MERRILL LYNCH LATIN AMERICA FUND INC, 485BPOS, 1994-03-29

MERRILL LYNCH LATIN AMERICA FUND INC
485BPOS, 1994-03-29

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1994

SECURITIES ACT FILE NO. 33-41622
INVESTMENT COMPANY ACT FILE NO. 811-6349
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 3
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
[X]
AMENDMENT NO. 5

(CHECK APPROPRIATE BOX OR BOXES)

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

MERRILL LYNCH LATIN AMERICA FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

800 SCUDDERS MILL ROAD

PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)

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

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

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

COPIES TO:

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

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

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)

[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] on (date) pursuant to paragraph (a) of rule 485.

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

THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF COMMON
STOCK UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE
REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON JANUARY 21, 1994.

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- --------------------------------------------------------------------------------
<PAGE>

MERRILL LYNCH LATIN AMERICA FUND, INC.

REGISTRATION STATEMENT ON FORM N-1A

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
N-1A ITEM
NO. LOCATION
--------- --------
<C> <S> <C>
PART A
Item 1. Cover Page............................ Cover Page
Item 2. Synopsis.............................. Prospectus Summary; Fee Table;
Alternative Sales Arrangements
Item 3. Condensed Financial Information....... Consolidated Financial Highlights;
Performance Data
Item 4. General Description of Registrant..... Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund................ Investment Objective and Policies;
Prospectus Summary; Fee Table;
Management of the Fund; Inside Back
Cover Page
Item 5A. Management's Discussion of Fund
Performance.......................... Not Applicable
Item 6. Capital Stock and Other Securities.... Cover Page; Additional Information
Item 7. Purchase of Securities Being Offered.. Cover Page; Prospectus Summary; Fee
Table; Purchase of Shares;
Alternative Sales Arrangements;
Shareholder Services; Additional
Information; Inside Back Cover Page
Item 8. Redemption or Repurchase.............. Prospectus Summary; Fee Table;
Alternative Sales Arrangements;
Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings............. Not Applicable
PART B
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Back Cover Page
Item 12. General Information and History....... Not Applicable
Item 13. Investment Objectives and Policies.... Investment Objective and Policies
Item 14. Management of the Fund................ Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities........................ Management of the Fund
Item 16. Investment Advisory and Other
Services............................. Management of the Fund; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and Other
Practices............................ Portfolio Transactions and Brokerage

Item 18. Capital Stock and Other Securities.... General Information--Description of
Shares
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............. Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services; General
Information
Item 20. Tax Status............................ Additional Information--Dividends and
Distributions; Additional
Information--Taxes
Item 21. Underwriters.......................... Purchase of Shares
Item 22. Calculation of Performance Data....... Performance Data
Item 23. Financial Statement................... Consolidated Financial Statements
</TABLE>

PART C

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

PROSPECTUS

MARCH 29, 1994

MERRILL LYNCH LATIN AMERICA FUND, INC.
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE (609) 282-2800

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

Merrill Lynch Latin America Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company seeking long-term capital appreciation
by investing primarily in Latin American equity and debt securities. This
objective of the Fund reflects the belief that investment opportunities may
result in Latin America from an evolving long-term international trend
encouraging greater market orientation and diminishing governmental
intervention in economic affairs. It is expected that under normal conditions
at least 65% of the Fund's total assets will be invested in Latin American
securities. The Fund may attempt to hedge against market and currency risk.
There can be no assurance that the Fund's investment objective will be
achieved. Investments on an international basis in Latin American securities
involve certain risk factors, and the Fund has established no rating criteria
for the debt securities in which it may invest. See "Risk Factors and Special
Considerations".

The Fund offers two classes of shares which may be purchased at a price equal
to the next determined net asset value per share, plus in both cases a sales
charge which, at the election of the purchaser, may be imposed (i) at the time
of purchase (the "Class A shares") or (ii) on a deferred basis (the "Class B
shares"). The original charges to which the Class B shares are subject shall
consist of a contingent deferred sales charge which may be imposed on
redemptions made within four years of purchase and an ongoing account
maintenance fee and distribution fee. These alternatives permit an investor to
choose the method of purchasing shares that is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other circumstances. Class A shares pay an ongoing account maintenance fee at
the annual rate of 0.25% of the Fund's average daily net assets attributable to
Class A shares; Class B shares pay an ongoing account maintenance fee and an
ongoing distribution fee at the annual rates of 0.25% and 0.75%, respectively,
of the Fund's average daily net assets attributable to the Class B shares.
Investors should understand that the purpose and function of the deferred sales
charges and account maintenance fee with respect to the Class B shares are the
same as those of the initial sales
(Continued on next page)
----------------

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

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

This Prospectus is a concise statement of information about the Fund that is
relevant to making an investment in the Fund. This Prospectus should be
retained for future reference. A statement containing additional information
about the Fund, dated March 29, 1994 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange 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
<PAGE>

(Continued from Cover Page)

charge and account maintenance fee with respect to the Class A shares.
Investors should also understand that over time the deferred sales charges and
ongoing account maintenance fee related to Class B shares may exceed the
initial sales charge and ongoing account maintenance fee with respect to Class
A shares. See "Alternative Sales Arrangements" on page 7.

Each Class A share and Class B share represents an identical interest in the
investment portfolio of the Fund and has the same rights, except that Class B
shares bear the expenses of the account maintenance and distribution fees and
certain other costs resulting from the deferred sales charge arrangement, which
will cause Class B shares to have a higher expense ratio and to pay lower
dividends than Class A shares, which also bear the expense of an account
maintenance fee. The two classes also have different exchange privileges.

Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), Box 9011, Princeton, New Jersey 08543-9011 [(609) 282-
2800], and other securities dealers which have entered into selected dealers
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000,
and the minimum subsequent purchase is $50. Merrill Lynch may charge its
customers a processing fee (presently $4.85) for confirming purchases and
repurchases. Purchases and redemptions directly through the Fund's transfer
agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares".

2
<PAGE>

FEE TABLE

A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to Class A and Class B shares follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
INITIAL SALES DEFERRED SALES
CHARGE CHARGE
ALTERNATIVE ALTERNATIVE
-------------- --------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EX-
PENSES:
Maximum Sales Charge Imposed
on Purchases (as a percent-
age of offering price)..... 6.50%(a) None
Sales Charge Imposed on Div-
idend Reinvestments........ None None
Deferred Sales Charge (as a
percentage of original pur-
chase price or redemption
proceeds, whichever is low-
er)........................ None(f) 4.00% during the first year,
decreasing 1.00% annually to
0.00% after the fourth year(b)

Exchange Fee................ None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS) FOR THE FISCAL
YEAR ENDED NOVEMBER 30, 1993:
Management Fees(c).......... 1.00% 1.00%
Rule 12b-1 Fees............. 0.25% 1.00%(d)
Other Expenses
Custodial Fees............ 0.19% 0.19%
Shareholder Servicing
Costs(e)................. 0.15% 0.16%
Other..................... 0.24% 0.24%
----- -----
Total Other Expenses.... 0.58% 0.59%
----- -----
Total Fund Operating Ex-
penses..................... 1.83% 2.59%
===== =====
</TABLE>
- --------

(a) Reduced for purchases of $10,000 and over, decreasing to 0.75% for
purchases of $1,000,000 and over. Certain investors making purchases of
$1,000,000 and over may, however, pay a contingent deferred sales charge
ranging from a high of 1.00% to a low of 0.25% of amounts redeemed within
the first year after purchase in lieu of the 0.75% initial sales charge.
See "Purchase of Shares--Initial Sales Charge Alternative--Class A
Shares"--page 33.

(b) See "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares"--page 34.

(d) See "Purchase of Shares--Alternative Sales Arrangements--Distribution
Plans"--page 31. This amount represents the 0.25% account maintenance fee
and the 0.75% distribution fee applicable to Class B shares of the Fund.

(e) See "Management of the Fund--Transfer Agency Services"--page 29.

(f) Certain investors making purchases of $1,000,000 and over may, however,
pay a contingent deferred sales charge ranging from a high of 1.00% to a
low of 0.25% of amounts redeemed within the first year after purchase in
lieu of the 0.75% initial sales charge. See "Purchase of Shares--Initial
Sales Charge Alternative--Class A Shares"--page 33.

3
<PAGE>

EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR
THE PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment including, for Class A
shares, the maximum $65 front-end sales
charge and assuming (1) an operating expense
ratio of 1.83% for Class A shares and 2.59%
for Class B shares, (2) a 5% annual return
throughout the periods and (3) redemption at
the end of the period:
Class A..................................... $82.38 $118.82 $157.60 $265.83
Class B..................................... $66.21 $100.55 $137.53 $292.45
An investor would pay the following expenses
on the same $1,000 investment assuming no re-
demption at the end of the period:
Class A..................................... $82.38 $118.82 $157.60 $265.83
Class B..................................... $26.21 $80.55 $137.53 $292.45
</TABLE>

The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF
RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B shareholders who hold their
shares for an extended period of time may pay more in Rule 12b-1 distribution
fees than the economic equivalent of the maximum front-end sales charges
permitted under the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. Merrill Lynch may charge its customers a processing
fee (presently $4.85) for confirming purchases and repurchases. Purchases and
redemptions directly through the transfer agent are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares".

4
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information.

THE FUND

Merrill Lynch Latin America Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to seek long-term capital
appreciation by investing primarily in Latin American equity and debt
securities. The Fund seeks to benefit from economic and other developments in
Latin America. The investment objective of the Fund reflects the belief that
investment opportunities may result in Latin America from an evolving long-term
international trend encouraging greater market orientation and diminishing
governmental intervention in economic affairs. This trend may be facilitated by
local or international political, economic or financial developments that could
benefit the capital markets of certain Latin American countries. There can be
no assurance that the Fund's investment objective will be achieved. See
"Investment Objective and Policies".

In recent years, there has been a significant trend in Latin America towards
democracy and market-oriented economic reform. While there have been distinct
differences in the approaches taken by the various countries and the degrees of
success in accomplishing the economic objectives, the countries have generally
sought to reduce the government's role in economic affairs and implement policy
initiatives designed to control inflation, reduce financial deficits and
external debt, establish stable currency exchange rates, liberalize trade
restrictions, increase foreign investment, privatize state-owned companies and
develop and modernize the securities markets. While considerable difficulties
remain, the economies of certain Latin American countries have improved, and
these improvements have been reflected in the performance of the securities
markets and the reversal of the capital flight which prevailed in the early
1980's. The Fund presently contemplates that it will emphasize investments in
the equity and debt markets of Argentina, Brazil, Chile, Mexico and Venezuela.

The Fund is authorized to employ a variety of investment techniques to hedge
against market and currency risk, although at the present time suitable hedging
instruments may not be available with respect to Latin American securities on a
timely basis and on acceptable terms. Furthermore, even if hedging techniques
are available, the Fund will only engage in hedging activities from time to
time and may not necessarily be engaging in hedging activities when market or
currency movements occur.

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investments in securities of Latin American issuers involve special
considerations and risks not typically associated with investments in
securities of U.S. issuers, including the risks associated with international

5
<PAGE>

investing generally, such as currency fluctuations, the risks of investing in
countries with smaller capital markets, such as limited liquidity, price
volatility and restrictions on foreign investment, and the risks associated
with Latin American economies, including high inflation and interest rates,
large amounts of external debt and political and social uncertainties.

Although there have been significant improvements in recent years, the Latin
American economies continue to experience significant problems, including high
inflation rates and high interest rates. The emergence of the Latin American
economies and securities markets will require economic and fiscal discipline,
which has been lacking at times in the past, as well as stable political and
social conditions. Recovery may also be influenced by international economic
conditions, particularly those in the United States, and by world prices for
oil and other commodities. There is no assurance that the economic initiatives
will be successful.

THE MANAGER

Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch Asset
Management (the "Manager"), which is owned and controlled by Merrill Lynch &
Co., Inc., acts as the manager for the Fund and provides the Fund with
management services. The Manager, or an affiliate, Fund Asset Management, L.P.
("FAM"), acts as the investment adviser for more than 90 other registered
investment companies. MLAM and FAM also offer portfolio management and
portfolio analysis services to individuals and institutions. As of February 28,
1994, the Manager and FAM had a total of approximately $164.4 billion in
investment company and other portfolio assets under management, including
accounts of certain affiliates of MLAM. See "Management of the Fund--Management
and Advisory Arrangements".

PURCHASE AND REDEMPTION OF SHARES

Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share, plus in both cases a sales charge which, at the
election of the purchaser, may be imposed either (i) at the time of the
purchase (the "Class A shares") or (ii) on a deferred basis (the "Class B
shares"). Class A shares pay an ongoing account maintenance fee, and Class B
shares pay ongoing account maintenance and distribution fees. See "Alternative
Sales Arrangements" and "Purchase of Shares".

Shareholders may redeem their Class A and Class B shares at any time at the
next determined net asset value, except that in the case of Class B shares, the
redemption price for shares will be subject to the contingent deferred sales
charge imposed on Class B shares redeemed within four years of purchase. See
"Redemption of Shares".

DIVIDENDS AND DISTRIBUTIONS

It is the Fund's intention to distribute all its net investment income.
Dividends from such net investment income are paid at least annually. All net
realized long-term and short-term capital gains, if any, will be distributed to
the Fund's shareholders at least annually. See "Additional Information--
Dividends and Distributions".

DETERMINATION OF NET ASSET VALUE

The net asset value of the Fund is determined by the Manager once daily as of
4:15 p.m., New York time, on each day during which the New York Stock Exchange
is open for trading. See "Additional Information--Determination of Net Asset
Value".

6
<PAGE>

ALTERNATIVE SALES ARRANGEMENTS

Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share, plus in both cases a sales charge which, at the
election of the purchaser, may be imposed either (i) at the time of the
purchase (the "initial sales charge alternative") or (ii) on a deferred basis
(the "deferred sales charge alternative").

Class A Shares. An investor who elects the initial sales charge alternative
acquires Class A shares. Class A shares incur a 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 the Class A shares. Although Class A
shares incur a sales charge when they are purchased, they enjoy the benefit of
not being subject to the ongoing distribution fee to which Class B shares are
subject or any sales charge when they are redeemed. Certain purchasers of Class
A shares qualify for reduced initial sales charges. See "Purchase of Shares".

Class B Shares. An investor who elects the deferred sales charge alternative
acquires Class B shares. Class B shares do not incur a sales charge when they
are purchased, but they are subject to ongoing account maintenance and
distribution fees of 0.25% and 0.75%, respectively, of the Fund's average net
assets attributable to the Class B shares and a sales charge if they are
redeemed within four years of purchase. Class B shares enjoy the benefit of
permitting all of the investor's dollars to work from the time the investment
is made. The ongoing distribution fee paid by Class B shares will cause such
shares to have a higher expense ratio and to pay lower dividends than Class A
shares. Both Class A shares and Class B shares pay an ongoing account
maintenance fee. Payment of the distribution fee is subject to certain limits
as set forth under "Purchase of Shares--Deferred Sales Charge Alternative--
Class B Shares".

As an illustration, investors who qualify for significantly reduced sales
charges might elect the initial sales charge alternative because similar sales
charge reductions are not available for purchases under the deferred sales
charge alternative. Shares acquired under the initial sales charge alternative
are subject to an ongoing account maintenance fee that is lower than the sum of
the ongoing account maintenance fee and distribution fee on Class B shares.
However, because initial sales charges are deducted at the time of purchase,
such investors would not have all their funds invested initially. Investors not
qualifying for reduced initial sales charges who expect to maintain their
investment for an extended period of time might also elect the initial sales
charge alternative because over time the accumulated continuing account
maintenance and distribution fees on Class B shares may exceed the initial
sales charge and ongoing account maintenance fee on Class A shares. Again,
however, such investors must weigh this consideration against the fact that not
all their funds will be invested initially. Furthermore, the ongoing account
maintenance and distribution fees will be offset to the extent any return is
realized on the additional funds initially invested under the deferred
alternative. However, there can be no assurance as to the return, if any, which
will be realized on such additional funds. Certain other investors might
determine it to be more advantageous to have all their funds invested
initially, although remaining subject to continued account maintenance and
distribution fees and, for a four-year period of time, a contingent deferred
sales charge.

The distribution expenses incurred by the Distributor and dealers (primarily
Merrill Lynch) in connection with the sale of the shares will be paid, in the
case of the Class A shares, from the proceeds of the initial sales charge and
ongoing account maintenance fee, and in the case of the Class B shares, such
distribution expenses will be paid from the proceeds of the ongoing account
maintenance and distribution

7
<PAGE>

fees and the contingent deferred sales charge incurred upon redemption within
four years of purchase. Sales personnel may receive different compensation for
selling Class A or Class B shares. Investors should understand that the purpose
and function of the deferred sales charges and account maintenance fee with
respect to the Class B shares are the same as those of the initial sales charge
and account maintenance fee with respect to the Class A shares.

Dividends paid by the Fund with respect to Class A and Class B 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 fees and any incremental transfer agency costs
relating to Class B shares will be borne exclusively by that class, and the
account maintenance fee relating to Class A shares will be borne exclusively by
that class. See "Additional Information--Determination of Net Asset Value".
Class A and Class B shareholders of the Fund each have an exchange privilege
for Class A and Class B shares, respectively, of certain other mutual funds
sponsored by Merrill Lynch. Class A and Class B shareholders of the Fund also
may exchange their shares for shares of certain money market funds sponsored by
Merrill Lynch. See "Shareholder Services--Exchange Privilege".

The Directors of the Fund have determined that currently no conflict of
interest exists between the Class A and Class B shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
state laws, will seek to assure that no such conflict arises.

THE ALTERNATIVE SALES ARRANGEMENTS PERMIT AN INVESTOR TO CHOOSE THE METHOD
OF PURCHASING SHARES THAT IS MOST BENEFICIAL GIVEN THE AMOUNT OF THE
PURCHASE, THE LENGTH OF TIME THE INVESTOR EXPECTS TO HOLD THE SHARES AND
OTHER CIRCUMSTANCES. INVESTORS SHOULD DETERMINE WHETHER UNDER THEIR
PARTICULAR CIRCUMSTANCES IT IS MORE ADVANTAGEOUS TO INCUR AN INITIAL SALES
CHARGE AND AN ONGOING ACCOUNT MAINTENANCE FEE, OR TO HAVE THE ENTIRE
INITIAL PURCHASE PRICE INVESTED IN THE FUND WITH THE INVESTMENT THEREAFTER
BEING SUBJECT TO ACCOUNT MAINTENANCE AND DISTRIBUTION FEES. TO ASSIST
INVESTORS IN MAKING THIS DETERMINATION, THE FEE TABLE ON PAGE 3 SETS FORTH
THE CHARGES APPLICABLE TO EACH CLASS OF SHARES, AND A DISCUSSION OF
RELEVANT FACTORS IN MAKING SUCH DETERMINATION IS SET FORTH UNDER "PURCHASE
OF SHARES--ALTERNATIVE SALES ARRANGEMENTS" ON PAGE 30.

8
<PAGE>

CONSOLIDATED FINANCIAL HIGHLIGHTS

The financial information in the table below has been audited in conjunction
with the annual audits of the consolidated financial statements of the Fund by
Deloitte & Touche, independent auditors. Financial statements for the fiscal
year ended November 30, 1993, and the independent auditors' report thereon are
included in the Statement of Additional Information. 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 consolidated financial statements.

<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------- ------------------------------------
FOR THE FOR THE
YEAR ENDED FOR THE PERIOD YEAR ENDED FOR THE PERIOD
NOVEMBER 30, SEPT. 27, 1991+ NOVEMBER 30, SEPT. 27, 1991+
---------------- TO NOV. 30, ------------------ TO NOV. 30,
1993 1992 1991 1993 1992 1991
------- ------- --------------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of period......... $ 9.90 $ 9.81 $ 10.00 $ 9.83 $ 9.80 $ 10.00
------- ------- ------- -------- -------- -------
Investment income--net. .18 .15 .06 .10 .08 .04
Realized and unrealized
gain (loss) on invest-
ments and foreign cur-
rency transactions--
net(1)................ 4.69 .06 (.25) 4.68 .05 (.24)
------- ------- ------- -------- -------- -------
Total from investment
operations............. 4.87 .21 (.19) 4.78 .13 (.20)
------- ------- ------- -------- -------- -------
Less dividends and dis-
tributions:
Investment income--net. (.23) (.12) -- (.13) (.10) --
Realized gain on in-
vestments--net........ (.09) -- ++ -- (.09) -- ++ --
------- ------- ------- -------- -------- -------
Total dividends and dis-
tributions............. (.32) (.12) -- (.22) (.10) --
------- ------- ------- -------- -------- -------
Net asset value, end of
period................. $ 14.45 $ 9.90 $ 9.81 $ 14.39 $ 9.83 $ 9.80
======= ======= ======= ======== ======== =======
TOTAL INVESTMENT RE-
TURN:**
Based on net asset value
per share.............. 50.86% 2.19% (1.90%)# 49.80% 1.30% (2.00%)#
======= ======= ======= ======== ======== =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding ac-
count maintenance
and/or distribution
fees................... 1.58% 1.64% 1.72%* 1.59% 1.65% 1.73%*
======= ======= ======= ======== ======== =======
Expenses................ 1.83% 1.89% 1.97%* 2.59% 2.65% 2.73%*
======= ======= ======= ======== ======== =======
Investment income--net.. 1.83% 2.18% 4.05%* 1.09% 1.30% 3.28%*
======= ======= ======= ======== ======== =======
SUPPLEMENTAL DATA:
Net assets, end of pe-
riod (in thousands).... $75,085 $30,685 $18,074 $305,301 $126,344 $63,012
======= ======= ======= ======== ======== =======
Portfolio turnover...... 24.74% 36.50% 0% 24.74% 36.50% 0%
======= ======= ======= ======== ======== =======
</TABLE>
- --------

* Annualized.

** Total investment returns exclude the effects of sales loads.

+ Commencement of Operations.

++ Amount less than $.01 per share.

# Aggregate total investment return.

(1) Foreign currency transactions amounts have been reclassified to conform to
the 1993 presentation.

9
<PAGE>

RISK FACTORS AND SPECIAL CONSIDERATIONS

GENERAL

Because the Fund intends to invest primarily in Latin American securities, an
investor in the Fund should be aware of certain risk factors and special
considerations relating not only to investing in Latin American economies, but
also, more generally, to international investing and investing in smaller
capital markets, each of which may involve risks which are not typically
associated with investments in securities of U.S. issuers. Consequently, the
Fund should be considered as a means of diversifying an investment portfolio
and not in itself a balanced investment program.

INVESTING ON AN INTERNATIONAL BASIS AND IN COUNTRIES WITH SMALLER CAPITAL
MARKETS

Investing on an international basis and in countries with smaller capital
markets involves certain risks not involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Since the Fund will invest 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 portfolio and the unrealized appreciation or depreciation of investments
insofar as U.S. investors are concerned. In addition, with respect to certain
foreign countries, there is the possibility of expropriation of assets,
confiscatory taxation, political or social instability or diplomatic
developments which 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 national product, rates of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. Certain foreign investments may also be subject to foreign
withholding taxes. These risks are often heightened for investments in smaller
capital markets and in Latin American countries.

Most of the securities held by the Fund will not be registered with the
Securities and Exchange 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 company than about a U.S.
company, and such foreign companies may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those to which
U.S. companies are subject. As a result, traditional investment measurements,
such as price/earnings ratios, as used in the United States, may not be
applicable to certain smaller capital markets. Foreign companies, and companies
in smaller capital markets in particular, are not generally subject to uniform
accounting, auditing and financial reporting standards or to practices and
requirements comparable to those applicable to 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. Delays in settlement could result in temporary periods when
assets of the Fund are uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result either in losses to the Fund due to subsequent declines in the value of
such portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible

10
<PAGE>

liability to the purchaser. Brokerage commissions and other transaction costs
on foreign securities exchanges are generally higher than in the United States.
There is generally less government supervision and regulation of exchanges,
brokers and issuers in foreign countries than there is in the United States.

The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in U.S. securities since
the expenses of the Fund, such as management and advisory fees and custodial
costs, are higher.

INVESTING IN LATIN AMERICAN SECURITIES MARKETS AND ECONOMIES

The Latin American securities markets are not as large as the U.S. securities
markets and have substantially less trading volume, resulting in a lack of
liquidity and high price volatility. There is also a high concentration of
market capitalization and trading volume in a small number of issuers
representing a limited number of industries, as well as a high concentration of
investors and financial intermediaries. Latin American brokers typically are
fewer in number and less capitalized than brokers in the United States. These
factors, combined with the U.S. regulatory requirements for open-end funds and
the restrictions on foreign investments discussed below, result in potentially
fewer investment opportunities for the Fund and may have an adverse impact on
the investment performance of the Fund. The Fund may not invest more than 10%
of its net assets in securities which are determined by the Manager to be
illiquid securities.

The investment objective of the Fund reflects the belief that investment
opportunities may result in Latin America from an evolving long-term
international trend encouraging greater market orientation and diminishing
governmental intervention in economic affairs. The Latin American economies
have experienced considerable difficulties in the past decade. Although there
have been significant improvements in recent years, the Latin American
economies continue to experience significant problems, including high inflation
rates and high interest rates. The emergence of the Latin American economies
and securities markets will require continued economic and fiscal discipline
which has been lacking at times in the past, as well as stable political and
social conditions. Recovery may also be influenced by international economic
conditions, particularly those in the United States, and by world prices for
oil and other commodities. There is no assurance that the economic initiatives
will be successful.

Certain of the risks associated with international investments and investing
in smaller capital markets are heightened for investments in Latin American
countries. For example, some of the currencies of Latin American countries have
experienced steady devaluations relative to the U.S. dollar, and major
adjustments have been made in certain of such currencies periodically. In
addition, governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector. In certain cases, the government owns or controls many companies,
including the largest in the country. Accordingly, government actions in the
future could have a significant effect on economic conditions in Latin American
countries, which could affect private sector companies and the Fund, as well as
the value of securities in the Fund's portfolio.

In addition to the relative lack of publicly available information about
Latin American issuers and the possibility that such issuers may not be subject
to the same accounting, auditing and financial reporting standards as are
applicable to U.S. companies, inflation accounting rules in some Latin

11
<PAGE>

American countries require, for companies that keep accounting records in the
local currency, for both tax and accounting purposes, that certain assets and
liabilities be restated on the company's balance sheet in order to express
items in terms of currency of constant purchasing power. Inflation accounting
may indirectly generate losses or profits for certain Latin American companies.

Satisfactory custodial services for investment securities may not be
available in some Latin American countries, which may result in the Fund
incurring additional costs and delays in transporting and custodying such
securities outside such countries.

Most Latin American countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain Latin American
countries.

Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Trading in debt obligations ("sovereign debt")
issued or guaranteed by Latin American governments or their agencies and
instrumentalities ("governmental entities") involves a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
willing or able to repay the principal and/or interest when due in accordance
with the terms of such obligations. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the relative size of the debt
service burden to the economy as a whole, the governmental entity's dependence
on expected disbursements from third parties, the governmental entity's policy
toward the International Monetary Fund and the political constraints to which a
governmental entity may be subject. As a result, governmental entities may
default on their sovereign debt. Holders of sovereign debt (including the Fund)
may be requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which sovereign debt on which governmental entities have defaulted may be
collected in whole or in part.

As a result, management of the Fund may determine that, notwithstanding
otherwise favorable investment criteria, it may not be practicable or
appropriate to invest in a particular Latin American country. The Fund may
invest in countries in which foreign investors, including management of the
Fund, have had no or limited prior experience.

RESTRICTIONS ON FOREIGN INVESTMENTS

Some Latin American 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 may
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 to only a specific class of securities of a
company which 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.

Substantial limitations may exist in certain countries with respect to the
Fund's ability to repatriate investment income, capital or the proceeds of
sales of securities by foreign investors. For example, in Chile, with limited
exceptions, invested capital cannot be repatriated for three years. The Fund
could

12
<PAGE>

be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments. No more than 10% of
the Fund's net assets will be comprised, in the aggregate, of assets which are
(i) subject to material legal restrictions on repatriation or (ii) invested in
illiquid securities.

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

In some countries, such as Venezuela, banks or other financial institutions
may constitute a substantial number of the leading companies or the companies
with the most actively traded securities. The Investment Company Act restricts
the Fund's investments 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
restrict the Fund's investments in certain foreign banks and other financial
institutions.

LIMITATIONS ON SHARE TRANSACTIONS

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 Fund also reserves the right to
limit the number of its shares that may be purchased by a person during a
specified period of time or in the aggregate.

FEES AND EXPENSES

The management fee (at the annual rate of 1.00% of the Fund's average daily
net assets) and other operating expenses of the Fund are higher than the
management fees and operating expenses of other mutual funds managed by the
Manager and other investment advisers. Any limitations on the growth of the
Fund could adversely affect its operating expense ratio.

