MERRILL LYNCH AMERICAS INCOME FUND INC, 485B24E, 1996-04-29

MERRILL LYNCH AMERICAS INCOME FUND INC
485B24E, 1996-04-29

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1996

SECURITIES ACT FILE NO. 33-64398
INVESTMENT COMPANY ACT FILE NO. 811-7794
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/

PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 4 /x/

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/

AMENDMENT NO. 7 /x/

(CHECK APPROPRIATE BOX OR BOXES)

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

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

800 SCUDDERS MILL ROAD 08543
PLAINSBORO, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

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

ARTHUR ZEIKEL
MERRILL LYNCH AMERICAS INCOME FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08536-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)

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

COPIES TO:

<TABLE>
<S> <C>
COUNSEL TO THE FUND:

BROWN & WOOD PHILIP L. KIRSTEIN, ESQ.
ONE WORLD TRADE CENTER MERRILL LYNCH ASSET MANAGEMENT
NEW YORK, NEW YORK 10048-0557 P.O. BOX 9011
ATTENTION: DOUGLAS A. SGARRO, ESQ. PRINCETON, NEW JERSEY 08543-9011
</TABLE>

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

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

<TABLE>
<S> <C>
/x/ immediately upon filing pursuant to paragraph (b)
/ / on (date), pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485.
</TABLE>

IF APPROPRIATE, CHECK THE FOLLOWING BOX:

/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

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

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 FEBRUARY 21, 1996.

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

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF SECURITIES BEING AMOUNT MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
REGISTERED BEING REGISTERED PRICE PER SHARE OFFERING PRICE REGISTRATION FEE

<S> <C> <C> <C> <C>
Shares of Common Stock (par
value $.10 per share)....... 1,401,225 $10.01 $290,000* $100
</TABLE>

*(1) The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940.

(2) The total amount of securities redeemed or repurchased during Registrant's
previous fiscal year was 7,964,962 shares of Common Stock.

(3) 6,592,708 of the shares described in (2) above have been used for reduction
pursuant to Rule 24e-2(a) or Rule 24f-2(e) under the Investment Company Act
of 1940 in previous filings during Registrant's current fiscal year.

(4) 1,372,254 of the shares redeemed during Registrant's previous fiscal year
are being used for the reduction of the registration fee in this amendment
to the Registration Statement.

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

<PAGE>

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

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
----------------------------------------------- -----------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page..................................... Cover Page
Item 2. Synopsis....................................... Fee Table; Merrill Lynch Select Pricing(Service
Mark) System
Item 3. Condensed Financial Information................ Financial Highlights
Item 4. General Description of Registrant.............. Investment Objective and Policies; Additional
Information
Item 5. Management of the Fund......................... Fee Table; Investment Objective and Policies;
Portfolio Transactions; 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; Fee Table; Merrill Lynch Select
Pricing(Service Mark) System; Purchase of

Shares; Shareholder Services; Additional
Information; Inside Back Cover Page
Item 8. Redemption or Repurchase....................... Fee Table; Merrill Lynch Select Pricing(Service
Mark) System; Shareholder Services; 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; General Information
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
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..................................... Dividends and Distributions; Taxes
Item 21. Underwriter.................................... Purchase of Shares
Item 22. Calculation of Performance Data................ Performance Data
Item 23. Financial Statements........................... Financial Statements

</TABLE>

PART C

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

<PAGE>

PROSPECTUS
APRIL 29, 1996

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

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

portfolio against interest rate, market and currency risks. In addition, the
Fund is authorized to borrow funds and to utilize leverage in amounts not to
exceed 33 1/3% of its total assets. There can be no assurance that the Fund's
investment objective will be achieved. Investment in securities of foreign
issuers involves certain special considerations and risk factors. See
'Investment Objective and Policies--Special Considerations and Risk
Factors--Foreign Investments'. For more information on the Fund's investment
objective and policies, please see 'Investment Objective and Policies' on
page 9.

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

Pursuant to the Merrill Lynch Select Pricing(Service Mark) System, the
Fund offers four classes of shares, each with a different combination of sales
charges, ongoing fees and other features. The Merrill Lynch Select
Pricing(Service Mark) System permits an investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. As a result of the implementation of
the Merrill Lynch Select Pricing(Service Mark) System, Class A shares of the
Fund outstanding prior to October 21, 1994, were redesignated Class D shares.
The Class A shares offered by this Prospectus differ from the Class A shares
offered prior to October 21, 1994, in many respects, including sales charges,
exchange privilege and the classes of persons to whom such shares are offered.
See 'Merrill Lynch Select Pricing(Service Mark) System' on page 4.

Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the 'Distributor'), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], or from securities dealers 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, except that for retirement plans the minimum
initial purchase is $100, and the minimum subsequent purchase is $1. Merrill
Lynch may charge its customers a processing fee (presently $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'.

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

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 April 29, 1996 (the 'Statement of Additional
Information'), has been filed with the Securities and Exchange Commission (the
'Commission') and is available, without charge, by calling or by writing the
Fund at the above telephone number or address. The Statement of Additional
Information is hereby incorporated by reference into this Prospectus.

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

MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR

<PAGE>

FEE TABLE

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

<TABLE>
<CAPTION>
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ------------------------- ----------------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed
on Purchases (as a percentage of offering
price)........................................ 4.00%(c) None None 4.00%(c)
Sales Charge Imposed on Dividend
Reinvestments................................. None None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)................. None(d) 4.00% during 1% for one None(d)
the first year, year
decreasing 1.0%
annually thereafter
to 0.0% after the
fourth year

Exchange Fee.................................... None None None None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Investment Advisory Fees(e)..................... 0.61% 0.61% 0.61% 0.61%
12b-1 Fees(f):
Account Maintenance Fees...................... None 0.25% 0.25% 0.25%
Distribution Fees............................. None 0.50% 0.55% None
(Class B shares
convert to Class D
shares automatically
after approximately

ten years and cease
being subject to
distribution fees)
Other Expenses:
Custodial Fees................................ 0.05% 0.05% 0.05% 0.05%
Shareholder Servicing Costs(g)................ 0.10% 0.12% 0.09% 0.11%
Other......................................... 0.60% 0.60% 0.64% 0.58%
---------- ------ ------ -------
Total Other Expenses........................ 0.75% 0.77% 0.78% 0.74%
---------- ------ ------ -------
TOTAL FUND OPERATING EXPENSES..................... 1.36% 2.13% 2.19% 1.60%
---------- ------ ------ -------
---------- ------ ------ -------
</TABLE>

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

<TABLE>
<S> <C>
(a) Class A shares are sold to a limited group of investors including certain
retirement plans and certain investment programs. See 'Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares'--page
28.
(b) Class B shares convert to Class D shares automatically approximately ten
years after initial purchase. See 'Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares'--page 30.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A or Class D purchases of $1,000,000 or more may not be
subject to an initial sales charge. See 'Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares'--page 28.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ('CDSC'), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a CDSC
of 1.0% of amounts redeemed within the first year of purchase.
(e) See 'Management of the Fund--Advisory and Management Arrangements'--page 24.
(f) See 'Purchase of Shares--Distribution Plans'--page 33.
(g) See 'Management of the Fund--Transfer Agency Services'--page 25.
</TABLE>

<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 the maximum $40 initial
sales charge (Class A and Class D
shares only) and assuming (1) the
Total Fund Operating Expenses for each
class set forth above, (2) a 5% annual
return throughout the periods and (3)
redemption at the end of the period:
Class A............................ $53 $81 $111 $197
Class B............................ $62 $87 $114 $246
Class C............................ $32 $69 $117 $252
Class D............................ $56 $88 $124 $222
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end of
the period:
Class A............................ $53 $81 $111 $197
Class B............................ $22 $67 $114 $246
Class C............................ $22 $69 $117 $252
Class D............................ $56 $88 $124 $222
</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
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 and Class C shareholders who hold their shares for an extended
period of time may pay more in Rule 12b-1 distribution fees than the economic
equivalent of the maximum front-end sales charges permitted under the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (the
'NASD'). 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'.

<PAGE>

MERRILL LYNCH SELECT PRICING(Service Mark) SYSTEM

The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(Service Mark) System. The shares of each class may be purchased at a

price equal to the next determined net asset value per share subject to the
sales charges and ongoing fee arrangements described below. Shares of Class A
and Class D are sold to investors choosing the initial sales charge
alternatives, and shares of Class B and Class C are sold to investors choosing
the deferred sales charge alternatives. The Merrill Lynch Select
Pricing(Service Mark) System is used by more than 50 mutual funds advised by
Merrill Lynch Asset Management, L.P. ('MLAM' or the 'Investment Adviser') or an
affiliate of MLAM, Fund Asset Management, L.P. ('FAM'). Funds advised by MLAM
or FAM which utilize the Merrill Lynch Select Pricing(Service Mark) System are
referred to herein as 'MLAM-advised mutual funds'.

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

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

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

<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION

CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
<S> <C> <C> <C> <C>
A Maximum 4.00% initial sales charge(2)(3) No No No

B CDSC for a period of 4 years, at a rate 0.25% 0.50% B shares convert to D
of 4.0% during the first year, decreasing 1.0% shares automatically
annually to 0.0% after approximately
ten years(4)

C 1.0% CDSC for one year 0.25% 0.55% No

D Maximum 4.00% initial sales charge(3) 0.25% No No
</TABLE>

(footnotes on following page)

<PAGE>

(footnotes for preceding page)
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. Contingent deferred sales charges ('CDSCs') are imposed
if the redemption occurs within the applicable CDSC time period. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed.

(2) Offered only to eligible investors. See 'Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors'.

(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A and Class D share purchases of $1,000,000 or more may not
be subject to an initial sales charge but instead will be subject to a 1.0%
CDSC for one year. See 'Class A' and 'Class D' below.

(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have an
eight-year conversion period. If Class B shares of the Fund are exchanged
for Class B shares of another MLAM-advised mutual fund, the conversion
period applicable to the Class B shares acquired in the exchange will apply,
and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.

Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A

shares of the Fund are offered to a limited group of investors and also
will be issued upon reinvestment of dividends on outstanding Class A
shares. Investors that currently own Class A shares of the Fund in a
shareholder account are entitled to purchase additional Class A shares
of the Fund in that account. Other eligible investors include certain
retirement plans and participants in certain investment programs. In
addition, Class A shares will be offered at net asset value to Merrill
Lynch & Co., Inc. ('ML & Co.') and its subsidiaries (the term
'subsidiaries', when used herein with respect to ML & Co., includes
MLAM, FAM and certain other entities directly or indirectly wholly
owned and controlled by ML & Co.) and to their directors and employees
and to members of the Boards of MLAM-advised mutual funds. The maximum
initial sales charge is 4.00%, which is reduced for purchases of
$25,000 and over, and waived for purchases of Class A shares by certain
retirement plans in connection with certain investment programs.
Purchases of $1,000,000 or more may not be subject to an initial sales
charge but, if the initial sales charge is waived, such purchases will
be subject to a 1.0% CDSC if the shares are redeemed within one year
after purchase. Sales charges also are reduced under a right of
accumulation which takes into account the investor's holdings of all
classes of all MLAM-advised mutual funds. See 'Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares'.

Class B: Class B shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.50% of the Fund's average net assets
attributable to the Class B shares and a CDSC if they are redeemed
within four years of purchase. Approximately ten years after issuance,
Class B shares will convert automatically into Class D shares of the
Fund, which are subject to an account maintenance fee but no
distribution fee; Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made convert into Class D shares
automatically after approximately eight years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual
fund, the conversion period applicable to the Class B shares acquired
in the exchange will apply, and the holding period for the shares
exchanged will be tacked onto the holding period for the shares
acquired. Automatic conversion of Class B shares into Class D shares
will occur at least once each month on the basis of the relative net
asset values of the shares of the two classes on the conversion date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes. Shares
purchased through reinvestment of dividends on Class

<PAGE>

B shares also will convert automatically to Class D shares. The
conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans are modified as

described under 'Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares
to Class D Shares'.

Class C: Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.55% of the Fund's average net assets
attributable to Class C shares. Class C shares are also subject to a
CDSC if they are redeemed within one year of purchase. Although Class C
shares are subject to a 1.0% CDSC for only one year (as compared to
four years for Class B), Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject
to distribution fees that will be imposed on Class C shares for an
indefinite period subject to annual approval by the Fund's Board of
Directors and regulatory limitations.

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

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

Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Class A, Class B, Class C and Class D share

holdings will count toward a right of accumulation which may qualify the
investor for reduced initial sales charges on new initial sales charge
purchases. In addition, the ongoing Class B and Class C account maintenance and
distribution fees will cause Class B and Class C shares to have higher expense
ratios, pay lower dividends and have lower total returns than the initial sales
charge shares. The ongoing Class D account maintenance fees will cause Class D
shares to have a higher expense ratio, pay lower dividends and have a lower
total return than Class A shares.

<PAGE>

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

Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forego the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See 'Purchase of Shares--Limitations on the Payment of Deferred
Sales Charges'.
7

<PAGE>

FINANCIAL HIGHLIGHTS

The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Deloitte & Touche LLP, independent auditors. Financial statements for the fiscal

year ended December 31, 1995, 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 financial statements.

CLASS A CLASS B CLASS C
--------------------- ---------------------------------- ---------------------
FOR THE FOR THE FOR THE
FOR THE PERIOD FOR THE YEAR ENDED PERIOD FOR THE PERIOD
YEAR OCT. 21, AUG. 27, YEAR OCT. 21,
ENDED 1994+ TO DECEMBER 31, 1993+ TO ENDED 1994+ TO
DEC. 31, DEC. 31, -------------------- DEC. 31, DEC. 31, DEC. 31,
1995 1994 1995 1994 1993 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
period............................. $ 8.51 $ 9.08 $ 8.48 $ 10.84 $ 10.00 $ 8.47 $ 9.08
------- -------- -------- -------- -------- -------- --------
Investment income--net............. .94 .17 .88 .75 .24 .87 .15
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net....... 1.19 (.57) 1.17 (2.36) .88 1.18 (.61)
------- -------- -------- -------- -------- -------- --------
Total from investment operations.... 2.13 (.40) 2.05 (1.61) 1.12 2.05 (.46)
------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net............. (.94) (.14) (.88) (.64) (.24) (.87) (.13)
Realized gain on
investments--net................. -- (.03) -- (.11) (.04) -- (.02)
------- -------- -------- -------- -------- -------- --------
Total dividends and distributions... (.94) (.17) (.88) (.75) (.28) (.87) (.15)
------- -------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 9.70 $ 8.51 $ 9.65 $ 8.48 $ 10.84 $ 9.65 $ 8.47
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share............................ 27.27% (4.45%)# 26.10% (15.08%) 11.30%# 26.18% (5.06%)#
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement and

excluding account maintenance and
distribution fees++.............. 1.20% 1.22%* 1.22% 1.04% .27%* 1.25% 1.44%*
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
Expenses, net of reimbursement++... 1.20% 1.22%* 1.97% 1.79% 1.03%* 2.05% 2.24%*
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
Expenses++......................... 1.20% 1.22%* 1.97% 2.00% 2.45%* 2.05% 2.24%*
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
Interest expense................... 1.36% 1.91%* 2.13% 2.70% 2.53%* 2.19% 3.05%*
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
Investment income--net............. 11.25% 8.63%* 10.40% 8.14% 6.76%* 10.23% 8.87%*
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)....................... $1,165 $ 253 $103,465 $101,933 $ 98,848 $1,396 $ 75
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
Portfolio turnover................. 127.17% 353.33% 127.17% 353.33% 75.18% 127.17% 353.33%
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------

<CAPTION>
CLASS D
----------------------------------
FOR THE
FOR THE YEAR ENDED PERIOD
AUG. 27,
DECEMBER 31, 1993+ TO
-------------------- DEC. 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
period............................. $ 8.48 $ 10.84 $ 10.00
-------- -------- --------
Investment income--net............. .92 .80 .26
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net....... 1.17 (2.36) .88
-------- -------- --------
Total from investment operations.... 2.09 (1.56) 1.14
-------- -------- --------
Less dividends and distributions:
Investment income--net............. (.92) (.68) (.26)
Realized gain on
investments--net................. -- (.12) (.04)
-------- -------- --------

Total dividends and distributions... (.92) (.80) (.30)
-------- -------- --------
Net asset value, end of period...... $ 9.65 $ 8.48 $ 10.84
-------- -------- --------
-------- -------- --------
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share............................ 26.75% (14.65%) 11.49%#
-------- -------- --------
-------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement and
excluding account maintenance and
distribution fees++.............. 1.19% 1.03% .25%*
-------- -------- --------
-------- -------- --------
Expenses, net of reimbursement++... 1.44% 1.28% .50%*
-------- -------- --------
-------- -------- --------
Expenses++......................... 1.44% 1.48% 1.93%*
-------- -------- --------
-------- -------- --------
Interest expense................... 1.60% 2.17% 2.03%*
-------- -------- --------
-------- -------- --------
Investment income--net............. 10.85% 8.65% 7.14%*
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)....................... $ 14,169 $ 14,938 $ 15,076
-------- -------- --------
-------- -------- --------
Portfolio turnover................. 127.17% 353.33% 75.18%
-------- -------- --------
-------- -------- --------
</TABLE>

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

* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Excluding interest expense.

# Aggregate total investment return.

As discussed elsewhere herein, the Fund is authorized to borrow funds and
to utilize leverage in amounts not to exceed 33 1/3% of its total assets
(including the amount borrowed) and to borrow up to an additional 5% of its
total assets for temporary purposes. The Fund will only borrow when the
Investment Adviser believes that such borrowing will benefit the Fund after

taking into account considerations such as interest income and possible

<PAGE>

gains or losses upon liquidation. The following chart provides certain
information for the periods indicated with respect to such borrowings (including
bank loans):

<TABLE>
<CAPTION>
AVERAGE NUMBER
AMOUNT OF DEBT AVERAGE AMOUNT OF OF FUND SHARES AVERAGE AMOUNT OF
OUTSTANDING AT DEBT OUTSTANDING OUTSTANDING DURING DEBT PER SHARE
PERIOD END OF PERIOD DURING THE PERIOD THE PERIOD DURING THE PERIOD
-------------- ----------------- ---------------------- -----------------
<S> <C> <C> <C> <C>
August 27, 1993,*
to December 31, 1993........ $ 21,546,000 $18,977,362 10,512,049 $1.81

For the Fiscal Year
Ended December 31, 1994..... $ 17,058,000 $17,315,402 14,565,482 $1.19

For the Fiscal Year
Ended December 31, 1995..... $ 10,265,476 $ 2,639,633 13,142,615 $0.20
</TABLE>

- ---------------
* Commencement of Operations.

INVESTMENT OBJECTIVE AND POLICIES

The Fund is a non-diversified, open-end management investment company. The
Fund's investment objective is to seek 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). The
foregoing 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. There can be no assurance
that the Fund's investment objective will be achieved.

MLAM, the Fund's investment adviser, will actively manage the Fund's assets
in response to market, political and general economic conditions in the Western
Hemisphere and elsewhere, and will seek to adjust the Fund's investments based
on its perception of which investments would best enable the Fund to achieve its
investment objective. In its analysis, the Investment Adviser will consider
various factors, including its views regarding interest and currency exchange

rate changes and credit risks. Such professional investment management may be
attractive to investors, particularly individuals, who lack the time,
information, capability or inclination to effect such an investment strategy
directly.

The securities in which the Fund may invest include debt obligations issued
or guaranteed by the governments of countries located in the Western Hemisphere,
political subdivisions thereof (including states, provinces and municipalities)
or their agencies and instrumentalities ('governmental entities'), or issued or
guaranteed by international organizations (such as the Inter-Americas
Development Bank) designated or supported by governmental entities to promote
economic reconstruction or development ('supranational entities'), or issued by
corporations or financial institutions. Securities issued by supranational
entities may be denominated in U.S. dollars, a foreign currency or a
multi-national currency unit. Securities of corporations and financial
institutions in which the Fund may invest include corporate and commercial
obligations, such as medium-term notes and commercial paper, which may be
indexed to foreign currency exchange rates.

Indexed notes and commercial paper typically provide that the principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect fluctuations in the exchange rate between two currencies during the
period the obligation is outstanding depending on the terms of the specific
security. In selecting the two currencies, the Investment Adviser will consider
the correlation and relative yields of various currencies. The Fund will
purchase an indexed obligation using the currency in which it is denominated
and, at maturity, will receive interest and principal payments thereon in that
currency. The amount of principal payable by the issuer at maturity, however,
will vary (i.e., increase or decrease) in response to the change (if any) in the
exchange rate between the two specified currencies during the period from the
date the instrument is issued to its maturity date. The potential for realizing
gains as a result of changes in foreign currency exchange rates may enable the
Fund to

<PAGE>

hedge the currency in which the obligation is denominated (or to effect
cross-hedges against other currencies) against a decline in the U.S. dollar
value of investments denominated in foreign currencies while providing an
attractive rate of return. The Fund will purchase such indexed obligations to
generate current income or for hedging purposes and will not speculate in such
obligations. Such obligations may be deemed liquid investments if they can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's net asset value per share;
otherwise, they will be deemed illiquid investments subject to the restrictions
discussed further below under 'Investment Restrictions'.

