countries have authorized the formation of closed-end
investment companies to facilitate indirect foreign investment in their
capital markets. In accordance with the Investment Company Act of 1940, as
amended (the "Investment Company Act"), the Fund may invest up to 10% of its
total assets in securities of closed-end investment companies, not more than
5% of which may be invested in any one such company. This restriction on
investments in securities of closed-end investment companies may limit
opportunities for the Fund to invest indirectly in certain smaller capital
markets. Shares of certain closed-end investment companies may at times be
acquired only at market prices representing premiums to their net asset
values. If the Fund acquires shares in closed-end investment companies,
shareholders would bear both their proportionate share of expenses in the
Fund (including investment advisory fees) and, indirectly, the expenses of
such closed-end investment companies. The Fund also may seek, at its own cost,
to create its own investment entities under the laws of certain countries.

In some countries, banks or other financial institutions may constitute
a substantial number of the leading companies or companies with the most
actively traded securities. The Investment Company Act limits the Fund's
ability to invest in any equity security of an issuer which, in its most
recent fiscal year, derived more than 15% of its revenues from "securities
related activities," as defined by the rules thereunder. These provisions
may also restrict the Fund's investments in certain foreign banks and other
financial institutions.

NON-DIVERSIFICATION

The Fund is classified as a non-diversified investment company under the
Investment Company Act, which means that the Fund is not limited by the
Investment Company Act in the proportion of its assets that may be invested
in the obligations of a single issuer. Thus, the Fund may invest a greater
proportion of its assets in the securities of a smaller number of issuers
and, as a result, will be subject to greater risk of loss with respect to its
portfolio securities. The Fund, however, intends to comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
See "Taxes" and "Investment Objective and Policies--Investment Restrictions."

BORROWING

The Fund may borrow up to 331/3% of its total assets, taken at market
value, but only from banks as a temporary measure for extraordinary or
emergency purposes, including to meet redemptions (so as not to force the
Fund to liquidate securities at a disadvantageous time) or to settle
securities transactions. The Fund will not purchase securities at any time
when borrowings exceed 5% of its total assets, except (a) to honor prior
commitments or (b) to exercise subscription rights when outstanding
borrowings have been obtained exclusively for settlements of other securities
transactions. The purchase of securities while borrowings are outstanding
will have the effect of leveraging the Fund. Such leveraging increases the
Fund's exposure to capital risk, and borrowed funds are subject to interest
costs that will reduce net income.

WITHHOLDING AND OTHER TAXES

Income and capital gains on securities held by the Fund may be subject
to withholding and other taxes imposed by certain jurisdictions, which would
reduce the return to the Fund on those securities. The Fund intends, unless
ineligible, to elect to "pass-through" to the Fund's shareholders the amount
of foreign taxes paid by the Fund. The taxes passed through to shareholders
will be included in each shareholder's income and could potentially be offset
by either a deduction or a credit. Certain shareholders, including non-U.S.
shareholders, will not be entitled to the benefit of a deduction or credit
with respect to foreign taxes paid by the Fund. Non-U.S. shareholders may
nevertheless be subject to withholding tax on the foreign taxes included in
their income. Other taxes, such as transfer taxes, may be imposed on the
Fund, but would not give rise to a credit or deduction for shareholders.

FEES AND EXPENSES

The investment advisory fee (at the annual rate of 0.60% of the Fund's
average daily net assets) and other operating expenses of the Fund may be
higher than the investment advisory fees and operating expenses of other
mutual funds managed by the Manager and other investment advisers or of
investment companies investing exclusively in the securities of U.S. issuers.
The investment advisory fees and operating expenses, however, are believed by
the Manager to be comparable to expenses of open-end management investment
companies that invest on a global basis with investment objectives similar to
the investment objective of the Fund.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to seek high total return from a
combination of capital appreciation and investment income. The Fund will
seek to achieve its objective by investing primarily in a portfolio of
convertible debt securities, convertible preferred stocks and synthetic
convertible securities. Under normal circumstances, the Fund will invest at
least 65% of its total assets in convertible securities and synthetic
convertible securities. The securities in which the Fund invests may be
issued by both United States and non-United States issuers. The investment
objective described in this paragraph is a fundamental policy of the Fund and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities.

The convertible securities to be held by the Fund include any corporate
debt security or preferred stock that may be converted into underlying shares
of common stock. The common stock underlying convertible securities may be
issued by a different entity than the issuer of the convertible securities.
Convertible securities entitle the holder to receive interest payments paid
on corporate debt securities or the dividend preference on a preferred stock
until such time as the convertible security matures or is redeemed or until
the holder elects to exercise the conversion privilege. Synthetic
convertible securities, as such term is used herein, may be either (i) a debt
security or preferred stock that may pay the holder a cash amount based on
the value of the shares of underlying common stock partly or wholly in lieu
of a conversion right (a "Cash-Settled Convertible") or (ii) a combination of
separate securities chosen by the Manager in order to create the economic
characteristics of a convertible security, i.e., a fixed income security or
preferred stock paired with a security with equity conversion features, such
as an option or warrant (a "Manufactured Convertible"). See "Convertible
Securities" below for additional information concerning convertible
securities and synthetic convertible securities eligible for purchase by the
Fund.

The Fund believes that the characteristics of convertible securities
make them appropriate investments for an investment company seeking a high
total return from capital appreciation and investment income. These
characteristics include the potential for capital appreciation as the value
of the underlying common stock increases, the relatively high yield received
from dividend or interest payments as compared to common stock dividends and
decreased risks of decline in value relative to the underlying common stock
due to their fixed-income nature. As a result of the conversion feature,
however, the interest rate or dividend preference on a convertible security
is generally less than would be the case if the securities were issued in
nonconvertible form.

Although the Fund may invest in securities denominated in any currency,
it is expected that a majority of its assets will be invested in securities
denominated in United States dollars, currencies of Pacific Basin countries
(such as Japan, Australia, Hong Kong and Singapore), and currencies of
Western European countries (such as the United Kingdom, Germany, the
Netherlands, Switzerland, Sweden, France, Italy, Belgium, Norway, Denmark,
Austria and Spain) and that are convertible into equity securities of United
States, Pacific Basin or Western European corporations.

Under normal circumstances, the Fund may invest up to 35% of its assets
in other types of securities, including equity securities and nonconvertible
debt securities of United States and non-United States issuers, options,
warrants and Long-term Equity Anticipation Securities ("LEAPS").

The Fund has established no rating criteria for the debt securities in
which it may invest and such securities may not be rated at all for
creditworthiness. Securities rated in the medium to lower rating categories
of nationally recognized statistical rating organizations and unrated
securities of comparable quality are predominantly speculative with respect
to the capacity to pay interest and repay principal in accordance with the
terms of the security and generally involve a greater volatility of price
than securities in higher rating categories. See Appendix B to this
Prospectus for additional information regarding ratings of debt securities.
In purchasing such securities, the Fund will rely on the Manager's judgment,
analysis and experience in evaluating the creditworthiness of an issuer of
such securities. The Manager will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the issuer's
management and regulatory matters. The Fund does not intend to purchase debt
securities that are in default or that the Manager believes will be in
default. See "Risk Factors and Special Considerations--No Rating Criteria
for Debt Securities."

The Fund reserves the right as a temporary defensive measure to hold
money market securities of United States and non-United States issuers, or
cash (foreign currencies or United States dollars), in such proportions as,
in the opinion of the Manager, prevailing market, economic or political
conditions warrant. The Fund has established no rating criteria for money
market securities that it may hold as a defensive measure. For this purpose,
investments made for defensive purposes will be maintained only during
periods in which the Manager determines that economic or financial conditions
are adverse for holding or being fully invested in convertible and synthetic
convertible securities of United States and non-United States issuers. A
portion of the portfolio normally will be held in U.S. dollars or
dollar-denominated money market securities to provide for possible
redemptions.

In evaluating proposed investments, the Manager will seek to maximize
the total return on the Fund's portfolio in terms of United States dollars.
In analyzing convertible securities, the Manager will consider both the yield
on the convertible security and the potential capital appreciation that is
offered by the underlying common stock. There can be no assurance that the
Fund will achieve its investment objective.

The table below shows the market value, by S&P rating category, of the debt
securities held by the Fund at January 31, 1997 (at which time the Fund was
operated as a closed-end investment company with different investment objectives
and policies from those described herein):

% Total
Rating Assets
AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.53
BBB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.76
BB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.24
B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.92
CCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
CC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
Not Rated* . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.05
Commercial Paper & U.S. Gov't . . . . . . . . . . . . . . . . . . . 12.81
---------
50.31%

_______________

* Debt securities that are not rated by S&P. Such bonds may be rated by
nationally recognized statistical rating organizations other than S&P,
or may not be rated by any of such organizations. With respect to the
percentage of the Fund's assets invested in such securities, the Fund's
Manager believes that .57% are of comparable quality to obligations rated
BBB, .58% are of comparable quality to obligations rated BB, 6.37% are of
comparable quality to obligations rated B, 1.55% are of comparable quality
to obligations rated CCC and .98% are of comparable quality to obligations
rated C. This determination is based on the Manager's own internal
evaluation and does not necessarily reflect how such securities would be
rated by S&P if it were to rate the securities.

For a description of the above referenced ratings, see Appendix B to
this Prospectus--"Ratings of Debt Securities and Preferred Stock." The Fund
has established no rating criteria for the securities in which it may invest
and such securities may not be rated at all for creditworthiness. The above
percentages are as of January 31, 1997; the rating composition of the
portfolio of the Fund may vary over time.

CONVERTIBLE SECURITIES

Set forth below is additional information concerning convertible
securities, including synthetic convertible securities.

Convertible securities are issued and traded in a number of securities
markets. For the past several years, the principal markets have been the
United States, the Euromarket and Japan. Issuers during this period have
included major corporations domiciled in the United States, Japan, France,
Switzerland, Canada and the United Kingdom. Since the Fund will invest a
substantial portion of its assets in the United States market and the
Euromarket, where convertible bonds have been primarily denominated in the
United States dollar, it is expected that ordinarily a substantial portion of
the convertible securities held by the Fund will be denominated in United
States dollars. However, the underlying equity securities typically will be
quoted in the currency of the country where the issuer is domiciled. With
respect to convertible securities denominated in a currency different from
that of the underlying equity securities, the conversion price may be based
on a fixed exchange rate established at the time the security is issued. As
a result, fluctuations in the exchange rate between the currency in which the
debt security is denominated and the currency in which the share price is
quoted will affect the value of the convertible security. As described below,
the Fund is authorized to enter into foreign currency hedging transactions in
which it may seek to reduce the effect of such fluctuations.

Apart from currency considerations, the value of convertible securities
is influenced by both the yield of nonconvertible securities of comparable
issuers and by the value of the underlying common stock. The value of a
convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield) is sometimes referred to as its
"investment value." To the extent interest rates change, the investment value
of the convertible security typically will fluctuate. However, at the same
time, the value of the convertible security will be influenced by its
"conversion value," which is the market value of the underlying common stock
that would be obtained if the convertible security were converted.
Conversion value fluctuates directly with the price of the underlying common
stock. If, because of a low price of the common stock the conversion value
is substantially below the investment value of the convertible security, the
price of the convertible security is governed principally by its investment
value.

To the extent the conversion value of a convertible security increases
to a point that approximates or exceeds its investment value, the price of
the convertible security will be influenced principally by its conversion
value. A convertible security will sell at a premium over the conversion
value to the extent investors place value on the right to acquire the
underlying common stock while holding a fixed-income security. The yield and
conversion premium of convertible securities issued in Japan and the
Euromarket are frequently determined at levels that cause the conversion
value to affect their market value more than the securities' investment
value.

Holders of convertible securities generally have a claim on the assets
of the issuer prior to the common stockholders but may be subordinated to
other debt securities of the same issuer. A convertible security may be
subject to redemption at the option of the issuer at a price established in
the charter provision, indenture or other governing instrument pursuant to
which the convertible security was issued. If a convertible security held by
the Fund is called for redemption, the Fund will be required to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Certain convertible debt securities may provide a put option to the
holder which entitles the holder to cause the security to be redeemed by the
issuer at a premium over the stated principal amount of the debt security
under certain circumstances.

As indicated above, synthetic convertible securities may include either
Cash-Settled Convertibles or Manufactured Convertibles. Manufactured
Convertibles are created by the Manager by combining separate securities that
possess one of the two principal characteristics of a convertible security,
i.e., fixed income ("fixed-income component") or a right to acquire equity
securities ("convertibility component"). The fixed-income component is
achieved by investing in nonconvertible fixed-income securities, such as
nonconvertible bonds, preferred stocks and money market instruments. The
convertibility component is achieved by investing in call options or warrants
granting the holder the right to purchase a specified quantity of the
underlying stocks within a specified period of time at a specified price or,
in the case of a stock index option, the right to receive a cash payment
based on the value of the underlying stock index.

A warrant is an instrument issued by a corporation that gives a holder
the right to subscribe to a specified amount of capital stock at a set price
for a specified period of time. Warrants involve the risk that the price of
the security underlying the warrant may not exceed the exercise price of the
warrant and the warrant may expire without any value. The Fund has not
established any limits on the purchase of warrants in connection with
Manufactured Convertibles. See "Other Investment Policies and Practices--
Portfolio Strategies Involving Options, Futures and Foreign Exchange
Transactions" for a discussion of call options and stock index call options.

A Manufactured Convertible differs from traditional convertible
securities in several respects. Unlike a traditional convertible security,
which is a single security having a unitary market value, a Manufactured
Convertible is comprised of two or more separate securities, each with its
own market value. Therefore, the "market value" of such a Manufactured
Convertible is the sum of the values of its fixed-income component and its
convertibility component.

More flexibility is possible in the creation of a Manufactured
Convertible than in the purchase of a traditional convertible security.
Because many corporations have not issued convertible securities, the Manager
may combine a debt instrument and a call option or warrant on the stock of
the issuer of the debt instrument to create a synthetic convertible security
otherwise unavailable in the market. The Manager may also combine a debt
instrument of an issuer with a call option or warrant on the stock of a
different issuer when the Manager believes such a Manufactured Convertible
would better promote the Fund's objective than alternative investments. For
example, the Manager may combine a call option or warrant on an issuer's
stock with a Treasury instrument to create a Manufactured Convertible with a
higher credit profile than a traditional convertible security issued by that
issuer. A Manufactured Convertible also is a more flexible investment in
that its two components may be purchased separately and, upon purchasing the
separate securities, "combined" to create a Manufactured Convertible. For
example, the Fund may purchase a warrant for eventual inclusion in a
Manufactured Convertible while postponing the purchase of a suitable bond
to pair with the warrant pending development of more favorable market
conditions.

The value of a Manufactured Convertible may respond differently to
certain market fluctuations than would a traditional convertible security
with similar characteristics. For example, in the event the Fund created a
Manufactured Convertible by combining a short-term U.S. Treasury instrument
and a call option on a stock, the Manufactured Convertible would likely
outperform a traditional convertible of similar maturity and which is
convertible into that stock during periods when Treasury instruments
outperform corporate fixed-income securities and underperform during periods
when corporate fixed-income securities outperform Treasury instruments.

DESCRIPTION OF CERTAIN INVESTMENTS

Depositary Receipts. The Fund may invest in the securities of foreign
issuers in the form of Depositary Receipts or other securities convertible
into securities of foreign issuers. Depositary Receipts may not necessarily
be denominated in the same currency as the underlying securities into which
they may be converted. ADRs are receipts typically issued by an American
bank or trust company that evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe that evidence a
similar ownership arrangement. GDRs are receipts issued throughout the world
that evidence a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form,
are designed for use in European securities markets. GDRs are tradeable
both in the U.S. and in Europe and are designed for use throughout the world.
The Fund may invest in unsponsored Depositary Receipts. The issuers of
unsponsored Depositary Receipts are not obligated to disclose
material information in the United States, and, therefore, there may be less
information available regarding such issuers and there may not be a
correlation between such information and the market value of the Depositary
Receipts.

Warrants. The Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other
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.

Illiquid Securities. The Fund may invest up to 15% of its net assets in
securities that lack an established secondary trading market or otherwise are
considered illiquid. The Fund may invest in securities of issuers that are
sold in private placement transactions between the issuers and their
purchasers and that are neither listed on an exchange nor traded in other
established markets. 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 in turn may
be less liquid or illiquid and more difficult to value than publicly traded
securities. To the extent that privately placed securities may be resold in
privately negotiated transactions, the prices realized from the sales, due to
illiquidity, could 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. Certain of the Fund's investments in private
placements may consist of direct investments and may include investments in
smaller, less-seasoned issuers, which may involve greater risks. These
issuers may have limited product lines, markets or financial resources, or
they may be dependent on a limited management group. In making investments
in such securities, the Fund may obtain access to material nonpublic
information which may restrict the Fund's ability to conduct portfolio
transactions in such securities.

The Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the Securities Act. The Board of Directors has determined to
treat as liquid Rule 144A securities that are either (i) freely tradeable in
their primary markets offshore or (ii) non-investment grade debt securities
which the Manager determines are as liquid as publicly-registered non-
investment grade debt securities. The Board of Directors has adopted
guidelines and delegated to the Manager the daily function of determining and
monitoring liquidity of restricted securities. The Board of Directors,
however, will retain sufficient oversight and be ultimately responsible for
the determinations. Since it is not possible to predict with assurance
exactly how this market for restricted securities sold and offered under Rule
144A will develop, the Board of Directors will carefully monitor the Fund's
investments in these securities. This investment practice could have the
effect of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these securities.

Indexed and Inverse Securities. The Fund may invest in securities the
potential return of which is based on the change in particular measurements
of value or rate (an "index"). As an illustration, the Fund may invest in a
debt security that pays interest and returns principal based on the change in
the value of a securities index or a basket of securities, or based on the
relative changes of two indices. In addition, the Fund may invest in
securities the potential return of which is based inversely on the change in
an index. For example, the Fund may invest in securities that pay a higher
rate of interest when a particular index decreases and pay a lower rate of
interest (or do not fully return principal) when the value of the index
increases. If the Fund invests in such securities, it may be subject to
reduced or eliminated interest payments or loss of principal in the event of
an adverse movement in the relevant index or indices.

Certain indexed and inverse securities may have the effect of providing
investment leverage because the rate of interest or amount of principal
payable increases or decreases at a rate that is a multiple of the changes in
the relevant index. As a consequence, the market value of such securities
may be substantially more volatile than the market values of other debt
securities. The Fund believes that indexed and inverse securities may
provide portfolio management flexibility that permits the Fund to seek
enhanced returns, hedge other portfolio positions or vary the degree of
portfolio leverage with greater efficiency than would otherwise be possible
under certain market conditions.

OTHER INVESTMENT POLICIES AND PRACTICES

Portfolio Strategies Involving Options, Futures and Foreign Exchange
Transactions. The Fund is authorized to engage in certain investment
practices involving the use of options, futures and foreign exchange, which
may expose the Fund to certain risks. These investment practices and the
associated risks are described in detail in Appendix A attached to this
Prospectus.

Portfolio Transactions. Subject to policies established by the Board of
Directors of the Fund, the Manager is primarily responsible for the execution
of the Fund's portfolio transactions. Since portfolio transactions may be
effected on foreign securities exchanges, the Fund may incur settlement
delays on certain of such exchanges. See "Risk Factors and Special
Considerations." In executing portfolio transactions, the Manager seeks to
obtain the best net results for the Fund, taking into account such factors as
price (including the applicable brokerage commissions or dealer spread), size
of order, difficulty of execution, operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Manager generally seeks reasonably competitive fees, commissions or spreads,
the Fund does not necessarily pay the lowest fee, commission or spread
available. The Fund may invest in certain securities traded in the over-the-
counter ("OTC") market and, where possible, will deal directly with the
dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere.
Such dealers usually are acting as principal for their own account. On
occasion, securities may be purchased directly from the issuer. Such
portfolio securities are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. The Fund
contemplates that, consistent with its policy of obtaining the best net
results, it will place orders for transactions with a number of brokers and
dealers, including Merrill Lynch, an affiliate of the Manager. Subject to
obtaining the best price and execution, securities firms that provide
supplemental investment research to the Manager, including Merrill Lynch, may
receive orders for transactions by the Fund. Information so received will be
in addition to, and not in lieu of, the services required to be performed by
the Manager and the expenses of the Manager will not necessarily be reduced
as a result of the receipt of such supplemental information. See "Management
of the Fund--Management and Advisory Arrangements."

Under the Investment Company Act, persons affiliated with the Fund and
persons who are affiliated with such affiliated persons, including Merrill
Lynch, are prohibited from dealing with the Fund as a principal in the
purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the Commission. Affiliated persons of the
Fund, and affiliated persons of such affiliated persons, may serve as the
Fund's broker in transactions conducted on an exchange and in OTC
transactions conducted on an agency basis and may receive brokerage
commissions from the Fund. In addition, the Fund may not purchase securities
during the existence of any underwriting syndicate for such securities of
which Merrill Lynch is a member except pursuant to procedures approved by the
Board of Directors of the Fund that comply with rules adopted by the
Commission. To the extent Merrill Lynch is active in distributions of
securities of issuers in certain foreign countries, the Fund may be
disadvantaged in that it may not purchase securities in such distributions or
may be limited in the amount it may purchase. In addition, consistent with
the Conduct Rules of the NASD, the Manager may consider sales of shares of
the Fund as a factor in the selection of brokers or dealers to execute
portfolio transactions for the Fund. It is expected that the majority of the
shares of the Fund will be sold by Merrill Lynch. Costs associated with
transactions in foreign securities are generally higher than in the U.S.,
although the Fund will endeavor to achieve the best net results in effecting
its portfolio transactions.

The Fund anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the United States
will be conducted primarily on the principal stock exchanges of such
countries. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States, although
the Fund will endeavor to achieve the best net results in effecting such
transactions. There generally is less governmental supervision and
regulation of foreign stock exchanges and brokers than in the United States.
See "Risk Factors and Special Considerations."

The Fund's ability and decisions to purchase and sell portfolio
securities may be affected by foreign laws and regulations relating to the
convertibility and repatriation of assets.

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 Manager in light of a
change in circumstances in general market, economic or financial conditions.
As a result of its investment policies, the Fund may engage in a substantial
number of portfolio transactions. Accordingly, while the Fund anticipates
that its annual portfolio turnover rate should not exceed 100% under normal
conditions, it is impossible to predict portfolio turnover rates. The
portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of all securities whose maturities at the time of acquisition were one
year or less) by the monthly average value of the securities in the portfolio
during the year. A high portfolio turnover rate involves certain tax
consequences and correspondingly greater transaction costs in the form of
dealer spreads and brokerage commissions, which are borne directly by the
Fund.

Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Under a repurchase agreement, the seller agrees, upon
entering into the contract with the Fund, to repurchase a security (typically
a security issued or guaranteed by the U.S. Government) at a mutually
agreed-upon time and price, thereby determining the yield during the term of
the agreement. This results in a fixed yield for the Fund insulated from
fluctuations in the market value of the underlying security during such
period although, to the extent the repurchase agreement is not denominated in
U.S. dollars, the Fund's return may be affected by currency fluctuations.
Repurchase agreements may be entered into only with financial institutions
that (i) have, in the opinion of the Manager, substantial capital relative to
the Fund's exposure, or (ii) have provided the Fund with a third-party
guaranty or other credit enhancement. The Fund takes possession of the
underlying securities when investing in repurchase agreements. Nevertheless,
if the seller were to default on its obligation to repurchase a security
under a repurchase agreement and the market value of the underlying security
at such time was less than the Fund had paid to the seller, the Fund would
realize a loss. The Fund may not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven days, together with all
other illiquid securities.

When-Issued Securities and Forward Commitment Transactions. The Fund
may purchase or sell securities that it is entitled to receive on a
when-issued basis, and it may purchase or sell securities for delayed
delivery. These transactions occur when securities are purchased or sold by
the Fund with payment and delivery taking place in the future to secure what
is considered an advantageous yield and price to the Fund at the time of
entering into the transaction. Although the Fund has not established any
limit on the percentage of its assets that may be committed in connection
with such transactions, the Fund will maintain a segregated account with its
custodian of cash, cash equivalents, U.S. Government securities or other
liquid securities denominated in U.S. dollars or non-U.S. currencies in an
aggregate amount equal to the amount of its commitments in connection with
such purchase transactions.

There can be no assurance that a security purchased on a when-issued
basis or purchased or sold for delayed delivery will be issued, and the value
of the security, if issued, on the delivery date may be more or less than its
purchase price. The Fund may bear the risk of a decline in the value of such
security and may not benefit from an appreciation in the value of the
security during the commitment period.

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 equity securities that
may be issued and sold to the Fund at the option of the issuer. The price 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 is ultimately issued, which is typically approximately
0.50% of the aggregate purchase price of the security that the Fund has
committed to purchase. The Fund will enter into such agreements only for the
purpose of investing in the security underlying the commitment at a price
that is considered advantageous to the Fund. The Fund will not enter into a
standby commitment with a remaining term in excess of 45 days and presently
will limit its investment in such commitments so that the aggregate purchase
price of the securities subject to such commitments, together with the
value of portfolio securities subject to legal restrictions on resale that
affect their marketability, will not exceed 15% of its net assets taken at
the time of acquisition of such a commitment. The Fund at all times will
maintain a segregated account with its custodian of cash, cash equivalents,
U.S. Government securities or other liquid securities denominated in U.S.
dollars or non-U.S. currencies in an aggregate amount equal to the purchase
price of the securities underlying a 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 a 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
can reasonably 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.

Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 331/3% of its total
assets to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the United States
Government. Such collateral will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
During the period of such a loan, the Fund receives the income on the loaned
securities and either receives the income on the collateral or other
compensation, i.e., negotiated loan premium or fee, for entering into the
loan and thereby increases its yield. In the event that the borrower
defaults on its obligation to return borrowed securities, because of
insolvency or otherwise, the Fund could experience delays and costs in
gaining access to the collateral and could suffer a loss to the extent that
the value of the collateral falls below the market value of the borrowed
securities.

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 liquid securities similar to those borrowed. With
respect to uncovered short positions, 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 will not make a short sale if, after giving effect to such
sale, the market value of all securities sold short exceeds 25% of the value
of its total assets or the Fund's aggregate short sales of a particular class
of securities exceeds 25% of the outstanding securities of that class. The
Fund may also make short sales "against the box" without respect to such
limitations. 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.

INVESTMENT RESTRICTIONS

The Fund's investment activities are subject to further restrictions
that are described in the Statement of Additional Information. Investment
restrictions and policies that are fundamental policies may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company
Act means the lesser of (a) 67% of the shares represented at a meeting at
which more than 50% of the outstanding shares are represented or (b) more
than 50% of the outstanding shares). Among its fundamental policies, the
Fund may not invest more than 25% of its total assets, taken at market value
at the time of each investment, in the securities of issuers in any
particular industry (excluding the U.S. Government and its agencies and
instrumentalities). Investment restrictions and policies that are
non-fundamental policies may be changed by the Board of Directors without
shareholder approval. As a non-fundamental policy, the Fund may not borrow
money or pledge its assets, except that the Fund (a) may borrow from a bank
as a temporary measure for extraordinary or emergency purposes or to meet
redemptions in amounts not exceeding 331/3% (taken at market value) of its
total assets and pledge its assets to secure such borrowings, (b) may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (c) may purchase securities on margin to
the extent permitted by applicable law. (However, at the present time,
applicable law prohibits the Fund from purchasing securities on margin.) (The
deposit or payment by the Fund of initial or variation margin in connection
with financial futures contracts or options transactions is not considered to
be the purchase of a security on margin.) The purchase of securities while
borrowings are outstanding will have the effect of leveraging the Fund. Such
leveraging or borrowing increases the Fund's exposure to capital risk, and
borrowed funds are subject to interest costs which will reduce net income.

As a non-fundamental policy, the Fund will not invest in securities that
cannot readily be resold because of legal or contractual restrictions or that
are not otherwise readily marketable, including repurchase agreements and
purchase and sale contracts maturing in more than seven days, if, regarding
all such securities, more than 15% of its net assets taken at market value
would be invested in such securities. Notwithstanding the foregoing, the
Fund may purchase without regard to this limitation securities that are not
registered under the Securities Act, but that can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act,
provided that the Fund's Board of Directors continuously determines, based on
the trading markets for the specific Rule 144A security, that it is liquid.
The Board of Directors may adopt guidelines and delegate to the Manager the
daily function of determining and monitoring liquidity of restricted
securities. The Board has determined that securities which are freely
tradeable in their primary market outside of the United States should be
deemed liquid. The Board, however, will retain sufficient oversight and be
ultimately responsible for the determinations.

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 invest
in securities of a single issuer. The Fund's investments will be limited,
however, in order to qualify for the special treatment afforded "regulated
investment companies" under the Code. See "Taxes." To qualify, the Fund
will comply with certain requirements, including limiting its investments so
that at the close of each quarter of the taxable year (i) not more than 25%
of the market value of the Fund's total assets will be invested in the
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 of a single issuer, and the Fund
will not own more than 10% of the outstanding voting securities of a single
issuer. A fund that elects to be classified as "diversified" under the
Investment Company Act must satisfy the foregoing 5% and 10% requirements
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
net asset value may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers, and the Fund may be more susceptible to any single
economic, political or regulatory occurrence than a diversified company.

For purposes of the diversification requirements set forth above with
respect to regulated investment companies, and to the extent required by the
Commission, the Fund, as non-fundamental policy, will consider securities
issued or guaranteed by the government of any one foreign country as the
obligations of a single issuer.

MANAGEMENT OF THE FUND

DIRECTORS

The Directors of the Fund consist of six individuals, five of whom are
not "interested persons" of the Fund as defined in the Investment Company
Act. The Directors are responsible for the overall supervision of the
operations of the Fund and perform the various duties imposed on the
directors or trustees of investment companies by the Investment Company Act.

The Directors are:

ARTHUR ZEIKEL/*/ -- President of the Manager and its affiliate, FAM;
President and Director of Princeton Services, Inc. ("Princeton Services");
Executive Vice President of ML & Co.; and Director of the Distributor.

JAMES H. BODURTHA -- Director and Executive Vice President, The China
Business Group, Inc.

HERBERT I. LONDON -- John M. Olin Professor of Humanities, New York
University.
ROBERT R. MARTIN -- Former Chairman, Kinnard Investments, Inc.

JOSEPH L. MAY -- Attorney in private practice.

ANDR F. PEROLD -- Professor, Harvard Business School.
_______________

* Interested person, as defined be the Investment Company Act, of the
Fund.

MANAGEMENT AND ADVISORY ARRANGEMENTS

The Manager acts as the manager for the Fund and provides the Fund with
investment management services. The Manager is owned and controlled by ML &
Co., a financial services holding company and the parent of Merrill Lynch.
The Manager or FAM acts as the investment adviser for more than 130
registered investment companies. The Manager also offers portfolio
management and portfolio analysis services to individuals and institutions.
As of ____________, 1997, the Manager and FAM had a total of approximately
$_______ billion in investment company and other portfolio assets under
management, including accounts of certain affiliates of the Manager. The
principal business address of the Manager is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.

The Fund has entered into an investment advisory agreement with the
Manager (the "Management Agreement"). The Manager also served as the Fund's
Manager prior to the conversion of the Fund from a closed-end investment
company to an open-end investment company. The Management Agreement, which
includes certain provisions to accommodate the conversion of the Fund from a
closed-end investment company to an open-end investment company, was approved
by the Fund's Board of Directors on September 27, 1996 and by shareholders
on February 13, 1997. Unless earlier terminated as described below, the
Management Agreement will remain in effect until ________, 1999 and thereafter,
if approved at least annually (a) by the Directors 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. The Management Agreement provides that, subject to the direction of
the Board of Directors of the Fund, the Manager 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 Manager,
subject to review by the Board of Directors.

The Manager provides the portfolio manager for the Fund who considers
analyses from various sources (including brokerage firms with which the Fund
does business), makes the necessary decisions, and places orders for
transactions accordingly. The Manager is also obligated to perform certain
administrative and management services for the Fund and is obligated to
provide all of the office space, facilities, equipment and personnel
necessary to perform its duties under the Management Agreement.

The Fund pays the Manager a monthly fee at the annual rate of 0.60% of
the average daily net assets of the Fund. For the fiscal year ended December
31, 1996 (during which period the Fund operated as a closed-end investment
company), the investment advisory fee paid by the Fund to the Manager
aggregated $1,695,738 (based upon average net assets of approximately $280.7
million).

Daniel A. Luchansky is the Portfolio Manager of the Fund. Mr. Luchansky
has been a Vice President of the Manager since 1991. Mr. Luchansky is
responsible for the day-to-day management of the Fund's investment portfolio.

The Manager has also entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an indirect, wholly owned subsidiary of ML & Co. and an
affiliate of the Manager, pursuant to which the Manager pays MLAM U.K. a fee
for providing investment advisory services to the Manager with respect to the
Fund in an amount to be determined from time to time by the Manager and MLAM
U.K. but in no event in excess of the amount the Manager actually receives
for providing services to the Fund pursuant to the Management Agreement. The
Sub-Advisory Agreement was approved by the Fund's Board of Directors on
September 27, 1996 and by shareholders on January 16, 1997. Unless earlier
terminated as described below, the Sub-Advisory Agreement will remain in
effect until __________, 1999 and thereafter, if approved at least
annually (a) by the Directors 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. MLAM U.K. has
offices at Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.

The Management Agreement obligates the Fund to pay certain expenses
incurred in its operations including, among other things, the investment
advisory fees, legal and audit fees, registration fees, unaffiliated
Directors' fees and expenses, custodian and transfer fees, accounting and
pricing costs and certain of the costs of printing proxies, shareholder
reports, prospectuses and statements of additional information distributed to
shareholders. Accounting services are provided to the Fund by the Manager
and the Fund reimburses the Manager for its costs in connection with such
services. For the fiscal year ended December 31, 1996, the Fund reimbursed
the Manager $99,274 for accounting services. For the fiscal year ended
December 31, 1996, the ratio of total expenses to average net assets,
excluding taxes on undistributed net realized long-term capital gains, was
0.78%. During such period, however, the Fund was operated as a closed-end
investment company and, consequently, such ratio may not necessarily be
indicative of the amounts of future expenses of the Fund.

CODE OF ETHICS

The Board of Directors of the Fund has adopted a Code of Ethics under
Rule 17j-l of the Investment Company Act which incorporates the Code of
Ethics of the Manager (together, the "Codes"). The Codes significantly
restrict the personal investing activities of all employees of the Manager
and, as described below, impose additional, more onerous, restrictions on
fund investment personnel.

The Codes require that all employees of the Manager preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. The substantive restrictions applicable to all
employees of the Manager include a ban on acquiring any securities in a "hot"
initial public offering and a prohibition from profiting on short-term trading
in securities. In addition, no employee may purchase or sell any security
which at the time is being purchased or sold (as the case may be), or to
the knowledge of the employee is being considered for purchase or sale,
by any fund advised by the Manager. Furthermore, the Codes provide for
trading "blackout periods" which prohibit trading by investment personnel of
the Fund within periods of trading by the Fund in the same (or equivalent)
security (15 or 30 days depending upon the transaction).

TRANSFER AGENCY SERVICES

Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"),
which is a subsidiary of ML & Co., acts as the Fund's transfer agent pursuant
to a transfer agency, dividend disbursing agency and shareholder servicing
agency agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer
Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of
shareholder accounts. Pursuant to the Transfer Agency Agreement, the Fund
pays the Transfer Agent a fee of up to $11.00 per Class A or Class D account
and up to $14.00 per Class B or Class C account and is entitled to
reimbursement from the Fund for certain transaction charges and out-of-pocket
expenses incurred by it under the Transfer Agency Agreement. The term
"account" includes a shareholder account maintained directly by the Transfer
Agent and any other account representing the beneficial interest of a person
in the relevant share class on a recordkeeping system, provided the
recordkeeping system is maintained by a subsidiary of ML & Co.

PURCHASE OF SHARES

The Distributor, an affiliate of the Manager, FAM and Merrill Lynch,
acts as the distributor of the shares of the Fund. Shares of the Fund are
offered continuously for sale by the Distributor and other eligible
securities dealers (including Merrill Lynch). Shares of the Fund may be
purchased from securities dealers or by mailing a purchase order directly to
the Transfer Agent. The minimum initial purchase is $500 and the minimum
subsequent purchase is $50, except for retirement plans, for which the
minimum initial purchase is $100 and the minimum subsequent purchase is $1.
Different minimums may apply to purchases made through the Merrill Lynch
Blueprint(Service Mark) Program. See "Purchase of Shares--Merrill Lynch
Blueprint(Service Mark) Program" in the Statement of Additional Information.

The Fund offers its shares in four classes, at a public offering price
equal to the next determined net asset value per share plus sales charges
that are imposed either at the time of purchase or on a deferred basis,
depending upon the class of shares selected by the investor under the Merrill
Lynch Select Pricing(Service Mark) System, as described below. The
applicable offering price for purchase orders is based upon the net asset
value of the Fund next determined after receipt of the purchase order by the
Distributor. As to purchase orders received by securities dealers prior to
the close of business on the New York Stock Exchange ("NYSE") (generally,
4:00 p.m., New York time), which includes orders received after the close of
business on the previous day, the applicable offering price will be based on
the net asset value determined as of 15 minutes after the close of business
on the NYSE on that day, provided the Distributor in turn receives the order
from the securities dealer prior to 30 minutes after the close of business on
the NYSE on that day. If the purchase orders are not received by the
Distributor prior to 30 minutes after the close of business on the NYSE, such
orders shall be deemed received on the next business day. The Fund or the
Distributor may suspend the continuous offering of the Fund's shares of any
Class at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time. Any
order may be rejected by the Distributor or the Fund. Neither the
Distributor nor the dealers are permitted to withhold placing orders to
benefit themselves by a price change. Merrill Lynch may charge its customers
a processing fee (presently $5.35) to confirm a sale of shares to such
customers. Purchases made directly through the Fund's Transfer Agent are not
subject to the processing fee.

The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(Service Mark) System, which permits each investor to choose the
method of purchasing shares that the investor believes is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other relevant circumstances. Shares of Class A and
Class D are sold to investors choosing the initial sales charge alternatives
and shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. Investors should determine whether under their
particular circumstances it is more advantageous to incur an initial sales
charge or to have the entire initial purchase price invested in the Fund with
the investment thereafter being subject to a CDSC and ongoing distribution
fees. A discussion of the factors that investors should consider in
determining the method of purchasing shares under the Merrill Lynch Select
Pricing(Service Mark) System is set forth under "Merrill Lynch Select
Pricing(Service Mark) System" on page 3.

Each Class A, Class B, Class C and Class D share of the Fund represents
an identical interest in the investment portfolio of the Fund and has the
same rights, except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees, and Class B and Class C
shares bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The CDSCs, distribution fees and account maintenance fees that
are imposed on Class B and Class C shares, as well as the account maintenance
fees that are imposed on Class D shares, will be imposed directly against
those classes and not against all assets of the Fund and, accordingly, such
charges will not affect the net asset value of any other class or have any
impact on investors choosing another sales charge option. Dividends paid by
the Fund for each class of shares will be calculated in the same manner at
the same time and will differ only to the extent that account maintenance and
distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule
12b-1 distribution plan adopted with respect to such class pursuant to which
account maintenance and/or distribution fees are paid (except that Class B
shareholders may vote upon any material changes to expenses charged under the
Class D Distribution Plan). See "Distribution Plans" below. Each class has
different exchange privileges. See "Shareholder Services--Exchange
Privilege."

Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as
those of the deferred sales charges and distribution fees with respect to
Class B and Class C shares in that the sales charges and distribution fees,
if any, applicable to each class provide for the financing of the
distribution of the shares of the Fund. The distribution-related revenues
paid with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised
that only Class A and Class D shares may be available for purchase through
securities dealers, other than Merrill Lynch, which are eligible to sell
shares.

The following table sets forth a summary of the distribution
arrangements for each class of shares under the Merrill Lynch Select
Pricing(Service Mark) System.

</TABLE>
_______________

(1) Initial sales charges are imposed at the time of purchase as a
percentage of the offering price. CDSCs are imposed if the redemption
occurs within the applicable CDSC time period. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption
or the cost of the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of
Class A shares by certain retirement plans and participants in
connection with certain fee-based programs. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but, if the initial sales charge is waived, may be subject to a
1.0% CDSC for one year. Such CDSC may be waived in connection with
certain fee-based programs. A 0.75% sales charge for 401(k) purchases
over $1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the
conversion and holding periods for certain retirement plans are
modified. Also, Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made have a ten-year conversion
period. If Class B shares of the Fund are exchanged for Class B shares
of another MLAM-advised mutual fund, the conversion period applicable to
the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period
for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.

INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES

Investors choosing the initial sales charge alternatives who are
eligible to purchase Class A shares should purchase Class A shares rather
than Class D shares because there is an account maintenance fee imposed on
Class D shares.

The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternative is the next determined net
asset value plus varying sales charges (i.e., sales loads), as set forth
below:

<TABLE>
<CAPTION>
Discount to
Sales Charge as Selected Dealers
Sales Charge as Percentage* of as Percentage of
Percentage of the Net Amount the Offering
Amount of Purchase Offering Price Invested Price

<S> <C> <C> <C>
Less than $25,000 . . . . . . . . . . . . . . . . . . . . . 5.25% 5.54% 5.00%
$25,000 but less than $50,000 . . . . . . . . . . . . . . . 4.75 4.99 4.50
$50,000 but less than $100,000 . . . . . . . . . . . . . . 4.00 4.16 3.75
$100,000 but less than $250,000 . . . . . . . . . . . . . . 3.00 3.09 2.75
$250,000 but less than $1,000,000 . . . . . . . . . . . . . 2.00 2.04 1.80
$1,000,000 and over** . . . . . . . . . . . . . . . . . . . 0.00 0.00 0.00

</TABLE>

_________________

* Rounded to the nearest one-hundredth percent.
** The initial sales charge may bc waived on Class A and Class D purchases
of $1,000,000 or more and on Class A share purchases in connection with
certain fee-based programs. If the sales charge is waived in connection
with a purchase of $1,000,000 or more, such purchases may be subject to
a CDSC of 1.0% if the shares are redeemed within one year after
purchase. Such CDSC may be waived in connection with certain fee-based
programs. The charge will be assessed on an amount equal to the lesser
of the proceeds of redemption or the cost of the shares being redeemed.
A sales charge of 0.75% will be charged on purchases of $1 million or
more of Class A or Class D shares by certain employer-sponsored
retirement or savings plans.

The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and
Class D shares of the Fund will receive a concession equal to most of the
sales charge, they may be deemed to be underwriters under the Securities Act.
The proceeds from the account maintenance fees are used to compensate Merrill
Lynch for providing continuing account maintenance activities.

Eligible Class A Investors. Class A shares are offered to a limited
group of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of
the Fund in a shareholder account, including participants in the Merrill
Lynch Blueprint(Service Mark) program, are entitled to purchase additional
Class A shares of the Fund in that account. Certain employer-sponsored
retirement or savings plans, including eligible 401(k) plans, may purchase
Class A shares at net asset value provided such plans meet the required
minimum number of eligible employees or required amount of assets advised by
MLAM or any of its affiliates. Class A shares are available at net asset
value to corporate warranty insurance reserve fund programs provided that the
program has $3 million or more initially invested in MLAM-advised mutual
funds. Also eligible to purchase Class A shares at net asset value are
participants in certain investment programs including TMA(Service Mark)
Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services, collective investment trusts for which Merrill Lynch Trust
Company serves as trustee and purchases made in connection with certain
fee-based programs. In addition, Class A shares are offered at net asset
value to ML & Co. and its subsidiaries and their directors and employees and
to members of the Boards of MLAM-advised investment companies, including the
Fund. Certain persons who acquired shares of certain MLAM-advised closed-end
funds in their initial offerings who wish to reinvest the net proceeds from a
sale of their closed-end fund shares of common stock in shares of the Fund
also may purchase Class A shares of the Fund if certain conditions set forth
in the Statement of Additional Information are met (for closed-end funds that
commenced operations prior to October 21, 1994). In addition, Class A shares
of the Fund and certain other MLAM-advised mutual funds are offered at net
asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
and, if certain conditions set forth in the Statement of Additional
Information are met, to shareholders of Merrill Lynch Municipal Strategy
Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who wish
to reinvest the net proceeds from a sale of certain of their shares of common
stock pursuant to a tender offer conducted by such funds in shares of the
Fund and certain other MLAM-advised mutual funds.

Reduced Initial Sales Charges. No sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment
of dividends or capital gains distributions. Class A and Class D sales
charges also may be reduced under a Right of Accumulation and a Letter of
Intention. Class A shares are offered at net asset value to certain eligible
Class A investors as set forth above under "Eligible Class A Investors." See
"Shareholder Services--Fee-Based Programs."

Provided applicable threshold requirements are met, either Class A or
Class D shares are offered at net asset value to Employee Access(Service
Mark) Accounts available through authorized employers. Class A shares are
offered at net asset value to shareholders of Merrill Lynch Senior Floating
Rate Fund, Inc., and subject to certain conditions, Class A and Class D
shares are offered at net asset value to shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond
Fund, Inc., who wish to reinvest in shares of the Fund the net proceeds from
a sale of certain of their shares of common stock pursuant to tender offers
conducted by those funds.

Class D shares are offered at net asset value, without a sales charge,
to an investor who has a business relationship with a Merrill Lynch Financial
Consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of asses of other investment companies.

Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(Service Mark) Program.

Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.

DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES

Investors choosing the deferred sales charge alternatives should
consider Class B shares if they intend to hold their shares for an extended
period of time and Class C shares if they are uncertain as to the length of
time they intend to hold their assets in MLAM-advised mutual funds.

The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year
CDSC, which declines each year, while Class C shares are subject only to a
one year 1.0% CDSC. On the other hand, approximately eight years after
Class B shares are issued, such Class B shares, together with shares issued
upon dividend reinvestment with respect to those shares, are automatically
converted into Class D shares of the Fund and thereafter will be subject to
lower continuing fees. See "Conversion of Class B Shares to Class D Shares"
below. Both Class B and Class C shares are subject to an account maintenance
fee of 0.25% of net assets and distribution fees of 0.75% of net assets as
discussed below under "Distribution Plans." The proceeds from the account
maintenance fees are used to compensate Merrill Lynch for providing
continuing account maintenance activities.

Class B and Class C shares are sold without an initial sales charge so
that the Fund will receive the full amount of the investor's purchase
payment. Merrill Lynch compensates its financial consultants for selling
Class B and Class C shares at the time of purchase from its own funds. See
"Distribution Plans" below.

Proceeds from the CDSC and the distribution fee are paid to the
Distributor and are used in whole or in part by the Distributor to defray the
expenses of dealers (including Merrill Lynch) related to providing
distribution related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to financial
consultants for selling Class B and Class C shares from the dealers' own
funds. The combination of the CDSC and the ongoing distribution fee
facilitates the ability of the Fund to sell the Class B and Class C shares
without a sales charge being deducted at the time of purchase. Approximately
eight years after issuance, Class B shares will convert automatically into
Class D shares of the Fund, which are subject to an account maintenance fee
but no distribution fee; Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made convert into Class D shares
automatically after approximately ten years. If Class B shares of the Fund
are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked
onto the holding period for the shares acquired.

Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See
"Limitations on the Payment of Deferred Sales Charges" below. The proceeds
from the ongoing account maintenance fee are used to compensate Merrill Lynch
for providing continuing account maintenance activities. Class B
shareholders of the Fund exercising the exchange privilege described under
"Shareholder Services--Exchange Privilege" will continue to be subject to the
Fund's CDSC schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares acquired as a result of the exchange.

Contingent Deferred Sales Charges--Class B Shares. Class B shares that
are redeemed within four years of purchase may be subject to a CDSC at the
rates set forth below charged as a percentage of the dollar amount subject
thereto. The charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed.
Accordingly, no CDSC will be imposed on increases in net asset value above
the initial purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains distributions.

The following table sets forth the rates of the Class B CDSC:

<TABLE>
<CAPTION>
<S> <C>
Class B
CDSC as a
Year Since Percentage of
Purchase Dollar Amount
Payment Made Subject to Charge
0-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0%
1-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0%
2-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0%
3-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0%
4 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None

</TABLE>

In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
applicable rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over four years or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares
held longest during the four-year period. The charge will not be applied to
dollar amounts representing an increase in the net asset value since the time
of purchase. A transfer of shares from a shareholder's account to another
account will be assumed to be made in the same order as a redemption.

To provide an example, assume an investor purchased 100 Class B shares
at $10 per share (at a cost of $1,000) and in the third year after purchase,
the net asset value per share is $12 and, during such time, the investor has
acquired 10 additional shares through dividend reinvestment. If at such time
the investor makes his or her first redemption of 50 shares (proceeds of
$600), 10 shares will not be subject to the CDSC because of dividend
reinvestment. With respect to the remaining 40 shares, the CDSC is applied
only to the original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds
will be charged at a rate of 2.0% (the applicable rate in the third year
after purchase).