HEDGING STRATEGIES

The Fund may engage in various portfolio strategies to seek to hedge against
movements in the equity markets, interest rates and exchange rates between
currencies by the use of options, futures, options on futures and forward
currency transactions. However, suitable hedging instruments may not be
available with respect to Latin American securities on a timely basis and on
acceptable terms. Furthermore, even if hedging techniques are available, the
Fund will only engage in hedging activities from time to time and may not
necessarily be engaging in hedging activities when market or currency movements
occur. In addition, utilization of options and futures transactions involves
the risk of

13
<PAGE>

imperfect correlation in movements in the price of options and futures and
movements in the price of the securities, interest rates or currencies which
are the subject of the hedge. Hedging transactions in foreign markets are also
subject to the risk factors associated with foreign investments generally, as
discussed above. Investors should be aware that U.S. dollar denominated
securities may not be available in some or all Latin American countries; that
the forward currency market for the purchase of U.S. dollars in most, if not
all, Latin American countries is not highly developed; and that, in certain
Latin American countries, no forward market for foreign currencies currently
exists or such market may be closed to investment by the Fund.

NO RATING CRITERIA FOR DEBT SECURITIES

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 ("high yield/high risk securities") are predominately
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. The sovereign
debt instruments in which the Fund may invest involve great risk and are deemed
to be the equivalent in terms of quality to high yield/high risk securities.
The Fund may have difficulty disposing of certain sovereign debt obligations
because there may be no liquid secondary trading market for such securities.
The Fund may invest up to 5% of its total assets in sovereign debt that is in
default. See "Investment Objective and Policies--Certain Risks of Debt
Securities".

BORROWING

The Fund may borrow up to 20% 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 or to settle securities transactions. The Fund
will not purchase securities while 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 which will reduce net income.

NON-DIVERSIFIED STATUS

As a non-diversified investment company, the Fund may invest a larger
percentage of its assets in individual issuers than a diversified investment
company. In this regard, the Fund is not subject to the general limitation that
it may not invest more than 5% of its total assets in the securities of any one
issuer. To the extent the Fund makes investments in excess of 5% of its assets
in a particular issuer, its exposure to credit and market risks associated with
that issuer is increased. Also, as a non-diversified investment company, since
a relatively high percentage of the Fund's assets may be invested in the
securities of a limited number of issuers, the Fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified
investment company.

14
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The Fund is a non-diversified, open-end management investment company. The
investment objective of the Fund is to seek long-term capital appreciation by
investing primarily in Latin American equity and debt securities. Except for
Temporary Investments, as discussed below, at least 65% of the Fund's assets
will consist of direct or indirect investments in Latin American equity and
debt securities, including common stocks, preferred stocks, debt securities
convertible into common stocks and non-convertible debt securities. This
investment objective is a fundamental policy of the Fund and may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities, as defined in the Investment Company Act. The Fund is
authorized to employ a variety of investment techniques to hedge against market
and currency risk, although suitable hedging instruments may not be available
on a timely basis and on acceptable terms. There can be no assurance that the
Fund's investment objective will be achieved.

The Fund seeks to benefit from economic and other developments in Latin
America. The investment objective of the Fund reflects the belief that
investment opportunities may result in Latin America from an evolving long-term
international trend encouraging greater market orientation and diminishing
governmental intervention in economic affairs. This trend may be facilitated by
local or international political, economic or financial developments that could
benefit the capital markets of certain Latin American countries.

The Fund will not necessarily seek to diversify investments on a geographic
basis within Latin America. The allocation of the Fund's assets among the
various securities markets of Latin America will be determined by the Manager.
It is presently contemplated that the Fund will emphasize investments in the
equity and debt markets of Argentina, Brazil, Chile, Mexico and Venezuela.
Under certain adverse investment conditions, the Fund may restrict the Latin
American securities markets in which its assets are invested.

Many investors, particularly individuals, lack the information, capability or
inclination to invest in Latin American countries. It also may not be
permissible for such investors to invest directly in certain Latin American
capital markets. Unlike many intermediary investment vehicles, such as closed-
end investment companies that invest in a single country, the Fund intends to
diversify investment risk among the capital markets of a number of countries.

For the purpose of the Fund's investment objective, Latin America includes
Mexico, Central America, South America and the Spanish speaking islands of the
Caribbean, including Puerto Rico. A security ordinarily will be considered to
be a Latin American security when its issuer is organized in Latin America or
its primary trading market is located in Latin America. The Fund may consider a
security to be Latin American, without reference to its issuer's domicile or to
its primary trading market, when at least 50% of the issuer's non-current
assets, capitalization, gross revenues or profits in any one of the two most
recent

15
<PAGE>

fiscal years represents (directly or indirectly through subsidiaries) assets or
activities located in such countries. The Fund may acquire Latin American
securities that are denominated in currencies other than a Latin American
currency. The Fund also may consider a debt security that is denominated in a
Latin American currency to be a Latin American security without reference to
its principal trading market or to the location of its issuer. The Fund may
consider investment companies to be located in the country or countries in
which they primarily make their portfolio investments.

The Fund may also seek capital appreciation through investment in Latin
American debt securities. Capital appreciation in debt securities may arise as
a result of a favorable change in relative foreign exchange rates, in relative
interest rate levels, or in the creditworthiness of issuers. The receipt of
income from such debt securities is incidental to the Fund's objective of long-
term capital appreciation. In accordance with its investment objective, the
Fund will not seek to benefit from anticipated short-term fluctuations in
currency exchange rates. The Fund may, from time to time, invest in debt
securities with relatively high yields (as compared to other debt securities
meeting the Fund's investment criteria), notwithstanding that the Fund may not
anticipate that such securities will experience substantial capital
appreciation. Such income can be used, however, to offset the operating
expenses of the Fund. For a description of the risks involved in investing in
high yield debt see "Certain Risks of Debt Securities" below.

The Fund may invest in debt securities ("sovereign debt") issued or
guaranteed by Latin American governments (including Latin American countries,
provinces and municipalities) or their agencies and instrumentalities
("governmental entities"), debt securities issued or guaranteed by
international organizations designated or supported by multiple foreign
governmental entities (which are not obligations of foreign governments) to
promote economic reconstruction or development ("supranational entities"), debt
securities issued by corporations or financial institutions or debt securities
issued by the U.S. Government or an agency or instrumentality thereof.

Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related governmental
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank") and the Inter-American Development Bank. The
governmental members, or "stockholders", usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings.

The Fund reserves the right, as a temporary defensive measure or to provide
for redemptions or in anticipation of investment in Latin American countries,
to hold cash or cash equivalents (in U.S. dollars or foreign currencies) and
short-term securities including money market securities denominated in U.S.
dollars or foreign currencies ("Temporary Investments"). The Fund may invest in
the securities of Latin American issuers in the form of American Depositary
Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary
Receipts (GDRs) or other securities convertible into securities of Latin
American issuers. The Fund may invest in unsponsored ADRs. The issuers of
unsponsored ADRs are not obligated to disclose material information in the
U.S., and therefore, there may not be a correlation between such information
and the market value of such ADRs.

CERTAIN RISKS OF DEBT SECURITIES

No Rating Criteria for Debt Securities. 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

16
<PAGE>

medium to lower rating categories of nationally recognized statistical rating
organizations such as Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's") and unrated securities of comparable
quality (referred to herein as "high yield/high risk securities") are
predominantly speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of such securities and generally
involve a greater volatility of price than securities in higher rating
categories. These securities are commonly referred to as "junk" bonds. 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 is not authorized to purchase debt securities that
are in default, except for sovereign debt (discussed below) in which the Fund
may invest no more than 5% of its total assets while such sovereign debt
securities are in default.

The market values of high yield/high risk securities 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, such issuers may not have sufficient revenues to meet
their interest payment obligations. The issuer's ability to service its debt
obligations also may be adversely affected by specific issuer developments or
the issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing. The risk of loss due to default by the
issuer is significantly greater for the holders of 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 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 is generally 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 are
generally 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.

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 adversely affect 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 to participate in the restructuring of
the obligation.

17
<PAGE>

Sovereign Debt. Certain Latin American countries such as Argentina, Brazil
and Mexico are among the largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt.

Investment in sovereign debt involves a high degree of risk. The governmental
entity that controls the repayment of sovereign debt may not be able or willing
to repay the principal and/or interest when due in accordance with the terms of
such debt. A governmental entity's willingness or ability to repay principal
and interest due in a timely manner may be affected by, among other factors,
its cash flow situation, the extent of its foreign reserves, the availability
of sufficient foreign exchange on the date a payment is due, the relative size
of the debt service burden to the economy as a whole, the governmental entity's
policy towards the International Monetary Fund and the political constraints to
which a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms,
achieve such levels of economic performance or repay principal or interest when
due may result in the cancellation of such third parties' commitments to lend
funds to the governmental entity, which may further impair such debtor's
ability or willingness to timely service its debts. Consequently, governmental
entities may default on their sovereign debt.

Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign
debt on which a governmental entity has defaulted may be collected in whole or
in part.

The sovereign debt instruments in which the Fund may invest involve great
risk and are deemed to be the equivalent in terms of quality to high yield/high
risk securities discussed above and are subject to many of the same risks as
such securities. Similarly, the Fund may have difficulty disposing of certain
sovereign debt obligations because there may be a thin trading market for such
securities. The Fund will not invest more than 5% of its total assets in
sovereign debt which is in default.

PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES

The Fund is authorized to engage in various portfolio strategies to hedge its
portfolio against adverse movements in the equity, debt and currency markets.
The Fund has authority to write (i.e., sell) covered put and call options on
its portfolio securities, purchase put and call options on securities and
engage in transactions in stock index options, stock index futures and
financial futures, and related options on such futures. The Fund may also deal
in forward foreign exchange transactions and foreign currency options and
futures, and related options on such futures. Each of these portfolio
strategies is described below. Although certain risks are involved in options
and futures transactions (as discussed below and in "Risk Factors in Options
and Futures Transactions" further below), the Manager believes that, because
the Fund will engage in options and futures transactions only for hedging
purposes, the options and futures portfolio strategies of the Fund will not
subject the Fund to the risks frequently associated with the speculative use of
options and futures transactions. While the Fund's use of hedging strategies is
intended to reduce the volatility of the net asset value of its shares, the net
asset value of the Fund's shares will fluctuate. Reference is made to the
Statement of Additional Information for further information concerning these
strategies.

18
<PAGE>

There can be no assurance that the Fund's hedging transactions will be
effective. Suitable hedging instruments may not be available with respect to
Latin American securities on a timely basis and on acceptable terms.
Furthermore, the Fund will only engage in hedging activities from time to time
and will not necessarily engage in hedging transactions when movements in any
particular equity, debt and currency markets occur.

Set forth below are descriptions of certain hedging strategies in which the
Fund is authorized to engage.

Writing Covered Options. The Fund is authorized to write (i.e., sell) covered
call options on the securities in which it may invest and to enter into closing
purchase transactions with respect to certain of such options. A covered call
option is an option where the Fund in return for a premium gives another party
a right to buy specified securities owned by the Fund at a specified future
date and price set at the time of the contract. The principal reason for
writing call options is to attempt to realize, through the receipt of premiums,
a greater return than would be realized on the securities alone. By writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price. In addition, the Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects
a closing purchase transaction. A closing purchase transaction cancels out the
Fund's position as the writer of an option by means of an offsetting purchase
of an identical option prior to the expiration of the option it has written.
Covered call options serve as a partial hedge against the price of the
underlying security declining.

The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options, which means that so
long as the Fund is obligated as the writer of the option it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S.
Government securities or other high grade liquid debt or equity securities
denominated in U.S. dollars or non-U.S. currencies with a securities depository
with a value equal to or greater than the exercise price of the underlying
securities. By writing a put, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of that
security at the time of exercise for as long as the option is outstanding. The
Fund may engage in closing transactions in order to terminate put options that
it has written. The Fund will not write put options if the aggregate value of
the obligations underlying the put shall exceed 50% of the Fund's net assets.

Purchasing Options. The Fund is authorized to purchase put options to hedge
against a decline in the market value of its securities. By buying a put option
the Fund has a right to sell the underlying security at the stated exercise
price, thus limiting the Fund's risk of loss through a decline in the market
value of the security until the put option expires. The amount of any
appreciation in the value of the underlying security will be partially offset
by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Fund's position as the purchaser of an option by means of an offsetting
sale of an identical option prior to the expiration of the option it has
purchased.

In certain circumstances, the Fund may purchase call options on securities
held in its portfolio on which it has written call options or on securities
which it intends to purchase. The Fund will not purchase options on securities
(including stock index options discussed below) if as a result of such
purchase, the aggregate

19
<PAGE>

cost of all outstanding options on securities held by the Fund would exceed 5%
of the market value of the Fund's total assets.

Stock Index Options and Futures and Financial Futures. The Fund is authorized
to engage in transactions in stock index options and futures and financial
futures, and related options on such futures. The Fund may purchase or write
put and call options on stock indices to hedge against the risks of market-wide
stock price movements in the securities in which the Fund invests. Options on
indices are similar to options on securities except that on exercise or
assignment, the parties to the contract pay or receive an amount of cash equal
to the difference between the closing value of the index and the exercise price
of the option times a specified multiple. The Fund may invest in stock index
options based on a broad market index or based on a narrow index representing
an industry or market segment.

The Fund may also purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities as described below. A
futures contract is an agreement between two parties which obligates the
purchaser of the futures contract to buy and the seller of a futures contract
to sell a security for a set price on a future date. Unlike most other futures
contracts, a stock index futures contract does not require actual delivery of
securities but results in cash settlement based upon the difference in value of
the index between the time the contract was entered into and the time of its
settlement. The Fund may effect transactions in stock index futures contracts
in connection with the equity securities in which it invests and in financial
futures contracts in connection with the debt securities in which it invests.
Transactions by the Fund in stock index futures and financial futures are
subject to limitations as described below under "Restrictions on the Use of
Futures Transactions".

The Fund may sell futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When the Fund is not fully
invested in the securities markets and anticipates a significant market
advance, it may purchase futures in order to gain rapid market exposure that
may in part or entirely offset increases in the cost of securities that the
Fund intends to purchase. As such purchases are made, an equivalent amount of
futures contracts will be terminated by offsetting sales. The Manager does not
consider purchases of futures contracts to be a speculative practice under
these circumstances. It is anticipated that, in a substantial majority of these
transactions, the Fund will purchase such securities upon termination of the
long futures position, whether the long position is the purchase of a futures
contract or the purchase of a call option or the writing of a put option on a
future, but under unusual circumstances (e.g., the Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.

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

The Fund may engage in options and futures transactions on U.S. and foreign
exchanges and in the over-the-counter markets ("OTC options"). Exchange-traded
contracts are third-party contracts (i.e.,

20
<PAGE>

performance of the parties' obligations is guaranteed by an exchange or
clearing corporation) which, in general, have standardized strike prices and
expiration dates. OTC options transactions are two-party contracts with prices
and terms negotiated by the buyer and seller. See "Restrictions on OTC Options"
below for information as to restrictions on the use of OTC options.

Foreign Currency Hedging. The Fund has authority to deal in forward foreign
exchange among currencies of the different countries in which it will invest
and multinational currency units as a hedge against possible variations in the
foreign exchange rates among these currencies. This is accomplished through
contractual agreements to purchase or sell a specified currency at a specified
future date and price set at the time of the contract. The Fund's dealings in
forward foreign exchange will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is the purchase or
sale of forward foreign currency with respect to specific receivables or
payables of the Fund accruing in connection with the purchase and sale of its
portfolio securities, the sale and redemption of shares of the Fund or the
payment of dividends and distributions by the Fund. Position hedging is the
sale of forward foreign currency with respect to portfolio security positions
denominated or quoted in such foreign currency. The Fund has no limitation on
transaction hedging. The Fund will not speculate in forward foreign exchange.
If the Fund enters into a position hedging transaction, the Fund's custodian
will place cash or liquid debt securities in a separate account of the Fund in
an amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. If the value of the securities placed in
the separate account declines, additional cash or securities will be placed in
the account so that the value of the account will equal the amount of the
Fund's commitment with respect to such contracts. Hedging against a decline in
the value of a currency does not eliminate fluctuations in the prices of
portfolio securities or prevent losses if the prices of such securities
decline. Such transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be possible for the
Fund to hedge against a devaluation that is so generally anticipated that the
Fund is not able to contract to sell the currency at a price above the
devaluation level it anticipates. Investors should be aware that U.S. dollar
denominated securities may not be available in some or all Latin American
countries, that the forward currency market for the purchase of U.S. dollars in
most, if not all, Latin American countries is not highly developed and that in
certain Latin American countries no forward market for foreign currencies
currently exists or such market may be closed to investment by the Fund.

The Fund is also authorized to purchase or sell listed or over-the-counter
foreign currency options, foreign currency futures and related options on
foreign currency futures as a short or long hedge against possible variations
in foreign exchange rates. Such transactions may be effected with respect to
hedges on non-U.S. dollar denominated securities owned by the Fund, sold by the
Fund but not yet delivered, or committed or anticipated to be purchased by the
Fund. As an illustration, the Fund may use such techniques to hedge the stated
value in U.S. dollars of an investment in a Mexican peso denominated security.
In such circumstances, for example, the Fund may purchase a foreign currency
put option enabling it to sell a specified amount of Mexican pesos for dollars
at a specified price by a future date. To the extent the hedge is successful, a
loss in the value of the Mexican peso relative to the dollar will tend to be
offset by an increase in the value of the put option. To offset, in whole or in
part, the cost of acquiring such a put option, the Fund may also sell a call
option which, if exercised, requires it to sell a specified amount of Mexican
pesos for dollars at a specified price by a future date (a technique called a
"straddle"). By selling a call option in this illustration, the Fund gives up
the opportunity to profit without limit from increases in the relative value of
the Mexican peso to the dollar. The Manager believes that "straddles" of the
type which may be utilized by the Fund constitute hedging transactions and are
consistent with the policies described above.

21
<PAGE>

Certain differences exist between these foreign currency hedging instruments.
Foreign currency options provide the holder thereof the right to buy or sell a
currency at a fixed price on a future date. A futures contract on a foreign
currency is an agreement between two parties to buy and sell a specified amount
of a currency for a set price on a future date. Futures contracts and options
on futures contracts are traded on boards of trade or futures exchanges. The
Fund will not speculate in foreign currency options, futures or related
options. Accordingly, the Fund will not hedge a currency substantially in
excess of the market value of the securities denominated in such currency which
it owns, the expected acquisition price of securities which it has committed or
anticipates to purchase which are denominated in such currency and, in the case
of securities which have been sold by the Fund but not yet delivered, the
proceeds thereof in its denominated currency. Further, the Fund will segregate
at its custodian U.S. Government or other high quality securities having a
market value substantially representing any subsequent net decrease in the
market value of such hedged positions, including net positions with respect to
cross-currency hedges. The Fund may not incur potential net liabilities of more
than 20% of its total assets from foreign currency options, futures or related
options.

Restrictions on the Use of Futures Transactions. Regulations of the Commodity
Futures Trading Commission applicable to the Fund provide that the futures
trading activities described herein will not result in the Fund being deemed a
"commodity pool" under such regulations if the Fund adheres to certain
restrictions. In particular, the Fund may purchase and sell futures contracts
and options thereon (i) for bona fide hedging purposes, and (ii) for non-
hedging purposes, if the aggregate initial margin and premiums required to
establish positions in such contracts and options does not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any such contracts and options. These
restrictions are in addition to other restrictions on the Fund's hedging
activities mentioned herein.

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

Restrictions on OTC Options. The Fund will engage in OTC options, including
over-the-counter stock index options, over-the-counter foreign currency options
and options on foreign currency futures, only with member banks of the Federal
Reserve System and primary dealers in U.S. Government securities or with
affiliates of such banks or dealers that have capital of at least $50 million
or whose obligations are guaranteed by an entity having capital of at least $50
million or any other bank or dealer having capital of at least $150 million or
whose obligations are guaranteed by an entity having capital of at least $150
million.

The staff of the Securities and Exchange 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 (including OTC
options on futures contracts) if, as a result of such transaction, the sum of
the market value of OTC options currently outstanding which are held by the
Fund, the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceeds 10% of the total
assets of the Fund, taken at market value, together with all other assets of
the Fund which 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

22
<PAGE>

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 security 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 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 Securities and Exchange Commission staff of
its position.

Risk Factors in Options and Futures Transactions. Utilization of options and
futures transactions to hedge the portfolio involves the risk of imperfect
correlation in movements in the price of options and futures and movements in
the price of the securities or currencies which are the subject of the hedge.
If the price of the options or futures moves more or less than the price of the
hedged securities or currencies, the Fund will experience a gain or loss which
will not be completely offset by movements in the price of the subject of the
hedge. The successful use of options and futures also depends on the Manager's
ability to predict correctly price movements in the market involved in a
particular options or futures transaction. In addition, options and futures
transactions in foreign markets are subject to the risk factors associated with
foreign investments generally. See "Risk Factors and Special Considerations".

The Fund intends to enter into options and futures transactions, on an
exchange or in the OTC market, only if there appears to be a liquid secondary
market for such options or futures or, in the case of OTC transactions, the
Manager believes 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 only that dealer's price will be used, or which can be
sold at a formula price provided for in the OTC option agreement. There can be
no assurance, however, that a liquid secondary market will exist at any
specific time. Thus, it may not be possible to close an options or futures
position. The inability to close options and futures positions also could have
an adverse impact on the Fund's ability to hedge effectively its portfolio.
There is also the risk of loss by the Fund of margin deposits or collateral in
the event of the bankruptcy of a broker with whom the Fund has an open position
in an option, a futures contract or a related option.

The exchanges on which the Fund intends to conduct options transactions
generally have established limitations governing the maximum number of call or
put options on the same underlying security or currency (whether or not
covered) that may be written by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the same
or different exchanges or are held or written on one or more accounts or
through one or more brokers). "Trading limits" are imposed on the maximum
number of contracts that any person may trade on a particular trading day. The
Manager does not believe that these trading and position limits will have any
adverse impact on the portfolio strategies for hedging the Fund's portfolio.

OTHER INVESTMENT POLICIES AND PRACTICES

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<PAGE>

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. Foreign government securities (unlike
U.S. Government securities) are not exempt from the diversification
requirements of the Code and are considered obligations of a single issuer. A
fund which 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.

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
the Fund's 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 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. The Fund may invest in certain securities
traded in the over-the-counter 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. Securities firms may receive brokerage
commissions on certain portfolio transactions, including options, futures and
options on futures transactions and the purchase and sale of underlying
securities upon exercise of options. The Fund has no obligation to deal with
any broker in the execution of transactions in portfolio securities. 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 Securities and Exchange Commission. Affiliated persons of the Fund,
and affiliated persons of such affiliated persons, may serve as its broker in
transactions conducted on an exchange and in over-the-counter transactions
conducted on an agency basis and may receive brokerage commissions from the
Fund. In addition, consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., the Fund 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 those associated
with transactions in U.S. securities, although the Fund will endeavor to
achieve the best net results in effecting such transactions.

Portfolio Turnover. 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 circumstance 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 securities whose maturities at the time of acquisition

24
<PAGE>

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
correspondingly greater transaction costs in the form of dealer spreads and
brokerage commissions, which are borne directly by the Fund.

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 high grade liquid debt or equity 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.

Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security which
may be issued and sold to the Fund at the option of the issuer. The price and
coupon of the security is fixed at the time of the commitment. At the time of
entering into the agreement, the Fund is paid a commitment fee, regardless of
whether or not the security is ultimately issued, which is typically
approximately 0.5% of the aggregate purchase price of the security which 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
yield and price which 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
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, will not exceed
10% of its assets taken at the time of acquisition of such commitment or
security. The Fund will at all times maintain a segregated account with its
custodian of cash, cash equivalents, U.S. Government securities or other high
grade liquid debt securities denominated in U.S. dollars or non-U.S. currencies
in an aggregate amount equal to the purchase price of the securities underlying
the commitment.

There can be no assurance that the securities subject to a standby commitment
will be issued, and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Fund may bear the
risk of 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 will
thereafter 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.

25
<PAGE>

agreements, the other party 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 the case of repurchase agreements, the prices at which the
trades are conducted do not reflect accrued interest on the underlying
obligation; whereas, in the case of purchase and sale contracts, the prices
take into account accrued interest. 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 the case of 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; the Fund does not have the right
to seek additional collateral in the case of purchase and sale contracts. In
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 disposition of the collateral. A purchase and sale
contract differs from a repurchase agreement in that the contract arrangements
stipulate that the securities are owned by the Fund. In the event of a default
under such a repurchase agreement or under a purchase and sale contract,
instead of the contractual fixed rate, the rate of return to the Fund would be
dependent upon intervening fluctuations of the market values 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. Repurchase agreements and purchase and sale contracts maturing in more
than seven days are deemed illiquid by the Securities and Exchange Commission
and are therefore subject to the Fund's investment restriction limiting
investments in securities that are not readily marketable to 10% of the Fund's
net assets. See "Investment Restrictions" below.

Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government.
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. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined
in the Investment Company Act. During the period of such a loan, the Fund
receives the income on the loaned securities and receives either 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. Such loans are
terminable at any time, and the borrower, after notice, will be required to
return borrowed securities within five business days. 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.

Investment Restrictions. The Fund's investment activities are subject to
further restrictions that are described in the Statement of Additional
Information. Investment restrictions and policies which are fundamental
policies may not be changed without the approval of the holders of a majority
of the Fund's outstanding voting securities (which for this purpose and under
the Investment Company Act means the lesser of (a) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (b) more than 50% of the outstanding shares). Among its
fundamental policies, the Fund may not invest more than 25% of its total
assets, taken at market value at the time of each investment, in the

26
<PAGE>

securities of issuers of any particular industry (including the securities
issued or guaranteed by the government of any one foreign country, but
excluding the U.S. Government and its agencies or instrumentalities). Other
fundamental policies include policies which (i) limit investments in securities
which 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 10% of its net assets, taken at market value would
be invested in such securities and (ii) restrict the issuance of senior
securities and limit bank borrowings, except that the Fund may borrow amounts
of up to 20% of its assets for extraordinary purposes or to meet redemptions.

While the Fund will not purchase illiquid securities in an amount exceeding
10% of its net assets, the Fund may purchase, without regard to that
limitation, securities that are not registered under the Securities Act of
1933, as amended (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 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 the 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,
focusing on such factors, among others, as valuation, liquidity and
availability of information. 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
restricted securities.

The Fund will not purchase securities while borrowings exceed 5% of its total
assets, except (a) to honor prior commitments or (b) to exercise subscription
rights where 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 or borrowing increases the Fund's exposure to capital risk, and
borrowed funds are subject to interest costs which will reduce net income.

Although not a fundamental policy, the Fund will include OTC options and the
securities underlying such options in calculating the amount of its total
assets subject to the limitation set forth in clause (i) above. However, as
discussed above, the Fund may treat the securities it uses as cover for written
OTC options as liquid and, therefore, will exclude such securities from this
restriction, provided it follows a specified procedure. The Fund will not
change or modify this policy prior to the change or modification by the
Securities and Exchange Commission staff of its position regarding OTC options,
as discussed above.

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

The Board of Directors of the Fund consists of five individuals, four of whom
are not "interested persons" of the Fund as defined in the Investment Company
Act. The Board of Directors of the Fund is responsible for the overall
supervision of the operations of the Fund and performs the various duties
imposed on the directors of investment companies by the Investment Company Act.

27
<PAGE>

The Directors of the Fund are:

Arthur Zeikel*--President and Chief Investment Officer of the Manager;
President and Director of Princeton Services, Inc.; Executive Vice President of
Merrill Lynch & Co., Inc.; Executive Vice President of Merrill Lynch; Director
of the Distributor.

Donald Cecil--Special Limited Partner of Cumberland Partners (an investment
partnership).

Edward H. Meyer--Chairman of the Board, President and Chief Executive Officer
of Grey Advertising Inc.

Charles C. Reilly--Self-employed financial consultant; former President and
Chief Investment Officer of Verus Capital, Inc.; former Senior Vice President
of Arnhold and S. Bleichroeder, Inc.; Adjunct Professor, Columbia University
Graduate School of Business.

Richard R. West--Professor of Finance, and Dean from 1984 to 1993, New York
University Leonard N. Stern School of Business Administration.
- --------
*Interested person, as defined in the Investment Company Act, of the Fund.

MANAGEMENT AND ADVISORY ARRANGEMENTS

The Manager, Merrill Lynch Asset Management, L.P., which does business as
Merrill Lynch Asset Management, is owned and controlled by Merrill Lynch & Co.,
Inc., a financial services holding company and the parent of Merrill Lynch. The
Manager provides the Fund with management and investment advisory services. The
Manager or an affiliate, Fund Asset Management, L.P. ("FAM"), acts as the
investment adviser for more than 90 other registered investment companies. The
Manager or FAM also offers portfolio management and portfolio analysis services
to individuals and institutions. As of February 28, 1994, the Manager and FAM
had a total of approximately $164.4 billion in investment company and other
portfolio assets under management, including accounts of certain affiliates of
the Manager.