The Fund may invest in securities denominated in or indexed to the currency
of one country in the Western Hemisphere although issued by a governmental
entity, corporation or financial institution of another such country. For
example, the Fund may invest in a Mexican peso/denominated obligation issued by

a U.S. corporation. Such investments involve credit risks associated with the
issuer and currency risks associated with the currency in which the obligation
is denominated.

The Fund may invest in securities whose potential investment return is
based on the change in particular measurements of value or rate (an 'index'). As
an illustration, the Fund may invest in a security that pays interest and
returns principal based on the change in an index of interest rates or of the
value of a precious or industrial metal. Interest and principal payable on a
security may also be based on relative changes among particular indices. In
addition, the Fund may invest in securities whose potential investment return is
inversely based on the change in particular indices. For example, the Fund may
invest in securities that pay a higher rate of interest and principal when a
particular index decreases and pay a lower rate of interest and principal when
the value of the index increases. To the extent that the Fund invests in such
types of securities, it will be subject to the risks associated with changes in
the particular indices, which may include reduced or eliminated interest
payments and losses of invested principal.

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

The Fund also may invest in participations in, or bonds and notes backed
by, pools of mortgage, credit card, automobile or other types of receivables.
These investments are described more fully below under 'Investments in
Mortgage-Backed and Asset-Backed Securities'. Because of liquidity and valuation
concerns relating to investments in certain derivative mortgage-backed
securities, investments in such securities will be restricted as discussed below
under 'Investments in Mortgage-Backed and Asset-Backed Securities--Derivative
Mortgage-Backed 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. Investments in debt securities rated in the medium to lower
rating categories of nationally recognized statistical rating organizations such
as Standard & Poor's Ratings Group ('S&P') and Moody's Investors Services, Inc.
('Moody's') or in unrated securities of comparable quality involve special risks

which are described more fully below under 'Special Considerations and Risk
Factors--High Yield Securities'.

Except for time deposits, certificates of deposit, and pass-through and
other asset-backed securities, the Fund currently does not intend to invest more
than 10% of its assets in the securities of issuers that are domiciled

<PAGE>

in any one country in the Western Hemisphere other than the United States,
Canada, Mexico, Argentina, Chile, Brazil and Venezuela. In addition, the Fund
may not maintain more than a 10% net exposure to any currency other than the
currency of any such country. The Fund expects to maintain normally at least 25%
of its assets in securities denominated in the U.S. dollar.

Under normal circumstances, the Fund will invest at least 25% of its total
assets in debt instruments issued by Western Hemisphere companies engaged in the
financial services industry, including banks, thrift institutions, insurance
companies, securities firms and holding companies of any of the foregoing. Such
investments may include certificates of deposit, time deposits, bankers'
acceptances, and other obligations issued by such entities, as well as
repurchase agreements entered into with such entities. For temporary defensive
purposes, however, the Fund may reduce its investments in the financial services
industry to less than 25% of its total assets. The Fund's policy as to
concentrating its investments in the financial services industry is fundamental
and may not be changed without the approval of a majority of the Fund's voting
securities.

The Fund's policy of concentrating its investments in the financial
services industry will cause the Fund to have greater exposure to certain risks
associated with the financial services industry. In particular, economic or
regulatory developments in or related to the financial services industry will
affect the value of an investment in the Fund's shares. For example, sustained
increases in interest rates may adversely affect the availability and cost of
funds for a bank's lending activities; deterioration in general economic
conditions may increase a bank's exposure to credit losses. Banks are also
subject to the effects of the concentration of loan portfolios in particular
businesses that may be adversely affected by economic conditions, such as real
estate, energy, agriculture or high technology-related companies. Also, the
Fund's investments in commercial banks located in several foreign countries are
subject to additional risks due to the combination in such banks of commercial
banking and diversified securities activities. Insurance companies may be
adversely affected by losses sustained by insured clients due to catastrophic or
other events. Securities firms are subject to risks associated with underwriting
activities and to fluctuations in the values of their investments that may in
turn affect their ability to comply with regulations governing capital
requirements. Insurance companies and securities firms may also be affected by a
deterioration in general economic conditions. In addition, the financial
services industry is subject to national and local regulation and competition
among different types of financial institutions.

The Fund may at times utilize certain other investment techniques to
increase investment return or to hedge all or a portion of its portfolio,
including options and futures, although suitable hedging instruments may not be
available on a timely basis and on acceptable terms with respect to specific
securities and currencies in which the Fund may invest. See 'Other Investment
Practices--Portfolio Strategies Involving Interest Rate Transactions, Options,
Futures and Currency Transactions'. In addition, the Fund is authorized to

borrow funds and utilize leverage (including by effecting reverse repurchase
agreements and dollar rolls) in amounts up to 33 1/3% of its total assets
(including the amount borrowed) and to borrow up to an additional 5% of its
total assets for temporary purposes. See 'Other Investment Practices--Leverage
and Borrowing'.

SPECIAL CONSIDERATIONS AND RISK FACTORS

Foreign Investments. Investment in securities of foreign issuers generally
involves risks not typically involved in domestic investment, including
fluctuations in foreign exchange rates, future political and economic
developments and the possible imposition of exchange controls or other foreign
or U.S. Governmental laws or restrictions applicable to such investments. These
risks are often heightened for investments in smaller capital markets and Latin
American countries. The Fund is designed for long-term investors and should be
considered as a means of diversifying an investment portfolio and not in itself
a balanced investment program.

<PAGE>

Since the Fund is authorized to invest in securities denominated or quoted
in currencies other than the U.S. dollar, changes in foreign currency exchange
rates relative to the U.S. dollar will affect the value of securities in the
portfolio and the unrealized appreciation or depreciation of investments insofar
as U.S. investors are concerned. Changes in foreign currency exchange rates
relative to the U.S. dollar will also affect the Fund's yield on assets
denominated in currencies other than the U.S. dollar.

As noted above, the Fund intends to invest in debt securities denominated
in the currencies of certain Latin American countries (i.e., Mexico, Argentina,
Chile, Brazil and Venezuela). Certain of these 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
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. 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 (as defined below) 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
15% of its total assets in sovereign debt which is in default.

With respect to certain foreign countries, there is the possibility of
economic, political or social instability or diplomatic developments which could
affect investment in those countries. For example, certain countries in which
the Fund can invest experienced difficulties in the past decade, including high
rates of inflation, interest, underemployment, low or negative rates of growth,
civil unrest and unstable currencies. The Fund cannot predict the potential
impact of such events on the economies of the countries in which it may invest.
Past problems have affected the ability of certain countries to service their
sovereign debt.

There may be less publicly available information about a foreign financial
instrument than about a U.S. instrument, and foreign issuers may not be subject
to accounting, auditing and financial reporting standards and requirements
comparable to those to which U.S. entities are subject. In addition, certain
foreign investments may be subject to foreign withholding taxes.

Foreign financial markets, while generally growing in volume, have, for the
most part, substantially less volume than U.S. markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable 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 portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or,

<PAGE>

if the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. Costs associated with transactions in
foreign securities are generally higher than with transactions in U.S.
securities. There is generally less government supervision and regulation of
exchanges, financial institutions and issuers in foreign countries than there is
in the United States.

Brady Bonds. The Fund may invest in Brady Bonds. Brady Bonds are debt
obligations which are created through the exchange of existing commercial bank
loans to sovereign entities for new obligations in connection with debt
restructuring under a plan introduced in 1989 by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the 'Brady Plan'). Brady Plan debt restructurings
have been implemented to date in Mexico, Venezuela, Argentina, Uruguay, Costa
Rica, Nigeria and the Philippines. Brazil has reached agreement with its lending
banks with respect to Brady Plan restructuring and Brazil's Brady Plan is being
implemented. To date, Brady Bonds aggregating approximately $90 billion have
been issued, based on current estimates, with the largest proportion of Brady

Bonds having been issued by Mexico, Argentina and Venezuela. Brazil has
announced plans to issue Brady Bonds in respect of approximately $44 billion of
bank debt. It is expected that other countries will undertake Brady Plan debt
restructuring in the future, including Peru, Ecuador, Panama, Poland, Bulgaria,
and Russia. The Fund anticipates that it will invest in bank loans (through
participations or assignments) that may be restructured as Brady Bond
obligations.

Brady Bonds have been issued relatively recently and, accordingly, do not
have a long payment history. They may be collateralized and issued in various
currencies (although most are U.S. dollar-denominated) and they are actively
traded in the over-the-counter secondary market.

U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal by U.S. Treasury zero coupon bonds which have the same
maturity as the Brady Bonds. Interest payments on these Brady Bonds generally
are collateralized on a one-year or longer rolling-forward basis by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to 'value recovery payments' in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. For example, some Mexican and Venezuelan
Brady Bonds include attached value recovery options which increase interest
payments if oil revenues rise. Brady Bonds are often viewed as having three or
four valuation components: (i) the collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constitute the 'residual
risk'). In light of the residual risk of Brady Bonds and, among other factors,
the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, investments in Brady Bonds
are considered speculative.

Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by funds held in escrow by
an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have principal repayments at
final maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New York
as collateral agent.

<PAGE>

High Yield 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 such as S&P
and 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
Investment Adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer of such securities. The Investment Adviser 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 above) in which the Fund may invest no more than 15% 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

<PAGE>

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.

The table below shows the dollar-weighted market value, by S&P rating
category, of the bonds held by the Fund at December 31, 1995:

<TABLE>
<CAPTION>
PERCENT OF
RATING TOTAL ASSETS
------------
<S> <C>
BBB.......... 1.67%
BB........... 20.76%
BB-.......... 22.56%
B+........... 5.38%
B............ 22.27%
Not Rated*... 27.36%
------
100.00%
------
------
</TABLE>

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

* Bonds which are not rated by S&P. Such bonds may be rated by nationally
recognized statistical rating organizations other than S&P, or may not be
rated by any of such organizations. With respect to the percentage of the
Fund's assets invested in such securities, the Fund's Investment Adviser
believes that 6.27% are of comparable quality to bonds rated BB, 7.07%
are of comparable quality to bonds rated BB-, 5.19% are at comparable quality
to bonds rated B+, 6.70% are of comparable quality to bonds rated B and
2.13% are of comparable quality to bonds rated B-. This determination

is based on the Investment Adviser's own internal evaluation and does
not necessarily reflect how such securities would be rated by S&P if it
were to rate the securities.