The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following death or disability (as defined
in the Code) of a shareholder. The Class B CDSC also is waived on
redemptions of shares by certain eligible 401(a) and eligible 401(k) plans
and in connection with certain group plans placing orders through the
Merrill Lynch Blueprint(Service Mark) Program. The CDSC is also waived for
any Class B shares that are purchased by eligible 401(a) or eligible 401(k)
plans that are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied IRA and held in such account at the time of redemption.
Effective on or about May 12, 1997, the Class B CDSC also will be waived for
any Class B shares purchased within eligible Employee Access(Service Mark)
Accounts. The Class B CDSC also is waived for any Class B shares which are
purchased by a Merrill Lynch rollover IRA that was funded by a rollover from
a terminated 401(k) plan managed by the MLAM Private Portfolio Group and held
in such account at the time of redemption. Additional information concerning
the waiver of the Class B CDSC is set forth in the Statement of Additional
Information. The terms of the CDSC may be modified in connection with
certain fee-based programs. See "Shareholder Services--Fee-Based Programs."

Contingent Deferred Sales Charges--Class C Shares. Class C shares that
are redeemed within one year after purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject thereto. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no Class C
CDSC will be imposed on increases in net asset value above the initial
purchase price. In addition, no Class C CDSC will be assessed on shares
derived from reinvestment of dividends or capital gains distributions. The
Class C CDSC may be waived in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs."

In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over one year or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares
held longest during the one-year period. The charge will not be applied to
dollar amounts representing an increase in the net asset value since the time
of purchase. A transfer of shares from a shareholder's account to another
account will be assumed to be made in the same order as a redemption.

Conversion of Class B Shares to Class D Shares. After approximately
eight years (the "Conversion Period"), Class B shares will be converted
automatically into Class D shares of the Fund. Class D shares are subject to
an ongoing account maintenance fee of 0.25% of net assets but are not subject
to the distribution fee that is borne by Class B shares. Automatic
conversion of Class B shares into Class D shares will occur at least once
each month (on the "Conversion Date") on the basis of the relative net asset
values of the shares of the two classes on the Conversion Date, without the
imposition of any sales load, fee or other charge. Conversion of Class B
shares to Class D shares will not be deemed a purchase or sale of the shares
for Federal income tax purposes.

In addition, shares purchased through reinvestment of dividends on
Class B shares also will convert automatically to Class D shares. The
Conversion Date for dividend reinvestment shares will be calculated taking
into account the length of time the shares underlying such dividend
reinvestment shares were outstanding. If at a Conversion Date the conversion
of Class B shares to Class D shares of the Fund in a single account will
result in less than $50 worth of Class B shares being left in the account,
all of the Class B shares of the Fund held in the account on the Conversion
Date will be converted to Class D shares of the Fund.

Share certificates for Class B shares of the Fund to be converted must
be delivered to the Transfer Agent at least one week prior to the Conversion
Date applicable to those shares. In the event such certificates are not
received by the Transfer Agent at least one week prior to the Conversion
Date, the related Class B shares will convert to Class D shares on the next
scheduled Conversion Date after such certificates are delivered.

In general, Class B shares of equity MLAM-advised mutual funds will
convert approximately eight years after initial purchase, and Class B shares
of taxable and tax-exempt fixed income MLAM-advised mutual funds will convert
approximately ten years after initial purchase. If, during the Conversion
Period, a shareholder exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion Period, or vice versa,
the Conversion Period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged will be
tacked onto the holding period for the shares acquired.

The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans that qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised
mutual funds held in that Class B Retirement Plan will be converted into
Class D shares of the appropriate funds. Subsequent to such conversion, that
Class B Retirement Plan will be sold Class D shares of the appropriate funds
at net asset value.

The Conversion Period also may be modified for retirement plan investors
who participate in certain fee-based programs. See "Shareholder Services--
Fee-Based Programs."

DISTRIBUTION PLANS

The Fund has adopted separate distribution plans for Class B, Class C
and Class D shares pursuant to Rule 12b-1 under the Investment Company Act
(each a "Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Fund to the Distributor with respect to such
classes. The Class B and Class C Distribution Plans provide for the payment
of account maintenance fees and distribution fees, and the Class D
Distribution Plan provides for the payment of account maintenance fees.

The Distribution Plans for Class B, Class C and Class D shares each
provide that the Fund pays the Distributor an account maintenance fee
relating to the shares of the relevant class, accrued daily and paid monthly,
at the annual rate of 0.25% of the average daily net assets of the Fund
attributable to shares of the relevant class in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) in connection
with account maintenance activities.

The Distribution Plans for Class B and Class C shares each provide that
the Fund also pays the Distributor a distribution fee relating to the shares
of the relevant class, accrued daily and paid monthly, at the annual rate of
0.75% of the average daily net assets of the Fund attributable to the shares
of the relevant class in order to compensate the Distributor and Merrill
Lynch (pursuant to a sub-agreement) for providing shareholder and
distribution services, and bearing certain distribution-related expenses of
the Fund, including payments to financial consultants for selling Class B
and Class C shares of the Fund. The Distribution Plans relating to Class B
and Class C shares are designed to permit an investor to purchase Class B
and Class C shares through dealers without the assessment of an initial sales
charge and at the same time permit the dealer to compensate its financial
consultants in connection with the sale of the Class B and Class C shares.
In this regard, the purpose and function of the ongoing distribution fees and
the CDSC are the same as those of the initial sales charge with respect to
the Class A and Class D shares of the Fund in that the deferred sales charges
provide for the financing of the distribution of the Fund's Class B and
Class C shares.

The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount
of expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year
on a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist
of the account maintenance fees, distribution fees, the CDSCs and certain
other related revenues, and expenses consist of financial consultant
compensation, branch office and regional operation center selling and
transaction processing expenses, advertising, sales promotion and marketing
expenses, corporate overhead and interest expense. On the direct expense and
revenue/cash basis, revenues consist of the account maintenance fees,
distribution fees and CDSCs and the expenses consist of financial consultant
compensation.

The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B, Class C and Class D shares, and there is no
assurance that the Directors of the Fund will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to
seek annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or
distribution of each class of shares separately. The initial sales charges,
the account maintenance fee, the distribution fee and/or the CDSCs received
with respect to one class will not be used to subsidize the sale of shares of
another class. Payments of the distribution fee on Class B shares will
terminate upon conversion of those Class B shares into Class D shares as set
forth under "Deferred Sales Charge Alternatives--Class B and Class C Shares--
Conversion of Class B Shares to Class D Shares."

LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES

The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee
and the CDSC borne by the Class B and Class C shares but not the account
maintenance fee. The maximum sales charge rule is applied separately to each
class. As applicable to the Fund, the maximum sales charge rule limits the
aggregate of distribution fee payments and CDSCs payable by the Fund to (1)
6.25% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend
reinvestments and exchanges) plus (2) interest on the unpaid balance for the
respective class, computed separately, at the prime rate plus 1% (the unpaid
balance being the maximum amount payable minus amounts received from the
payment of the distribution fee and the CDSC). In connection with the
Class B shares, the Distributor has voluntarily agreed to waive interest
charges on the unpaid balance in excess of 0.50% of eligible gross sales.
Consequently, the maximum amount payable to the Distributor (referred to as
the "voluntary maximum") in connection with the Class B shares is 6.75% of
eligible gross sales. The Distributor retains the right to stop waiving the
interest charges at any time. To the extent payments would exceed the
voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid
to the Fund rather than to the Distributor; however, the Fund will continue
to make payments of the account maintenance fee. In certain circumstances
the amount payable pursuant to the voluntary maximum may exceed the amount
payable under the NASD formula. In such circumstances payments in excess of
the amount payable under the NASD formula will not be made.

REDEMPTION OF SHARES

The Fund is required to redeem for cash all shares of the Fund on
receipt of a written request in proper form. The redemption price is the net
asset value per share next determined after the initial receipt of proper
notice of redemption. Except for any CDSC that may be applicable, there will
be no charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive on
redemption all dividends declared through the date of redemption. The value
of shares at the time of redemption may be more or less than the share-
holder's cost, depending on the market value of the securities held by the
Fund at such time.

REDEMPTION

A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Fund's Transfer Agent, Merrill Lynch Financial Data Services,
Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests
delivered other than by mail should be delivered to Merrill Lynch Financial
Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. Proper notice of redemption in the case of shares deposited with
the Transfer Agent may be accomplished by a written letter requesting
redemption. Proper notice of redemption in the case of shares for which
certificates have been issued may be accomplished by a written letter as
noted above accompanied by certificates for the shares to be redeemed.
Redemption requests should not be sent to the Fund. The redemption request
requires the signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as such name(s) appear(s) on the Transfer Agent's
register or on the certificate, as the case may be. The signature(s) on the
redemption request must be guaranteed by an "eligible guarantor institution"
(including, for example, Merrill Lynch branches and certain other financial
institutions) as such term is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, the Transfer
Agent may require additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator,
or certificates of corporate authority. For shareholders redeeming directly
with the Transfer Agent, payments will be mailed within seven days of receipt
of a proper notice of redemption.

At various times, the Fund may be requested to redeem shares for which
it has not yet received good payment. The Fund may delay or cause to be
delayed the mailing of a redemption check until such time as it has assured
itself that good payment (e.g., cash, or certified check drawn on a United
States bank) has been collected for the purchase of such shares. Normally,
this delay will not exceed 10 days.

REPURCHASE

The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund will normally accept orders to repurchase shares
by wire or telephone from dealers for their customers at the net asset value
next computed after receipt of the order by the dealer, provided that the
request for repurchase is received by the dealer prior to the regular close
of business on the NYSE (generally, 4:00 p.m., New York time) on the day
received and is received by the Fund from such dealer not later than 30
minutes after the close of business on the NYSE on the same day. Dealers
have the responsibility of submitting such repurchase requests to the Fund
not later than 30 minutes after the close of business on the NYSE in order to
obtain that day's closing price.

These repurchase arrangements are for the convenience of shareholders
and do not involve a charge by the Fund (other than any applicable CDSC in
the case of Class B or Class C shares). However, securities firms which do
not have selected dealer agreements with the Distributor may impose a charge
on the shareholder for transmitting the notice of repurchase to the Fund.
Merrill Lynch may charge its customers a processing fee (presently $5.35) to
confirm a repurchase of shares. Repurchases made directly through the Fund's
Transfer Agent are not subject to the processing fee. The Fund reserves the
right to reject any order for repurchase, which right of rejection might
affect adversely shareholders seeking redemption through the repurchase
procedure. However, a shareholder whose order for repurchase is rejected by
the Fund may redeem shares as set forth above.

Redemption payments will be made within seven days of the proper tender
of the certificates, if any, and stock power or letter requesting redemption,
in each instance with signatures guaranteed as noted above.

REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES

Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount
to be reinstated to the Transfer Agent within 30 days after the date the
request for redemption was accepted by the Transfer Agent or the Distributor.
Alternatively, the reinstatement privilege may be exercised through the
investor's Merrill Lynch Financial Consultant within 30 days after the date
the request was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds.

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Fund. Certain of such services are not available to investors who place
orders for the Fund through the Merrill Lynch Blueprint(Service Mark)
Program. Full details as to each of such services, copies of the various
plans described below and instructions as to how to participate in the
various plans and services, or to change options with respect thereto, can be
obtained from the Fund by calling the telephone number on the cover page
hereof or from the Distributor or Merrill Lynch. Certain of these services
are available only to U.S. investors.

INVESTMENT ACCOUNT

Each shareholder whose account is maintained at the Transfer Agent has
an "Investment Account" and will receive statements, at least quarterly, from
the Transfer Agent. These quarterly statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. These
statements will also show any other activity in the account since the
preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of ordinary income dividends and
long-term capital gains distributions. Shareholders may make additions to
their Investment Accounts at any time by mailing a check directly to the
Transfer Agent. Shareholders may also maintain their accounts through
Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch brokerage
account, an Investment Account in the transferring shareholder's name may be
opened automatically at the Transfer Agent. Shareholders considering
transferring their Class A or Class D shares from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class A or Class D shares are to be transferred will not take
delivery of shares of the Fund, a shareholder either must redeem the Class A
or Class D shares (paying any applicable CDSC) so that the cash proceeds can
be transferred to the account at the new firm or such shareholder must
continue to maintain an Investment Account at the Transfer Agent for those
Class A or Class D shares. Shareholders interested in transferring their
Class B or Class C shares from Merrill Lynch and who do not wish to have an
Investment Account maintained for such shares at the Transfer Agent may
request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the
shareholder at the Transfer Agent. Shareholders considering transferring a
tax-deferred retirement account such as an individual retirement account from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the retirement account is to be transferred
will not take delivery of shares of the Fund, a shareholder either must
redeem the shares (paying any applicable CDSC) so that the cash proceeds can
be transferred to the account at the new firm, or such shareholder must
continue to maintain a retirement account at Merrill Lynch for those shares.

EXCHANGE PRIVILEGE

U.S. shareholders of each class of shares of the Fund each have an
exchange privilege with certain other MLAM-advised mutual funds. There is
currently no limitation on the number of times a shareholder may exercise the
exchange privilege. The exchange privilege may be modified or terminated in
accordance with the rules of the Commission.

Under the Merrill Lynch Select Pricing(Service Mark) System, Class A
shareholders may exchange Class A shares of the Fund for Class A shares of a
second MLAM-advised mutual fund if the shareholder holds any Class A shares
of the second fund in the account in which the exchange is made at the time
of the exchange or is otherwise eligible to purchase Class A shares of the
second fund. If the Class A shareholder wants to exchange Class A shares for
shares of a second MLAM-advised mutual fund, and the shareholder does not
hold Class A shares of the second fund in his or her account at the time of
the exchange and is not otherwise eligible to acquire Class A shares of the
second fund, the shareholder will receive Class D shares of the second fund
as a result of the exchange. Class D shares also may be exchanged for
Class A shares of a second MLAM-advised mutual fund at any time as long as,
at the time of the exchange, the shareholder holds Class A shares of the
second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.

Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the Class A or Class D shares being exchanged and the sales charge
payable at the time of the exchange on the shares being acquired.

Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.

Shares of the Fund that are subject to a CDSC are exchangeable on the
basis of relative net asset value per share without the payment of any CDSC
that might otherwise be due upon redemption of the shares of the Fund. For
purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Fund is "tacked" to the holding period for the newly acquired
shares of the other fund.

Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares
are held in a money market fund, however, will not count toward satisfaction
of the holding period requirement for reduction of any CDSC imposed on such
shares, if any, and, with respect to Class B shares, toward satisfaction of
the Conversion Period.

Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition,
Class B shares of the Fund acquired through use of the exchange privilege
will be subject to the Fund's CDSC schedule if such schedule is higher than
the CDSC schedule relating to the Class B shares of the MLAM-advised mutual
fund from which the exchange has been made.

Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services--Exchange Privilege" in
the Statement of Additional Information.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

All dividends and capital gains distributions are reinvested
automatically in full and fractional shares of the Fund, without a sales
charge, at the net asset value per share next determined after the close of
business on the NYSE on the ex-dividend date of such dividend or
distribution. A shareholder may at any time, by written notification to
Merrill Lynch if the shareholder's account is maintained with Merrill Lynch
or by written notification or by telephone (1-800-MER-FUND) to the Transfer
Agent if the shareholder's account is maintained with the Transfer Agent,
elect to have subsequent dividends or capital gains distributions, or both,
paid in cash, rather than reinvested, in which event payment will be mailed
on or about the payment date. Cash payments also can be directly deposited
to the shareholder's bank account. No CDSC will be imposed upon redemption
of shares issued as a result of the automatic reinvestment of dividends or
capital gains distributions.

SYSTEMATIC WITHDRAWAL PLANS

A Class A or Class D shareholder may elect to receive systematic
withdrawal payments from his or her Investment Account in the form of
payments by check or through automatic payment by direct deposit to his or
her bank account on either a monthly or quarterly basis. Alternatively, a
Class A or Class D shareholder whose shares are held within a CMA(Registered
Trademark), CBA(Registered Trademark) or Retirement Account may elect to have
shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual
basis through the Systematic Redemption Program, subject to certain
conditions.

AUTOMATIC INVESTMENT PLANS

Regular additions of Class A, Class B, Class C and Class D shares may be
made to an investor's Investment Account by pre-arranged charges of $50 or
more to his or her regular bank account. Investors who maintain
CMA(Registered Trademark) or CBA(Registered Trademark) accounts may arrange
to have periodic investments made in the Fund in their CMA(Registered
Trademark) or CBA(Registered Trademark) accounts or in certain related
accounts in amounts of $100 or more through the CMA(Registered Trademark) or
CBA(Registered Trademark) Automated Investment Program.

FEE-BASED PROGRAMS

Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a
"Program"), may permit the purchase of Class A shares at net asset value.
Under specified circumstances, participants in certain Programs may deposit
other classes of shares that will be exchanged for Class A shares. Initial
or deferred sales charges otherwise due in connection with such exchanges may
be waived or modified, as may the Conversion Period applicable to the
deposited shares. Termination of participation in a Program may result in
the redemption of shares held therein or the automatic exchange thereof to
another class at net asset value, which may be shares of a money market fund.
In addition, upon termination of participation in a Program, shares that have
been held for less than specified periods within such Program may be subject
to a fee based upon the current value of such shares. These Programs also
generally prohibit such shares from being transferred to another account at
Merrill Lynch, to another broker-dealer or to the Transfer Agent. Except
in limited circumstances (which may also involve an exchange as described
above), such shares must be redeemed and another class of shares purchased
(which may involve the imposition of initial or deferred sales charges and
distribution and account maintenance fees) in order for the investment not
to be subject to Program fees. Additional information regarding a specific
Program (including charges and limitations on transferability applicable to
shares that may be held in such Program) is available in such Program's
client agreement and from Merrill Lynch Investor Services at (800) MER-FUND
or (800) 637-3863.

TAXES

The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as
it so qualifies, the Fund (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains which it distributes to Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). The Fund intends to distribute
substantially all of such income.

Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains
or losses from certain transactions in warrants, futures and options)
("capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund
shares. Any loss upon the sale or exchange of Fund shares held for six
months or less, however, will be treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder.
Distributions in excess of the Fund's earnings and profits will first reduce
the adjusted tax basis of a holder's shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such holder
(assuming the shares are held as a capital asset).

Ordinary income dividends paid to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% U.S. withholding tax
under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the U.S.
withholding tax.

Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes.
Shareholders may be able to claim U.S. foreign tax credits with respect to
such taxes, subject to certain conditions and limitations contained in the
Code. For example, certain retirement accounts cannot claim foreign tax
credits on investments in foreign securities held in the Fund. If more than
50% in value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible,
and intends, to file an election with the Internal Revenue Service pursuant
to which shareholders of the Fund will be required to include their
proportionate shares of such withholding taxes in their U.S. income tax
returns as gross income, treat such proportionate shares as taxes paid by
them, and deduct such proportionate shares in computing their taxable incomes
or, alternatively, use them as foreign tax credits against their U.S. income
taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that
is a nonresident alien individual or a foreign corporation may be subject to
U.S. withholding tax on the income resulting from the Fund's election
described in this paragraph but may not be able to claim a credit or
deduction against such U.S. tax for the foreign taxes treated as having been
paid by such shareholder. The Fund will report annually to its shareholders
the amount per share of such withholding taxes.

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

The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company
(or similar investment entity) organized under foreign law, the Fund will be
treated as owning shares in a passive foreign investment company ("PFIC") for
U.S. Federal income tax purposes. The Fund may be subject to U.S. Federal
income tax, and additional tax in the nature of interest (the "interest
charge"), on a portion of the distributions from such a company and on gain
from the disposition of the shares of such a company (collectively referred
to as "excess distributions"), even if such excess distributions are paid by
the Fund as a dividend to its shareholders. The Fund may be eligible to make
an election with respect to certain PFICs in which it owns shares that will
allow it to avoid the taxes on excess distributions. However, such election
may cause the Fund to recognize income in a particular year in excess of the
distributions received from such PFICs. Alternatively, under proposed
regulations the Fund would be able to elect to "mark to market" at the end of
each taxable year all shares that it holds in PFICs. If it made this
election, the Fund would recognize as ordinary income any increase in the
value of such shares. Unrealized losses, however, would not be recognized.
By making the mark-to-market election, the Fund could avoid imposition of the
interest charge with respect to its distributions from PFICs, but in any
particular year might be required to recognize income in excess of the
distributions it received from PFICs and its proceeds from dispositions of
PFIC stock.

Under Code Section 988, foreign currency gains or losses from certain
debt instruments, from certain forward contracts, from futures contracts that
are not "regulated futures contracts" and from unlisted options will
generally be treated as ordinary income or loss. Such Code Section 988 gains
or losses will generally increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders
as ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not
be able to make any ordinary income dividend distributions, and all or a
portion of distributions made before the losses were realized but in the same
taxable year would be recharacterized as a return of capital to shareholders,
thereby reducing the basis of each shareholder's Fund shares and resulting in
a capital gain for any shareholder who received a distribution greater than
such shareholder's tax basis in Fund shares (assuming the shares were held as
a capital asset).

No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's
basis in the Class D shares acquired will be the same as such shareholder's
basis in the Class B shares converted, and the holding period of the acquired
Class D shares will include the holding period for the converted Class B
shares.

If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales
charge paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the
absence of the exchange privilege. Instead, such sales charge will be
treated as an amount paid for the new shares.

A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed
of. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.

Upon conversion of the Fund to open-end status, Capital Shares were
designated Class A shares. Holders of Class A shares should be aware that
they will receive proportionate share of both the Fund's taxable ordinary
income and capital gains. The highest marginal tax rate currently applicable
to ordinary income is 39.6% while the highest marginal tax rate currently
applicable to capital gains is 28%.

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

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

Certain states exempt from state income taxation dividends paid by RICs
that are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.

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.

PERFORMANCE DATA

From time to time the Fund may include its average annual total return
and yield for various specified time periods in advertisements or information
furnished to present or prospective shareholders. Average annual total
return is computed separately for Class A, Class B, Class C and Class D
shares in accordance with formulas specified by the Commission.

Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on
net investment income and any realized and unrealized capital gains or losses
on portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of each
period. Average annual total return will be computed assuming all dividends
and distributions are reinvested and taking into account all applicable
recurring and nonrecurring expenses, including any CDSC that would be
applicable to a complete redemption of the investment at the end of the
specified period such as in the case of Class B and Class C shares and the
maximum sales charge in the case of Class A and Class D shares. Dividends
paid by the Fund with respect to all shares, to the extent any dividends are
paid, will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that account maintenance and
distribution charges and any incremental transfer agency costs relating to
each class of shares will be borne exclusively by that class. The Fund will
include performance data for all classes of shares of the Fund in any
advertisement or information including performance data of the Fund.

The Fund also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual
annual, annualized or aggregate rates of return and (2) the maximum
applicable sales charges will not be included with respect to annual or
annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the
average annual rates of return reflect compounding; aggregate total return
data generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time.
In advertisements distributed to investors whose purchases are subject to
waiver of the CDSC in the case of Class B and Class C shares (such as
investors in certain retirement plans) or to reduced sales loads in the case
of Class A and Class D shares, the performance data may take into account the
reduced, and not the maximum, sales charge or may not take into account the
CDSC and therefore may reflect greater total return since, due to the reduced
sales charges or waiver of the CDSC, a lower amount of expenses is deducted.
See "Purchase of Shares." The Fund's total return may be expressed either as
a percentage or as a dollar amount in order to illustrate such total return
on a hypothetical $1,000 investment in the Fund at the beginning of each
specified period.

Total return figures are based on the Fund's historical performance and
are not intended to indicate future performance. The Fund's total return
will vary depending on market conditions, the securities comprising the
Fund's portfolio, the Fund's operating expenses and the amount of realized
and unrealized net capital gains or losses during the period. The value of
an investment in the Fund will fluctuate and an investor's shares, when
redeemed, may be worth more or less than their original cost.

On occasion, the Fund may compare its performance to that of the
Standard & Poor's 500 Index, The Financial Times/Standard & Poor's Actuarial
World Indices, the Morgan Stanley Capital International Indices, the Dow
Jones Industrial Average or performance data published by Lipper Analytical
Services, Inc. and Morningstar Publications, Inc., Money Magazine, U.S. News
& World Report, Business Week, CDA Investment Technology, Inc., Forbes
Magazine, Fortune Magazine or other industry publications. From time to
time, the Fund may include the Fund's risk-adjusted performance ratings
assigned by Morningstar Publications, Inc. in advertisements or supplemental
sales literature. As with other performance data, performance comparisons
should not be considered representative of the Fund's relative performance
for any future period.

ADDITIONAL INFORMATION

DIVIDENDS AND DISTRIBUTIONS

It is the Fund's intention to distribute substantially all of its net
investment income, if any. Dividends from such net investment income will be
paid at least annually. All net realized long- or short-term capital gains,
if any, will be distributed as dividends to the Fund's shareholders at least
annually. The per share dividends on each class of shares will be reduced as
a result of any account maintenance, distribution and transfer agency fees
applicable to that class. See "Additional Information--Determination of Net
Asset Value." Dividends will be reinvested automatically in shares of the
Fund at net asset value without a sales charge. However, a shareholder whose
account is maintained at the Transfer Agent or whose account is maintained
through Merrill Lynch may elect in writing to receive any such dividends or
distributions or both in cash. Dividends and distributions are taxable to
shareholders as discussed below whether they are reinvested in shares of the
Fund or received in cash. From time to time, the Fund may declare a special
distribution at or about the end of the calendar year in order to comply with
Federal tax requirements that certain percentages of its ordinary income and
capital gains be distributed during the calendar year.

Gains or losses attributable to certain foreign currency transactions
may increase or decrease the amount of the Fund's income available for
distribution to shareholders. If such losses exceed other ordinary income
during a taxable year, (a) the Fund would not be able to make any ordinary
income dividend distributions and (b) all or a portion of distributions made
before the losses were realized but in the same taxable year would be
recharacterized as returns of capital to shareholders, rather than as
ordinary income dividends, thereby reducing each shareholder's tax basis in
his or her Fund shares for Federal income tax purposes and resulting in a
capital gain for any shareholder who received a distribution greater than the
shareholder's tax basis in Fund shares (assuming that the shares were held as
a capital asset). For a detailed discussion of the Federal tax
considerations relevant to foreign currency transactions, see "Additional
Information--Taxes."

DETERMINATION OF NET ASSET VALUE

The net asset value of shares of all classes of the Fund is determined
by the Manager once daily, 15 minutes after the close of business on the NYSE
(generally, 4:00 p.m. New York time), on each day during which the NYSE is
open for trading or on such other day that there is sufficient trading in
portfolio securities that the net asset value of the Fund's shares may be
materially affected. Any assets or liabilities initially expressed in terms
of non-U.S. dollar currencies are translated into U.S. dollars at the
prevailing market rates as quoted by one or more banks or dealers on the day
of valuation. The net asset value per share is computed by dividing the sum
of the value of the securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent. Expenses, including
the investment advisory fees payable to the Manager and any account
maintenance and/or distribution fees payable to the Distributor, are accrued
daily.

The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of other classes, reflecting the
daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and Class C
shares and the daily expense accruals of the account maintenance fees
applicable with respect to Class D shares; moreover, the per share net asset
value of Class D shares generally will be higher than the per share net asset
value of Class B and Class C shares, reflecting the daily expense accruals of
the distribution and higher transfer agency fees applicable with respect to
Class B and Class C shares. It is expected, however, that the per share net
asset value of the four classes will tend to converge (although not
necessarily meet) immediately after the payment of dividends or
distributions, which will differ by approximately the amount of the expense
accrual differentials between the classes.

Portfolio securities that are traded on stock exchanges are valued at
the last sale price (regular way) on the exchange on which such securities
are traded, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price. In cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the Board of
Directors as the primary market. Securities traded in the OTC market are
valued at the last available bid price in the OTC market prior to the time of
valuation. Securities that are traded both in the OTC market and on a stock
exchange are valued according to the broadest and most representative market.
When the Fund writes an option, the amount of the premium received is
recorded on the books of the Fund as an asset and an equivalent liability.
The amount of the liability is subsequently valued to reflect the current
market value of the option written, based upon the last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last asked price. Options purchased by the Fund are valued at
their last sale price in the case of exchange-traded options or, in the case
of options traded in the OTC market, the last bid price. Any assets or
liabilities expressed in terms of foreign currencies are translated into U.S.
dollars at the prevailing market rates as obtained from one or more dealers.
Other investments, including futures contracts and related options, are
valued at market value. Securities and assets for which market quotations
are not readily available are valued at fair value as determined in good
faith by or under the direction of the Board of Directors of the Fund.
Such valuations and procedures will be reviewed periodically by the Board
of Directors.

ORGANIZATION OF THE FUND

The Fund was incorporated under Maryland law on May 24, 1985 as a
closed-end investment company. On February 13, 1997, the shareholders of the
Fund voted to convert the Fund to an open-end investment company. Amended
and Restated Articles of Incorporation, effective as of (August 4), 1997, (i)
convert the Fund to an open-end investment company, (ii) rename the Fund
"Merrill Lynch Convertible Fund, Inc." and (iii) increase the authorized
capital stock from 30,000,000 shares, par value $.10 per share, to
400,000,000 shares of Common Stock, par value $.10 per share. The shares of
Common Stock are divided into four classes designated Class A, Class B, Class
C and Class D Common Stock, each consisting of 100,000,000 shares. Shares of
Class A, Class B, Class C and Class D Common Stock represent an interest in
the same assets of the Fund and are identical in all respects except that
Class B, Class C and Class D shares bear certain expenses related to the
account maintenance associated with such shares, and Class B and Class C
shares bear certain expenses related to distribution of such shares. Each
class has exclusive voting rights with respect to matters relating to account
maintenance and distribution expenditures, as applicable. See "Purchase of
Shares." The Directors of the Fund may classify and reclassify the shares of
the Fund into additional classes of Common Stock at a future date.

Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors
and any other matter submitted to a shareholder vote. The Fund does not
intend to hold meetings of shareholders in any year in which the Investment
Company Act does not require shareholders to act upon any of the following
matters: (i) election of Directors; (ii) approval of an investment advisory
agreement; (iii) approval of a distribution agreement; and (iv) ratification
of selection of independent accountants. Also, the by-laws of the Fund
require that a special meeting of shareholders be held upon the written
request of at least 10% of the outstanding shares of the Fund entitled to
vote at such meeting, if they comply with applicable Maryland law. Voting
rights for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive rights. Shares have the conversion
rights described in this Prospectus. Each share of Common Stock is entitled
to participate equally in dividends and distributions declared by the Fund
and in the net assets of the Fund upon liquidation or dissolution after
satisfaction of outstanding liabilities except, as noted above, the Class B,
Class C and Class D shares bear certain additional expenses.

SHAREHOLDER REPORTS

Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of
the number of accounts such shareholder has. If a shareholder wishes to
receive separate copies of each report and communication for each of the
shareholder's related accounts the shareholder should notify in writing:

Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289

The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account
numbers. If you have any questions regarding this please call your Merrill
Lynch Financial Consultant or Merrill Lynch Financial Data Services, Inc. at
800-637-3863.

SHAREHOLDER INQUIRIES

Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.

APPENDIX A

INVESTMENT PRACTICES INVOLVING THE USE OF OPTIONS, FUTURES
AND FOREIGN EXCHANGE

The Fund is authorized to engage in certain investment practices
involving the use of options, futures and foreign exchange, as described
below. Such instruments, which may be regarded as derivatives, are referred
to collectively herein as "Strategic Instruments."

OPTIONS ON SECURITIES AND SECURITIES INDICES

Purchasing Options. The Fund is authorized to purchase put options on
securities held in its portfolio or securities indices the performance of
which is substantially correlated with securities held in its portfolio. When
the Fund purchases a put option, in consideration for an upfront payment (the
"option premium"), the Fund acquires a right to sell to another party
specified securities owned by the Fund at a specified price (the "exercise
price") on or before a specified date (the "expiration date"), in the case of
an option on securities, or to receive from another party a payment based on
the amount a specified securities index declines below a specified level on
or before the expiration date, in the case of an option on a securities
index. The purchase of a put option limits the Fund's risk of loss in the
event of a decline in the market value of the portfolio holdings underlying
the put option prior to the option's expiration date. In the event the
market value of the portfolio holdings underlying the put option increases
rather than decreases, however, the Fund will lose the option premium and
will consequently realize a lower return on the portfolio holdings than would
have been realized without the purchase of the put.

The Fund is also authorized to purchase call options on securities it
intends to purchase or securities indices the performance of which
substantially correlates with the performance of the types of securities it
intends to purchase. When the Fund purchases a call option, in consideration
for the option premium, the Fund acquires a right to purchase from another
party specified securities at the exercise price on or before the expiration
date, in the case of an option on securities, or to receive from another
party a payment based on the amount a specified securities index increases
beyond a specified level on or before the expiration date, in the case of an
option on a securities index. The purchase of a call option may protect the
Fund from having to pay more for a security as a consequence of increases in
the market value for the security during a period when the Fund is
contemplating its purchase, in the case of an option on a security, or
attempting to identify specific securities in which to invest in a market the
Fund believes to be attractive, in the case of an option on an index (an
"anticipatory hedge"). In the event the Fund determines not to purchase a
security underlying a call option, however, the Fund may lose the entire
option premium.

The Fund may also purchase call options in connection with the creation
of Manufactured Convertibles and is also authorized to purchase put or call
options in connection with closing out put or call options it has previously
sold.

Writing Options. The Fund is authorized to write (i.e., sell) call
options on securities held in its portfolio or securities indices the
performance of which is substantially correlated with securities held in its
portfolio. When the Fund writes a call option, in return for an option
premium, the Fund gives another party the right to buy specified securities
owned by the Fund at the exercise price on or before the expiration date, in
the case of an option on securities, or agrees to pay to another party an
amount based on any gain in a specified securities index beyond a specified
level on or before the expiration date, in the case of an option on a
securities index. The Fund may write call options to earn income, through
the receipt of option premiums. In the event the party to which the Fund has
written an option fails to exercise its rights under the option because the
value of the underlying securities is less than the exercise price, the Fund
will partially offset any decline in the value of the underlying securities
through the receipt of the option premium and will realize a greater return
than would have been realized on the underlying securities alone. By writing
a call option, however, the Fund limits its ability to sell the underlying
securities, and gives up the opportunity to profit from any increase in the
value of the underlying securities beyond the exercise price, while the
option remains outstanding.

The Fund may also write put options on securities or securities indices.
When the Fund writes a put option, in return for an option premium, the Fund
gives another party the right to sell to the Fund a specified security at the
exercise price on or before the expiration date, in the case of an option on
a security, or agrees to pay to another party an amount on any decline in a
specified securities index below a specified level on or before the
expiration date, in the case of an option on a securities index. The Fund
may write put options to earn income, through the receipt of option premiums.
In the event the party to which the Fund has written an option fails to
exercise its right under the option because the value of the underlying
securities is greater than the exercise price, the Fund will profit by the
amount of the option premium. By writing a put option, however, the Fund
will be obligated to purchase the underlying security at a price that may be
higher than the market value of the security at the time of exercise as long
as the put option is outstanding. Accordingly, when the Fund writes a put
option it is exposed to a risk of loss in the event the value of the
underlying securities falls below the exercise price, which loss
potentially may substantially exceed the amount of option premium received
by the Fund for writing the put option. The Fund will write a put option on
a security or a securities index only if the Fund is using the put as an
anticipatory hedge or is writing the put in connection with trading
strategies involving combinations of options, for example, the sale and
purchase of options with identical expiration dates on the same security
or index but different exercise prices (a technique called a "spread").

The Fund is also authorized to sell call or put options in connection
with closing out call or put options it has previously purchased.

Other than with respect to closing transactions, the Fund will only
write call or put options that are "covered." A call or put option will be
considered covered if the Fund has segregated assets with respect to such
option in the manner described in "Risk Factors in Options, Futures and
Currency Instruments" below. A call option will also be considered covered
if the Fund owns the securities it would be required to deliver upon exercise
of the option (or, in the case of an option on a securities index, securities
which substantially replicate the performance of such index) or owns a call
option, warrant or convertible instrument which is immediately exercisable
for, or convertible into, such security.

Types of Options. The Fund may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized
exercise prices and expiration dates and require the parties to post margin
against their obligations, and the performance of the parties' obligations in
connection with such options is guaranteed by the exchange or a related
clearing corporation. OTC options have more flexible terms negotiated
between the buyer and the seller, but generally do not require the parties to
post margin and are subject to greater risk of counterparty default. See
"Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Strategic Investments" below.

FUTURES

The Fund may engage in transactions in futures and options thereon.
Futures are standardized, exchange-traded contracts which obligate a
purchaser to take delivery, and a seller to make delivery, of a specific
amount of a commodity at a specified future date at a specified price. No
price is paid upon entering into a futures contract. Rather, upon purchasing
or selling a futures contract the Fund is required to deposit collateral
("margin") equal to a percentage (generally less than 10%) of the contract
value. Each day thereafter until the futures position is closed, the Fund
will pay additional margin representing any loss experienced as a result of
the futures position the prior day or be entitled to a payment representing
any profit experienced as a result of the futures position the prior day.

The sale of a futures contract for hedging purposes limits the Fund's
risk of loss through a decline in the market value of portfolio holdings
correlated with the futures contract prior to the futures contract's
expiration date. In the event the market value of the portfolio holdings
correlated with the futures contract increases rather than decreases,
however, the Fund will realize a loss on the futures position and a lower
return on the portfolio holdings than would have been realized without the
purchase of the futures contract.

The purchase of a futures contract as an anticipatory hedge may protect
the Fund from having to pay more for securities as a consequence of increases
in the market value for such securities during a period when the Fund was
attempting to identify specific securities in which to invest in a market the
Fund believes to be attractive. In the event that such securities decline in
value or the Fund determines not to complete an anticipatory hedge
transaction in a futures contract, however, the Fund may realize a loss
relating to the futures position.

The Fund will limit transactions in futures and options on futures to
the extent necessary to prevent the Fund from being deemed a "commodity pool"
under regulations of the Commodity Futures Trading Commission.

FOREIGN EXCHANGE TRANSACTIONS

The Fund may engage in spot and forward foreign exchange transactions
and currency swaps, purchase and sell options on currencies and purchase and
sell currency futures and related options thereon (collectively, "Currency
Instruments") predominantly for purposes of hedging against the decline in
the value of currencies in which its portfolio holdings are denominated
against the United States dollar.

Forward foreign exchange transactions are OTC contracts to purchase or
sell a specified amount of a specified currency or multinational currency
unit at a price and future date set at the time of the contract. Spot foreign
exchange transactions are similar but require current, rather than future,
settlement. The Fund will enter into foreign exchange transactions
predominantly for purposes of hedging either a specific transaction or a
portfolio position. The Fund may enter into a foreign exchange transaction
for purposes of hedging a specific transaction by, for example, purchasing a
currency needed to settle a security transaction or selling a currency in
which the Fund has received or anticipates receiving a dividend or
distribution. The Fund may enter into a foreign exchange transaction for
purposes of hedging a portfolio position by selling forward a currency in
which a portfolio position of the Fund is denominated or by purchasing a
currency in which the Fund anticipates acquiring a portfolio position in the
near future. The Fund may also hedge portfolio positions through currency
swaps, which are transactions in which one currency is simultaneously bought
for a second currency on a spot basis and sold for the second currency on a
forward basis.

The Fund may also hedge against the decline in the value of a currency
against the United States dollar through use of currency futures or options
thereon. Currency futures are similar to forward foreign exchange
transactions except that futures are standardized, exchange-traded contracts.
See "Futures" above.

The Fund may also hedge against the decline in the value of a currency
against the United States dollar through the use of currency options.
Currency options are similar to options on securities, but in consideration
for an option premium the writer of a currency option is obligated to sell
(in the case of a call option) or purchase (in the case of a put option) a
specified amount of a specified currency on or before the expiration date for
a specified amount of another currency. The Fund may engage in transactions
in options on currencies either on exchanges or OTC markets. See "Types of
Options" above and "Additional Risk Factors of OTC Transactions; Limitations
on the Use of OTC Strategic Instruments" below.

Although it is expected that the Fund will engage in transactions in
Currency Instruments predominantly for hedging purposes, the Fund may also
speculate in Currency Instruments in order to seek to enhance its total
return. To the extent that the Fund enters into a transaction in a Currency
Instrument for hedging purposes, the Fund will not hedge a currency in excess
of the aggregate market value of the securities which it owns (including
receivables for unsettled securities sales), or has committed to or
anticipates purchasing, which are denominated in such currency. The Fund
may, however, hedge a currency by entering into a transaction in a Currency
Instrument denominated in a currency other than the currency being hedged (a
"cross-hedge"). The Fund will only enter into a cross-hedge if the Manager
believes that (i) there is a demonstrable high correlation between the
currency in which the cross-hedge is denominated and the currency being
hedged and (ii) executing a cross-hedge through the currency in which the
cross-hedge is denominated will be significantly more cost-effective or
provide substantially greater liquidity than executing a similar hedging
transaction by means of the currency being hedged. To the extent that the
Fund enters into a transaction in a Currency Instrument for speculative
purposes, the Fund may lose its entire investment or, under certain
circumstances, may be exposed to potential losses which substantially exceed
its original investment.

Risk Factors in Hedging Foreign Currency Risks. While the Fund's use of
Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of the Fund's shares, the net asset value
of the Fund's shares will fluctuate. Moreover, although Currency Instruments
will be used with the intention of hedging against adverse currency
movements, transactions in Currency Instruments involve the risk that
anticipated currency movements will not be accurately predicted and that the
Fund's hedging strategies will be ineffective. To the extent that the Fund
hedges against anticipated currency movements which do not occur, the Fund
may realize losses, and lower its total return, as the result of its hedging
transactions. Furthermore, the Fund will only engage in hedging activities
from time to time and may not be engaging in hedging activities when
movements in currency exchange rates occur. It may not be possible for the
Fund to hedge against currency exchange rate movements, even if correctly
anticipated, in the event that (i) the currency exchange rate movement is so
generally anticipated that the Fund is not able to enter into a hedging
transaction at an effective price or (ii) the currency exchange rate movement
relates to a market with respect to which Currency Instruments are not
available (such as certain developing markets) and it is not possible to
engage in effective foreign currency hedging.

RISK FACTORS IN OPTIONS, FUTURES AND CURRENCY INSTRUMENTS

Use of Strategic Instruments for hedging purposes involves the risk of
imperfect correlation in movements in the value of the Strategic Instruments
and the value of the instruments being hedged. If the value of the Strategic
Instruments moves more or less than the value of the hedged instruments the
Fund will experience a gain or loss which will not be completely offset by
movements in the value of the hedged instruments.

The Fund intends to enter transactions involving Strategic Instruments
only if there appears to be a liquid secondary market for such instruments
or, in the case of illiquid instruments traded in OTC transactions, such
instruments satisfy the criteria set forth below under "Additional Risk
Factors of OTC Transactions; Limitations on the Use of OTC Strategic
Instruments." However, there can be no assurance that, at any specific time,
either a liquid secondary market will exist for a Strategic Instrument or the
Fund will otherwise be able to sell such instrument at an acceptable price.
It may therefore not be possible to close a position in a Strategic Instrument
without incurring substantial losses, if at all.

Certain transactions in Strategic Instruments (e.g., forward foreign
exchange transactions, futures transactions, sales of put options) may expose
the Fund to potential losses which exceed the amount originally invested by
the Fund in such instruments. When the Fund engages in such a transaction,
the Fund will deposit in a segregated account at its custodian liquid
securities with a value at least equal to the Fund's exposure, on a mark-to-
market basis, to the transaction (as calculated pursuant to requirements of
the Securities and Exchange Commission). Such segregation will ensure that
the Fund has assets available to satisfy its obligations with respect to the
transaction, but will not limit the Fund's exposure to loss.

ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC
STRATEGIC INSTRUMENTS

Certain Strategic Instruments traded in OTC markets, including OTC
options, may be substantially less liquid than other instruments in which the
Fund may invest. The absence of liquidity may make it difficult or
impossible for the Fund to sell such instruments promptly at an acceptable
price. The absence of liquidity may also make it more difficult for the Fund
to ascertain a market value for such instruments. The Fund will therefore
acquire illiquid OTC instruments (i) if the agreement pursuant to which the
instrument is purchased contains a formula price at which the instrument may
be terminated or sold or (ii) for which the Manager anticipates the Fund can
receive on each business day at least two independent bids or offers, unless
a quotation from only one dealer is available, in which case that dealer's
quotation may be used.

The staff of the Securities and Exchange Commission has taken the
position that purchased OTC options and the assets underlying written OTC
options are illiquid securities. The Fund has therefore adopted an
investment policy pursuant to which it will not purchase or sell OTC options
(including OTC options on futures contracts) if, as a result of such
transactions, the sum of the market value of OTC options currently
outstanding which are held by the Fund, the market value of the securities
underlying OTC call options currently outstanding which have been sold by the
Fund and margin deposits on the Fund's outstanding OTC options exceeds 15% of
the total assets of the Fund, taken at market value, together with all other
assets of the Fund which are deemed to be illiquid or are otherwise not
readily marketable. However, if an OTC option is sold by the Fund to a
dealer in U.S. government securities recognized as a "primary dealer" by the
Federal Reserve Bank of New York and the Fund has the unconditional
contractual right to repurchase such OTC option at a predetermined price,
then the Fund will treat as illiquid such amount of the underlying securities
as is equal to the repurchase price less the amount by which the option is
"in-the-money" (i.e., current market value of the underlying security minus
the option's exercise price).

Because Strategic Instruments traded in OTC markets are not guaranteed
by an exchange or clearing corporation and generally do not require payment
of margin, to the extent that the Fund has unrealized gains in such
instruments or has deposited collateral with its counterparty the Fund is at
risk that its counterparty will become bankrupt or otherwise fail to honor
its obligations. The Fund will attempt to minimize the risk that a
counterparty will become bankrupt or otherwise fail to honor its obligations
by engaging in transactions in Strategic Instruments traded in OTC markets
only with financial institutions which have substantial capital or which have
provided the Fund with a third-party guaranty or other credit enhancement.

ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS

The Fund may not use any Strategic Instrument to gain exposure to an
asset or class of assets that it would be prohibited from purchasing directly
by its investment restrictions, except that the Fund may use Strategic
Instruments to gain investment exposure to natural resources-based
commodities indices.

APPENDIX B

RATINGS OF DEBT SECURITIES AND PREFERRED STOCK

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE RATINGS

Aaa Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa Bonds which are rated AA are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.

A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.

Baa Bonds which are rated BAA are considered as 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 therefore 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 desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.

Caa Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.

Ca Bonds which are rated CA represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from AA through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating categories, the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months.
Moody's makes no representations as to whether such commercial paper is by
any other definition "commercial paper" or is exempt from registration under
the Securities Act of 1933, as amended.

Moody's Commercial Paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act of 1933, nor does it
represent that any specific note is a valid obligation of a rated issuer or
issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:

Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics:

-- Leading market positions in well established industries

-- High rates of return on funds employed

-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation

-- Well established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.

Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

If an issuer represents to Moody's that its Commercial Paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader
to another page for the name or names of the supporting entity or entities.
In assigning ratings to such issuers, Moody's evaluates the financial
strength of the indicated affiliated corporations, commercial banks,
insurance companies, foreign governments or other entities, but only as one
factor in the total rating assessment. Moody's makes no representation and
gives no opinion on the legal validity or enforceability of any support
arrangement. You are cautioned to review with your counsel any questions
regarding particular support arrangements.

DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS

Because of the fundamental differences between preferred stocks and
bonds, a variation of the bond rating symbols is being used in the quality
ranking of preferred stocks. The symbols, presented below, are designed to
avoid comparison with bond quality in absolute terms. It should always be
borne in mind that preferred stocks occupy a junior position to bonds within
a particular capital structure and that these securities are rated within the
universe of preferred stocks.

Preferred stock rating symbols and their definitions are as follows:

aaa An issue which is rated "AAA" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.

aa An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the
foreseeable future.

a An issue which is rated "A" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.

baa An issue which is rated "BAA" is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length
of time.

ba An issue which is rated "BA" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.

b An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.

caa An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.

ca An issue which is rated "CA" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payment.

c This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "AA" through "B" in its preferred stock rating system.
The modifier 1 indicates that the security 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 generic
rating category.

DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("STANDARD & POOR'S")
CORPORATE DEBT RATINGS

A Standard & Poor's corporate or municipal rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.

The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation, (2) nature of and provisions of
the obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement
under the laws of bankruptcy and other laws affecting creditors' rights.

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

AA Debt rated AA has, a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.

BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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 debt in this category than for debt in
higher rated categories.

Debt rated BB, B, CCC, CC and C is regarded, on balance, as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

BB Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.

B Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.

The B rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB or BB-rating.

CCC Debt rated CCC has a current identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions
to meet timely payments of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.

The CCC rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied B or B- rating.

CC The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.

C The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been
filed but debt service payments are continued.

CI The rating CI is reserved for income bonds on which no interest is being
paid.

D Debt rated D is in payment default. The D rating category is also used
when interest payments or principal repayments are not made on the date
due even if the applicable grace period has not expired, unless Standard
& Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.