The management agreement with the Manager (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
and constantly reviews the Fund's holdings in light of its own research
analysis and that from other relevant sources. 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 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 1.00% of the
average daily net assets of the Fund. This fee is higher than that of most
mutual funds, including most other mutual funds managed by the Manager and
other investment advisers, but management of the Fund believes this fee is
justified by the additional investment research and analysis required in
connection with investing in Latin American capital markets. For the fiscal
year ended November 30, 1993, the Manager received a fee of $2,091,529 (based
on average net assets of approximately $208.6 million). At January 31, 1994,
the net assets of the Fund

28
<PAGE>

aggregated $801.9 million. At this asset level, the annual management fee would
aggregate approximately $8,039,345.

Grace Pineda, Vice President of the Fund, is the Fund's Portfolio Manager.
Ms. Pineda has been a Vice President of the Manager and Senior Portfolio
Manager since 1989. Ms. Pineda has been primarily responsible for the
management of the Fund's portfolio since it commenced operations.

The Management Agreement obligates the Fund to pay certain expenses incurred
in its operations including, among other things, the management fee, legal and
audit fees, registration fees, unaffiliated Directors' fees and expenses,
custodian and transfer agency fees, accounting costs, the costs of issuing and
redeeming shares and certain of the costs of printing proxies, shareholder
reports, prospectuses and statements of additional information. Accounting
services are provided to the Fund by the Manager, and the Fund reimburses the
Manager for its costs in connection with such services on a semi-annual basis.
For the fiscal year ended November 30, 1993, the Fund reimbursed the Manager
$130,471 for accounting services. For the fiscal year ended November 30, 1993,
the ratio of total expenses to average net assets for Class A shares was 1.83%,
and the ratio of total expenses to average net assets for Class B shares was
2.59%.

TRANSFER AGENCY SERVICES

Financial Data Services, Inc. (the "Transfer Agent"), which is a wholly-owned
subsidiary of Merrill Lynch & Co., Inc., 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 Transfer
Agent receives an annual fee of $9.00 per Class A shareholder account and
$10.00 per Class B shareholder account, nominal miscellaneous fees (e.g.,
account closing fees) and is entitled to reimbursement for out-of-pocket
expenses incurred by it under the Transfer Agency Agreement. For the fiscal
year ended November 30, 1993, the fee paid by the Fund to the Transfer Agent
was $336,425. At January 31, 1994, the Fund had 10,677 Class A shareholder
accounts and 53,124 Class B shareholder accounts. At this level of accounts,
the annual fee payable to the Transfer Agent would aggregate approximately
$627,333, plus miscellaneous and out-of-pocket expenses.

PURCHASE OF SHARES

The Distributor, a subsidiary of the Manager and an affiliate of Merrill
Lynch, acts as the distributor of the Class A and the Class B shares of the
Fund. 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 $1,000. The minimum subsequent purchase is $50.

To permit the Fund to invest the net proceeds from the sale of its shares in
an orderly manner or in response to conditions in the securities markets or
otherwise, the Fund or the Distributor may from time to time, suspend the sale
of its shares, except for dividend reinvestments. The Fund may, thereafter,
resume such offering from time to time. The Fund also reserves the right to
limit the number of shares that may be purchased by a person during a specified
period of time or in the aggregate.

29
<PAGE>

The Fund is offering its shares at a public offering price equal to the next
determined net asset value per share plus sales charges which, at the option of
the purchaser, may be imposed either at the time of purchase (the "initial
sales charge alternative") or on a deferred basis (the "deferred sales charge
alternative"), 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 4:15 p.m., New York time, which
includes orders received after the determination of net asset value on the
previous day, the applicable offering price will be based on the net asset
value determined as of 4:15 p.m., New York time, on the day the orders are
placed with the Distributor, provided the orders are received by the
Distributor prior to 4:30 p.m., New York time, on that day. If the purchase
orders are not received by the Distributor prior to 4:30 p.m., New York time,
such orders shall be deemed received on the next business day. 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 $4.85) to confirm a sale of shares to such customers. Purchases
directly through the Transfer Agent are not subject to the processing fee.

The Fund issues two classes of shares: Class A shares are sold to investors
choosing the initial sales charge alternative, and Class B shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares each represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that (i)
Class B shares bear the expenses of the deferred sales arrangements, any
expenses (including incremental transfer agency costs) resulting from such
sales arrangements and the expenses paid by the account maintenance fee; (ii)
Class A shares bear the expenses of the account maintenance fee, and (iii) each
class has exclusive voting rights with respect to the Rule 12b-1 distribution
plan pursuant to which the account maintenance and distribution fees, in the
case of the Class B shares, and the account maintenance fee, in the case of the
Class A shares, is paid. The two classes also have different exchange
privileges. See "Shareholder Services--Exchange Privilege". The net income
attributable to Class B shares and the dividends payable on Class B shares will
be reduced by the amount by which the sum of the account maintenance and
distribution fees and incremental expenses associated with such account
maintenance and distribution fees exceeds the account maintenance fee
attributable to the Class A shares; likewise, the net asset value of the Class
B shares will be reduced by such amount to the extent the Fund has
undistributed net income. Sales personnel may receive different compensation
for selling Class A or Class B shares. Investors are advised that only Class A
shares may be available for purchase through securities dealers, other than
Merrill Lynch, which are eligible to sell shares.

ALTERNATIVE SALES ARRANGEMENTS

The alternative sales arrangements of the Fund permit investors to choose the
method of purchasing shares that is most beneficial given the amount of their
purchase, the length of time the investor expects to hold his shares and other
relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur an initial sales
charge and an ongoing account maintenance fee, as discussed below, or to have
the entire initial purchase price invested in the Fund with the investment
thereafter being subject to ongoing account maintenance and distribution fees.

As an illustration, investors who qualify for significantly reduced sales
charges, as described below, might elect the initial sales charge alternative
because similar sales charge reductions are not available for purchases under
the deferred sales charge alternative. Moreover, shares acquired under the
initial sales charge alternative would not be subject to both an ongoing
account maintenance fee and a distribution fee, as

30
<PAGE>

described below, although the shares are subject to an ongoing account
maintenance fee, as discussed below. However, because initial sales charges are
deducted at the time of purchase, such investors would not have all their funds
invested initially.

Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might also elect the
initial sales charge alternative because over time the accumulated continuing
account maintenance and distribution fees related to Class B shares may exceed
the initial sales charge and ongoing account maintenance fee related to Class A
shares. Again, however, such investors must weigh this consideration against
the fact that not all their funds will be invested initially. Furthermore, the
ongoing account maintenance and distribution fees will be offset to the extent
any return is realized on the additional funds initially invested under the
deferred alternative. Another factor that may be applicable under certain
circumstances is that the payment of the Class B distribution fee and
contingent deferred sales charge is subject to certain limits as set forth
below under "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares".

Certain other investors might determine it to be more advantageous to have
all their funds invested initially, although remaining subject to continuing
account maintenance and distribution fees and, for a four-year period of time,
a contingent deferred sales charge as described below. For example, an investor
subject to the 6.50% initial sales charge will have to hold his investment for
more than 6 1/2 years for the ongoing 0.25% account maintenance fee and 0.75%
distribution fee of Class B shares to exceed the initial sales charge plus the
accumulated account maintenance fee of Class A shares. This example does not
take into account the time value of money which further reduces the impact of
the ongoing 0.25% account maintenance fee and 0.75% distribution fee on the
investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or the effect of any limits that may be
imposed upon the payment of the distribution fee and the contingent deferred
sales charge.

Distribution Plans. Pursuant to separate distribution plans adopted by the
Fund (as of August 15, 1991, with respect to the Class A shares and as of July
7, 1993, with respect to the Class B shares) pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan"), the Fund pays the
Distributor (a) an account maintenance fee relating to Class A shares, accrued
daily and paid monthly, at the annual rate of 0.25% of the average daily net
assets of the Fund attributable to Class A shares in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) in connection with
account maintenance activities, and (b) an account maintenance fee and a
distribution fee relating to Class B shares, accrued daily and paid monthly, at
the annual rates of 0.25% and 0.75%, respectively, of the average daily net
assets of the Fund attributable to Class B shares in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for providing
account maintenance and distribution services to the Fund, with the ongoing
account maintenance fee compensating the Distributor and Merrill Lynch for
providing account maintenance services to Class B shareholders and with the
ongoing distribution fee compensating the Distributor and Merrill Lynch for
providing shareholder and distribution services, and bearing certain
distribution-related expenses of the Fund, including payments to financial
consultants for selling Class B shares of the Fund. See "Additional
Information--Organization of the Fund". The Distribution Plan related to Class
B shares is designed to permit an investor to purchase Class B shares through
dealers without the assessment of a front-end sales charge and at the same time
permit the dealer to compensate its financial consultants in connection with
the sale of the Class B shares. In this regard, the purpose and function of the
ongoing account maintenance and distribution fees and the contingent deferred
sales charge are the same as

31
<PAGE>

those of the initial sales charge and account maintenance fee with respect to
the Class A shares of the Fund in that the deferred sales charges and
distribution fee provide for the financing of the distribution of the Fund's
Class B shares.

Prior to July 7, 1993, the Fund paid the Distributor an ongoing distribution
fee, accrued daily and paid monthly, at the annual rate of 1.00% of average
daily net assets of the Class B shares of the Fund under a distribution plan
previously adopted by the Fund (the "Prior Class B Plan") to compensate the
Distributor and Merrill Lynch for providing account maintenance and
distribution-related activities and services to Class B shareholders. The fee
rate payable and the services provided under the Prior Class B Plan are
identical to the aggregate fee rate payable and the services provided under the
Class B Distribution Plan, the difference being that the account maintenance
and distribution services have been unbundled. For the fiscal year ended
November 30, 1993, the Fund paid the Distributor $104,444 pursuant to the Class
A Distribution Plan (based on average net assets subject to the Class A
Distribution Plan of $41.7 million), all of which was paid to Merrill Lynch for
providing account maintenance and related services. At January 31, 1994, the
net assets of the Fund subject to the Class A Distribution Plan aggregated
approximately $163.5 million. At this asset level, the annual fee payable
pursuant to the Class A Distribution Plan would aggregate approximately
$409,667. For the fiscal year ended November 30, 1993, the Fund paid the
Distributor $1,673,753 pursuant to the Prior Class B Plan and the Class B
Distribution Plan (based on average net assets subject to the Prior Class B
Plan and the Class B Distribution Plan of $167.0 million), all of which was
paid to Merrill Lynch for providing account maintenance and/or distribution
related services in connection with the Class B shares. At January 31, 1994,
the net assets of the Fund subject to the Class B Distribution Plan aggregated
approximately $638.5 million. At this asset level, the annual fee payable
pursuant to the Class B Distribution Plan would aggregate approximately
$6,400,679. See "Additional Information--Organization of the Fund". Both the
Class B Distribution Plan and the Prior Class B Plan were designed to permit an
investor to purchase Class B shares through dealers without the assessment of a
front-end sales load and at the same time permit the dealer to compensate its
financial consultants in connection with the sale of the Class B shares.

The payments under the Class B Distribution Plan, as was the case with the
Prior Class B Plan, are based on a percentage of average daily net assets
attributable to Class B shares regardless of the amount of expenses incurred,
and accordingly, distribution-related revenues 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 Distribution Plan. 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 contingent
deferred sales charges 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 contingent deferred sales charges, and
the expenses consist of financial consultant compensation. As of December 31,
1992, the fully allocated accrual expenses for the period since September 27,
1991 (commencement of operations) incurred by the Distributor and Merrill Lynch
exceeded fully allocated accrual revenues by approximately $3,084,000 (2.31% of
Class B net assets at that date). As of December 31, 1992, direct cash expenses
for the period since September 27, 1991 (commencement of operations) exceeded
direct cash revenues by $431,363 (0.32% of Class B net assets at that date).

32
<PAGE>

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 and Class A 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 account maintenance fee, the distribution fee and the
contingent deferred sales charges in the case of Class B shares will not be
used to subsidize the sale of Class A shares. Similarly, the initial sales
charges and account maintenance fee in the case of Class A shares will not be
used to subsidize the sale of Class B shares. Payment of the distribution fee
on Class B shares is subject to certain limits as set forth under "Deferred
Sales Charge Alternative--Class B Shares".

INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES

The public offering price of Class A 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 $10,000............. 6.50% 6.95% 6.25%
$10,000 but less than $25,000. 6.00 6.38 5.75
$25,000 but less than $50,000. 5.00 5.26 4.75
$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........... .75 .76 .65
</TABLE>
- --------

++ Rounded to the nearest one-hundredth percent.

Initial sales charges may be waived for shareholders purchasing $1 million or
more in a single transaction (other than an employer sponsored retirement or
savings plan, such as a tax qualified retirement plan under Section 401 of the
Internal Revenue Code of 1986, as amended (the "Code"), a deferred compensation
plan under Section 403(b) and Section 457 of the Code, other deferred
compensation arrangements, VEBA plans and non-qualified After Tax Savings and
Investment programs maintained on the Merrill Lynch Group Employee Services
system, herein referred to as "Employer Sponsored Retirement or Savings
Plans"), or a purchase by a TMAsm Managed Trust, of Class A shares of the Fund.
In addition, purchases of Class A shares of the Fund made in connection with a
single investment of $1 million or more under the Merrill Lynch Mutual Fund
Adviser Program will not be subject to an initial sales charge. Purchases
described in this paragraph will be subject to a contingent deferred sales
charge if the shares are redeemed within one year after purchase at the
following rates:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
AMOUNT OF PURCHASE SUBJECT TO CHARGE
------------------ -------------------
<S> <C>
$1 million up to $2.5 million......................... 1.00%
Over $2.5 million up to $3.5 million.................. 0.60%
Over $3.5 million up to $5 million.................... 0.40%
Over $5 million....................................... 0.25%
</TABLE>

33
<PAGE>

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 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. For the fiscal year
ended November 30, 1993, the Fund sold 2,937,106 Class A shares for aggregate
net proceeds of $36,285,613. The gross sales charges for the sale of these
shares were $693,130, of which $52,202 was received by the Distributor and
$640,928 was received by Merrill Lynch.

Reduced Initial Sales Charges. Sales charges are reduced under a Right of
Accumulation and a Letter of Intention. Class A shares of the Fund are offered
at net asset value to Directors of the Fund, to directors of Merrill Lynch &
Co., Inc., to directors and trustees of certain other Merrill Lynch sponsored
investment companies, to participants in certain benefit plans, 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 if certain conditions set forth in the Statement of Additional
Information are met and to employees of Merrill Lynch & Co., Inc. and its
subsidiaries. Class A shares may be offered at net asset value in connection
with the acquisition of assets of other investment companies. No initial sales
charges are imposed upon Class A shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions. Class A shares of the
Fund are also offered at net asset value, without 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 if the
following conditions are satisfied; first, the investor must purchase Class A
shares of the Fund with proceeds from a redemption of shares of such other
mutual fund and such fund imposed a sales charge either at the time of purchase
or on a deferred basis; second, such purchase of Class A shares must be made
within 90 days after such notice of termination. Class A shares are offered to
TMASM Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services at net asset value plus a reduced sales charge.
Class A shares of the Fund are offered at net asset value to (i) certain
retirement plans, including eligible 401(k) plans, provided such plans meet the
required minimum number of eligible employees or required amount of assets
advised by the Manager or its subsidiary, FAM, and (ii) certain Employer
Sponsored Retirement or Savings Plans, provided such plans meet the required
minimum number of eligible employees or required amount of assets advised by
the Manager or any of its affiliates. Class A shares of the Fund are also
offered at net asset value to shareholders of certain closed-end funds advised
by the Manager or FAM who wish to reinvest the net proceeds from a sale of
their closed-end fund shares of common stock in shares of the Fund, provided
certain conditions are met. For example, Class A shares of the Fund and certain
other mutual funds advised by the Manager or FAM are offered at net asset value
to shareholders of Senior Floating Rate Fund (formerly known as Merrill Lynch
Prime Fund, Inc.) who wish to reinvest the net proceeds from a sale of certain
of their shares of common stock of Senior Floating Rate Fund in shares of such
funds. Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.

DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES

Investors choosing the deferred sales charge alternative purchase Class B
shares at net asset value per share without the imposition of a sales charge at
the time of purchase. The Class B shares are being 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 shares at the time of

34
<PAGE>

purchase from its own funds. The proceeds of the contingent deferred sales
charge and the ongoing distribution fee discussed below are used to defray
Merrill Lynch's expenses, including compensating its financial consultants. The
proceeds from the ongoing account maintenance fee are used to compensate
Merrill Lynch for providing continuing account maintenance activities.

Proceeds from the contingent deferred sales charge 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 shares, such as the payment of compensation to financial consultants
for selling Class B shares. Payments by the Fund to the Distributor of the
distribution fee under the Distribution Plan relating to Class B shares also
may be used in whole or in part by the Distributor for this purpose. The
combination of the contingent deferred sales charge and the ongoing
distribution fee facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of purchase. 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 contingent deferred sales charge schedule if such schedule is higher
than the deferred sales charge schedule relating to the Class B shares acquired
as a result of the exchange. For the fiscal year ended November 30, 1993, the
Distributor received contingent deferred sales charges of $641,317 with respect
to redemptions of Class B shares, all of which was paid to Merrill Lynch.

Contingent Deferred Sales Charge. Class B shares which are redeemed within
four years of purchase may be subject to a contingent deferred sales charge 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
current market value or the cost of the shares being redeemed. Accordingly, no
sales charge will be imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.

The following table sets forth the rates of the contingent deferred sales
charge:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------- -------------------
<S> <C>
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 contingent deferred sales charge is applicable to a
redemption, the calculation will be determined in the manner that results in
the lowest possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over four years or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares held
longest during the four-year period. The charge will not be applied to dollar
amounts representing an increase in 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 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12, and during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his first

35
<PAGE>

redemption of 50 shares (proceeds of $600), 10 shares will not be subject to
the charge because of dividend reinvestment. With respect to the remaining 40
shares, the charge 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 contingent deferred sales charge is waived on redemptions of shares in
connection with certain post-retirement withdrawals from an Individual
Retirement Account ("IRA") or other retirement plans or following the death or
disability (as defined in the Code) of a shareholder. The contingent deferred
sales charge is waived on redemption of shares by certain eligible 401(a) and
eligible 401(k) plans. The contingent deferred sales charge is also waived for
any Class B shares which are purchased by an eligible 401(k) or eligible 401(a)
plan and which are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied IRA and held in such account at the time of redemption.
Additional information concerning the waiver of the contingent deferred sales
charge is set forth in the Statement of Additional Information.

Limitations on the Payment of Deferred Sales Charges. The maximum sales
charge rule in the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. ("NASD") imposes a limitation on certain asset-based
sales charges such as the Fund's distribution fee and the contingent deferred
sales charge but not the account maintenance fee. As applicable to the Fund,
the maximum sales charge rule limits the aggregate of distribution fee payments
and contingent deferred sales charges payable by the Fund to (1) 6 1/4% of
eligible gross sales of Class B shares (defined to exclude shares issued
pursuant to dividend reinvestments and exchanges) plus (2) interest on the
unpaid balance at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the contingent deferred sales charge). The Distributor has voluntarily
agreed to waive interest charges on the unpaid balance in excess of 0.50% of
eligible gross sales. Consequently, the maximum amount payable to the
Distributor (referred to as the "voluntary maximum") is 6.75% of eligible gross
sales. The Distributor retains the right to stop waiving interest charges at
any time. To the extent payments would exceed the voluntary maximum, the Fund
will not make further payments of the distribution fee and any contingent
deferred sales charges will be paid to the Fund rather than to the Distributor;
however, the Fund will continue to make payments of the account maintenance
fee. In certain circumstances the amount payable pursuant to the voluntary
maximum may exceed the amount payable under the NASD formula. In such
circumstances payment in excess of the amount payable under the NASD formula
will not be made.

The following table sets forth comparative information as of November 30,
1993, with respect to the Class B shares of the Fund indicating the maximum
allowable payments that can be made under the NASD maximum sales charge rule
and the Distributor's voluntary maximum for the fiscal period September 27,
1991, (commencement of operations) to November 30, 1993.

36
<PAGE>

DATA CALCULATED AS OF NOVEMBER 30, 1993

(IN THOUSANDS)

<TABLE>
<CAPTION>
ANNUAL
ALLOWABLE ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- --------- --------- ------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule As
Adopted................ $248,048 $15,503 $1,189(2) $16,692 $3,101 $13,592 $2,285
Under Distributor's
Voluntary Waiver....... $248,048 $15,503 $1,240 $16,743 $3,101 $13,643 $2,285
</TABLE>
- --------

(1) Purchase price of all eligible Class B shares sold since September 27,
1991 (commencement of operations) other than shares acquired through
dividend reinvestment and the exchange privilege.

(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the NASD
Rule.

(3) Consists of contingent deferred sales charge payments, distribution fee
payments and accruals. Of the distribution fee payments made prior to July
7, 1993, under the Prior Plan at the 1.00% rate, 0.75% of average daily
net assets has been treated as a distribution fee and 0.25% of average
daily net assets has been deemed to have been a service fee and not
subject to the NASD maximum sales charge rule.

(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any contingent deferred sales
charge payments) is amortizing the unpaid balance. No assurance can be
given that payments of the distribution fee will reach either the
voluntary maximum or the NASD maximum.

REDEMPTION OF SHARES

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

REDEMPTION

A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Fund's Transfer Agent, Financial Data Services, Inc., Transfer
Agency Mutual Fund Operations, P.O. Box 45289, Jacksonville, Florida 32232-
5289. Redemption requests delivered other than by mail should be delivered to
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 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. A redemption request requires the signature(s) of all persons in whose
name(s) the shares are registered, signed exactly as the 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 branch offices
and certain other financial institutions) as

37
<PAGE>

such is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, the existence and validity of which may be verified by the Transfer
Agent through the use of industry publications. Notarized signatures are not
sufficient. In certain instances, the Transfer Agent may require additional
documents such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of corporate
authority. For shareholders redeeming directly with the Transfer Agent, payment
will be mailed within seven days of receipt of a proper notice of redemption.

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

REPURCHASE

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

The foregoing repurchase arrangements are for the convenience of shareholders
and do not involve a charge by the Fund (other than any applicable contingent
deferred sales charge in the case of Class B shares). Securities firms which do
not have selected dealer agreements with the Distributor, however, may impose a
transaction charge on the shareholder for transmitting the notice of repurchase
to the Fund. Merrill Lynch may charge its customers a processing fee (presently
$4.85) to confirm a repurchase of shares. Redemptions directly through the
Transfer Agent are not subject to the processing fee. The Fund reserves the
right to reject any order for repurchase, which right of rejection might 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.

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in its shares. 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 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 quarterly statements
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. The
quarterly statements will also

38
<PAGE>

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 gain
distributions. Shareholders may make additions to their Investment Account 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 will be opened, automatically, without charge at the
Transfer Agent. Shareholders considering transferring their Class A shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A shares are to be transferred will
not take delivery of shares of the Fund, a shareholder either must redeem the
Class A 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 shares. Shareholders interested
in transferring their Class B 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 be issued
certificates for his shares and then must turn the certificates over to the new
firm for re-registration as described in the preceding sentence. Shareholders
considering transferring a tax-deferred retirement account such as an
individual retirement account from Merrill Lynch to another brokerage firm or
financial institution should be aware that, if the firm to which the retirement
account is to be transferred will not take delivery of shares of the Fund, a
shareholder must either redeem the shares (paying any applicable redemption
fee) 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. Class A and Class B shareholders of the Fund each
have an exchange privilege with certain other mutual funds sponsored by Merrill
Lynch. 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 Securities and Exchange
Commission. Class A shareholders of the Fund may exchange their shares
("outstanding Class A shares") for Class A shares of another fund ("new Class A
shares") on the basis of relative net asset value per Class A share, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the outstanding Class A shares and the sales charge payable at the time
of the exchange on the new Class A shares. The Fund's exchange privilege is
modified with respect to purchases of Class A shares under the Merrill Lynch
Mutual Fund Adviser program. First, the initial allocation of assets is made
under the program. Then, any subsequent exchange under the program of Class A
shares of a fund for Class A shares of the Fund will be made solely on the
basis of the relative net asset values of the shares being exchanged.
Therefore, there will not be a charge for any difference between the sales
charge previously paid on the shares of the other fund and the sales charge
payable on the shares of the Fund being acquired in the exchange under this
program.

Class B shareholders of the Fund may exchange their shares ("outstanding
Class B shares") for Class B shares of another fund ("new Class B shares") on
the basis of relative net asset value per share, without the payment of any
contingent deferred sales charge that might otherwise be due on redemption of
the outstanding Class B shares. Class B shareholders of the Fund exercising the
exchange privilege will continue to be subject to the Fund's contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge 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 contingent deferred sales charge schedule if such
schedule is higher than the deferred sales charge schedule relating to the
Class B shares of

39
<PAGE>

the fund from which the exchange has been made. For purposes of computing the
contingent deferred sales charge that may be payable upon a disposition of the
new Class B shares, the holding period for the outstanding Class B shares is
"tacked" to the holding period of the new Class B shares. Class A and Class B
shareholders of the Fund may also exchange their shares for shares of certain
money market funds, but in the case of an exchange from Class B shares, the
period of time that shares are held in a money market fund will not count
toward satisfaction of the holding period requirement for purposes of reducing
the contingent deferred sales charge. Exercise of the exchange privilege is
treated as a sale for Federal income tax purposes. For further information, see
"Shareholder Services--Exchange Privilege" in the Statement of Additional
Information.

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 a
shareholder directly from the Transfer Agent.

Automatic Reinvestment of Dividends and 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 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 telephone call (1-800-MER-FUND) to the Transfer Agent if the
shareholder's account is maintained with the Transfer Agent, elect to have
subsequent dividend 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. No contingent deferred sales charge will be imposed on redemption
of shares issued as a result of the automatic reinvestment of dividends or
capital gains distributions. The Automatic Investment Program is not available
to shareholders whose shares are held in a brokerage account with Merrill Lynch
other than a CMA (R) account.

Systematic Withdrawal and Automatic Investment Plans. A Class A shareholder
may elect to receive systematic withdrawal payments from his Investment Account
in the form of payments by check or through automatic payment by direct deposit
to his bank account on either a monthly or quarterly basis. A Class A
shareholder whose shares are held within a CMA(R), CBA(R) or Retirement Account
may elect to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the Systematic Redemption Program, subject
to certain conditions. Regular additions of Class A shares may be made to an
investor's Investment Account by prearranged charges of $50 or more to his
regular bank account. Investors who maintain CMA accounts may arrange to have
periodic investments made in the Fund in their CMA accounts or in certain
related accounts in amounts of $250 or more through the CMA Automatic
Investment Program. The Automatic Investment Program is not available to
shareholders whose shares are held in a brokerage account with Merrill Lynch
(other than a CMA account).

PERFORMANCE DATA

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

Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on

40
<PAGE>

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 the maximum sales charge in the case of
Class A shares and the contingent deferred sales charge that would be
applicable to a complete redemption of the investment at the end of the
specified period in the case of Class B shares. Dividends paid by the Fund with
respect to Class A and Class B 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 fees
and any incremental transfer agency costs relating to Class B shares will be
borne exclusively by Class B shares, and the account maintenance fee relating
to Class A shares will be borne exclusively by Class A shares. The Fund will
include performance data for both Class A and Class B 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 longer
periods of time. In advertisements distributed to investors whose purchases are
subject to reduced sales charges in the case of Class A shares or waiver of the
contingent deferred sales charge in the case of Class B shares (such as
investors in certain retirement plans), the performance data may take into
account the reduced, and not the maximum, sales charges or may not take into
account the contingent deferred sales charge and therefore may reflect greater
total return since, due to the reduced sales charges or waiver of the
contingent deferred sales charge, 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 the effect of such
total return on a hypothetical $1,000 investment in the Fund at the beginning
of each specified period.

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

On occasion, the Fund may compare its performance to the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, or
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week,
CDA Investment Technology, Inc., Forbes Magazine, Fortune Magazine or other
industry publications. In addition, from time to time the Fund may include the
Fund's risk-adjusted performance ratings assigned by Morning Star Publications,
Inc. in advertising 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.

41
<PAGE>

ADDITIONAL INFORMATION

DIVIDENDS AND DISTRIBUTIONS

It is the Fund's intention to distribute all of its net investment income, if
any. Dividends from such net investment income are paid at least annually. All
net realized long- or short-term capital gains, if any, are distributed to the
Fund's shareholders at least annually. See "Determination of Net Asset Value"
below. Dividends and distributions may be reinvested automatically in shares of
the Fund, at net asset value without a sales charge. Shareholders may elect in
writing to receive any such dividends or distributions, or both, in cash. See
"Shareholder Services--Automatic Reinvestment of Dividends and Distributions"
for information as to how to elect either dividend reinvestment or cash
payments. Dividends and distributions are taxable to shareholders as described
below whether they are reinvested in shares of the Fund or received in cash.
From time to time, the Fund may declare a special distribution at or about the
end of the calendar year in order to comply with a Federal income tax
requirement that certain percentages of its ordinary income and capital gains
be distributed during the calendar year.