For a description of the above referenced ratings, see Appendix B to this
Prospectus. The Fund has established no rating criteria for the fixed income
securities in which it may invest and such securities may not be rated at all
for creditworthiness. The above percentages are as of December 31, 1995; the
rating composition of the portfolio will change over time.

Leverage. The Fund is authorized to borrow money from banks in an amount
up to 33 1/3% of the Fund's total assets (including the amount borrowed), less
all liabilities and indebtedness other than the bank borrowing. The Fund is also
authorized to borrow up to an additional 5% of its total assets without regard
to the foregoing limitation for temporary purposes such as clearance of
portfolio transactions and share redemptions. The Fund may engage in reverse
repurchase agreements and dollar rolls as discussed below, and if certain
conditions are not met, such transactions will be considered borrowings subject
to the restrictions discussed in this paragraph. The utilization of leverage by
the Fund involves certain risks described below. For example, leveraging may
exaggerate changes in the net asset value of Fund shares and in the yield on the
Fund's portfolio. See 'Other Investment Practices--Leverage and Borrowing'
below.

Interest Rate Fluctuations. The value of the Fund's investments (and hence
its net asset value) will be affected by changes in the general level of
interest rates. When interest rates decline, the value of a debt security can be
expected to rise. Conversely, when interest rates rise, the value of a debt
security can be expected to decline. However, not all of the Fund's investments
in debt securities may respond to interest rate fluctuations in this manner.

Non-Diversified Status. The Fund has registered as a 'non-diversified'
investment company so that it will be able to invest more than 5% of the value
of its assets in the obligations of a single issuer. The Fund's investments
will be limited, however, in order to qualify for the special tax treatment
afforded regulated investment companies under the Internal Revenue Code of
1986, as amended (the 'Code') applicable to the Fund. To qualify, the Fund
must 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

15
<PAGE>

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. To the extent the Fund invests a
relatively high percentage of its assets in obligations of a limited number of
issuers, the Fund may be more susceptible than a more widely diversified fund to
any single economic, political or regulatory occurrence or to changes in an
issuer's financial condition or in the market's assessment of the issuers.

INVESTMENTS IN MORTGAGE-BACKED AND ASSET-BACKED SECURITIES

Mortgage-Backed and Asset-Backed Securities. Subject to the investment
limitations described above, the Fund may invest in mortgage-backed and
asset-backed securities. Mortgage-backed securities are securities that directly
or indirectly represent an interest in, or are backed by and payable from,
mortgage loans secured by real property. Asset-backed securities generally
consist of structures similar to mortgage-backed securities, except that the
underlying asset pools are comprised of other types of financial assets such as
credit card, automobile or other types of receivables and commercial loans.
Mortgage-backed and asset-backed securities are issued in structured financings
wherein the sponsor securitizes the underlying mortgage loans or financial
assets in order to liquify the underlying assets or to achieve certain other
financial goals. The special considerations and risks inherent in investments in
mortgage-backed and asset-backed securities are discussed more fully below.

The mortgage-backed securities in which the Fund may invest will primarily
be guaranteed by the Government National Mortgage Association ('GNMA') or issued
by the Federal National Mortgage Association ('FNMA') or the Federal Home Loan
Mortgage Corporation ('FHLMC'). Certain of the asset-backed securities in which
the Fund will invest may be guaranteed by the Small Business Administration
('SBA') or issued in programs originated by the Resolution Trust Corporation
('RTC'). GNMA, FNMA, FHLMC and SBA are agencies or instrumentalities of the
United States.

Certain of the mortgage-backed and asset-backed securities in which the
Fund may invest will be issued by private issuers. Private issuers include
originators of or investors in mortgage loans and receivables such as savings
and loan associations, mortgage bankers, commercial banks, investment banks,
finance companies and special purpose finance subsidiaries of any of the above.
Securities issued by private issuers may be subject to certain types of credit
enhancements issued in respect of those securities. Such credit enhancements may
include insurance policies, bank letters of credit, guarantees by third parties
or protections afforded by the structure of a particular transaction (e.g., the
use of reserve funds, over-collateralization or the issuance of subordinated
securities as protection for more senior securities being purchased by the
Fund). In purchasing securities for the Fund, the Investment Adviser will take
into account not only the creditworthiness of the issuer of the securities but
also the creditworthiness of the provider of any external credit enhancement of
the securities.

The Fund may invest in pass-through mortgage-backed securities that

represent ownership interests in a pool of mortgages on single-family or
multi-family residences. Such securities represent interests in pools of
residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government, one of its agencies or instrumentalities or by private guarantors.
Such securities, which are ownership interests in the underlying mortgage
loans, differ from conventional debt securities, which provide for periodic
payment of interest in fixed amounts (usually semiannually) and principal
payments at maturity or on specified call dates. Mortgage pass-through
securities provide for monthly payments that 'pass-through' the monthly interest
and principal payments (including any

<PAGE>

prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans. The Fund may also invest in collateralized mortgage
obligations ('CMOs') which are debt obligations collateralized by mortgage loans
or mortgage pass-through securities.

The yield characteristics of mortgage-backed and asset-backed securities
differ from traditional corporate debt securities. Among the major differences
are that interest and principal payments are made more frequently, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. As a
result, if the Fund purchases such a security at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the Fund purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. The Fund may invest a
portion of its assets in derivative mortgage-backed securities, such as stripped
mortgage-backed securities, which are highly sensitive to changes in prepayment
and interest rates. The Investment Adviser will seek to manage these risks (and
potential benefits) by investing in a variety of such securities and through
hedging techniques.

Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. Generally, however, prepayments on
fixed rate mortgage loans will increase during a period of falling interest
rates and decrease during a period of rising interest rates. Accordingly,
amounts available for reinvestment by the Fund are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested at
lower interest rates than during a period of rising interest rates. This
prepayment effect has been particularly pronounced during certain recent years
as borrowers have refinanced higher interest rate mortgages into lower interest
rate mortgages available in the marketplace. Although asset-backed securities
generally are less likely to experience substantial prepayments than are
mortgage-backed securities, certain of the factors that affect the rate of

prepayments on mortgage-backed securities also affect the rate of prepayments on
asset-backed securities. However, during any particular period, the predominant
factors affecting prepayment rates on mortgage-backed and asset-backed
securities may be different. Mortgage-backed and asset-backed securities may
decrease in value as a result of increases in interest rates and may benefit
less than other fixed income securities from declining interest rates because of
the risk of prepayment.

The Fund's yield will also be affected by the yields on instruments in
which the Fund is able to reinvest the proceeds of payments and prepayments.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is repaid in full.

<PAGE>

Derivative Mortgage-Backed Securities. The Fund may also invest in various
derivative mortgage-backed securities, which are synthetic securities designed
to be highly sensitive to certain types of interest rate and principal
prepayment scenarios. Derivative instruments primarily consist of some form of
stripped mortgage-backed securities ('SMBS') that commonly involve different
classes of securities that receive disproportionate amounts of the interest and
principal distributions on a pool of mortgage assets.

SMBSs are typically issued by the same types of issuers as are
mortgage-backed securities. The structure of SMBSs, however, is different. A
common variety of SMBS involves a class (the principal-only or 'PO' class) that
receives some of the interest and most of the principal from the underlying
assets, while the other class (the interest-only or 'IO' class) receives most of
the interest and the remainder of the principal. In the most extreme case, the
IO class receives only interest, while the PO class receives only principal. The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying assets, and a rapid
rate of principal payments in excess of that considered in pricing the
securities will have a material adverse effect on an IO security's yield to
maturity. If the underlying mortgage assets experience greater than anticipated
payments of principal, the Fund may fail to recoup fully its initial investment
in IOs. In addition, there are certain types of IOs which represent the interest
portion of a particular class as opposed to the interest portion of the entire
pool. The sensitivity of these types of IOs to interest rate fluctuations may be
increased because of the characteristics of the principal portion to which they
relate. The impact of IOs on the Fund's portfolio may be offset to some degree
by investments in mortgage-backed securities and inverse floaters (floating rate
securities the interest rate of which is adjusted up or down inversely to
changes in a specified index). As interest rates fall, presenting a greater risk
of unanticipated prepayments of principal, the negative effect on the Fund
because of its holdings of IOs should be diminished somewhat because of the
increased yield on the inverse floating rate CMOs or the increased appreciation
on the fixed rate securities. Under certain interest rate scenarios, the Fund
may decide to retain investments in IOs or inverse floaters yielding less than
prevailing interest rates in order to avoid capital losses on the sale of such
investments.

The Fund may also combine IOs and IO-related derivative mortgage products
with LIBOR-based inverse floaters (LIBOR being the London interbank offered
rate). A LIBOR-based inverse floater is a floating rate security the interest
rate of which is adjusted up or down inversely to changes in LIBOR; as LIBOR
decreases, the interest rate paid by the inverse floater would increase, and
vice versa. Depending on the amount of leverage built into the inverse floater,
the yield could vary in excess of the change in LIBOR because of the leverage
built into the inverse floater formula. The yield on an inverse floater varies
inversely with interest rates because as LIBOR decreases, the interest payable
on the inverse floater increases. The converse is true, of course, when LIBOR
increases. When an inverse floater is combined with an IO or IO-type derivative
product, the result is a synthetic security that tends to provide a somewhat
less volatile yield over a wide range of interest rate and prepayment rate
scenarios.

New types of mortgage-backed and asset-backed securities, derivative
securities and hedging instruments are developed and marketed from time to time.
Consistent with its investment objective, policies and restrictions, the Fund
may invest in such new types of securities and instruments that the Investment
Adviser believes may assist the Fund in achieving its investment objective.

The staff of the Commission has taken the following position with respect
to investments in IOs and POs. Such position has been adopted as an investment
policy of the Fund, subject to amendment as discussed further below. The staff
of the Commission has taken the position that the determination of whether a
particular U.S. Government-issued IO or PO that is backed by fixed-rate
mortgages is liquid may be made by the Investment Adviser under guidelines and
standards established by the Fund's Board of Directors. Such a security may be

<PAGE>

deemed liquid if it can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of the
Fund's net asset value per share. The Commission's staff also has taken the
position that all other IOs and POs are illiquid securities which are subject to
the restriction limiting the Fund's investments in illiquid securities to 15% of
its total assets. (Under the laws of certain states, the Fund presently is
limited with respect to such investments to 10% of its total assets.) This
policy as to IOs and POs is not a fundamental policy of the Fund and may be
amended by the Board of Directors of the Fund without the approval of the Fund's
shareholders. However, the Fund will not change or modify this policy prior to
the change or modification by the Commission's staff of its position.