PLUS (+) or MINUS (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing with the major
ratings categories.

Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood or risk of default upon failure of such completion.
The investor should exercise judgment with respect to such likelihood and
risk.

L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Savings & Loan Insurance Corp. or
the Federal Deposit Insurance Corp. and interest is adequately
collateralized.

* Continuance of the rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.

NR Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.

Debt Obligations of Issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not
take into account currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA", "AA", "A", "BBB", commonly known as "investment
grade" ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments may impose
certain ratings or other standards for obligations eligible for investment by
savings banks, trust companies, insurance companies and fiduciaries
generally.

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no
more than 365 days. Ratings are graded into four categories, ranging from
"A-1" for the highest quality obligations to "D" for the lowest. These
categories are as follows:

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."

A-3 Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.

B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period.

A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard
& Poor's by the issuer or obtained from other sources it considers reliable.
The ratings may be changed, suspended, or withdrawn as a result of changes in
or unavailability of such information.

DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS

A Standard & Poor's preferred stock rating is an assessment of the
capacity and willingness of an issuer to pay preferred stock dividends and
any applicable sinking fund obligations. A preferred stock rating differs
from a bond rating inasmuch as it is assigned to an equity issue, which issue
is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating symbol will
normally not be higher than the bond rating symbol assigned to, or that would
be assigned to, the senior debt of the same issuer.

The preferred stock ratings are based on the following considerations:

I. Likelihood of payment-capacity and willingness of the issuer to
meet the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with the terms of the
obligation.

II. Nature of, and provisions of, the issue.

III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.

AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.

AA A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated "AAA."

A An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.

BBB An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
"A" category.

BB B Preferred stock rated "BB," "B," and "CCC" are regarded, on
balance, as predominately speculative with
CCC respect to the issuer's capacity to pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest
degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

CC The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.

C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.

NR indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.

PLUS (+) or MINUS (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.

The preferred stock ratings are not a recommendation to purchase or sell
a security, inasmuch as market price is not considered in arriving at the
rating. Preferred stock ratings are wholly unrelated to Standard & Poor's
earnings and dividend rankings for common stocks.

The ratings are based on current information furnished to Standard &
Poor's by the issuer, and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

MERRILL LYNCH CONVERTIBLE FUND, INC. -- AUTHORIZATION FORM (PART 1)
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Note: This form may not be used for purchases through the Merrill Lynch Blueprint/SM/ Program. You may request a
Merrill Lynch Blueprint/SM/Program application by calling toll free (800) 637-3766.
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1. Share Purchase Application
I, being of legal age, wish to purchase: (choose one)

/ /Class A shares / /Class B shares / /Class C shares / /Class D shares

of Merrill Lynch Convertible Fund, Inc. and establish an Investment Account as described in the Prospectus. In the event that I
am not eligible to purchase Class A shares, I understand that Class D shares will be purchased.

Basis for establishing an Investment Account:

A. I enclose a check for $.......... payable to Merrill Lynch Financial Data Services, Inc., as an initial investment
(minimum $500). I understand that this purchase will be executed at the applicable offering price next to be determined
after this Application is received by you.

B. I already own shares of the following Merrill Lynch mutual funds that would qualify for the right of accumulation
as outlined in the Statement of Additional Information: (Please list all funds. Use a separate sheet of paper if necessary.)

1. .................................................... 4. ..................................................
2. .................................................... 5. ..................................................
3. .................................................... 6. ..................................................

Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Name Initial Last Name

Name of Co-Owner (if any) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Name Initial Last Name

Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Zip Code)
Occupation.................................................. Name and Address of Employer...........................

...........................................................................

........................................ ...........................................................................
Signature of Owner Signature of Co-Owner (if any)

(In the case of co-owner, a joint tenancy with right of survivorship will be presumed unless otherwise specified.)
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2. Dividend and Capital Gain Distribution Options

Ordinary Income Dividends Long-Term Capital Gains
SELECT / / Reinvest SELECT / / Reinvest
ONE: / / Cash ONE: / / Cash

If no election is made, dividends and capital gains will be automatically reinvested at net asset value without a sales charge.

IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: / / Check or / / Direct Deposit to bank account

If direct deposit to bank account is selected, please complete below:

I hereby authorize payment of dividend and capital gain distributions by direct deposit to my bank account and, if necessary,
debit entries and adjustments for any credit entries made to my account in accordance with the terms I have selected on the
Merrill Lynch Convertible Fund, Inc. Authorization Form.

Specify type of account (check one): / / checking / / savings

Name on your Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bank Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bank Number. . . . . . . . . . . . . . . . . . . Account Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bank Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I agree that this authorization will remain in effect until I provide written notification to Merrill Lynch Financial Data
Services, Inc. amending or terminating this service.

Signature of Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Signature of Depositor . . . . . .. . . . . . . . . Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(If joint account, both must sign)

Note: If direct deposit to bank account is selected, your blank, unsigned check marked "VOID" or a deposit slip from your savings
account should accompany this application.

3. Social Security Number or Taxpayer Identification Number

Social Security Number or Taxpayer Identification

Under penalty of perjury, I certify (1) that the number set forth above is my correct Social Security Number or Taxpayer
Identification Number and (2) that I am not subject to backup withholding (as discussed in the Prospectus under "Taxes") either
because I have not been notified that I am subject thereto as a result of a failure to report all interest or dividends, or the
Internal Revenue Service ("IRS") has notified me that I am no longer subject thereto.

Instruction: You must strike out language in (2) above if you have been notified that you are subject to backup withholding
due to underreporting and if you have not received a notice from the IRS that backup withholding has been terminated. The
undersigned authorizes the furnishing of this certification to other Merrill Lynch sponsored mutual funds.

........................................... .................................................
Signature of Owner Signature of Co-Owner (if any)
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4. LETTER OF INTENTION - CLASS A AND D SHARES ONLY (See terms and conditions in the Statement of Additional Information)

...................., 19.....
Dear Sir/Madam: Date of initial purchase

Although I am not obligated to do so, I intend to purchase shares of Merrill Lynch Convertible Fund, Inc. or any other
investment company with an initial sales charge or deferred sales charge for which Merrill Lynch Funds Distributor, Inc. acts as
distributor over the next 13 month period which will equal or exceed:

/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000

Each purchase will be made at the then reduced offering price applicable to the amount checked above, as described in the
Merrill Lynch Convertible Fund, Inc. Prospectus.

I agree to the terms and conditions of this Letter of Intention. I hereby irrevocably constitute and appoint Merrill Lynch
Funds Distributor, Inc., my attorney, with full power of substitution, to surrender for redemption any or all shares of Merrill
Lynch Convertible Fund, Inc. held as security.

By:.................................................... ...............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint parties, both must sign)

In making purchases under this letter, the following are the related accounts on which reduced offering prices are to apply:
(1) Name................................................ (2) Name.......................................................
Account Number.......................................... Account Number..................................................
- -------------------------------------------------------------------------------------------------------------------------------
5. For Dealer Only
Branch Office, Address, Stamp
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as
our agent in connection with transactions under this authorization
form and agree to notify the Distributor of any purchases or sales
made under a Letter of Intention, Automatic Investment Plan or
Systematic Withdrawal Plan. We guarantee the shareholder's signature.
This form when completed should be mailed to:

Merrill Lynch Convertible Fund, Inc. ....................................................................
c/o Merrill Lynch Financial Data Services, Inc. Dealer Name and Address
P.O. Box 45289
Jacksonville, Florida 32232-5289 By....................................................................
Authorized Signature of Dealer

/ / / / / / / / / / / / / /

Branch Code F/C No. ...........................................
/ / / / / / / / / / / / / / / / F/C Last Name

Dealer's Customer Account No.

</TABLE>

MERRILL LYNCH CONVERTIBLE FUND, INC. -- AUTHORIZATION FORM (PART 2)
- ---------------------------------------------------------------------------------------------------------------------------------
Note: This form is required to apply for the Systematic Withdrawal or Automatic Investment Plans only.
- ---------------------------------------------------------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
(PLEASE PRINT)

Name of Owner.............................................................................. Social Security No.
First Name Initial Last Name or Taxpayer Identification No.

Name of Co-Owner (if
any).......................................................................................
First Name Initial Last Name Account Number...................

Address.................................................................................... (if existing account)

...........................................................................................
(Zip Code)

2. SYSTEMATIC WITHDRAWAL PLAN -- CLASS A AND D SHARES ONLY (See terms and conditions in the Statement of Additional
Information) MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for quarterly, of / / Class A or / / Class D
shares in Merrill Lynch Convertible Fund, Inc. at cost or current offering price. Withdrawals to be made either (check one)
/ / Monthly on the 24th day of each month, or / / Quarterly on the 24th day of March, June, September and December. If the
24th falls on a weekend or holiday, the next succeeding business day will be utilized. Begin systematic withdrawal on
______________, or as soon as possible thereafter.
(month)

SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): / / $_______ or / / ______% of the current value of
/ / Class A or / / Class D shares in the account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account (check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
/ / as indicated in Item 1.
/ / to the order of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (please print) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signature of Owner . . . . . . . . . . . . . . . . . . . . . Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signature of Co-Owner (if any) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY
CREDIT ENTRIES MADE TO MY ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING THIS SERVICE.

Specify type of account (check one): / / checking / / savings

Name on your account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bank Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bank Number . . . . . . . . . . . . . . . . Account Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bank Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Signature of Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Signature of Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Date. . . . . . . . . . .

Signature of Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(If joint account, both must sign)
Note: If direct deposit is elected, your blank, unsigned check marked "VOID" or a deposit slip from your savings account shall
accompany this application.

- ---------------------------------------------------------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an automated clearing house ("ACH") debit on my
checking account as described below each month to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Convertible Fund, Inc., subject to the terms set forth below. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.

MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR ACH DEBUTS DRAWN BY
You are hereby authorized to draw an ACH debit each month on MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
my bank account for investment in Merrill Lynch Convertible
Fund, Inc. as indicated below:
To . . . . . . . . . . . . . . . . . . . . . . . . . Bank
Amount of each check or ACH debt $ . . . . . . . . . . . (Investor's Bank)

Account Number . . . . . . . . . . . . . . . . . . . . . Bank Address . . . . . . . . . . . . . . . . . . . . . .
Please date and invest ACH debits on the 20th of each month
City . . . . . . . . . . . State. . . . . . . Zip. . . .
beginning _____________ or as soon thereafter as possible. As a convenience to me, I hereby request and authorize
(month) you to pay and charge to my account ACH debits drawn on
my account by and payable to Merrill Lynch Financial Data
I agree that you are preparing these ACH debits voluntarily Services, Inc. I agree that your rights in respect to
at my request and that you shall not be liable for any loss arising each such debit shall be the same as if it were a check
from any delay in preparing or failure to prepare any such debit. drawn on you and signed personally by me. This authority
If I change banks or desire to terminate or suspend this program, is to remain in effect until revoked by me in writing.
I agree to notify you promptly in writing. I hereby authorize Until you receive such notice, you shall be fully
you to take any action to correct erroneous ACH debits of my bank protected in honoring any such debit. I further agree
account or purchases of Fund shares including liquidating shares that if any such debit be dishonored, whether with or
of the Fund and crediting my bank account. I further agree that without cause and whether intentionally or inadvertently,
if a debit is not honored upon presentation, Merrill Lynch you shall be under no liability.
Financial Services, Inc. is authorized to of Depositor
discontinue immediately the Automatic Investment Plan and to ..................... ..................................
liquidate sufficient shares held in my account to offset the Date Signature of Depositor
purchase made with the dishonored debit.
..................... ..................................
..................... ................................... Bank Account Signature of Depositor
Date Signature of Depositor Number (If joint account, both must sign)

...................................
Signature of Depositor
(If joint account, both must sign)

NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
</TABLE>

MANAGER
Merrill Lynch Asset Management

Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536

Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011

DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.

Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536

Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08536-9081

CUSTODIAN
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101

TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484

Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289

INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557

<TABLE>
<CAPTION>
<S> <C>
No person has been authorized to give any information or to
make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this MERRILL LYNCH
Prospectus, and, if given or made, such other information or CONVERTIBLE
representations must not be relied upon as having been FUND, INC.
authorized by the Fund, the Manager or the Distributor. This
Prospectus does not constitute an offering in any state in
which such offering may not lawfully be made.

_______________

TABLE OF CONTENTS
PAGE
Fee Table . . . . . . . . . . . . . . . . . . . . . . . . . 2
Merrill Lynch Select Pricing(Service Mark) System . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . 7
Risk Factors and Special Considerations . . . . . . . . . . 9
Investment Objective and Policies . . . . . . . . . . . . . 13
Convertible Securities . . . . . . . . . . . . . . . . . 14
Description of Certain Investments . . . . . . . . . . . 16
Other Investment Policies and Practices . . . . . . . . . 17
Investment Restrictions . . . . . . . . . . . . . . . . . 19
Management of the Fund . . . . . . . . . . . . . . . . . . 20
Directors . . . . . . . . . . . . . . . . . . . . . . . . 20
Management and Advisory Arrangements . . . . . . . . . . 21
Code of Ethics . . . . . . . . . . . . . . . . . . . . . 22
Transfer Agency Services . . . . . . . . . . . . . . . . 22
Purchase of Shares . . . . . . . . . . . . . . . . . . . . 22
Initial Sales Charge Alternatives
--Class A and Class D Shares . . . . . . . . . . . . . 24
Deferred Sales Charge Alternatives--
Class B and Class C Shares . . . . . . . . . . . . . . 25
Distribution Plans . . . . . . . . . . . . . . . . . . . 28
Limitations on the Payment of Deferred Sales
Charges . . . . . . . . . . . . . . . . . . . . . . . . 29
Redemption of Shares . . . . . . . . . . . . . . . . . . . 29
Redemption . . . . . . . . . . . . . . . . . . . . . . . 29
Repurchase . . . . . . . . . . . . . . . . . . . . . . . 30
Reinstatement Privilege--Class A and
Class D Shares . . . . . . . . . . . . . . . . . . . . 30
Shareholder Services . . . . . . . . . . . . . . . . . . . 30 PROSPECTUS
Investment Account . . . . . . . . . . . . . . . . . . . 30
Exchange Privilege . . . . . . . . . . . . . . . . . . . 31 August ___, 1997
Automatic Reinvestment of Dividends and
Capital Gains Distributions . . . . . . . . . . . . . . 31 Distributor:
Systematic Withdrawal Plans . . . . . . . . . . . . . . . 32 Merrill Lynch
Automatic Investment Plans . . . . . . . . . . . . . . . 32 Funds Distributor, Inc.
Fee-Based Programs . . . . . . . . . . . . . . . . . . . 32
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 This prospectus should be
Performance Data . . . . . . . . . . . . . . . . . . . . . 34 retained for future reference.
Additional Information . . . . . . . . . . . . . . . . . . 35
Dividends and Distributions . . . . . . . . . . . . . . . 35
Determination of Net Asset Value . . . . . . . . . . . . 36
Organization of the Fund . . . . . . . . . . . . . . . . 36
Shareholder Reports . . . . . . . . . . . . . . . . . . . 37
Shareholder Inquiries . . . . . . . . . . . . . . . . . . 37
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . 38
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . 42
Authorization Form . . . . . . . . . . . . . . . . . . . . 49

Code # _____ - _97
</TABLE>

SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 6, 1997

STATEMENT OF ADDITIONAL INFORMATION
- -----------------------------

MERRILL LYNCH CONVERTIBLE FUND, INC.
P.O. Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (609) 282-2800

Pursuant to the Merrill Lynch Select Pricing(Service Mark) System, the
Fund offers four classes of shares each with a different combination of sales
charges, ongoing fees and other features. The Merrill Lynch Select
Pricing(Service Mark) System permits an investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances.

This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated
August ___, 1997 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission (the "Commission") and can be obtained, without
charge, by calling or by writing the Fund at the above telephone number or
address. This Statement of Additional Information has been incorporated by
reference into the Prospectus. Capitalized terms used but not defined herein
have the same meanings as in the Prospectus.

Merrill Lynch Asset Management -- Manager

Merrill Lynch Funds Distributor, Inc. -- Distributor

The date of this Statement of Additional Information is August ___, 1997.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to seek high total return from a
combination of capital appreciation and investment income. The Fund will
seek to achieve its objective by investing primarily in a portfolio of
convertible debt securities, convertible preferred stocks and synthetic
convertible securities. The securities in which the Fund invests may be
issued by both United States and non-United States issuers. Reference is
made to "Investment Objective and Policies" in the Prospectus for a
discussion of the investment objective and policies of the Fund.

For purposes of the Fund's investment objective, an issuer ordinarily
would be considered to be located in the country under the laws of which it
is organized or where the primary trading market of its securities is
located. The Fund, however, may consider an issuer to be located in a
country, without reference to its domicile or to the primary trading market
of its securities, when at least 50% of its non-current assets,
capitalization, gross revenues or profits in any one of the two most recent
fiscal years represents (directly or indirectly through subsidiaries) assets
or activities located in such country. The Fund also may consider a security
that is denominated in a particular country's currency to be a security of an
issuer in such country without reference to the principal trading market of
the security or to the location of its issuer. Additionally, the Fund may
consider a derivative product tied to securities of issuers located in a
particular country to be the security of an issuer in that country. The Fund
also may consider investment companies to be located in the country or
countries in which they primarily make their portfolio investments.

The securities markets of many countries at times in the past have moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce
risk for the Fund's portfolio as a whole. This negative correlation also may
offset unrealized gains the Fund has derived from movements in a particular
market. To the extent the various markets move independently, total
portfolio volatility is reduced when the various markets are combined into a
single portfolio. Of course, movements in the various securities markets may
be offset by changes in foreign currency exchange rates. Exchange rates
frequently move independently of securities markets in a particular country.
As a result, gains in a particular securities market may be affected by
changes in exchange rates.

While it is the policy of the Fund generally not to engage in trading
for short-term gains, the Manager will effect portfolio transactions without
regard to holding period, if, in its judgment, such transactions are
advisable in light of a change in circumstances of a particular company or
within a particular industry or in the general market, economic or financial
conditions. The Fund will, however, monitor its trading so as to comply with
the requirements for the special tax treatment afforded regulated investment
companies under the Code. See "Taxes." The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of all securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year. For the
fiscal years ended December 31, 1995 and 1996 (during which periods the Fund
operated as a closed-end investment company), the portfolio turnover rates
were 87.69% and 129.06%, respectively. The variation in portfolio turnover
rates is a result of sales of securities to enhance the Fund's liquidity in
anticipation of the redemption of Income Shares and the conversion to open-
end status, as well as strategies undertaken by the Fund to reduce its tax
liability for long-term capital gains. Higher portfolio turnover may
contribute to higher transactional costs and negative tax consequences, such
as an increase in capital gain dividends or in ordinary income dividends of
accrued market discount, as well as greater difficulty meeting the
requirement for qualification as a regulated investment company that less
than 30% of its gross income be derived from the sale or other disposition of
securities held for less than three months. See "Dividends, Distributions
and Taxes."

The Fund's ability and decisions to purchase or sell portfolio
securities may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Because the shares of the Fund
are redeemable on a daily basis on each day the Fund determines its net asset
value in U.S. dollars, the Fund intends to manage its portfolio so as to give
reasonable assurance that it will be able to obtain U.S. dollars to the
extent necessary to meet anticipated redemptions. See "Redemption of
Shares." Under present conditions, the Manager does not believe that these
considerations will have any significant effect on its portfolio strategy,
although there can be no assurance in this regard.

PORTFOLIO STRATEGIES INVOLVING OPTIONS, FUTURES AND FOREIGN EXCHANGE
TRANSACTIONS

The Fund is authorized to engage in certain investment practices
involving the use of options, futures and foreign exchange, which may expose
the Fund to certain risks. These investment practices and the associated
risks are described in detail in the Prospectus.

OTHER INVESTMENT POLICIES AND PRACTICES

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
invest in securities of a single issuer. The Fund's investments are limited,
however, in order for the Fund to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). See
"Taxes." To qualify, the Fund complies with certain requirements, including
limiting its investments so that at the close of each quarter of the taxable
year (i) not more than 25% of the market value of the Fund's total assets
will be invested in the 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 of a
single issuer. A fund that elects to be classified as "diversified" under
the Investment Company Act must satisfy the foregoing 5% and 10% requirements
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
net asset value may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers, and the Fund may be more susceptible to any single
economic, political or regulatory occurrence than a diversified company.

When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities
are purchased or sold by the Fund with payment and delivery taking place in
the future to secure what is considered an advantageous yield and price to
the Fund at the time of entering into the transaction. Although the Fund has
not established any limit on the percentage of its assets that may be
committed in connection with such transactions, the Fund will maintain a
segregated account with its custodian of cash, cash equivalents, U.S.
Government securities or other liquid securities denominated in U.S. dollars
or non-U.S. currencies in an aggregate amount equal to the amount of its
commitment in connection with such purchase transactions.

There can be no assurance that a security purchased on a when-issued
basis or purchased or sold through a forward 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. The Fund may bear the risk of a decline in the
value of such security and may not benefit from an appreciation in the value
of the security during the commitment period.

Standby Commitment Agreement. 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 equity securities which
may be issued and sold to the Fund at the option of the issuer. The price 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 is ultimately issued, which is typically approximately
0.50% of the aggregate purchase price of the security that the Fund has
committed to purchase. The Fund will enter into such agreements only for the
purpose of investing in the security underlying the commitment at a price
that is considered advantageous to the Fund. The Fund will not enter into a
standby commitment with a remaining term in excess of 45 days and presently
will limit its investment in such commitments so that the aggregate purchase
price of the securities subject to such commitments, together with the value
of portfolio securities subject to legal restrictions on resale that affect
their marketability, will not exceed 15% of its net assets taken at the time
of acquisition of such a commitment. The Fund at all times will maintain a
segregated account with its custodian of cash, cash equivalents, U.S.
Government securities or other liquid securities denominated in U.S. dollars
or non-U.S. currencies in an aggregate amount equal to the purchase price of
the securities underlying a commitment.

Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with
financial institutions which (i) have, in the opinion of the Manager,
substantial capital relative to the Fund's exposure, or (ii) have provided
the Fund with a third-party guaranty or other credit enhancement. Under such
agreements, the seller agrees, upon entering into the contract with the Fund,
to repurchase the security at a mutually agreed-upon time and price in a
specified currency, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from market
fluctuations during such period although it may be affected by currency
fluctuations. In repurchase agreements, the prices at which the trades are
conducted do not reflect accrued interest on the underlying obligation. Such
agreements usually cover short periods, such as under one week. Repurchase
agreements may be construed to be collateralized loans by the purchaser to
the seller secured by the securities transferred to the purchaser. In a
repurchase agreement, as a purchaser, the Fund will require the seller to
provide additional collateral if the market value of the securities falls
below the repurchase price at any time during the term of the repurchase
agreement. ln the event of default by the seller under a repurchase
agreement construed to be a collateralized loan, the underlying securities
are not owned by the Fund but only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, the Fund may suffer time
delays and incur costs or possible losses in connection with the disposition
of the collateral. In the event of a default under such a repurchase
agreement, instead of the contractual fixed rate, the rate of return to the
Fund shall be dependent upon intervening fluctuations of the market value of
such securities and the accrued interest on the securities. In such event,
the Fund would have rights against the seller for breach of contract with
respect to any losses arising from market fluctuations following the failure
of the seller to perform. The Fund may not invest more than 15% of its net
assets in repurchase agreements maturing in more than seven days together
with all other illiquid investments.

Lending of Portfolio Securities. Subject to the investment restrictions
set forth in the Prospectus and herein, the Fund may lend securities from its
portfolio to approved borrowers and receive therefor collateral in cash or
securities issued or guaranteed by the United States Government. Such
collateral will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The purpose of
such loans is to permit the borrower to use such securities for delivery to
purchasers when such borrower has sold short. If cash collateral is received
by the Fund, it is invested in short-term money market securities, and a
portion of the yield received in respect of such investment is retained by
the Fund. Alternatively, if securities are delivered to the Fund as
collateral, the Fund and the borrower negotiate a rate for the loaned premium
to be received by the Fund for lending its portfolio securities. In either
event, the total yield on the Fund's portfolio is increased by loans of its
portfolio securities. The Fund will have the right to regain record
ownership of loaned securities to exercise beneficial rights such as voting
rights, subscription rights and rights to dividends, interest or other
distributions. Such loans are terminable at any time, and the borrower,
after notice, will be required to return borrowed securities within five
business days. The Fund may pay reasonable finder's, administrative and
custodial fees in connection with such loans. With respect to the lending of
portfolio securities, there is the risk of failure by the borrower to return
the securities involved in such transactions.

INVESTMENT RESTRICTIONS

The Fund has adopted a number of fundamental and non-fundamental
restrictions and policies relating to the investment of its assets and its
activities. The fundamental policies set forth below may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company
Act means the lesser of (i) 67% of the Fund's shares represented at a meeting
at which more than 50% of the outstanding shares of the Fund are represented
or (ii) more than 50% of the Fund's outstanding shares). The Fund may not:

1. Invest more than 25% of its assets, taken at market value at the
time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. Government and its agencies and
instrumentalities). For purposes of this restriction, states,
municipalities and their political subdivisions are not considered part
of any industry.

2. Make investments for the purpose of exercising control or
management. Investments by the Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed to be the
making of investments for the purpose of exercising control or
management.

3. Purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may invest in securities directly
or indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein

4. Make loans to other persons, except that the acquisition of
bonds, debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances and repurchase agreements
and purchase and sale contracts or any similar instruments shall not be
deemed to be the making of a loan, and except further that the Fund may
lend its portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law and the
guidelines set forth in the Fund's Prospectus and this Statement of
Additional Information, as they may be amended from time to time.

5. Issue senior securities to the extent such issuance would
violate applicable law.

6. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 331/3% of its
total assets (including the amount borrowed), (ii) the Fund may, to the
extent permitted by applicable law, borrow up to an additional 5% of its
total assets for temporary purposes, (iii) the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (iv) the Fund may purchase securities
on margin to the extent permitted by applicable law. The Fund may not
pledge its assets other than to secure such borrowings or, to the extent
permitted by the Fund's investment policies as set forth in its
Prospectus and Statement of Additional Information, as they may be
amended from time to time, in connection with hedging transactions,
short sales, when-issued and forward commitment transactions and similar
investment strategies.

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

8. Purchase or sell commodities or contracts on commodities, except
to the extent that the Fund may do so in accordance with applicable law
and the Fund's Prospectus and Statement of Additional Information, as
they may be amended from time to time, and without registering as a
commodity pool operator under the Commodity Exchange Act.

Under the non-fundamental investment restrictions, the Fund may not:

a. Purchase securities of other investment companies except to the
extent permitted by applicable law. As a matter of policy, however, the
Fund will not purchase shares of any registered open-end investment
company or registered unit investment trust in reliance on Section
12(d)(1)(F) or (G) (the "fund of funds" provisions) of the Investment
Company Act, at any time its shares are owned by another investment
company that is part of the same group of investment companies as the
Fund.

b. Make short sales of securities or maintain a short position,
except to the extent permitted by applicable law. The Fund currently
does not intend to engage in short sales, except short sales "against
the box".

c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Securities purchased in accordance with Rule 144A under the Securities
Act and determined to be liquid by the Board of Directors are not subject
to the limitations set forth in this investment restriction.

d. Notwithstanding fundamental investment restriction (6) above,
borrow money or pledge its assets, except that the Fund (a) may borrow
from a bank as a temporary measure for extraordinary or emergency
purposes or to meet redemptions in amounts not exceeding 331/3% (taken
at market value) of its total assets and pledge its assets to secure
such borrowings, (b) may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of portfolio
securities and (c) may purchase securities on margin to the extent
permitted by applicable law. However, at the present time, applicable
law prohibits the Fund from purchasing securities on margin. The
deposit or payment by the Fund of initial or variation margin in
connection with financial futures contracts or options transactions is
not considered to be the purchase of a security on margin. The purchase
of securities while borrowings are outstanding will have the effect of
leveraging the Fund. Such leveraging or borrowing increases the Fund's
exposure to capital risk, and borrowed funds are subject to interest
costs which will reduce net income. The Fund will not purchase
securities while borrowings exceed 5% of its total assets.

Portfolio securities of the Fund generally may not be purchased from,
sold or loaned to the Manager or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the Investment Company Act.

The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy pursuant to
which it will not purchase or sell OTC options if, as a result of any such
transaction, the sum of the market value of OTC options currently outstanding
that are held by the Fund, the market value of the underlying securities
covered by OTC call options currently outstanding that were sold by the Fund
and margin deposits on the Fund's existing OTC options on financial futures
contracts exceeds 15% of the net assets of the Fund, taken at market value,
together with all other assets of the Fund that are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by the Fund
to a primary U.S. Government securities dealer recognized by the Federal
Reserve Bank of New York and if the Fund has the unconditional contractual
right to repurchase such OTC option from the dealer at a predetermined price,
then the Fund will treat as illiquid such amount of the underlying securities
as is equal to the repurchase price less the amount by which the option is
"in-the-money" (i.e., current market value of the underlying securities minus
the option's strike price). The repurchase price with the primary dealers is
typically a formula price which is generally based on a multiple of the
premium received for the option, plus the amount by which the option is
"in-the-money." This policy as to OTC options is not a fundamental policy of
the Fund and may be amended by the Board of Directors of the Fund without the
approval of the Fund's shareholders. However, the Fund will not change or
modify this policy prior to the change or modification by the Commission
staff of its position.

In addition, as a non-fundamental policy which may be changed by the
Board of Directors and to the extent required by the Commission or its staff,
the Fund will, for purposes of investment restriction (1), treat securities
issued or guaranteed by the government of any one foreign country as the
obligations of a single issuer.

As another non-fundamental policy, the Fund will not invest in
securities that are (a) subject to material legal restrictions on
repatriation of assets or (b) cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable,
including repurchase agreements and purchase and sale contracts maturing in
more than seven days, if, regarding all such securities, more than 15% of its
net assets, taken at market value would be invested in cash securities.

Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving such firm or its affiliates except
for brokerage transactions permitted under the Investment Company Act
involving only usual and customary commissions or transactions permitted
pursuant to an exemptive order under the Investment Company Act. See
"Portfolio Transactions and Brokerage." Without such an exemptive order, the
Fund is prohibited from engaging in portfolio transactions with Merrill Lynch
or its affiliates acting as principal and from purchasing securities in
public offerings that are not registered under the Securities Act in which
such firms or any of its affiliates participate as an underwriter or dealer.

MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

Information about the Directors and executive officers of the Fund,
including their ages and their principal occupations for at least the last
five years, is set forth below. Unless otherwise noted, the address of each
executive officer and Director is P.O. Box 9011, Princeton, New Jersey
08543-9011.
ARTHUR ZEIKEL (64) -- President and Director(1)(2) -- President of the
Manager (which term as used herein includes its corporate predecessors) since
1977; President of Fund Asset Management, L.P. ("FAM") (which term as used
herein includes its corporate predecessors) since 1977; President and
Director of Princeton Services, Inc. ("Princeton Services") since 1993;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since
1990; Director of Merrill Lynch Funds Distributor, Inc. ("MLFD" or the
"Distributor") since 1977.

JAMES H. BODURTHA (53) -- Director(2) -- 36 Popponesset Road, Cotuit,
Massachusetts 02635. Director and Executive Vice President, The China
Business Group, Inc. since 1996; Chairman and Chief Executive Officer, China
Enterprise Management Corporation from 1993 to 1996; Chairman, Berkshire
Corporation since 1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993.

HERBERT I. LONDON (57) -- Director(2) -- 113-115 University Place, New
York, New York 10003. John M. Olin Professor of Humanities, New York
University since 1993 and Professor thereof since 1980; Dean, Gallatin
Division of New York University from 1978 to 1993; Distinguished Fellow,
Herman Kahn Chair, Hudson Institute from 1984 to 1985; Trustee, Hudson
Institute since 1980; Director, Damon Corporation since 1991; Overseer,
Center for Naval Analyses from 1983 to 1993; Limited Partner, Hypertech L.P.
since 1996.

ROBERT R. MARTIN (69) -- Director(2) -- 513 Grand Hill, St. Paul,
Minnesota 55102. Chairman and Chief Executive Officer, Kinnard Investments,
Inc. from 1990 to 1993; Executive Vice President, Dain Bosworth from 1974 to
1989; Director, Carnegie Capital Management from 1977 to 1985 and Chairman
thereof in 1979; Director, Securities Industry Association from 1981 to 1982
and Public Securities Association from 1979 to 1980; Chairman of the Board,
WTC Industries Inc. in 1994; Trustee, Northland College since 1992.

JOSEPH L. MAY (67) -- Director(2) -- 424 Church Street, Suite 2000,
Nashville, Tennessee 37219. Attorney in private practice since 1984;
President, May and Athens Hosiery Mills Division, Wayne-Gossard Corporation
from 1954 to 1983; Vice President, Wayne-Gossard Corporation from 1972 to
1983; Chairman, The May Corporation (personal holding company) from 1972 to
1983; Director, Signal Apparel Co. from 1972 to 1989.

ANDR F. PEROLD (44) -- Director(2) -- Morgan Hall, Soldiers Field,
Boston, Massachusetts 02163. Professor, Harvard Business School since 1989
and Associate Professor from 1983 to 1989; Trustee, The Common Fund, since
1989; Director, Quantec Limited since 1991.

TERRY K. GLENN (56) -- Executive Vice President(1)(2) -- Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of the Distributor since
1986 and Director thereof since 1991; President of Princeton Administrators,
L.P. since 1988.

VINCENT T. LATHBURY III (55) -- Vice President(1)(2) -- Vice President
and Portfolio Manager of the Manager and FAM since 1982; Vice President and
Manager of the Bond Department of INA Capital Management, Inc. from 1979 to
1982.

DANIEL A. LUCHANSKY (37) -- Vice President and Portfolio Manager(1)(2) -
- - Vice President of the Manager since 1991; Portfolio Manager of the Manager
since 1992.
BARTON A. VOGEL (61) -- Vice President(1)(2) -- Vice President of the
Manager since 1985.

DONALD C. BURKE (36) -- Vice President(1)(2) -- Vice President and
Director of Taxation of the Manager since 1990.

GERALD M. RICHARD (47) -- Treasurer(1)(2) -- Senior Vice President and
Treasurer of the Manager and FAM since 1984; Vice President of the
Distributor since 1981 and Treasurer thereof since 1984; Senior Vice
President and Treasurer of Princeton Services since 1993.

IRA P. SHAPIRO (34) -- Secretary(1)(2) -- Attorney with the Manager and
FAM since 1993; attorney in private practice prior to 1993.

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

(2) Such Director or officer is a trustee, director or officer of certain
other investment companies for which the Manager or FAM acts as
investment adviser or manager.

At __________, 1997, the officers and Directors of the Fund as a group
(13 persons) owned an aggregate of less than 1% of the outstanding shares of
the Fund. At such date, Mr. Zeikel, a Director and officer of the Fund, and
the other officers of the Fund, owned less than 1% of the outstanding shares
of common stock of ML & Co.

COMPENSATION OF DIRECTORS

The Fund pays each Director who is not affiliated with the Manager
(each, a "non-affiliated Director") a fee of $5,000 per year plus $500 per
Board meeting attended, together with such Director's actual out-of-pocket
expenses relating to attendance at meetings. The Fund also compensates each
member of the Audit and Nominating Committee (the "Committee"), which
consists of the non-affiliated Directors, a fee of $1,000 per year plus $250
per Committee meeting attended. For the fiscal year ended December 31, 1996,
fees and expenses paid to the non-affiliated Directors aggregated $45,322.

The following table sets forth for the fiscal year ended December 31,
1996 (during which period the Fund operated as a closed-end investment
company), compensation paid by the Fund to the non-affiliated Directors and,
for the calendar year ended December 31, 1996, the aggregate compensation
paid by all registered investment companies advised by MLAM or its affiliate,
FAM ("MLAM/FAM-Advised Funds"), to the non-affiliated Directors.

<TABLE>
<CAPTION> Aggregate
Compensation
Pension or from Fund and
Retirement Benefits MLAM/FAM-Advised
Name of Compensation Accrued as Part Funds Paid to
Director From Fund of Fund Expenses Directors/(1)/
<S> <C> <C> <C>
James H. Bodurtha . . . . . . . . . . . . . . . . $ 9,000 None $148,500
Herbert I. London . . . . . . . . . . . . . . . . 9,000 None 148,500
Robert R. Martin . . . . . . . . . . . . . . . . 9,000 None 148,500
Joseph L. May . . . . . . . . . . . . . . . . . . 9,000 None 148,500
Andr F. Perold . . . . . . . . . . . . . . . . . 9,000 None 148,500

</TABLE>
_______________
(1) The Directors serve on the boards of MLAM/FAM-Advised Funds as follows:
Mr. Bodurtha (22 registered investment companies consisting of 46
portfolios); Mr. London (22 registered investment companies consisting
of 46 portfolios); Mr. Martin (22 registered investment companies
consisting of 46 portfolios); Mr. May (22 registered investment
companies consisting of 46 portfolios); and Mr. Perold (22 registered
investment companies consisting of 46 portfolios).

MANAGEMENT AND ADVISORY ARRANGEMENTS

Reference is made to "Management of the Fund--Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.

Securities may be held by, or be appropriate investments for, the Fund
as well as other funds or investment advisory clients for which the Manager
or its affiliates act as an adviser. Because of different 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 of securities by the Manager for the Fund or other funds for which it
acts as investment adviser or for its 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 Manager or its affiliates during the same period
may increase the demand for securities being purchased or the supply of securi-
ties being sold, there may be an adverse effect on price.

As described in the Prospectus, the Manager has also entered into a
sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K.") pursuant to which MLAM U.K. provides investment advisory
services to the Manager with respect to the Fund.

The Management Agreement obligates the Manager to provide investment
advisory services and to pay all compensation of and furnish office space for
officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the fees
of all Directors of the Fund who are affiliated persons of the Manager. The
Fund pays all other expenses incurred in the operation of the Fund,
including, among other things, taxes, expenses for legal and auditing
services, costs of printing proxies, stock certificates, shareholder reports
and prospectuses and statements of additional information (except to the
extent paid by the Distributor), charges of the custodian, any sub-custodian
and transfer agent, expenses of redemption of shares, Commission fees,
expenses of registering the shares under Federal, state or foreign laws, fees
and expenses of non-affiliated Directors, accounting and pricing costs
(including the daily calculation of net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or nonrecurring expenses,
and other expenses properly payable by the Fund. Accounting services are
provided to the Fund by the Manager, and the Fund reimburses the Manager for
its costs in connection with such services on a semi-annual basis. The
Distributor will pay certain promotional expenses of the Fund incurred in
connection with the offering of shares of the Fund. Certain expenses will be
financed by the Fund pursuant to distribution plans in compliance with Rule
12b-1 under the Investment Company Act. See "Purchase of Shares--
Distribution Plans."

The Manager is a limited partnership, the partners of which are ML & Co.
and Princeton Services. ML & Co. and Princeton Services are "controlling
persons" of the Manager as defined under the Investment Company Act because
of their ownership of its voting securities or their power to exercise a
controlling influence over its management or policies.

Duration and Termination. Unless earlier terminated as described
herein, the Management Agreement will continue 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 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 contracts are
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.

PURCHASE OF SHARES

Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.

The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(Service Mark) System; shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. Each Class A, Class B, Class C and Class D share of the Fund
represents an identical interest in the investment portfolio of the Fund and
has the same rights except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees, and Class B and Class C
shares bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect
to such class pursuant to which account maintenance and/or distribution fees
are paid (except that Class B shareholders may vote upon any material changes
to expenses charged under the Class D Distribution Plan). Each class has
different exchange privileges. See "Shareholder Services--Exchange
Privilege."

The Merrill Lynch Select Pricing(Service Mark) System is used by more
than 50 registered investment companies advised by the Manager or its
affiliate, FAM. Funds advised by the Manager or FAM that utilize the Merrill
Lynch Select Pricing(Service Mark) System are referred to herein as
"MLAM-advised mutual funds."

The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of
shares of the Fund (the "Distribution Agreements"). The Distribution
Agreements obligate the Distributor to pay certain expenses in connection
with the offering of each class of shares of the Fund. After the
prospectuses, statements of additional information and periodic reports have
been prepared, set in type and mailed to shareholders, the Distributor pays
for the printing and distribution of copies thereof used in connection with
the offering to dealers and prospective investors. The Distributor also pays
for other supplementary sales literature and advertising costs. The
Distribution Agreements are subject to the same renewal requirements and
termination provisions as the Management Agreement described under
"Management of the Fund--Management and Advisory Arrangements."

INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES

The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and
Class D shares of the Fund, refers to a single purchase by an individual, or
to concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts by an individual, his or her spouse and their children
under the age of 21 years purchasing shares for his, her or their own account
and single purchases by a trustee or other fiduciary purchasing shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company," as that term is defined in the Investment Company Act, but does
not include purchases by any such company which has not been in existence for
at least six months or which has no purpose other than the purchase of shares
of the Fund or shares of other registered investment companies at a discount;
provided, however, that it shall not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein
are credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients or an investment
advisor.

Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A shares") are offered at net
asset value to shareholders of certain closed-end funds advised by the
Manager or FAM who purchased such closed-end fund shares prior to October 21,
1994 (the date the Merrill Lynch Select Pricing(Service Mark) System
commenced operations) and wish to reinvest the net proceeds of a sale of
their closed-end fund shares of common stock in Eligible Class A shares, if
the conditions set forth below are satisfied. Alternatively, closed-end fund
shareholders who purchased such shares on or after October 21, 1994 and wish
to reinvest the net proceeds from a sale of their closed-end fund shares are
offered Class A shares (if eligible to buy Class A shares) or Class D shares
of the Fund and other MLAM-advised mutual funds ("Eligible Class D shares"),
if the following conditions are met. First, the sale of closed-end fund
shares must be made through Merrill Lynch and the net proceeds therefrom must
be reinvested immediately in Eligible Class A or Class D shares. Second, the
closed-end fund shares must either have been acquired in the initial public
offering or be shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares must have been
continuously maintained in a Merrill Lynch securities account. Fourth, there
must be a minimum purchase of $250 to be eligible for the investment option.

Shareholders of certain MLAM-advised continuously offered closed-end
funds may reinvest at net asset value the net proceeds from a sale of certain
shares of common stock of such funds in shares of the Fund. Upon exercise of
this investment option, shareholders of Merrill Lynch Senior Floating Rate
Fund, Inc. will receive Class A shares of the Fund and shareholders of
Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income
Municipal Bond Fund, Inc. will receive Class D shares of the Fund, except
that shareholders already owning Class A shares of the Fund will be eligible
to purchase additional Class A shares pursuant to this option, if such
additional Class A shares will be held in the same account as the existing
Class A shares and other requirements pertaining to the reinvestment
privilege are met. In order to exercise this investment option, a
shareholder of one of the above-referenced continuously offered closed-end
funds (an "eligible fund") must sell his or her shares of common stock of the
eligible fund (the "eligible shares") back to the eligible fund in connection
with a tender offer conducted by the eligible fund and reinvest the proceeds
immediately in the designated class of shares of the Fund. This investment
option is available only with respect to eligible shares as to which no Early
Withdrawal Charge or CDSC (each as defined in the eligible fund's prospectus)
is applicable. Purchase orders from eligible fund shareholders wishing to
exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net asset
value of the designated class of the Fund on such day.

REDUCED INITIAL SALES CHARGES

Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to
purchase shares of the Fund subject to an initial sales charge at the
offering price applicable to the total of (a) the public offering price of
the shares then being purchased plus (b) an amount equal to the then current
net asset value or cost, whichever is higher, of the purchaser's combined
holdings of all classes of shares of the Fund and of other MLAM-advised
mutual funds. For any such right of accumulation to be made available, the
Distributor must be provided at the time of purchase, by the purchaser or the
purchaser's securities dealer, with sufficient information to permit
confirmation of qualification. Acceptance of the purchase order is subject
to such confirmation. The right of accumulation may be amended or terminated
at any time. Shares held in the name of a nominee or custodian under
pension, profit-sharing, or other employee benefit plans may not be combined
with other shares to qualify for the right of accumulation.

Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or
of any other MLAM-advised mutual funds made within a 13-month period starting
with the first purchase pursuant to a Letter of Intention in the form
provided in the Prospectus. The Letter of Intention is available only to
investors whose accounts are maintained at Merrill Lynch Financial Data
Services, Inc., the Fund's transfer agent (the "Transfer Agent"). The Letter
of Intention is not available to employee benefit plans for which Merrill
Lynch provides plan participant recordkeeping services. The Letter of
Intention is not a binding obligation to purchase any amount of Class A or
Class D shares but its execution will result in the purchaser paying a lower
sales charge at the appropriate quantity purchase level. A purchase not
originally made pursuant to a Letter of Intention may be included under a
subsequent Letter of Intention executed within 90 days of such purchase if
the Distributor is informed in writing of this intent within such 90-day
period. The value of Class A and Class D shares of the Fund and of other
MLAM-advised mutual funds presently held, at cost or maximum offering price
(whichever is higher), on the date of the first purchase under the Letter of
Intention, may be included as a credit toward the completion of such Letter,
but the reduced sales charge applicable to the amount covered by such Letter
will be applied only to new purchases. If the total amount of shares
purchased does not equal the amount stated in the Letter of Intention
(minimum of $25,000), the investor will be notified and must pay, within 20
days of the expiration of such Letter, the difference between the sales
charge on the Class A or Class D shares purchased at the reduced rate and the
sales charge applicable to the sales actually purchased through the Letter.
Class A or Class D shares equal to five percent of the intended amount will
be held in escrow during the 13-month period (while remaining registered in
the name of the purchaser) for this purpose. The first purchase under the
Letter of Intention must be at least five percent of the dollar amount of
such Letter. If a purchase during the term of such Letter otherwise would be
subject to a further reduced sales charge based on the right of accumulation,
the purchaser will be entitled on that purchase and subsequent purchases to
the reduced percentage sales charge which would be applicable to a single
purchase equal to the total dollar value of the Class A or Class D shares
then being purchased under such Letter, but there will be no retroactive
reduction of the sales charges on any previous purchase. The value of any
shares redeemed or otherwise disposed of by the purchaser prior to
termination or completion of the Letter of Intention will be deducted from
the total purchases made under such Letter. An exchange from a MLAM-advised
money market fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intention from the Fund.

Merrill Lynch Blueprint(Service Mark) Program. Class D shares of the
Fund are offered to participants in the Merrill Lynch Blueprint(Service Mark)
Program ("Blueprint"). In addition, participants in Blueprint who own Class
A shares of the Fund may purchase additional Class A shares of the Fund
through Blueprint. Blueprint is directed to small investors, group
Individual Retirement Accounts ("IRAs") and participants in certain affinity
groups such as credit unions, trade associations and benefit plans.
Investors placing orders to purchase Class A or Class D shares of the Fund
through Blueprint will acquire the Class A or Class D shares at net asset
value plus a sales charge calculated in accordance with the Blueprint sales
charge schedule (i.e., up to $5,000 at 3.50% and $5,000.01 or more at the
standard sales charge rates disclosed in the Prospectus). In addition,
Class A and Class D shares of the Fund are being offered at net asset value
plus a sales charge of .50% for corporate or group IRA programs placing
orders to purchase their Class A or Class D shares through Blueprint.
Services available to Class A and Class D investors through Blueprint,
including exchange privileges, may differ from those available to other
investors in Class A or Class D shares.

Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services,
a business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from Employee Sponsored Retirement and Savings
Plans (as defined below) whose trustee and/or plan sponsor has entered into
the Merrill Lynch Directed IRA Rollover Program Service Agreement.

Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum
initial or subsequent purchase requirements for participants who are part of
an automatic investment plan. Additional information concerning purchases
through Blueprint, including any annual fees and transaction charges, is
available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The
Blueprint(Service Mark) Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.

Employee Access(Service Mark) Accounts. Provided applicable threshold
requirements are met, either Class A or Class D shares are offered at net
asset value to Employee Access(Service Mark) Accounts available through
authorized employers. The initial minimum for such accounts is $500, except
that the initial minimum for shares purchased for such accounts pursuant to
the Automatic Investment Program is $50.

Purchase Privilege of Certain Persons. Directors of the Fund, directors
and trustees of other MLAM-advised mutual funds, ML & Co. and its
subsidiaries (the term "subsidiaries," when used herein with respect to ML &
Co., includes FAM, the Manager and certain other entities directly or
indirectly wholly owned and controlled by ML & Co.) and their directors and
employees, and any trust, pension, profit-sharing or other benefit plan for
such persons, may purchase Class A shares of the Fund at net asset value.

Class D shares of the Fund are offered at net asset value, without a
sales charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that
it will purchase Class D shares of the Fund with proceeds from a redemption
of a mutual fund that was sponsored by the financial consultant's previous
firm and was subject to a sales charge either at the time of purchase or on a
deferred basis; and second, the investor also must establish that such
redemption had been made within 60 days prior to the investment in the Fund,
and the proceeds from the redemption had been maintained in the interim in
cash or a money market fund.