The per share dividends and distributions on Class B shares will be lower
than the per share dividends and distributions on Class A shares as a result of
the effect of the distribution and higher transfer agency fees applicable with
respect to the Class B shares. See "Determination of Net Asset Value" below.

Certain gains or losses attributable to foreign currency related gains or
losses from certain of the Fund's investments may increase or decrease the
amount of the Fund's income available for distribution to shareholders. If such
losses exceed other income during a taxable year, (a) the Fund would not be
able to make any ordinary dividend distributions, and (b) distributions made
before the losses were realized would be recharacterized as returns of capital
to shareholders, rather than as ordinary dividends, reducing each shareholder's
tax basis in his Fund shares for Federal income tax purposes. For a detailed
discussion of the Federal tax considerations relevant to foreign currency
transactions, see "Taxes" below. If in any fiscal year the Fund has net income
from certain foreign currency transactions, such income will be distributed
annually.

DETERMINATION OF NET ASSET VALUE

Net asset value per share is determined once daily as of 4:15 p.m., New York
time, on each day during which the New York Stock Exchange is open for trading.
Any assets or liabilities initially expressed in terms of non-U.S. dollar
currencies are translated into U.S. dollars at the prevailing market rates as
quoted by one or more banks or dealers on the day of valuation. The net asset
value is computed by dividing the market 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 fees
payable to the Manager and the Distributor, are accrued daily.

The per share net asset value of the Class B shares generally will be lower
than the per share net asset value of the Class A shares, reflecting the daily
expense accruals of the higher sum of account maintenance, distribution and
higher transfer agency fees applicable with respect to the Class B shares, as
compared with the account maintenance fee applicable to the Class A shares. It
is expected, however, that the per share net asset value of the two classes
will tend to converge immediately after the payment of dividends or
distributions which will differ by approximately the amount of the expense
accrual differential between the classes.

42
<PAGE>

Portfolio securities which are traded 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 last available bid
prices obtained from one or more dealers in the over-the-counter market prior
to the time of valuation. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Other investments, including futures
contracts and related options, are stated 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.

TAXES

The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). If it so qualifies, 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 and Class B shareholders (together, the "shareholders"). The Fund
intends to distribute substantially all of such income.

Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures or 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.
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 by the Fund 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.

43
<PAGE>

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 certain ordinary income dividends and capital gain
dividends and on redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom a taxpayer
identification number is not on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.

Due to investment laws in certain Latin American countries, it is anticipated
that the Fund's investments in equity securities in such countries will consist
primarily of shares of investment companies (or similar investment entities)
organized under foreign law or of ownership interests in special accounts,
trusts or partnerships. 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, on a portion of
distributions from such company and on gain from the disposition of such shares
(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.

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 dividend distributions, and any distributions made before the losses
were realized but in the same taxable year would be recharacterized as a return
of capital to shareholders, thereby reducing the basis of each shareholder's
Fund shares.

If a Class A shareholder exercises the 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 the sales charge
paid to the Fund reduces any sales charge the shareholder would have owed upon
purchase of the new Class A shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new Class
A shares.

44
<PAGE>

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 or administrative action
either prospectively or retroactively.

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

ORGANIZATION OF THE FUND

The Fund was incorporated under Maryland law on July 1, 1991. It has an
authorized capital of 200,000,000 shares of Common Stock, par value $0.10 per
share, divided into two classes, designated Class A Common Stock and Class B
Common Stock, each of which consists of 100,000,000 shares. Both Class A Common
Stock and Class B Common Stock represent an interest in the same assets of the
Fund and are identical in all respects except that the expenses of the account
maintenance fee relating to the Class A shares are borne solely by the Class A
shares and that the expenses of the account maintenance and distribution fees
relating to the Class B shares are borne solely by the Class B shares and that
Class A and Class B shareholders have exclusive voting rights with respect to
matters relating to such account maintenance and/or distribution expenditures.
See "Purchase of Shares". The Fund has received an order from the Securities
and Exchange Commission permitting the issuance and sale of two classes of
common stock. The Directors of the Fund may classify and reclassify the shares
of the Fund into additional classes of common stock at a future date. The
creation of additional classes would require an additional order from the
Securities and Exchange Commission. There is no assurance that such an
additional order would be issued.

Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matters submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
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. Voting rights
for Directors are not cumulative. Shares issued are fully paid and non-
assessable and have no preemptive or conversion rights. Each share of Class A
Common Stock and Class B 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 that, as noted above, expenses related to the distribution
and/or account maintenance of the shares of a class will be borne solely by
such class.

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.

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<PAGE>

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:

Financial Data Services, Inc.
Attn: Document Evaluation Unit
P.O. Box 45290

Jacksonville, FL 32232-5290

The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this,
please call your Merrill Lynch financial consultant or Financial Data Services,
Inc. at 1-800-637-3863.

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<PAGE>

MERRILL LYNCH LATIN AMERICA FUND, INC.--AUTHORIZATION FORM
- -------------------------------------------------------------------------------

1. SHARE PURCHASE APPLICATION

I, being of legal age, wish to purchase .................. Class A shares or
.................. Class B shares (choose one) of Merrill Lynch Latin America
Fund, Inc. and establish an Investment Account as described in the Prospectus.

Basis for establishing an Investment Account:

A. I enclose a check for $...... payable to Financial Data Services, Inc.,
as an initial investment (minimum $1,000) (subsequent investments $50 or
more). 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:

1. ........................... 4. ...........................

2. ........................... 5. ...........................

3. ........................... 6. ...........................

(Please list all Funds. Use a separate sheet of paper if necessary.)

Until you are notified by me in writing, the following options with
respect to dividends and distributions are elected:

Distribution Options

ELECT[_] reinvest ELECT[_] reinvest
dividends capital gains

ONE[_] pay dividends in ONE[_] pay capital
cash gains in cash

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

(Please Print)

Name .....................................

First NameInitialLast Name
Social Security
Name of Co-Owner (if any) ................ No. or Taxpayer
Identification
First NameInitialLast Name No.

Address ..................................

.......................................... .., 19..

(Zip Code) Date

Occupation........................ Name and Address of Employer......

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

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

INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER REPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.

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

In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.
- -------------------------------------------------------------------------------

2. LETTER OF INTENTION--CLASS A SHARES ONLY (SEE TERMS AND CONDITIONS IN THE
STATEMENT OF ADDITIONAL INFORMATION)

........., 19......

GENTLEMEN: Date of Initial
Purchase

Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Latin America 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:
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] $10,000 [_] $25,000 [_] $50,000 [_] $100,000 [_] $250,000 [_] $1,000,000
</TABLE>

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

I agree to the terms and conditions of the 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 Latin America Fund, Inc. held as security.

By ............................. .................................

Signature of Owner Signature of Co-Owner (If registered
in joint names, both must sign)

In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:

(1) Name ....................... (2) Name .......................

47
<PAGE>

MERRILL LYNCH LATIN AMERICA FUND, INC.--AUTHORIZATION FORM
- --------------------------------------------------------------------------------

3. SYSTEMATIC WITHDRAWAL PLAN--CLASS A SHARES ONLY (See terms and conditions in
the Statement of Additional Information)

Minimum Requirements: $10,000 for monthly disbursements, $5,000 for quarterly,
of shares in Merrill Lynch Latin America Fund, Inc., at cost or current
offering price. Begin systematic withdrawal on ..., 19. . Withdrawals to be made
either (check one) [_] Monthly [_] Quarterly*

[Date]

*Quarterly withdrawals are made on the 24th day of March, June, September and
December.

Specify withdrawal amount (check one): [_] $....... or [_] .....% of the current
value of Class A shares in the account.

Specify withdrawal method: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
- --------------------------------------------------------------------------------

(A) I HEREBY AUTHORIZE PAYMENT BY CHECK (B) I HEREBY AUTHORIZE PAYMENT BY
DIRECT DEPOSIT TO BANK ACCOUNT AND
(IF NECESSARY) DEBIT ENTRIES AND
Draw checks payable ADJUSTMENTS FOR ANY CREDIT ENTRIES
MADE IN ERROR TO MY ACCOUNT.
(check one)

Specify type of account (check
[_] as indicated in Item 1. one): [_] checking [_] savings

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

[_] to the order of .............

Mail to (check one) Name on your Account...........

Bank...........................
[_] the address indicated in Item 1.
Bank #....... Account #........

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

Signature of Depositor.........
[_] Name (Please Print)..........
Date......

Signature of Depositor (if joint
account).......................

Address............................ NOTE: If Automatic Direct Deposit
is elected, your blank, unsigned
check marked "VOID" or a deposit
slip from your savings account
should accompany this Application.

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

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

4. APPLICATION FOR AUTOMATIC INVESTMENT PLAN

I hereby request that Financial Data Services, Inc. draw a check or an
automated clearing house ("ACH") debit on my checking account as described
below each month to purchase ......... Class A shares or ......... Class B
shares (choose one) of Merrill Lynch Latin America Fund, Inc., subject to the
terms set forth below.
- --------------------------------------------------------------------------------

FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR CHECKS OR ACH
DEBITS DRAWN BY FINANCIAL DATA
You are hereby authorized to draw a SERVICES, INC.
check or an ACH debit each month on my
bank account for investment in Merrill To ........................ Bank
Lynch Latin America Fund, Inc., as
indicated below: (Investor's Bank)

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

Amount of each check or ACH debit
$ ............................
City ..... State Zip Code ....
Account No. .................. ..

As a convenience to me, I hereby
Please date and invest checks or request and authorize you to pay and
draw ACH debits on the 20th of charge to my account checks or ACH
each month beginning ......... debits drawn on my account by and
payable to Financial Data Services,
(Month) Inc., Transfer Agency Mutual Fund
Operations, Jacksonville, Florida
or as soon thereafter as possible. 32232-5289. I agree that your rights
in respect to each such check or
debit shall be the same as if it
I agree that you are preparing these were a check drawn on you and signed
checks or drawing these debits personally by me. This authority is
voluntarily at my request and that you to remain in effect until revoked
shall not be liable for any loss personally by me in writing. Until
arising from any delay in preparing or you receive such notice, you shall
failure to prepare any such check or be fully protected in honoring any
debit. If I change banks or desire to such check or debit. I further agree
terminate or suspend this program, I that if any such check or debit be
agree to notify you promptly in dishonored, whether with or without
writing. cause and whether intentionally or
inadvertently, you shall be under no
I further agree that if a check or liability.
debit is not honored upon
presentation, Financial Data Services,
Inc. is authorized to discontinue
immediately the Automatic Investment
Plan and to liquidate sufficient
shares held in my account to offset
the purchase made with the returned ....... ..................
check or dishonored debit.
Date Signature of Depositor

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

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

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

Note: If Automatic Investment Plan
(If joint account, is elected, your blank, unsigned
both must sign) check marked "VOID" should accompany
this Application.
- --------------------------------------------------------------------------------

5. FOR DEALER ONLY

Branch Office, Address, Stamp We hereby authorize Merrill Lynch
Funds Distributor, Inc. to act as
- - - our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases made under a Letter of
Intention or Systematic Withdrawal
Plan. We guarantee the Shareholder's
Signature.

- - -

This form when completed
should be mailed to:

Merrill Lynch Latin
America Fund, Inc.

c/o Financial Data
Services, Inc. ................................

Dealer Name and Address

....
Branch-Code

F/C No.
Transfer Agency Mutual F/C Last
Fund Operations Name

By .............................

P.O. Box 45289 Authorized Signature of Dealer

Jacksonville, Florida
32232-5289

Dealer's Customer A/C No.

48
<PAGE>

[This page is intentionally left blank.]

49
<PAGE>

[This page is intentionally left blank.]

50
<PAGE>

MANAGER

Merrill Lynch Asset Management

Administrative Offices:
800 Scudders Mill Road

Plainsboro, New Jersey 08536

Mailing Address:
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:
Box 9011
Princeton, New Jersey 08543-9011

TRANSFER AGENT

Financial Data Services, Inc.

Administrative Offices:
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484

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

CUSTODIAN

The Chase Manhattan Bank, N.A.
Global Securities Services
Chase MetroTech Center
Brooklyn, New York 11245

INDEPENDENT AUDITORS

Deloitte & Touche
117 Campus Drive
Princeton, New Jersey 08540

COUNSEL

Brown & Wood
One World Trade Center
New York, New York 10048-0557

<PAGE>

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 PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 3
Prospectus Summary......................................................... 5
Alternative Sales Arrangements............................................. 7
Consolidated Financial Highlights.......................................... 9
Risk Factors and Special Considerations.................................... 10
Investment Objective and Policies.......................................... 15
Certain Risks of Debt Securities.......................................... 16
Portfolio Strategies Involving Options and Futures........................ 18
Other Investment Policies and Practices................................... 23
Management of the Fund..................................................... 27
Board of Directors........................................................ 27
Management and Advisory Arrangements...................................... 28
Transfer Agency Services.................................................. 29
Purchase of Shares......................................................... 29
Alternative Sales Arrangements............................................ 30
Initial Sales Charge Alternative--Class A Shares.......................... 33
Deferred Sales Charge Alternative--Class B Shares......................... 34
Redemption of Shares....................................................... 37
Redemption................................................................ 37
Repurchase................................................................ 38
Shareholder Services....................................................... 38
Performance Data........................................................... 40
Additional Information..................................................... 42
Dividends and Distributions............................................... 42
Determination of Net Asset Value.......................................... 42
Taxes..................................................................... 43
Organization of the Fund.................................................. 45
Shareholder Inquiries..................................................... 45
Shareholder Reports....................................................... 46
Authorization Form........................................................ 47
</TABLE>

Code #13989
Prospectus

(ART)
- -------------------------------------------------------------------------------
MERRILL LYNCH
LATIN AMERICA FUND, INC.

March 29, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

MERRILL LYNCH LATIN AMERICA FUND, INC.
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE (609) 282-2800

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

The Fund offers two classes of shares which may be purchased at a price equal
to the next determined net asset value per share, plus a sales charge which, at
the election of the purchaser, may be imposed (i) at the time of purchase (the
"Class A shares") or (ii) on a deferred basis (the "Class B shares"). These
alternatives permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other circumstances. Investors should
understand that the purpose and function of the deferred sales charges and
ongoing account maintenance fee with respect to the Class B shares are the same
as those of the initial sales charge and the ongoing account maintenance fee
with respect to the Class A shares. Each Class A and Class B share represents
identical interests in the investment portfolio of the Fund and has the same
rights, except that Class B shares bear the expenses of the account maintenance
and distribution fees and certain other costs resulting from the deferred sales
charge arrangement, and Class A shares bear the expenses of the account
maintenance fee. The two classes also have different exchange privileges.

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

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 March 29,
1994 (the "Prospectus"), which has been filed with the Securities and Exchange
Commission and can be obtained, without charge, by calling or by writing the
Fund at the above telephone number or address. This Statement of Additional
Information has been incorporated by reference into the Prospectus.

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

MERRILL LYNCH ASSET MANAGEMENT--MANAGER

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR

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

The date of this Statement of Additional Information is March 29, 1994.
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to seek long-term capital
appreciation by investing primarily in Latin American equity and debt
securities. Reference is made to "Investment Objective and Policies" in the
Prospectus for a discussion of the investment objective and policies of the
Fund.

While it is the policy of the Fund generally not to engage in trading for
short-term gains, Merrill Lynch Asset Management, L.P., doing business as
Merrill Lynch Asset Management (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 due to general market,
economic or financial conditions. 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 U.S.
Government securities and of all other securities whose maturities at the time
of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year. The Fund's portfolio turnover
rates for the fiscal years ended November 30, 1992, and 1993 were 36.50% and
24.74%, respectively. The Fund is subject to the Federal income tax requirement
that less than 30% of the Fund's gross income must be derived from gains from
the sale or other disposition of securities held for less than three months.

The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such
as the Fund. If such restrictions should be reinstituted, it might become
necessary for the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective and
investment policies to determine whether changes are appropriate. Any changes
in the investment objective or in the fundamental policies set forth under
"Investment Restrictions" below would require the approval of the holders of a
majority of the Fund's outstanding voting securities.

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 assets 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 AND FUTURES

Reference is made to the discussion under the caption "Investment Objective
and Policies--Portfolio Strategies Involving Options and Futures" in the
Prospectus for information with respect to various portfolio strategies
involving options and futures. The Fund may seek to hedge its portfolio against
movements in the equity, debt and currency markets. The Fund has authority to
write (i.e., sell) covered put and call options on its portfolio securities,
purchase put and call options on securities and engage in transactions in stock
index options, stock index futures and stock futures and financial futures, and
related options on such futures. The Fund may also deal in forward foreign
exchange transactions, foreign currency options and futures and related options
on such futures. Each of such portfolio strategies is described in the
Prospectus. Although certain risks are involved in options and futures
transactions (as discussed in the Prospectus and below), the

2
<PAGE>

Manager believes that, because the Fund will engage in options and futures
transactions only for hedging purposes, the options and futures portfolio
strategies of the Fund will not subject the Fund to the risks frequently
associated with the speculative use of options and futures transactions. While
the Fund's use of hedging strategies is intended to reduce the volatility of
the net asset value of its shares, the net asset value of the Fund's shares
will fluctuate. There can be no assurance that the Fund's hedging transactions
will be effective. Suitable hedging instruments may not be available with
respect to Latin American securities on a timely basis and on acceptable terms.
The following is further information relating to portfolio strategies involving
options and futures that the Fund may utilize.

Writing Covered Options. The Fund is authorized to write (i.e., sell) covered
call options on the securities in which it may invest and to enter into closing
purchase transactions with respect to certain of such options. A covered call
option is an option where the Fund, in return for a premium, gives another
party a right to buy specified securities owned by the Fund at a specified
future date and price set at the time of the contract. The principal reason for
writing call options is to attempt to realize, through the receipt of premiums,
a greater return than would be realized on the securities alone. By writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price. In addition, the Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects
a closing purchase transaction. A closing purchase transaction cancels out the
Fund's position as the writer of an option by means of an offsetting purchase
of an identical option prior to the expiration of the option it has written.
Covered call options serve as a particular hedge against the price of the
underlying security declining.

The writer of a covered call option has no control over when he may be
required to sell his securities since he may be assigned an exercise notice at
any time prior to the termination of his obligation as a writer. If an option
expires unexercised, the writer would realize a gain in the amount of the
premium. Such a gain, of course, may be offset by a decline in the market value
of the underlying security during the option period. If a call option is
exercised, the writer would realize a gain or loss from the sale of the
underlying security.

The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so
long as the Fund is obligated as the writer of the option, it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S.
Government securities or other high grade liquid debt or equity securities
denominated in U.S. dollars or non-U.S. currencies with a securities depository
with a value equal to or greater than the exercise price of the underlying
securities. By writing a put, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of that
security at the time of exercise for as long as the option is outstanding. The
Fund may engage in closing transactions in order to terminate put options that
it has written. The Fund will not write put options if the aggregate value of
the obligations underlying puts shall exceed 50% of the Fund's net assets.

Options referred to herein and in the Fund's Prospectus may be options traded
on foreign securities exchanges. An options position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
If a secondary market does not exist, it might not be possible to effect
closing transactions in particular options, with the result, in the case of a
covered call option, that the Fund will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on

3
<PAGE>

opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual or
unforseen circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the clearing corporation may not, at all times, be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by the clearing corporation as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms.

The Fund may also enter into over-the-counter options transactions ("OTC
options"), which are two party contracts with prices and terms negotiated
between the buyer and seller. The staff of the Securities and Exchange
Commission has taken the position that OTC options and the assets used as cover
for written OTC options are illiquid securities.

Purchasing Options. The Fund may purchase put options to hedge against a
decline in the market value of its equity holdings. By buying a put, the Fund
has a right to sell the underlying security at the exercise price, thus
limiting the Fund's risk of loss through a decline in the market value of the
security until the put option expires. The amount of any appreciation in the
value of the underlying security will be offset partially by the amount of the
premium paid for the put option and any related transaction costs. Prior to its
expiration, a put option may be sold in a closing sale transaction; profit or
loss from the sale will depend on whether the amount received is more or less
than the premium paid for the put option plus the related transaction cost. A
closing sale transaction cancels out the Fund's position as the purchaser of an
option by means of an offsetting sale of an identical option prior to the
expiration of the option it has purchased. In certain circumstances, the Fund
may purchase call options on securities held in its portfolio on which it has
written call options or on securities which it intends to purchase. The Fund
may purchase either exchange-traded options or OTC options. The Fund will not
purchase options on securities (including stock index options discussed below)
if as a result of such purchase, the aggregate cost of all outstanding options
on securities held by the Fund would exceed 5% of the market value of the
Fund's total assets.

Stock Index Options and Futures and Financial Futures. As described in the
Prospectus, the Fund is authorized to engage in transactions in stock index
options and futures and financial futures, and related options on such futures.
Set forth below is further information concerning futures transactions.

A futures contract is an agreement between two parties to buy and sell a
security, or, in the case of an index-based futures contract, to make and
accept a cash settlement for a set price on a future date. A majority of
transactions in futures contracts, however, do not result in the actual
delivery of the underlying instrument or cash settlement, but are settled
through liquidation, i.e., by entering into an offsetting transaction.

The purchase or sale of a futures contract differs from the purchase or sale
of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the
purchaser and seller under the futures contract. Subsequent payments to and
from the broker, called "variation margin", are required to be made on a daily
basis as the price of the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "mark to the market". At any time prior to the settlement date of the
futures contract, the

4
<PAGE>

position may be closed out by taking an opposite position which will operate to
terminate the position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid to or
released by the broker, and the purchaser realizes a loss or gain. In addition,
a nominal commission is paid on each completed sale transaction.

An order has been obtained from the Securities and Exchange Commission
exempting the Fund from the provisions of Section 17(f) and Section 18(f) of
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
in connection with its strategy of investing in futures contracts. Section
17(f) relates to the custody of securities and other assets of an investment
company and may be deemed to prohibit certain arrangements between the Fund and
commodities brokers with respect to initial and variation margin. Section 18(f)
of the Investment Company Act prohibits an open-end investment company such as
the Fund from issuing a "senior security" other than a borrowing from a bank.
The staff of the Securities and Exchange Commission has in the past indicated
that a futures contract may be a "senior security" under the Investment Company
Act.

Foreign Currency Hedging. Generally, the foreign exchange transactions of the
Fund will be conducted on a spot, i.e., cash basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. This
rate under normal market conditions differs from the prevailing exchange rate
in an amount generally less than one tenth of one percent due to the costs of
converting from one currency to another. The Fund has authority, however, to
deal in forward foreign exchange among currencies of the different countries in
which it will invest as a hedge against possible variations in the foreign
exchange rate among these currencies. This is accomplished through contractual
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. The Fund's dealings in forward
foreign exchange will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is the purchase or
sale of forward foreign currency with respect to specific receivables or
payables of the Fund accruing in connection with the purchase and sale of its
portfolio securities, the sale and redemption of shares of the Fund or the
payment of dividends and distributions by the Fund. Position hedging is the
sale of forward foreign currency with respect to portfolio security positions
denominated or quoted in such foreign currency. The Fund will not speculate in
forward foreign exchange. The Fund may not position hedge with respect to the
currency of a particular country to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfolio
denominated or quoted in that particular foreign currency. The Fund will enter
into such transactions only to the extent, if any, deemed appropriate by the
Manager. The Fund will not enter into a forward contract with a term of more
than one year. Investors should be aware that U.S. dollar denominated
securities may not be available in some or all Latin American countries, that
the forward currency market for the purchase of U.S. dollars in most, if not
all, Latin American countries is not highly developed and that in certain Latin
American countries, no forward market for foreign currencies currently exists
or such market may be closed to investment by the Fund.

5
<PAGE>

in the value of the put option. To offset, in whole or part, the cost of
acquiring such a put option, the Fund may also sell a call option which, if
exercised, requires it to sell a specified amount of Mexican pesos for dollars
at a specified price by a future date (a technique called a "straddle"). By
selling such call option in this illustration, the Fund gives up the
opportunity to profit without limit from increases in the relative value of the
Mexican peso to the dollar. The Manager believes that "straddles" of the type
which may be utilized by the Fund constitute hedging transactions and are
consistent with the policies described above.

Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the
currency at a price above the devaluation level it anticipates. The cost to the
Fund of engaging in foreign currency transactions varies with such factors as
the currencies involved, the length of the contract period and the market
conditions then prevailing. Since transactions in foreign currency exchange
usually are conducted on a principal basis, no fees or commissions are
involved.

Risk Factors in Options and Futures Transactions. Utilization of futures
transactions involves the risk of imperfect correlation in movements in the
prices of options and futures and movements in the prices of the securities and
currencies which are the subject of the hedge. If the prices of the options and
futures move more or less than the prices of the hedged securities or
currencies, the Fund will experience a gain or loss which will not be
completely offset by movements in the prices of the securities and currencies
which are the subject of the hedge. The successful use of options and futures
also depends on the Manager's ability to correctly predict price movements in
the market involved in a particular options or futures transaction.

Prior to exercise or expiration, an exchange-traded option or futures
position can only be terminated by entering into a closing purchase or sale
transaction. This requires a secondary market on an exchange for call or put
options of the same series. The Fund will enter into an option or futures
transaction on an exchange only if there appears to be a liquid secondary
market for such options or futures. However, there can be no assurance that a
liquid secondary market will exist for any particular call or put option or
futures contract at any specific time. Thus, it may not be possible to close an
option or futures position. The Fund will acquire only OTC options for which
management believes the Fund can receive on each business day at least two
independent bids or offers (one of which will be from an entity other than a
party to the option), unless there is only one dealer, in which case such
dealer's price is used, or which can be sold at a formula price provided for in
the OTC option agreement. In the case of a futures position or an option on a
futures position written by the Fund in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the security or currency underlying the futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to hedge effectively its
portfolio. There is also the risk of loss by the Fund of margin deposits in the
event of bankruptcy of a broker with whom the Fund has an open position in a
futures contract or related option. The risk of loss from investing in futures
transactions is theoretically unlimited.

6
<PAGE>

concert with others (regardless of whether such options are written on the same
or different exchanges or are held or written on one or more accounts or
through one or more brokers). "Trading limits" are imposed on the maximum
number of contracts which any person may trade on a particular trading day. An
exchange may order the liquidation of positions found to be in violation of
these limits, and it may impose other sanctions or restrictions. The Manager
does not believe that these trading and position limits will have any adverse
impact on the portfolio strategies for hedging the Fund's portfolio.

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 will be limited, however, in order to
qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"). See "Dividends, Distributions
and Taxes--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 which 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.

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<PAGE>

together with the value of portfolio securities subject to legal restrictions
on resale, will not exceed 10% of its assets taken at the time of acquisition
of such commitment or security. The Fund will at all times maintain a
segregated account with its custodian of cash, cash equivalents, U.S.
Government securities or other high grade liquid debt or equity securities
denominated in U.S. dollars or non-U.S. currencies in an aggregate amount equal
to the purchase price of the securities underlying the commitment.

There can be no assurance that the security 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. Because 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 agreement and the related
commitment fee will be recorded on the date which the security can reasonably
be expected to be issued, and the value of the security will thereafter 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.

Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest in
securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or primary dealer in U.S. Government securities.
Purchase and sale contracts may be entered into only with financial
institutions which have capital of at least $50 million or whose obligations
are guaranteed by an entity having capital of at least $50 million. Under such
agreements, the other party 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 the case of repurchase agreements, the prices at which the
trades are conducted do not reflect the accrued interest on the underlying
obligations; whereas, in the case of purchase and sale contracts, the prices
take into account accrued interest. Such agreements usually cover short
periods, often less than 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 the case of 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; the Fund does not have the right
to seek additional collateral in the case of purchase and sale contracts. In
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
constitute only 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. A purchase and
sale contract differs from a repurchase agreement in that the contract
arrangements stipulate that the securities are owned by the Fund. In the event
of a default under such a repurchase agreement or under a purchase and sale
contract, instead of the contractual fixed rate of return, the rate of return
to the Fund would depend on intervening fluctuations of the market values 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 resulting from market fluctuations following the failure of the
seller to perform. The Fund may not invest more than 10% of its total assets in
repurchase agreements or purchase and sale contracts maturing in more than
seven days. While the substance of purchase and sale contracts is similar to
the substance of repurchase agreements, because of the different treatment with
respect to accrued interest and additional collateral, management

8
<PAGE>

believes that purchase and sale contracts are not repurchase agreements as such
term is understood in the banking and brokerage community.

Lending of Portfolio Securities. Subject to investment restriction (8) below,
the Fund may lend securities from its portfolio to approved borrowers and
receive collateral therefor in cash or securities issued or guaranteed by the
U.S. Government which are maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. The purpose of
such loans is to permit the borrower to use such securities for delivery to
purchasers when such borrower has sold short. If cash collateral is received by
the Fund, it is invested in short-term money market securities, and a portion
of the yield received in respect of such investment is retained by the Fund.
Alternatively, if securities are delivered to the Fund as collateral, the Fund
and the borrower negotiate a rate for the loan premium to be received by the
Fund for lending its portfolio securities. In either event, the total yield on
the Fund's portfolio is increased by loans of its portfolio securities. The
Fund will have the right to regain record ownership of loaned securities to
exercise beneficial rights such as voting rights, subscription rights and
rights to dividends, interest or other distributions. Such loans are terminable
at any time, 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 the following restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
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 shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). The Fund may not:

1. Invest more than 10% of its assets, taken at market value at the time
of each investment, in the securities of issuers in any particular industry
(including the securities issued or guaranteed by the government of any one
foreign country, but excluding the U.S. Government and its agencies and
instrumentalities).