OTHER INVESTMENT PRACTICES

Leverage and Borrowing. The Fund is authorized to borrow money from banks
(as defined in the Investment Company Act of 1940, as amended (the 'Investment
Company Act')) in amounts up to 33 1/3% of the Fund's total assets (including

the amount borrowed), less all liabilities and indebtedness other than the bank
borrowing. The Fund is also authorized to borrow an additional 5% of its total
assets without regard to the foregoing limitation for temporary purposes such as
clearance of portfolio transactions and share redemptions. The Fund may engage
in reverse repurchase agreements and dollar rolls as discussed below, and if
certain conditions are not met, such transactions will be considered borrowings
subject to the restrictions discussed in this paragraph. The Fund will only
borrow when the Investment Adviser believes that such borrowing will benefit the
Fund after taking into account considerations such as interest income and
possible gains or losses upon liquidation.

Borrowings by the Fund create an opportunity for greater total return but,
at the same time, increase exposure to capital risk. For example, leveraging may
exaggerate changes in the net asset value of Fund shares and in the yield on the
Fund's portfolio. Although the principal of such borrowings will be fixed, the
Fund's assets may change in value during the time the borrowings are
outstanding. Borrowing will create interest expenses for the Fund which can
exceed the income from the assets retained. To the extent the income derived
from securities purchased with borrowed funds exceeds the interest the Fund will
have to pay, the Fund's net income will be greater than if borrowing were not
used. Conversely, if the income from the assets retained with borrowed funds is
not sufficient to cover the cost of borrowing, the net income of the Fund will
be less than if borrowing were not used, and therefore the amount available for
distribution to shareholders as dividends will be reduced. The Fund may also
borrow for emergency purposes, for the payment of dividends, for share
repurchases or for the clearance of transactions.

Because few or none of its assets will consist of margin securities, the
Fund does not expect to borrow on margin. The Fund may also leverage by entering
into reverse repurchase agreements with the same parties with whom it may enter
into repurchase agreements (as discussed below). Under a reverse repurchase
agreement, the Fund sells securities and agrees to repurchase them at a mutually
agreed date and price. The value of the securities subject to such agreements
will not exceed 125% of the proceeds of the reverse repurchase agreements. At
the time the Fund enters into a reverse repurchase agreement, it may establish
and maintain a segregated account with its custodian containing cash, cash
equivalents or liquid high grade debt securities having a value not less than
the repurchase price (including accrued interest). If the Fund establishes and
maintains such a segregated account, a reverse repurchase agreement will not be
considered a borrowing by the Fund; however, under circumstances in which the
Fund does not establish and maintain such a segregated account, the Fund will
enter into a reverse repurchase agreement only with banks (as defined in the
Investment Company Act), and such reverse repurchase agreement will be
considered a borrowing solely for the purpose of the Fund's limitation on

<PAGE>

borrowing. Reverse repurchase agreements involve the risk that the market value
of the securities acquired, or retained in lieu of sale, by the Fund in
connection with the reverse repurchase agreement may decline below the price of
the securities the Fund has sold but is obligated to repurchase. In the event

the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision. Also, the Fund would bear the risk of loss to the extent that the
proceeds of the reverse repurchase agreement are less than the value of the
securities subject to such agreement.

The Fund also may enter into 'dollar rolls'. A dollar roll is a transaction
in which the Fund sells fixed income securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. During the
roll period, the Fund foregoes principal and interest paid on such securities.
The Fund is compensated by the difference between the current sales price and
the lower forward price for the future purchase (often referred to as the
'drop') as well as by the interest earned on the cash proceeds of the initial
sale. A 'covered roll' is a specific type of dollar roll for which there is a
segregated account with cash, cash equivalents or liquid high grade debt
securities. Covered rolls will not be considered to be borrowings for purposes
of the Fund's limitation on borrowing to the extent that they are appropriately
collateralized by high grade liquid assets of the Fund. Dollar rolls which are
not so collateralized will be entered into by the Fund only with banks (as
defined in the Investment Company Act) and will be considered borrowings for the
purpose of the Fund's limitation on borrowing.

The Fund expects that some of its borrowings may be made on a secured
basis. In such situations, either the Fund's custodian will segregate the
pledged assets for the benefit of the lender or arrangements will be made with
(i) the lender to act as a subcustodian if the lender is a bank or otherwise
qualified as a custodian of investment company assets or (ii) a suitable
subcustodian.

Certain of the Fund's borrowings may be subject to certain covenants set
forth in the governing credit agreements relating to asset coverage requirements
and portfolio composition. The Fund does not expect that observance of such
covenants would materially adversely affect the ability of the Fund to achieve
its investment objective. However, a breach of any such covenant not cured
within the specified cure period may result in acceleration of outstanding
indebtedness and require the Fund to dispose of portfolio investments at a time
when it may be disadvantageous to do so. The Fund also may be required to
maintain minimum average balances in connection with borrowings or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over a stated interest rate.

Portfolio Strategies Involving Interest Rate Transactions, Options, Futures

and Currency Transactions. The Fund may engage in various portfolio strategies
to seek to increase its return through the use of options on portfolio
securities and to hedge its portfolio against interest rate, market and currency
risks. The Fund has authority to engage in interest rate transactions in order
to hedge against interest rate movements, purchase call and put options on
securities, write (i.e., sell) covered call and put options on its portfolio
securities, and engage in hedging transactions in 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.

Although certain risks are involved in interest rate, options and futures
transactions, the Investment Adviser believes that, because the Fund will (i)
write only covered options on portfolio securities and (ii) engage in other
transactions primarily for hedging purposes, these portfolio strategies will not
subject the Fund to the risks

<PAGE>

frequently associated with the speculative use of such transactions. There can
be no assurance that the Fund's hedging transactions will be effective.
Furthermore, the Fund will only engage in hedging activities from time to time
and may not necessarily be engaging in hedging activities when interest rate,
market or currency movements occur. When the Fund engages in transactions
denominated in foreign currencies, it will be subject to the risks of adverse
changes in the exchange rates between such foreign currencies and the U.S.
dollar, the currency used to value the Fund's assets. Reference is made to
Appendix A to this Prospectus and to the Statement of Additional Information for
further information concerning these strategies.

Portfolio Transactions. In executing portfolio transactions, the
Investment Adviser seeks to obtain the best net results for the Fund, taking
into account such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning a
block of securities. While the Investment Adviser generally seeks reasonably
competitive commission rates, the Fund does not necessarily pay the lowest
commission or spread available. The Fund has no obligation to deal with any
broker or group of brokers in 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 Commission. Affiliated persons of the Fund, and affiliated
persons of such affiliated persons, may serve as the Fund's broker in
transactions conducted on an exchange and in 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 NASD, 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. 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.

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
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. During the period of such a loan,
the Fund receives the income on both the loaned securities and the collateral
and thereby increases its yield. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or otherwise, the
Fund could experience delays and costs in gaining access to the collateral and
could suffer a loss to the extent the value of the collateral falls below the
market value of the borrowed securities.

Portfolio Turnover. The Investment Adviser 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
which could result in a portfolio turnover rate which is higher than that of
other investment companies; however, it is extremely difficult to predict
portfolio turnover rates with any degree of accuracy. 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 were one year or less and options,
futures and currency transactions) by the monthly average value of the
securities in the portfolio during the year. A high portfolio turnover rate
involves certain tax consequences and correspondingly greater transaction costs
in the form of dealer spreads and brokerage commissions, which are borne
directly by the Fund.

<PAGE>

Repurchase Agreements; Purchase and Sale Contracts. The Fund may invest in
securities pursuant to repurchase agreements or purchase and sale contracts.
Under a repurchase agreement, the seller agrees, upon entering into the contract
with the Fund, to repurchase a security (typically a security issued or
guaranteed by the U.S. Government) at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This results in
a fixed yield for the Fund insulated from fluctuations in the market value of
the underlying security during such period, although, to the extent the
repurchase agreement is not denominated in U.S. dollars, the Fund's return may
be affected by currency fluctuations. Repurchase agreements may be entered into
only with a member bank of the Federal Reserve System, a primary dealer in U.S.
Government securities or an affiliate thereof. A purchase and sale contract is
similar to a repurchase agreement, but purchase and sale contracts, unlike
repurchase agreements, allocate interest on the underlying security to the
purchaser during the term of the agreement. In all instances, the Fund takes
possession of the underlying securities when investing in repurchase agreements
or purchase and sale contracts. Nevertheless, if the seller were to default on
its obligation to repurchase a security under a repurchase agreement or purchase
and sale contract and the market value of the underlying security at such time
was less than the Fund had paid to the seller, the Fund would realize a loss.
The Fund may not invest more than 15% (10% to the extent required by certain

state laws) of its total assets in repurchase agreements or purchase and sale
contracts maturing in more than seven days, together with all other illiquid
securities.

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

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

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

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

The Fund will not make a short sale if, after giving effect to such sale,
the market value of all securities sold short exceeds 25% of the value of its
total assets or the Fund's aggregate short sales of a particular class of
securities exceeds 25% of the outstanding securities of that class. The Fund may
also make short sales 'against the box' without respect to such limitations. In
this type of short sale, at the time of the sale, the Fund owns or has the
immediate and unconditional right to acquire at no additional cost the identical
security. (Under the laws

<PAGE>
of a certain state, the Fund is presently limited so that the value of
securities of any one issuer in which the Fund is short may not exceed the
lesser of 2.0% of the value of the Fund's net assets or 2.0% of the securities
of any class of any issuer.)

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 (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). Among its fundamental policies, the Fund may not invest
more than 25% of its total assets (taken at market value at the time of each
investment) in the securities of issuers in a single industry (other than debt
securities issued or guaranteed by a Western Hemisphere governmental entity),
except that, under normal circumstances, the Fund will invest more than 25% of
its total assets in the securities of issuers in the financial services
industry. In addition, the Fund has adopted non-fundamental restrictions which
may be changed by the Board of Directors without shareholder approval.