Class D shares of the Fund are also offered at net asset value, without
a sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund sponsored by
a non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and the shares
of such other fund were subject to a sales charge either at the time of
purchase or on a deferred basis; and second, such purchase of Class D shares
must be made within 90 days after such notice.

Class D shares of the Fund are also offered at net asset value, without
a sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Fund with proceeds from the redemption of
shares of such other mutual fund and that such shares have been outstanding
for a period of no less than six months; and second, such purchase of Class D
shares must be made within 60 days after the redemption and the proceeds from
the redemption must be maintained in the interim in cash or a money market
fund.

TMA(Service Mark) Managed Trusts. Class A shares are offered to
TMA(Service Mark) Managed Trusts to which Merrill Lynch Trust Company
provides discretionary trustee services at net asset value.

Acquisition of Certain Investment Companies. The public offering price
of Class D shares of the Fund may be reduced to the net asset value per
Class D share in connection with the acquisition of the assets of or merger
or consolidation with a public or private investment company. The value of
the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund
that might result from an acquisition of assets having net unrealized appre-
ciation that is disproportionately higher at the time of acquisition than
the realized or unrealized appreciation of the Fund. The issuance of Class
D shares for consideration other than cash is limited to bona fide reorga-
nizations, statutory mergers or other acquisitions of portfolio securities
that (i) meet the investment objective and policies of the Fund; (ii) are
acquired for investment and not for resale (subject to the understanding that
the disposition of the Fund's portfolio securities shall at all times remain
within its control); and (iii) are liquid securities, the value of which is
readily ascertainable, that are not restricted as to transfer either by
law or liquidity of market (except that the Fund may acquire through such
transactions restricted or illiquid securities to the extent the Fund does
not exceed the applicable limits on acquisition of such securities set forth
under "Investment Objective and Policies" herein).

Reductions in or exemptions from the imposition of a sales load are due
to the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.

EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS

Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based
on the number of employees or number of employees eligible to participate in
the plan, the aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan. Certain other
plans may purchase Class B shares with a waiver of the contingent deferred
sales charge ("CDSC") upon redemption, based on similar criteria. Such
Class B shares will convert into Class D shares approximately ten years after
the plan purchases the first share of any MLAM-advised mutual fund. Minimum
purchase requirements may be waived or varied for such plans. Additional
information regarding purchases by employer-sponsored retirement or savings
plans and certain other arrangements is available toll-free from Merrill
Lynch Business Financial Services at (800) 237-7777.

DISTRIBUTION PLANS

Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under
the Investment Company Act (each a "Distribution Plan") with respect to the
account maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.

Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act.
Among other things, each Distribution Plan provides that the Distributor
shall provide and the Directors shall review quarterly reports of the
disbursement of the account maintenance fees and/or distribution fees paid to
the Distributor. In their consideration of each Distribution Plan, the
Directors must consider all factors they deem relevant, including information
as to the benefits of the Distribution Plan to the Fund and its related class
of shareholders. Each Distribution Plan further provides that so long as the
Distribution Plan remains in effect, the selection and nomination of
Directors who are not "interested persons" of the Fund, as defined in the
Investment Company Act (the "Independent Directors"), shall be committed to
the discretion of the Independent Directors then in office. In approving
each Distribution Plan in accordance with Rule 12b-1, the Independent
Directors concluded that there is a reasonable likelihood that such
Distribution Plan will benefit the Fund and its related class of
shareholders. Each Distribution Plan can be terminated at any time, without
penalty, by the vote of a majority of the Independent Directors or by the
vote of the holders of a majority of the outstanding related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in such
Distribution Plan, cast in person at a meeting called for that purpose. Rule
12b-1 further requires that the Fund preserve copies of each Distribution
Plan and any report made pursuant to such plan for a period of not less than
six years from the date of such Distribution Plan or such report, the first
two years in an easily accessible place.

LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES

The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by the Class B and Class C shares but not the account maintenance
fee. The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend
reinvestments and exchanges), plus (2) interest on the unpaid balance for the
respective class, computed separately, at the prime rate plus 1% (the unpaid
balance being the maximum amount payable minus amounts received from the
payment of the distribution fee and the CDSC). In connection with the
Class B shares, the Distributor has voluntarily agreed to waive interest
charges on the unpaid balance in excess of 0.50% of eligible gross sales.
Consequently, the maximum amount payable to the Distributor (referred to as
the "voluntary maximum") in connection with the Class B shares is 6.75% of
eligible gross sales. The Distributor retains the right to stop waiving the
interest charges at any time. To the extent payments would exceed the
voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid
to the Fund rather than to the Distributor; however, the Fund will continue
to make payments of the account maintenance fee. In certain circumstances
the amount payable pursuant to the voluntary maximum may exceed the amount
payable under the NASD formula In such circumstances payment in excess of the
amount payable under the NASD formula will not be made.

REDEMPTION OF SHARES

Reference is made to "Redemption of Shares" in the Prospectus for
certain information as to the redemption and repurchase of Fund shares.

The right to redeem shares or to receive payment with respect to any
such redemption may be suspended for more than seven days after the tender of
such shares only for periods during which trading on the NYSE is restricted
as determined by the Commission or such Exchange is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists, as defined by the Commission, as a result of which disposal
of portfolio securities or determination of the net asset value of the Fund
is not reasonably practicable, and for such other periods as the Commission
may by order permit for the protection of shareholders of the Fund.

DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES

As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares," while Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived (i) on redemptions of Class B shares in
certain instances, including in connection with certain post-retirement
withdrawals from an IRA or other retirement plan or (ii) on redemptions of
Class B shares following the death or disability of a Class B shareholder.
Redemptions for which the waiver applies in the case of such withdrawals are:
(a) any partial or complete redemption in connection with a tax-free
distribution following retirement under a tax-deferred retirement plan or
attaining age 591/2 in the case of an IRA or other retirement plan, or part
of a series of equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) or any redemption resulting from the
tax-free return of an excess contribution to an IRA; or (b) any partial or
complete redemption following the death or disability (as defined in the
Code) of a Class B shareholder (including one who owns the Class B shares as
joint tenant with his or her spouse), provided the redemption is requested
within one year of the death or initial determination of disability.

Merrill Lynch Blueprint(Service Mark) Program. Class B shares are
offered to certain participants in the Blueprint(Service Mark) Program.
Blueprint is directed to small investors, group IRAs and participants in
certain affinity groups such as trade associations and credit unions.
Class B shares of the Fund are offered through Blueprint only to members of
certain affinity groups. The CDSC is waived in connection with purchase
orders placed through Blueprint. Services, including the exchange privilege,
available to Class B investors through Blueprint, however, may differ from
those available to other Class B investors. Orders for purchases and
redemptions of Class B shares of the Fund will be grouped for execution
purposes which, in some circumstances, may involve the execution of such
orders two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for subsequent
purchases through Blueprint. There is no minimum initial or subsequent
purchase requirement for investors who are part of a Blueprint automatic
investment plan. Additional information concerning these Blueprint programs,
including any annual fees or transaction charges, is available from Merrill
Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(Service Mark)
Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to policies established by the Board of Directors of the Fund,
the Manager is primarily responsible for the execution of the Fund's
portfolio transactions and the allocation of brokerage. In executing such
transactions, the Manager seeks to obtain the best net results for the Fund,
taking into account such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Manager generally seeks
reasonably competitive commission rates, the Fund does not necessarily pay
the lowest commission or spread available. The Fund has no obligation to
deal with any broker or group of brokers in execution of transactions in
portfolio securities. Subject to obtaining the best price and execution,
brokers who provide supplemental investment research to the Manager may
receive orders for transactions by the Fund. Information so received will be
in addition to and not in lieu of the services required to be performed by
the Manager under the Management Agreement and the expenses of the Manager
will not necessarily be reduced as a result of the receipt of such
supplemental information. It is possible that certain supplementary
investment research so received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised. Conversely, the Fund may be the primary beneficiary of the
research or services received as a result of portfolio transactions effected
for such other accounts or investment companies. In addition, consistent
with the Conduct Rules of the NASD and policies established by the Board of
Directors of the Fund, the Manager may consider sales of shares of the Fund
as a factor in the selection of brokers or dealers to execute portfolio
transactions for the Fund.

The Fund does not use any particular broker or dealer, and brokers who
provide supplemental investment research to the Manager may receive orders
for transactions by the Fund. Such supplemental research services ordinarily
consist of assessments and analyses of the business or prospects of a
company, industry or economic sector. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Manager under the Management Agreement. If in the judgment of the Manager
the Fund will benefit from supplemental research services, the Manager is
authorized to pay brokerage commissions to a broker furnishing such services
that are in excess of commissions that another broker may have charged for
effecting the same transaction. The expenses of the Manager will not
necessarily be reduced as a result of the receipt of such supplemental
information, and the Manager may use such information in servicing its other
accounts. Whether or not a particular broker-dealer sells shares of the Fund
neither qualifies nor disqualifies such broker-dealer to execute transactions
for the Fund.

The Fund anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the United States
will be conducted primarily on the principal stock exchanges of such
countries. Brokerage commissions and other transaction costs on foreign
stock exchange transactions are generally higher than in the United States,
although the Fund will endeavor to achieve the best net results in effecting
its portfolio transactions. There is generally less governmental supervision
and regulation of foreign stock exchanges and brokers than in the United
States.

Foreign equity securities may be held by the Fund in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") or other securities convertible into
foreign equity securities. ADRs, EDRs and GDRs may be listed on stock
exchanges, or traded in over-the-counter markets in the United States or
Europe, as the case may be. ADRs, like other securities traded in the United
States, will be subject to negotiated commission rates.

The Fund may invest in certain securities traded in the over-the-counter
market and intends to deal directly with the dealers who make a market in the
securities involved, except in those circumstances in which better prices and
execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Fund and persons who are affiliated with such affiliated
persons are prohibited from dealing with the Fund as principal in the
purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the Commission. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own accounts, the Fund will not deal with affiliated
persons, including Merrill Lynch and its affiliates, in connection with such
transactions. However, an affiliated person of the Fund may serve as its
broker in over-the-counter transactions conducted on an agency basis provided
that, among other things, the fee or commission received by such affiliated
broker is reasonable and fair compared to the fee or commission received by
non-affiliated brokers in connection with comparable transactions. See
"Investment Objective and Policies--Investment Restrictions." For the fiscal
year ended December 31, 1994, the Fund paid aggregate commissions of
$170,953, $60,694 or 35.5% of which was paid to Merrill Lynch for effecting
36.0% of the aggregate amount of transactions in which the Fund paid brokerage
commissions. For the fiscal year ended December 31, 1995, the Fund paid
aggregate commissions of $186,888, $78,106 or 41.8% of which was paid to
Merrill Lynch for effecting 37.6% of the aggregate dollar amount of
transactions in which the Fund paid brokerage commissions. For the fiscal
year ended December 31, 1996, the Fund paid aggregate commissions of
$548,586, $177,887 or 32.4% of which was paid to Merrill Lynch for effecting
33.9% of the aggregate dollar amount of transactions in which the Fund paid
brokerage commissions. During such periods, however, the Fund operated as a
closed-end investment company and, consequently, such amounts may not
necessarily be indicative of the costs of future brokerage commissions for
the Fund.

The Fund's ability and decisions to purchase or sell portfolio
securities may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Because the shares of the Fund
are redeemable on a daily basis in United States dollars, the Fund intends to
manage its portfolio so as to give reasonable assurance that it will be able
to obtain United States dollars to the extent necessary to meet anticipated
redemptions. Under present conditions, it is not believed that these
considerations will have any significant effect on its portfolio strategy.

Section 11(a) of the Securities Exchange Act of 1934, as amended,
generally prohibits members of the United States national securities
exchanges from executing exchange transactions for their affiliates and
institutional accounts which they manage unless the member (i) has obtained
prior express authorization from the account to effect such transactions,
(ii) at least annually furnishes the account with the aggregate compensation
received by the member in effecting such transactions, and (iii) complies
with any rules the Commission has prescribed with respect to the requirements
of clauses (i) and (ii). To the extent Section 11(a) would apply to Merrill
Lynch acting as a broker for the Fund in any of its portfolio transactions
executed on any such securities exchange of which it is a member, appropriate
consents have been obtained from the Fund and annual statements as to
aggregate compensation will be provided to the Fund.

The Board of Directors of the Fund has considered the possibility of
seeking to recapture for the benefit of the Fund brokerage commissions and
other expenses of possible portfolio transactions by conducting portfolio
transactions through affiliated entities. For example, brokerage commissions
received by affiliated brokers could be offset against the advisory fee paid
by the Fund to the Manager. After considering all factors deemed relevant,
the Board of Directors made a determination not to seek such recapture. The
Board will reconsider this matter from time to time.

DETERMINATION OF NET ASSET VALUE

The net asset value of the shares of the Fund will be determined by the
Manager once daily Monday through Friday, as of 15 minutes after the close of
business on the NYSE (generally, 4:00 p.m., New York time), on each day
during which the NYSE is open for trading. The NYSE is not open on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Any assets or liabilities
initially expressed in terms of non-U.S. dollar currencies are translated
into U.S. dollars at the prevailing market rates as quoted by one or more
banks or dealers on the day of valuation. The Fund also will determine its
net asset value on any day in which there is sufficient trading in its
portfolio securities that the net asset value might be affected materially,
but only if on any such day the Fund is required to sell or redeem shares.
Net asset value is computed by dividing the value of the securities held by
the Fund plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares outstanding at such time. Expenses,
including the investment advisory fees and any account maintenance and/or
distribution fees, are accrued daily. The per share net asset value of Class
B, Class C and Class D shares generally will be lower than the per share net
asset value of Class A shares, reflecting the daily expense accruals of the
account maintenance, distribution and higher transfer agency fees applicable
with respect to Class B and Class C shares and the daily expense accruals of
the account maintenance fees applicable with respect to Class D shares;
moreover, the per share net asset value of Class B and Class C shares
generally will be lower than the per share net asset value of Class D shares,
reflecting the daily expense accruals of the distribution fees and higher
transfer agency fees applicable with respect to Class B and Class C shares of
the Fund. It is expected, however, that the per share net asset value of the
four classes will tend to converge (although not necessarily meet)
immediately after the payment of dividends or distributions, which will
differ by approximately the amount of the expense accrual differentials
between the classes.

Portfolio securities that are traded on stock exchanges are valued at
the last sale price (regular way) on the exchange on which such securities
are traded, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors
as the primary market. Securities traded in the OTC market are valued at the
last available bid price in the OTC market prior to the time of valuation.
Portfolio securities that are traded both in the OTC market and on a stock
exchange are valued according to the broadest and most representative market.
When the Fund writes an option, the amount of the premium received is
recorded on the books of the Fund as an asset and an equivalent liability.
The amount of the liability is subsequently valued to reflect the current
market value of the option written, based upon the last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last asked price. Options purchased by the Fund are valued at
their last sale price in the case of exchange-traded options or, in the case
of options traded in the OTC market, the last bid price. Other investments,
including financial futures contracts and related options, are valued at
market value. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund. Such valuations
and procedures will be reviewed periodically by the Board of Directors.

Generally, trading in foreign securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day
at various times prior to the close of business on the NYSE. The values of
such securities used in computing the net asset value of the Fund's shares
are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of business on the NYSE that will not be reflected in the
computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by the
Directors.

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services described below which
are designed to facilitate investment in its shares. Full details as to each
of such services and copies of the various plans described below can be
obtained from the Fund, the Distributor or Merrill Lynch. Certain of these
services are available only to U.S. investors.

INVESTMENT ACCOUNT

Each shareholder whose account is maintained at the Transfer Agent has
an Investment Account and will receive statements, at least quarterly, from
the Transfer Agent. The statements will serve as transaction confirmations
for automatic investment purchases and the reinvestment of ordinary income
dividends and capital gain distributions. The statements also will show any
other activity in the account since the preceding statement. Shareholders
will receive separate transaction confirmations for each purchase or sale
transaction other than automatic investment purchases, the reinvestment of
ordinary income dividends and long-term capital gain distributions. A
shareholder may make additions to his or her Investment Account at any time
by mailing a check directly to the Fund's Transfer Agent.

Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing
all or only part of the full shares in an Investment Account may be requested
by shareholders directly from the Transfer Agent.

Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should
be aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder
either must redeem the Class A or Class D shares so that the cash proceeds
can be transferred to the account at the new firm or such shareholder must
continue to maintain an Investment Account at the Transfer Agent for those
Class A or Class D shares. Shareholders interested in transferring their
Class B or Class C shares from Merrill Lynch and who do not wish to have an
Investment Account maintained for such shares at the Transfer Agent may
request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the
shareholder. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he or she be
issued certificates for the shares and then must turn the certificates over
to the new firm for re-registration as described in the preceding sentence.
Shareholders considering transferring a tax-deferred retirement account such
as an IRA from Merrill Lynch to another brokerage firm or financial
institution should be aware that, if the firm to which the retirement account
is to be transferred will not take delivery of shares of the Fund, a sharehol-
der must either redeem the shares (paying any applicable CDSC) so that the
cash proceeds can be transferred to the account at the new firm, or such share-
holder must continue to maintain a retirement account at Merrill Lynch for
those shares. A shareholder may make additions to his or her Investment
Account at any time by mailing a check directly to the Transfer Agent.

AUTOMATIC INVESTMENT PLANS

A U.S. shareholder may make additions to an Investment Account at any
time by purchasing Class A shares (if an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer, or by mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Fund's Automatic Investment Plan whereby the Fund is authorized
through pre-authorized checks or automated clearing house debits of $50 or
more to charge the regular bank account of the shareholder on a regular basis
to provide systematic additions to the Investment Account of such
shareholder. An investor whose shares of the Fund are held within a
CMA(Registered Trademark) or CBA(Registered Trademark) account may arrange to
have periodic investments made in the Fund in amounts of $100 or more ($1 for
retirement accounts) through the CMA(Registered Trademark) or CBA(Registered
Trademark) Automated Investment Program.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Unless specific instructions to the contrary are given as to the method
of payment of dividends and capital gains distributions, dividends and
distributions will be automatically reinvested in additional shares of the
Fund. Such reinvestment will be at the net asset value of shares of the
Fund, without a sales charge, as of the close of business on the ex-dividend
date of the dividend or distribution. Shareholders may elect in writing to
receive either their dividends or capital gains distributions, or both, in
cash, in which event payment will be mailed on or about the payment date.
Cash payments also can be directly deposited to the shareholder's bank
account.

Shareholders may, at any time, notify the Transfer Agent in writing or
by telephone (1-800-MER-FUND) that they no longer wish to have their
dividends and/or capital gains distributions reinvested in shares of the Fund
or vice versa and, commencing ten days after the receipt by the Transfer
Agent of such notice, those instructions will be effected.

SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES

A Class A or Class D shareholder may elect to make systematic
withdrawals from an Investment Account on either a monthly or quarterly basis
as provided below. Quarterly withdrawals are available for shareholders who
have acquired Class A or Class D shares of the Fund having a value, based on
cost or the current offering price, of $5,000 or more, and monthly
withdrawals are available for shareholders with Class A or Class D shares
with such a value of $10,000 or more.

At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder
may specify either a dollar amount or a percentage of the value of his
Class A or Class D shares. Redemptions will be made at net asset value as
determined at the close of business on the NYSE (generally, 4:00 p.m., New
York time) on the 24th day of each month or the 24th day of the last month of
each quarter, whichever is applicable. If the NYSE is not open for business
on such date, the Class A or Class D shares will be redeemed at the close of
business on the following business day. The check for the withdrawal payment
will be mailed, or the direct deposit for the withdrawal payment will be
made, on the next business day following redemption. When a shareholder is
making systematic withdrawals, dividends on all Class A or Class D shares in
the Investment Account are reinvested automatically in the Fund Class A or
Class D shares, respectively. A shareholder's Systematic Withdrawal Plan may
be terminated at any time, without charge or penalty, by the shareholder, the
Fund, the Transfer Agent or the Distributor.

Withdrawal payments should not be considered as dividends, yield or
income. Each withdrawal is a taxable event. If periodic withdrawals
continuously exceed reinvested dividends, the shareholder's original
investment may be reduced correspondingly. Purchases of additional Class A
or Class D shares concurrent with withdrawals are ordinarily disadvantageous
to the shareholder because of sales charges and tax liabilities. The Fund
will not knowingly accept purchase orders for Class A or Class D shares of
the Fund from investors who maintain a Systematic Withdrawal Plan unless such
purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Periodic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.

Alternatively, a Class A or Class D shareholder whose shares are held
within a CMA(Registered Trademark), CBA(Registered Trademark) or Retirement
Account may elect to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the CMA(Registered Trademark) or
CBA(Registered Trademark) Systematic Redemption Program. The minimum fixed
dollar amount redeemable is $25. The proceeds of systematic redemptions will
be posted to the shareholder's account five business days after the date the
shares are redeemed. Monthly systematic redemptions will be made at net
asset value on the first Monday of each month; bimonthly systematic
redemptions will be made at net asset value on the first Monday of every
other month; and quarterly, semiannual or annual redemptions are made at net
asset value on the first Monday of months selected at the shareholder's
option. If the first Monday of the month is a holiday, the redemption will
be processed at net asset value on the next business day. The Systematic
Redemption Program is not available if Fund shares are being purchased within
the account pursuant to the Automatic Investment Program. For more
information on the CMA(Registered Trademark) or CBA(Registered Trademark)
Systematic Redemption Program, eligible shareholders should contact their
Merrill Lynch Financial Consultant.

EXCHANGE PRIVILEGE

U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds. Under the Merrill
Lynch Select Pricing(Service Mark) System, Class A shareholders may exchange
Class A shares of the Fund for Class A shares of a second MLAM-advised mutual
fund if the shareholder holds any Class A shares of the second fund in the
account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the
Class A shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund, but does not hold Class A shares of the second fund
in his or her account at the time of the exchange and is not otherwise
eligible to acquire Class A shares of the second fund, the shareholder will
receive Class D shares of the second fund as a result of the exchange.
Class D shares also may be exchanged for Class A shares of a second
MLAM-advised mutual fund at any time as long as, at the time of the exchange,
the shareholder holds Class A shares of the second fund in the account in
which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class B, Class C and Class D shares are
exchangeable with shares of the same class of other MLAM-advised mutual
funds. For purposes of computing the CDSC that may be payable upon a
disposition of the shares acquired in the exchange, the holding period for
the previously owned shares of the Fund is "tacked" to the holding period of
the newly acquired shares of the other fund as more fully described below.
Class A, Class B, Class C and Class D shares also are exchangeable for shares
of certain MLAM-advised money market funds as follows: Class A shares may be
exchanged for shares of Merrill Lynch Ready Assets Trust, Merrill Lynch
Retirement Reserves Money Fund (available only for exchanges within certain
retirement plans), Merrill Lynch U.S.A. Government Reserves and Merrill Lynch
U.S. Treasury Money Fund; Class B, Class C and Class D shares may be
exchanged for shares of Merrill Lynch Government Fund, Merrill Lynch
Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund and Merrill
Lynch Treasury Fund. Shares with a net asset value of at least $100 are
required to qualify for the exchange privilege, and any shares utilized in an
exchange must have been held by the shareholder for 15 days. It is
contemplated that the exchange privilege may be applicable to other new
mutual funds whose shares may be distributed by the Distributor.

Exchanges of Class A or Class D shares outstanding ("outstanding Class A
or Class D shares") for Class A or Class D shares of another MLAM-advised
mutual fund ("new Class A or Class D shares") are transacted on the basis of
relative net asset value per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the outstanding Class A or Class D shares and the sales charge
payable at the time of the exchange on the new Class A or Class D shares.
With respect to outstanding Class A or Class D shares as to which previous
exchanges have taken place, the "sales charge previously paid" shall include
the aggregate of the sales charges paid with respect to such Class A or
Class D shares in the initial purchase and any subsequent exchange. Class A
or Class D shares issued pursuant to dividend reinvestment are sold on a
no-load basis in each of the funds offering Class A or Class D shares. For
purposes of the exchange privilege, Class A and Class D shares acquired
through dividend reinvestment shall be deemed to have been sold with a sales
charge equal to the sales charge previously paid on the Class A or Class D
shares on which the dividend was paid. Based on this formula, Class A and
Class D shares of the Fund generally will be exchanged into the Class A or
Class D shares of the other funds or into shares of certain money market
funds without a sales charge.

In addition, each of the funds with Class B and Class C shares
outstanding ("outstanding Class B or Class C shares") offers to exchange its
Class B or Class C shares for Class B or Class C shares, respectively, of
another MLAM-advised mutual fund ("new Class B or Class C shares") on the basis
of relative net asset value per Class B or Class C share, without the payment
of any CDSC that might otherwise be due on redemption of the outstanding Class
B or Class C shares. Class B shareholders of the Fund exercising the exchange
privilege will continue to be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the new Class B shares
acquired through use of the exchange privilege. In addition, Class B or
Class C shares of the Fund acquired through use of the exchange privilege
will be subject to the Fund's CDSC schedule if such schedule is higher than
the CDSC schedule relating to the Class B or Class C shares of the fund from
which the exchange has been made. For purposes of computing the sales load
that may be payable on a disposition of the new Class B or Class C shares,
the holding period for the outstanding Class B or Class C shares is "tacked"
to the holding period of the new Class B or Class C shares. For example, an
investor may exchange Class B or Class C shares of the Fund for those of
Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having
held the Fund's Class B shares for two and a half years. The 2% CDSC that
generally would apply to a redemption would not apply to the exchange. Three
years later the investor may decide to redeem the Class B shares of Special
Value Fund and receive cash. There will be no CDSC due on this redemption,
since by "tacking" the two and a half year holding period of the Fund Class B
shares to the three year holding period for the Special Value Fund Class B
shares, the investor will be deemed to have held the Special Value Fund
Class B shares for more than five years.

Shareholders also may exchange shares of the Fund into shares of certain
money market funds advised by the Manager or its affiliates, but the period
of time that Class B or Class C shares are held in a money market fund will
not count towards satisfaction of the holding period requirement for purposes
of reducing the CDSC or, with respect to Class B shares, towards satisfaction
of the conversion period. However, shares of a money market fund which were
acquired as a result of an exchange for Class B or Class C shares of the Fund
may, in turn, be exchanged back into Class B or Class C shares, respectively,
of any fund offering such shares, in which event the holding period for
Class B or Class C shares of the newly acquired fund will be aggregated with
previous holding periods for purposes of reducing the CDSC. Thus, for
example, an investor may exchange Class B shares of the Fund for shares of
Merrill Lynch Institutional Fund ("Institutional Fund") after having held the
Fund Class B shares for two and a half years and three years later decide to
redeem the shares of Institutional Fund for cash. At the time of this
redemption, the 2% CDSC that would have been due had the Class B shares of
the Fund been redeemed for cash rather than exchanged for shares of
Institutional Fund will be payable. If, instead of such redemption the
shareholder exchanged such shares for Class B shares of a fund which the
shareholder continued to hold for an additional two and a half years, any
subsequent redemption would not incur a CDSC.

Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.

To exercise the exchange privilege, a shareholder should contact his or
her Merrill Lynch Financial Consultant, who will advise the Fund of the
exchange. Shareholders of the Fund, and shareholders of other MLAM-advised
mutual funds with shares for which certificates have not been issued, may
exercise the exchange privilege by wire through their securities dealers.
The Fund reserves the right to require a properly completed Exchange
Application. This exchange privilege may be modified or terminated in
accordance with the rules of the Commission. The Fund reserves the right to
limit the number of times an investor may exercise the exchange privilege.
Certain funds may suspend the offering of their shares to the general public
at any time and thereafter may resume such offering from time to time. The
exchange privilege is available only to U.S. shareholders in states where the
exchange legally may be made.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to distribute substantially all its net investment
income, if any. Dividends from such net investment income will be paid at
least annually. All net realized long- or short-term capital gains, if any,
will be distributed to the Fund's shareholders at least annually. From time
to time, the Fund may declare a special distribution at or about the end of
the calendar year in order to comply with Federal tax requirements that
certain percentages of its ordinary income and capital gains be distributed
during the calendar year. If in any fiscal year, the Fund has net income
from certain foreign currency transactions, such income will be distributed
at least annually.

See "Shareholder Services--Automatic Reinvestment of Dividends and
Capital Gains Distributions" for information concerning the manner in which
dividends and distributions may be reinvested automatically in shares of the
Fund. A shareholder whose account is maintained at the Transfer Agent or
whose account is maintained through Merrill Lynch may elect in writing to
receive any such dividends or distributions, or both, in cash. Dividends and
distributions are taxable to shareholders, as discussed below, whether they
are reinvested in shares of the Fund or received in cash. The per share
dividends on each class of shares will be reduced as a result of any account
maintenance, distribution and transfer agency fees applicable with respect to
such class of shares. See "Determination of Net Asset Value."

TAXES

The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as
it so qualifies, the Fund (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains that it distributes to Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). The Fund intends to distribute
substantially all of such income.

Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. A portion of the Fund's ordinary income dividends may be eligible
for the dividends received deduction allowed to corporations under the Code,
if certain requirements are met. For this purpose, the Fund will allocate
dividends eligible for the dividends received deduction among the Class A,
Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Commission rule permitting the issuance and
sale of multiple classes of stock) that is based on the gross income
allocable to Class A, Class B, Class C and Class D shareholders during the
taxable year, or such other method as the Internal Revenue Service may
prescribe. If the Fund pays a dividend in January that was declared in the
previous October, November or December to shareholders of record on a
specified date in one of such months, then such dividend will be treated for
tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.

Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Shareholders may be able to claim United States foreign tax credits with
respect to such taxes, subject to certain conditions and limitations
contained in the Code. For example, certain retirement accounts cannot claim
foreign tax credits on investments in foreign securities held in the Fund.
If more than 50% in value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund
will be eligible, and intends, to file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to
include their proportionate shares of such withholding taxes in their United
States income tax returns as gross income, treat such proportionate shares as
taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against
their United States income taxes. No deductions for foreign taxes, however,
may be claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation
may be subject to U.S. withholding tax on the income resulting from the
Fund's election described in this paragraph but may not be able to claim a
credit or deduction against such U.S. tax for the foreign taxes treated as
having been paid by such shareholder. The Fund will report annually to its
shareholders the amount per share of such withholding taxes. For this
purpose, the Fund will allocate foreign taxes and foreign source income among
the Class A, Class B, Class C and Class D shareholders according to a method
similar to that described above for the allocation of dividends eligible for
the dividends received deduction.

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 may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield/high risk securities"), as described in the
Prospectus. Some of these high yield/high risk securities 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 high yield/high risk securities may
be treated as dividends for Federal income tax purposes; in such case, if the
issuer of such high yield/high risk securities is a domestic corporation,
dividend payments by the Fund will be eligible for the dividends received
deduction to the extent of the deemed dividend portion of such interest
payments.

The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company
(or similar investment entity) organized under foreign law, the Fund will be
treated as owning shares in a passive foreign investment company ("PFIC") for
U.S. Federal income tax purposes. The Fund may be subject to U.S. Federal
income tax, and an additional tax in the nature of interest (the "interest
charge"), on a portion of the distributions from such a company and on gain
from the disposition of the shares of such a company (collectively referred
to as "excess distributions"), even if such excess distributions are paid by
the Fund as a dividend to its shareholders. The Fund may be eligible to make
an election with respect to certain PFICs in which it owns shares that will
allow it to avoid the taxes on excess distributions. However, such election
may cause the Fund to recognize income in a particular year in excess of the
distributions received from such PFICs. Alternatively, under proposed
regulations the Fund would be able to elect to "mark to market" at the end of
each taxable year all shares that it holds in PFICs. If it made this
election, the Fund would recognize as ordinary income any increase in the
value of such shares. Unrealized losses, however, would not be recognized.
By making the mark-to-market election, the Fund could avoid imposition of the
interest charge with respect to its distributions from PFICs, but in any par-
ticular year might be required to recognize income in excess of the distribu-
tions it received from PFICs and its proceeds from dispositions of PFIC stock.

TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS

The Fund may write (i.e., sell), purchase or sell options, futures and
forward foreign exchange contracts. 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 option or futures
contract will be treated as sold for its fair market value on the last day of
the taxable year. Unless such contract is a forward foreign exchange
contract, or is a non-equity option or a regulated futures contract for a
non-U.S. currency for which the Fund elects to have gain or loss treated as
ordinary gain or loss under Code Section 988 (as described below), gain or
loss from Section 1256 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.

A forward foreign exchange contract that is a Section 1256 contract will
be marked to market, as described above. However, the character of gain or
loss from such a contract will generally be ordinary under Code Section 988.
The Fund may, nonetheless, elect to treat the gain or loss from certain
forward foreign exchange contracts as capital. In this case, gain or loss
realized in connection with a forward foreign exchange contract that is a
Section 1256 contract will be characterized as 60% long-term and 40%
short-term capital gain or loss.

Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options,
futures and forward foreign exchange contracts. 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 forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30%
of the Fund's gross income be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Fund may be restricted in effecting closing transactions within three months
after entering into an option or futures contract.

SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS

In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stocks, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of
a foreign currency instrument or how foreign currency options, futures, or
forward foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the Fund.

Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are
not "regulated futures contracts" and from unlisted options will be treated
as ordinary income or loss under Code Section 988. In certain circumstances,
the Fund may elect capital gain or loss treatment for such transactions.
Regulated futures contracts, as described above, will be taxed under Code
Section 1256 unless application of Section 988 is elected by the Fund. In
general, however, Code Section 988 gains or losses will increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, the Fund would not be able to make any ordinary income dividend
distributions, and all or a portion of distributions made before the losses
were realized but in the same taxable year would be recharacterized as a
return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than such shareholder's basis in Fund
shares (assuming the shares were held as a capital asset). These rules and
the mark-to-market rules described above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the risk of currency
fluctuations with respect to its investments.

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

Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.

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

PERFORMANCE DATA

From time to time the Fund may include its average annual total return
and other total return data in advertisements or information furnished to
present or prospective shareholders. Total return figures are based on the
Fund's historical performance and are not intended to indicate future
performance. Average annual total return is determined separately for
Class A, Class B, Class C and Class D shares in accordance with formulas
specified by the Commission.

Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on
net investment income and any realized and unrealized capital gains or losses
on portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of each
period. Average annual total return is computed assuming all dividends are
reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and
Class D shares and the CDSC that would be applicable to a complete redemption
of the investment at the end of the specified period in the case of Class B
and Class C shares.

The Fund also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and
as a dollar amount based on a hypothetical $1,000 investment, for various
periods other than those noted below. Such data will be computed as
described above, except that (i) as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather than average
annual data, may be quoted and (ii) the maximum applicable sales charges will
not be included with respect to annual or annualized rates of return
calculations. Aside from the impact on the performance data calculations of
including or excluding the maximum applicable sales charges, actual annual or
annualized total return data generally will be lower than average annual
total return data since the average rates of return reflect compounding of
return; aggregate total return data generally will be higher than average
annual total return data since the aggregate rates of return reflect
compounding over a longer period of time.

Set forth in the table below is total return information for the Class A
shares of the Fund for the periods indicated.

<TABLE>
<CAPTION> Class A Shares*
Redeemable value
Expressed as a of a hypothetical
percentage based $1,000 investment at
on a hypothetical the end of the
Period $1,000 investment period
Average Annual Total Return
<S> (including maximum applicable sales charges)
One Year Ended <C> <C>
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 14.27% $1,142.70
Five Years Ended
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 10.30% $1,632.20
Ten Years Ended
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 5.13% $1,649.90
Inception (August 2, 1985)
to December 31, 1996 . . . . . . . . . . . . . . . . . . . . 6.68% $2,093.60
Annual Total Return
(excluding maximum applicable sales charges)
Year Ended December 31,
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.60% $1,206.00
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.44% $1,244.40
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15.68)% $ 843.20
1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.94% $1,139.40
1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.48% $1,194.80
1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.24% $1,422.40
1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24.21)% $ 757.90
1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.46% $1,164.60
1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.36% $1,023.60
1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21.34)% $ 786.60
1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.13% $1,141.30
Inception (August 2, 1985)
to December 31, 1985 . . . . . . . . . . . . . . . . . . . . 11.18% $1,111.80
Aggregate Total Return
(including maximum applicable sales charges)
Inception (August 2, 1985)
to December 31, 1996 . . . . . . . . . . . . . . . . . . . . 109.36% $2,093.60

</TABLE>
________________
* During such periods, the Fund operated as a closed-end investment
company. Performance data information is currently unavailable for
Class B, Class C and Class D shares since Class B, Class C and Class D
shares had not commenced operations prior to the date of this Statement
of Additional Information. On (August 4), 1997, the Fund converted to
an open-end investment company and shares outstanding as of that date
were designated Class A.

In order to reflect the reduced sales charges in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of
Shares" and "Redemption of Shares," respectively, the total return data
quoted by the Fund in advertisements directed to such investors may take into
account the reduced, and not the maximum, sales charge or may not take into
account the CDSC and therefore may reflect greater total return since, due
to the reduced sales charges or the waiver of sales charges, a lower
amount of expenses is deducted.

GENERAL INFORMATION

DESCRIPTION OF SHARES

The Fund was incorporated under Maryland law on May 24, 1985 as a
closed-end investment company. On February 13, 1997, the shareholders of
the Fund voted to convert the Fund to an open-end investment company.
Amended and Restated Articles of Incorporation, effective as of (August 4),
1997, (i) convert the Fund to an open-end investment company, (ii) rename the
Fund "Merrill Lynch Convertible Fund, Inc." and (iii) increase the authorized
capital stock from 30,000,000 shares, par value $.10 per share, to 400,000,000
shares of Common Stock, par value $.10 per share. The shares of Common
Stock are divided into four classes designated Class A, Class B, Class C and
Class D Common Stock, each consisting of 100,000,000 shares. Shares of Class
A, Class B, Class C and Class D Common Stock represent an interest in the same
assets of the Fund and are identical in all respects except that the Class B,
Class C and Class D shares bear certain expenses related to the account
maintenance and/or distribution of such shares and have exclusive voting rights
with respect to matters relating to such expenditures. At the time of
conversion of the Fund into an open-end investment company, the Fund had
approximately ________ Capital Shares outstanding, all of which were
reclassified into shares of Class A Common Stock upon such conversion. The
Board of Directors of the Fund may classify and reclassify the shares of
the Fund into additional classes of Common Stock at a future date.

Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend
to hold annual meetings of shareholders in any year in which the Investment
Company Act does not require shareholders to act upon any of the following
matters: (i) election of Directors; (ii) approval of an investment advisory
agreement; (iii) approval of a distribution agreement; and (iv) ratification
of selection of independent accountants. Also, the by-laws of the Fund
require that a special meeting of shareholders be held upon the written
request of at least 10% of the outstanding shares of the Fund entitled to
vote at such meeting, if they comply with applicable Maryland law. Voting
rights for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive rights. Redemption and conversion
rights are discussed elsewhere herein and in the Prospectus. Each share of
Class B, Class C and Class D Common Stock is entitled to participate equally
in dividends and distributions declared by the Fund and in the net assets of
the Fund upon liquidation or dissolution after satisfaction of outstanding
liabilities. Stock certificates will be issued by the Transfer Agent only on
specific request. Certificates for fractional shares are not issued in any
case. Shareholders may, in accordance with Maryland law, cause a meeting of
shareholders to be held for the purpose of voting on the removal of Directors
at the request of 25% of the outstanding shares of the Fund. A director may
be removed at a special meeting of shareholders by a vote of a majority of
the votes entitled to be cast for the election of Directors.

COMPUTATION OF OFFERING PRICE PER SHARE

An illustration of the computation of the offering price for Class A
shares of the Fund based on the value of the Fund's net assets and number of
shares outstanding on December 31, 1996, is calculated as set forth below.
Information is not provided for Class B, Class C or Class D shares since no
shares of Class B, Class C or Class D were publicly offered prior to the date
of this Statement of Additional Information.

<TABLE>
<CAPTION> Class A
-------------
<S> <C>
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 181,484,467
=============

Number of Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,653,700
=============
Net Asset Value Per Share (net assets divided by
number of shares outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15.57
Shares Charge (5.25% of offering price (5.54% of
net asset value per share))* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
-------------
Offering Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16.43
=============

</TABLE>
_______________
* Rounded to the nearest one-hundredth percent; assumes maximum sales
charge is applicable.
INDEPENDENT AUDITORS

Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey
08540-6400, has been selected as the independent auditors of the Fund. The
selection of independent auditors is subject to approval by the Independent
Directors of the Fund. The independent auditors are responsible for auditing
the annual financial statements of the Fund.

CUSTODIAN

State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts
02101, acts as the Custodian of the Fund's assets. Under its contract with
the Fund, the Custodian is authorized, among other things, to establish
separate accounts in foreign currencies and to cause foreign securities owned
by the Fund to be held in its offices outside of the United States and with
certain foreign banks and securities depositories. The Custodian is
responsible for safeguarding and controlling the Fund's cash and securities,
handling the receipt and delivery of securities and collecting interest and
dividends on the Fund's investments.

TRANSFER AGENT

Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246 6484, acts as the Fund's Transfer Agent. The
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts.
See "Management of the Fund--Transfer Agency Services" in the Prospectus.

LEGAL COUNSEL

Brown & Wood LLP, One World Trade Center, New York New York 10048-0557,
is counsel for the Fund.

REPORTS TO SHAREHOLDERS

The fiscal year of the Fund ends on December 31 of each year. The Fund
sends to its shareholders at least semi-annually reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each
year. After the end of each year, shareholders will receive Federal income
tax information regarding dividends and capital gains distributions.

ADDITIONAL INFORMATION

The Prospectus and this Statement of Additional Information do not
contain all the information set forth in the Registration Statement and the
exhibits relating thereto, which the Fund has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act and the
Investment Company Act, to which reference is hereby made.

Under a separate agreement, ML & Co. has granted the Fund the right to
use the "Merrill Lynch" name and has reserved the right to withdraw its
consent to the use of such name by the Fund at any time or to grant the use
of such name to any other company, and the Fund has granted ML & Co., under
certain conditions, the use of any other name it might assume in the future,
with respect to any corporation organized by ML & Co.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

To the knowledge of the Fund, no person owned beneficially 5% or more of
the Fund's shares on , 1997.
-------

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders,
Convertible Holdings, Inc.:

We have audited the accompanying statement of assets, liabilities and
capital, including the schedule of investments, of Convertible Holdings, Inc.
as of December 31, 1996, the related statements of operations for the year
then ended and changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
five-year period then ended. These financial statements and the financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned at December 31, 1996 by correspondence with the custodian
and broker. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Convertible
Holdings, Inc. as of December 31, 1996, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.