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 the making of investments
for the purpose of exercising control of management.

3. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase of securities of closed-end investment companies and only if
immediately thereafter not more than (i) 3% of the total outstanding voting
stock of such company is owned by the Fund, (ii) 5% of the Fund's total
assets, taken at market value, would be invested in any one such company,
or (iii) 10% of the Fund's total assets, taken at market value, would be
invested in such securities. Investments by the Fund in wholly-owned
investment entities created under the laws of certain countries will not be
deemed an investment in other investment companies.

4. Purchase or sell real estate (including real estate limited
partnerships), except that the Fund may invest in securities secured by
real estate or interests therein or issued by companies, including real
estate investment trusts, which invest in real estate or interests therein.

5. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. The payment by the Fund of initial or
variation margin in connection with futures or related options
transactions, if applicable, shall not be considered the purchase of a
security on margin.

9
<PAGE>

6. Make short sales of securities or maintain a short position.

7. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, short-term commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements and purchase and sale contracts shall
not be deemed to be the making of a loan, and except further that the Fund
may lend its portfolio securities as set forth in (8) below.

8. Lend its portfolio securities in excess of 33 1/3% of its total
assets, taken at market value; provided that such loans may only be made in
accordance with the guidelines set forth above.

9. Issue senior securities, borrow money or pledge its assets in excess
of 20% of its total assets taken at market value (including the amount
borrowed) and then only from a bank as a temporary measure for
extraordinary or emergency purposes including to meet redemptions or to
settle securities transactions. Usually only "leveraged" investment
companies may borrow in excess of 5% of their assets; however, the Fund
will not borrow to increase income but only as a temporary measure for
extraordinary or emergency purposes, including to meet redemptions or to
settle securities transactions which may otherwise require untimely
dispositions of Fund securities. The Fund will not purchase securities
while borrowings exceed 5% of total assets except (a) to honor prior
commitments or (b) to exercise subscription rights where outstanding
borrowings have been obtained exclusively for settlements of other
securities transactions. (For the purpose of this restriction, collateral
arrangements with respect to the writing of options, and, if applicable,
futures contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not deemed to
be a pledge of assets and neither such arrangements nor the purchase or
sale of futures or related options are deemed to be the issuance of a
senior security.)

10. Invest in securities which (i) are subject to material legal
restrictions on repatriation of assets or (ii) cannot be readily resold
because of legal or contractual restrictions or which are otherwise not
readily marketable, including repurchase agreements and purchase and sale
contracts maturing in more than seven days, if at the time of acquisition
more than 10% of its total assets would be invested in such securities.
While the Fund will not purchase illiquid securities and assets subject to
material legal restrictions on repatriation in an amount exceeding 10% of
its net assets, the Fund may purchase, without regard to that limitation,
securities that are not registered under the Securities Act of 1933 (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.

11. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter in selling portfolio securities.

12. Purchase or sell interests (including leases) in oil, gas or other
mineral exploration or development programs, except that the Fund may
invest in securities issued by companies that engage in oil, gas or other
mineral exploration or development activities.

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

(i) Invest in warrants if at the time of acquisition its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Fund's net assets; included within such limitation, but not to exceed
2% of the Fund's net assets, are warrants which are not listed on the New
York or American Stock Exchange. For purposes of this restriction, warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value.

10
<PAGE>

(ii) Purchase or sell commodities or commodity contracts, except that the
Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and purchase and sell stock
index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures.

(iii) Invest in securities of corporate issuers having a record, together
with predecessors, of less than three years of continuous operation, if
more than 5% of its total assets, taken at market value, would be invested
in such securities.

(iv) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent described in the Fund's
Prospectus and in this Statement of Additional Information, as amended from
time to time.

(v) Purchase or retain the securities of any issuer, if those individual
officers and directors of the Fund, the officers and general partner of the
Manager, the directors of such general partner or any subsidiary thereof
each owning beneficially more than 1/2 of 1% of the securities of such
issuer own in the aggregate more than 5% of the securities of such issuer.

(vi) Invest more than 10% of its net assets in securities of real estate
investment trusts.

The staff of the Securities and Exchange Commission (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 such transaction, the sum of the market value of OTC options
currently outstanding which are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceeds 10% of the total assets of the Fund, taken at market
value, together with all other assets of the Fund which are illiquid or are
otherwise not 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 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 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 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.

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, general
partners, officers or employees, acting as principal, unless pursuant to a rule
or exemptive order under the Investment Company Act.

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

11
<PAGE>

MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

The Directors and executive officers of the Fund and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is Box
9011, Princeton, New Jersey 08543-9011.

Arthur Zeikel--President and Director(1)(2)--President of the Manager and its
predecessor since 1977 and Chief Investment Officer since 1976; President of
Fund Asset Management, L.P. ("FAM") and its predecessor since 1977 and Chief
Investment Officer since 1976; President and Director of Princeton Services,
Inc. ("Princeton Services") since 1993; Executive Vice President of Merrill
Lynch since 1990 and a Senior Vice President thereof from 1985 to 1990;
Executive Vice President of Merrill Lynch & Co., Inc. since 1990; Director of
the Distributor.

Donald Cecil--Director(2)--1114 Avenue of the Americas, New York, New York
10036. Special Limited Partner of Cumberland Partners (investment partnership)
since 1982; Member of Institute of Chartered Financial Analysts; Member and
Chairman of Westchester County (N.Y.) Board of Transportation.

Edward H. Meyer--Director(2)--777 Third Avenue, New York, New York 10017.
President of Grey Advertising Inc. since 1968, Chief Executive Officer since
1970 and Chairman of the Board of Directors since 1972; Director of The May
Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan Allen
Interiors Inc. and Harman International Industries, Inc.

Charles C. Reilly--Director(2)--9 Hampton Harbor Road, Hampton Bays, N.Y.
11946. Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979 to 1990; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business since 1990; Adjunct
Professor, Wharton School, University of Pennsylvania, 1990; Director, Harvard
Business School Alumni Association.

Richard R. West--Director(2)--482 Tepi Drive, Southbury, Connecticut 06488.
Professor of Finance since 1984, and Dean from 1984 to 1993, of New York
University Leonard N. Stern School of Business Administration; Director of
Bowne & Co., Inc. (financial printers), Vornado, Inc. (real estate holding
company), Smith-Corona Corporation (manufacturer of typewriters and word
processors) and Alexander's Inc.

Terry K. Glenn--Executive Vice President(1)(2)--Executive Vice President of
the Manager and FAM and their predecessors since 1983; Executive Vice President
and Director of Princeton Services since 1993; President and Director of the
Distributor since 1986.

Norman R. Harvey--Senior Vice President(1)(2)--Senior Vice President of the
Manager and FAM and their predecessors since 1982; Senior Vice President of
Princeton Services since 1993.

Grace Pineda--Vice President(2)--Vice President of the Manager and Senior
Portfolio Manager since 1989; analyst and portfolio manager at Clemente
Capital, Inc. from 1982 to 1989.

Donald C. Burke--Vice President(1)(2)--Vice President and Director of
Taxation of the Manager and its predecessor since 1990; employee of Deloitte &
Touche from 1982 to 1990.

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<PAGE>

Gerald M. Richard--Treasurer(1)(2)--Senior Vice President and Treasurer of
the Manager and FAM and their predecessors since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of the
Distributor since 1981 and Treasurer since 1984.

Mark B. Goldfus--Secretary(1)(2)--Vice President of the Manager and FAM and
their predecessors since 1985.
- --------
(1) Interested person, as defined in the Investment Company Act, of the Fund.

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

At March 18, 1994, the officers and Directors of the Fund as a group (11
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director of the Fund, and the other officers
of the Fund owned less than 1% of the outstanding shares of common stock of
Merrill Lynch & Co., Inc.

The Fund pays each Director not affiliated with the Manager a fee of $3,500
per year plus $500 per meeting attended, together with such Director's actual
out-of-pocket expenses relating to attendance at meetings. The Fund also
compensates members of its Audit Committee, which consists of all of the non-
affiliated Directors, at a rate of $500 per meeting attended. The Chairman of
the Audit Committee receives an additional fee of $250 per year. For the fiscal
year ended November 30, 1993, fees and expenses paid to such nonaffiliated
Directors aggregated $31,137.

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 held by the Fund may also be held by, or be appropriate
investments for, other funds or other 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 other 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 securities being sold, there
may be an adverse effect on price.

The Fund has entered into a management agreement (the "Management Agreement")
with the Manager. As discussed in the Prospectus, the Manager receives for its
services to the Fund monthly compensation at the annual rate of 1.00% of the
average daily net assets of the Fund. For the fiscal years ended November 30,
1993, and 1992 and the period September 27, 1991 (commencement of operations)
to November 30, 1991, the management fees paid by the Fund to the Manager
aggregated $2,091,529, $1,404,072 and $135,113, respectively.

The State of California imposes limitations on the expenses of the Fund. At
the date of this Statement of Additional Information, these annual expense
limitations require that the Manager reimburse the Fund in

13
<PAGE>

any amount necessary to prevent the aggregate ordinary operating expenses
(excluding custodian costs, taxes, brokerage fees and commissions, distribution
fees and extraordinary charges such as litigation costs) from exceeding in any
fiscal year 2.5% of the Fund's first $30 million of average net assets, 2.0% of
the next $70 million of average net assets and 1.5% of the remaining average
net assets. Such reimbursement, if any, will be subtracted from the monthly
management fee. No fee payment will be made to the Manager during any fiscal
year which will cause such expenses to exceed the expense limitations at the
time of such payment.

The Fund has received an order from the State of California partially waiving
the expense limitations described above. Pursuant to the terms of such waiver,
the expense limitations that would otherwise apply are waived to the extent
that the Fund's expenses for management and auditing fees exceed the average of
such fees of a group of funds managed by the Manager or its subsidiary which
primarily invest domestically. Since the commencement of operations of the
Fund, no reimbursement of expenses has been required pursuant to the applicable
expense limitation provisions discussed above.

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 or any of its
affiliates. The Fund pays all other expenses incurred in its operation,
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; Securities and Exchange
Commission fees; expenses of registering the shares under Federal, state or
foreign laws; fees and expenses of unaffiliated Directors; accounting and
pricing costs (including the daily calculation of net asset value); insurance;
interest; brokerage costs; litigation and other extraordinary or non-recurring
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. For the
fiscal years ended November 30, 1993, and 1992 and the period September 27,
1991 (commencement of operations) to November 30, 1991, the amount of such
reimbursement was $130,471, $92,838, and $11,667, respectively. The Distributor
will pay certain promotional expenses of the Fund incurred in connection with
the offering of its shares. 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--Alternative Sales
Arrangements--Distribution Plans".

Merrill Lynch & Co., Inc., Merrill Lynch Investment Management, Inc. and
Princeton Services, Inc. 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 below, the
Management Agreement will remain in effect from year to year 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.

14
<PAGE>

PURCHASE OF SHARES

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

ALTERNATIVE SALES ARRANGEMENTS

The Fund issues two classes of shares. Class A shares are sold to investors
choosing the initial sales charge alternative, and Class B shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares each represent interests in the same portfolio of investment of the
Fund, have the same rights and are identical in all respects, except that (i)
Class B shares bear the expenses of the deferred sales arrangements, any
expenses (including incremental transfer agency costs) resulting from such
sales arrangements, and the expenses paid by the account maintenance fee and
(ii) that the Class A shares bear the expenses of the ongoing account
maintenance fee, and (iii) each class has exclusive voting rights with respect
to the Rule 12b-1 distribution plan pursuant to which the account maintenance
and distribution fees, in the case of the Class B shares, and the account
maintenance fee, in the case of the Class A shares, is paid. The two classes
also have different exchange privileges. See "Shareholder Services--Exchange
Privilege".

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

Distribution Plans. Reference is made to "Purchase of Shares--Alternative
Sales Arrangements--Distribution Plans" in the Prospectus for certain
information with respect to the distribution plans of the Fund.

The payment of the account maintenance fee and distribution fee with respect
to Class B shares and the account maintenance fee with respect to Class A
shares is subject to the provisions of Rule 12b-1 under the Investment Company
Act. See "General Information--Description of Shares". Among other things, each
distribution plan (a "Distribution Plan") provides that the Distributor shall
provide and the Directors shall review quarterly reports of the disbursement of
the account maintenance and/or distribution fees paid to the Distributor. In
their consideration of the Distribution Plans, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plans to the Fund and its shareholders. Each Distribution Plan
further provides that, so long as such 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 respective 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 Class A or Class B voting securities of the Fund
voting separately by class. Neither Distribution

15
<PAGE>

Plan can be amended to increase materially the amount to be spent by the Fund
without approval by 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 the
Distribution Plans and any reports made pursuant to such plans for a period of
not less than six years from the date of the Distribution Plans or such
reports, the first two years in an easily accessible place.

INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES

The gross sales charges for the sale of Class A shares for the fiscal year
ended November 30, 1993, were $693,130, of which the Distributor received
$52,202 and Merrill Lynch received $640,928. The gross sales charges for the
sale of Class A shares for the fiscal year ended November 30, 1992, were
$868,005, of which the Distributor received $29,874 and Merrill Lynch received
$838,131. The gross sales charges for the sale of Class A shares for the period
September 27, 1991 (commencement of operations) to November 30, 1991, were
$626,191, of which the Distributor received $1,891 and Merrill Lynch received
$624,300. For information as to brokerage commissions received by Merrill
Lynch, see "Portfolio Transactions and Brokerage".

The term "purchase" as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A 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 spouse and their children under the age of 21 years
purchasing shares for his or their own account and to single purchases by a
trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended (the "Code")) 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. The
term "purchase" 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 term
"purchase" also includes purchases by employee benefit plans not qualified
under Section 401 of the Code, including purchases by employees or by employers
on behalf of employees, by means of a payroll deduction plan or otherwise, of
shares of the Fund. Purchases by such a company or non-qualified employee
benefit plan will qualify for the quantity discounts discussed above only if
the Fund and the Distributor are able to realize economies of scale in sales
effort and sales related expense by means of the company, employer or plan
making the Fund's Prospectus available to individual investors or employees and
forwarding investments by such persons to the Fund and by any such employer or
plan bearing the expense of any payroll deduction plan.

REDUCED INITIAL SALES CHARGES--CLASS A SHARES

Right of Accumulation. The reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
Class A shares of the Fund 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

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<PAGE>

asset value or cost, whichever is higher, of the purchaser's combined holdings
of the Class A and Class B shares of the Fund and of any other investment
company with a sales charge for which the Distributor acts as the distributor.
For any such right of accumulation to be made available, the Distributor must
be provided at the time of purchase, by the purchaser or the purchaser's
securities dealer, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time.

Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $10,000 or more of Class A shares of the Fund or of any other
investment company with an initial sales charge or a deferred sales charge for
which the Distributor acts as the distributor made within a thirteen-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 the Fund's transfer agent. The
Letter of Intention is not available to employee benefit plans for which
Merrill Lynch provides plan-participant record-keeping services. The Letter of
Intention is not a binding obligation to purchase any amount of Class A shares;
however, its execution will result in the purchaser paying a lower sales charge
at the appropriate quantity purchase level. A purchase not originally made
pursuant to a Letter of Intention may be included under a subsequent Letter of
Intention executed within 90 days of such purchase if the Distributor is
informed in writing of this intent within such 90-day period. The value of
Class A shares of the Fund and of other investment companies with a sales
charge for which the Distributor acts as the distributor 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
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 $10,000), 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 shares purchased at the reduced rate and the sales
charge applicable to the shares actually purchased through the Letter. Class A
shares equal to five percent of the intended amount will be held in escrow
during the thirteen-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a
purchase during the term of such Letter would otherwise be subject to a further
reduced sales charge based on the right of accumulation, the purchaser will be
entitled on that purchase and subsequent purchases to the reduced percentage
sales charge which would be applicable to a single purchase equal to the total
dollar value of the Class A 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
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Reserves Money Fund,
Merrill Lynch U.S. Treasury Money Fund or Merrill Lynch U.S.A. Government
Reserves into the Fund that creates a sales charge will count toward completing
a new or existing Letter of Intention from the Fund.

Employer Sponsored Retirement and Savings Plans. Class A shares are offered
at net asset value to employer sponsored retirement or savings plans, such as
tax qualified retirement plans within the meaning of Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), deferred compensation
plans within the meaning of Sections 403(b) and 457 of the Code, other deferred
compensation arrangements, VEBA plans, and non-qualified After Tax Savings and
Investment programs, maintained on the Merrill Lynch Group Employee Services
system, herein referred to as "Employer Sponsored Retirement or Savings Plans",
provided the plan has $5 million or more in existing plan assets initially
invested in portfolios, mutual

17
<PAGE>

funds or trusts advised by the Manager either directly or through an affiliate.
Class A shares may also be offered at net asset value to Employer Sponsored
Retirement or Savings Plans, provided the plan has accumulated $5 million or
more in existing plan assets invested in mutual funds advised by the Manager
charging a front-end sales charge or contingent deferred sales charge. Assets
of Employer Sponsored Retirement or Savings Plans sponsored by the same sponsor
or an affiliated sponsor may be aggregated. The Class A share reduced load
breakpoints also apply to these aggregated assets. Class A shares may be
offered at net asset value to multiple plans sponsored by the same sponsor or
an affiliated sponsor provided that the addition of one or more of the multiple
plans results in aggregate assets of $5 million or more invested in portfolios,
mutual funds or trusts advised by the Manager either directly or through an
affiliate. Employer Sponsored Retirement or Savings Plans are also offered
Class A shares at net asset value, provided such plan initially has 1,000 or
more employees eligible to participate in the plan. Employees eligible to
participate in Employer Sponsored Retirement or Savings Plan of the same
sponsoring employer or its affiliates may be aggregated. Any Employer Sponsored
Retirement or Savings Plan which does not meet the above described
qualifications to purchase Class A shares at net asset value has the option of
purchasing Class A shares at the sales charge schedule disclosed in the
Prospectus, or if the Employer Sponsored Retirement or Savings Plan is a
qualified retirement plan and meets the specified requirements, then it may
purchase Class B shares with a waiver of the contingent deferred sales charge
upon redemption. The minimum initial and subsequent purchase requirements are
waived in connection with all the above referenced Employer Sponsored
Retirement or Savings Plans.

Purchase Privilege of Certain Persons. Directors of the Fund, directors and
trustees of certain other Merrill Lynch sponsored investment companies,
directors of Merrill Lynch & Co., Inc., employees of Merrill Lynch & Co., Inc.
and its subsidiaries 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 A shares of the Fund will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied. First, the investor must purchase Class A shares of
the Fund with proceeds from a redemption of shares of a mutual fund that was
sponsored by the financial consultant's previous firm and imposed a sales
charge either at the time of purchase or on a deferred basis. Second, such
redemption must have been made within 60 days prior to the investment in the
Fund, and the proceeds from the redemption must have been maintained in the
interim in cash or a money market fund.

Class A shares of the Fund are offered at net asset value to shareholders of
Senior Floating Rate Fund (formerly known as Merrill Lynch Prime Fund, Inc.)
who wish to reinvest the net proceeds from a sale of certain of their shares of
common stock of Senior Floating Rate Fund in shares of the Fund. In order to
exercise this investment option, Senior Floating Rate Fund shareholders must
sell their Senior Floating Rate Fund shares to the Senior Floating Rate Fund in
connection with a tender offer conducted by the Senior Floating Rate Fund and
reinvest the proceeds immediately in the Fund. This investment option is
available only with respect to the proceeds of Senior Floating Rate Fund shares
as to which no Early Withdrawal Charge (as defined in the Senior Floating Rate
Fund prospectus) is applicable. Purchase orders from Senior Floating Rate Fund
shareholders wishing to exercise this investment option will be accepted only
on the day that the related Senior Floating Rate Fund tender offer terminates
and will be effected at the net asset value of the Fund at such day.

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<PAGE>

Class A shares of the Fund are offered at net asset value to shareholders of
certain closed-end funds advised by the Manager or FAM who wish to reinvest
the net proceeds from a sale of their closed-end fund shares of common stock
in shares of the Fund. In order to exercise this investment option, closed-end
fund shareholders must (i) sell their closed-end fund shares through Merrill
Lynch and reinvest the proceeds immediately in the Fund, (ii) have acquired
the shares in the closed-end fund's initial public offering or through
reinvestment of dividends earned on shares purchased in such offering, (iii)
have maintained their closed-end fund shares continuously in a Merrill Lynch
account, and (iv) purchase a minimum of $250 worth of Fund shares.

Class A shares of the Fund are also offered at net asset value, without
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, if the following conditions are satisfied:
first, the investor must purchase Class A shares of the Fund with proceeds
from a redemption of shares of such other mutual fund and such fund imposed a
sales charge either at the time of purchase or on a deferred basis; second,
such purchase of Class A shares must be made within 90 days after such notice
of termination.

TMASM Managed Trusts. Class A shares are offered to TMASM Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services at
net asset value; however, such purchases may be subject to a contingent
deferred sales charge of up to 1% of the dollar amount of the purchase if the
shares are redeemed within one year after purchase.

Acquisition of Certain Investment Companies. The public offering price of
Class A shares of the Fund may be reduced to the net asset value per Class A
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
which might result from an acquisition of assets having net unrealized
appreciation which is disproportionately higher at the time of acquisition
than the realized or unrealized appreciation of the Fund.

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.

REDEMPTION OF SHARES

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

The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for any period during which trading on the
New York Stock Exchange is restricted as determined by the 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.

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<PAGE>

CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternative--Class B Shares", while Class B shares redeemed within four
years of purchase are subject to a contingent deferred sales charge under most
circumstances, the charge is waived on redemptions of Class B shares in
connection with certain post-retirement withdrawals from an Individual
Retirement Account ("IRA") or other retirement plan or following the death or
disability of a Class B shareholder. Redemptions for which the waiver applies
are: (a) any partial or complete redemption in connection with a tax-free
distribution following retirement under a tax-deferred retirement plan or
attaining age 59 1/2 in the case of an IRA or other retirement plan, or 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. For the fiscal year ended November 30, 1993, the Distributor
received contingent deferred sales charges of $641,317, all of which was paid
to Merrill Lynch. For the fiscal year ended November 30, 1992, and the period
September 27, 1991 (commencement of operations) to November 30, 1991, the
Distributor received contingent deferred sales charges of $276,150 and $8,625,
respectively, all of which was paid to Merrill Lynch.

Retirement Plans. Any Retirement Plan which does not meet the qualifications
to purchase Class A shares at net asset value has the option of purchasing
Class A shares at the sales charge schedule disclosed in the Prospectus, or if
the Retirement Plan meets the following requirements, then it may purchase
Class B shares with a waiver of the contingent deferred sales charge upon
redemption. The contingent deferred sales charge is waived for any Eligible
401(k) Plan redeeming Class B shares. The contingent deferred sales charge is
also waived for redemptions from a 401(a) plan qualified under the Code,
provided, however, that such plan has the same or an affiliated sponsoring
employer as an Eligible 401(k) Plan purchasing Class B shares of a mutual fund
advised by the Manager or FAM ("Eligible 401(a) Plan"). The contingent deferred
sales charge is waived for any Class B shares which are purchased by an
Eligible 401(k) Plan or Eligible 401(a) Plan and are rolled over into a Merrill
Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at
the time of redemption. The minimum initial and subsequent purchase
requirements are waived in connection with all the above referenced Retirement
Plans.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Reference is made to "Investment Objective and Policies--Other Investment
Policies and Practices--Portfolio Transactions" in the Prospectus.

Subject to policies established by the Board of Directors of the Fund, 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.
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

20
<PAGE>

certain of the 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.

The Fund anticipates that its brokerage transactions involving securities of
companies domiciled in countries other than the United States generally 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.

The Fund invests in certain securities traded in the over-the-counter market
and, where possible, deals 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, affiliated persons of the Fund, including Merrill Lynch and any of
its affiliates, will not serve as the Fund's dealer in such transactions.
However, affiliated persons of the Fund may serve as its broker in listed or
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.

For the fiscal year ended November 30, 1993, the Fund paid total brokerage
commissions of $53,608, of which $8,790, or 16.4%, was paid to Merrill Lynch
for effecting 19.6% of the aggregate amount of transactions on which the Fund
paid brokerage commissions. For the fiscal year ended November 30, 1992, the
Fund paid total brokerage commissions of $624,609, of which $2,689, or 0.43%,
was paid to Merrill Lynch for effecting 0.67% of the aggregate amount of
transactions on which the Fund paid brokerage commissions. For the period
September 27, 1991 (commencement of operations) to November 30, 1991, the Fund
paid total brokerage commissions of $154,868, of which $1,095, or 0.71%, was
paid to Merrill Lynch for effecting 0.71% of the aggregate amount of
transactions on which the Fund paid brokerage commissions.

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 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. 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 U.S. 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

21
<PAGE>

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 Directors have 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. After considering
all factors deemed relevant, the Directors made a determination not to seek
such recapture. The Directors will reconsider this matter from time to time.

DETERMINATION OF NET ASSET VALUE

Reference is made to "Additional Information--Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value. The
net asset value of the shares of the Fund is determined once daily Monday
through Friday as of 4:15 p.m., New York time, on each day the New York Stock
Exchange is open for trading. The New York Stock Exchange is not open on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation. 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 fees payable to the Manager
and the Distributor, are accrued daily. The net asset value per share of the
Class A and Class B shares is expected to be equivalent. Under certain
circumstances, however, the per share net asset value of the Class B shares may
be lower than the per share net asset value of the Class A shares reflecting
the higher daily expense accruals of the distribution and higher transfer
agency fees applicable with respect to the Class B shares. Even under those
circumstances, the per share net asset value of the two classes eventually will
tend to converge immediately after the payment of dividends, which will differ
by approximately the amount of the expense accrual differential between the
classes.

Portfolio securities which are traded on stock exchanges are valued at the
last sale price on the principal market on which such securities are traded, as
of the close of business on the day the securities are being valued, or,
lacking any sales, at the last available bid price. Securities traded in the
over-the-counter market are valued at the last available bid prices obtained
from one or more dealers in the over-the-counter market prior to the time of
valuation. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. 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
asked price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the average of the last asked price as
obtained from one or more dealers. Options purchased by the Fund are valued at
their last bid price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the average of the last bid
price as obtained from two or more dealers unless there is only one dealer, in
which case that dealer's price is used. Other investments, including futures
contracts and related options, are stated 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 valuation and procedures will be reviewed
periodically by the Board of Directors.

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<PAGE>

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 quarterly statements 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. The quarterly 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 gain
distributions. A shareholder may make additions to his Investment Account at
any time by mailing a check directly to the transfer agent.

AUTOMATIC INVESTMENT PLAN

A shareholder may make additions to an Investment Account at any time by
purchasing Class A or Class B shares at the applicable public offering price
either through the shareholder's securities dealer or by mail directly to the
transfer agent, acting as agent for such securities dealer. Voluntary
accumulation can also be made through a service known as the Automatic
Investment Plan whereby the Fund is authorized through pre-authorized checks 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(R)
account may arrange to have periodic investments made in the Fund in amounts of
$250 or more through the CMA Automatic Investment Program. The Automatic
Investment Program is not available to shareholders whose shares are held in a
brokerage account with Merrill Lynch other than a CMA(R) account.

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 reinvested automatically in additional shares of the
Fund. Such reinvestment will be at the net asset value of shares of the Fund,
without 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.

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 distributions reinvested in shares of the Fund or vice versa, and
commencing ten days after receipt by the transfer agent of such notice, those
instructions will be effected.

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<PAGE>

SYSTEMATIC WITHDRAWAL PLANS--CLASS A SHARES

A Class A shareholder may elect to make 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 shares of
the Fund having a value, based on cost or the current offering price, of $5,000
or more and monthly withdrawals for shareholders with Class A shares with such
a value of $10,000 or more.

At the time of each withdrawal payment, sufficient Class A 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 shares.
Redemptions will be made at net asset value as determined at the close of
business of the New York Stock Exchange on the 24th day of each month or the
24th day of the last month of each quarter, whichever is applicable. If the
Exchange is not open for business on such date, the Class A shares will be
redeemed at the close of business on the following business day. The check for
the withdrawal payment will be mailed, or the direct deposit of the withdrawal
payment will be made, on the next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and distributions on
all Class A shares in the Investment Account are reinvested automatically in
Fund Class A shares. 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 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 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.

A Class A shareholder whose shares are held within a CMA(R), CBA(R) or
Retirement Account may elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the Systematic Redemption
Program. 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 Systematic Redemption Program, eligible shareholders
should contact their Financial Consultant.