As a non-fundamental policy, the Fund may not borrow money or pledge its
assets, except that the Fund (a) may borrow from a bank in amounts not exceeding
33 1/3% (taken at market value) of its total assets and pledge its assets to
secure such borrowings, (b) may borrow up to an additional 5% of its total
assets for temporary purposes and (c) may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio securities.
The purchase of securities while borrowings are outstanding will have the effect
of leveraging the Fund. Such leveraging or borrowing increases the Fund's
exposure to capital risk, and borrowed funds are subject to interest costs which
will reduce net income.

As a non-fundamental policy, the Fund will not invest in securities which
cannot be readily resold because of legal or contractual restrictions or which
cannot otherwise be marketed, redeemed or put to the issuer or a third party, if
at the time of acquisition more than 15% of its total assets (or 10% of its
total assets as presently required by certain state laws) would be invested in
such securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund has
otherwise determined to be liquid pursuant to applicable law. Notwithstanding
the foregoing, the Fund may purchase, without regard to this 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 has adopted guidelines regarding certain foreign debt securities which
may be held by the Fund and delegated to the Investment Adviser the daily
function of determining and monitoring liquidity of such securities. The Board
of Directors, however, has retained oversight and is ultimately responsible for
the determinations. Since it is not possible to predict with assurance exactly
how this market for restricted securities sold and offered under Rule 144A will
develop, the Board of Directors will carefully monitor the Fund's investments in
these securities, 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 securities.

<PAGE>

As described above, the Fund has registered as a 'non-diversified'
investment company under the Investment Company Act, but its investments will be
limited so as to qualify as a regulated investment company under the Code.

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

The Board of Directors of the Fund consists of six individuals, five 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.

The Directors of the Fund are:

ARTHUR ZEIKEL*--President of the Investment Adviser and FAM; President
and Director of Princeton Services, Inc.; Executive Vice President of ML &
Co.; 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.

RICHARD R. WEST--Dean Emeritus, New York University Leonard N. Stern
School of Business Administration.

EDWARD D. ZINBARG--Former Executive Vice President of The Prudential
Insurance Company of America.

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

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

ADVISORY AND MANAGEMENT ARRANGEMENTS

MLAM acts as the investment adviser of the Fund and provides the Fund with
management and investment advisory services. MLAM is owned and controlled by ML
& Co., a financial services holding company and the parent of Merrill Lynch. The
Investment Adviser, or an affiliate of the Investment Adviser, Fund Asset
Management, L.P. ('FAM'), acts as the investment adviser to more than 130
registered investment companies and provides investment advisory services to
individual and institutional accounts. As of March 31, 1996, the Investment
Adviser and FAM had a total of approximately $207.7 billion in investment
company and other portfolio assets under management, including accounts of
certain affiliates of the Investment Adviser.

The investment advisory agreement with the Investment Adviser (the
'Investment Advisory Agreement') provides that, subject to the direction of the
Board of Directors of the Fund, the Investment Adviser is responsible for the
actual management of the Fund's portfolio 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 Investment Adviser, subject to review by the
Board of Directors.

The Investment Adviser 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 Investment Adviser is also obligated to perform certain
administrative and

<PAGE>

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 Investment Advisory Agreement.

The Fund pays the Investment Adviser a monthly fee at the annual rate of
0.60% of the average daily net assets of the Fund, plus the principal amount of

borrowings incurred by the Fund for leverage purposes. For the fiscal year ended
December 31, 1995, the Fund paid the Investment Adviser a fee at the rate of
0.61% of average daily net assets. For the fiscal year ended December 31, 1995,
the fee paid by the Fund to the Investment Adviser was $680,512 (based upon
average net assets of approximately $111.1 million). At March 31, 1996, the net
assets of the Fund aggregated approximately $162.4 million. At this asset level,

the annual management fee would aggregate $974,145.

The Fund also pays certain other expenses incurred in its operations,
including, among other things, legal and audit fees, unaffiliated Directors'
fees and expenses, registration fees, custodian and transfer agency fees,
accounting and pricing costs, and certain of the costs of printing proxies,
shareholder reports, prospectuses and statements of additional information.
Also, accounting services are provided to the Fund by the Investment Adviser,
and the Fund reimburses the Investment Adviser for its costs in connection with
such services on a semi-annual basis. For the fiscal year ended December 31,
1995, the Fund reimbursed the Investment Adviser $122,063 for accounting
services. For the fiscal year ended December 31, 1995, the ratio of total
expenses to average net assets for each class of shares was as follows: Class A,
1.36%; Class B, 2.13%; Class C, 2.19%; and Class D, 1.60%.

Paolo H. Valle, Vice President of the Fund, is the Fund's Portfolio
Manager. Mr. Valle has been a Vice President and Senior Portfolio Manager of the
Investment Adviser since 1992; prior thereto, he was Vice President and Manager,
Emerging Markets Trading, PNC Bank. Mr. Valle has been primarily responsible for
the management of the Fund's portfolio since it commenced operations.

CODE OF ETHICS

The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
Investment Adviser (together, the 'Codes'). The Codes significantly restrict the
personal investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on fund
investment personnel.

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

TRANSFER AGENCY SERVICES

Merrill Lynch Financial Data Services, Inc. (the 'Transfer Agent'), which
is a wholly-owned subsidiary of ML & Co., acts as the Fund's transfer agent
pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder

Servicing Agency Agreement (the 'Transfer Agency Agreement'). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of

<PAGE>

shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer
Agent receives an annual fee of $11.00 per Class A or Class D shareholder
account and $14.00 per Class B or Class C 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 December 31, 1995, the Fund paid the Transfer Agent
$136,315 pursuant to the Transfer Agency Agreement. At March 31, 1996, the Fund
had 4,994 Class A shareholder accounts, 13,045 Class B shareholder accounts,
1,174 Class C shareholder accounts and 872 Class D shareholder accounts. At this
level of accounts, the annual fee payable to the Transfer Agent would aggregate
$263,592, plus miscellaneous and out-of-pocket expenses.

PURCHASE OF SHARES

Merrill Lynch Funds Distributor, Inc. (the 'Distributor'), an affiliate of
both the Investment Adviser and Merrill Lynch, acts as the distributor of the
shares of the Fund. Shares of the Fund are offered continuously for sale by the
Distributor and other eligible securities dealers (including Merrill Lynch).
Shares of the Fund may be purchased from securities dealers or by mailing a
purchase order directly to the Transfer Agent. The minimum initial purchase is
$1,000, and the minimum subsequent purchase is $50, except that for retirement
plans, the minimum initial purchase is $100, and the minimum subsequent purchase
is $1.

The Fund is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon the
class of shares selected by the investor under the Merrill Lynch Select
Pricing(Service Mark) System, as described below. The applicable offering price
for purchase orders is based upon the net asset value of the Fund next
determined after receipt of the purchase orders by the Distributor. As to
purchase orders received by securities dealers prior to the close of business on
the New York Stock Exchange (generally, 4:00 p.m., New York time), which
includes orders received after the close of business on the previous day, the
applicable offering price will be based on the net asset value determined as of
15 minutes after the close of business on the New York Stock Exchange on that
day, provided the Distributor in turn receives the order from the securities
dealer prior to 30 minutes after the close of business on the New York Stock
Exchange on that day. If the purchase orders are not received by the Distributor
prior to 30 minutes after the close of business on the New York Stock Exchange,

such orders shall be deemed received on the next business day. Any order may be
rejected by the Distributor or the Fund. The Fund or the Distributor may suspend
the continuous offering of the Fund's shares of any class at any time in
response to conditions in the securities markets or otherwise and may thereafter
resume such offering from time to time. Any order may be rejected by the
Distributor or the Fund. Neither the Distributor nor the dealers are permitted
to withhold placing orders to benefit themselves by a price change. Merrill
Lynch may charge its customers a processing fee (presently $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 four classes of shares under the Merrill Lynch Select
Pricing(Service Mark) System, which permits each investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of Class A and Class D are sold
to investors choosing the initial sales charge alternatives, and shares of Class
B and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Fund with the investment
thereafter being subject to a CDSC and ongoing distribution fees. A discussion
of the factors that investors should consider in determining the method of
purchasing shares under the Merrill Lynch Select Pricing(Service Mark) System is
set forth under 'Merrill Lynch Select Pricing(Service Mark) System' on page 4.

<PAGE>

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

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

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

<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
<S> <C> <C> <C> <C>
A Maximum 4.00% initial sales charge(2)(3) No No No

B CDSC for a period of 4 years, at a rate 0.25% 0.50% B shares convert to D shares
of 4.0% during the first year, decreasing automatically after approximately
1.0% annually to 0.0% ten years(4)

C 1.0% CDSC for one year 0.25% 0.55% No

D Maximum 4.00% initial sales 0.25% No No
charge(3)
</TABLE>

(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.

(2) Offered only to eligible investors. See 'Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors'.

(3) Reduced for purchases of $25,000 or more and waived for purchases of Class A
shares by certain retirement plans in connection with certain investment
programs. Class A and Class D share purchases of $1,000,000 or more may not

be subject to an initial sales charge but instead will be subject to a 1.0%
CDSC for one year.

(4) The conversion period for dividend reinvestment shares and certain

retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have an eight
year conversion period. If Class B shares of the Fund are exchanged for
Class B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.

<PAGE>

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

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

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

<TABLE>
<CAPTION>
DISCOUNT TO
SALES LOAD AS PERCENTAGE* SELECTED DEALERS
SALES LOAD AS PERCENTAGE OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OF OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------------------------ ------------------------ ------------------------- ------------------
<S> <C> <C> <C>
Less than $25,000................... 4.00% 4.17% 3.75%
$25,000 but less than $50,000....... 3.75 3.90 3.50
$50,000 but less than $100,000...... 3.25 3.36 3.00
$100,000 but less than $250,000..... 2.50 2.56 2.25
$250,000 but less than $1,000,000... 1.50 1.52 1.25
$1,000,000 and over**............... .00 .00 .00
</TABLE>

- ---------------
* Rounded to the nearest one-hundredth percent.

** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994 and on Class A purchases
by certain retirement plan investors in connection with certain investment
programs. If the sales charge is waived in connection with a purchase of
$1,000,000 or more, such purchases will be subject to a CDSC of 1.0% if the
shares are redeemed within one year after purchase. Class A purchases made
prior to October 21, 1994, may be subject to a CDSC if the shares were
redeemed within one year of purchase at the following rates: 0.25% on
purchases of $1,000,000 to $5,000,000; and 0.20% on purchases over $5,000,000
in lieu of paying an initial sales charge. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed. A sales charge of 0.75% will be charged on purchases

of $1,000,000 or more of Class A or Class D shares by certain employer
sponsored retirement or savings plans.