Deloitte & Touche LLP
Princeton, New Jersey
February 14, 1997

<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of December 31, 1996
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Convertible Debentures Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C>
Automotive NR* Baa3 $ 1,900,000 Magna International Inc., 7.25% due 7/05/2005 $ 1,640,115 $ 1,906,934
Parts--1.2% BB- B1 2,000,000 Mascotech, Inc., 4.50% due 12/15/2003 1,565,000 1,640,000
------------ ------------
3,205,115 3,546,934

Computer/ Apple Computer, Inc.:
Business NR* NR* 1,750,000 6% due 6/01/2001 (d) 1,753,125 1,717,188
Equipment-- NR* NR* 3,500,000 6% due 6/01/2001 3,326,250 3,430,000
2.3% B- B2 1,500,000 Systems and Computer Technology Corp.,
6.25% due 9/01/2003 1,584,500 1,665,000
------------ ------------
6,663,875 6,812,188

Conglomerates BBB+ A3 2,500,000 Cooper Industries, Inc., 7.05%
- --3.3% due 1/01/2015 2,560,000 2,650,000
Polyphase Corporation++:
NR* NR* 1,000,000 12% due 12/01/1997 1,000,000 1,112,500
NR* NR* 2,000,000 12% due 7/01/1999 2,000,000 2,070,000
A- Ba2 3,000,000 Thermo Electron Corporation, 4.25% due
1/01/2003 3,465,000 3,682,500
------------ ------------
9,025,000 9,515,000
<PAGE>
Defense--0.5% NR* NR* 1,000,000 Diagnostic/Retrieval Systems, Inc., 9% due
10/01/2003*** 1,000,000 1,430,000

Energy--2.4% BB+ NR* 7,000,000 USX Corp., 7% due 6/15/2017 6,250,000 6,973,750

Environmental BBB+ Baa2 3,500,000 Laidlaw Inc., 6% due 1/15/1999 4,550,000 4,672,500
- --2.6% A- NR* 3,187,000 Thermo TerraTech, Inc., 4.625% due
5/01/2003 (d) 2,891,246 2,900,170
------------ ------------
7,441,246 7,572,670

Financial NR* NR* 2,750,000 Nal Acceptance Corp., 10% due 9/12/1998++ 2,750,000 3,437,500
Services-- NR* NR* 2,500,000 Pioneer Financial Services, Inc., 6.50% due
2.4% 4/01/2003 2,500,000 3,462,500
------------ ------------
5,250,000 6,900,000

Gaming--0.1% B- B3 377,000 Argosy Gaming Company, 12% due 6/01/2001 338,885 306,784

Health Care-- B B3 14,254,000 GranCare Inc., 6.50% due 1/15/2003 14,307,675 14,610,350
8.3% B- B2 6,000,000 Integrated Health Services Inc., 6% due
1/01/2003 5,640,000 5,820,000
BBB+ Ba1 4,122,000 Quantum Health Resources, Inc., 4.75% due
10/01/2000 3,547,597 3,709,800
------------ ------------
23,495,272 24,140,150

Home Building B- B2 2,200,000 Continental Homes Holding Corp., 6.875%
- --1.5% due 11/01/2002 2,200,000 2,318,250
BB- Ba3 751,000 Toll Brothers Inc., 4.75% due 1/15/2004 627,190 762,265
B+ B1 1,500,000 US Home Corp., 4.875% due11/01/2005 1,316,875 1,327,500
------------ ------------
4,144,065 4,408,015

Insurance-- NR* NR* 1,831,000 Statesman Group, Inc. (The), 6.25% due
0.7% 5/01/2003 1,920,886 1,927,128

Machinery-- B+ B1 2,700,000 Varlen Corp., 6.50% due 6/01/2003 2,746,250 2,700,000
0.9%
</TABLE>

<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of December 31, 1996 (continued)
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Convertible Debentures Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C>
Medical NR* NR* $ 1,500,000 US Diagnostic Labs, Inc., 9% due $ 1,500,000 $ 1,852,500
Services--0.6% 3/31/2003 (d)
<PAGE>
Medical NR* Ba3 250,000 Bindley Western Industries, Inc., 6.50% due
Supplies--0.1% 10/01/2002 253,750 270,000
NR* NR* 550,000 Phoenix Shannon PLC, 9.50% due 11/01/2000 (d) 550,000 68,750
------------ ------------
803,750 338,750

Oil Services NR* NR* 6,100,000 Key Energy Group Inc., 7.50% due 7/01/2003 (d) 6,447,063 7,442,000
- --3.0% BBB- Ba2 1,000,000 Nabors Industries, Inc., 5% due 5/15/2006 1,000,000 1,235,000
------------ ------------
7,447,063 8,677,000

Paper--1.0% NR* NR* 11,270,000 Kymmene Corporation, 8.25% due 11/18/2043 2,867,286 2,803,970

Printing--0.6% NR* B1 2,065,000 Graphic Industries, Inc., 7% due 5/15/2006 1,840,438 1,858,500

Real Estate NR* B3 1,500,000 Capstone Capital Trust, Inc., 10.50% due
Investment 4/01/2002 1,631,250 2,068,125
Trust--0.7%

Restaurants-- B- B3 1,000,000 Hometown Buffet Inc., 7% due 12/01/2002 1,000,000 1,027,500
0.4%

Retail Stores B- B3 1,725,000 Baby Superstore Inc., 4.875% due 10/01/2000 1,677,313 1,707,750
- --4.3% B- B3 2,475,000 Baker (J.) Inc., 7% due 6/01/2002 1,936,267 1,980,000
A+ A1 4,000,000 Home Depot, Inc., 3.25% due 10/01/2001 4,000,000 3,900,000
B+ B1 2,500,000 Pier 1 Imports, Inc., 5.75% due 10/01/2003 2,500,000 2,650,000
B- B2 3,250,000 Sports & Recreation, Inc., 4.25% due
11/01/2000 2,442,875 2,380,625
------------ ------------
12,556,455 12,618,375

Scientific NR* NR* 4,750,000 Thermo Instrument Systems Inc., 4.50% due
Equipment--1.7% 10/15/2003 (d) 4,780,000 4,845,000

Semiconductor-- NR* A3 5,250,000 Cypress Semiconductor Corporation, 3.15%
2.0% due 3/15/2001 (d) 4,840,016 5,722,500

Technology-- NR* NR* 1,000,000 Broadband Technologies, Inc., 5% due
0.3% 5/15/2001 813,750 765,000

Textiles-- B+ B1 3,806,000 Fieldcrest Cannon, Inc., 6% due
1.0% 3/15/2012 2,889,280 2,883,045

Water Treatment BB+ B2 3,000,000 US Filter Corp., 4.50% due 12/15/2001 3,000,000 3,052,500
Systems--1.1%

Total Convertible Debentures--43.0% 117,449,882 124,745,384

Shares
Held Convertible Preferred Stocks

Automotive BB- B1 242,600 Masco Tech, Inc., $1.20 3,643,799 3,820,950
Parts--1.3%

Banking & A Aa3 38,400 Banc One Corporation, $3.50, Series C 2,509,287 3,187,200
Finance--4.1% A- A2 60,200 Boatmen's Bancshares, Inc., $1.75 1,667,550 3,326,050
NR* A1 10,000 Jefferson Pilot Corp. (ACES) (into Nations
Bank Corp.) 725,000 910,000
BB+ NR* 89,400 Union Planters Corp., $2.00, Series E 2,818,585 4,380,600
------------ ------------
7,720,422 11,803,850

Chemicals--0.1% A A2 19,000 Atlantic Richfield Company (ARCO) (b) 473,765 408,500

Computer AA- A1 34,200 Microsoft Corp., Series A 2,731,725 2,736,000
Software--1.0%
</TABLE>

<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of December 31, 1996 (continued)
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Convertible Preferred Stocks Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C>
Financial A- Baa1 71,700 SunAmerica Inc. $ 2,688,750 $ 3,029,325
Services--1.0%

Funeral--0.8% BBB Baa3 25,000 SCI Finance, $3.125, Series A 1,520,250 2,353,125

Insurance--0.8% NR* NR* 2,000 Westbridge Capital Corporation, Series A 2,000,000 2,344,000

Minerals--0.9% NR* Ba1 43,150 Cyprus Amax Minerals Co., $4.00, Series A 2,312,840 2,485,440

Paper--1.5% BB+ Ba2 23,800 James River Corp. of Virginia, $3.375,
Series K 1,092,551 1,222,725
BB+ Ba2 9,400 James River Corp. of Virginia $3.50,
Series L 444,514 486,450
BB+ Ba2 85,000 James River Corp. of Virginia, Series P 1,992,600 2,677,500
------------ ------------
3,529,665 4,386,675

Precious NR* B2 217,600 Coeur d'Alene Mines Corporation 3,793,296 3,808,000
Metals--1.3%

Real Estate BBB Baa3 80,000 Merry Land & Investment Co., Inc., $2.15,
Investment Series C 2,000,000 2,110,000
Trust--3.1% BBB Baa3 40,000 Merry Land & Investment Services, Inc.,
$1.75, Series A 1,000,000 1,145,000
BBB Baa3 60,000 Public Storage Inc., $2.062 1,518,600 3,127,500
BBB+ Baa3 80,000 Security Capital Pacific Trust, Series A 2,000,000 2,450,000
------------ ------------
6,518,600 8,832,500

Restaurants-- BBB Baa2 70,000 Wendy's International, Inc., Series A 3,500,000 3,640,000
1.3%

Steel--0.6% B B1 52,000 AK Steel Holding Corp. 1,348,342 1,833,000

Technology NR* A1 30,000 Morgan Stanley Group, Inc., Series C (into cisco
0.7% Systems, Inc.) 2,006,250 1,987,500

Tobacco--1.7% NR* Ba3 748,000 RJR Nabisco Holdings, Inc., Series C 4,093,744 5,049,000

Toys--1.8% B- B3 500,000 Tyco Toys, Inc., Series C 2,500,000 5,062,500

Waste A A1 85,000 Browning-Ferris Industries, Inc. 2,500,387 2,422,500
Management--
0.8%

Total Convertible Preferred Stocks--22.8% 52,881,835 66,002,865

Common Stocks

Automobile Parts--0.7% 52,800 Federal Mogul Corp. 1,243,968 1,161,600
14,800 Magna International Inc., Class A 329,559 825,100
------------ ------------
1,573,527 1,986,700

Banking & Finance--0.3% 20,000 Washington Mutual Savings Bank 220,278 865,000

Cement--0.9% 79,000 Medusa Corp. 2,666,125 2,715,625

Chemicals--0.3% 40,000 Lyondell Petrochemical Company 942,400 880,000

Computer Equipment--2.9% 254,536 EMC Corporation*** (e) 5,993,635 8,431,505

Computers--0.9% 57,700 Storage Technology Corporation (e) 2,045,431 2,747,963

Electronics--2.5% 30,000 Arrow Electronics, Inc. 994,375 1,605,000
81,395 Avnet, Inc. 3,769,959 4,741,259
64,154 Rexel SA (e) 890,670 1,018,445
------------ ------------
5,655,004 7,364,704
</TABLE>

<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of December 31, 1996 (continued)
<CAPTION>
Shares Value
Industry Held Common Stocks Cost (Note 1a)
<S> <C> <C> <C> <C>
Drug Distribution--0.3% 48,900 Bindley Western Industries Inc. $ 941,309 $ 947,437

Energy--0.6% 49,000 Calenergy Inc. (e) 1,079,135 1,647,625

Financial Services--0.7% 1 Nal Acceptance Corp. (Warrants) (c)++ 0 206,250
50,000 Onbancorp Inc. 1,737,500 1,856,250
------------ ------------
1,737,500 2,062,500

Food Processing--0.9% 137,800 Hudson Foods, Inc., Class A 2,044,553 2,618,200

Health Services--0.6% 15,000 Allegiance Corporation 91,946 414,375
126,500 Regency Health Services Inc. (e) 1,472,322 1,217,563
------------ ------------
1,564,268 1,631,938

Hospital Supplies--1.1% 75,000 Baxter International, Inc. 1,098,246 3,075,000

Metal Fabricating--1.7% 128,479 Trinity Industries Leasing Co. 2,974,237 4,817,962

Oil Services--0.6% 160,900 Key Energy Group Inc. (e) 1,540,282 1,890,575

Paper--1.0% 34,700 Boise Cascade Corporation 1,147,182 1,101,725
47,200 International Paper Co. 1,843,632 1,905,700
------------ ------------
2,990,814 3,007,425

Paper/Machine--1.5% 182,300 Albany International Corp., Class A (e) 3,504,705 4,215,687

Pharmaceuticals--0.2% 40,000 IVAX Corp. 636,600 410,000

Semiconductor Capital 40,000 Novellus Systems Inc. (e) 2,176,376 2,165,000
Equipment--0.7%

Semiconductors--1.3% 200,000 Integrated Device Technology, Inc. 2,542,863 2,725,000
45,400 Park Electrochemical Corporation 834,092 1,032,850
------------ ------------
3,376,955 3,757,850

Steel--0.6% 197,200 WHX Corp (e) 1,718,699 1,750,150

Technology--0.1% 18,000 BroadBand Technologies, Inc. 373,500 265,500

Telecommunications--1.1% 173,364 ICG Communications, Inc.*** (e) 2,894,332 3,055,540

Utilities--0.6% 156,286 Citizens Utilities Company (Class A) 1,691,312 1,699,607

Waste Management--1.8% 316,351 Allied Waste Industries, Inc.*** (e) 1,509,180 2,886,703
162,000 Philip Environmental Inc. (ADR) (a) (e) 1,422,146 2,349,000
------------ ------------
2,931,326 5,235,703

Total Common Stocks--23.9% 54,370,549 69,245,196
</TABLE>

<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of December 31, 1996 (concluded)
<CAPTION>
Face Value
Amount Short-Term Securities Cost (Note 1a)
<S> <C> <C> <C> <C>
Commercial Paper**-- $ 4,000,000 Coca-Cola Company (The), 5.80% due
11.3% 1/17/1997 $ 3,989,044 $ 3,989,044
10,000,000 Delaware Funding Corp., 5.50% due 1/10/1997 9,984,722 9,984,722
14,672,000 General Motors Acceptance Corp., 7.50%
due 1/02/1997 14,665,887 14,665,887
4,000,000 International Securitization Corporation,
5.80% due 1/22/1997 3,985,822 3,985,822
------------ ------------
32,625,475 32,625,475

US Government & Agency 10,000,000 Federal National Mortgage Association, 5.30%
Obligations**--3.4% due 1/08/1997 9,988,222 9,988,222

Total Short-Term Securities--14.7% 42,613,697 42,613,697

Total Investments--104.4% $267,315,963 302,607,142
------------
Short Sales (Proceeds--$12,209,627)--(4.0%) (11,515,803)

Liabilities in Excess of Other Assets--(0.4%) (1,098,466)
------------
Net Assets--100.0% $289,992,873
============

<FN>
(a)American Depositary Receipts (ADR).
(b)Convertible into Lyondell Petrochemical Co.
(c)Warrants entitle the Company to purchase a predetermined number
of shares of Common Stock. The purchase price and number of shares
are subject to adjustment under certain conditions until the
expiration date.
(d)These securities may be offered and sold to "qualified insti-
tutional buyers" under rule 144A of the Securities Act of 1933.
(e)Non-income producing security.
*Not Rated.
**Commercial Paper and certain US Government & Agency Obligations
are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Company.
***Covered Short Sales entered into as of December 31, 1996 were as
follows:
<CAPTION>
Value
Shares Issue (Notes 1a & 1g)
<S> <C> <C>
241,100 Allied Waste Industries, Inc. $ (2,230,175)
73,900 Diagnostic/Retrieval Systems, Inc. (923,750)
160,800 EMC Corporation (5,326,500)
172,220 ICG Communications, Inc. (3,035,378)

Total (proceeds--$12,209,627) $(11,515,803)
============

++Restricted securities as to resale. The value of the Company's
investment in restricted securities was approximately $6,826,000,
representing 2.4% of net assets.
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Nal Acceptance Corp.,
10% due 9/12/1998 9/12/1996 $2,750,000 $3,437,500
Nal Acceptance Corp. (Warrants) 9/12/1996 0 206,250
Polyphase Corporation:
12% due 12/01/1997 12/05/1996 1,000,000 1,112,500
12% due 7/01/1999 7/05/1994 2,000,000 2,070,000

Total $5,750,000 $6,826,250
========== ==========

Ratings of issues shown have not been audited by Deloitte & Touche LLP.

See Notes to Financial Statements.
</TABLE>

<TABLE>
Convertible Holdings, Inc.
Statement of Assets, Liabilities and Capital as of December 31, 1996
<S> <C> <C>
Assets:
Investments, at value (identified cost--$267,315,963) (Note 1a) $302,607,142
Cash 22,969
Deposit on short sales (Note 1g) 11,559,616
Receivables:
Interest $ 2,051,283
Securities sold 1,173,890
Dividends 405,056 3,630,229
------------
Deferred organization expenses (Note 1e) 22,259
Prepaid expenses and other assets 34,191
------------
Total assets 317,876,406
------------

Liabilities:
Common stocks, sold short, at market value (proceeds--$12,209,627) (Notes 1a & 1g) 11,515,803
Payables:
Dividends to shareholders 10,944,793
Income taxes (Note 1c) 4,841,320
Investment adviser (Note 2) 445,812 16,231,925
------------
Accrued expenses and other liabilities 135,805
------------
Total liabilities 27,883,533
------------
Net Assets $289,992,873
============

Capital (Note 5):
Income Shares:
Par value $.10 per share; 15,000,000 shares authorized; shares issued 11,653,700 $ 1,165,370
Liquidation capital in excess of par 107,214,040
------------
108,379,410
Undistributed investment income--net 128,996
------------
Net asset value, equivalent to $9.31 per share based on 11,653,700 shares
outstanding market value--$9.625) $108,508,406
Capital Shares:
Par value $.10 per share; 15,000,000 shares authorized; 11,653,700 shares issued 1,165,370
Paid-in capital in excess of par 145,690,000
------------
Total 146,855,370
------------
Accumulated realized losses on investments--net* (1,355,248)
Unrealized appreciation on investments--net 35,984,345
------------
Total 34,629,097
------------
Net asset value, equivalent to $15.57 per share based on 11,653,700 shares
outstanding (market value--$14.625) 181,484,467
------------
Net Assets $289,992,873
============
<FN>
*Net of taxes on undistributed net realized long-term capital gains (Note 1c).

See Notes to Financial Statements.
</TABLE>

<TABLE>
Convertible Holdings, Inc.
Statement of Operations for the Year Ended December 31, 1996
<S> <C> <C>
Investment Income (Notes 1c & 1d):
Interest and discount earned $ 10,364,183
Dividends (net of $2,260 foreign withholding tax) 5,941,459
------------
Total income $ 16,305,642

Expenses:
Investment advisory fees (Note 2) 1,695,738
Accounting services (Note 2) 99,274
Transfer agent fees 87,085
Professional fees 69,955
Printing and shareholder reports 49,591
Directors' fees and expenses 45,322
Amortization of organization expenses (Note 1e) 38,159
Interest on securities sold short 36,292
Custodian fees 26,466
Insurance 4,958
Dividends on securities sold short 4,704
Pricing services 2,983
Listing fees 250
Other 39,726
------------
Total expenses 2,200,503
------------
Investment income--net 14,105,139
------------
Realized & Unrealized Gain (Loss) on Investments & Foreign Currency
Transactions--Net (Notes 1b, 1c, 1d & 3):
Realized gain (loss) from:
Investments--net $ 19,901,753
Income taxes on realized gain on investments (4,841,320)
Foreign currency transactions (19,719) 15,040,714
------------
Change in unrealized appreciation/depreciation on:
Investments--net 17,386,660
Foreign currency transactions (441) 17,386,219
------------ ------------
Net realized and unrealized gain on investments and foreign currency transactions 32,426,933
------------
Net Increase in Net Assets Resulting from Operations $ 46,532,072
============

See Notes to Financial Statements.
</TABLE>

<TABLE>
Convertible Holdings, Inc.
Statements of Changes in Net Assets
<CAPTION>
For the Year
Ended December 31,
1996 1995
Increase (Decrease) in Net Assets:
<S> <C> <C>
Operations:
Investment income--net $ 14,105,139 $ 14,296,369
Realized gain on investments and foreign currency transactions--net 19,882,034 15,446,497
Income taxes on realized gain on investments (4,841,320) (3,631,624)
Change in unrealized appreciation/depreciation on investments and foreign currency
transactions--net 17,386,219 19,334,251
------------ ------------
Net increase in net assets resulting from operations 46,532,072 45,445,493
------------ ------------

Dividends & Distributions to Shareholders (Notes 1f & 4):
Investment income--net (14,192,493) (14,117,464)
Realized gain on investments--net (7,473,704) (4,235,374)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to shareholders (21,666,197) (18,352,838)
------------ ------------
Capital Share Transactions (Note 5):
Income shares -- (192,510)
Capital shares -- (238,874)
------------ ------------
Net decrease in net assets resulting from Treasury stock transactions -- (431,384)
------------ ------------

Net Assets:
Total increase in net assets 24,865,875 26,661,271
Beginning of year 265,126,998 238,465,727
------------ ------------
End of year* $289,992,873 $265,126,998
============ ============

<FN>
*Undistributed investment income--net (Note 1h) $ 128,996 $ 223,416
============ ============

See Notes to Financial Statements.
</TABLE>

<TABLE>
Convertible Holdings, Inc.
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1996++++ 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Income Shares:
Per Share Operating Performance:
Net asset value, beginning of year $ 9.32 $ 9.30 $ 9.30 $ 9.30 $ 9.31
-------- -------- -------- -------- --------
Investment income--net 1.21 1.23 1.19 1.20 1.35
Dividends of investment income--net (1.22) (1.21) (1.19) (1.20) (1.36)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.31 $ 9.32 $ 9.30 $ 9.30 $ 9.30
======== ======== ======== ======== ========
Market price per share, end of year $ 9.625 $ 10.00 $ 10.00 $ 10.625 $ 11.25
======== ======== ======== ======== ========
Total Investment Return:*
Based on market value per share 9.22% 13.58% 6.61% 7.20% 2.74%
======== ======== ======== ======== ========
Based on net asset value per share 13.35% 13.82% 13.28% 13.50% 15.17%
======== ======== ======== ======== ========

Capital Shares:
Per Share Operating Performance:
Net asset value, beginning of year $ 13.43 $ 11.13 $ 13.21 $ 12.87 $ 10.91
-------- -------- -------- -------- --------
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 2.78 2.66 (2.12) 1.43 2.03
Distributions of realized gain on investments--net (.64) (.36) (.01) (1.17) (.12)
Effect of repurchase of Treasury Stock -- --++ .05 .08 .05
-------- -------- -------- -------- --------
Net asset value, end of year $ 15.57 $ 13.43 $ 11.13 $ 13.21 $ 12.87
======== ======== ======== ======== ========
Market value per share, end of year $ 14.625 $ 11.625 $ 9.00 $ 10.875 $ 9.375
======== ======== ======== ======== ========

Total Investment Return:*
Based on market value per share 30.87% 33.20% (17.17%) 28.77% 38.11%
======== ======== ======== ======== ========
Based on net asset value per share 20.60% 24.44% (15.68%) 13.94% 19.48%
======== ======== ======== ======== ========

Total Fund:
Ratios to Average Net Assets:
Total expenses** .78% .79% .87% .80% .80%
======== ======== ======== ======== ========
Investment income--net 4.98% 5.40% 5.43% 5.10% 6.34%
======== ======== ======== ======== ========

Supplemental Data:
Net assets, end of year (in thousands) $289,993 $265,127 $238,466 $274,999 $289,366
======== ======== ======== ======== ========
Portfolio turnover 129.06% 87.69% 69.37% 116.03% 76.54%
======== ======== ======== ======== ========
Average commission rate paid+++ $ .0447 -- -- -- --
======== ======== ======== ======== ========

<FN>
*Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
**Excluding taxes on undistributed net realized long-term capital
gains (Note 1c).
+++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
++Amount is less than $.01 per capital share.
++++Based on average shares outstanding during the period.

See Notes to Financial Statements.
</TABLE>

Convertible Holdings, Inc.
Notes to Financial Statements

1. Significant Accounting Policies:
Convertible Holdings, Inc. (the "Company") is a diversified, closed-
end, "dual purpose" investment company. The following is a summary
of significant accounting policies followed by the Company.

(a) Valuation of investments--Portfolio securities which are traded
only on stock exchanges are valued at the last sale price as of the
close of business on the day the securities are being valued, or
lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the most recent
bid prices as obtained from one or more dealers that make markets in
these securities. Portfolio securities which are traded both in the
over-the-counter markets and on a stock exchange are valued
according to the broadest and most representative market. Short-term
securities are valued at amortized cost, which approximates market
value. Securities and assets for which market quotations are not
readily available and securities subject to restrictions on resale
are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Company.

(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.

(c) Income taxes--It is the Company's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable net
investment income and net realized short-term capital gains. The
Company intends to retain net realized long-term capital gains, if
any, and pay taxes on such gains at the Federal tax rates applicable
to corporations. Under the applicable foreign tax law, a withholding
tax may be imposed on dividends, interest, and capital gains at
various rates.

(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date. Interest income (including amortization of discount)
is recognized on the accrual basis. Realized gains and losses on
security transactions are determined on the identified cost basis.

(e) Deferred organization expenses--Deferred organization expenses
are charged to expense on a straight-line basis over a twelve-year
period ending on July 31, 1997, the redemption date for the Income
Shares.

(f) Dividends and distributions--Dividends and distributions paid by
the Company are recorded on the ex-dividend dates.

(g) Short sales--When the Company engages in a short sale, an amount
equal to the proceeds received by the Company is reflected as an
asset and equivalent liability. The amount of the liability is
subsequently marked to market to reflect the market value of the
short sale. The Company maintains a segregated account of securities
and cash as collateral for the short sales. The Company owns
convertible bonds or stock of the same issuer which covers the short
sale. The Company is exposed to market risk based on the amount, if
any, that the market value of the stock exceeds proceeds received.
Securities have been borrowed from Merrill Lynch, Pierce, Fenner &
Smith Inc. ("MLPF&S"), a subsidiary of Merrill Lynch & Co., Inc.
("ML & Co."), to execute short sales.

(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, $8,991,012 has been reclassified from accumulated net
realized capital losses to paid-in capital for the amount of long-
term capital gains net of taxes paid and $7,066 has been
reclassified from accumulated net realized capital losses to
undistributed net investment income. These reclassifications have no
effect on net assets or net asset values per share.

Convertible Holdings, Inc.
Notes to Financial Statements (continued)

2. Investment Advisory Agreement and
Transactions with Affiliates:
The Company has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of ML & Co., which is the limited partner.

MLAM is responsible for the management of the Company's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Company.
For such services, the Company pays MLAM a quarterly fee at the
annual rate of 0.60% of the Company's average weekly net assets.

The investment advisory fee is reduced by 25% for any quarter in
which the Company fails to meet the Minimum Income Rate Objective
("Objective") at the close of any fiscal quarter.

The Objective is to obtain a minimum annualized rate of income
return equal to 85% of the yield of the Value Line Convertible
Index.

Accounting services are provided to the Company by MLAM at cost.

During the year ended December 31, 1996, the Company paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $1,525 for
security price quotations to compute the net asset value of the
Company.

Certain officers and/or directors of the Company are officers and/or
directors of MLAM, PSI, MLPF&S, and/or ML & Co.

In addition, MLPF&S received $177,752 in commissions on the
execution of portfolio security transactions for the Company for the
year ended December 31, 1996.

3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1996 were $352,903,170 and
$392,170,625, respectively.

Net realized and unrealized gains (losses) as of December 31, 1996
were as follows:

Realized Unrealized
Gains (Losses) Gains (Losses)

Long-term investments $22,556,449 $35,291,179
Short-term investments 58 --
Short sales (2,654,754) 693,824
Foreign currency
transactions (19,719) (658)
----------- -----------
Total $19,882,034 $35,984,345
=========== ===========

As of December 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $34,060,027, of which $37,018,635
related to appreciated securities and $2,958,608 related to
depreciated securities. The aggregate cost of investments at
December 31, 1996 for Federal income tax purposes was $268,547,115.

4. Distributions:
The Company distributes its net investment income quarterly to
holders of Income Shares. Income Shares are entitled to cumulative
dividends in an amount equivalent to net investment income, with a
minimum annual rate of $1.00 per share. To the extent that any such
cumulative dividend cannot be satisfied from net investment income,
it will be paid from any net realized short-term or long-term
capital gains. Capital Shares will not be entitled to receive
distributions from net investment income until 1997.

To the extent not needed to pay the Income Shares' minimum
cumulative dividends, distributions from net realized short-term
capital gains, if any, may be paid to holders of the Capital Shares
in the succeeding year. The Company will not distribute net realized
long-term capital gains except to the limited extent described
above.

Convertible Holdings, Inc.
Notes to Financial Statements (concluded)

5. Share Transactions:
At December 31, 1996, there were 15,000,000 shares of $.10 par value
authorized for each class. During the year ended December 31, 1996,
the Company's Income Shares and Capital Shares outstanding remained
constant at 11,653,700 and 11,653,700, respectively.

As long as any Income Shares are outstanding, the Company will not
issue any additional Capital Shares or Income Shares.

On September 27, 1996, the Board of Directors authorized the
redemption of the Income Shares to take place on July 31, 1997 for
$9.30 per share plus accumulated and unpaid dividends ("liquidation
value"). As a result of this liquidation preference, the per share
capital of the Income Shares is maintained at the liquidation value
plus any unpaid income dividends. After July 31, 1997, Capital
Shares will then be the sole remaining class of shares of the
Company outstanding. On February 13, 1997, the holders of Capital
Shares approved a proposal to convert the Company to an open-end
investment company.

TABLE OF CONTENTS
PAGE
<S> <C> <C>
Investment Objective and Policies . . . . . . . . . . . . . 2 MERRILL LYNCH
Portfolio Strategies Involving Options, CONVERTIBLE
Futures and Foreign Exchange Transactions . . . . . . . 3 FUND, INC.
Other Investment Policies and Practices . . . . . . . . . 3
Investment Restrictions . . . . . . . . . . . . . . . . . 4
Management of the Fund . . . . . . . . . . . . . . . . . . 7
Directors and Officers . . . . . . . . . . . . . . . . . . 7
Compensation of Directors . . . . . . . . . . . . . . . . 8
Management and Advisory Arrangements . . . . . . . . . . 8
Purchase of Shares . . . . . . . . . . . . . . . . . . . . 9
Initial Sales Charge Alternatives--
Class A and Class D Shares . . . . . . . . . . . . . . 10
Reduced Initial Sales Charges . . . . . . . . . . . . . . 11
Employer-Sponsored Retirement or Savings
Plans and Certain Other Arrangements . . . . . . . . . 13
Distribution Plans . . . . . . . . . . . . . . . . . . . 13
Limitations on the Payment of Deferred Sales
Charges . . . . . . . . . . . . . . . . . . . . . . . . 13
Redemption of Shares . . . . . . . . . . . . . . . . . . . 14
Deferred Sales Charges--
Class B and Class C Shares . . . . . . . . . . . . . . 14
Portfolio Transactions and Brokerage . . . . . . . . . . . 15 STATEMENT OF
Determination of Net Asset Value . . . . . . . . . . . . . 16 ADDITIONAL
Shareholder Services . . . . . . . . . . . . . . . . . . . 17 INFORMATION
Investment Account . . . . . . . . . . . . . . . . . . . 17
Automatic Investment Plans . . . . . . . . . . . . . . . 18 August ___, 1997
Automatic Reinvestment of Dividends and
Capital Gains Distributions . . . . . . . . . . . . . . 18 Distributor:
Systematic Withdrawal Plans Merrill Lynch
Class A and Class D Share . . . . . . . . . . . . . . . 18 Funds Distributor, Inc.
Exchange Privilege . . . . . . . . . . . . . . . . . . . 19
Dividends, Distributions and Taxes . . . . . . . . . . . . 20
Dividends and Distributions . . . . . . . . . . . . . . . 20
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Tax Treatment of Options and Futures
Transactions . . . . . . . . . . . . . . . . . . . . . 23
Special Rules for Certain Foreign
Currency Transactions . . . . . . . . . . . . . . . . . 23
Performance Data . . . . . . . . . . . . . . . . . . . . . 24
General Information . . . . . . . . . . . . . . . . . . . . 26
Description of Shares . . . . . . . . . . . . . . . . . . 26
Computation of Offering Price Per Share . . . . . . . . . 26
Independent Auditors . . . . . . . . . . . . . . . . . . 27
Custodian . . . . . . . . . . . . . . . . . . . . . . . . 27
Transfer Agent . . . . . . . . . . . . . . . . . . . . . 27
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . 27
Reports to Shareholders . . . . . . . . . . . . . . . . . 27
Additional Information . . . . . . . . . . . . . . . . . 27
Security Ownership of Certain Beneficial
Owners . . . . . . . . . . . . . . . . . . . . . . . . 28
Independent Auditors' Report . . . . . . . . . . . . . . . 29
Financial Statements . . . . . . . . . . . . . . . . . . . 30

</TABLE>

PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(A) FINANCIAL STATEMENTS
Contained in Part A:

Financial Highlights for each of the periods in the ten-year period
ended December 31, 1996.

Contained in Part B:

Schedule of Investments as of December 31, 1996.
Statement of Assets, Liabilities and Capital as of December 31, 1996.
Statement of Operations for the year ended December 31, 1996.
Statements of Changes in Net Assets for each of the years in the
two-year period ended December 31, 1996.

Financial Highlights for each of the years in the five-year period
ended December 31, 1996.

(B) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
1(a) -- Amended and Restated Articles of Incorporation of the Registrant, dated _______, 1997.(a)
(b) -- Articles Supplementary to Articles of Incorporation of the Registrant, dated ________, 1997.(a)
2 -- By-Laws of the Registrant.
3 -- None.
4 -- Portions of the Amended and Restated Articles of Incorporation and the By-Laws of the Registrant defining the rights
of holders of shares of the Registrant.(b)
5(a) -- Form of Management Agreement between the Registrant and Merrill Lynch Asset Management, L.P.
(b) -- Form of Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P. and Merrill Lynch Asset Management U.K.
Limited.
6(a) -- Form of Class A Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor, Inc.
(including Form of Selected Dealers Agreement).
(b) -- Form of Class B Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor, Inc.
(including Form of Selected Dealers Agreement).
(c) -- Form of Class C Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor, Inc.
(including Form of Selected Dealers Agreement).
(d) -- Form of Class D Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor, Inc.
(including Form of Selected Dealers Agreement).
7 -- None.
8 -- Custody Agreement between Registrant and The Chase Manhattan Bank, N.A.
9(a) -- Form of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between Registrant and
Merrill Lynch Financial Data Services, Inc.
(b) -- Form of Agreement relating to use of name between the Registrant and Merrill Lynch & Co., Inc.
10 -- Opinion of Brown & Wood LLP, counsel for the Registrant.(a)
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management, L.P.
14 -- None.
15(a) -- Form of Class B Shares Distribution Plan and Class B Shares Distribution Plan Sub-Agreement of the Registrant.
(b) -- Form of Class C Shares Distribution Plan and Class C Shares Distribution Plan Sub-Agreement of the Registrant.
(c) -- Form of Class D Shares Distribution Plan and Class D Shares Distribution Plan Sub-Agreement of the Registrant.
16 -- None
17 -- Financial Data Schedule for Common Stock.
18 -- Merrill Lynch Select Pricing(Service Mark) System Plan Pursuant to Rule 18f-3.(c)

</TABLE>

_______________

(a) To be filed by amendment.
(b) Reference is made to Articles IV, V (Sections 3, 5, 6 and 7), VI, VII
and IX of the Registrant's Amended and Restated Articles of
Incorporation, as supplemented, to be filed as Exhibits 1(a) and 1(b) to
this Registration Statement on Form N-1A; and to Articles II, III
(Sections 1, 3, 5 and 6), VI, VII, XIII and XIV of the Registrant's
By-Laws, filed as Exhibit 2 to this Registration Statement on Form N-1A.
(c) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A under the Securities Act of 1933, as
amended, filed on January 25, 1996 relating to shares of Merrill Lynch
New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT

The Registrant is not controlled by or under common control with any
person.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

<TABLE>
<CAPTION> Number of
Record Holders
Title of Class at _____ __, 1997
<S> <C>
Class A shares of Common Stock, par value $0.10 per share . . . . . . . . . . . . . . . . . . . .
Class B shares of Common Stock, par value $0.10 per share . . . . . . . . . . . . . . . . . . . .
Class C shares of Common Stock, par value $0.10 per share . . . . . . . . . . . . . . . . . . . .
Class D shares of Common Stock, par value $0.10 per share . . . . . . . . . . . . . . . . . . . .

</TABLE>
_______________
* The number of holders includes holders of record plus beneficial owners,
whose shares are held of record by Merrill Lynch, Pierce, Fenner & Smith
Incorporated.

ITEM 27. INDEMNIFICATION

Reference is made to Article VI of Registrant's Amended and Restated
Articles of Incorporation, Article VI of Registrant's Bylaws, Section 2-418
of the Maryland General Corporation Law and Section 9 of the Class A,
Class B, Class C and Class D Distribution Agreements.

Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent
permitted under the General Laws of the State of Maryland, except that such
indemnity shall not protect any such person against any liability to the
Registrant or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the Registrant to
indemnify such person must be based upon the reasonable determination of
independent counsel or non-party independent directors, after review of the
facts, that such officer or director is not guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.

Each officer and director of the Registrant claiming indemnification
within the scope of Article VI of the By-Laws shall be entitled to advances
from the Registrant for payment of the reasonable expenses incurred by him in
connection with proceedings to which he 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 Registrant a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Registrant has been
met and a written undertaking to repay any such advance, if it should
ultimately 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: (a) the person seeking indemnification shall provide a security in form
and amount acceptable to the Registrant for his undertaking; (b) the
Registrant is insured against losses arising by reason of the advance; (c) 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 Registrant 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 Registrant may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the
General Laws of the State of Maryland from liability arising from his
activities as officer or director of the Registrant. The Registrant,
however, may not purchase insurance on behalf of any officer or director of
the Registrant that protects or purports to protect such person from
liability to the Registrant or to its stockholders to which such officer or
director would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office.

The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or
agent who is not an officer or director of the Registrant.

In Section 9 of the Class A, Class B, Class C and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933 (the "1933
Act"), against certain types of civil liabilities arising in connection with
the Registration Statement or Prospectus and Statement of Additional
Information.

Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to Directors, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Director,
officer, or controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person or
the principal underwriter in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER

(a) Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager") acts
as the investment adviser for the following open-end 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 Allocation Fund, Inc., Merrill Lynch
Global Bond Fund for Investment and Retirement, Merrill Lynch Global
Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch
Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc.,
Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa
Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund,
Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series
Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global
Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology Fund, Inc., Merrill Lynch U.S.A. Government Reserves, Merrill
Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income Fund, Inc., and
Merrill Lynch Variable Series Funds, Inc. and the following closed-end
investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc.

Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts
as the investment adviser for the following open-end investment companies:
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., Debt Strategies Fund, Inc., Fi-
nancial 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 the following closed-end investment companies: Apex
Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield
Fund II, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets
Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida
Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc.,
MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield
California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida
Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Taurus MuniCalifornia Holdings,
Inc., Taurus MuniNewYork Holdings, Inc. and Worldwide DollarVest Fund, Inc.

The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Investment Adviser, MLAM,
Princeton Services, Inc. ("Princeton Services") and Princeton Administrators
L.P. is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of
Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton,
New Jersey 08543-9081. The address of Merrill Lynch & Co., Inc. ("ML&Co.")
is World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281. The address of Merrill Lynch Financial Data Services, Inc. ("MLFDS")
is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.

Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
January 1, 1995 for his, her or its own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Zeikel is
President, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice
President of substantially all of the investment companies described in the
first two paragraphs of this Item 28 and Messrs. Giordano, Harvey, Kirstein
and Monagleare directors, trustees orofficers of oneor more ofsuch companies.

Officers and Partners of MLAM are set forth as follows:

<TABLE>
<CAPTION> Position with Other Substantial Business,
Name the Manager Profession, Vocation or Employment
<S> <C> <C>
ML & Co. . . . . . . . . . . . . Limited Partner Financial Services Holding Company; Limited Partner of FAM
Princeton Services . . . . . . . General Partner General Partner of FAM
Arthur Zeikel . . . . . . . . . . President President of FAM; President and Director of Princeton
Services; Director of MLFD; Executive Vice President of
ML & Co.
Terry K. Glenn . . . . . . . . . Executive Vice President Executive vice President of FAM; Executive Vice President
and Director of Princeton Services; President and
Director of MLFD; Director of MLFDS; President of
Princeton Administrators, L.P.
Vincent R. Giordano . . . . . . . Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Elizabeth Griffin . . . . . . . . Senior Vice President Senior Vice President of FAM
Norman R. Harvey . . . . . . . . Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Michael J. Hennewinkel . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Philip L. Kirstein . . . . . . . Senior Vice President, General Senior Vice President, General Counsel and Secretary of
Counsel and Secretary FAM; Senior Vice President, General Counsel, Director
and Secretary of Princeton Services; Director of MLFD
Ronald M. Kloss . . . . . . . . . Senior Vice President and Senior Vice President and Controller of FAM; Senior Vice
Controller President and Controller of Princeton Services
Stephen M.M. Miller . . . . . . . Senior Vice President Executive Vice President of Princeton Administrators, L.P.;
Senior Vice President of Princeton Services
Joseph T. Monagle, Jr. . . . . . Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Michael L. Quinn . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services; Managing Director and First Vice
President of Merrill Lynch from 1989 to 1995
Gerald M. Richard . . . . . . . . Senior Vice President and Senior Vice President and Treasurer of FAM: Senior Vice
Treasurer President and Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Ronald L. Welburn . . . . . . . . Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Anthony Wiseman . . . . . . . . . Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
</TABLE>

(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Income Opportunities
Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Americas
Income Fund Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
Convertible Fund, Inc., Merrill Lynch Developing Capital Markets, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Value Fund,
Inc., Merrill Lynch Healthcare Fund, Inc., Merrill Lynch International Equity
Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch Technology Fund, Inc.,
Merrill Lynch World Income Fund, Inc., and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of MLAM U.K. is Milton Gate, 1
Moor Lane, London EC2Y 9HA, England.

Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since January
1, 1995, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert, Bascand, Glenn,
Richard and Yardley are officers of one or more of the registered investment
companies listed in the first two paragraphs of this Item 28.

<TABLE>
<CAPTION> Position with Other Substantial Business,
Name MLAM U.K. Profession, Vocation or Employment
<S> <S> <S>
Arthur Zeikel . . . . . . . . . . Director and Chairman President of the Manager and FAM; President and Director of
Princeton Services, Director of MLFD; Executive Vice
President of ML&Co.
Alan J. Albert . . . . . . . . . Senior Managing Director Vice President of the Manager
Nicholas C.D. Hall . . . . . . . Director Director of Merrill Lynch Europe PLC.; General
Counsel of Merrill Lynch International Private
Banking Group
Gerald M. Richard . . . . . . . . Senior Vice President Senior Vice President and Treasurer of the Manager and FAM;
Senior Vice President and Treasurer of Princeton
Services; Vice President and Treasurer of MLFD
Carol Ann Langham . . . . . . . . Company Secretary None
Debra Anne Searle . . . . . . . . Assistant Company Secretary None

</TABLE>

ITEM 29. PRINCIPAL UNDERWRITERS

(a) MLFD acts as the principal underwriter for the Registrant. MLFD
acts as the principal underwriter for each of the open-end investment
companies referred to in the first two paragraphs of Item 28 except CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., MuniAssets Fund, Inc. and The Municipal Fund
Accumulation Program, Inc., and MLFD also acts as the principal underwriter
for the following closed-end investment companies: Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc.

(b) Set forth below is information concerning each director and officer
of MLFD. The principal business address of each such person is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Messrs.
Aldrich, Brady, Breen, Crook, Fatseas, and Wasel is One Financial Center,
Boston, Massachusetts 02111-2646.

<TABLE>
<CAPTION>
Positions and Offices Position(s) and Office(s)
Name with MLFD with Registrant
<S> <C> <C>
Terry K. Glenn . . . . . . . . . . . . . . President and Director Executive Vice President
Arthur Zeikel . . . . . . . . . . . . . . . Director President and Director
Philip L. Kirstein . . . . . . . . . . . . Director None
William E. Aldrich . . . . . . . . . . . . Senior Vice President None
Robert W. Crook . . . . . . . . . . . . . . Senior Vice President None
Kevin P. Boman . . . . . . . . . . . . . . Vice President None
Michael J. Brady . . . . . . . . . . . . . Vice President None
William M. Breen . . . . . . . . . . . . . Vice President None
Michael G. Clark . . . . . . . . . . . . . Vice President None
Mark A. DeSario . . . . . . . . . . . . . . Vice President None
James T. Fatseas . . . . . . . . . . . . . Vice President None
Debra W. Landsman-Yaros . . . . . . . . . . Vice President None
Michelle T. Lau . . . . . . . . . . . . . . Vice President None
Gerald M. Richard . . . . . . . . . . . . . Vice President and Treasurer Treasurer
Salvatore Venezia . . . . . . . . . . . . . Vice President None
William Wasel . . . . . . . . . . . . . . . Vice President None
Robert Harris . . . . . . . . . . . . . . . Secretary None

</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31 (a) of the Investment Company Act of 1940, as amended, and the
rules thereunder will be maintained at the offices of the Registrant, 800
Scudders Mill Road, Plainsboro, New Jersey 08536, and Merrill Lynch Financial
Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.

ITEM 31. MANAGEMENT SERVICES

Other than as set forth under the caption "Management of the Fund--
Management and Advisory Arrangements" in the Prospectus constituting Part A
of the Registration Statement and under "Management of the Fund--Management
and Advisory Arrangements" in the Statement of Additional Information
constituting Part B of the Registration Statement, the Registrant is not a
party to any management-related service contract.

ITEM 32. UNDERTAKINGS

(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.

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 5th day of June, 1997.

MERRILL LYNCH CONVERTIBLE
FUND, INC. (Registrant)

By: /s/ ARTHUR ZEIKEL
--------------------------
(Arthur Zeikel, President)

Each person whose signature appears below hereby authorizes Arthur
Zeikel, Terry K. Glenn and Gerald M. Richard, or any of them, as
attorney-in-fact, to sign on his behalf, individually and in each capacity
stated below, any amendments to the 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 by the following persons in the
capacities and on the dates indicated.

Signatures Title Date
<S> <C> <C>
/s/ Arthur Zeikel June 5, 1997
(Arthur Zeikel) President and Director (Principal Executive Officer)

/s/ Gerald M. Richard Treasurer (Principal Financial and Accounting June 5, 1997
(Gerald M. Richard) Officer)

/s/ James H. Bodurtha Director June 5, 1997
(James H. Bodurtha)

/s/ Herbert I. London Director June 5, 1997
(Herbert I. London)

/s/ Robert R. Martin Director June 5, 1997
(Robert R. Martin)

/s/ Joseph L. May Director June 5, 1997
(Joseph L. May)

/s/ Andre F. Perold Director June 5, 1997
(Andre F. Perold)

</TABLE>

EXHIBIT INDEX
Exhibit
Number
- -----

2 - By-Laws of the Registrant.
5(a) - Form of Management Agreement between the Registrant and Merrill
Lynch Asset Management, L.P.
(b) - Form of Sub-Advisory Agreement between Merrill Lynch Asset
Management, L.P. and Merrill Lynch Asset Management U.K.
Limited.
6(a) - Form of Class A Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc.
(b) - Form of Class B Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc.
(c) - Form of Class C Shares Distribution Agreements between the
Registrant and Merrill Lynch Funds Distributor, Inc.
(d) - Form of Class D Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc.
8 - Custody Agreement between Registrant and The Chase Manhattan
Bank, N.A.
9(a) - Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the Registrant
and Merrill Lynch Financial Data Services, Inc.
(b) - Form of Agreement relating to use of name between the Registrant
and Merrill Lynch & Co., Inc.
11 - Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
13 - Certificate of Merrill Lynch Asset Management, L.P.
15(a) - Form of Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.
(b) - Form of Class C Shares Distribution Plan and Class C Shares
Distribution Plan Sub-Agreement of the Registrant.
(c) - Form of Class D Shares Distribution Plan and Class D Shares
Distribution Plan Sub-Agreement of the Registrant.
17 - Financial Data Schedule for Common Stock.

EXHIBIT 2

BY-LAWS
OF
MERRILL LYNCH CONVERTIBLE FUND, INC.

ARTICLE I
OFFICES
-------
Section 1. Principal Office. The principal office of Merrill Lynch
----------------
Convertible Fund, Inc. (the "Company") shall be in the City of Baltimore,
State of Maryland.

Section 2. Principal Executive Office. The principal executive office
--------------------------
of the Company shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.

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

ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------

Section 1. Annual Meeting. The Company 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. In the event that the Company shall be required to hold
an annual meeting of stockholders to elect directors by the Investment
Company Act of 1940, as amended, 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 for all purposes
shall constitute the annual meeting of stockholders for the year in which the
meeting is held.

Section 2. Special Meetings. Special meetings of the stockholders,
----------------
unless otherwise provided by law, may be called for any purpose or purposes
by a majority of the Board of Directors, the President, or upon the written
request of the holders of at least 10% of the outstanding shares of capital
stock of the Company entitled to vote at such meeting if they comply with
Section 2-502(b) or (c) of the Maryland General Corporation Law.

Section 3. Place of Meetings. Meetings of the stockholders shall be
-----------------
held at such place within the United States as the Board of Directors from
time to time may determine.

Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
------------------------------------
date and time of the holding of each stockholders' meeting and, if the
meeting is a special meeting, the purpose or purposes of the special meeting,
shall be given personally or by mail, not less than 10 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 Company, 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 the
adjournment is for more than 120 days after the original record date, notice
of such adjourned meeting need not be given if the time and place to which
the meeting shall be adjourned were announced at the meeting at which the
adjournment is taken.

Section 5. Quorum. At all meetings of the stockholders, the holders
------
of shares of stock of the Company entitled to cast one-third of the votes
entitled to be cast, present in person or by proxy, shall constitute a quorum
for the transaction of any business, except with respect to any matter which
requires approval by a separate vote of one or more classes 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
entitled to vote as a separate class shall constitute a quorum. In the
absence of a quorum no business may be transacted, except that the holders of
a majority of the shares of stock present in person or by proxy and entitled
to vote may adjourn the meeting from time to time, without notice other than
announcement thereat except as otherwise required by these By-Laws, until the
holders of the requisite amount of shares of stock shall be so present. At
any such adjourned meeting at which a quorum may be present any business may
be transacted which might have been transacted at the meeting as originally
called. The absence from any meeting, in person or by proxy, of holders of
the number of shares of stock of the Company in excess of a majority thereof
which may be required by the laws of the State of Maryland, the Investment
Company Act of 1940, as amended, or other applicable statute, the Articles of
Incorporation, or these By-Laws, for action upon any given matter shall not
prevent action at such meeting upon any other matter or matters which
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 Company
required for action in respect of such other matter or matters.

Section 6. Organization. At each meeting of the stockholders, the
------------
Chairman of the Board (if one has been designated by the Board), or in his or
her absence or inability to act, the President, or in the absence or
inability to act of the Chairman of the Board and the President, a Vice
President, shall act as chairman of the meeting. The Secretary, or in his or
her absence or inability to act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes thereof.

Section 7. Order of Business. The order of business at all meetings
-----------------
of the stockholders shall be as determined by the chairman of the meeting.

Section 8. Voting. Except as otherwise provided by statute or by the
------
Articles of Incorporation, each holder of record of shares of stock of the
Company 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 Company 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 Articles of Incorporation or these
By-Laws, any corporate action to be taken by vote of the stockholders (other
than the election of directors, which shall be by plurality vote) may 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 by these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his or her proxy, if
there be such proxy, and shall state the number of shares voted.

Section 9. Fixing of Record Date. The Board of Directors may set a
---------------------
record date for the purpose of determining stockholders entitled to vote at
any meeting of the stockholders. The record date, which may not be prior to
the close of business on the day the record date is fixed, shall be not more
than 90 days nor less than 10 days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time,
and not others, shall be entitled to vote at such meeting and any adjournment
thereof.

Section 10. Inspectors. The Board, in advance of any meeting of
----------
stockholders, may appoint one or more inspectors to act at such meeting or
any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may
appoint inspectors. Each inspector, before entering upon the discharge of
his or her duties, may be required to 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 may be
empowered to determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the
chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as inspector of
an election of directors. Inspectors need not be stockholders.

Section 11. Consent of Stockholders in Lieu of Meeting. Except as
------------------------------------------
otherwise provided by statute or by the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may
be taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote
thereat.

ARTICLE III
BOARD OF DIRECTORS
------------------

Section 1. General Powers. Except as otherwise provided in the
--------------
Articles of Incorporation, the business and affairs of the Company shall be
managed under the direction of the Board of Directors. All powers of the
Company 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
Articles of Incorporation or these By-Laws.

Section 2. Number of Directors. The number of directors shall be fixed
-------------------
from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that in no
event shall the number of directors be less than three nor more than fifteen.
Any vacancy created by an increase in Directors may be filled in accordance
with Section 6 of this Article III. No reduction in the number of directors
shall have the effect of removing any director from office prior to the
expiration of his or her term unless such director is specifically removed
pursuant to Section 5 of this Article III at the time of such decrease.
Directors need not be stockholders.

Section 3. Election and Term of Directors. Directors shall be elected
------------------------------
annually at a meeting of stockholders held for that purpose; provided,
however, that if no meeting of the stockholders of the Company 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 or her election and
qualification until the election of directors next succeeding his or her
election and until his or her successor shall have been elected and shall
have qualified, or until his or her death, or until he or she shall have
resigned or until December 31 of the year in which he or she shall have
reached 72 years of age, or until he or she shall have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
by the Articles of Incorporation.

Section 4. Resignation. A director of the Company may resign at any
-----------
time by giving written notice of his or her resignation to the Board or the
Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately
upon its receipt; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.

Section 5. Removal of Directors. Any director of the Company may be
--------------------
removed by the stockholders by a vote of a majority of the votes entitled to
be cast for the election of directors.

Section 6. Vacancies. Any vacancies in the Board, whether arising from
---------
death, resignation, removal, an increase in the number of directors or any
other cause, may be filled by a vote of the majority of the Board of
Directors then in office even though such majority is less than a quorum,
provided that no vacancies shall be filled by action of the remaining
directors, if after the filling of said vacancy or vacancies, less than
two-thirds of the directors then holding office shall have been elected by
the stockholders of the Company. In the event that at any time there is a
vacancy in any office of a director which vacancy may not be filled by the
remaining directors, a special meeting of the stockholders shall be held as
promptly as possible and in any event within 60 days, for the purpose of
filling said vacancy or vacancies.

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

Section 8. Regular Meetings. Regular meetings of the Board may be held
----------------
without notice at such time and place as may be determined by the Board of
Directors.

Section 9. Special Meetings. Special meetings of the Board may be
----------------
called by two or more directors of the Company or by the Chairman of the
Board or the President.

Section 10. Telephone Meetings. Members of the Board of Directors or
------------------
of any committee thereof may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Subject
to the provisions of the Investment Company Act of 1940, as amended,
participation in a meeting by these means constitutes presence in person at
the meeting.

Section 11. Notice of Special Meetings. Notice of each special meeting
--------------------------
of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of
each such meeting shall be delivered to each director, either personally or
by telephone or any standard form of telecommunication, at least 24 hours
before the time at which such meeting is to be held, or by first-class mail,
postage prepaid, addressed to him or her at his or her residence or usual
place of business, at least three days before the day on which such meeting
is to be held.