EXCHANGE PRIVILEGE

U.S. Class A or Class B shareholders of the Fund may exchange their Class A
or Class B shares of the Fund for shares of the same class of Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund,
Inc., Merrill Lynch Arizona Limited Maturity Municipal Bond Fund, Merrill Lynch

24
<PAGE>

Arizona Municipal Bond Fund, Merrill Lynch Balanced Fund for Investment and
Retirement, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Insured Municipal Bond Fund, Merrill Lynch California Limited Maturity
Municipal Bond Fund, Merrill Lynch California Municipal Bond Fund, Merrill
Lynch Capital Fund, Inc., Merrill Lynch Colorado Municipal Bond Fund, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing Capital Markets Fund,
Inc. (shares of which are deemed Class A shares for purposes of the exchange
privilege), Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill
Lynch Federal Securities Trust, Merrill Lynch Florida Limited Maturity
Municipal Bond Fund, Merrill Lynch Florida Municipal Bond Fund, Merrill Lynch
Fund For Tomorrow, Inc., 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 (residents of Arizona must meet investor suitability
standards), Merrill Lynch Global Resources Trust, Merrill Lynch Global Utility
Fund, Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill
Lynch Healthcare Fund, Inc. (residents of Wisconsin must meet investor
suitability standards), Merrill Lynch International Equity Fund, Merrill Lynch
Maryland Municipal Bond Fund, Merrill Lynch Massachusetts Limited Maturity
Municipal Bond Fund, Merrill Lynch Massachusetts Municipal Bond Fund, Merrill
Lynch Michigan Limited Maturity Municipal Bond Fund, Merrill Lynch Michigan
Municipal Bond Fund, Merrill Lynch Minnesota Municipal Bond Fund, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Municipal Intermediate Term Fund,
Merrill Lynch New Jersey Limited Maturity Municipal Bond Fund, Merrill Lynch
New Jersey Municipal Bond Fund, Merrill Lynch New York Limited Maturity
Municipal Bond Fund, Merrill Lynch New York Municipal Bond Fund, Merrill Lynch
North Carolina Municipal Bond Fund, Merrill Lynch Ohio Municipal Bond Fund,
Merrill Lynch Oregon Municipal Bond Fund, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund, Merrill Lynch
Pennsylvania Municipal Bond Fund, Merrill Lynch Phoenix Fund, Inc., Merrill
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Special Value Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merrill Lynch Texas Municipal Bond Fund, Merrill Lynch Utility Income
Fund, Inc. and Merrill Lynch World Income Fund, Inc. on the basis described
below. In addition, Class A shareholders of the Fund may exchange their Class A
shares for shares of Merrill Lynch U.S.A. Government Reserves, Merrill Lynch
Ready Assets Trust and Merrill Lynch U.S. Treasury Money Fund (or Merrill Lynch
Retirement Reserves Money Fund if the exchange occurs within certain retirement
plans) (together, the "Class A money market funds"), and Class B shareholders
of the Fund may exchange their Class B shares for shares of Merrill Lynch
Government Fund, Merrill Lynch Institutional Fund, Merrill Lynch Institutional
Tax-Exempt Fund and Merrill Lynch Treasury Fund (together, the "Class B money
market funds") on the basis described below. Shares with a net asset value of
at least $250 are required to qualify for the exchange privilege, and any
shares utilized in an exchange must have been held by the shareholder for at
least 15 days. Certain funds into which exchanges may be made may impose a
redemption fee (not in excess of 2.00% of the amount redeemed) on shares
purchased through the exchange privilege when such shares are subsequently
redeemed, including redemption through subsequent exchanges. Such redemption
fee would be in addition to any contingent deferred sales charge otherwise
applicable to a redemption of Class B shares. It is contemplated that the
exchange privilege may be applicable to other new mutual funds whose shares may
be distributed by the Distributor.

Under the exchange privilege, each of the funds with Class A shares
outstanding offers to exchange its Class A shares ("new Class A shares") for
Class A shares ("outstanding Class A shares") of any of the other funds, on the
basis of relative net asset value per Class A share, plus an amount equal to
the difference, if any, between the sales charge previously paid on the
outstanding Class A shares and the sales charge payable at the time of the
exchange on the new Class A shares. With respect to outstanding Class A shares
as to

25
<PAGE>

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 shares in the initial purchase and any subsequent exchange. Class A
shares issued pursuant to dividend reinvestment are sold on a no-load basis in
each of the funds offering Class A shares. For purposes of the exchange
privilege, Class A 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 shares on which the dividend was paid. Based on
this formula, Class A shares of the Fund generally may be exchanged into the
Class A shares of the other funds or into shares of the Class A money market
funds with a reduced or without a sales charge.

In addition, each of the funds with Class B shares outstanding offers to
exchange its Class B shares ("new Class B shares") for Class B shares
("outstanding Class B shares") of any of the other funds on the basis of
relative net asset value per Class B share, without the payment of any
contingent deferred sales charge that might otherwise be due on redemption of
the outstanding shares. Class B shareholders of the Fund exercising the
exchange privilege will continue to be subject to the Fund's contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge schedule relating to the new Class B shares acquired through use
of the exchange privilege. In addition, Class B shares of the Fund acquired
through use of the exchange privilege will be subject to the Fund's contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge schedule relating to the Class B shares of the fund from which the
exchange has been made. For purposes of computing the sales charge that may be
payable on a disposition of the new Class B shares, the holding period for the
outstanding Class B shares is "tacked" to the holding period of the new Class B
shares. For example, an investor may exchange Class B shares of the Fund for
those of Merrill Lynch Global Resources Trust (formerly Merrill Lynch Natural
Resources Trust) after having held the Fund's Class B shares for two and a half
years. The 2% sales charge 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 Merrill Lynch Global Resources Trust and receive cash. There
will be no contingent deferred sales charge due on this redemption, since by
"tacking" the two and a half year holding period of the Fund's Class B shares
to the three year holding period for the Merrill Lynch Global Resources Trust
Class B shares, the investor will be deemed to have held the new Class B shares
for more than five years.

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

26
<PAGE>

Below is a description of the investment objectives of the other funds into
which exchanges can be made:

Merrill Lynch Adjustable Rate
Securities Fund, Inc.....
High current income consistent with a policy
of limiting the degree of fluctuation in net
asset value by investing primarily in a
portfolio of adjustable rate securities,
consisting principally of mortgage-backed
and asset-backed securities.

Merrill Lynch Americas Income
Fund, Inc................
A high level of current income, consistent
with prudent investment risk, by investing
primarily in debt securities denominated in
a currency of a country located in the
Western Hemisphere (i.e., North and South
America and the surrounding waters).

Merrill Lynch Arizona Limited
Maturity Municipal Bond Fund..

A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Arizona income taxes as is
consistent with prudent investment
management through investment in a portfolio
primarily of intermediate-term investment
grade Arizona Municipal Bonds.

Merrill Lynch Arizona
Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide investors with as
high a level of income exempt from Federal
and Arizona income taxes as is consistent
with prudent investment management.

Merrill Lynch Balanced Fund
for Investment and
Retirement...............
As high a level of total investment return as
is consistent with reasonable risk by
investing in common stocks and other types
of securities, including fixed income
securities and convertible securities.

Merrill Lynch Basic Value
Fund, Inc................
Capital appreciation and, secondarily, income
through investment in securities, primarily
equities, that are undervalued and therefore
represent basic investment value.

Merrill Lynch California
Insured Municipal Bond Fund...
A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide shareholders with as
high a level of income exempt from Federal
and California income taxes as is consistent
with prudent investment management through
investment in a portfolio consisting
primarily of insured California Municipal
Bonds.

27
<PAGE>

Merrill Lynch California
Limited Maturity Municipal
Bond Fund................ A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
shareholders with as high a level of income
exempt from Federal and California income
taxes as is consistent with prudent
investment management through investment in
a portfolio primarily of intermediate-term
investment grade California Municipal Bonds.

Merrill Lynch California
Municipal Bond Fund......
A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, who
objective is to provide investors with as
high a level of income exempt from Federal
and California income taxes as is consistent
with prudent investment management.

Merrill Lynch Capital Fund, The highest total investment return
Inc...................... consistent with prudent risk through a fully
managed investment policy utilizing equity,
debt and convertible securities.

Merrill Lynch Colorado
Municipal Bond Fund......

A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and Colorado income
taxes as is consistent with prudent
investment management.

Merrill Lynch Corporate Bond
Fund, Inc................
Current income from three separate
diversified portfolios of fixed income
securities.

Merrill Lynch Developing
Capital Markets Fund, Inc.....

Long-term appreciation through investment in
securities, principally equities, of issuers
in countries having smaller capital markets.

Merrill Lynch Dragon Fund, Capital appreciation primarily through
Inc...................... investment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin, other
than Japan, Australia and New Zealand.

Merrill Lynch Eurofund.... Capital appreciation primarily through
investment in equity securities of
corporations domiciled in Europe.

Merrill Lynch Federal
Securities Trust.........
High current return through investments in
U.S. Government and Government agency
securities, including GNMA mortgage-backed
certificates and other mortgage-backed
Government securities.

28
<PAGE>

Merrill Lynch Florida Limited
Maturity Municipal Bond Fund..

A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is as high a
level of income exempt from Federal income
taxes as is consistent with prudent
investment management while serving to offer
shareholders the opportunity to own
securities exempt from Florida intangible
personal property taxes through investment
in a portfolio primarily of intermediate-
term investment grade Florida Municipal
Bonds.

Merrill Lynch Florida
Municipal Bond Fund......

A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal income taxes as is
consistent with prudent investment
management, while seeking to offer
shareholders the opportunity to own
securities exempt from Florida intangible
personal property taxes.

Merrill Lynch Fund For
Tomorrow, Inc............
Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially
positioned to benefit from demographic and
cultural changes as they affect consumer
markets.

Merrill Lynch Fundamental
Growth Fund, Inc.........

Long-term growth through investment in a
diversified portfolio of equity securities
placing particular emphasis on companies
that have exhibited above-average growth
rate in earnings.

Merrill Lynch Global
Allocation Fund, Inc. ...
High total return, consistent with prudent
risk, through a fully managed investment
policy utilizing United States and foreign
equity, debt and money market securities,
the combination of which will be varied from
time to time both with respect to the types
of securities and markets in response to
changing market and economic trends.

Merrill Lynch Global Bond Fund
for Investment and
Retirement............... High total investment return from investment
in a global portfolio of debt instruments
denominated in various currencies and
multinational currency units.

29
<PAGE>

Merrill Lynch Global
Convertible Fund, Inc....
High total return from investment primarily
in an internationally diversified portfolio
of convertible debt securities, convertible
preferred stock and "synthetic" convertible
securities consisting of a combination of
debt securities or preferred stock and
warrants or options.

Merrill Lynch Global Holdings
(residents of Arizona must
meet investor suitability
standards)...............

The highest total investment return
consistent with prudent risk through
worldwide investment in an internationally
diversified portfolio of securities.

Merrill Lynch Global Resources
Trust....................
Long-term growth and protection of capital
from investment in securities of domestic
and foreign companies that possess
substantial natural resource assets.

Merrill Lynch Global Utility
Fund, Inc................

Capital appreciation and current income
through investment of at least 65% of its
total assets in equity and debt securities
issued by domestic and foreign companies
which are primarily engaged in the ownership
or operation of facilities used to generate,
transmit or distribute electricity, tele-
communications, gas or water.

Merrill Lynch Government Fund.. A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in securities
issued or guaranteed by the U.S. Government,
its agencies and instrumentalities and in
repurchase agreements secured by such
obligations.

Merrill Lynch Growth Fund for
Investment and Retirement.....
Growth of capital and, secondarily, income
from investment in a diversified portfolio
of equity securities placing principal
emphasis on those securities which
management of the fund believes to be
undervalued.

Merrill Lynch Healthcare Fund,
Inc. (residents of Wisconsin
must meet investor
suitability standards)...

Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in healthcare.

Merrill Lynch Institutional A portfolio of Merrill Lynch Funds for
Fund..................... Institutions Series, a series fund, whose
objective is to provide maximum current
income consistent with liquidity and the
maintenance of a high quality portfolio of
money market securities.

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<PAGE>

Merrill Lynch Institutional
Tax-Exempt Fund..........
A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
exempt from Federal income taxes,
preservation of capital and liquidity
available from investing in a diversified
portfolio of short-term, high quality
municipal bonds.

Merrill Lynch International
Equity Fund..............
Capital appreciation and, secondarily, income
by investing in a diversified portfolio of
equity securities of issuers located in
countries other than the United States.

Merrill Lynch Maryland
Municipal Bond Fund......

A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and Maryland income
taxes as is consistent with prudent
investment management.

Merrill Lynch Massachusetts
Limited Maturity Municipal
Bond Fund................

A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is as high a
level of income exempt from Federal and
Massachusetts income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade
Massachusetts Municipal Bonds.

Merrill Lynch Massachusetts
Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and Massachusetts income
taxes as is consistent with prudent
investment management.

Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund..
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is as high a
level of income exempt from Federal and
Michigan income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade Michigan
Municipal Bonds.

Merrill Lynch Michigan
Municipal Bond Fund......

A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and Michigan income
taxes as is consistent with prudent
investment management.

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<PAGE>

Merrill Lynch Minnesota
Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and Minnesota income
taxes as is consistent with prudent
investment management.

Merrill Lynch Municipal Bond
Fund, Inc................
Tax-exempt income from three separate
diversified portfolios of municipal bonds.

Merrill Lynch Municipal
Intermediate Term Fund...

Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as
possible of income exempt from Federal
income taxes by investing in investment
grade obligations with a dollar weighted
average maturity of five to twelve years.

Merrill Lynch New Jersey
Limited Maturity Municipal
Bond Fund................ A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is as high a
level of income exempt from Federal and New
Jersey income taxes as is consistent with
prudent investment management through a
portfolio primarily of intermediate-term
investment grade New Jersey Municipal Bonds.

Merrill Lynch New Jersey
Municipal Bond Fund......

A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and New Jersey income
taxes as is consistent with prudent
investment management.

Merrill Lynch New York Limited
Maturity Municipal Bond Fund..
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is as high a
level of income exempt from Federal, New
York State and New York City income taxes as
is consistent with prudent investment
management through investment in a portfolio
primarily of intermediate-term investment
grade New York Municipal Bonds.

Merrill Lynch New York
Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal, New York State and New
York City income taxes as is consistent with
prudent investment management.

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<PAGE>

Merrill Lynch North Carolina
Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and North Carolina
income taxes as is consistent with prudent
investment management.

Merrill Lynch Ohio Municipal
Bond Fund................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and Ohio income taxes as
is consistent with prudent investment
management.

Merrill Lynch Oregon Municipal
Bond Fund................

A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and Oregon income taxes
as is consistent with prudent investment
management.

Merrill Lynch Pacific Fund, Capital appreciation by investing in equity
Inc...................... securities of corporations domiciled in Far
Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong,
Singapore and the Philippines.

Merrill Lynch Pennsylvania
Limited Maturity Municipal
Bond Fund................

A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Pennsylvania income taxes as is
consistent with prudent investment
management through investment in a portfolio
of intermediate-term investment grade
Pennsylvania Municipal Bonds.

Merrill Lynch Pennsylvania
Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and Pennsylvania income
taxes as is consistent with prudent
investment management.

Merrill Lynch Phoenix Fund, Long-term growth of capital by investing in
Inc...................... equity and fixed income securities,
including tax-exempt securities, of issuers
in weak financial condition or experiencing
poor operating results believed to be
undervalued relative to the current or
prospective condition of such issuer.

Merrill Lynch Ready Assets Preservation of capital, liquidity and the
Trust.................... highest possible current income consistent
with the foregoing objectives from the
short-term money market securities in which
the Trust invests.

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<PAGE>

Merrill Lynch Retirement
Reserves Money Fund
(available only if the
exchange occurs within
certain retirement plans).....

Currently the only portfolio of Merrill Lynch
Retirement Series Trust, a series fund,
whose objectives are current income,
preservation of capital and liquidity
available from investing in a diversified
portfolio of short-term money market
securities.

Merrill Lynch Short-Term
Global Income Fund, Inc.......
As high a level of current income as is
consistent with prudent investment
management from a global portfolio of high
quality debt securities denominated in
various currencies and multinational
currency units and having remaining
maturities not exceeding three years.

Merrill Lynch Special Value
Fund, Inc................

Long-term growth of capital from investments
in securities, primarily common stocks, of
relatively small companies believed to have
special investment value and emerging growth
companies regardless of size.

Merrill Lynch Strategic
Dividend Fund............
Long-term total return from investment in
dividend paying common stocks which yield
more than Standard & Poor's 500 Composite
Stock Price Index.

Merrill Lynch Technology Fund,
Inc......................
Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in technology.

Merrill Lynch Texas Municipal
Bond Fund................

A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal income taxes as is
consistent with prudent investment
management by investing primarily in a
portfolio of long-term, investment grade
obligations issued by the State of Texas,
its political subdivisions, agencies and
instrumentalities.

Merrill Lynch Treasury Fund.... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in direct
obligations of the U.S. Treasury and up to
10% of its total assets in repurchase
agreements secured by such obligations.

34
<PAGE>

Merrill Lynch U.S.A.
Government Reserves......
Preservation of capital, current income and
liquidity available from investing in direct
obligations of the U.S. Government and
repurchase agreements relating to such
securities.

Merrill Lynch U.S. Treasury
Money Fund...............
Preservation of capital, liquidity and
current income through investment
exclusively in a diversified portfolio of
short-term marketable securities which are
direct obligations of the U.S. Treasury.

Merrill Lynch Utility Income
Fund, Inc................

High current income through investment in
equity and debt securities issued by
companies which are primarily engaged in the
ownership or operation of facilities used to
generate, transmit or distribute
electricity, telecommunications, gas or
water.

Merrill Lynch World Income
Fund, Inc................
High current income by investing in a global
portfolio of fixed income securities
denominated in various currencies, including
multinational currencies.

Before effecting an exchange, shareholders of the Fund should obtain a
currently effective prospectus of the fund into which the exchange is to be
made. Exercise of the exchange privilege is treated as a sale for Federal
income tax purposes and, depending on the circumstances, a short- or long-term
capital gain or loss may be realized. In addition, a shareholder exchanging
shares of any of the funds may be subject to a backup withholding tax unless
such shareholder certifies under penalty of perjury that the taxpayer
identification number on file with any such fund is correct and that such
shareholder is not otherwise subject to backup withholding. See "Dividends,
Distributions and Taxes--Taxes" below.

To exercise the exchange privilege, shareholders should contact their Merrill
Lynch financial consultant, who will advise the Fund of the exchange, or if the
exchange does not involve a money market fund, shareholders may write to the
transfer agent requesting that the exchange be effected. Such letter must be
signed exactly as the account is registered with signatures guaranteed by an
"eligible guarantor institution" (including, for example, Merrill Lynch branch
offices and certain other financial institutions) as such is defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended, the existence
and validity of which may be verified by the transfer agent through the use of
industry publications. Shareholders of the Fund, and shareholders of the other
funds described above with shares for which certificates have not been issued,
may exercise the exchange privilege by wire through their securities dealers.
The Fund reserves the right to require a properly completed Exchange
Application. This exchange privilege may be modified or terminated in
accordance with the rules of the Commission. The Fund reserves the right to
limit the number of times an investor may exercise the exchange privilege.
Certain funds may suspend the continuous offering of their shares to the
general public at any time and may thereafter 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.

35
<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

It is the Fund's intention to distribute all of its net investment income, if
any. Dividends from such net investment income are paid at least annually. All
net realized long- or short-term capital gains, if any, are distributed to the
Fund's shareholders at least annually. Premiums from expired options written by
the Fund and net gains from closing purchase transactions are treated as short-
term capital gains for Federal income tax purposes. See "Shareholder Services--
Automatic Reinvestment of Dividends and Distributions" in the Prospectus for
information concerning the manner in which dividends and distributions may be
reinvested automatically in shares of the Fund. Dividends and distributions are
taxable to shareholders as described below whether they are invested in shares
of the Fund or received in cash.

TAXES

Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in 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.
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). Any loss upon the sale or exchange of Fund
shares held for six months or less will be treated as long-term capital loss to
the extent of any capital gain dividends received by the shareholder.

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 between the Class A and
Class B shareholders according to a method (which it believes is consistent
with the Securities and Exchange Commission's exemptive order permitting the
issuance and sale of two classes of stock) that is based on the gross income
allocable to Class A and Class B shareholders during the taxable year, or such
other method as the Internal Revenue Service may prescribe. If the Fund pays a
dividend in January which was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the year in which such
dividend was declared.

36
<PAGE>

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. For this purpose, the Fund will
allocate foreign taxes and foreign source income between the Class A and Class
B shareholders according to a method similar to that described above for the
allocation of dividends eligible for the dividends received deduction.

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

The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income
and capital gains in the manner necessary to avoid imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition
of the tax. In such event, the Fund will be liable for the tax only on the
amount by which it does not meet the foregoing distribution requirements.

37
<PAGE>

Tax Treatment of Options, Futures and Forward Foreign Exchange Transactions.
The Fund may write, purchase or sell options, futures or 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 options 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 non-equity option or a regulated futures contract for
a non-U.S. currency and the Fund elects to have gain or loss in connection with
the contract 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. 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 transactions in options and futures contracts. Under
Section 1092, the Fund may be required to postpone recognition for tax purposes
of losses incurred in certain closing transactions in options and futures
contracts.

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

Special Rules for Certain Foreign Currency Transactions. 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, foreign currency futures and forward foreign
exchange contracts will be valued for purposes of the RIC diversification
requirements applicable to the Fund. The Fund may request a private letter
ruling from the Internal Revenue Service on some or all of these issues.

38
<PAGE>

Under Code Section 988, special rules are provided for certain transactions
in a currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). 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 dividend distributions, and any distributions made
before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares. These rules 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.

The Treasury Department has authority to issue regulations concerning the
recharacterization of principal and interest payments with respect to debt
obligations issued in hyperinflationary currencies, which may include the
currencies of certain Latin American countries in which the Fund intends to
invest. No such regulations have been issued.

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

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

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 data are determined separately for Class A and
Class B shares in accordance with a formula specified by the Commission.

39
<PAGE>

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

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

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
----------------------------------- ----------------------------------
REDEEMABLE VALUE
OF A HYPOTHETICAL
EXPRESSED AS A OF A HYPOTHETICAL EXPRESSED AS A $1,000
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED INVESTMENT AT
ON A HYPOTHETICAL AT THE END OF ON A HYPOTHETICAL THE END OF
PERIOD $1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
- ------ ----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
One Year Ended
November 30, 1993..... +41.05% $1,410.50 +45.80% $1,458.00
September 27, 1991
(Inception) to Novem-
ber 30, 1993......... +17.24% $1,414.00 +19.24% $1,467.10

<CAPTION>
ANNUAL TOTAL RETURN

(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Year Ended
November 30, 1993..... +50.86% $1,508.60 +49.80% $1,498.00
Year Ended
November 30, 1992..... +2.19% $1,021.90 +1.30% $1,013.00
September 27, 1991
(Inception) to Novem-
ber 30, 1991......... -1.90% $ 981.00 -2.00% $ 980.00

<CAPTION>
AGGREGATE TOTAL RETURN

(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
September 27, 1991
(Inception) to Novem-
ber 30, 1993......... +41.40% $1,414.00 +46.71% $1,467.10
</TABLE>

40
<PAGE>

In order to reflect the reduced sales charge, in the case of Class A shares,
or the waiver of the contingent deferred sales charge, in the case of Class B
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
contingent deferred sales charge and therefore may reflect greater total return
since, due to the reduced sales charge or the waiver of sales charges, a lower
amount of expenses is deducted.

GENERAL INFORMATION

DESCRIPTION OF SHARES

The Fund was incorporated under Maryland law on July 1, 1991. It has an
authorized capital of 200,000,000 shares of Common Stock, par value $0.10 per
share, divided into two classes, designated Class A Common Stock and Class B
Common Stock, each of which consists of 100,000,000 shares. Both Class A Common
Stock and Class B Common Stock represent an interest in the same assets of the
Fund and are identical in all respects except that expenses related to the
account maintenance fee of the Class A shares and the account maintenance and
distribution fees of the Class B shares are borne solely by each respective
class and that the Class A shares and Class B shares have exclusive voting
rights with respect to matters relating to such account maintenance and/or
distribution expenditures. The Fund has received an order from the Commission
permitting the issuance and sale of two classes of Common Stock. The Board of
Directors of the Fund may classify and reclassify the shares of the Fund into
additional classes of Common Stock at a future date. The creation of additional
classes would require an additional order from the Commission. There is no
assurance that such additional order would be issued.

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 a management 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
stockholders be held upon the written request of at least 10% of the
outstanding shares of the Fund entitled to vote at such meeting. Voting rights
for Directors are not cumulative. Shares issued are fully paid and non-
assessable and have no preemptive or conversion rights. Redemption rights are
discussed elsewhere herein and in the Prospectus. Each share of Class A Common
Stock or Class B 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 that expenses related to the distribution of the shares of a class will
be borne solely by such class. Stock certificates are issued by the transfer
agent only on specific request. Certificates for fractional shares are not
issued in any case.

The Manager provided the initial capital for the Fund by purchasing 5,000
Class A shares of Common Stock and 5,000 Class B shares of Common Stock for an
aggregate of $100,000. Such shares were acquired for investment and can only be
disposed of by redemption. The organizational expenses of the Fund (estimated
at approximately $125,909) will be paid by the Fund and amortized over a period
not exceeding five years. The proceeds realized by the Manager upon redemption
of any of such shares will be reduced by

41
<PAGE>

the proportionate amount of the unamortized organizational expenses which the
number of shares redeemed bears to the number of shares initially purchased.

COMPUTATION OF OFFERING PRICE PER SHARE

An illustration of the computation of the hypothetical offering price for
Class A and Class B shares of the Fund based on the value of the Fund's net
assets on November 30, 1993, and its shares outstanding on that date is as
follows:

<TABLE>
<CAPTION>
CLASS A CLASS B
----------- ------------
<S> <C> <C>
Net Assets............................................ $75,084,669 $305,300,973
=========== ============
Number of Shares Outstanding.......................... 5,196,890 21,214,500
=========== ============
Net Asset Value Per Share (net assets divided by num-
ber of shares outstanding)........................... $ 14.45 $ 14.39
Sales Charge (for Class A shares: 6.50% of offering
price (6.95% of net amount invested))*............... $ 0.60 **
----------- ------------
Offering Price........................................ $ 15.05 $ 14.39
=========== ============
</TABLE>
- --------
*Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
**Class B shares are not subject to an initial sales charge but may be
subject to a contingent deferred sales charge on redemption of shares within
four years of purchase. See "Purchase of Shares--Deferred Sales Charge
Alternative--Class B Shares" in the Prospectus and "Redemption of Shares--
Contingent Deferred Sales Charge--Class B Shares" herein.

INDEPENDENT AUDITORS

Deloitte & Touche, 117 Campus Drive, Princeton, New Jersey 08540, has been
selected as the independent auditors of the Fund. The selection of independent
auditors is subject to ratification by the Fund's shareholders. The independent
auditors are responsible for auditing the annual consolidated financial
statements of the Fund.

CUSTODIAN

The Chase Manhattan Bank, N.A., Global Securities Services, Chase Metrotech
Center, Brooklyn, New York 11245, acts as the custodian of the Fund's assets
(the "Custodian"). Under its contract with the Fund, the Custodian is
authorized to establish separate accounts in foreign currencies and to cause
foreign securities owned by the Fund to be held in its offices outside the U.S.
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

Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484, acts as the Fund's
transfer agent (the "Transfer Agent"). The Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening, maintenance
and

42
<PAGE>

servicing of shareholder accounts. See "Management of the Fund--Transfer Agency
Services" in the Prospectus.

LEGAL COUNSEL

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

REPORTS TO SHAREHOLDERS

The fiscal year of the Fund ends on November 30 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 Company has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933, as amended, and
the Investment Company Act, to which reference is hereby made.

Under a separate agreement, Merrill Lynch 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 Merrill Lynch, under
certain conditions, the use of any other name it might assume in the future,
with respect to any corporation organized by Merrill Lynch.

To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on February 28, 1994.

43
<PAGE>

[This page is intentionally left blank.]

44
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders,
Merrill Lynch Latin America Fund, Inc.:

We have audited the accompanying consolidated statement of assets and
liabilities, including the consolidated schedule of investments, of Merrill
Lynch Latin America Fund, Inc. and its subsidiary as of November 30, 1993, the
related consolidated statements of operations for the year then ended and
consolidated changes in net assets for each of the years in the two-year period
then ended, and the consolidated financial highlights for the two-year period
then ended and the period September 27, 1991 (commencement of operations) to
November 30, 1991. These consolidated financial statements and the consolidated
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the consolidated 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 consolidated
financial statements. Our procedures included confirmation of securities owned
at November 30, 1993 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements and consolidated
financial highlights present fairly, in all material respects, the financial
position of Merrill Lynch Latin America Fund, Inc. and its subsidiary as of
November 30, 1993, the results of their operations, the changes in their net
assets, and the consolidated financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.