The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act.

As noted above, as a result of the implementation of the Merrill Lynch
Select Pricing(Service Mark) System, Class A shares of the Fund outstanding
prior to October 21, 1994, were redesignated Class D shares. The Class A shares
offered by this Prospectus differ from the Class A shares offered prior to
October 21, 1994, in many respects, including sales charges, exchange privilege
and the classes of persons to whom such shares are offered. During the fiscal
year ended December 31, 1995, the Fund sold 424,389 of its Class A shares for
aggregate net proceeds to the Fund of $3,709,129. The gross sales charges for
the sale of its Class A shares for the period were $395, of which $20 and $375
were received by the Distributor and Merrill Lynch, respectively. During such
period, the Distributor received no CDSCs with respect to redemptions within one
year after purchase of the Class A shares purchased subject to front-end sales
charge waivers.

During the fiscal year ended December 31, 1995, the Fund sold 2,439,964 of
its Class D shares for aggregate net proceeds to the Fund of $21,030,210. The
gross sales charges for the sale of its Class D shares for the period were
$15,631, of which $1,252 and $14,379 were received by the Distributor and
Merrill Lynch, respectively. During such period, the Distributor received no
CDSCs with respect to redemptions within one year after purchase of the Class D
shares purchased subject to front-end sales charge waivers.

<PAGE>

Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors who currently own Class A shares of the
Fund in a shareholder account, including participants in the Merrill Lynch
Blueprint(Service Mark) Program, are entitled to purchase additional Class A
shares of the Fund in that account. Certain employer sponsored retirement or
savings plans, including eligible 401(k) plans, may purchase Class A shares at
net asset value provided such plans meet the required minimum number of eligible
employees or required amount of assets advised by MLAM or any of its affiliates.
Class A shares are available at net asset value to corporate warranty insurance
reserve fund programs provided that the program has $3 million or more initially
invested in MLAM-advised mutual funds. Also eligible to purchase Class A shares
at net asset value are participants in certain investment programs including

TMA(Service Mark) Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services and certain purchases made in connection with
the Merrill Lynch Mutual Fund Adviser ('MFA') program. In addition, Class A
shares are offered at net asset value to ML & Co. and its subsidiaries and
their directors and employees and to members of the Boards of MLAM-advised
investment companies, including the Fund. Certain persons who acquired shares
of certain MLAM-advised closed-end funds in their initial offerings who wish to
reinvest the net proceeds from a sale of their closed-end fund shares of common
stock in shares of the Fund also may purchase Class A or Class D shares of the
Fund if certain conditions set forth in the Statement of Additional Information
are met. In addition, Class A shares of the Fund and certain other MLAM-advised
mutual funds are offered at net asset value to shareholders of Merrill Lynch
Senior Floating Rate Fund, Inc. and, under certain circumstances to
shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch
High Income Municipal Bond Fund, Inc. who wish to reinvest the net proceeds
from a sale of certain of their shares of common stock pursuant to a tender
offer conducted by these closed-end funds in shares of the Fund and certain
other MLAM-advised funds.

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

Class A and Class D shares are offered at net asset value to certain
employer sponsored retirement or savings plans, and to Employee Access
Accounts(Service Mark) available through employers which provide such plans.

Class A and Class D shares are offered at net asset value to shareholders
of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income
Municipal Bond Fund, Inc. who wish to reinvest in shares of the Fund the net
proceeds from a sale of certain of their shares of common stock, pursuant to
tender offers conducted by those funds.

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

Class D shares are offered with reduced sales charges and, in certain

circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(Service Mark) Program.

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

<PAGE>

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

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

The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four-year CDSC,
while Class C shares are subject only to a one-year 1.0% CDSC. On the other
hand, approximately ten years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares of the Fund and
thereafter will be subject to lower continuing fees. See 'Conversion of Class B
Shares to Class D Shares' below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and Class B and Class C shares
are subject to a distribution fee of 0.50% and 0.55%, respectively, of Class C
net assets, as discussed under 'Distribution Plans'.

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

Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares, from its own funds. The combination of the CDSC and
the ongoing distribution fee facilitates the ability of the Fund to sell the
Class B and Class C shares without a sales charge being deducted at the time of
purchase. Approximately ten years after issuance, Class B shares will convert
automatically into Class D shares of the Fund, which are subject to an account

maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately eight years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange will
apply, and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.

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

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

<PAGE>

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

<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- -------------------- ------------------
<S> <C>
0-1................. 4.00%
1-2................. 3.00%
2-3................. 2.00%
3-4................. 1.00%
4 and thereafter.... 0.00%
</TABLE>

Class B shares purchased prior to October 21, 1994, and redeemed within
three years of purchase are subject to a CDSC at the rates set forth below:

<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- -------------------- ------------------
<S> <C>
0-1................. 3.00%
1-2................. 2.00%
2-3................. 1.00%
3 and thereafter.... None
</TABLE>

For the fiscal year ended December 31, 1995, the Distributor received CDSCs of
$265,027, with respect to the redemption of Class B shares, all of which was
paid to Merrill Lynch.

In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over four years or shares acquired pursuant to reinvestment
of dividends or distributions and then of shares held longest during the
four-year period. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase. A transfer of
shares from the 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 purchases 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 or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to a CDSC because of dividend reinvestment. With respect to
the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase for shares purchased on or
after October 21, 1994).

In the event that Class B shares are exchanged by certain retirement plans
for Class A shares in connection with a transfer to the MFA program, the time
period that such Class A shares are held in the MFA program will be included in
determining the holding period of Class B shares reacquired upon termination of
participation in the MFA program (see 'Shareholder Services--Exchange
Privilege').

The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account

('IRA') or other retirement plan or following the death or

<PAGE>

disability (as defined in the Internal Revenue Code of 1986, as amended) of a
shareholder. The Class B CDSC also is waived on redemptions of shares by certain
eligible 401(a) and eligible 401(k) plans. The CDSC also is waived for any Class
B shares which are purchased by eligible 401(k) or eligible 401(a) plans 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. The Class B CDSC also is
waived for any Class B shares which are purchased by a Merrill Lynch rollover
IRA that was funded by a rollover from a terminated 401(k) plan managed by the
MLAM Private Portfolio Group and held in such account at the time of redemption.
Additional information concerning the waiver of the Class B CDSC is set forth in
the Statement of Additional Information.

Contingent Deferred Sales Charges--Class C Shares. Class C shares which
are redeemed within one year of purchase may be subject to a 1.0% CDSC charged
as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. For the fiscal year ended December 31,
1995, the Distributor received CDSCs of $552 with respect to the redemption of
Class C shares, all of which was paid to Merrill Lynch.

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

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

In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date

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

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

In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds

<PAGE>

will convert approximately ten years after initial purchase. If, during the
Conversion Period, a shareholder exchanges Class B shares with an eight-year
Conversion Period for Class B shares with a ten-year Conversion Period, or vice
versa, the Conversion Period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged will be
tacked onto the holding period for the shares acquired.

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

The Conversion Period is also modified for retirement plan investors who
participate in the MFA program. While participating in the MFA program, such
investors will hold Class A shares. If these Class A shares were acquired
through exchange of Class B shares (see 'Shareholder Services--Exchange
Privilege'), then the holding period for such Class A shares will be 'tacked' to
the holding period for the Class B shares originally held for purposes of
calculating the Conversion Period of Class B shares acquired upon termination of
participation in the MFA program.

DISTRIBUTION PLANS

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

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

The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rates of 0.50%,
with respect to Class B shares, and 0.55% with respect to Class C shares, of the
average daily net assets of the Fund attributable to the shares of the relevant
class in order to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing shareholder and distribution services, and bearing
certain distribution-related expenses of the Fund, including payments to
financial consultants for selling Class B and Class C shares of the Fund. The
Distribution Plans relating to Class B and Class C shares are designed to permit
an investor to purchase Class B and Class C shares through dealers without the
assessment of an initial sales charge and at the same time permit the dealer to
compensate its financial consultants in connection with the sale of the Class B
and Class C shares. In this regard, the purpose and function of the ongoing
distribution fees and the CDSC are the same as those of the initial sales charge
with respect to the Class A and Class D shares of the

<PAGE>

Fund in that the deferred sales charges provide for the financing of the
distribution of the Fund's Class B and Class C shares.

For the fiscal year ended December 31, 1995, the Fund paid the Distributor
$683,769 pursuant to the Class B Distribution Plan (based on average net assets
subject to the Class B Distribution Plan of approximately $91.4 million), all of
which was paid to Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection with Class B shares.
During the fiscal year ended December 31, 1995, the Fund paid the Distributor
$4,589 pursuant to the Class C Distribution Plan (based on average net assets
subject to the Class C Distribution Plan of $575,156), all of which was paid to
Merrill Lynch for providing account maintenance and distribution-related
activities and services in connection with Class C shares. For the fiscal year
ended December 31, 1995, the Fund paid the Distributor $44,979 pursuant to the
Class D Distribution Plan (based on average net assets subject to the Class D
Distribution Plan of approximately $18.0 million), all of which was paid to
Merrill Lynch for providing account maintenance services in connection with such

shares. At March 31, 1996, the net assets of the Fund subject to the Class B
Distribution Plan aggregated approximately $126.8 million. At this asset level,
the annual fee payable pursuant to the Class B Distribution Plan would aggregate
$951,374. At March 31, 1996, the net assets of the Fund subject to the Class C
Distribution Plan aggregated approximately $5.8 million. At this asset level,
the annual fee payable pursuant to the Class C Distribution Plan would aggregate
$46,465. At March 31, 1996, the net assets of the Fund subject to the Class D
Distribution Plan aggregated approximately $15.8 million. At this asset level,
the annual fee payable pursuant to the Class D Distribution Plan would aggregate
$39,517.

The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a fully allocated accrual basis and quarterly on a direct expense and
revenue/cash basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, the distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation. As of December
31, 1995, direct cash revenues for the period since August 27, 1993
(commencement of operations) exceeded direct cash expenses by $694,311 (6.71% of
Class B net assets at that date). At such date, the fully allocated accrual
expenses incurred by the Distributor and Merrill Lynch with respect to Class B
shares for the period since commencement of operations exceeded fully allocated
accrual revenues for such period by approximately $1,460,000 (1.41% of Class B
net assets at that date). Similar fully allocated accrual data for Class C
shares is not presented because such revenues and expenses for the period from
October 21, 1994 (commencement of operations) to December 31, 1995 are de
minimis. As of December 31, 1995, for Class C shares, direct cash expenses for
the period since October 21, 1994 (commencement of operations) exceeded direct
cash revenues by $488 (.04% of Class C net assets at that date).