Section 12. Waiver of Notice of Meetings. Notice of any special
----------------------------
meeting need not be given to any director who, either before or after the
meeting, shall sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.

Section 13. Quorum and Voting. One-third, but not less than two, of
-----------------
the members of the entire Board shall be present in person at any meeting of
the Board in order to constitute a quorum for the transaction of business at
such meeting, and except as otherwise expressly required by statute, the
Articles of Incorporation, these By-Laws, the Investment Company Act of 1940,
as amended, or other applicable statute, the act of a majority of the
directors present at any meeting at which a quorum is present shall be the
act of the Board. In the absence of a quorum at any meeting of the Board, a
majority of the directors present thereat may adjourn such meeting to another
time and place until a quorum shall be present thereat. Notice of the time
and place of any such adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless such time and
place were announced at the meeting at which the adjournment was taken, to
the other directors. At any adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at the
meeting as originally called.

Section 14. Organization. The Board, by resolution adopted by a
------------
majority of the entire Board, may designate a Chairman of the Board, who
shall preside at each meeting of the Board. In the absence or inability of
the Chairman of the Board to preside at a meeting, the President or, in his
or her absence or inability to act, another director chosen by a majority of
the directors present, shall act as chairman of the meeting and preside
thereat. The Secretary (or, in his or her absence or inability to act, any
person appointed by the Chairman) shall act as secretary of the meeting and
keep the minutes thereof.

Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
-------------------------------------------------
to the provisions of the Investment Company Act of 1940, as amended, any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.

Section 16. Compensation. Directors may receive compensation for
------------
services to the Company in their capacities as directors or otherwise in such
manner and in such amounts as may be fixed from time to time by the Board.

Section 17. Investment Policies. It shall be the duty of the Board of
-------------------
Directors to direct that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Company at all
times are consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Company, as recited in
the Prospectus of the Company included in the Registration Statement of the
Company, as recited in the current Prospectus and Statement of Additional
Information of the Company, as filed from time to time with the Securities
and Exchange Commission, and as required by the Investment Company Act of
1940, as amended. The Board however, may delegate the duty of management of
the assets and the administration of its day-to-day operations to an indi-
vidual 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 Company in accordance with the
provisions of the Investment Company Act of 1940, as amended.

ARTICLE IV
COMMITTEES
----------

Section 1. Executive Committee. The Board, by resolution adopted by
-------------------
a majority of the entire board, may designate an Executive Committee
consisting of two or more of the directors of the corporation, which
committee shall have and may exercise all of the powers and authority of the
Board with respect to all matters other than:

(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;

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

(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;

(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required
to be taken by the Board of Directors by the Investment Company Act of 1940,
as amended;

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

(f) the amendment or repeal of any resolution of the Board
which by its terms may be amended or repealed only by the Board;

(g) the declaration of dividends and the issuance of capital stock of
the Company; and

(h) the approval of any merger or share exchange which does not require
stockholder approval.

The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.

Section 2. Other Committees of the Board. The Board of Directors from
-----------------------------
time to time, by resolution adopted by a majority of the whole Board, may
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the
Board of Directors, by resolution, may prescribe.

Section 3. General. One-third, but not less than two, of the members
-------
of any committee shall be present in person at any meeting of such committee
in order to constitute a quorum for the transaction of business at such
meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such
chairman or any two members of any committee may fix the time and place of
its meetings unless the Board shall otherwise provide. In the absence or
disqualification of any member of any committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he or she or they constitute a quorum, unanimously may 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 Company; 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 Company.

ARTICLE V
OFFICERS, AGENTS AND EMPLOYEES
------------------------------

Section 1. Number and Qualifications. The officers of the Company
-------------------------
shall be a President, 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 a meeting of the Board of Directors, each to
hold office for the ensuing year 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 Company. 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 Company's affairs. Such
officers and agents shall have such duties and shall hold their offices for
such terms as may be prescribed by the Board or by the appointing authority.

Section 2. Resignations. Any officer of the Company may resign at any
------------
time by giving written notice of resignation to the Board, the Chairman of
the Board, 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. Removal of Officer, Agent or Employee. Any officer, agent
-------------------------------------
or employee of the Company 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 Company shall not of itself create contract rights.

Section 4. Vacancies. A vacancy in any office, whether arising from
---------
death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the
manner prescribed in these By-Laws for the regular election or appointment to
such office.

Section 5. Compensation. The compensation of the officers of the
------------
Company shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her
control.

Section 6. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Company shall give a bond or other security
for the faithful performance of his or her duties, in such amount and with
such surety or sureties as the Board may require.

Section 7. President. The President shall be the chief executive
---------
officer of the Company. In the absence of the Chairman of the Board (or if
there be none), he or she 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
Company. He or she may employ and discharge employees and agents of the
Company, except such as shall be appointed by the Board, and he or she may
delegate these powers.

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

Section 9. Treasurer. The Treasurer shall:
---------
(a) have charge and custody of, and be responsible for, all of the
funds and securities of the Company, except those which the Company 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 Company;

(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Company;

(d) receive, and give receipts for, moneys due and payable, to the
Company from any source whatsoever;

(e) disburse the funds of the Company and supervise the investment of
its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and

(f) in general, perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
or her by the Board or the President.

Section 10. Secretary. The Secretary shall:
---------

(a) 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;

(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;

(c) be custodian of the records and the seal of the Company and affix
and attest the seal to all stock certificates of the Company (unless the seal
of the Company 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 Company under its seal;

(d) 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

(e) in general, perform all of the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
or her by the Board or the President.

Section 11. Delegation of Duties. In case of the absence of any
--------------------
officer of the Company, 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
---------------

Each officer and director of the Company shall be indemnified by the
Company to the full extent permitted under the Maryland General Corporation
Law, except that such indemnity shall not protect any such person against any
liability to the Company or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
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 Company 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 of 1940, as amended, 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 Company claiming indemnification within
the scope of this Article VI shall be entitled to advances from the Company
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 Maryland General Corporation Law without a
preliminary determination as to his or her ultimate entitlement to
indemnification (except as set forth below); provided, however, that the
person seeking indemnification shall provide to the Company a written
affirmation of his or her good faith belief that the standard of conduct
necessary for indemnification by the Company has been met and a written
undertaking to repay any such advance, if it should ultimately 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: (a) the person
seeking indemnification shall provide a security in form and amount
acceptable to the Company for his or her undertaking; (b) the Company is
insured against losses arising by reason of the advance; (c) 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 Company 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 Company 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
officer or director of the Company. The Company, however, may not purchase
insurance on behalf of any officer or director of the Company that protects
or purports to protect such person from liability to the Company or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.

The Company 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 Company.

ARTICLE VII
CAPITAL STOCK
-------------

Section 1. Stock Certificates. Each holder of stock of the Company
------------------
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 Company 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 Company by the Chairman, 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 Company. 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 sig-
nature 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 Company with the same effect as if such officer,
transfer agent or registrar were still in office at the date of issue.

Section 2. Books of Account and Record of Stockholders. There shall
-------------------------------------------
be kept at the principal executive office of the Company correct and complete
books and records of account of all of the business and transactions of the
Company. There shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of shares of
stock issued during a specified period not to exceed 12 months and the
consideration received by the Company for each such share.

Section 3. Transfers of Shares. Transfers of shares of stock of the
-------------------

Company shall be made on the stock records of the Company 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 Company 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 Company shall not
be bound to recognize any equitable or legal claim to or interest in any such
share or shares on the part of any other person.

Section 4. Regulations. The Board may make such additional rules and
-----------
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Company. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and
one or more registrars and may require all certificates for shares of stock
to bear the signature or signatures of any of them.

Section 5. Lost, Destroyed or Mutilated Certificates. The holder of
-----------------------------------------
any certificates representing shares of stock of the Company shall
immediately notify the Company of any loss, destruction or mutilation of such
certificate, and the Company 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 Company 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 Company against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Board, in its absolute
discretion, may refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Maryland.

Section 6. Fixing of a Record Date for Dividends and Distributions.
-------------------------------------------------------
The Board may fix, in advance, a date not more than 90 days preceding the
date fixed for the payment of any dividend or the making of any distribution
or the allotment of rights to subscribe for securities of the Company, or for
the delivery of evidences of rights or evidences of interests arising out of
any change, conversion or exchange of common stock or other securities, as
the record date for the determination of the stockholders entitled to receive
any such dividend, distribution, allotment, rights or interests, and in such
case only the stockholders of record at the time so fixed shall be entitled
to receive such dividend, distribution, allotment, rights or interests.

Section 7. Information to Stockholders and Others. Any stockholder of
--------------------------------------
the Company or his or her agent may inspect and copy during usual business
hours the Company's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.

ARTICLE VIII
SEAL
----

The seal of the Company 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 Company, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner
reproduced.

ARTICLE IX
FISCAL YEAR
-----------

Unless otherwise determined by the Board, the fiscal year of the Company
shall end on the 31st day of December.

ARTICLE X
DEPOSITORIES AND CUSTODIANS
---------------------------

Section 1. Depositories. The funds of the Company shall be deposited
------------
with such banks or other depositories as the Board of Directors of the
Company from time to time may determine.

Section 2. Custodians. All securities and other investments shall be
----------
deposited in the safe keeping of such banks or other companies as the Board
of Directors of the Company may from time to time determine. Every
arrangement entered into with any bank or other company for the safe keeping
of the securities and investments of the Company shall contain provisions
complying with the Investment Company Act of 1940, as amended, and the
general rules and regulations thereunder.

ARTICLE XI
EXECUTION OF INSTRUMENTS
------------------------

Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
---------------------------
acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or person or
persons as the Board of Directors from time to time shall designate by
resolution.

Section 2. Sale or Transfer of Securities. Stock certificates, bonds
------------------------------
or other securities at any time owned by the Company may be held on behalf of
the Company or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board
and, when so authorized to be held on behalf of the Company or sold,
transferred or otherwise disposed of, may be transferred from the name of the
Company 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 Company which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors
and, if required by the provisions of the Investment Company Act of 1940, as
amended, ratified by the stockholders.

ARTICLE XIII
ANNUAL STATEMENT
----------------

The books of account of the Company shall be examined by an independent
firm of public accountants at the close of each annual period of the Company
and at such other times as may be directed by the Board. A report to the
stockholders based upon each such examination shall be mailed to each
stockholder of the Company of record 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 Company. Such annual statement shall also be available
at the annual meeting of stockholders, if any, and, within 20 days after the
meeting (or, in the absence of an annual meeting, within 20 days after the
end of the month of October following the end of the fiscal year), be placed
on file at the Company's principal office. Each such report shall show the
assets and liabilities of the Company as of the close of the annual or
quarterly period covered by the report and the securities in which the funds
of the Company were then invested. Such report also shall show the Company's
income and expenses for the period from the end of the Company's preceding
fiscal year to the close of the annual or quarterly period covered by the
report and any other information required by the Investment Company Act of
1940, as amended, and shall set forth such other matters as the Board or such
firm of independent public accountants shall determine.

ARTICLE XIV
AMENDMENTS
----------

These By-Laws or any of them may be amended, altered or repealed by the
Board of Directors. The stockholders shall have no power to make, amend,
alter or repeal By-Laws.

EXHIBIT 5(a)

MANAGEMENT AGREEMENT

AGREEMENT made this _______, day of ________, 1997, by and between
MERRILL LYNCH CONVERTIBLE FUND, INC., a Maryland corporation (hereinafter
referred to as the "Company"), and MERRILL LYNCH ASSET MANAGEMENT, L.P., a
Delaware limited partnership (hereinafter referred to as the "Manager").

W I T N E S S E T H:
- - - - - - - - - -

WHEREAS, the Company is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended
(hereinafter referred to as the "Investment Company Act"); and

WHEREAS, the Manager is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and

WHEREAS, the Company desires to retain the Manager to render management
and investment advisory services to the Company in the manner and on the
terms hereinafter set forth; and

WHEREAS, the Manager is willing to provide management and investment
advisory services to the Company on the terms and conditions hereinafter set
forth;

NOW, THEREFORE, in consideration of the promises and the covenants
hereinafter contained, the Company and the Manager hereby agree as follows:

ARTICLE I
---------
Duties of the Manager
---------------------

The Company hereby employs the Manager to act as a manager and
investment adviser of the Company and to furnish or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to policies of, review by and overall control of the Board of
Directors of the Company (the "Directors"), for the period and on the terms
and conditions set forth in this Agreement. The Manager hereby accepts such
employment and agrees during such period, at its own expense, to render, or
arrange for the rendering of, such services and to assume the obligations
herein set forth for the compensation provided for herein. The Manager and
its affiliates shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have
no authority to act for or represent the Company in any way or otherwise be
deemed an agent of the Company.

(a) Management and Administrative Services. The Manager shall perform
--------------------------------------
(or arrange for the performance by affiliates of) the management and
administrative services necessary for the operation of the Company including
administering shareholder accounts and handling shareholder relations. The
Manager shall provide the Company with office space, equipment and facilities
and such other services as the Manager, subject to review by the Directors,
shall from time to time determine to be necessary or useful to perform its
obligations under this Agreement. The Manager shall also, on behalf of the
Company, conduct relations with custodians, depositories, transfer agents,
dividend disbursing agents, other shareholder servicing agents, accountants,
attorneys, underwriters, brokers and dealers, corporate fiduciaries,
insurers, banks and such other persons in any such other capacity deemed to
be necessary or desirable. The Manager shall generally monitor the Company's
compliance with investment policies and restrictions as set forth in the
currently effective prospectus and statement of additional information
relating to the shares of the Company under the Securities Act of 1933, as
amended (the "Prospectus" and "Statement of Additional Information",
respectively). The Manager shall make reports to the Directors of its
performance of obligations hereunder and furnish advice and recommendations
with respect to such other aspects of the business and affairs of the Company
as it shall determine to be desirable.

(b) Investment Advisory Services. The Manager shall provide (or
----------------------------
arrange for affiliates to provide) the Company with such investment research,
advice and supervision as the latter may from time to time consider necessary
for the proper supervision of the assets of the Company, shall furnish
continuously an investment program for the Company and shall determine from
time to time which securities shall be purchased, sold or exchanged and what
portion of the assets of the Company shall be held in the various securities
in which the Company invests, options, futures, options on futures or cash,
subject always to the restrictions set forth in the Articles of Incorporation
and By-Laws of the Company, as amended from time to time, the provisions of
the Investment Company Act and the statements relating to the Company's
investment objectives, investment policies and investment restrictions as the
same are set forth in the Prospectus and Statement of Additional Information.
The Manager shall also make decisions for the Company as to the manner in
which voting rights, rights to consent to corporate action and any other
rights pertaining to the Company's portfolio securities shall be exercised.
Should the Directors at any time, however, make any definite determination as
to investment policy and notify the Manager thereof in writing, the Manager
shall be bound by such determination for the period, if any, specified in
such notice or until similarly notified that such determination has been
revoked. The Manager shall take, on behalf of the Company, all actions which
it deems necessary to implement the investment policies determined as
provided above, and in particular to place all orders for the purchase or
sale of portfolio securities for the Company's account with brokers or
dealers selected by it, and to that end, the Manager is authorized as the
agent of the Company to give instructions to the Custodian of the Company as
to deliveries of securities and payments of cash for the account of the
Company. In connection with the selection of such brokers or dealers and the
placing of such orders with respect to assets of the Company, the Manager is
directed at all times to seek to obtain execution and price within the policy
guidelines determined by the Directors as set forth in the Prospectus and
Statement of Additional Information. Subject to this requirement and the
provisions of the Investment Company Act, the Securities Exchange Act of
1934, as amended, and other applicable provisions of law, the Manager may
select brokers or dealers with which it or the Company is affiliated.

(c) Notice Upon Change in Partners of Manager. The Manager is a
-----------------------------------------
limited partnership of which Merrill Lynch & Co., Inc. is the sole limited
partner and Princeton Services, Inc. is the sole general partner. The
Manager will notify the Company of any change in the membership of the
partnership within a reasonable time after such change.

ARTICLE II
----------
Allocation of Charges and Expenses
- ----------------------------------

(a) The Manager. The Manager assumes and shall pay for maintaining the
-----------
staff and personnel necessary to perform its obligations under this
Agreement, and shall, at its own expense, provide the office space, equipment
and facilities which it is obligated to provide under Article I hereof, and
shall pay all compensation of officers of the Company and all Directors who
are affiliated persons of the Manager.

(b) The Company. The Company assumes and shall pay or cause to be paid
-----------
all other expenses of the Company (except for the expenses paid by the
Distributor), including, without limitation: redemption expenses, expenses
of portfolio transactions, expenses of registering shares under federal and
state securities laws, pricing costs (including the daily calculation of net
asset value), expenses of printing shareholder reports, stock certificates,
prospectuses and statements of additional information, Securities and
Exchange Commission fees, interest, taxes, custodian and transfer agency
fees, fees and actual out-of-pocket expenses of Directors who are not
affiliated persons of the Manager, fees for legal and auditing services,
litigation expenses, costs of printing proxies and other expenses related to
shareholder meetings, and other expenses properly payable by the Company. It
is also understood that the Company will reimburse the Manager for its costs
in providing accounting services to the Company. The Distributor will pay
certain of the expenses of the Company incurred in connection with the
continuous offering of Company shares.

ARTICLE III
-----------
Compensation of the Manager
---------------------------

(a) Management Fee. For the services rendered, the facilities
--------------
furnished and expenses assumed by the Manager, the Company shall pay to the
Manager at the end of each calendar month a fee based upon the average daily
value of the net assets of the Company, as determined and computed in
accordance with the description of the determination of net asset value
contained in the Prospectus and Statement of Additional Information, at the
annual rate of 0.60% of the average daily net assets of the Company,
commencing on the day following effectiveness hereof. If this Agreement
becomes effective subsequent to the first day of a month or shall terminate
before the last day of a month, compensation for that part of the month this
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fee as set forth above. Subject to the provisions of
subsection (b) hereof, payment of the Manager's compensation for the
preceding month shall be made as promptly as possible after completion of the
computations contemplated by subsection (b) hereof. During any period when
the determination of net asset value is suspended by the Directors, the net
asset value of a share as of the last business day prior to such suspension
shall for this purpose be deemed to be the net asset value at the close of
each succeeding business day until it is again determined.

(b) Expense Limitations. In the event the operating expenses of the
-------------------
Company, including amounts payable to the Manager pursuant to subsection (a)
hereof, for any fiscal year ending on a date on which this Agreement is in
effect exceed the expense limitations applicable to the Company imposed by
applicable state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, the Manager shall
reduce its management fee by the extent of such excess and, if required
pursuant to any such laws or regulations, will reimburse the Company in the
amount of such excess; provided, however, to the extent permitted by law,
there shall be excluded from such expenses the amount of any interest, taxes,
brokerage commissions, distribution fees and extraordinary expenses
(including but not limited to legal claims and liabilities and litigation
costs and any indemnification related thereto) paid or payable by the
Company. Whenever the expenses of the Company exceed a pro rata portion of
the applicable annual expense limitations, the estimated amount of
reimbursement under such limitations shall be applicable as an offset against
the monthly payment of the management fee due to the Manager. Should two or
more such expense limitations be applicable as at the end of the last
business day of the month, that expense limitation which results in the
largest reduction in the Manager's fee shall be applicable.

ARTICLE IV
__________

Sub-Advisory Agreement
------------------------
The Manager may enter into a separate sub-advisory agreement with
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") in which the
Manager may contract for sub-advisory services and pay MLAM U.K. compensation
for its services out of the compensation received hereunder pursuant to
Article III. Such sub-advisory agreement will be coterminous with this
Management Agreement.

ARTICLE V

Limitation of Liability of the Manager
--------------------------------------

The Manager shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission
in the management of the Company, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article V, the term "Manager" shall include any affiliates of the Manager
performing services for the Company contemplated hereby and directors,
officers and employees of the Manager and such affiliates.

ARTICLE VI
----------
Activities of the Manager
-------------------------

The services of the Manager to the Company are not to be deemed to be
exclusive, and the Manager and any person controlled by or under common
control with the Manager (for purposes of this Article VI referred to as
"affiliates") is free to render services to others. It is understood that
Directors, officers, employees and shareholders of the Company are or may
become interested in the Manager and its affiliates, as directors, officers,
employees and shareholders or otherwise and that directors, officers,
employees and shareholders of the Manager and its affiliates are or may
become similarly interested in the Company, and that the Manager and
directors, officers, employees, partners and shareholders of its affiliates
may become interested in the Company as shareholder or otherwise.

ARTICLE VII
-----------
Duration and Termination of this Contract
-----------------------------------------

This Agreement shall become effective as of the date of the commencement
of operations of the Company as an open-end investment company and shall
remain in force until ________, 1999 and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Directors,
or by the vote of a majority of the outstanding voting securities of the
Company, and (ii) a majority of those Directors who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Company, or by the Manager, on sixty days' written notice
to the other party. This Agreement shall automatically terminate in the
event of its assignment.

ARTICLE VIII
------------
Amendments of this Agreement
----------------------------

This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Company, and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.

ARTICLE IX
----------
Definitions of Certain Terms
----------------------------

The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to
such exemptions as may be granted by the Securities and Exchange Commission
under the Investment Company Act.

ARTICLE X
---------
Governing Law
-------------

This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment Company Act. To
the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

MERRILL LYNCH CONVERTIBLE FUND, INC.

By
-------------------------------------
Title:

MERRILL LYNCH ASSET MANAGEMENT, L.P.

By
-------------------------------------
Title:

EXHIBIT 5(b)

SUB-ADVISORY AGREEMENT

AGREEMENT made as of the ____ day of ___________, 1997, by and between
MERRILL LYNCH ASSET MANAGEMENT, L.P., a Delaware limited partnership
(hereinafter referred to as "MLAM"), and MERRILL LYNCH ASSET MANAGEMENT U.K.
LIMITED, a corporation organized under the laws of England and Wales
(hereinafter referred to as "MLAM U.K.").

W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, MERRILL LYNCH CONVERTIBLE FUND, INC. (the "Fund") is a Maryland
corporation engaged in business as a non-diversified, open-end investment
company registered under the Investment Company Act of 1940, as amended
(hereinafter referred to as the "Investment Company Act"); and

WHEREAS, MLAM and MLAM U.K. are engaged principally in rendering
investment advisory services and are registered as investment advisers under
the Investment Advisers Act of 1940, as amended;

WHEREAS, MLAM U.K. is regulated by the Investment Management Regulatory
Organization, a self-regulating organization recognized under the Financial
Services Act of 1986 of the United Kingdom (hereinafter referred to as
"IMRO"), and the conduct of its investment business is regulated by IMRO; and

WHEREAS, MLAM has entered into an investment advisory agreement (the
"Investment Advisory Agreement") dated ________________, 1997, pursuant to
which MLAM provides management and investment and advisory services to the
Fund; and

WHEREAS, MLAM U.K. is willing to provide investment advisory services to
MLAM in connection with the Fund's operations on the terms and conditions
hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, MLAM U.K. and MLAM hereby agree as follows:

ARTICLE I
---------
Duties of MLAM U.K.
-------------------

MLAM hereby employs MLAM U.K. to act as investment adviser to MLAM and
to furnish, or arrange for affiliates to furnish, the investment advisory
services described below, subject to the broad supervision of MLAM and the
Fund, for the period and on the terms and conditions set forth in this
Agreement. MLAM U.K. hereby accepts such employment and agrees during such
period, at its own expense, to render, or arrange for the rendering of, such
services and to assume the obligations herein set forth for the compensation
provided for herein. MLAM and its affiliates shall for all purposes herein
be deemed a Non Private Customer as defined under the rules promulgated by
IMRO (hereinafter referred to as the "IMRO Rules"). MLAM U.K. and its
affiliates shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have
no authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.

MLAM U.K. shall have the right to make unsolicited calls on MLAM and
shall provide MLAM with such investment research, advice and supervision as
the latter may from time to time consider necessary for the proper
supervision of the assets of the Fund; shall make recommendations from time
to time as to which securities shall be purchased, sold or exchanged and what
portion of the assets of the Fund shall be held in the various securities in
which the Fund invests, options, futures, options on futures or cash; all of
the foregoing subject always to the restrictions of the Articles of
Incorporation and By-Laws of the Fund, as they may be amended and/or restated
from time to time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objective, investment policies
and investment restrictions as the same are set forth in the currently
effective prospectus and statement of additional information relating to the
shares of the Fund under the Securities Act of 1933, as amended (the
"Prospectus" and "Statement of Additional Information", respectively). MLAM
U.K. shall make recommendations and effect transactions with respect to
foreign currency matters, including foreign exchange contracts, foreign
currency options, foreign currency futures and related options on foreign
currency futures and forward foreign currency transactions. MLAM U.K. shall
also make recommendations or take action as to the manner in which voting
rights, rights to consent to corporate action and any other rights pertaining
to the portfolio securities of the Fund shall be exercised.

MLAM U.K. will not hold money on behalf of MLAM or the Fund, nor will
MLAM U.K. be the registered holder of the registered investments of FAM or
the Fund or be the custodian of documents or other evidence of title.

ARTICLE II
----------
Allocation of Charges and Expenses
----------------------------------

MLAM U.K. assumes and shall pay for maintaining the staff and personnel
necessary to perform its obligations under this Agreement and shall at its
own expense provide the office space, equipment and facilities which it is
obligated to provide under Article I hereof and shall pay all compensation of
officers of the Fund and all Directors of the Fund who are affiliated persons
of MLAM U.K.

ARTICLE III
-----------
Compensation of MLAM U.K.
-------------------------

For the services rendered, the facilities furnished and expenses assumed
by MLAM U.K., MLAM shall pay to MLAM U.K. a fee in an amount to be determined
from time to time by MLAM and MLAM U.K. but in no event in excess of the
amount that MLAM actually receives for providing services to the Fund
pursuant to the Investment Advisory Agreement.

ARTICLE IV
----------
Limitation of Liability of MLAM U.K.
------------------------------------

MLAM U.K. shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission
in the performance of sub-advisory services rendered with respect to the
Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of its
obligations and duties hereunder. As used in this Article IV, MLAM U.K.
shall include any affiliates of MLAM U.K. performing services for MLAM
contemplated hereby and directors, officers and employees of MLAM U.K. and
such affiliates.

ARTICLE V
---------
Activities of MLAM U.K.
-----------------------

The services of MLAM U.K. to the Fund are not to be deemed to be
exclusive, MLAM U.K. and any person controlled by or under common control
with MLAM U.K. (for purposes of this Article V referred to as "affiliates")
being free to render services to others. It is understood that Directors,
officers, employees and shareholders of the Fund are or may become interested
in MLAM U.K. and its affiliates, as directors, officers, employees and
shareholders or otherwise and that directors, officers, employees and
shareholders of MLAM U.K. and its affiliates are or may become similarly
interested in the Fund, and that MLAM U.K. and directors, officers,
employees, partners and shareholders of its affiliates may become interested
in the Fund as shareholders or otherwise.

ARTICLE VI
----------
MLAM U.K. Statements Pursuant to IMRO Rules
-------------------------------------------

Any complaints concerning MLAM U.K. should be in writing addressed to
the attention of the Managing Director of MLAM U.K. MLAM has the right to
obtain from MLAM U.K. a copy of the IMRO complaints procedure and to approach
IMRO and the Investment Ombudsman directly.

MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding Investments Not
Readily Realisable (as that term is used in the IMRO Rules) or investments
denominated in a currency other than British pound sterling. There can be no
certainty that market makers will be prepared to deal in unlisted or thinly
traded securities and an accurate valuation may be hard to obtain. The value
of investments recommended by MLAM U.K. may be subject to exchange rate
fluctuations which may have favorable or unfavorable effects on investments.

MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding options, futures or
contracts for differences. Markets can be highly volatile and such
investments carry a high degree of risk of loss exceeding the original
investment and any margin on deposit.

ARTICLE VII
-----------
Duration and Termination of this Agreement
------------------------------------------

This Agreement shall become effective as of the date first above written
and shall remain in force until _________, 1999, and thereafter, but only so
long as such continuance is specifically approved at least annually by (i)
the Directors of the Fund or by the vote of a majority of the outstanding
voting securities of the Fund and (ii) a majority of those Directors who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by MLAM or by vote of a majority of the outstanding voting
securities of the Fund, or by MLAM U.K., on sixty days' written notice to the
other party. This Agreement shall automatically terminate in the event of
its assignment or in the event of the termination of the Investment Advisory
Agreement. Any termination shall be without prejudice to the completion of
transactions already initiated.

ARTICLE VIII
------------
Amendments of this Agreement
----------------------------

This Agreement may be amended by the parties only if such amendment is
specifically approved by (1) the Directors of the Fund or by the vote of a
majority of outstanding voting securities of the Fund and (2) a majority of
those Directors who are not parties to this Agreement or interested persons
of any such party cast in person at a meeting called for the purpose of
voting on such approval.

ARTICLE IX
----------

Definitions of Certain Terms
----------------------------

The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the rules and regulations thereunder, subject, however, to
such exemptions as may be granted by the Securities and Exchange Commission
under said Act.

ARTICLE X
---------
Governing Law
-------------

This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Investment Company
Act. To the extent that the applicable laws of the State of New York, or any
of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

MERRILL LYNCH ASSET MANAGEMENT, L.P.

By
----------------------------------------
Title:

MERRILL LYNCH ASSET MANAGEMENT U.K. LIMITED

By
----------------------------------------
Title:

EXHIBIT 6(a)

CLASS A SHARES

DISTRIBUTION AGREEMENT

AGREEMENT made as of the day of , 1997 between MERRILL LYNCH
CONVERTIBLE FUND, INC., a Maryland corporation (the "Company"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").

W I T N E S S E T H :

WHEREAS, the Company is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Company to offer its
shares for sale continuously; and

WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or
through other securities dealers; and

WHEREAS, the Company and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class A shares
of common stock in the Company.

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Distributor. The Company hereby appoints
------------------------------
the Distributor as the principal underwriter and distributor of the Company
to sell Class A shares of common stock in the Company (sometimes herein
referred to as "Class A shares") to eligible investors (as defined below)
and hereby agrees during the term of this Agreement to sell Class A
shares of the Company to the Distributor upon the terms and conditions
herein set forth.

Section 2. Exclusive Nature of Duties. The Distributor shall be the
---------------------
exclusive representative of the Company to act as principal
underwriter and distributor, except that:

(a) The Company may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class A
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such.
If such designation is deemed exclusive, the right of the Distributor under
this Agreement to sell Class A shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full effect until
terminated in accordance with the other provisions hereof.

(b) The exclusive right granted to the Distributor to purchase Class A
shares from the Company shall not apply to Class A shares issued in
connection with the merger or consolidation of any other investment company
or personal holding company with the Company or the acquisition by purchase
or otherwise of all (or substantially all) the assets or the outstanding
Class A shares of any such company by the Company.

(c) Such exclusive right also shall not apply to Class A shares issued
by the Company pursuant to reinvestment of dividends or capital gains
distributions.

(d) Such exclusive right also shall not apply to Class A shares issued
by the Company pursuant to any conversion, exchange or reinstatement
privilege afforded redeeming shareholders or to any other Class A shares as
shall be agreed between the Company and the Distributor from time to time.

Section 3. Purchase of Class A shares from the Company.
------------------------------------------

(a) The Company will commence an offering of its Class A shares and
thereafter the Distributor shall have the right to buy from the Company the
Class A shares needed, but not more than the Class A shares needed (except
for clerical errors in transmission) to fill unconditional orders for Class A
shares of the Company placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class A shares shall be
those persons so identified in the currently effective prospectus and
statement of additional information of the Company (the "prospectus" and
"statement of additional information", respectively) under the Securities Act
of 1933, as amended (the "Securities Act"), relating to such Class A shares
("eligible investors"). The price which the Distributor shall pay for the
Class A shares so purchased from the Company shall be the net asset value,
determined as set forth in Section 3(d) hereof, used in determining the
public offering price on which such orders were based.

(b) The Class A shares are to be resold by the Distributor to eligible
investors at the public offering price, as set forth in Section 3(c) hereof,
or to securities dealers having agreements with the Distributor upon the
terms and conditions set forth in Section 7 hereof.

(c) The public offering price(s) of the Class A shares, i.e., the
---
price per share at which the Distributor or selected dealers may sell Class A
shares to eligible investors, shall be the public offering price as set forth
in the prospectus and statement of additional information relating to such
Class A shares, but not to exceed the net asset value at which the
Distributor is to purchase the Class A shares, plus a sales charge not to
exceed 5.25% of the public offering price (5.54% of the net amount invested),
subject to reductions for volume purchases. Class A shares may be sold to
certain Directors, officers and employees of the Company, directors and
employees of Merrill Lynch & Co., Inc. and its subsidiaries, and to certain
other persons described in the prospectus and statement of additional
information, without a sales charge or at a reduced sales charge, upon terms
and conditions set forth in the prospectus and statement of additional
information. If the public offering price does not equal an even cent, the
public offering price may be adjusted to the nearest cent. All payments to
the Company hereunder shall be made in the manner set forth in Section 3(f).

(d) The net asset value of Class A shares shall be determined by the
Company or any agent of the Company in accordance with the method set forth
in the prospectus and statement of additional information of the Company and
guidelines established by the Directors.

(e) The Company shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Company shall also have the right to
suspend the sale of its Class A shares if trading on the New York Stock
Exchange shall have been suspended, if a banking moratorium shall have been
declared by Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Company, makes it impracticable or
inadvisable to sell the Class A shares.

(f) The Company, or any agent of the Company designated in writing by
the Company, shall be promptly advised of all purchase orders for Class A
shares received by the Distributor. Any order may be rejected by the
Company; provided, however, that the Company will not arbitrarily or without
reasonable cause refuse to accept or confirm orders for the purchase of Class
A shares from eligible investors. The Company (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and, upon
receipt by the Company (or its agent) of payment therefor, will deliver
deposit receipts or certificates for such Class A shares pursuant to the
instructions of the Distributor. Payment shall be made to the Company in New
York Clearing House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Company (or its agent).

Section 4. Repurchase or Redemption of Class A shares by the Company.
---------------------------------------------------------

(a) Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Company agrees to repurchase or redeem the
Class A shares so tendered in accordance with its obligations as set forth in
Article VI of its Articles of Incorporation, as amended from time to time,
and in accordance with the applicable provisions set forth in the prospectus
and statement of additional information. The price to be paid to redeem or
repurchase the Class A shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(d) hereof, less any
contingent deferred sales charge ("CDSC"), redemption fee or other charge(s),
if any, set forth in the prospectus and statement of additional information
of the Company. All payments by the Company hereunder shall be made in the
manner set forth below. The redemption or repurchase by the Company of any
of the Class A shares purchased by or through the Distributor will not affect
the sales charge secured by the Distributor or any selected dealer in the
course of the original sale, except that if any Class A shares are tendered
for redemption or repurchase within seven business days after the date of the
confirmation of the original purchase, the right to the sales charge shall be
forfeited by the Distributor and the selected dealer which sold such Class A
shares.

The Company shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the
Distributor in New York Clearing House funds on or before the seventh
business day subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of shares shall be paid by the
Company as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.

(b) Redemption of Class A shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Company of securities owned by it
is not reasonably practicable or it is not reasonably practicable for the
Company fairly to determine the value of its net assets, or during any other
period when the Securities and Exchange Commission, by order, so permits.

Section 5. Duties of the Company.
-----------------

(a) The Company shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class A
shares of the Company, and this shall include, upon request by the
Distributor, one certified copy of all financial statements prepared for the
Company by independent public accountants. The Company shall make available
to the Distributor such number of copies of the prospectus and statement of
additional information as the Distributor shall reasonably request.

(b) The Company shall take, from time to time, but subject to any
necessary approval of the Class A shareholders, all necessary action to fix
the number of authorized Class A shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor may
reasonably be expected to sell.

(c) The Company shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class A shares for sale under
the securities laws of such states as the Distributor and the Company may
approve. Any such qualification may be withheld, terminated or withdrawn by
the Company at any time in its discretion. As provided in Section 8(c)
hereof, the expense of qualification and maintenance of qualification shall
be borne by the Company. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be required by
the Company in connection with such qualification.

(d) The Company will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Company.

Section 6. Duties of the Distributor.
-------------------------

(a) The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Company but shall not be obligated to sell any
specific number of Class A shares. The services of the Distributor to the
Company hereunder are not to be deemed exclusive and nothing herein contained
shall prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder
is not impaired thereby.

(b) In selling the Class A shares of the Company, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither
the Distributor nor any selected dealer, as defined in Section 7 hereof, nor
any other person is authorized by the Company to give any information or to
make any representations, other than those contained in the registration
statement or related prospectus and statement of additional information and
any sales literature specifically approved by the Company.

(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Company, for the confirmation of sales to eligible
investors and selected dealers, the collection of amounts payable by eligible
investors and selected dealers on such sales, and the cancellation of
unsettled transactions, as may be necessary to comply with the requirements
of the National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.

Section 7. Selected Dealers Agreements.
---------------------------

(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class A shares and fix therein the portion of the sales charge which
may be allocated to the selected dealers; provided that the Company shall
approve the forms of agreements with dealers and the dealer compensation set
forth therein. Class A shares sold to selected dealers shall be for resale
by such dealers only at the public offering price(s) set forth in the
prospectus and statement of additional information. The form of agreement
with selected dealers to be used in the continuous offering of the Class A
shares is attached hereto as Exhibit A.

(b) Within the United States, the Distributor shall offer and sell
Class A shares only to such selected dealers as are members in good standing
of the NASD.

Section 8. Payment of Expenses.
-------------------

(a) The Company shall bear all costs and expenses of the Company,
including fees and disbursements of its counsel and auditors, in connection
with the preparation and filing of any required registration statements
and/or prospectuses and statements of additional information under the
Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports and
proxy materials to Class A shareholders (including but not limited to the
expense of setting in type any such registration statements, prospectuses,
statementsof additionalinformation,annualor interimreportsor proxymaterials).

(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are
to be used in connection with the offering of Class A shares to selected
dealers or eligible investors pursuant to this Agreement. The Distributor
shall bear the costs and expenses of preparing, printing and distributing any
other literature used by the Distributor or furnished by it for use by
selected dealers in connection with the offering of the Class A shares for
sale to eligible investors and any expenses of advertising incurred by the
Distributor in connection with such offering.

(c) The Company shall bear the cost and expenses of qualification of
the Class A shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Company as a broker or
dealer in such states of the United States or other jurisdictions as shall be
selected by the Company and the Distributor pursuant to Section 5(c) hereof
and the cost and expenses payable to each such state for continuing
qualification therein until the Company decides to discontinue such
qualification pursuant to Section 5(c) hereof.

Section 9. Indemnification.
---------------

(a) The Company shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class A shares, which
may be based upon the Securities Act, or on any other statute or at common
law, on the ground that the registration statement or related prospectus and
statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to shareholders of the Company,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made
in reliance upon, and in conformity with, information furnished to the
Company in connection therewith by or on behalf of the Distributor; provided,
however, that in no case (i) is the indemnity of the Company in favor of the
Distributor and any such controlling persons to be deemed to protect such
Distributor or any such controlling persons thereof against any liability to
the Company or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of willful mis-
feasance, bad faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and duties under
this Agreement; or (ii) is the Company to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made against
the Distributor or any such controlling persons, unless the Distributor or
such controlling persons, as the case may be, shall have notified the Company
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall
not relieve it from any liability which it may have to the person against
whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Company will be entitled to
participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the
Company elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the suit. In the event the
Company elects to assume the defense of any such suit and retain such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses of any additional
counsel retained by them, but in case the Company does not elect to assume
the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Company
shall promptly notify the Distributor of the commencement of any litigation
or proceedings against it or any of its officers or Directors in connection
with the issuance or sale of any of the Class A shares.

(b) The Distributor shall indemnify and hold harmless the Company and
each of its Directors and officers and each person, if any, who controls the
Company against any loss, liability, claim, damage or expense described in
the foregoing indemnity contained in subsection (a) of this Section, but only
with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Company in writing by or on
behalf of the Distributor for use in connection with the registration state-
ment or related prospectus and statement of additional information, as from
time to time amended, or the annual or interim reports to Class A
shareholders. In case any action shall be brought against the Company or any
person so indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties given to
the Company, and the Company and each person so indemnified shall have the
rights and duties given to the Distributor by the provisions of subsection
(a) of this Section 9.

Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection
-----------------------------------------
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized
to offer and sell shares of the Company, as agent for the Company, to
participants in such program. The terms of this Agreement shall apply to
such sales, including terms as to the offering price of shares, the proceeds
to be paid to the Company, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Company and the Distributor.

Section 11. Duration and Termination of this Agreement. This
------------------------------------------
Agreement shall become effective as of the date first above written and shall
remain in force until , 1999 and thereafter, but only for so long as
such continuance is specifically approved at least annually by (i) the
Directors or by the vote of a majority of the outstanding voting securities
of the Company and (ii) by the vote of a majority of those Directors who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Company, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in
the event of its assignment.

The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.

Section 12. Amendments of this Agreement. This Agreement may be
-----------------------
amended by the parties only if such amendment is specifically approved by (i)
the Directors or by the vote of a majority of outstanding voting securities
of the Company and (ii) by the vote of a majority of those Directors of the
Company who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on
such approval.

Section 13. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New
York as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York,
or any of the provisions herein, conflict with the applicable provisions of
the Investment Company Act, the latter shall control.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

MERRILL LYNCH CONVERTIBLE FUND, INC.

By
------------------------------
Title:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By
------------------------------
Title:

EXHIBIT A

MERRILL LYNCH CONVERTIBLE FUND, INC.

CLASS A SHARES OF COMMON STOCK

SELECTED DEALERS AGREEMENT
---------------------

Ladies and Gentlemen:

Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Convertible Fund, Inc., a Maryland Corporation
(the "Company"), pursuant to which it acts as the distributor for the sale of
Class A shares of common stock, par value $0.10 per share (herein referred to
as "Class A shares"), of the Company and as such has the right to distribute
Class A shares of the Company for resale. The Company is an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and its Class A shares are registered
under the Securities Act of 1933, as amended (the "Securities Act"). You
have received a copy of the Class A shares Distribution Agreement (the
"Distribution Agreement") between ourself and the Company and reference is
made herein to certain provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" used herein refer to
the prospectus and statement of additional information, respectively, on file
with the Securities and Exchange Commission which is part of the most recent
effective registration statement pursuant to the Securities Act. We offer to
sell to you, as a member of the Selected Dealers Group, Class A shares of the
Company for resale to investors identified in the Prospectus and Statement of
Additional Information as eligible to purchase Class A shares ("eligible
investors") upon the following terms and conditions:

1. In all sales of these Class A shares to eligible investors, you
shall act as dealer for your own account and in no transaction shall you have
any authority to act as agent for the Company, for us or for any other member
of the Selected Dealers Group, except in connection with the Merrill Lynch
Mutual Fund Adviser program and such other special programs as we from time
to time agree, in which case you shall have authority to offer and sell
shares, as agent for the Company, to participants in such program.

2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Company. The
procedure relating to the handling of orders shall be subject to Section 5
hereof and instructions which we or the Company shall forward from time to
time to you. All orders are subject to acceptance or rejection by the
Distributor or the Company in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in the current
Prospectus and Statement of Additional Information of the Company.

3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:

<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
<S> <C> <C> <C>
Less than $25,000.... 5.25% 5.54% 5.00%
$25,000 but less
than $50,000........ 4.75 4.99 4.50
$50,000 but less
than $100,000........ 4.00 4.17 3.75
$100,000 but less
than $250,000....... 3.00 3.09 2.75
$250,000 but less
than $1,000,000....... 2.00 2.04 1.80
$1,000,000 and over**.. 0.00 0.00 0.00

</TABLE>

___________________
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of
the Company. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.

The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class A shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class A shares
for a single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of Class A
shares of the Company or Class A shares of other registered investment
companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders
of an insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser.

The reduced sales charges are applicable through a right of accumulation
under which certain eligible investors are permitted to purchase Class A
shares of the Company at the offering price applicable to the total of (a)
the dollar amount then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of Class A, Class B, Class C and Class D shares of the
Company and of any other open-end investment company advised by Merrill Lynch
Asset Management, L.P. or Fund Asset Management, L.P. (together "MLAM-advised
mutual funds"). For any such right of accumulation to be made available, the
Distributor must be provided at the time of purchase, by the purchaser or
you, with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation.

The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class A shares or of Class D shares of any other MLAM-
advised mutual fund made through you within a thirteen-month period starting
with the first purchase pursuant to a Letter of Intention in the form pro-
vided in the Prospectus. A purchase not originally made pursuant to a Letter
of Intention may be included under a subsequent letter executed within 90
days of such purchase if the Distributor is informed in writing of this
intent within such 90-day period. If the intended amount of shares is not
purchased within the thirteen-month period, an appropriate price adjustment
will be made pursuant to the terms of the Letter of Intention.

You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intention is set forth in the Prospectus and
Statement of Additional Information.

4. You shall not place orders for any of the Class A shares unless you
have already received purchase orders for such Class A shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class A shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class A shares you will furnish to each person to
whom any such sale or offer is made a copy of the Prospectus and, if
requested, the Statement of Additional Information (as then amended or
supplemented) and will not furnish to any person any information relating to
the Class A shares of the Company which is inconsistent in any respect with
the information contained in the Prospectus and Statement of Additional
Information (as then amended or supplemented) or cause any advertisement to
be published in any newspaper or posted in any public place without our
consent and the consent of the Company.

5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Company for Class A shares of the Company to be resold by
us to you subject to the applicable terms and conditions governing the
placement of orders by us set forth in Section 3 of the Distribution
Agreement and subject to the compensation provisions of Section 3 hereof and
(ii) to tender Class A shares directly to the Company or its agent for
redemption subject to the applicable terms and conditions set forth in
Section 4 of the Distribution Agreement.

6. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change
---
in the "net asset value" from that used in determining the offering price to
your customers.

7. If any Class A shares sold to you under the terms of this Agreement
are repurchased by the Company or by us for the account of the Company or are
tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class A shares.

8. No person is authorized to make any representations concerning Class
A shares of the Company except those contained in the current Prospectus and
Statement of Additional Information of the Company and in such printed
information subsequently issued by us or the Company as information
supplemental to such Prospectus and Statement of Additional Information. In
purchasing Class A shares through us you shall rely solely on the
representations contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Company's Prospectus,
Statement of Additional Information, periodic reports and proxy solicitation
material is our sole responsibility and not the responsibility of the
Company, and you agree that the Company shall have no liability or
responsibility to you in these respects unless expressly assumed in
connection therewith.

9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and
interim reports and proxy solicitation materials of the Company. You further
agree to endeavor to obtain proxies from such purchasers. Additional copies
of the Prospectus and Statement of Additional Information, annual or interim
reports and proxy solicitation materials of the Company will be supplied to
you in reasonable quantities upon request.

10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class A shares entirely or to certain
persons or entities in a class or classes specified by us. Each party hereto
has the right to cancel this agreement upon notice to the other party.

11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering.
We shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of compliance
with any provision of the Securities Act of 1933, as amended, or of the rules
and regulations of the Securities and Exchange Commission issued thereunder.

12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.

13. Upon application to us, we will inform you as to the states in
which we believe the Class A shares have been qualified for sale under, or
are exempt from the requirements of, the respective securities laws of such
states, but we assume no responsibility or obligation as to your right to
sell Class A shares in any jurisdiction. We will file with the Department of
State in New York a Further State Notice with respect to the Class A shares,
if necessary.

14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.

15. Your first order placed pursuant to this Agreement for the purchase
of Class A shares of the Company will represent your acceptance of this
Agreement.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By
(Authorized Signature)----------------------------

Please return one signed copy
of this agreement to:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081

Accepted:

Firm Name:
---------------------------------

By:
----------------------------------------

Address:
-----------------------------------

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

Date:
--------------------------------------

EXHIBIT 6(b)

CLASS B SHARES

DISTRIBUTION AGREEMENT

AGREEMENT made as of the day of , 1997, between MERRILL LYNCH
CONVERTIBLE FUND, INC., a Maryland corporation (the "Company"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").

W I T N E S S E T H :
-------------------

WHEREAS, the Company is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company and it is affirmatively in the interest of the Company to offer its
shares for sale continuously; and

WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or
through other securities dealers; and

WHEREAS, the Company and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Company's
Class B shares in order to promote the growth of the Company and facilitate
the distribution of its Class B shares.

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Distributor. The Company hereby appoints
------------------------------
the Distributor as the principal underwriter and distributor of the Company
to sell Class B shares of common stock of the Company (sometimes herein
referred to as "Class B shares") to the public and hereby agrees during the
term of this Agreement to sell shares of the Company to the Distributor upon
the terms and conditions herein set forth.

Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Company to act as principal underwriter and
distributor of the Class B shares, except that:

(a) The Company may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class B
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such.
If such designation is deemed exclusive, the right of the Distributor under
this Agreement to sell Class B shares in the areas so designated shall termi-
nate, but this Agreement shall remain otherwise in full effect until
terminated in accordance with the other provisions hereof.