Deloitte & Touche
Princeton, New Jersey

January 14, 1994

45
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED SCHEDULE OF INVESTMENTS
(in US dollars)

Shares Held/ Value Percent of
Industries Face Amount Long-Term Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
COUNTRY
Argentina
Banking 51,750 Banco de Galicia y Buenos Aires S.A. (Preferred) $ 1,049,513 $ 1,630,125 0.4%
521,826 Banco de Galicia y Buenos Aires S.A. (ADR)(2) 3,250,066 4,157,249 1.1
658,181 Banco Frances del Rio de la Plata S.A. 3,854,286 6,496,720 1.7
------------ ------------ -----
8,153,865 12,284,094 3.2

Beverage 1,746 Buenos Aires Embotelladora S.A. (BAESA) 1,759,894 3,044,433 0.8
55,000 Buenos Aires Embotelladora S.A. (BAESA) (ADR) (2) 1,041,250 1,925,000 0.5
------------ ------------ -----
2,801,144 4,969,433 1.3

Food 11,593 ++Quilmes Industrial S.A. 2,433,587 4,057,550 1.1

Oil & Related 1,501,341 Astra Compania Argentina de Petroleo S.A. 3,634,208 3,009,000 0.8
66,700 Compania Naviera Perez Companc S.A.C.F.I.M.F.A. 341,587 377,649 0.1
10,000 Yacimientos Petroliferos Fiscales S.A.--
Sponsored (ADR) (2) 211,850 247,500 0.1
------------ ------------ -----
4,187,645 3,634,149 1.0

Real Estate 1,193,565 Inversiones y Representaciones S.A. (IRSA) 3,102,196 3,289,211 0.9

Tobacco 49,980 Massalin Particulares S.A. 508,374 626,065 0.2

Utilities 400,000 Telecom Argentina Stet--France Telecom S.A. 1,968,257 1,883,956 0.5
145,580 ++Telecom Argentina Stet--France Telecom S.A.
(ADR)(2) 5,967,281 6,805,865 1.8
525,000 Telefonica de Argentina S.A. 3,009,246 2,862,010 0.7
70,276 ++Telefonica de Argentina S.A. (ADR)(2) 2,132,935 3,794,904 1.0
------------ ------------ -----
13,077,719 15,346,735 4.0

Total Long-Term Investments in Argentina 34,264,530 44,207,237 11.7

Brazil
Appliances 10,490,500 Brasmotor Group S.A. (Preferred) 713,244 2,045,019 0.5
1,016,000 Consul S.A. 527,444 796,542 0.2
------------ ------------ -----
1,240,688 2,841,561 0.7

Banking 59,722,189 Banco Bradesco S.A. 794,054 1,543,863 0.4
9,760,400 Banco Itau S.A. (Preferred) 1,028,419 1,861,330 0.5
73,706,300 Banco Nacional S.A. 2,644,793 4,151,192 1.1
5,170,000 Uniao de Bancos Brasileiros S.A. (UNIBANCO) 356,424 339,598 0.1
------------ ------------ -----
4,823,690 7,895,983 2.1

Beverage 18,467,072 Companhia Cervejaria Brahma S.A. (Preferred) 3,657,137 3,443,451 0.9
1,880,905 Companhia Cervejaria Brahma S.A. (Warrants)(a) 48,935 26,555 0.0
------------ ------------ -----
3,706,072 3,470,006 0.9

Building &
Construction 547,000 Companhia Cimento Portland Itau S.A. PN 134,354 143,722 0.1

Coal 55,496,800 Companhia Vale do Rio Doce S.A. (CVRD) (Preferred) 3,529,496 4,633,161 1.2

Electrical &
Electronics 675,841 Companhia Energetica de Sao Paulo S.A. (CESP) 416,613 973,793 0.3

Food 638,246,001 Sadia Concordia S.A. Industria e Comercio (Preferred) 4,833,210 4,408,785 1.2
</TABLE>

46
<PAGE>

<TABLE>

<S> <C> <S> <C> <C> <C>
Paper 243,234 Aracruz Celulose S.A. (Preferred) 647,358 494,776 0.1

Retail 732,100 Lojas Americanas S.A. 730,568 853,191 0.2

Steel 2,317,000 Acos Industria Villares S.A. 549,535 407,490 0.1
55,358,100 Companhia Siderurgica Nacional S.A.--CSN 1,013,994 1,219,910 0.3
8,254,882,013 Usinas Siderurgicas de Minas Gerais--Usiminas S.A.
(Preferred) 3,781,337 5,772,152 1.5
------------ ------------ -----
5,344,866 7,399,552 1.9

Telecommunications 207,918,300 Telecomunicacoes Brasileiras S.A.--Telebras
(Preferred) 4,527,250 7,278,066 1.9
31,300,000 Telecomunicacoes Brasileiras S.A.--Telebras 900,525 875,450 0.2
13,779,600 Telecomunicacoes de Sao Paulo S.A.--TELESP
(Preferred) 2,407,403 4,788,436 1.3
4,430,936 Telecomunicacoes Parana S.A.--TELEPAR
(Preferred) 754,996 1,126,652 0.3
------------ ------------ -----
8,590,174 14,068,604 3.7

Transportation 165,000 Marcopolo S.A. Carrocerias E Onibus 'B' (Preferred) 25,066 28,319 0.0

Utilities 25,220,700 Centrais Eletricas Brasileiras S.A.--Eletrobras 'B'
(Preferred) 3,534,189 3,783,586 1.0
4,387,500 Centrais Eletricas da Santa Catarina S.A. (CELESC) 764,541 2,063,875 0.5
858,500,000 Companhia Energetica de Minas Gerais S.A. (CEMIG) 507,838 1,393,421 0.4
------------ ------------ -----
4,806,568 7,240,882 1.9

Total Long-Term Investments in Brazil 38,828,723 54,452,335 14.3

Chile
Apparel 3,470,235 Bata Chile S.A. 979,375 960,963 0.2

Beverage 2,704,625 Vina Concha y Toro S.A. 1,176,792 1,078,234 0.3

Building &
Construction 299,173 Empresas Pizarreno S.A. 571,715 544,211 0.2
285,200 Maderas y Sinteticos S.A. (MASISA) (ADR)
(Foreign) (2) 4,497,944 5,668,350 1.5
128,445 Maderas y Sinteticos S.A. (MASISA) (Ordinary) 57,151 84,322 0.0
------------ ------------ -----
5,126,810 6,296,883 1.7

Chemicals 16,000 Sociedad Quimica y Minera de Chile S.A. (ADR) (2) 412,960 380,000 0.1

Closed-End Funds 194,984 The Chile Fund, Inc. 5,611,483 6,897,559 1.8

Pharmaceutical 1,892,536 Laboratorio Chile S.A. (LABCHILE) 1,166,264 1,265,004 0.3

Telecommunications 213,118 Empresa Nacional de Telecomunicaciones S.A. (Entel) 1,449,275 1,780,647 0.4

Utilities 15,825 Compania de Telefonos de Chile S.A. (ADR) (2) 873,174 1,329,300 0.4
144,000 ++Distribuidora Chilectra Metropolitana S.A.
(Chilectra) (ADR)(2) 3,815,919 4,482,000 1.2
5,531,748 Empresa Nacional de Electricidad S.A.--ENDESA 2,255,686 2,399,424 0.6
33,000 Enersis S.A. (ADR) (2) 594,000 647,625 0.2
------------ ------------ -----
7,538,779 8,858,349 2.4

Total Long-Term Investments in Chile 23,461,738 27,517,639 7.2

Colombia
Banking 379,378 Banco de Bogota 1,343,582 1,822,742 0.5

Retail 530,129 Gran Cadena de Almacenes Colombianos (CADENALCO) 994,422 966,566 0.2

Total Long-Term Investments in Colombia 2,338,004 2,789,308 0.7
</TABLE>

47
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)

Shares Held/ Value Percent of
Industries Face Amount Long-Term Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
COUNTRY
Mexico
Banking 130,100 ++Grupo Financiero Bancomer, S.A. de C.V. (ADR) (2) $ 3,758,586 $ 4,586,025 1.2%
736,000 Grupo Financiero Probursa, S.A. de C.V. 806,262 795,227 0.2
403,500 ++Servicios Financieros Quadrum, S.A. de C.V.
(ADR) (2) 5,138,911 9,835,313 2.6
------------ ------------ -----
9,703,759 15,216,565 4.0

Beverages & Tobacco 25,600 Coca-Cola Femsa S.A. (ADR) (2) 543,499 729,600 0.2
449,000 ++Fomento Economico Mexicano, S.A. de C.V. (Femsa)
(ADR) (2) 2,483,860 2,694,000 0.7
683,500 Fomento Economico Mexicano, S.A. de C.V. (Femsa)
(Ordinary) 2,530,446 4,133,406 1.1
192,000 ++Grupo Embotellador de Mexico, S.A. de C.V. (GGEMEX) 3,331,200 5,808,000 1.5
------------ ------------ -----
8,889,005 13,365,006 3.5

Building &
Construction 952,000 Apasco, S.A. de C.V. 'A' 3,981,144 8,044,638 2.1
67,500 Bufete Industrial, S.A. (ADR) (2) 1,552,500 1,873,125 0.5
275,000 Cementos Mexicanos, S.A. de C.V. Nom 'B' (Cemex) 4,746,384 7,166,586 1.9
349,000 Grupo Tribasa, S.A. de C.V. (ADR) (2) 5,462,336 8,550,500 2.3
126,795 Internacional de Ceramica, S.A. de C.V. 'B' 433,309 797,453 0.2
251,000 Internacional de Ceramica, S.A. de C.V. 'C' 1,040,715 1,619,094 0.4
703,500 Tolmex, S.A. de C.V. 'B' 4,293,222 8,349,879 2.2
------------ ------------ -----
21,509,610 36,401,275 9.6

Chemicals 734,800 Grupo Cydsa, S.A. de C.V. 2,492,625 2,512,137 0.7

Diversified 1,576,000 Grupo Carso, S.A. de C.V. 10,273,427 13,927,560 3.7

Food 1,523,846 Grupo Herdez, S.A. de C.V. 'A' 1,251,352 1,366,325 0.3
1,382,461 Grupo Herdez, S.A. de C.V. 'B' 1,369,376 1,395,615 0.4
3,069,189 Grupo Industrial Maseca, S.A. de C.V. 'B2' 2,231,532 4,078,393 1.1
------------ ------------ -----
4,852,260 6,840,333 1.8

Glass Manufacturing 65,200 Vitro, S.A. (ADR)(2) 1,250,211 1,198,050 0.3

Health & Personal
Care 134,500 Controladora de Farmacias, S.A. de C.V. (COFAR) 199,608 243,796 0.1
733,750 Kimberly-Clark de Mexico, S.A. de C.V. 'A' 6,854,135 11,951,097 3.1
650,500 Nacional de Dragos, S.A. de C.V. (Nadro) 'L' 1,914,494 3,147,073 0.8
------------ ------------ -----
8,968,237 15,341,966 4.0

Leisure 356,500 ++Grupo Posadas, S.A. de C.V. (GDS)(3) 5,231,508 5,704,000 1.5
522,040 ++Grupo Situr, S.A. de C.V. (ADR)(2) 6,889,491 10,440,800 2.8
------------ ------------ -----
12,120,999 16,144,800 4.3

Merchandising 656,000 Farmacias Benavides, S.A. de C.V. 2,926,674 3,215,998 0.8

Retail 4,650,000 Cifra, S.A. de C.V. 'C' 9,166,230 12,897,920 3.3
1,390,000 Controladora Comercial Mexicana, S.A. de C.V.
(COMERCI) 1,983,402 2,842,316 0.7
2,130,000 El Puerto de Liverpool, S.A. de C.V. (Non-Voting)
(Series C1) 2,564,569 3,778,423 1.0
7,020,000 Grupo Gigante, S.A. de C.V. 5,412,800 5,139,623 1.4
115,000 Sears Roebuck de Mexico, S.A. de C.V. 'B' 847,388 1,713,595 0.5
------------ ------------ -----
</TABLE>

48
<PAGE>

<TABLE>
<S> <C> <S> <C> <C> <C>
19,974,389 26,371,877 6.9

Steel 367,000 Grupo Industrial Alfa, S.A. de C.V. 3,411,561 2,367,360 0.6
120,000 Grupo Simec, S.A. de C.V. (ADR) (2) 1,763,700 2,595,000 0.7
1,830,000 Grupo Simec, S.A. de C.V. (Ordinary) 1,645,949 2,030,382 0.5
290,000 Tubos de Acero de Mexico, S.A. de C.V. (Tamsa) 2,825,918 1,459,119 0.4
65,000 Tubos de Acero de Mexico, S.A. de C.V. (Tamsa)
(ADR) (2) 361,385 316,875 0.1
------------ ------------ -----
10,008,513 8,768,736 2.3

Telecommunications 100,000 Alcatel Indetel, S.A. de C.V. 'B' 1,071,575 709,563 0.2

Transportation 232,000 Transportacion Maritima Mexicana, S.A.
de C.V. 'L' (TMM) 2,281,781 2,570,295 0.7

Utilities 241,500 Empresas ICA Sociedad Controladora, S.A. de
C.V. (ADR)(2) 4,632,397 5,856,375 1.6
350,400 Telefonos de Mexico, S.A. de C.V. (Telmex) (ADR)(2) 18,289,088 19,534,800 5.1
------------ ------------ -----
22,921,485 25,391,175 6.7

Total Long-Term Investments in Mexico 139,244,550 187,975,336 49.5

Panama
Banking 80,000 Banco Latinoamericano de Exportaciones S.A.
("BLADEX") 'E' 1,992,245 3,240,000 0.8

Beverages & Tobacco 40,600 PanAmerican Beverages Inc. 1,172,475 1,476,825 0.4

Total Long-Term Investments in Panama 3,164,720 4,716,825 1.2

Peru
Banking 1,483,812 Banco de Credito de Peru S.A. 2,033,580 2,625,914 0.7
176,993 Banco Wiese Limitado 939,004 1,374,940 0.4
------------ ------------ -----
2,972,584 4,000,854 1.1

Beverages 994,226 Compania Nacional de Cerveza S.A. 1,305,585 781,488 0.2

Building &
Construction 442,517 Cementos Lima S.A. 834,883 935,683 0.2

Mining 169,225 Southern Peru Copper Corp. S.A. 536,856 373,376 0.1

Total Long-Term Investments in Peru 5,649,908 6,091,401 1.6

Venezuela
Building &
Construction 463,548 Corporacion Ceramica Carabobo 'B' 1,552,286 1,077,184 0.3
527,096 Corporacion Ceramica Carabobo C.A. 2,093,848 1,275,891 0.3
--------- --------- ---
3,646,134 2,353,075 0.6

Cement 200,000 Venezolana de Cementos S.A.C.A. (Vencemos) 293,183 336,948 0.1

Food & Household
Products 7,539,674 Mavesa S.A. 2,587,936 3,358,104 0.9
50,000 ++Mavesa S.A. (ADR) (2) 381,250 437,500 0.1
------------ ------------ -----
2,969,186 3,795,604 1.0

Foreign Government US$ 5,750,000 Republic of Venezuela, Floating Rate Notes,
Obligations 4.312% due 12/18/2007(1) 4,300,625 3,852,500 1.0

Multi-Industry 1,837,882 Venaseta S.A. 711,151 427,083 0.1
918,941 Venaseta S.A. 'B' Shares 178,228 177,952 0.1
------------ ------------ -----
889,379 605,035 0.2
</TABLE>

49
<PAGE>

<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Long-Term Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
COUNTRY
Venezuela (concluded)
Steel 216,000 ++Siderurgica Venezolana SIVENSA, S.A.I.C.A.
-S.A.C.A. (ADR)(2) $ 1,231,384 $ 270,000 0.1%
168,500 ++Venezolana de Prerreducidos Caroni 'Venprecar' C.A.
(GDS)(3) 1,230,050 926,750 0.2
------------ ------------ -----
2,461,434 1,196,750 0.3

Utilities 1,316,450 C.A. La Electricidad de Caracas S.A.I.C.A.
-S.A.C.A. 5,131,583 4,544,098 1.2

Total Long-Term Investments in Venezuela 19,691,524 16,684,010 4.4

Total Long-Term Investments in Latin America 266,643,697 344,434,091 90.6

<CAPTION>
Short-Term Investments
<S> <C> <S> <C> <C> <C>
United States
Commercial Paper* US$ 7,000,000 Allergan, Inc., 3.09% due 12/29/1993 6,983,177 6,983,177 1.8
7,000,000 B.A.T. Capital Corp., 3.10% due 12/07/1993 6,996,383 6,996,383 1.8
9,883,000 General Electric Capital Corp., 3.25% due 9/01/1993 9,883,000 9,883,000 2.6
6,000,000 Preferred Receivables Funding Corp., 3.11%
due 12/15/1993 5,992,743 5,992,743 1.6

Total Short-Term Investments in the United States 29,855,303 29,855,303 7.8

Total Investments $296,499,000 374,289,394 98.4
============
Other Assets Less Liabilities 6,096,248 1.6
------------ -----
Net Assets $380,385,642 100.0%
============ =====

<FN>
(1)The interest rate is subject to change periodically based on the change in the LIBOR
(London Interbank Offered Rate). The interest rate shown is the rate in effect as of
November 30, 1993.
(2)American Depositary Receipt (ADR).
(3)Global Depositary Shares (GDS).
*Commercial Paper is traded on a discount basis; the interest rate shown is the discount
rate paid at the time of purchase by the Fund.
(a)Warrants entitle the Fund to purchase a predetermined number of shares of Common Stock.
The purchase price and number of shares are subject to adjustment under certain conditions
until the expiration date.
++Restricted securities as to resale. The value of the Fund's investment in restricted
securities was approximately $59,843,000, representing 15.7% of net assets.

<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Distribuidora Chilectra Metropolitana S.A. (Chilectra) (ADR) 2/12/1992 $ 3,815,919 $ 4,482,000
Fomento Economico Mexicano, S.A. de C.V. (Femsa) (ADR) 6/21/1993 2,483,860 2,694,000
Grupo Embotellador de Mexico, S.A. de C.V. (GGEMEX) 12/11/1992 3,331,200 5,808,000
Grupo Financiero Bancomer, S.A. de C.V. (ADR) 3/16/1992 3,758,586 4,586,025
Grupo Posadas, S.A. de C.V. (GDS) 3/23/1992 5,231,508 5,704,000
Grupo Situr, S.A. de C.V. (ADR) 12/03/1991 6,889,491 10,440,800
Mavesa S.A. (ADR) 10/13/1993 381,250 437,500
Quilmes Industrial S.A. 6/11/1992 2,433,587 4,057,550
Servicios Financieros Quadrum, S.A. de C.V. (ADR) 7/28/1993 5,138,911 9,835,313
Siderurgica Venezolana SIVENSA, S.A.I.C.A.-S.A.C.A. (ADR) 10/8/1991 1,231,384 270,000
Telecom Argentina Stet--France Telecom S.A. (ADR) 3/23/1992 5,967,281 6,805,865
Telefonica de Argentina S.A. (ADR) 1/29/1992 2,132,935 3,794,904
Venezolana de Prerreducidos Caroni 'Venprecar' C.A. (GDS) 2/13/1992 1,230,050 926,750

Total $44,025,962 $59,842,707
=========== ===========

See Notes to Financial Statements.
</TABLE>

50
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

As of November 30, 1993
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$296,499,000) (Note 1a) $374,289,394
Foreign cash 1,390,824
Receivables:
Capital shares sold $ 8,274,098
Interest 112,467
Dividends 108,353 8,494,918
------------
Deferred organization expenses (Note 1g) 65,924
Prepaid registration fees and other assets (Note 1g) 39,603
------------
Total assets 384,280,663
------------

Liabilities: Payables:
Capital shares redeemed 1,617,264
Securities purchased 1,484,403
Distributor (Note 2) 254,080
Investment adviser (Note 2) 250,585 3,606,332
------------

Accrued expenses and other liabilities 288,689
------------
Total liabilities 3,895,021
------------

Net Assets: Net assets $380,385,642
============
Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares authorized $ 519,689
Consist of: Class B Common Stock, $0.10 par value, 100,000,000 shares authorized 2,121,450
Paid-in capital in excess of par 301,032,004
Undistributed investment income--net 1,851,058
Accumulated realized capital losses and foreign currency transactions--net (Note 5) (2,911,311)
Unrealized appreciation on investments and foreign currency transactions--net 77,772,752
------------
Net assets $380,385,642
============

Net Asset Value: Class A--Based on net assets of $75,084,669 and 5,196,890 shares outstanding $ 14.45
============
Class B--Based on net assets of $305,300,973 and 21,214,500 shares outstanding $ 14.39
============
See Notes to Financial Statements.
</TABLE>

51
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended November 30, 1993
<S> <C> <C> <C>
Investment Dividends (net of $605,085 foreign withholding tax) $ 5,858,377
Income Interest and discount earned 1,818,197
(Notes 1e &1f): ------------
Total income 7,676,574
------------

Expenses: Investment advisory fees (Note 2) 2,091,529
Distribution fees--Class B (Note 2) 1,673,753
Custodian fees 386,602
Transfer agent fees--Class B (Note 2) 273,426
Printing and shareholder reports 137,341
Accounting services 130,471
Account maintenance fees--Class A (Note 2) 104,444
Registration fees (Note 1g) 91,418
Professional fees 71,411
Transfer agent fees--Class A (Note 2) 62,999
Directors' fees and expenses 31,137
Amortization of organization expenses (Note 1g) 23,267
Other 14,344
------------
Total expenses 5,092,142
------------
Investment income--net 2,584,432
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ 5,104,774
(Loss) on Foreign currency transactions (1,807,195) 3,297,579
Investments and ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 88,035,792
(Notes 1c, 1f & 3): Foreign currency transactions (18,861) 88,016,931
------------ ------------

Net realized and unrealized gain on investments and foreign currency transactions 91,314,510
------------

Net Increase in Net Assets Resulting from Operations $ 93,898,942
============
</TABLE>
See Notes to Financial Statements.

52
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES OF NET ASSETS

For the Year Ended November 30,
Increase (Decrease) in Net Assets: 1993 1992
<S> <C> <C> <C>
Operations: Investment income--net $ 2,584,432 $ 1,213,990
Realized gain (loss) on investments and foreign currency transactions--net 3,297,579 (3,854,316)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net 88,016,931 (8,092,294)
------------ ------------
Net increase (decrease) in net assets resulting from operations 93,898,942 (10,732,620)
------------ ------------

Dividends & Investment income--net:
Distributions to Class A (714,383) (230,346)
Shareholders Class B (1,699,059) (634,408)
(Note 1h): Realized gain on investments--net:
Class A (289,614) (2,877)
Class B (1,200,960) (10,102)
------------ ------------

Net decrease in net assets resulting from dividends and distributions
to shareholders (3,904,016) (877,733)
------------ ------------

Capital Share Net increase in net assets derived from capital share transactions 133,361,981 87,553,452
Transactions ------------ ------------
(Note 4):

Net Assets: Total increase in net assets 223,356,907 75,943,099
Beginning of year 157,028,735 81,085,636
------------ ------------
End of year* $380,385,642 $157,028,735
============ ============
<FN>
*Undistributed investment income--net $ 1,851,058 $ 1,680,068
============ ============
</TABLE>
See Notes to Financial Statements.

53
<PAGE>

CONSOLIDATED FINANCIAL HIGHLIGHTS
Class A Class B
For the For the
Period Period
The following per share data and ratios have been derived For the Sept. 27, For the Sept. 27,
from information provided in the financial statements. Year Ended 1991++ to Year Ended 1991++ to
November 30, Nov. 30, November 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1993 1992 1991 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.90 $ 9.81 $ 10.00 $ 9.83 $ 9.80 $ 10.00
Operating ------- ------- ------- -------- -------- -------
Performance: Investment income--net .18 .15 .06 .10 .08 .04
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1) 4.69 .06 (.25) 4.68 .05 (.24)
------- ------- ------- -------- -------- -------
Total from investment operations 4.87 .21 (.19) 4.78 .13 (.20)
------- ------- ------- -------- -------- -------
Less dividends and distributions:
Investment income--net (.23) (.12) -- (.13) (.10) --
Realized gain on investments--net (.09) --++++ -- (.09) --++++ --
------- ------- ------- -------- -------- -------
Total dividends and distributions (.32) (.12) -- (.22) (.10) --
------- ------- ------- -------- -------- -------
Net asset value, end of period $ 14.45 $ 9.90 $ 9.81 $ 14.39 $ 9.83 $ 9.80
======= ======= ======= ======== ======== =======

Total Investment Based on net asset value per share 50.86% 2.19% (1.90%)+++ 49.80% 1.30% (2.00%)+++
Return:** ======= ======= ======= ======== ======== =======

Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees 1.58% 1.64% 1.72%* 1.59% 1.65% 1.73%*
======= ======= ======= ======== ======== =======
Expenses 1.83% 1.89% 1.97%* 2.59% 2.65% 2.73%*
======= ======= ======= ======== ======== =======
Investment income--net 1.83% 2.18% 4.05%* 1.09% 1.30% 3.28%*
======= ======= ======= ======== ======== =======

Supplemental Net assets, end of period (in thousands) $75,085 $30,685 $18,074 $305,301 $126,344 $63,012
Data: ======= ======= ======= ======== ======== =======
Portfolio turnover 24.74% 36.50% 0% 24.74% 36.50% 0%
======= ======= ======= ======== ======== =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Amount less than $.01 per share.
+++Aggregate total investment return.
(1)Foreign currency transactions amounts have been reclassified to conform to the 1993 presentation.
See Notes to Financial Statements.
</TABLE>

54
<PAGE>

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies:
Merrill Lynch Latin America Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment company. The shares
of the Fund are divided into Class A Shares and Class B Shares.
Class A Shares are sold with a front-end sales charge. Class B
Shares may be subject to a contingent deferred sales charge. Both
classes of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except that
Class A Shares bear the expenses of the ongoing account
maintenance fee and except that Class B Shares bear certain
expenses related to the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.

(a) Valuation of investments--Portfolio securities which are
traded on stock exchanges are valued at their last sale price on
the principal market on which such securities are traded as of
the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available
bid prices obtained from one or more dealers in the over-the-counter
market prior to the time of valuation. Portfolio securities which are
traded both in the over-the-counter market and on a stock exchange
are valued according to the broadest and most representative market.
Short-term securities with a remaining maturity of sixty days or
less are valued at amortized cost, which approximates market value.
Options written by the Fund are valued at the last asked price in
the case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the average of the last asked price
as obtained from one or more dealers. Options purchased by the Fund
are valued at the last bid price in the case of exchange-traded options
or, in the case of options traded in the over-the-counter market, the
average of the last bid price as obtained from two or more dealers
unless there is only one dealer, in which case that dealer's price is
used. Other investments, including futures contracts and related options,
are stated 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.

(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank
of the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price.
The Fund takes possession of the underlying securities, marks to
market such securities and, if necessary, receives additions to such
securities daily to ensure that the contract is fully collateralized.

(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded in 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) such transactions expressed in
foreign currencies into US dollars. Realized and unrealized gains
or losses from investments include the effects of foreign exchange
rates on investments.

The Fund is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or
portfolio positions. Such contracts are not entered on the Fund's
records. However, the effect on net assets is recorded from the date
the Fund enters into such contracts. Premium or discount is amortized
over the life of the contracts.

(d) Options--When the Fund sells an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option
written.

When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted
from (or added to) the proceeds of the security sold. When an
option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction is less than or exceeds the
premiums paid or received).

Written and purchased options are non-income producing
investments.

(e) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required. Under the applicable foreign tax law,
a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.

55
<PAGE>

(f) Security transactions and investment income--Security trans-
actions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-dividend
date except that if the ex-dividend date has passed, certain
dividends from foreign securities are recorded as soon as the
Fund is informed of the ex-dividend date. Interest income
including amortization of discount is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.

(g) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.

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

(i) Basis of consolidation--The accompanying consolidated finan-
cial statements include the accounts of ML Latin America Fund
Chile Ltd., a wholly-owned subsidiary, which primarily invests in
Chilean securities. Intercompany accounts and transactions have
been eliminated.

(j) Reclassifications--Certain 1992 amounts have been reclassified
to conform to the 1993 presentation.

2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management ("MLAM"). MLAM is the name under
which Merrill Lynch Investment Management, Inc. ("MLIM") does
business. MLIM is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of MLIM.

MLAM is responsible for the management of the Fund's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee of 1.0%, on an
annual basis, of the average daily value of the Fund's net
assets. Certain of the states in which the shares of the Fund are
qualified for sale impose limitations on the expenses of the
Fund. The most restrictive annual expense limitation requires
that the Investment Adviser reimburse the Fund to the extent the
Fund's expenses (excluding interest, taxes, distribution

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

Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, MLPF&S, FDS, MLFD, and/or Merrill Lynch
& Co., Inc.

3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended November 30, 1993 were
$152,808,837 and $48,508,790, respectively.