(b) The exclusive rights granted to the Distributor to purchase Class B
shares from the Company shall not apply to Class B shares of the Company
issued in connection with the merger or consolidation of any other investment
company or personal holding company with the Company or the acquisition by
purchase or otherwise of all (or substantially all) the assets or the
outstanding Class B shares of any such company by the Company.

(c) Such exclusive rights also shall not apply to Class B shares issued
by the Company pursuant to reinvestment of dividends or capital gains
distributions.

(d) Such exclusive rights also shall not apply to Class B shares issued
by the Company pursuant to any reinstatement privilege afforded redeeming
shareholders or any other Class B shares as shall be equal between the
Company and the Distributor from time to time.

Section 3. Purchase of Class B Shares from the Company.
-------------------------------------------

(a) The Company will commence an offering of its Class B shares and
thereafter the Distributor shall have the right to buy from the Company the
Class B shares needed, but not more than the Class B shares needed (except
for clerical errors in transmission) to fill unconditional orders for Class B
shares of the Company placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class B shares shall be
those persons so identified in the currently effective prospectus and
statement of additional information of the Company (the "prospectus" and
"statement of additional information", respectively) under the Securities Act
of 1933, as amended (the "Securities Act"), relating to such Class B shares.
The price which the Distributor shall pay for the Class B shares so purchased
from the Company shall be the net asset value, determined as set forth in
Section 3(c) hereof.

(b) The Class B shares are to be resold by the Distributor to investors
at net asset value, as set forth in Section 3(c) hereof, or to securities
dealers having agreements with the Distributor upon the terms and conditions
set forth in Section 7 hereof.

(c) The net asset value of Class B shares of the Company shall be
determined by the Company or any agent of the Company in accordance with the
method set forth in the prospectus and statement of additional information
and guidelines established by the Board of Directors.

(d) The Company shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Company shall also have the right to
suspend the sale of its Class B shares if trading on the New York Stock
Exchange shall have been suspended, if a banking moratorium shall have been
declared by Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Company, makes it impracticable or
inadvisable to sell the shares.

(e) The Company, or any agent of the Company designated in writing by
the Company, shall be promptly advised of all purchase orders for Class B
shares received by the Distributor. Any order may be rejected by the
Company; provided, however, that the Company will not arbitrarily or without
reasonable cause refuse to accept or confirm orders for the purchase of Class
B shares. The Company (or its agent) will confirm orders upon their receipt,
will make appropriate book entries and, upon receipt by the Company (or its
agent) of payment therefor, will deliver deposit receipts or certificates for
such Class B shares pursuant to the instructions of the Distributor. Payment
shall be made to the Company in New York Clearing House funds. The
Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Company (or its agent).

Section 4. Repurchase or Redemption of Class B Shares by the Company.
---------------------------------------------------------

(a) Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Company agrees to repurchase or redeem the
Class B shares so tendered in accordance with its obligations as set forth in
Article VI of its Articles of Incorporation, as amended from time to time,
and in accordance with the applicable provisions set forth in the prospectus
and statement of additional information of the Company. The price to be paid
to redeem or repurchase the Class B shares shall be equal to the net asset
value calculated in accordance with the provisions of Section 3(c) hereof,
less any contingent deferred sales charge ("CDSC"), redemption fee(s) or
other charge(s), if any, set forth in the prospectus and statement of
additional information of the Company. All payments by the Company hereunder
shall be made in the manner set forth below.

The Company shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the
Distributor on or before the seventh business day subsequent to its having
received the notice of redemption in proper form.

The proceeds of any redemption of shares shall be paid by the Company as
follows (i) any applicable CDSC shall be paid to the Distributor, and (ii)
the balance shall be paid to or for the account of the shareholder, in each
case in accordance with the applicable provisions of the prospectus and
statement of additional information.

(b) Redemption of Class B shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
closed, when trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of which
disposal by the Company of securities owned by it is not reasonably practic-
able or it is not reasonably practicable for the Company fairly to determine
the value of its net assets, or during any other period when the Securities
and Exchange Commission, by order, so permits.

Section 5. Duties of the Company.
---------------------

(a) The Company shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class B
shares of the Company, and this shall include, upon request by the
Distributor, one certified copy of all financial statements prepared for the
Company by independent public accountants. The Company shall make available
to the Distributor such number of copies of its prospectus and statement of
additional information as the Distributor shall reasonably request.

(b) The Company shall take, from time to time, but subject to the
necessary approval of the shareholders, all necessary action to fix the
number of authorized shares and such steps as may be necessary to register
the same under the Securities Act to the end that there will be available for
sale such number of Class B shares as the Distributor reasonably may be
expected to sell.

(c) The Company shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class B shares for sale under
the securities laws of such states as the Distributor and the Company may
approve. Any such qualification may be withheld, terminated or withdrawn by
the Company at any time in its discretion. As provided in Section 8(c)
hereof, the expense of qualification and maintenance of qualification shall
be borne by the Company. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be required by
the Company in connection with such qualification.

(d) The Company will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Company.

Section 6. Duties of the Distributor.
-------------------------

(a) The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Company, but shall not be obligated to sell
any specific number of shares. The services of the Distributor to the
Company hereunder are not to be deemed exclusive and nothing herein contained
shall prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder
is not impaired thereby.

(b) In selling the Class B shares of the Company, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither
the Distributor nor any selected dealer, as defined in Section 7 hereof, nor
any other person is authorized by the Company to give any information or to
make any representations, other than those contained in the registration
statement or related prospectus and statement of additional information and
any sales literature specifically approved by the Company.

(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Company, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may
be necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.

Section 7. Selected Dealer Agreements.
--------------------------

(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class B shares; provided, that the Company shall approve the forms of
agreements with dealers. Class B shares sold to selected dealers shall be
for resale by such dealers only at net asset value determined as set forth in
Section 3(c) hereof. The form of agreement with selected dealers to be used
in the continuous offering of the shares is attached hereto as Exhibit A.

(b) Within the United States, the Distributor shall offer and sell
Class B shares only to such selected dealers that are members in good
standing of the NASD.

Section 8. Payment of Expenses.
-------------------

(a) The Company shall bear all costs and expenses of the Company,
including fees and disbursements of its counsel and auditors, in connection
with the preparation and filing of any required registration statements
and/or prospectuses and statements of additional information under the
Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports and
proxy materials to Class B shareholders (including but not limited to the
expense of setting in type any such registration statements, prospectuses,
statements of additional information, annual or interim reports or proxy
materials).

(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are
to be used in connection with the offering of Class B shares to selected
dealers or investors pursuant to this Agreement. The Distributor shall bear
the costs and expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by selected
dealers in connection with the offering of the Class B shares for sale to the
public and any expenses of advertising incurred by the Distributor in
connection with such offering. It is understood and agreed that, so long as
the Company's Class B Shares Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act remains in effect, any expenses incurred by the
Distributor hereunder may be paid from amounts recovered by it from the
Company under such Plan.

(c) The Company shall bear the cost and expenses of qualification of
the Class B shares for sale pursuant to this Agreement, and, if necessary or
advisable in connection therewith, of qualifying the Company as a broker or
dealer in such states of the United States or other jurisdictions as shall be
selected by the Company and the Distributor pursuant to Section 5(c) hereof
and the cost and expenses payable to each such state for continuing
qualification therein until the Company decides to discontinue such
qualification pursuant to Section 5(c) hereof.

Section 9. Indemnification.
---------------

(a) The Company shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class B shares, which
may be based upon the Securities Act, or on any other statute or at common
law, on the ground that the registration statement or related prospectus and
statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to Class B shareholders of the
Company, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was
made in reliance upon, and in conformity with, information furnished to the
Company in connection therewith by or on behalf of the Distributor; provided,
however, that in no case (i) is the indemnity of the Company in favor of the
Distributor and any such controlling persons to be deemed to protect such
Distributor or any such controlling persons thereof against any liability to
the Company or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of the reckless disregard of their obligations and duties under
this Agreement; or (ii) is the Company to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made against
the Distributor or any such controlling persons, unless the Distributor or
such controlling persons, as the case may be, shall have notified the Company
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall
not relieve it from any liability which it may have to the person against
whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Company will be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the
Company elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the suit. In the event the
Company elects to assume the defense of any such suit and retain such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses, as incurred, of any
additional counsel retained by them, but, in case the Company does not elect
to assume the defense of any such suit, it will reimburse the Distributor or
such controlling person or persons, defendant or defendants in the suit, for
the reasonable fees and expenses, as incurred, of any counsel retained by
them. The Company shall promptly notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or Direc-
tors in connection with the issuance or sale of any of the Class B shares.

(b) The Distributor shall indemnify and hold harmless the Company and
each of its Directors and officers and each person, if any, who controls the
Company against any loss, liability, claim, damage or expense, as incurred,
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance
upon, and in conformity with, information furnished to the Company in writing
by or on behalf of the Distributor for use in connection with the regis-
tration statement or related prospectus and statement of additional
information, as from time to time amended, or the annual or interim reports
to shareholders. In case any action shall be brought against the Company or
any person so indemnified, in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties
given to the Company, and the Company and each person so indemnified shall
have the rights and duties given to the Distributor by the provisions of sub-
section (a) of this Section 9.

Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection
------------------------------------------
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized
to offer and sell shares of the Company, as agent for the Company, to
participants in such program. The terms of this Agreement shall apply to
such sales, including terms as to the offering price of shares, the proceeds
to be paid to the Company, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Company and the Distributor.

Section 11. Duration and Termination of this Agreement. This
------------------------------------------
Agreement shall become effective as of the date first above written and shall
remain in force until , 1999 and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Directors,
or by the vote of a majority of the outstanding voting securities of the
Company, and (ii) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Company, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in
the event of its assignment.

Section 12. Amendments of this Agreement. This Agreement may be
----------------------------
amended by the parties only if such amendment is specifically approved by (i)
the Directors, or by the vote of a majority of outstanding voting securities
of the Company, and (ii) by the vote of a majority of those Directors of the
Company who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on
such approval.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

MERRILL LYNCH CONVERTIBLE FUND, INC.

By
-------------------------------------
Title:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By
-------------------------------------
Title:

EXHIBIT A

MERRILL LYNCH CONVERTIBLE FUND, INC.

CLASS B SHARES OF COMMON STOCK

SELECTED DEALER AGREEMENT
-------------------------

Ladies and Gentlemen:

Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Convertible Fund, Inc., a Maryland corporation
(the "Company"), pursuant to which it acts as the distributor for the sale of
Class B shares of common stock, par value $0.10 per share (herein referred to
as the "Class B shares"), of the Company, and as such has the right to
distribute Class B shares of the Company for resale. The Company is an
open-end investment company registered under the Investment Company Act of
1940, as amended, and its Class B shares being offered to the public are
registered under the Securities Act of 1933, as amended (the "Securities
Act"). You have received a copy of the Class B shares Distribution Agreement
(the "Distribution Agreement") between ourself and the Company and reference
is made herein to certain provisions of such Distribution Agreement. The
terms "Prospectus" and "Statement of Additional Information" as used herein
refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission (the
"Commission") which is part of the most recent effective registration
statement pursuant to the Securities Act. We offer to sell to you, as a
member of the Selected Dealers Group, Class B shares of the Company upon the
following terms and conditions:

1. In all sales of these Class B shares to the public you shall act as
dealer for your own account, and in no transaction shall you have any
authority to act as agent for the Company, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch
Mutual Fund Adviser program and such other special programs as we from time
to time agree, in which case you shall have authority to offer and sell
shares, as agent for the Company, to participants in such program.

2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Company. The
procedure relating to the handling of orders shall be subject to Section 4
hereof and instructions which we or the Company shall forward from time to
time to you. All orders are subject to acceptance or rejection by the
Distributor or the Company in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in the current
Prospectus and Statement of Additional Information of the Company.

3. You shall not place orders for any of the Class B shares unless you
have already received purchase orders for such Class B shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class B shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class B shares you will furnish to each person to
whom any such sale or offer is made a copy of the Prospectus and, if
requested, the Statement of Additional Information (as then amended or
supplemented) and will not furnish to any person any information relating to
the Class B shares of the Company, which is inconsistent in any respect with
the information contained in the Prospectus and Statement of Additional
Information (as then amended or supplemented) or cause any advertisement to
be published in any newspaper or posted in any public place without our
consent and the consent of the Company.

4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Company for Class B shares of the Company to be resold by
us to you subject to the applicable terms and conditions governing the
placement of orders by us set forth in Section 3 of the Distribution
Agreement, and (ii) to tender Class B shares directly to the Company or its
agent for redemption subject to the applicable terms and conditions set forth
in Section 4 of the Distribution Agreement.

5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change
----
in the "net asset value" from that used in determining the offering price to
your customers.

6. No person is authorized to make any representations concerning Class
B shares of the Company except those contained in the current Prospectus and
Statement of Additional Information of the Company and in such printed
information subsequently issued by us or the Company as information
supplemental to such Prospectus and Statement of Additional Information. In
purchasing Class B shares through us you shall rely solely on the
representations contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Company's Prospectus,
Statement of Additional Information, periodic reports and proxy solicitation
material are our sole responsibility and not the responsibility of the
Company, and you agree that the Company shall have no liability or
responsibility to you in these respects unless expressly assumed in
connection therewith.

7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and
interim reports and proxy solicitation materials of the Company. You further
agree to endeavor to obtain proxies from such purchasers. Additional copies
of the Prospectus and Statement of Additional Information, annual or interim
reports and proxy solicitation materials of the Company will be supplied to
you in reasonable quantities upon request.

8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class B shares entirely or to certain
persons or entities in a class or classes specified by us. Each party hereto
has the right to cancel this Agreement upon notice to the other party.

9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering.
We shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of compliance
with any provision of the Securities Act, or of the rules and regulations of
the Commission issued thereunder.

10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.

11. Upon application to us, we will inform you as to the states in which
we believe the Class B shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such
states, but we assume no responsibility or obligation as to your right to
sell Class B shares in any jurisdiction. We will file with the Department of
State in New York a Further State Notice with respect to the Class B shares,
if necessary.

12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.

13. Your first order placed pursuant to this Agreement for the purchase
of Class B shares of the Company will represent your acceptance of this
Agreement.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By
----------------------------------
(Authorized Signature)

Please return one signed copy
of this Agreement to:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081

Accepted:

Firm Name:
-------------------------------------------

By:
--------------------------------------------------

Address:
---------------------------------------------

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

Date:
------------------------------------------------

EXHIBIT 6(c)

CLASS C SHARES

DISTRIBUTION AGREEMENT

W I T N E S S E T H :
-------------------

WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or
through other securities dealers; and

WHEREAS, the Company and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Company's
Class C shares in order to promote the growth of the Company and facilitate
the distribution of its Class C shares.

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Distributor. The Company hereby appoints
------------------------------
the Distributor as the principal underwriter and distributor of the Company
to sell Class C shares of common stock in the Company (sometimes herein
referred to as "Class C shares") to the public and hereby agrees during the
term of this Agreement to sell shares of the Company to the Distributor upon
the terms and conditions herein set forth.

(a) The Company may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class C
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such.
If such designation is deemed exclusive, the right of the Distributor under
this Agreement to sell Class C shares in the areas so designated shall termi-
nate, but this Agreement shall remain otherwise in full effect until
terminated in accordance with the other provisions hereof.

(b) The exclusive right granted to the Distributor to purchase Class C
shares from the Company shall not apply to Class C shares of the Company
issued in connection with the merger or consolidation of any other investment
company or personal holding company with the Company or the acquisition by
purchase or otherwise of all (or substantially all) the assets or the
outstanding Class C shares of any such company by the Company.

(c) Such exclusive right also shall not apply to Class C shares issued
by the Company pursuant to reinvestment of dividends or capital gains
distributions.

(d) Such exclusive right also shall not apply to Class C shares issued
by the Company pursuant to any conversion, exchange or reinstatement
privilege afforded redeeming shareholders or to any other Class C shares as
shall be agreed between the Company and the Distributor from time to time.

Section 3. Purchase of Class C Shares from the Company.
-------------------------------------------

(a) The Company will commence an offering of its Class C shares, and
thereafter the Distributor shall have the right to buy from the Company the
Class C shares needed, but not more than the Class C shares needed (except
for clerical errors in transmission) to fill unconditional orders for Class C
shares of the Company placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class C shares shall be
those persons so identified in the currently effective prospectus and
statement of additional information of the Company (the "prospectus" and
"statement of additional information," respectively) under the Securities Act
of 1933, as amended (the "Securities Act"), relating to such Class C shares.
The price which the Distributor shall pay for the Class C shares so purchased
from the Company shall be the net asset value, determined as set forth in
Section 3(c) hereof.

(b) The Class C shares are to be resold by the Distributor to investors
at net asset value, as set forth in Section 3(c) hereof, or to securities
dealers having agreements with the Distributor upon the terms and conditions
set forth in Section 7 hereof.

(c) The net asset value of Class C shares of the Company shall be
determined by the Company or any agent of the Company in accordance with the
method set forth in the prospectus and statement of additional information
and guidelines established by the Board of Directors.

(d) The Company shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Company shall also have the right to
suspend the sale of its Class C shares if trading on the New York Stock
Exchange shall have been suspended, if a banking moratorium shall have been
declared by Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Company, makes it impracticable or
inadvisable to sell the Class C shares.

(e) The Company, or any agent of the Company designated in writing by
the Company, shall be promptly advised of all purchase orders for Class C
shares received by the Distributor. Any order may be rejected by the
Company; provided, however, that the Company will not arbitrarily or without
reasonable cause refuse to accept or confirm orders for the purchase of Class
C shares. The Company (or its agent) will confirm orders upon their receipt,
will make appropriate book entries and, upon receipt by the Company (or its
agent) of payment therefor, will deliver deposit receipts or certificates for
such Class C shares pursuant to the instructions of the Distributor. Payment
shall be made to the Company in New York Clearing House funds. The
Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Company (or its agent).

Section 4. Repurchase or Redemption of Class C Shares by the Company.
---------------------------------------------------------

(a) Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Company agrees to repurchase or redeem the
Class C shares so tendered in accordance with its obligations as set forth in
Article VI of its Articles of Incorporation, as amended from time to time,
and in accordance with the applicable provisions set forth in the prospectus
and statement of additional information of the Company. The price to be paid
to redeem or repurchase the Class C shares shall be equal to the net asset
value calculated in accordance with the provisions of Section 3(c) hereof,
less any contingent deferred sales charge ("CDSC"), redemption fee or other
charge(s), if any, set forth in the prospectus and statement of additional
information of the Company. All payments by the Company hereunder shall be
made in the manner set forth below.

The proceeds of any redemption of shares shall be paid by the Company as
follows: (i) any applicable CDSC shall be paid to the Distributor, and (ii)
the balance shall be paid to or for the account of the shareholder, in each
case in accordance with the applicable provisions of the prospectus and
statement of additional information.

(b) Redemption of Class C shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Company of securities owned by it
is not reasonably practicable or it is not reasonably practicable for the
Company fairly to determine the value of its net assets, or during any other
period when the Securities and Exchange Commission, by order, so permits.

Section 5. Duties of the Company.
---------------------

(a) The Company shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class C
shares of the Company, and this shall include, upon request by the
Distributor, one certified copy of all financial statements prepared for the
Company by independent public accountants. The Company shall make available
to the Distributor such number of copies of its prospectus and statement of
additional information as the Distributor shall reasonably request.

(b) The Company shall take, from time to time, but subject to any
necessary approval of the shareholders, all necessary action to fix the
number of authorized shares and such steps as may be necessary to register
the same under the Securities Act to the end that there will be available for
sale such number of Class C shares as the Distributor reasonably may be
expected to sell.

(c) The Company shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class C shares for sale under
the securities laws of such states as the Distributor and the Company may
approve. Any such qualification may be withheld, terminated or withdrawn by
the Company at any time in its discretion. As provided in Section 8(c)
hereof, the expense of qualification and maintenance of qualification shall
be borne by the Company. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be required by
the Company in connection with such qualification.

(d) The Company will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Company.

Section 6. Duties of the Distributor.
-------------------------

(a) The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Company but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Company
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder
is not impaired thereby.

(b) In selling the Class C shares of the Company, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither
the Distributor nor any selected dealer, as defined in Section 7 hereof, nor
any other person is authorized by the Company to give any information or to
make any representations, other than those contained in the registration
statement or related prospectus and statement of additional information and
any sales literature specifically approved by the Company.

Section 7. Selected Dealer Agreements.
--------------------------

(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class C shares; provided, that the Company shall approve the forms of
agreements with dealers. Class C shares sold to selected dealers shall be
for resale by such dealers only at net asset value determined as set forth in
Section 3(c) hereof. The form of agreement with selected dealers to be used
in the continuous offering of the shares is attached hereto as Exhibit A.

(b) Within the United States, the Distributor shall offer and sell
Class C shares only to such selected dealers that are members in good
standing of the NASD.

Section 8. Payment of Expenses.
-------------------

(a) The Company shall bear all costs and expenses of the Company,
including fees and disbursements of its counsel and auditors, in connection
with the preparation and filing of any required registration statements
and/or prospectuses and statements of additional information under the
Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports and
proxy materials to Class C shareholders (including but not limited to the
expense of setting in type any such registration statements, prospectuses,
statements of additional information, annual or interim reports or proxy
materials).

(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are
to be used in connection with the offering of Class C shares to selected
dealers or investors pursuant to this Agreement. The Distributor shall bear
the costs and expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by selected
dealers in connection with the offering of the Class C shares for sale to the
public and any expenses of advertising incurred by the Distributor in
connection with such offering. It is understood and agreed that so long as
the Company's Class C Shares Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act remains in effect, any expenses incurred by the
Distributor hereunder may be paid from amounts recovered by it from the
Company under such Plan.

(c) The Company shall bear the cost and expenses of qualification of
the Class C shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Company as a broker or
dealer in such states of the United States or other jurisdictions as shall be
selected by the Company and the Distributor pursuant to Section 5(c) hereof
and the cost and expenses payable to each such state for continuing
qualification therein until the Company decides to discontinue such
qualification pursuant to Section 5(c) hereof.

Section 9. Indemnification.
---------------

(a) The Company shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class C shares, which
may be based upon the Securities Act, or on any other statute or at common
law, on the ground that the registration statement or related prospectus and
statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to Class C shareholders of the
Company, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was
made in reliance upon, and in conformity with, information furnished to the
Company in connection therewith by or on behalf of the Distributor; provided,
however, that in no case (i) is the indemnity of the Company in favor of the
Distributor and any such controlling persons to be deemed to protect such
Distributor or any such controlling persons thereof against any liability to
the Company or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of the reckless disregard of their obligations and duties under
this Agreement; or (ii) is the Company to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made against
the Distributor or any such controlling persons, unless the Distributor or
such controlling persons, as the case may be, shall have notified the Company
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall
not relieve it from any liability which it may have to the person against
whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Company will be entitled to
participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the
Company elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the suit. In the event the
Company elects to assume the defense of any such suit and retain such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses, as incurred, of any
additional counsel retained by them, but in case the Company does not elect
to assume the defense of any such suit, it will reimburse the Distributor or
such controlling person or persons, defendant or defendants in the suit, for
the reasonable fees and expenses, as incurred, of any counsel retained by
them. The Company shall promptly notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or
Directors in connection with the issuance or sale of any of the Class C
shares.

(b) The Distributor shall indemnify and hold harmless the Company and
each of its Directors and officers and each person, if any, who controls the
Company against any loss, liability, claim, damage or expense, as incurred,
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance
upon, and in conformity with, information furnished to the Company in writing
by or on behalf of the Distributor for use in connection with the regis-
tration statement or related prospectus and statement of additional
information, as from time to time amended, or the annual or interim reports
to shareholders. In case any action shall be brought against the Company or
any person so indemnified, in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties
given to the Company, and the Company and each person so indemnified shall
have the rights and duties given to the Distributor by the provisions of sub-
section (a) of this Section 9.

Section 11. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until , 1999 and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Directors
or by the vote of a majority of the outstanding voting securities of the
Company and (ii) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Company, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in
the event of its assignment.

Section 12. Amendments of this Agreement. This Agreement may be
----------------------------
amended by the parties only if such amendment is specifically approved by (i)
the Directors or by the vote of a majority of outstanding voting securities
of the Company and (ii) by the vote of a majority of those Directors of the
Company who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on
such approval.

MERRILL LYNCH CONVERTIBLE FUND, INC.

------------------------------------
Title:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By
------------------------------------
Title:

EXHIBIT A

MERRILL LYNCH CONVERTIBLE FUND, INC.

CLASS C SHARES OF COMMON STOCK

SELECTED DEALER AGREEMENT
-------------------------

Ladies and Gentlemen:

Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Convertible Fund, Inc., a Maryland corporation
(the "Company"), pursuant to which it acts as the distributor for the sale of
Class C shares of common stock, par value $0.10 per share (herein referred to
as the "Class C shares"), of the Company and as such has the right to
distribute Class C shares of the Company for resale. The Company is an open-
end investment company registered under the Investment Company Act of 1940,
as amended, and its Class C shares being offered to the public are registered
under the Securities Act of 1933, as amended (the "Securities Act"). You
have received a copy of the Class C Shares Distribution Agreement (the
"Distribution Agreement") between ourself and the Company and reference is
made herein to certain provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" as used herein refer
to the prospectus and statement of additional information, respectively, on
file with the Securities and Exchange Commission (the "Commission") which is
part of the most recent effective registration statement pursuant to the
Securities Act. We offer to sell to you, as a member of the Selected Dealers
Group, Class C shares of the Company upon the following terms and conditions:

1. In all sales of these Class C shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any
authority to act as agent for the Company, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch
Mutual Fund Adviser program and such other special programs as we from time
to time agree, in which case you shall have authority to offer and sell
shares, as agent for the Company, to participants in such program.

2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Company. The
procedure relating to the handling of orders shall be subject to Section 4
hereof and instructions which we or the Company shall forward from time to
time to you. All orders are subject to acceptance or rejection by the
Distributor or the Company in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in the current
Prospectus and Statement of Additional Information of the Company.

3. You shall not place orders for any of the Class C shares unless you
have already received purchase orders for such Class C shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class C shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class C shares you will furnish to each person to
whom any such sale or offer is made a copy of the Prospectus and, if
requested, the Statement of Additional Information (as then amended or
supplemented) and will not furnish to any person any information relating to
the Class C shares of the Company which is inconsistent in any respect with
the information contained in the Prospectus and Statement of Additional
Information (as then amended or supplemented) or cause any advertisement to
be published in any newspaper or posted in any public place without our
consent and the consent of the Company.

4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Company for Class C shares of the Company to be resold by
us to you subject to the applicable terms and conditions governing the
placement of orders by us set forth in Section 3 of the Distribution
Agreement and (ii) to tender Class C shares directly to the Company or its
agent for redemption subject to the applicable terms and conditions set forth
in Section 4 of the Distribution Agreement.

6. No person is authorized to make any representations concerning Class
C shares of the Company except those contained in the current Prospectus and
Statement of Additional Information of the Company and in such printed
information subsequently issued by us or the Company as information
supplemental to such Prospectus and Statement of Additional Information. In
purchasing Class C shares through us you shall rely solely on the
representations contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Company's Prospectus,
Statement of Additional Information, periodic reports and proxy solicitation
material is our sole responsibility and not the responsibility of the
Company, and you agree that the Company shall have no liability or
responsibility to you in these respects unless expressly assumed in
connection therewith.

8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class C shares entirely or to certain
persons or entities in a class or classes specified by us. Each party hereto
has the right to cancel this Agreement upon notice to the other party.

9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering.
We shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of compliance
with any provision of the Securities Act or of the rules and regulations of
the Commission issued thereunder.

11. Upon application to us, we will inform you as to the states in which
we believe the Class C shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such
states, but we assume no responsibility or obligation as to your right to
sell Class C shares in any jurisdiction. We will file with the Department of
State in New York a Further State Notice with respect to the Class C shares,
if necessary.

12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.

13. Your first order placed pursuant to this Agreement for the purchase
of Class C shares of the Company will represent your acceptance of this
Agreement.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By
----------------------------------
(Authorized Signature)

Please return one signed copy
of this Agreement to:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081

Accepted:

Firm Name:
--------------------------------------------

By:
---------------------------------------------------

Address:
----------------------------------------------

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

Date:
-------------------------------------------------

EXHIBIT 6(d)

CLASS D SHARES

DISTRIBUTION AGREEMENT

W I T N E S S E T H :

WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or
through other securities dealers; and

WHEREAS, the Company and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class D shares
of common stock in the Company.

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Distributor. The Company hereby appoints
-------------------------
the Distributor as the principal underwriter and distributor of the Company
to sell Class D shares of common stock in the Company (sometimes herein
referred to as "Class D shares") to the public and hereby agrees during the
term of this Agreement to sell Class D shares of the Company to the
Distributor upon the terms and conditions herein set forth.

Section 2. Exclusive Nature of Duties. The Distributor shall be the
---------------------
exclusive representative of the Company to act as principal
underwriter and distributor, except that:

(a) The Company may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class D
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such.
If such designation is deemed exclusive, the right of the Distributor under
this Agreement to sell Class D shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full effect until
terminated in accordance with the other provisions hereof.

(b) The exclusive right granted to the Distributor to purchase Class D
shares from the Company shall not apply to Class D shares issued in
connection with the merger or consolidation of any other investment company
or personal holding company with the Company or the acquisition by purchase
or otherwise of all (or substantially all) the assets or the outstanding
Class D shares of any such company by the Company.

(c) Such exclusive right also shall not apply to Class D shares issued
by the Company pursuant to reinvestment of dividends or capital gains
distributions.

(d) Such exclusive right also shall not apply to Class D shares issued
by the Company pursuant to any conversion, exchange or reinstatement
privilege afforded redeeming shareholders or to any other Class D shares as
shall be agreed between the Company and the Distributor from time to time.

Section 3. Purchase of Class D Shares from the Company.
-------------------------------------------

(a) The Company will commence an offering of its Class D shares, and
thereafter the Distributor shall have the right to buy from the Company the
Class D shares needed, but not more than the Class D shares needed (except
for clerical errors in transmission) to fill unconditional orders for Class D
shares of the Company placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class D shares shall be
those persons so identified in the currently effective prospectus and
statement of additional information of the Company (the "prospectus" and
"statement of additional information", respectively) under the Securities Act
of 1933, as amended (the "Securities Act"), relating to such Class D shares.
The price which the Distributor shall pay for the Class D shares so purchased
from the Company shall be the net asset value, determined as set forth in
Section 3(d) hereof, used in determining the public offering price on which
such orders were based.

(b) The Class D shares are to be resold by the Distributor to investors
at the public offering price, as set forth in Section 3(c) hereof, or to
securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.

(c) The public offering price(s) of the Class D shares, i.e., the price
----
per share at which the Distributor or selected dealers may sell Class D
shares to the public, shall be the public offering price as set forth in
the prospectus and statement of additional information relating to such
Class D shares, but not to exceed the net asset value at which the
Distributor is to purchase the Class D shares, plus a sales charge not
to exceed 5.25% of the public offering price (5.54% of the net amount
invested), subject to reductions for volume purchases. Class D shares may
be sold to certain Directors, officers and employees of the Company,
directors and employees of Merrill Lynch & Co., Inc. and its subsidiaries,
and to certain other persons described in the prospectus and statement of
additional information, without a sales charge or at a reduced sales
charge, upon terms and conditions set forth in the prospectus and
statement of additional information. If the public offering price does
not equal an even cent, the public offering price may be adjusted to the
nearest cent. All payments to the Company hereunder shall be made in the
manner set forth in Section 3(f).

(d) The net asset value of Class D shares shall be determined by the
Company or any agent of the Company in accordance with the method set forth
in the prospectus and statement of additional information of the Company and
guidelines established by the Directors.

(e) The Company shall have the right to suspend the sale of its Class D
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Company shall also have the right to
suspend the sale of its Class D shares if trading on the New York Stock
Exchange shall have been suspended, if a banking moratorium shall have been
declared by Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Company, makes it impracticable or
inadvisable to sell the Class D shares.

(f) The Company, or any agent of the Company designated in writing by
the Company, shall be promptly advised of all purchase orders for Class D
shares received by the Distributor. Any order may be rejected by the
Company; provided, however, that the Company will not arbitrarily or without
reasonable cause refuse to accept or confirm orders for the purchase of Class
D shares. The Company (or its agent) will confirm orders upon their receipt,
will make appropriate book entries and, upon receipt by the Company (or its
agent) of payment therefor, will deliver deposit receipts or certificates for
such Class D shares pursuant to the instructions of the Distributor. Payment
shall be made to the Company in New York Clearing House funds. The
Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Company (or its agent).

Section 4. Repurchase or Redemption of Class D shares by the Company.
---------------------------------------------------------

(a) Any of the outstanding Class D shares may be tendered for
redemption at any time, and the Company agrees to repurchase or redeem the
Class D shares so tendered in accordance with its obligations as set forth in
Article VI of its Articles of Incorporation, as amended from time to time,
and in accordance with the applicable provisions set forth in the prospectus
and statement of additional information. The price to be paid to redeem or
repurchase the Class D shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(d) hereof, less any
contingent deferred sales charge ("CDSC"), redemption fee or other charge(s),
if any, set forth in the prospectus and statement of additional information
of the Company. All payments by the Company hereunder shall be made in the
manner set forth below. The redemption or repurchase by the Company of any
of the Class D shares purchased by or through the Distributor will not affect
the sales charge secured by the Distributor or any selected dealer in the
course of the original sale, except that if any Class D shares are tendered
for redemption or repurchase within seven business days after the date of the
confirmation of the original purchase, the right to the sales charge shall be
forfeited by the Distributor and the selected dealer which sold such Class D
shares.

(b) Redemption of Class D shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Company of securities owned by it
is not reasonably practicable or it is not reasonably practicable for the
Company fairly to determine the value of its net assets, or during any other
period when the Securities and Exchange Commission, by order, so permits.

Section 5. Duties of the Company.
---------------------

(a) The Company shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class D
shares of the Company, and this shall include, upon request by the
Distributor, one certified copy of all financial statements prepared for the
Company by independent public accountants. The Company shall make available
to the Distributor such number of copies of the prospectus and statement of
additional information as the Distributor shall reasonably request.

(b) The Company shall take, from time to time, but subject to any
necessary approval of the Class D shareholders, all necessary action to fix
the number of authorized Class D shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Class D shares as the Distributor may
reasonably be expected to sell.

(c) The Company shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class D shares for sale under
the securities laws of such states as the Distributor and the Company may
approve. Any such qualification may be withheld, terminated or withdrawn by
the Company at any time in its discretion. As provided in Section 8(c)
hereof, the expense of qualification and maintenance of qualification shall
be borne by the Company. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be required by
the Company in connection with such qualification.

(d) The Company will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Company.

Section 6. Duties of the Distributor.
-------------------------

(a) The Distributor shall devote reasonable time and effort to effect
sales of Class D shares of the Company but shall not be obligated to sell any
specific number of Class D shares. The services of the Distributor to the
Company hereunder are not to be deemed exclusive and nothing herein contained
shall prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder
is not impaired thereby.

(b) In selling the Class D shares of the Company, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither
the Distributor nor any selected dealer, as defined in Section 7 hereof, nor
any other person is authorized by the Company to give any information or to
make any representations, other than those contained in the registration
statement or related prospectus and statement of additional information and
any sales literature specifically approved by the Company.

Section 7. Selected Dealers Agreements.
---------------------------

(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class D shares and fix therein the portion of the sales charge which
may be allocated to the selected dealers; provided that the Company shall
approve the forms of agreements with dealers and the dealer compensation set
forth therein. Class D shares sold to selected dealers shall be for resale
by such dealers only at the public offering price(s) set forth in the
prospectus and statement of additional information. The form of agreement
with selected dealers to be used in the continuous offering of the Class D
shares is attached hereto as Exhibit A.

(b) Within the United States, the Distributor shall offer and sell
Class D shares only to such selected dealers as are members in good standing
of the NASD.

Section 8. Payment of Expenses.
-------------------

(a) The Company shall bear all costs and expenses of the Company,
including fees and disbursements of its counsel and auditors, in connection
with the preparation and filing of any required registration statements
and/or prospectuses and statements of additional information under the
Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports and
proxy materials to Class D shareholders (including but not limited to the
expense of setting in type any such registration statements, prospectuses,
statements of additional information, annual or interim reports or proxy
materials).

(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are
to be used in connection with the offering of Class D shares to selected
dealers or investors pursuant to this Agreement. The Distributor shall bear
the costs and expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by selected
dealers in connection with the offering of the Class D shares for sale to the
public and any expenses of advertising incurred by the Distributor in
connection with such offering. It is understood and agreed that so long as
the Company's Class D Shares Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act remains in effect, any expenses incurred by the
Distributor hereunder in connection with account maintenance activities may
be paid from amounts recovered by it from the Company under such plan.

(c) The Company shall bear the cost and expenses of qualification of
the Class D shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Company as a broker or
dealer in such states of the United States or other jurisdictions as shall be
selected by the Company and the Distributor pursuant to Section 5(c) hereof
and the cost and expenses payable to each such state for continuing
qualification therein until the Company decides to discontinue such
qualification pursuant to Section 5(c) hereof.

Section 9. Indemnification.
---------------

(a) The Company shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class D shares, which
may be based upon the Securities Act, or on any other statute or at common
law, on the ground that the registration statement or related prospectus and
statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to shareholders of the Company,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made
in reliance upon, and in conformity with, information furnished to the
Company in connection therewith by or on behalf of the Distributor; provided,
however, that in no case (i) is the indemnity of the Company in favor of the
Distributor and any such controlling persons to be deemed to protect such
Distributor or any such controlling persons thereof against any liability to
the Company or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of willful mis-
feasance, bad faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and duties under
this Agreement; or (ii) is the Company to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made against
the Distributor or any such controlling persons, unless the Distributor or
such controlling persons, as the case may be, shall have notified the Company
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall
not relieve it from any liability which it may have to the person against
whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Company will be entitled to
participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the
Company elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the suit. In the event the
Company elects to assume the defense of any such suit and retain such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses of any additional
counsel retained by them, but in case the Company does not elect to assume
the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Company
shall promptly notify the Distributor of the commencement of any litigation
or proceedings against it or any of its officers or Directors in connection
with the issuance or sale of any of the Class D shares.

(b) The Distributor shall indemnify and hold harmless the Company and
each of its Directors and officers and each person, if any, who controls the
Company against any loss, liability, claim, damage or expense described in
the foregoing indemnity contained in subsection (a) of this Section, but only
with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Company in writing by or on
behalf of the Distributor for use in connection with the registration state-
ment or related prospectus and statement of additional information, as from
time to time amended, or the annual or interim reports to Class D
shareholders. In case any action shall be brought against the Company or any
person so indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties given to
the Company, and the Company and each person so indemnified shall have the
rights and duties given to the Distributor by the provisions of subsection
(a) of this Section 9.

Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection
----------------------------------
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are
authorized to offer and sell shares of the Company, as agent for the
Company, to participants in such program. The terms of this Agreement
shall apply to such sales, including terms as to the offering price of
shares, the proceeds to be paid to the Company, the duties of the
Distributor, the payment of expenses and indemnification obligations of
the Company and the Distributor.

Section 11. Duration and Termination of this Agreement. This Agreement
-----------------------------------
shall become effective as of the date first above written and shall remain
in force until , 1999 and thereafter, but only for so long as
such continuance is specifically approved at least annually by (i) the
Directors or by the vote of a majority of the outstanding voting securities
of the Company and (ii) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of any such
party cast in person at a meeting called for the purpose of voting on such
approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Company, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in
the event of its assignment.

Section 12. Amendments of this Agreement. This Agreement may be
------------------------------
amended by the parties only if such amendment is specifically approved by
(i) the Directors or by the vote of a majority of outstanding voting
securities of the Company and (ii) by the vote of a majority of those
Directors of the Company who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called
for the purpose of voting on such approval.

Section 13. Governing Law. The provisions of this Agreement shall be
--------------
construed and interpreted in accordance with the laws of the State of New
York as at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of the State
of New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

MERRILL LYNCH CONVERTIBLE FUND, INC.

By
------------------------------
Title:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By
------------------------------
Title:

EXHIBIT A

MERRILL LYNCH CONVERTIBLE FUND, INC.

CLASS D SHARES OF COMMON STOCK

SELECTED DEALERS AGREEMENT
--------------------------

Ladies and Gentlemen:

Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Convertible Fund, Inc., a Maryland corporation
(the "Company"), pursuant to which it acts as the distributor for the sale of
Class D shares of common stock, par value $0.10 per share (herein referred to
as "Class D shares"), of the Company and as such has the right to distribute
Class D shares of the Company for resale. The Company is an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and its Class D shares are registered
under the Securities Act of 1933, as amended (the "Securities Act"). You
have received a copy of the Class D shares Distribution Agreement (the
"Distribution Agreement") between ourself and the Company and reference is
made herein to certain provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" used herein refer to
the prospectus and statement of additional information, respectively, on file
with the Securities and Exchange Commission which is part of the most recent
effective registration statement pursuant to the Securities Act. We offer to
sell to you, as a member of the Selected Dealers Group, Class D shares of the
Company upon the following terms and conditions:

1. In all sales of these Class D shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any
authority to act as agent for the Company, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch
Mutual Fund Adviser program and such other special programs as we from time
to time agree, in which case you shall have authority to offer and sell
shares, as agent for the Company, to participants in such program.

3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:

<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ------------------ ---------------- -------------- ------------
<S> <C> <C> <C>
Less than $25,000.... 5.25% 5.54% 5.00%
$25,000 but less
than $50,000........ 4.75 4.99 4.50
$50,000 but less
than $100,000........ 4.00 4.17 3.75
$100,000 but less
than $250,000....... 3.00 3.09 2.75
$250,000 but less
than $1,000,000....... 2.00 2.04 1.80
$1,000,000 and over**.. 0.00 0.00 0.00

</TABLE>

___________________
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees as
set forth in the current Prospectus and Statement of Additional Information
of the Company. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.

The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class D shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class D shares
for a single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of Class D
shares of the Company or Class D shares of other registered investment
companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders
of an insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser.

The reduced sales charges are applicable through a right of accumulation
under which certain eligible investors are permitted to purchase Class D
shares of the Company at the offering price applicable to the total of (a)
the dollar amount then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of Class A, Class B, Class C and Class D shares of the
Company and of any other open-end investment company advised by Merrill Lynch
Asset Management, L.P. or Fund Asset Management, L.P. (together "MLAM-advised
mutual funds"). For any such right of accumulation to be made available, the
Distributor must be provided at the time of purchase, by the purchaser or
you, with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation.

4. You shall not place orders for any of the Class D shares unless you
have already received purchase orders for such Class D shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class D shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class D shares you will furnish to each person to
whom any such sale or offer is made a copy of the Prospectus and, if
requested, the Statement of Additional Information (as then amended or
supplemented) and will not furnish to any person any information relating to
the Class D shares of the Company which is inconsistent in any respect with
the information contained in the Prospectus and Statement of Additional
Information (as then amended or supplemented) or cause any advertisement to
be published in any newspaper or posted in any public place without our
consent and the consent of the Company.

5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Company for Class D shares of the Company to be resold by
us to you subject to the applicable terms and conditions governing the
placement of orders by us set forth in Section 3 of the Distribution
Agreement and subject to the compensation provisions of Section 3 hereof and
(ii) to tender Class D shares directly to the Company or its agent for
redemption subject to the applicable terms and conditions set forth in
Section 4 of the Distribution Agreement.

6. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change
----
in the "net asset value" from that used in determining the offering price to
your customers.

7. If any Class D shares sold to you under the terms of this Agreement
are repurchased by the Company or by us for the account of the Company or are
tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class D shares.

8. No person is authorized to make any representations concerning Class
D shares of the Company except those contained in the current Prospectus and
Statement of Additional Information of the Company and in such printed
information subsequently issued by us or the Company as information
supplemental to such Prospectus and Statement of Additional Information. In
purchasing Class D shares through us you shall rely solely on the
representations contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Company's Prospectus,
Statement of Additional Information, periodic reports and proxy solicitation
material is our sole responsibility and not the responsibility of the
Company, and you agree that the Company shall have no liability or
responsibility to you in these respects unless expressly assumed in
connection therewith.

10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class D shares entirely or to certain
persons or entities in a class or classes specified by us. Each party hereto
has the right to cancel this agreement upon notice to the other party.

11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering.
We shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of compliance
with any provision of the Securities Act, or of the rules and regulations of
the Securities and Exchange Commission issued thereunder.

13. Upon application to us, we will inform you as to the states in
which we believe the Class D shares have been qualified for sale under, or
are exempt from the requirements of, the respective securities laws of such
states, but we assume no responsibility or obligation as to your right to
sell Class D shares in any jurisdiction. We will file with the Department of
State in New York a Further State Notice with respect to the Class D shares,
if necessary.

14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.

15. Your first order placed pursuant to this Agreement for the purchase
of Class D shares of the Company will represent your acceptance of this
Agreement.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By
----------------------------
(Authorized Signature)

Please return one signed copy
of this agreement to:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081

Accepted:

Firm Name:
----------------------------------

By:
----------------------------------------

Address:
-----------------------------------

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

Date:
---------------------------------------

EXHIBIT 8

Custody Agreement

THIS AGREEMENT is effective October 4, 1994 and is between The Chase
Manhattan Bank, N.A. (the "Bank") and Convertible Holdings, Inc. (the
"Customer").

1. CUSTOMER ACCOUNTS

The Bank agrees to establish and maintain the following accounts
("Accounts"):

(a) A custody account in the name of the Customer ("Custody Account")
for any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same or evidencing or representing any other
rights or interests therein and other similar property whether certificated
or uncertificated as may be received by the Bank or its Subcustodian (as
defined in Section 3) for the account of the Customer ("Securities"); and

(b) A deposit account in the name of the Customer ("Deposit Account")
for any and all cash in any currency received by the Bank or its Subcustodian
for the account of the Customer, which cash shall not be subject to
withdrawal by draft or check.

The Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give instructions (as
defined in Section 11) concerning the Accounts. The Bank may deliver
securities of the same class in place of those deposited in the Custody
Account.

Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional
Accounts under the terms of this Agreement.

2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS

Unless instructions specifically require another location acceptable to
the Bank:

(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and

(b) cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.

Cash may held pursuant to instructions in either interest or non-
interest bearing accounts as may be available for the particular currency.
To the extent instructions are issued and the Bank can comply with such
instructions, the Bank is authorized to maintain cash balances on deposit for
the Customer with itself or one of its affiliates at such reasonable rates of
interest as may from time to time to be paid on such accounts, or in non-
interest bearing accounts as the Customer may direct, if acceptable to the
Bank.

If the Customer wishes to have any of its Assets held in the custody of
an institution other than the established Subcustodians or their securities
depositories, such arrangement must be authorized by a written agreement,
signed by the Bank and the Customer.

3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES

The Bank may act under the Agreement through the subcustodians listed in
Schedule A of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank
to hold Assets in the Accounts in accounts which the Bank has established
with one or more of its branches or Subcustodians. The Bank and
Subcustodians are authorized to hold any of the Securities in their account
with any securities depository in which they participate.

The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment to
Schedule A. Upon request by the Customer, the Bank will identify the name,
address and principal place of business of any Subcustodian of the Customer's
Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.

4. USE OF SUBCUSTODIAN

(a) The Bank will identify Assets on its books as belonging to the
Customer.

(b) A Subcustodian will hold Assets together with assets belonging to
other customers of the Bank in accounts identified on such Subcustodian's
books as special custody accounts for the exclusive benefit of customers of
the Bank.

(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only
to the instructions of such Subcustodian.

(d) Any agreement the Bank enters into with a Subcustodian for holding
its customer's assets shall provide that such assets will not be subject to
any right, charge, security interest, lien or claim or any kind or favor of
such Subcustodian except for safe custody or administration, and that the
beneficial ownership of such assets will be freely transferable without the
payment of money or value other than for safe custody or administration. The
foregoing shall not apply to the extent of any special agreement or
arrangement made by the Customer with any particular Subcustodian.

5. DEPOSIT ACCOUNT TRANSACTIONS

(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of instructions which include information required by
the Bank.

(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its
discretion, may advance the Customer such excess amount which shall be deemed
a on payable on demand, bearing interest at the rate customarily charged by
the Bank on similar loans.

(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit
Account, with interest, dividends, redemptions or any other amount due, the
Customer will promptly return any such amount upon oral or written
notification; (i) that such amount has not been received in the ordinary
course of business or (ii) that such amount was incorrectly credited. If the
Customer does not promptly return any amount upon such notification, the Bank
shall be entitled, upon oral or written notification to the Customer, to
reverse such credit by debiting the Deposit Account for the amount previously
credited. The Bank or its Subcustodian shall have no duty or obligation to
institute legal proceedings, file a claim or a proof of claim in any
insolvency proceeding or take any other action with respect to the collection
of such amount, but may act for the Customer upon instructions after
consultation with the Customer.