Net realized and unrealized gains (losses) as of November 30,
1993 were as follows:

Realized Unrealized
Gains Gains
(Losses) (Losses)

Long-term investments $ 5,104,717 $77,790,394
Short-term investments 57 --
Foreign currency transactions (1,807,195) (17,642)
----------- -----------
Total $ 3,297,579 $77,772,752
=========== ===========

As of November 30, 1993, net unrealized appreciation for Federal
income tax purposes aggregated $77,790,394, of which $87,568,616
related to appreciated securities and $9,778,222 related to
depreciated securities. At November 30, 1993, the aggregate cost
of investments for Federal income tax purposes was $296,499,000.

4. Capital Share Transactions:
Net increase in net assets derived from capital share
transactions was $133,361,981 and $87,553,452 for the years ended
November 30, 1993 and November 30, 1992, respectively.

Transactions in capital shares for Class A and Class B Shares
were as follows:

Class A Shares for the Year Ended Dollar
November 30, 1993 Shares Amount

Shares sold 2,937,106 $ 36,285,613
Shares issued to shareholders in reinvestment
of dividends and distributions 91,657 890,902
---------- ------------
Total issued 3,028,763 37,176,515
Shares redeemed (932,700) (10,899,696)
---------- ------------
Net increase 2,096,063 $ 26,276,819
========== ============

56
<PAGE>

fees, brokerage fees and commissions, and extraordinary items) exceed
2.5% of the Fund's first $30 million of average daily net assets,
2.0% of the next $70 million of average daily net assets and 1.5%
of the average daily net assets in excess thereof. No fee payment
will be made to MLAM during any fiscal year which will cause such
expenses to exceed the expense limitations at the time of such
payment.

Effective January 1, 1994, the investment advisory business of
MLAM reorganized from a corporation to a limited partnership. The
general partner of MLAM is Princeton Services, Inc., an indirect
wholly-owned subsidiary of Merrill Lynch & Co.

The Fund has adopted separate Plans of Distribution (the
"Distribution Plans") for Class A and Class B Shares pursuant
to Rule 12b-1 under the Investment Company Act of 1940 pursuant
to which MLFD receives from the Fund at the end of each month (a)
an account maintenance fee, at an annual rate of 0.25% of the
average daily net assets of the Fund's Class A Shares in order to
compensate the Distributor in connection with account maintenance
activities, and (b) a distribution fee at an annual rate of 1.0%
of the average daily net assets of the Fund's Class B Shares in
order to compensate the Distributor for the services it provides
and the expenses borne by the Distributor under the Distribution
Agreement. As authorized by the Distribution Plans, the
Distributor has entered into an agreement with Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), which provides for the
compensation of MLPF&S in connection with account maintenance
activities for Class A Shares and for providing distribution-
related services to the Fund for Class B Shares. For the year
ended November 30, 1993, MLFD earned $104,444 and $1,673,753 for
Class A and Class B Shares, respectively, under the Distribution
Plans, all of which was paid to MLPF&S pursuant to the agreement.

For the year ended November 30, 1993, MLFD earned underwriting
discounts of $52,202, and MLPF&S earned dealer concessions of
$640,928 on sales of the Fund's Class A Shares.

For the year ended November 30, 1993, MLPF&S received contingent
deferred sales charges of $641,317 relating to transactions in
Class B Shares and $23,983 in commissions on the execution of
portfolio security transactions for the Fund during the year.

Financial Data Services, Inc. ("FDS"), a wholly-owned
subsidiary of Merrill Lynch & Co., Inc., is the Fund's transfer
agent.

Class A Shares for the Year Dollar
Ended November 30, 1992 Shares Amount

Shares sold 1,932,748 $ 21,799,197
Shares issued to shareholders in reinvestment
of dividends and distributions 20,664 204,983
---------- ------------
Total issued 1,953,412 22,004,180
Shares redeemed (695,040) (7,709,783)
---------- ------------
Net increase 1,258,372 $ 14,294,397
========== ============

Class B Shares for the Year Ended Dollar
November 30, 1993 Shares Amount

Shares sold 10,861,570 $136,390,183
Shares issued to shareholders in reinvestment
of dividends and distributions 253,359 2,472,784
---------- ------------
Total issued 11,114,929 138,862,967
Shares redeemed (2,748,458) (31,777,805)
---------- ------------
Net increase 8,366,471 $107,085,162
========== ============

Class B Shares for the Year Dollar
Ended November 30, 1992 Shares Amount

Shares sold 7,458,315 $ 84,216,625
Shares issued to shareholders in reinvestment
of dividends and distributions 55,565 551,761
---------- ------------
Total issued 7,513,880 84,768,386
Shares redeemed (1,097,798) (11,509,331)
---------- ------------
Net increase 6,416,082 $ 73,259,055
========== ============

5. Capital Loss Carryforward:
At November 30, 1993, the Fund had a capital loss carryforward of
approximately $1,104,000, all of which expires in 2001 and will
be available to offset like amounts of any future taxable gains.

6. Subsequent Event:
On December 15, 1993, the Board of Directors declared an ordinary
income dividend of $0.108476 per Class A Share and $0.048488 per
Class B Share, payable on December 22, 1993 to shareholders of
record as of December 14,1993.

57
<PAGE>

[This page is intentionally left blank.]

58
<PAGE>

[This page is intentionally left blank.]

59
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................... 2
Portfolio Strategies Involving Options and Futures........................ 2
Other Investment Policies and Practices................................... 7
Investment Restrictions................................................... 9
Management of the Fund..................................................... 12
Directors and Officers.................................................... 12
Management and Advisory Arrangements...................................... 13
Purchase of Shares......................................................... 15
Alternative Sales Arrangements............................................ 15
Initial Sales Charge Alternative--Class A Shares.......................... 16
Reduced Initial Sales Charges--Class A Shares............................. 16
Redemption of Shares....................................................... 19
Contingent Deferred Sales Charge--Class B Shares.......................... 20
Portfolio Transactions and Brokerage....................................... 20
Determination of Net Asset Value........................................... 22
Shareholder Services....................................................... 23
Investment Account........................................................ 23
Automatic Investment Plan................................................. 23
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 23
Systematic Withdrawal Plans--Class A Shares............................... 24
Exchange Privilege........................................................ 24
Dividends, Distributions and Taxes......................................... 36
Dividends and Distributions............................................... 36
Taxes..................................................................... 36
Performance Data........................................................... 39
General Information........................................................ 41
Description of Shares..................................................... 41
Computation of Offering Price Per Share................................... 42
Independent Auditors...................................................... 42
Custodian................................................................. 42
Transfer Agent............................................................ 42
Legal Counsel............................................................. 43
Reports to Shareholders................................................... 43
Additional Information.................................................... 43
Independent Auditors' Report............................................... 45
Consolidated Financial Statements.......................................... 46
</TABLE>

Code #13991

Statement of
Additional Information
(ART)
- -------------------------------------------------------------------------------
MERRILL LYNCH
LATIN AMERICA FUND, INC.

March 29, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS

Contained in Part A:

Consolidated Financial Highlights for the fiscal years ended
November 30, 1993, and 1992 and the fiscal period September 27, 1991
(commencement of operations) to November 30, 1991.

Contained in Part B:

Consolidated Schedule of Investments as of November 30, 1993.

Consolidated Statement of Assets and Liabilities as of November 30,
1993.

Consolidated Statement of Operations for the fiscal year ended
November 30, 1993.

Consolidated Statements of Changes of Net Assets for each of the
years in the two-year period ended November 30, 1993.

Consolidated Financial Highlights for the fiscal years ended
November 30, 1993, and 1992 and the fiscal period September 27, 1991
(commencement of operations) to November 30, 1991.

(B) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1(a) --Articles of Incorporation of Registrant.(a)
(b) --Articles Supplementary of Registrant.(b)
2 --By-Laws of Registrant.(b)
3 --None.
4 --Copies of instruments defining the rights of shareholders,
including the relevant portions of the Articles of Incorporation, as
amended, and By-Laws of Registrant.(e)
5 --Management Agreement between Registrant and Merrill Lynch Asset
Management, Inc.(b)
6(a) --Class A Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(b)
(b) --Class B Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(b)
(c) --Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund
Adviser Program.
7 --None.
8 --Custody Agreement between Registrant and The Chase Manhattan Bank,
N.A.(c)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial Data
Services, Inc.(b)
10 --None.
11 --Consent of Deloitte & Touche, independent auditors for Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc.(c)
14 --None.
15(a) --Class A Distribution Plan of Registrant. (b)
(b) --Amended and Restated Class B Distribution Plan of Registrant.
16(a) --Schedule for computation of each performance quotation for Class A
shares provided in the Registration Statement in response to Item
22.(d)
(b) --Schedule of computation of each performance quotation for Class B
shares provided in the Registration Statement in response to Item
22.(d)
</TABLE>
- --------
(a) Filed on July 9, 1991 in connection with Registrant's Registration
Statement on Form N-1A under the Securities Act of 1933.
(b) Filed on August 14, 1991 in connection with Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(c) Filed on August 22, 1991 in connection with Pre-Effective Amendment No. 2
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.

C-1
<PAGE>

(d) Filed on February 21, 1992, in connection with Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.

(e) Reference is made to Article III (Sections 3 and 4), Article V, Article VI
(Sections 2, 3, 4, 5 and 6), Article VII, Article VIII and Article X of the
Registrant's Articles of Incorporation, filed as Exhibit (1)(a) to the
Registration Statement; the Articles Supplementary (increasing the
authorized share capital) filed as Exhibit (1)(b) to the Registration
Statement; and Article II, Article III (Sections 1, 2, 3, 5, 6 and 17),
Article V (Section 7), Article VI, Article VII, Article XII, Article XIII,
and Article XIV of the Registrant's By-Laws previously filed as Exhibit (2)
to the Registration Statement.

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

Registrant is not controlled by or under common control with any other
person. The Registrant owns all of the stock of ML Latin America Fund Chile
Ltd., a corporation formed under the laws of Delaware specifically to
facilitate investment in accordance with restrictions limiting investment in
Chile. Such subsidiary is included in the Registrant's consolidated financial
statements.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS FEBRUARY 28, 1994
-------------- -----------------
<S> <C>
Class A Shares of Common Stock, par value $0.10 per share..... 228
Class B Shares of Common Stock, par value $0.10 per share..... 755
</TABLE>

ITEM 27. INDEMNIFICATION.

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

Insofar as the conditional advancing of indemnification moneys for actions
based on the Investment Company Act of 1940 may be concerned, Article VI of the
Registrant's By-Laws provide that such payments will be made only on the
following conditions: (i) the advances must be limited to amounts used, or to
be used, for the preparation or presentation of a defense to the action,
including costs connected with the preparation of a settlement; (ii) advances
may be made only on receipt of a written promise by, or on behalf of, the
recipient to repay that amount of the advance which exceeds the amount to which
it is ultimately determined that he is entitled to receive from the Registrant
by reason of indemnification; and (iii) (a) such promise must be secured by a
surety bond, other suitable insurance or an equivalent form of security which
assures that any repayments may be obtained by the Registrant without delay or
litigation, which bond, insurance or other form of security must be provided by
the recipient of the advance (b) a majority of a quorum of the Registrant's
disinterested non-party Directors, or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts, that
the recipient of the advance ultimately will be found entitled to
indemnification.

In Section 9 of the Class A and Class B 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 "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 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 Act and is, therefore, unenforceable. In the

C-2
<PAGE>

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 Act and will be governed by the final adjudication of such
issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER.

Merrill Lynch Asset Management, L.P. doing business as Merrill Lynch Asset
Management (the "Manager"), acts as investment adviser for the following
registered investment companies: Convertible Holdings, Inc., Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund,
Inc., Merrill Lynch Balanced Fund for Investment and Retirement, Merrill Lynch
Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill
Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Holdings, Merrill Lynch Global Resources Trust, Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Growth Fund for Investment and
Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Institutional Intermediate Fund,
Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income
Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and Senior Floating Rate
Fund. Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts as
the investment adviser for the following registered investment companies: Apex
Municipal Fund, Inc., 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., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial
Institutions Series Trust, Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund,
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Municipal Series Trust, Merrill
Lynch Multi-State Limited Maturity 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., MuniAssets
Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund,
Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, 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
Insured Fund II, 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 New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc.
and Worldwide DollarVest Fund, Inc. The address of each of these investment
companies is Box 9011, Princeton, New Jersey 08543-9011, except that the
address of Merrill Lynch Funds for Institutions Series and Merrill Lynch
Institutional Intermediate Fund is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Manager and FAM is also Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch")

C-3
<PAGE>

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

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
December 1, 1991, for his 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 preceding paragraph, and Messrs.
Durnin, Giordano, Harvey, Kirstein and Monagle are directors, trustees or
officers of one or more of such companies.

<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------- ----------------------------------
<S> <C> <C>
ML & Co. ............... Limited Partner Financial Services Holding Company
Merrill Lynch Investment
Management, Inc. ...... Limited Partner Investment Advisory Services; Limited
Partner of FAM
Princeton Services, Inc.
("Princeton Services"). General Partner General Partner of FAM
Arthur Zeikel........... President President of FAM; President and
Director of Princeton Services;
Director of Merrill Lynch Funds
Distributor, Inc. ("MLFD"); Executive
Vice President of ML & Co.; Executive
Vice President of Merrill Lynch
Terry K. Glenn.......... Executive Vice Executive Vice President of FAM;
President Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of
Financial Data Services, Inc.
("FDS"); President of Princeton
Administrators
Bernard J. Durnin....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
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
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Philip L. Kirstein...... Senior Vice Senior Vice President, General
President, General Counsel, and Secretary of FAM; Senior
Counsel and Vice President, General Counsel,
Secretary Director and Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller
and Controller of FAM; Senior Vice President and
Controller of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President
of Princeton Services
Joseph T. Monagle, Jr. . Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>

C-4
<PAGE>

<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------- ----------------------------------
<S> <C> <C>
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
and Treasurer FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Richard L. Rufener...... Senior Vice President Vice President of MLFD; Senior Vice
President of Princeton Services
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 Princeton
Services
</TABLE>
- --------

ITEM 29. PRINCIPAL UNDERWRITERS.

(a) MLFD acts as the principal underwriter for the Registrant and for each of
the open-end investment companies referred to in the first paragraph of Item 28
except Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities
Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt
Fund, CMA Treasury Fund, Convertible Holdings, Inc., The Corporate Fund
Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Emerging Tigers Fund, Inc., Income Opportunities Fund
1999, Inc., Income Opportunities Fund 2000, Inc., MuniAssets Fund, Inc.,
MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program, Inc.,
MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
New York Insured Fund, Inc., MuniVest Pennsylvania Fund, MuniYield Arizona
Fund, MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, 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 New York Insured Fund III, Inc.,
MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality
Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio
II, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings,
Inc. and Worldwide DollarVest Fund, Inc.

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

<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICES POSITION(S) AND OFFICES
NAME WITH MLFD WITH REGISTRANT
- ----- ----------------------- -----------------------
<S> <C> <C>
Terry K. Glenn.......... President and Director Executive Vice President
Arthur Zeikel........... Director President and Director
Philip L. Kirstein...... Director None
William E. Aldrich...... Senior Vice President None
Robert W. Crook......... Senior Vice President None
Michael J. Brady........ Vice President None
William M. Breen........ Vice President None
Sharon Creveling........ Vice President and Assistant Treasurer None
Mark A. DeSario......... Vice President None
James T. Fatseas........ Vice President None
Stanley Graczyk......... Vice President None
</TABLE>

C-5
<PAGE>

<TABLE>
<CAPTION>
(3)
POSITION(S)
(2) AND OFFICES
(1) POSITION(S) AND OFFICES WITH
NAME WITH MLFD REGISTRANT
- ----- ----------------------- -----------
<S> <C> <C>
Michelle T. Lau........................ Vice President None
Debra W. Landsman-Yaros................ Vice President None
Gerald M. Richard...................... Vice President and Treasurer Treasurer
Richard L. Rufener..................... Vice President None
Salvatore Venezia...................... Vice President None
William Wasel.......................... Assistant 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 are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and 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, Registrant is not a party to any
management-related service contract.

ITEM 32. UNDERTAKINGS.

The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's annual report to shareholders, upon
request and without charge.

C-6
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT TO ITS
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933
AND HAS DULY CAUSED THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF
PLAINSBORO, AND THE STATE OF NEW JERSEY, ON THE 28TH DAY OF MARCH 1994.

Merrill Lynch Latin America Fund,
Inc.

(Registrant)

/s/ Arthur Zeikel
By __________________________________
(ARTHUR ZEIKEL, PRESIDENT)

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT TO REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED
BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE(S) INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Arthur Zeikel President and Director March 28, 1994
- ------------------------------------ (Principal Executive
(Arthur Zeikel) Officer)

Gerald M. Richard* Treasurer (Principal March 28, 1994
- ------------------------------------ Financial and Accounting
(Gerald M. Richard) Officer)

Donald Cecil* Director March 28, 1994
- ------------------------------------
(Donald Cecil)

Edward H. Meyer* Director March 28, 1994
- ------------------------------------
(Edward H. Meyer)

Charles C. Reilly* Director March 28, 1994
- ------------------------------------
(Charles C. Reilly)

Richard R. West* Director March 28, 1994
- ------------------------------------
(Richard R. West)

/s/ Arthur Zeikel March 28, 1994
*By____________________________
(Arthur Zeikel, Attorney-in-
Fact)
</TABLE>
C-7
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
1(a) --Articles of Incorporation of Registrant.(a)
(b) --Articles Supplementary of Registrant.(b)
2 --By-Laws of Registrant.(b)
3 --None.
4 --Copies of instruments defining the rights of shareholders,
including the relevant portions of the Articles of
Incorporation, as amended, and By-Laws of Registrant.(e)
5 --Management Agreement between Registrant and Merrill Lynch
Asset Management, Inc.(b)
6(a) --Class A Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.(b)
(b) --Class B Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.(b)
(c) --Letter Agreement between the Registrant and Merrill Lynch
Funds Distributor, Inc. with respect to the Merrill Lynch
Mutual Fund Adviser Program.
7 --None.
8 --Custody Agreement between Registrant and The Chase
Manhattan Bank, N.A.(c)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial
Data Services, Inc.(b)
10 --None.
11 --Consent of Deloitte & Touche, independent auditors for
Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc.(c)
14 --None.
15(a) --Class A Distribution Plan of Registrant. (b)
(b) --Amended and Restated Class B Distribution Plan of
Registrant.
16(a) --Schedule for computation of each performance quotation for
Class A shares provided in the Registration Statement in
response to Item 22.(d)
(b) --Schedule of computation of each performance quotation for
Class B shares provided in the Registration Statement in
response to Item 22.(d)
</TABLE>

- --------
(a) Filed on July 9, 1991 in connection with Registrant's Registration
Statement on Form N-1A under the Securities Act of 1933.
(b) Filed on August 14, 1991 in connection with Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(c) Filed on August 22, 1991 in connection with Pre-Effective Amendment No. 2
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(d) Filed on February 21, 1992, in connection with Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.

<PAGE>

APPENDIX FOR GRAPHIC AND IMAGE MATERIAL

Pursuant to Rule 304 of Regulation S-T, the following table presents fair and
accurate narrative descriptions of graphic and image material omitted from this
EDGAR Submission File due to ASCII-incompatibility and cross-references this
material to the location of each occurrence in the text.

DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------

Flags of various Latin American Back cover of Prospectus and
states............................... back cover of Statement of
Additional Information

<PAGE>

EXHIBIT 99.6C

September 15, 1993

Merrill Lynch Funds Distributor, Inc.
Post Office Box 9011
Princeton, New Jersey 08543-9011

Each of the undersigned open-end investment companies (the "Funds") has
entered into a Distribution Agreement with Merrill Lynch Funds Distributor, Inc.
(the "Distributor"). Under the terms of such agreements, the Distributor is
authorized to offer shares of each Fund and to purchase, as principal, such
number of shares from each of the Funds as are needed to fill unconditional
orders for shares of such Fund placed with the Distributor by investors or by
securities dealers.

This letter confirms the agreement by each Fund with the Distributor that,
in connection with the Merrill Lynch Mutual Fund Adviser program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are also authorized
<PAGE>

to offer and sell shares of such Fund, as agent for the Fund, to participants in
such program. This letter further confirms that the terms of the Distribution
Agreement between each Fund and the Distributor shall apply to such sales,
including terms as to the offering price of shares, the proceeds to be paid to
each Fund, the duties of the Distributor, the payment of expenses and
indemnification obligations of each Fund and the Distributor.

If the foregoing is consistent with your understanding of our agreement,
please sign and return one copy of the enclosed agreement.

Very truly yours,

The Investment Companies listed
on Schedule A hereto

By: /s/ Terry K. Glenn
-------------------------
Authorized Signatory

Accepted as of the date
set forth above

Merrill Lynch Funds Distributor, Inc.

By: /s/ Gerald M. Richard
-------------------------------
Authorized Signatory

2
<PAGE>

The Declaration of Trust establishing each investment company listed on
Schedule A hereto which has been organized as a Massachusetts trust (each, a
"Fund"), a copy of which, together with all amendments thereto, is on file in
the office of the Secretary of the Commonwealth of Massachusetts, provides that
the name of the Fund refers to the Trustees under the Declaration collectively
as Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund, but
the Fund estate only shall be liable.

3
<PAGE>

SCHEDULE A
----------

EQUITY FUNDS:

Merrill Lynch Balanced Fund for Investment and Retirement
Merrill Lynch Basic Value Fund, Inc.
Merrill Lynch Capital Fund, Inc.
Merrill Lynch Developing Capital Markets Fund, Inc.
Merrill Lynch Dragon Fund, Inc.
Merrill Lynch EuroFund
Merrill Lynch Fundamental Growth Fund, Inc.
Merrill Lynch Fund for Tomorrow, Inc.
Merrill Lynch Global Allocation Fund, Inc.
Merrill Lynch Global Utility Fund, Inc.
Merrill Lynch Growth Fund for Investment and Retirement
Merrill Lynch Healthcare Fund, Inc.
Merrill Lynch International Equity Fund
Merrill Lynch International Holdings, Inc.
Merrill Lynch Latin America Fund, Inc.
Merrill Lynch Natural Resources Trust
Merrill Lynch Pacific Fund, Inc.
Merrill Lynch Phoenix Fund, Inc.
Merrill Lynch Special Value Fund, Inc.
Merrill Lynch Strategic Dividend Fund
Merrill Lynch Technology Fund, Inc.
Merrill Lynch Utility Income Fund, Inc.

FIXED INCOME FUNDS:

Merrill Lynch Adjustable Rate Securities Fund, Inc.
Merrill Lynch Americas Income Fund, Inc.
Merrill Lynch Corporate Bond Fund, Inc.
Merrill Lynch Federal Securities Trust
Merrill Lynch Global Bond Fund for Investment and Retirement
Merrill Lynch Global Convertible Fund, Inc.
Merrill Lynch Short-Term Global Income Fund, Inc.
Merrill Lynch World Income Fund, Inc.

TAX-EXEMPT FIXED INCOME FUNDS:

Merrill Lynch Arizona Municipal Bond Fund
Merrill Lynch California Municipal Bond Fund
Merrill Lynch California Insured Municipal Bond Fund
Merrill Lynch Florida Municipal Bond Fund
Merrill Lynch Massachusetts Municipal Bond Fund
Merrill Lynch Michigan Municipal Bond Fund
Merrill Lynch Minnesota Municipal Bond Fund
Merrill Lynch Municipal Bond Fund, Inc.

A-1
<PAGE>

Merrill Lynch Municipal Income Fund
Merrill Lynch New Jersey Municipal Bond Fund
Merrill Lynch New York Municipal Bond Fund
Merrill Lynch North Carolina Municipal Bond Fund
Merrill Lynch Ohio Municipal Bond Fund
Merrill Lynch Pennsylvania Municipal Bond Fund
Merrill Lynch Texas Municipal Bond Fund

INSTITUTIONAL MONEY MARKET FUNDS:

Merrill Lynch Institutional Fund
Merrill Lynch Government Fund
Merrill Lynch Treasury Fund
Merrill Lynch Institutional Tax-Exempt Fund

A-2

<PAGE>

EXHIBIT 11

INDEPENDENT AUDITORS' CONSENT

Merrill Lynch Latin America Fund, Inc.:

We consent to the use in Post-Effective Amendment No. 3 to Registration
Statement No. 33-41622 of our report dated January 14, 1994 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Consolidated Financial
Highlights" appearing in the Prospectus, which also is a part of such
Registration Statement.

Deloitte & Touche
Princeton, New Jersey

March 28, 1994

<PAGE>

EXHIBIT 99.15 (B)

AMENDED AND RESTATED

CLASS B DISTRIBUTION PLAN

MERRILL LYNCH LATIN AMERICA FUND, INC.

PURSUANT TO RULE 12b-1

DISTRIBUTION PLAN made as of the 15th day of August 1991, and amended and
restated as of July 7, 1993, by and between Merrill Lynch Latin America Fund,
Inc., a Maryland corporation (the "Fund"), and Merrill Lynch Funds Distributor,
Inc., a Delaware corporation ("MLFD").

W I T N E S S E T H :
--------------------

WHEREAS, the Fund engages in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act");

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;

WHEREAS, the Fund has entered into a Class B Shares Distribution Agreement
with MLFD, pursuant to which MLFD acts as the exclusive distributor and
representative of the Fund in the offer and sale of Class B shares (the "Class B
shares") of the Fund to the public;

WHEREAS, the Fund has entered into a Class B Distribution Plan (the "Prior
Plan") pursuant to Rule 12b-1 under the Investment Company Act; and

WHEREAS, the Fund desires to adopt this Amended and Restated Class B
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account maintenance fee and
a distribution fee to MLFD with respect to the Fund's Class B shares; and

WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.

NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms
of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on
the following terms and conditions:
<PAGE>

1. The Fund shall pay MLFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class B shares to compensate MLFD and securities firms with
which MLFD enters into related agreements pursuant to Paragraph 3 hereof ("Sub-
Agreements") for account maintenance activities with respect to Class B
shareholders of the Fund.

2. The Fund shall pay MLFD a distribution fee under the Plan at the end of
each month at the annual rate of 0.75% of average daily net assets of the Fund
relating to Class 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 Fund. Such expenditures
may consist of sales commissions to financial consultants for selling Class B
shares of the Fund, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its sales and
promotional activities, including advertising expenditures related to the Fund
and the costs of preparing and distributing promotional materials. The
distribution fee may also be used to pay the financing costs of carrying the
unreimbursed expenditures described in this Paragraph 2. Payment of the
distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.

3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs 1 and 2
hereof. MLFD may reallocate all or a portion of its account maintenance fee or
distribution fee to such Securities Firms as compensation for the above-
mentioned activities and services. Such Sub-Agreement shall provide that the
Securities Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting requirements set forth in
Paragraph 4 hereof.

4. MLFD shall provide the Fund for review by the Board of Directors, and
the Directors shall review, at least quarterly, a written report complying with
the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period.

5. The Prior Plan 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 Fund. The Plan has
<PAGE>

not been submitted to the Class B shareholders because the amendments do not
materially increase the rate of payments by the Fund provided for in the Prior
Plan.

6. The Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.

7. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 6.

8. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class B voting
securities of the Fund.

9. The Plan may not be amended to increase materially the rate of payments
provided for herein unless such amendment is approved by at least a majority, as
defined in the Investment Company Act, of the outstanding Class B voting
securities of the Fund, and by the Directors of the Fund in the manner provided
for in Paragraph 6 hereof, and no material amendment to the Plan shall be made
unless approved in the manner provided for approval and annual renewal in
Paragraph 6 hereof.

10. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.

11. The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Paragraph 4 hereof, for a period of not less
than six years from the date of the Plan, or the agreements or such report, as
the case may be, the first two years in an easily accessible place.
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the
date first above written.

MERRILL LYNCH LATIN AMERICA FUND, INC.

By/s/ Arthur Zeikel
------------------------------------
Title: President

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By/s/ Terry K. Glenn
-----------------------------------
Title: President
<PAGE>

CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT

AGREEMENT made as of the 7th day of July 1993, by and between Merrill Lynch
Funds Distributor, Inc., a Delaware corpo-ration ("MLFD"), and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, a Delaware corporation (the "Securities
Firm").

W I T N E S S E T H :
--------------------

WHEREAS, MLFD has entered into an agreement with Merrill Lynch Latin
America Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it
acts as the exclusive distributor for the sale of Class B shares (the "Class B
shares"), of the Fund;

WHEREAS, MLFD and the Fund have entered into an Amended and Restated Class
B Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class B shares for account maintenance
activities related to Class B shares of the Fund and a distribution fee from the
Fund at the annual rate of 0.75% of average daily net assets of the Fund
relating to Class 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
Fund's Class B 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 with
respect to the Class B shares of the Fund 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 Fund, 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
<PAGE>

of each calendar month in an amount agreed upon by the parties hereto.

4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.

5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.

6. This Agreement shall continue in effect for as long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 6.

7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By /s/ Terry K. Glenn
-----------------------------------
Title: President

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By /s/ Arthur Zeikel
-----------------------------------
Title: Executive Vice President