6. CUSTODY ACCOUNT TRANSACTIONS

(a) Securities will be transferred, exchanged or delivered by the Bank
or its Subcustodian upon receipt by the Bank of instructions which include
all information required by the Bank. Settlement and payment for Securities
received for, and delivery of Securities out of, the Custody Account may be
made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market
in which the transaction occurs,including, without limitation, delivery of
Securities to a purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery. Delivery of
Securities out of the Custody Account may also be made in any manner
specifically required by instructions acceptable to the Bank.

(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Accounts on the date cash or Securities are
actually received by the Bank and reconciled to the Accounts.

(i) The Bank may reverse credits or debits made to the Accounts in
its discretion if the related transaction fails to settle within a
reasonable period, determined by the Bank in its discretion, after
the contractual settlement date for the related transaction.

(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the credits
and debits of the particular transaction at any time.

7. ACTIONS OF THE BANK

The Bank shall follow instructions received regarding Assets held in the
Accounts. However, until it receives instructions to the contrary, the Bank
will perform the following functions.

(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that the Bank or
Subcustodian is actually aware of such opportunities.

(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.

(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.

(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.

The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advice or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer send the Bank a written exception or objection
to any Bank statement within sixty days of receipt, the Customer shall be
deemed to have approved such statement. In such event, or where the Customer
has otherwise approved any such statement, the Bank shall, to the extent
permitted by law, be released, relieved and discharged with respect to all
matters set forth in such statement or reasonably implied therefrom as though
it had been settled by the decree of a court of competent jurisdiction in an
action where the Customer and all persons having or claiming an interest in
the Customer or the Customer's Accounts were parties.

All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made the risk of the
Customer. The Bank shall have no liability for any loss occasioned by delay
in the actual receipt of notice by the Bank or by its Subcustodians of any
payment, redemption or other transaction regarding Securities in the Custody
Account in respect of which the Bank has agreed to take any action under this
Agreement.

8. CORPORATE ACTIONS; PROXIES

Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities
(other than a proxy), such a subscription rights, bonus issues, stock
repurchase plans and right offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), the
Bank will give the Customer notice of such Corporate Actions to the extent
that the Bank's central corporate actions department has actual knowledge of
a Corporate Action in time to notify its customers.

When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
instructions from the Customer or its Authorized Person, as defined in
Section 10, but if instruction are not received in time for the Bank to take
timely action, or actual notice of such Corporate Action was received too
late to seek instructions, the Bank is authorized to sell such rights
entitlement or fractional interest and to credit the Deposit Account with the
proceeds or take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.

The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing.
Such proxies shall be executed in the appropriate nominee name relating to
Securities in the Custody Account registered in the name of such nominee but
without indicating the manner in which such proxies are to be voted; and
where bearer Securities are involved, proxies will be delivered in accordance
with instructions.

9. NOMINEES

Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities
depository, as the case may be. The Bank may, without notice to the
Customer, cause any such Securities to cease to be registered in the name of
any such nominee and to be registered in the name of the Customer. In the
event that any Securities registered in a nominee name are called for partial
redemption by the issuer, the Bank may allot the called portion to the
respective beneficial holders of such class of security in any manner the
Bank deems to be fair and equitable. The Customer agrees to hold the Bank,
Subcustodians, and their respective nominees harmless from any liability
arising directly or indirectly from their status as a mere record holder of
Securities in the Custody Account.

10. AUTHORIZED PERSONS

As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives instructions from the Customer
or its designated agent that any such employee or agent is no longer an
Authorized Person.

11. INSTRUCTIONS

The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, Facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information
system acceptable to the Bank which the Bank believes in good faith to have
been given by Authorized Persons or which are transmitted with proper testing
or authentication pursuant to terms and conditions which the Bank may
specify. Unless otherwise expressly provided, all instructions shall
continue in full force and effect until cancelled or superseded.

Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which
confirmation may bear the facsimile signature of such Person, but the
Customer will hold the Bank harmless for the failure of an Authorized Person
to such confirmation in writing, the failure of such confirmation to conform
to the telephone instructions received or the Bank's failure to produce such
confirmation at any subsequent time. Either Party may electronically record
any instructions given by telephone, and any other telephone discussions with
respect to the Custody Account. The Customer shall be responsible for
safeguarding any test keys, identification codes or other security devices
which the Bank shall make available to the Customer or its Authorized
Persons.

12. STANDARD OF CARE; LIABILITIES

(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in
instructions which are consistent with the provisions of this Agreement.

(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall
be liable to the Customer for any loss which shall occur as the
result of the failure of a Subcustodian to exercise reasonable care
with respect to the safekeeping of such Assets to the same extent
that the Bank would be liable to the Customer if the Bank were
holding such Assets in New York. In the vent of any loss to the
Customer by reason of the failure of the Bank or its Subcustodian
to utilize reasonable care, the Bank shall be liable to the
Customer only to the extent of the Customer's direct damages, to be
determined based on the market value of the property which is the
subject of the loss at the date of discovery of such loss and
without reference to any special conditions or circumstances.

(ii) The Bank will not be responsible for any act, omission, default or
for the solvency of any broker or agent which it or a Subcustodian
appoints unless such appointment was made negligently or in bad
faith.

(iii) The Bank will be indemnified by, and without liability to the
Customer for any action taken or omitted by the Bank whether
pursuant to Instructions or otherwise within the scope of this
Agreement if such act or omission was in good faith, without
negligence. In performing its obligations under this Agreement,
the Bank may rely on the genuineness of any document which it
believes in good faith to have been validly executed.

(iv) The Customer agrees to pay for and hold the Bank harmless from any
liability or loss resulting from the imposition or assessment of
any taxes or other governmental charges, and any related expenses
with respect to income from or Assets in the Accounts.

(v) The Bank shall be entitled to rely, and may act upon the advice of
counsel (who may be counsel for the Customer) on all matters, and
shall be without liability for any action reasonably taken or
omitted pursuant to such advice.

(vi) The bank need not maintain any insurance for the benefit of the
Customer.

(vii) Without limiting the foregoing, the Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or
2) investing or holding Assets in a particular country including,
but not limited to, losses resulting from nationalization,
expropriation or other governmental actions; regulation of the
banking or securities industry; currency restrictions, devaluations
or fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of Assets.

(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes
or work stoppages, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation, or acts of God.

(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have not duty
or responsibility to:

(i) question instructions or make any suggestions to the Customer or an
Authorized Person regarding such Instructions;

(ii) supervise or make recommendations with respect to investments or
the retention of Securities;

(iii) advise the Customer or an Authorized Person regarding any default
in the payment of principal or income of any security other than as
provided in Section 5(c) of this Agreement;

(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or other
party to which Securities are delivered or payments are made
pursuant to this Agreement; or

(v) review or reconcile trade confirmations received from brokers. The
Customer or its Authorized Persons issuing instructions shall bear
any responsibility to review such confirmations against
instructions issued to and statements issued by the Bank.

(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have
a material interest in a transaction, or circumstances are such that the Bank
may have a potential conflict of duty or interest including the fact that the
Bank or any of its affiliates may provide brokerage services to thereon
customers, act as financial advisor to the issuer of Securities, act as a
lender to the issuer of Securities, act as a lender to the issuer of
Securities, act in the same transaction as agent for more than one customer,
have a material interest in the issue of Securities, or earn profits from any
of the activities listed herein.

13. FEES AND EXPENSES

The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing, together with the
Bank's reasonable out-of-pocket or incidental expenses, including, but not
limited to legal fees. The Bank shall have a lien on and is authorized to
charge any Accounts of the Customer for any amount owing to the Bank under
any provision of this Agreement.

14. MISCELLANEOUS

(a) Foreign Exchange Transactions. To facilitate the administration of
the Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange
through its subsidiaries, affiliates or Subcustodians, instructions,
including standing instructions, may be issued with respect to such contracts
but the Bank may establish rules or limitations concerning any foreign
exchange facility made available. In all cases where the Bank, its
subsidiaries, affiliates or Subcustodians enter into a foreign exchange
contract related to Accounts, the terms and conditions of the then current
foreign exchange contract of the Bank, its subsidiary, affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement, shall apply
to such transaction.

(b) Certification of Residency, etc. The Customer certifies that it is
a resident of the United States and agrees to notify the Bank of any changes
in residency. The Bank may rely upon this certification or the certification
of such other facts as may be required to administer the Bank's obligations
under this Agreement. The Customer will indemnify the Bank against all
losses, liability, claims or demands arising directly or indirectly from any
such certifications.

(c) Access to Records. The Bank shall allow the Customer's independent
public accountants reasonable access to the records of the Bank relating to
the Assets as is required in connection with their examination of books and
records pertaining to the Customer's affairs. Subject to restrictions under
applicable law, the Bank shall also obtain an undertaking to permit the
Customer's affairs. Subject to restrictions under applicable law, the Bank
shall also obtain an undertaking to permit the Customer's independent public
accounts reasonable access to the records of any Subcustodian which has
physical possession of any assets as amy be required in connection with the
examination of the Customer's books and records.

(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and
the Bank.

(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (check one):

employee benefit plan or other assets subject to the
-----
Employee Retirement Income Security Act of 1974, as amended
("ERISA");

X mutual fund assets subject to Securities and Exchange
-----
("SEC") rules and regulations;

neither of the above.
-----

This Agreement consists exclusively of this document together with
Schedule A, and the following rider(s) (check applicable riders):

ERISA
-----

X MUTUAL FUND
-----

SPECIAL TERMS AND CONDITIONS
-----

There are not other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the
parties. Any amendment to this Agreement must be in writing, executed by
both parties.

(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or unenforceable in any respect on the
basis of any particular circumstances or in any jurisdiction, the validity,
legality and enforceability of any such provision and the remaining
provisions, under other circumstances or in other jurisdictions will not in
any way be affected or impaired.

(g) Waiver. Except as otherwise provided in this Agreement, no failure
or delay on the part of either part in exercising any power or right under
this Agreement operates as a waiver, nor does any single or partial exercise
of any power or right preclude any other or further exercise thereof, or the
exercise of any other power or right. No waiver by a party of any provision
of this Agreement, or waiver of any breach or default, is effective unless in
writing and signed by the party against whom the waiver is to be enforced.

(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses
or such other addresses as may subsequently be given to the other party in
writing:

Bank: The Chase Manhattan Bank, N.A.
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245

Attention: Global Securities Services

Customer: Merrill Lynch Asset Management
800 Scudders Mill Road
Plainsboro, New Jersey 08536

Attn: Treasurer

(i) Termination. This Agreement may be terminated by the Customer or
the Bank by giving sixty days written notice to the other provided, that such
notice to the Bank shall specify the names of the persons to whom the Bank
shall deliver the Assets in the Accounts. If notice of termination is given
by the Bank, the Customer shall, within sixty days following receipt of the
notice, deliver to the Bank instructions specifying the names of the persons
to whom the Bank shall deliver the Assets. In either case the Bank will
deliver the Assets to the persons so specified, after deducting any amounts
which the Bank determines in good faith to be owed to it under Section 13.
If within sixty days following receipt of a notice of termination by the
Bank, the Bank does not receive instructions from the Customer specifying the
names of the persons to whom the Bank shall deliver the Assets, the Bank, at
its election, may deliver the Assets to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions of this Agreement, or to Authorized Persons, or may continue to
hold the Assets until Instructions are provided to the Bank.

CONVERTIBLE HOLDINGS, INC.

By: /s/ Gerald M. Richard
-----------------------
Treasurer
-----------------------
Title

CHASE MANHATTAN BANK, N.A.

By: /s/ Robert G. Triano
----------------------
Vice President

----------------------
Title

STATE OF )
: ss.
COUNTY OF )

This _____ day of _________, 19 __, before me personally came
________________ to me known, who being by me duly sworn, did depose and say
that he/she resides in __________________________________; that he/she is
_________________________ of ___________________________________
("Customer"), the Customer which executed the foregoing Agreement; that
he/she knows the seal of the Customer; that the seal affixed to the Agreement
is such seal; that it was affixed by order of the Customer, and that he/she
signed his/her name thereto by like order.

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

Sworn to before me this ___ day
of _______________, 19__.

- ---------------------------------------
Notary

STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK)

On this 4th day of October, 1994, before me personally came Robert
Triano, to me known, who being by me duly sworn, did depose and say that he
resides in Redbank, New Jersey, at 14 Delaware Avenue, that he is a Vice
President of THE CHASE MANHATTAN BANK, N.A. ("Bank"), the Bank which executed
the foregoing Agreement; that he knows the seal of the Bank; that the seal
affixed to the Agreement is such corporate seal; that it was so affixed by
order of the Board of Directors of the Bank, and that he signed his name
thereto by like order.

/s/ Robert G. Triano
--------------------------------------

Sworn to before me this 4th day
of October, 1994.

/s/ Laiyee Ng
- --------------------------------
Notary

(Notary Stamp)

Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A. and
Convertible Holdings, Inc.,
effective October 4, 1994

Customer represents that the Assets being placed in the Bank's
custody are subject to the Investment Company Act of 1940 (the "Act"), as the
same may be amended from time to time.

Except to the extent that the Bank has specifically agreed to
comply with a condition of a rule, regulation or interpretation promulgated
by or under the authority of the SEC or the Exemptive Order applicable to
accounts of this nature issued to the Bank (Investment Company Act of 1940,
Release No. 12053, November 20, 1981), as amended, or unless the Bank has
otherwise specifically agreed, the Customer shall be solely responsible to
assure that the maintenance of Assets under this Agreement complies with such
rules, regulations, interpretations or exemptive order promulgated by or
under the authority of the Securities Exchange Commission.

The following modifications are made to the Agreement:

SECTION 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.

Add the following language to the end of Section 3:

The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:

(a) "qualified U.S. Bank" shall mean a qualified U.S. Bank as defined
in Rule 17f-5 under the Act;

(b) "eligible foreign custodian" shall mean (i) a banking institution
or trust company incorporated or organized under the laws of a country other
than the United States that is regulated as such by that country's government
or an agency thereof and that has shareholders' equity in excess of $200
million in U.S. currency (or a foreign currency equivalent thereof), (ii) a
majority owned direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws of a country
other than the United States and that has shareholders' equity in excess of
$100 million in U.S. currency (or a foreign currency equivalent thereof),
(iii) a banking institution or trust company incorporated or organized under
the laws of a country other than the United States or a majority owned direct
or indirect subsidiary of a qualified U.S. bank or bank holding company that
is incorporated or organized under the laws of a country other than the United
States which has such other qualifications as shall be specified instructions
and approved by the Bank or (iv) any other entity that shall have been so
qualified by exemptive order, rule or other appropriate action of the SEC; and

(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws of a
country other than the United States, which operates (i) the central system
for handling securities or equivalent book-entries in that country or (ii) a
transnational system for the central handling of securities or equivalent
book-entries.

The Customer represents that its Board of Directors has approved each of
the Subcustodians listed in Schedule A to this Agreement and the terms of the
subcustody agreements between the Bank and each Subcustodian, and further
represents that is Board has determined that the use of each Subcustodian and
the terms of each subcustody agreement are consistent with the best interests
of the Customer's fund(s) and its(their) shareholders. The Bank will supply
the Customer with any amendment to Schedule A for approval. The Customer has
supplied or will supply the Bank with certified copies of its Board of
Directors resolution(s) with respect to the foregoing prior to placing Assets
with any Subcustodian so approved.

SECTION 11. INSTRUCTIONS.

Add the following language to the end of Section 11:

Account transactions made pursuant to Section 5 and 6 of this Agreement
may be made only for the purposes listed below. Instructions must specify
the purpose for which any transaction is to be made and the Customer shall be
solely responsible to assure that instructions are in accord with any
limitations or restrictions applicable to the Customer by law or as may be
set forth in its prospectus.

(a) In connection with the purchase or sale of Securities at prices as
confirmed by instructions.

(b) When Securities are called, redeemed or retired, or otherwise
become payable.

(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.

(d) Upon conversion of Securities pursuant to their terms into other
securities.

(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.

(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.

(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed.

(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.

(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of the Bank,
its Subcustodian or the Customer's transfer agent, such shares to be
purchased or redeemed.

(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Bank, its Subcustodian or the
Customer's transfer agent.

(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Bank and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of the Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or organizations
regarding escrow or other arrangements in connection with transactions by the
Customer.

(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Bank of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or
at expiration, the Bank will receive the Securities previously deposited from
brokers. The Bank will act strictly in accordance with instructions in the
delivery of Securities to be held in escrow and will have no responsibility
or liability for any such Securities which are not returned promptly when due
other than to make proper request for such return.

(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related transactions.

(n) For other proper purposes as may be specified in instructions
issued by an officer of the Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of the
payment or specific Securities to be delivered, the name of the person or
persons to whom delivery or payment is to be made, and a certification that
the purpose is a proper purpose under the instruments governing the Customer.

(o) Upon the termination of this Agreement as set forth in Section
14(i).

SECTION 12. STANDARD OF CARE; LIABILITIES.

Add the following subsection (d) to Section 12:

(d) The Bank hereby warrants to the Customer that in its opinion, after
due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign
custodian and each eligible foreign securities depository holding the
Customer's Securities pursuant to this Agreement afford protection for such
Securities at least equal to that afforded by the bank's established
procedures with respect to similar securities held by the Bank and its
securities depositories in New York.

SECTION 14. ACCESS TO RECORDS.

Add the following language to the end of Section 14(c):

Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of internal
accounting controls applicable to the Bank's duties under this Agreement.
The Bank shall endeavor to obtain and furnish the Customer with such similar
reports as it may reasonably request with respect to each Subcustodian and
Securities depository holding the Customer's assets.

EXHIBIT 9(a)

TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT

THIS AGREEMENT made as of the day of , 1997 by and between
MERRILL LYNCH CONVERTIBLE FUND, INC., a Maryland corporation (the "Company"),
and MERRILL LYNCH FINANCIAL DATA SERVICES, INC. ("MLFDS"), a New Jersey
corporation.

WITNESSETH:

WHEREAS, the Company wishes to appoint MLFDS to be the Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent upon, and
subject to, the terms and provisions of this Agreement, and MLFDS is desirous
of accepting such appointment upon, and subject to, such terms and
provisions:

NOW, THEREFORE, in consideration of mutual covenants contained in
this Agreement, the Company and MLFDS agree as follows:

1. Appointment of MLFDS as Transfer Agent, Dividend Disbursing Agent
-----------------------------------------------------------------
and Shareholder Servicing Agent.
- -------------------------------

a. The Company hereby appoints MLFDS to act as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Company upon, and
subject to, the terms and provisions of this Agreement.

b. MLFDS hereby accepts the appointment as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Company, and agrees
to act as such upon, and subject to, the terms and provisions of this
Agreement.

2. Definitions.
-----------

a. In this Agreement:

(1) The term "Act" means the Investment Company Act of 1940 as
amended from time to time and any rule or regulation thereunder;

(2) The term "Account" means any account of a Shareholder, or, if
the shares are held in an account in the name of MLPF&S for benefit of an
identified customer, such account, including a Plan Account, any account
under a plan (by whatever name referred to in the Prospectus) pursuant to the
Self-Employed Individuals Retirement Act of 1962 ("Keogh Act Plan") and any
plan (by whatever name referred to in the Prospectus) in conjunction with
Section 401 of the Internal Revenue Code ("Corporation Master Plan");

(3) The term "application" means an application made by a
Shareholder or prospective Shareholder respecting the opening of an Account;

(4) The term "MLFD" means Merrill Lynch Funds Distributor, Inc., a
Delaware corporation;

(5) The term "MLPF&S" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation;

(6) The term "Officer's Instruction" means an instruction in
writing given on behalf of the Company to MLFDS, and signed on behalf of the
Company by the President, any Vice President, the Secretary or the Treasurer
of the Company;

(7) The term "Prospectus" means the Prospectus and the Statement
of Additional Information of the Company as from time to time in effect;

(8) The term "Shares" means shares of stock or beneficial
interest, as the case may be, of the Company, irrespective of class or
series;

(9) The term "Shareholder" means the holder of record of Shares;

(10) The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect to an open account, monthly
payment or withdrawal plan (in each case by whatever name referred to in the
Prospectus), and may also include an account relating to any other plan if
and when provision is made for such plan in the Prospectus.

3. Duties of MLFDS as Transfer Agent, Dividend Disbursing Agent and
----------------------------------------------------------------
Shareholder Servicing Agent.
- ---------------------------

a. Subject to the succeeding provisions of the Agreement, MLFDS hereby
agrees to perform the following functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Company:

(i) Issuing, transferring and redeeming Shares;

(ii) Opening, maintaining, servicing and closing Accounts;

(iii) Acting as agent for the Company Shareholders and/or customers
of MLPF&S in connection with Plan Accounts, upon the terms and subject to the
conditions contained in the Prospectus and application relating to the
specific Plan Account;

(iv) Acting as agent of the Company and/or MLPF&S, maintaining such
records as may permit the imposition of such contingent deferred sales
charges as may be described in the Prospectus, including such reports as may
be reasonably requested by the Company with respect to such Shares as may be
subject to a contingent deferred sales charge;

(v) Upon the redemption of Shares subject to such a contingent
deferred sales charge, calculating and deducting from the redemption proceeds
thereof the amount of such charge in the manner set forth in the Prospectus.
MLFDS shall pay, on behalf of MLFD, to MLPF&S such deducted contingent
deferred sales charges imposed upon all Shares maintained in the name of
MLPF&S, or maintained in the name of an account identified as a customer
account of MLPF&S. Sales charges imposed upon any other Shares shall be paid
by MLFDS to MLFD;

(vi) Exchanging the investment of an investor into, or from the
shares of other open-end investment companies or other series portfolios of
the Company, if any, if and to the extent permitted by the Prospectus at the
direction of such investor;

(vii) Processing redemptions;

(viii) Examining and approving legal transfers;

(ix) Replacing lost, stolen or destroyed certificates representing
Shares, in accordance with, and subject to, procedures and conditions adopted
by the Company;

(x) Furnishing such confirmations of transactions relating to
their Shares as required by applicable law;

(xi) Acting as agent for the Company and/or MLPF&S, furnishing
such appropriate periodic statements relating to Accounts, together with
additional enclosures, including appropriate income tax information and
income tax forms duly completed, as required by applicable law;

(xii) Acting as agent for the Company and/or MLPF&S, mailing
annual, semi-annual and quarterly reports prepared by or on behalf of the
Company, and mailing new Prospectuses upon their issue to Shareholders as
required by applicable law;

(xiii) Furnishing such periodic statements of transactions effected
by MLFDS, reconciliations, balances and summaries as the Company may
reasonably request;

(xiv) Maintaining such books and records relating to transactions
effected by MLFDS as are required by the Act, or by any other applicable
provision of law, rule or regulation, to be maintained by the Company or its
transfer agent with respect to such transactions, and preserving, or causing
to be preserved any such books and records for such periods as may be
required by any such law, rule or regulation and as may be agreed upon from
time to time between MLFDS and the Company. In addition, MLFDS agrees to
maintain and preserve master files and historical computer tapes on a daily
basis in multiple separate locations a sufficient distance apart to insure
preservation of at least one copy of such information;

(xv) Withholding taxes on non-resident alien Accounts, preparing
and filing U.S. Treasury Department Form 1099 and other appropriate forms as
required by applicable law with respect to dividends and distributions; and

(xvi) Reinvesting dividends for full and fractional shares and
disbursing cash dividends, as applicable.

b. MLFDS agrees to act as proxy agent in connection with the holding of
annual, if any, and special meetings of Shareholders, mailing such notices,
proxies and proxy statements in connection with the holding of such meetings
as may be required by applicable law, receiving and tabulating votes cast by
proxy and communicating to the Company the results of such tabulation
accompanied by appropriate certifications, and preparing and furnishing to
the Company certified lists of Shareholders as of such date, in such form and
containing such information as may be required by the Company.

c. MLFDS agrees to deal with, and answer in a timely manner, all
correspondence and inquiries relating to the functions of MLFDS under this
Agreement with respect to Accounts.

d. MLFDS agrees to furnish to the Company such information and at such
intervals as is necessary for the Company to comply with the registration
and/or the reporting requirements (including applicable escheat laws) of the
Securities and Exchange Commission, Blue Sky authorities or other
governmental authorities.

e. MLFDS agrees to provide to the Company such information as may
reasonably be required to enable the Company to reconcile the number of
outstanding Shares between MLFDS's records and the account books of the
Company.

f. Notwithstanding anything in the foregoing provisions of this
paragraph, MLFDS agrees to perform its functions thereunder subject to such
modification (whether in respect of particular cases or in any particular
class of cases) as may from time to time be contained in an Officer's
Instruction.

4. Compensation. The charges for services described in this Agreement,
------------
including out-of-pocket expenses, will be set forth in the Schedule of Fees
attached hereto.

5. Right of Inspection. MLFDS agrees that it will in a timely manner
-------------------
make available to, and permit, any officer, accountant, attorney or
authorized agent of the Company to examine and make transcripts and copies
(including photocopies and computer or other electronical information storage
media and print-outs) of any and all of its books and records which relate to
any transaction or function performed by MLFDS under or pursuant to this
Agreement.

6. Confidential Relationship. MLFDS agrees that it will, on behalf of
-------------------------
itself and its officers and employees, treat all transactions contemplated by
this Agreement, and all information germane thereto, as confidential and not
to be disclosed to any person (other than the Shareholder concerned, or the
Company, or as may be disclosed in the examination of any books or records by
any person lawfully entitled to examine the same) except as may be authorized
by the Company by way of an Officer's Instruction.

7. Indemnification. The Company shall indemnify and hold MLFDS
---------------
harmless from any loss, costs, damage and reasonable expenses, including
reasonable attorneys' fees (provided that such attorney is appointed with the
Company's consent, which consent shall not be unreasonably withheld),
incurred by it resulting from any claim, demand, action, or suit in
connection with the performance of its duties hereunder, provided that this
indemnification shall not apply to actions or omissions of MLFDS in cases of
willful misconduct, failure to act in good faith or negligence by MLFDS, its
officers, employees or agents, and further provided, that prior to
confessing any claim against it which may be subject to this indemnification,
MLFDS shall give the Company reasonable opportunity to defend against said
claim in its own name or in the name of MLFDS. An action taken by MLFDS upon
any Officer's Instruction reasonably believed by it to have been properly
executed shall not constitute willful misconduct, failure to act in good
faith or negligence under this Agreement.

8. Regarding MLFDS.
---------------

a. MLFDS hereby agrees to hire, purchase, develop and maintain such
dedicated personnel, facilities, equipment, software, resources and
capabilities as may be reasonably determined by the Company to be necessary
for the satisfactory performance of the duties and responsibilities of MLFDS.
MLFDS warrants and represents that its officers and supervisory personnel
charged with carrying out its functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Company possess the
special skill and technical knowledge appropriate for that purpose. MLFDS
shall at all times exercise due care and diligence in the performance of its
functions as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Company. MLFDS agrees that, in determining whether
it has exercised due care and diligence, its conduct shall be measured by the
standard applicable to persons possessing such special skill and technical
knowledge.

b. MLFDS warrants and represents that it is duly authorized and
permitted to act as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent under all applicable laws and that it will immediately notify
the Company of any revocation of such authority or permission or of the
commencement of any proceeding or other action which may lead to such
revocation.

9. Termination.
-----------

a. This Agreement shall become effective as of the date first above
written and shall thereafter continue from year to year. This Agreement may
be terminated by the Company or MLFDS (without penalty to the Company or
MLFDS) provided that the terminating party gives the other party written
notice of such termination at least sixty (60) days in advance, except that
the Company may terminate this Agreement immediately upon written notice to
MLFDS if the authority or permission of MLFDS to act as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent has been revoked or
if any proceeding or other action which the Company reasonably believes will
lead to such revocation has been commenced.

b. Upon termination of this Agreement, MLFDS shall deliver all unissued
and cancelled stock certificates representing Shares remaining in its
possession, and all Shareholder records, books, stock ledgers, instruments
and other documents (including computerized or other electronically stored
information) made or accumulated in the performance of its duties as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the
Company along with a certified locator document clearly indicating the
complete contents therein, to such successor as may be specified in a notice
of termination or Officer's Instruction; and the Company assumes all
responsibility for failure thereafter to produce any paper, record or
documents so delivered and identified in the locator document, if and when
required to be produced.

10. Amendment. Except to the extent that the performance by MLFDS or
---------
its functions under this Agreement may from time to time be modified by an
Officer's Instruction, this Agreement may be amended or modified only by
further written Agreement between the parties.

11. Governing Law.
-------------

This Agreement shall be governed by the laws of the State of New
Jersey.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their respective duly authorized officers and their
respective corporate seals hereunto duly affixed and attested, as of the day
and year above written.

MERRILL LYNCH CONVERTIBLE FUND, INC.

By:
---------------------------------------
Title:

MERRILL LYNCH FINANCIAL DATA SERVICES, INC.

By:
----------------------------------------
Title:

EXHIBIT 9(b)

LICENSE AGREEMENT RELATING TO USE OF NAME

AGREEMENT made as of the day of 1997, by and between MERRILL
LYNCH & CO., INC., a Delaware corporation
("ML & Co."), and MERRILL LYNCH CONVERTIBLE FUND, INC., a Maryland
corporation (the "Company").

W I T N E S S E T H :
- - - - - - - - - -

WHEREAS, ML & Co. was incorporated under the laws of the State of
Delaware on March 27, 1973 under the corporate name "Merrill Lynch & Co.,
Inc." and has used such name at all times thereafter;

WHEREAS, ML & Co. was duly qualified as a foreign corporation under the
laws of the State of New York on April 25, 1973 and has remained so qualified
at all times thereafter;

WHEREAS, the Company was incorporated under the laws of the State of
Maryland on May 24, 1985; and

WHEREAS, the Company desires to continue to qualify as a foreign
corporation under the laws of the State of New York and has requested ML &
Co. to give its consent to the use of the name "Merrill Lynch" in the
Company's corporate name.

NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, ML & Co. and the Company hereby agree as follows:

1. ML & Co. hereby grants the Company a non-exclusive license to use
the words "Merrill Lynch" in its corporate name.

2. ML & Co. hereby consents to the qualification of the Company as a
foreign corporation under the laws of the State of New York with the words
"Merrill Lynch" in its corporate name and agrees to execute such formal
consents as may be necessary in connection with such filing.

3. The non-exclusive license hereinabove referred to has been given and
is given by ML & Co. on the condition that it may at any time, in its sole
and absolute discretion, withdraw the non-exclusive license to the use of the
words "Merrill Lynch" in the name of the Company; and, as soon as practicable
after receipt by the Company of written notice of the withdrawal of such
non-exclusive license, and in no event later than ninety days thereafter, the
Company will change its name so that such name will not thereafter include
the words "Merrill Lynch" or any variation thereof.

4. ML & Co. reserves and shall have the right to grant to any other
company, including without limitation, any other investment company, the
right to use the words "Merrill Lynch" or variations thereof in its name and
no consent or permission of the Company shall be necessary; but, if required
by an applicable law of any state, the Company will forthwith grant all
requisite consents.

5. The Company will not grant to any other company the right to use a
name similar to that of the Company or ML & Co. without the written consent
of ML & Co.

6. Regardless of whether the Company should hereafter change its name
and eliminate the words "Merrill Lynch" or any variation thereof from such
name, the Company hereby grants to ML & Co. the right to cause the
incorporation of other corporations or the organization of voluntary
associations which may have names similar to that of the Company or to that
to which the Company may change its name and to own all or any portion of the
shares of such other corporations or associations and to enter into
contractual relationships with such other corporations or associations,
subject to any requisite approval of a majority of the Company's shareholders
and the Securities and Exchange Commission and subject to the payment of a
reasonable amount to be determined at the time of use, and the Company agrees
to give and execute any such formal consents or agreements as may be
necessary in connection therewith.

7. This Agreement may be amended at any time by a writing signed by the
parties hereto.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

MERRILL LYNCH & CO., INC.

By:
------------------------

MERRILL LYNCH CONVERTIBLE FUND, INC.

By:
---------------------------

EXHIBIT 11

INDEPENDENT AUDITORS' CONSENT

Convertible Holdings, Inc.:

We consent to the use in this Registration Statement on Form N-1A of our report
dated February 14, 1997 appearing in the Statement of Additional Information,
which is a part of such Registration Statement, and to the reference to us
under the caption "Financial Highlights" appearing in the Prospectus, which
also is a part of such Registration Statement.

Deloitte & Touche LLP
Princeton, New Jersey
June 4, 1997

EXHIBIT 13

CERTIFICATE OF SOLE SHAREHOLDER

The undersigned, being the holder of 5,400 Income Shares and 5,400
Capital Shares of ML Convertible Securities, Inc. (the "Corporation"), hereby
confirms its representation to the Corporation that it acquired such shares
for investment purposes without any present intention of reselling any of
such shares.

MERRILL LYNCH ASSET MANAGEMENT, INC.

By: /s/Gerald M. Richard
--------------------

Dated: July 24, 1985

EXHIBIT 15(a)

CLASS B DISTRIBUTION PLAN

MERRILL LYNCH CONVERTIBLE FUND, INC.

PURSUANT TO RULE 12B-1

DISTRIBUTION PLAN made as of the day of , 1997, by and between
Merrill Lynch Convertible Fund, Inc., a Maryland corporation (the "Company"),
and Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").

W I T N E S S E T H:
-------------------

WHEREAS, the Company intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and

WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and

WHEREAS, the Company proposes to enter into a Class B Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act as the
exclusive distributor and representative of the Company in the offer and sale
of Class B shares of common stock, par value $0.10 per share (the "Class B
shares"), of the Company to the public; and

WHEREAS, the Company desires to adopt this Class B Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Company will pay an account maintenance fee and a distribution fee
to MLFD with respect to the Company's Class B Shares; and

WHEREAS, the Directors of the Company have determined that there is a
reasonable likelihood that adoption of this Class B Shares Distribution Plan
will benefit the Company and its shareholders.

NOW, THEREFORE, the Company hereby adopts, and MLFD hereby agrees to the
terms of, this Class B Shares Distribution Plan (the "Plan") in accordance
with Rule 12b-1 under the Investment Company Act on the following terms and
conditions:

1. The Company shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of average daily net
assets of the Company relating to Class B shares to compensate MLFD and
securities firms with which MLFD enters into related agreements pursuant to
Paragraph 3 hereof ("Sub-Agreements") for providing account maintenance
activities with respect to Class B shareholders of the Company. Expenditures
under the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class B shares of the Company and
payment of expenses incurred in connection with such account maintenance
activities including the costs of making services available to shareholders
including assistance in connection with inquiries related to shareholder
accounts.

2. The Company shall pay MLFD a distribution fee under the Plan at the
end of each month at the annual rate of 0.75% of average daily net assets of
the Company relating to Class B shares to compensate MLFD and securities
firms with which MLFD enters into related Sub-Agreements for providing sales
and promotional activities and services. Such activities and services will
relate to the sale, promotion and marketing of the Class B shares of the
Company. Such expenditures may consist of sales commissions to financial
consultants for selling Class B shares of the Company, compensation, sales
incentives and payments to sales and marketing personnel, and the payment of
expenses incurred in its sales and promotional activities, including ad-
vertising expenditures related to the Company and the costs of preparing and
distributing promotional materials. The distribution fee may also be used to
pay the financing costs of carrying the unreimbursed expenditures described
in this Paragraph 2. Payment of the distribution fee described in this
Paragraph 2 shall be subject to any limitations set forth in any applicable
regulation of the National Association of Securities Dealers, Inc.

3. The Company hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch,
Pierce, Fenner & Smith Incorporated, to provide compensation to such
Securities Firms for activities and services of the type referred to in
Paragraphs 1 and 2 hereof. MLFD may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities Firms as
compensation for the above-mentioned activities and services. Such
Sub-Agreement shall provide that the Securities Firms shall provide MLFD with
such information as is reasonably necessary to permit MLFD to comply with the
reporting requirements set forth in Paragraph 4 hereof.

4. MLFD shall provide the Company for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report
complying with the requirements of Rule 12b-1 regarding the disbursement of
the account maintenance fee and the distribution fee during such period.

5. This Plan shall not take effect until it has been approved by a vote
of at least a majority, as defined in the Investment Company Act, of the
outstanding Class B voting securities of the Company.

6. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company, as defined in the Investment Company Act, and have
no direct or indirect financial interest in the operation of this Plan or any
agreements related to it (the "Rule 12b-1 Directors"), cast in person at a
meeting or meetings called for the purpose of voting on this Plan and such
related agreements.

7. This Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for
approval of this Plan in Paragraph 6.

8. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class B
voting securities of the Company.

9. This Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class
B voting securities of the Company, and by the Directors of the Company in
the manner provided for in Paragraph 6 hereof, and no material amendment to
the Plan shall be made unless approved in the manner provided for approval
and annual renewal in Paragraph 6 hereof.

10. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment
Company Act, of the Company shall be committed to the discretion of the
Directors who are not interested persons.

11. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period
of not less than six years from the date of this Plan, or the agreements or
such report, as the case may be, the first two years in an easily accessible
place.

IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the
date first above written.

MERRILL LYNCH CONVERTIBLE FUND, INC.

By
--------------------------------------
Title:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By
--------------------------------------
Title:

CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT

AGREEMENT made as of the day of , 1997 by and between Merrill
Lynch Funds Distributor, Inc. ("MLFD"), and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, a Delaware corporation ("Securities Firm").

W I T N E S S E T H:
-------------------

WHEREAS, MLFD has entered into an agreement with Merrill Lynch
Convertible Fund, Inc., a Maryland corporation (the "Company"), pursuant to
which it acts as the exclusive distributor for the sale of Class B shares of
common stock, par value $0.10 per share (the "Class B shares"), of the
Company; and

WHEREAS, MLFD and the Company have entered into a Class B Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Act") pursuant to which MLFD receives an account
maintenance fee from the Company at the annual rate of 0.25% of average daily
net assets of the Company relating to Class B shares for account maintenance
services related to the Class B shares of the Company and a distribution fee
from the Company at the annual rate of 0.75% of average daily net assets of
the Company relating to Class B shares for providing sales and promotional
activities and services related to the distribution of Class B shares; and

WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for
the Company's Class B shareholders and the Securities Firm is willing to
perform such services;

NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:

1. The Securities Firm shall provide account maintenance activities
with respect to the Class B shares of the Company of the types referred to in
Paragraph 1 of the Plan.

2. The Securities Firm shall provide sales and promotional activities
and services with respect to the sale of the Class B shares of the Company,
and incur distribution expenditures of the types referred to in Paragraph 2
of the Plan.

3. As compensation for its activities and services performed under this
Agreement, MLFD shall pay the Securities Firm an account maintenance fee and
a distribution fee at the end of each calendar month in an amount agreed upon
by the parties hereto.

4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the
account maintenance fee and the distribution fee during such period referred
to in Paragraph 4 of the Plan.

5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Company and (b) those
Directors of the Company who are not "interested persons" of the Company, as
defined in the Act, and have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting or meetings called for the purpose
of voting on this Agreement.

6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 6.

7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By
Title: -----------------------------------

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By
-----------------------------------
Title:

EXHIBIT 15(b)

CLASS C DISTRIBUTION PLAN

MERRILL LYNCH CONVERTIBLE FUND, INC.

PURSUANT TO RULE 12B-1

W I T N E S S E T H:
-------------------

WHEREAS, the Company is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and

WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and

WHEREAS, the Company proposes to enter into a Class C Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act as the
exclusive distributor and representative of the Company in the offer and sale
of Class C shares of common stock, par value $0.10 per share (the "Class C
shares"), of the Company to the public; and

WHEREAS, the Company desires to adopt this Class C Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act,
pursuant to which the Company will pay an account maintenance fee and a
distribution fee to MLFD with respect to the Company's Class C shares; and

WHEREAS, the Directors of the Company have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Company and
its shareholders.

NOW, THEREFORE, the Company hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment Company
Act on the following terms and conditions:

1. The Company shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of average daily net
assets of the Company relating to Class C shares to compensate MLFD and
securities firms with which MLFD enters into related agreements pursuant to
Paragraph 3 hereof ("Sub-Agreements") for providing account maintenance
activities with respect to Class C shareholders of the Company. Expenditures
under the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class C shares of the Company and
payment of expenses incurred in connection with such account maintenance
activities including the costs of making services available to shareholders
including assistance in connection with inquiries related to shareholder
accounts.

2. The Company shall pay MLFD a distribution fee under the Plan at the
end of each month at the annual rate of 0.75% of average daily net assets of
the Company relating to Class C shares to compensate MLFD and securities
firms with which MLFD enters into related Sub-Agreements for providing sales
and promotional activities and services. Such activities and services will
relate to the sale, promotion and marketing of the Class C shares of the
Company. Such expenditures may consist of sales commissions to financial
consultants for selling Class C shares of the Company, compensation, sales
incentives and payments to sales and marketing personnel, and the payment of
expenses incurred in its sales and promotional activities, including ad-
vertising expenditures related to the Company and the costs of preparing and
distributing promotional materials. The distribution fee may also be used to
pay the financing costs of carrying the unreimbursed expenditures described
in this Paragraph 2. Payment of the distribution fee described in this
Paragraph 2 shall be subject to any limitations set forth in any applicable
regulation of the National Association of Securities Dealers, Inc.

5. This Plan shall not take effect until it has been approved by a vote
of at least a majority, as defined in the Investment Company Act, of the
outstanding Class C voting securities of the Company.

7. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 6.

8. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class C
voting securities of the Company.

9. The Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class
C voting securities of the Company, and by the Directors of the Company in
the manner provided for in Paragraph 6 hereof, and no material amendment to
the Plan shall be made unless approved in the manner provided for approval
and annual renewal in Paragraph 6 hereof.

10. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment
Company Act, of the Company shall be committed to the discretion of the
Directors who are not interested persons.

11. The Company shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period
of not less than six years from the date of the Plan, or the agreements or
such report, as the case may be, the first two years in an easily accessible
place.

IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.

MERRILL LYNCH CONVERTIBLE FUND, INC.

By_____________________________________
Title:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By_____________________________________
Title:

CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT

AGREEMENT made as of the day of , 1997, by and between Merrill
Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"), and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").

W I T N E S S E T H:
-------------------

WHEREAS, MLFD has entered into an agreement with Merrill Lynch
Convertible Fund, Inc., a Maryland corporation (the "Company"), pursuant to
which it acts as the exclusive distributor for the sale of Class C shares of
common stock, par value $0.10 per share (the "Class C shares"), of the
Company; and

WHEREAS, MLFD and the Company have entered into a Class C Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives
an account maintenance fee from the Company at the annual rate of 0.25% of
average daily net assets of the Company relating to Class C shares for
account maintenance activities related to Class C shares of the Company and a
distribution fee from the Company at the annual rate of 0.75% of average
daily net assets of the Company relating to Class C shares for providing
sales and promotional activities and services related to the distribution of
Class C shares; and

WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for
the Company's Class C shareholders and the Securities Firm is willing to
perform such activities and services;

NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:

1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class C shares of the Company and incur
expenditures in connection with such activities and services of the types
referred to in Paragraph 1 of the Plan.

2. The Securities Firm shall provide sales and promotional activities
and services with respect to the sale of the Class C shares of the Company,
and incur distribution expenditures, of the types referred to in Paragraph 2
of the Plan.

5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Company and (b) those
Directors of the Company who are not "interested persons" of the Company, as
defined in the Act, and have no direct or indirect financial interest in the
operation of the Plan, this Agreement or any agreements related to the Plan
or this Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting
or meetings called for the purpose of voting on this Agreement.

6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 6.

7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By_____________________________________
Title:

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By_____________________________________
Title:

EXHIBIT 15(c)

CLASS D DISTRIBUTION PLAN

MERRILL LYNCH CONVERTIBLE FUND, INC.

PURSUANT TO RULE 12B-1

W I T N E S S E T H:
-------------------

WHEREAS, the Company is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and

WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and

WHEREAS, the Company proposes to enter into a Class D Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act as the
exclusive distributor and representative of the Company in the offer and sale
of Class D shares of common stock, par value $0.10 per share (the "Class D
shares"), of the Company to the public; and

WHEREAS, the Company desires to adopt this Class D Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act,
pursuant to which the Company will pay an account maintenance fee to MLFD
with respect to the Company's Class D shares; and

WHEREAS, the Directors of the Company have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Company and
its shareholders.

NOW, THEREFORE, the Company hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment Company
Act on the following terms and conditions:

1. The Company shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of average daily net
assets of the Company relating to Class D shares to compensate MLFD and
securities firms with which MLFD enters into related agreements
("Sub-Agreements") pursuant to Paragraph 2 hereof for providing account
maintenance activities with respect to Class D shareholders of the Company.
Expenditures under the Plan may consist of payments to financial consultants
for maintaining accounts in connection with Class D shares of the Company and
payment of expenses incurred in connection with such account maintenance
activities including the costs of making services available to shareholders
including assistance in connection with inquiries related to shareholder
accounts.

2. The Company hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch,
Pierce, Fenner & Smith Incorporated, to provide compensation to such
Securities Firms for activities of the type referred to in Paragraph 1. MLFD
may reallocate all or a portion of its account maintenance fee to such
Securities Firms as compensation for the above-mentioned activities. Such
Sub-Agreement shall provide that the Securities Firms shall provide MLFD with
such information as is reasonably necessary to permit MLFD to comply with the
reporting requirements set forth in Paragraph 3 hereof.

3. MLFD shall provide the Company for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report
complying with the requirements of Rule 12b-1 regarding the disbursement of
the account maintenance fee during such period.

4. This Plan shall not take effect until it has been approved by a vote
of at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Company.

5. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company, as defined in the Investment Company Act, and have
no direct or indirect financial interest in the operation of this Plan or any
agreements related to it (the "Rule 12b-1 Directors"), cast in person at a
meeting or meetings called for the purpose of voting on the Plan and such
related agreements.

6. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 5.

7. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class D
voting securities of the Company.

8. The Plan may not be amended to increase materially the rate of
payments provided for in Paragraph 1 hereof unless such amendment is approved
by at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Company, and by the Directors of
the Company in the manner provided for in Paragraph 5 hereof, and no material
amendment to the Plan shall be made unless approved in the manner provided
for approval and annual renewal in Paragraph 5 hereof.

9. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment
Company Act, of the Company shall be committed to the discretion of the
Directors who are not interested persons.

10. The Company shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period
of not less than six years from the date of the Plan, or the agreements or
such report, as the case may be, the first two years in an easily accessible
place.

IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.

MERRILL LYNCH CONVERTIBLE FUND, INC.

By_____________________________________
Title:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By_____________________________________
Title:

CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT

AGREEMENT made as of the day of , 1997, by and between Merrill
Lynch Funds Distributor, Inc. a Delaware corporation ("MLFD"), and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").

W I T N E S S E T H:
-------------------

WHEREAS, MLFD has entered into an agreement with Merrill Lynch
Convertible Fund, Inc., a Maryland corporation (the "Company"), pursuant to
which it acts as the exclusive distributor for the sale of Class D shares of
common stock, par value $0.10 per share (the "Class D shares"), of the
Company; and

WHEREAS, MLFD and the Company have entered into a Class D Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives
an account maintenance fee from the Company at the annual rate of 0.25% of
average daily net assets of the Company relating to Class D shares for
providing account maintenance activities and services with respect to Class D
shares; and

WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and services, including assistance in connection with
inquiries related to shareholder accounts, for the Company's Class D
shareholders and the Securities Firm is willing to perform such services;

NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:

1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class D shares of the Company and incur
expenditures in connection with such activities and services, of the types
referred to in Paragraph 1 of the Plan.

2. As compensation for its services performed under this Agreement,
MLFD shall pay the Securities Firm a fee at the end of each calendar month in
an amount agreed upon by the parties hereto.

3. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the fee
during such period referred to in Paragraph 3 of the Plan.

4. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Company and (b) those
Directors of the Company who are not "interested persons" of the Company, as
defined in the Act, and have no direct or indirect financial interest in the
operation of the Plan, this Agreement or any agreements related to the Plan
or this Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting
or meetings called for the purpose of voting on this Agreement.

5. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 5.

6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By_____________________________________
Title:

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By_____________________________________
Title:

<ARTICLE> 6
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 267315963
<INVESTMENTS-AT-VALUE> 302607142
<RECEIVABLES> 3630229
<ASSETS-OTHER> 11639035
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 317876406
<PAYABLE-FOR-SECURITIES> 0
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<SHARES-COMMON-STOCK> 11653700
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<EXPENSES-NET> (2200503)
<NET-INVESTMENT-INCOME> 14105139
<REALIZED-GAINS-CURRENT> 15040714
<APPREC-INCREASE-CURRENT> 17386219
<NET-CHANGE-FROM-OPS> 46532072
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14192493
<DISTRIBUTIONS-OF-GAINS> 7473704
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 24865875
<ACCUMULATED-NII-PRIOR> 223416
<ACCUMULATED-GAINS-PRIOR> 61689
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1695738
<INTEREST-EXPENSE> 36292
<GROSS-EXPENSE> 2200503
<AVERAGE-NET-ASSETS> 280663612
<PER-SHARE-NAV-BEGIN> 9.32
<PER-SHARE-NII> 1.21
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (1.22)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.31
<EXPENSE-RATIO> .78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>