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 Class B, Class C and Class D shares, and there

<PAGE>
is no assurance that the Directors of the Fund will approve the continuance of
the Distribution Plans from year to year. However, the Distributor intends to
seek annual continuation of the Distribution Plans. In their review of the

Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares into Class D shares as set forth under
'Deferred Sales Charge Alternatives--Class B and Class C Shares--Conversion of
Class B Shares to Class D Shares'.

LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES

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

<PAGE>

REDEMPTION OF SHARES

The Fund is required to redeem for cash all shares of the Fund on receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC which may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive 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 without charge by
tendering the shares directly to the Transfer Agent, Merrill Lynch Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to Merrill
Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Proper notice of redemption in the case of shares deposited
with the Transfer Agent may be accomplished by a written letter requesting
redemption. Proper notice of redemption in the case of shares for which
certificates have been issued may be accomplished by a written letter as noted
above accompanied by certificates for the shares to be redeemed. The notice in
either event requires the signatures of all persons in whose names the shares
are registered, signed exactly as their names appear on the Transfer Agent's
register or on the certificate, as the case may be. The signature(s) on the
redemption request must be guaranteed by an 'eligible guarantor institution'
(including, for example, Merrill Lynch branches and certain other financial
institutions) as such is defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended (the 'Exchange Act'), 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. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as good payment (e.g., cash or
certified check drawn on a U.S. bank) has been collected for the purchase of
such shares. Normally, this delay will not exceed 10 days.

REPURCHASE

The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund 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 the close of business on the New
York Stock Exchange (generally, 4:00 p.m., New York time) on the day received
and that such request is received by the Fund from such dealer not later than 30
minutes after the close of business on the New York Stock Exchange, on the same
day. Dealers have the responsibility of submitting such repurchase requests to
the Fund not later than 30 minutes after the close of business on the New York
Stock Exchange in order to obtain that day's closing price.

<PAGE>

The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). 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
to such customers. Repurchases 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 adversely affect shareholders
seeking redemption through the repurchase procedure. A shareholder whose order
for repurchase is rejected by the Fund may redeem shares as set forth above.

REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES

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

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services and investment plans
designed to facilitate investment in shares of the Fund. 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 services or plans, or to change options
with respect thereto, can be obtained from the Fund by calling the telephone
number on the cover page hereof or from the Distributor or Merrill Lynch.
Certain of these services are available only to U.S. investors.

Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. These
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and the

reinvestment of ordinary income dividends and long-term capital gains
distributions. A shareholder may make additions to his Investment Account at any
time by mailing a check directly to the Transfer Agent. Shareholders also may
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 or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those

<PAGE>

Class A or Class D shares. Shareholders interested in transferring their Class B
or Class C shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the Transfer Agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder at the Transfer Agent.
Shareholders considering transferring a tax-deferred retirement account such as
an IRA from Merrill Lynch to another brokerage firm or financial institution
should be aware that, if the firm to which the retirement account is to be
transferred will not take delivery of shares of the Fund, a shareholder must
either redeem the shares (paying any applicable CDSC) so that the cash proceeds
can be transferred to the account at the new firm, or such shareholder must
continue to maintain a retirement account at Merrill Lynch for those shares.

Systematic Withdrawal Plans. A Class A or Class D 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 or Class D shareholder
whose shares are held within a CMA(Registered), CBA(Registered) or Retirement
Account may elect to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the CMA(Registered)/CBA(Registered)
Systematic Redemption Program, subject to certain conditions.

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

Automatic Reinvestment of Dividends and Distributions. All dividends and
capital gains distributions are automatically reinvested in full and fractional
shares of the Fund, without sales charge, at the net asset value per share next
determined after the close of the New York Stock Exchange on the monthly payment
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 dividends or
capital gains distributions, or both, paid in cash, rather than reinvested, in
which event payment will be mailed on or about the payment date. Cash payments
can also be directly deposited to the shareholder's bank account. No CDSC will
be imposed on redemptions of shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions.

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

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

<PAGE>

at the time of the exchange, the shareholder holds Class A shares of the second
fund in the account in which the exchange is made or is otherwise eligible to
purchase Class A shares of the second fund.

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

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

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

the Fund is 'tacked' to the holding period for the newly acquired shares of the
other fund.

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

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

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

The exchange privilege is modified with respect to certain retirement plans
which participate in the MFA program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year for Class
A shares of the same Fund on the basis of relative net asset values in
connection with the commencement of participation in the MFA program, i.e., no
CDSC will apply. The one year holding period does not apply to shares acquired
through reinvestment of dividends. Upon termination of participation in the MFA
program, Class A shares will be reexchanged for the class of shares originally
held. For purposes of computing any CDSC that may be payable upon redemption of
Class B or Class C shares so reacquired, or the Conversion Period for Class B
shares so reacquired, the holding period for the Class A shares will be 'tacked'
to the holding period for the Class B or Class C shares originally held. The
Fund's exchange privilege is modified with respect to purchases of Class A and
Class D shares under the Merrill Lynch Mutual Fund Adviser ('MFA') program.
First, the initial allocation of assets is made under the MFA program. Then, any
subsequent exchange under the MFA program of Class A or Class D shares of a
MLAM-advised mutual fund for Class A or Class D 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 MLAM-advised mutual
fund and the sales charge payable on the shares of the Fund being acquired in
the exchange under the MFA program.

<PAGE>

PERFORMANCE DATA

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

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

The Fund may also 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 directed to investors whose purchases are subject to waiver of
the CDSC in the case of Class B shares (such as investors in certain retirement
plans) or to reduced sales charges in the case of Class A and Class D shares,
performance data may take into account the reduced, and not the maximum, sales
charge or may not take into account the CDSC and therefore may reflect greater
total return since, due to the reduced sales charges or waiver of the CDSC, a
lower amount of expenses may be 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 to
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week, CDA
Investment

<PAGE>

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 Morningstar Publications, Inc. in
advertising or supplemental sales literature. As with other performance data,
performance comparisons should not be considered indicative of the Fund's
relative performance for any future period.

ADDITIONAL INFORMATION

DIVIDENDS AND DISTRIBUTIONS

The net investment income of the Fund is declared as dividends daily prior
to the determination of the net asset value which is calculated 15 minutes after
the close of business on the New York Stock Exchange (generally, 4:00 p.m., New
York time) on that day. The net investment income of the Fund for dividend
purposes consists of interest earned on portfolio securities, less expenses, in
each case computed since the most recent determination of the net asset value.
Expenses of the Fund, including the investment advisory fees, account
maintenance fees and/or distribution fees, as applicable, are accrued daily.
Dividends of net investment income are declared daily and reinvested monthly in
the form of additional full and fractional shares of the Fund at net asset value
unless the shareholder elects to receive such dividends in cash. Shares will
accrue dividends as long as they are issued and outstanding. Shares are issued
and outstanding from the settlement date of a purchase order to the day prior to
settlement date of a redemption order.

All net realized long- or short-term capital gains, if any, are declared
and distributed to the Fund's shareholders annually. Capital gains distributions
will be reinvested automatically in shares unless the shareholder elects to
receive such distributions in cash.

The per share dividends and distributions on each class of shares will be
reduced as a result of any account maintenance, distribution and transfer agency
fees applicable to that class. See 'Additional Information--Determination of
Net Asset Value'.

Gains or losses attributable to certain foreign currency transactions may
increase or decrease the amount of the Fund's income available for distribution
to shareholders. If such losses exceed other income during a taxable year, (a)
the Fund would not be able to make any ordinary income dividend distributions,
and (b) all or a portion of distributions made before the losses were realized
but in the same taxable year would be recharacterized as a return of capital to
shareholders, rather than as an ordinary income dividend, reducing each
shareholder's tax basis in his Fund shares for Federal income tax purposes. See
'Additional Information--Taxes'.

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,
Class B, Class C and Class D shareholders (together, the 'shareholders'). The
Fund intends to distribute substantially all of such income.

<PAGE>

term capital losses (including gains or losses 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. Any loss upon the sale or exchange of Fund shares held for
six months or less, however, will be treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder. Distributions
in excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming the shares are held
as a capital asset).

that was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.

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

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

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

Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are not
'regulated futures contracts' and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.

Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than such shareholder's basis in Fund shares
(assuming the shares were held as a capital asset).

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

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

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

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

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

Certain states exempt from state income taxation dividends paid by RICs
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.

DETERMINATION OF NET ASSET VALUE

The net asset value of the shares of all classes of the Fund is determined
once daily as of 15 minutes after the close of business on the New York Stock
Exchange ('NYSE') (generally, 4:00 p.m., New York time) on each day during which
the NYSE 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

<PAGE>

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 advisory fees payable to the
Investment Adviser and any account maintenance and/or distribution fees payable
to the Distributor, are accrued daily. The Fund employs Merrill Lynch Securities
Pricing Service ('MLSPS'), an affiliate of the Investment Adviser, to provide
certain securities prices for the Fund. During the fiscal year ended December
31, 1995, the Fund paid MLSPS $16 for such service. The per share net
asset value of Class A shares will generally be higher than the per share net
asset value of shares of the other classes, reflecting the daily expense
accruals of the account maintenance, distribution and higher transfer agency
fees applicable with respect to Class B and Class C shares and the daily expense
accruals of the account maintenance fees applicable with respect to Class D
shares; moreover, the per share net asset value of the Class D shares generally
will be higher than the per share net asset value of Class B and Class C shares,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to Class B and Class C shares and
the per share net asset value of Class B shares generally will be higher than
the per share net asset value of Class C shares, reflecting the daily expense
accruals of the higher distribution fees applicable with respect to Class C
shares. It is expected, however, that the per share net asset value of the
classes will tend to converge (although not necessarily meet) immediately after
the payment of dividends or distributions which will differ by approximately the
amount of the expense accrual differentials between the classes.

market. When the Fund writes a call option, the amount of the premium received
is recorded on the books of the Fund as an asset and an equivalent liability.
The amount of the liability is subsequently valued to reflect the current market
value of the option written, based upon the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased by the Fund are
valued at their last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last bid price.
Other investments, including futures contracts and related options, will be
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.

ORGANIZATION OF THE FUND

The Fund was incorporated under Maryland law on June 10, 1993. As of the
date of this Prospectus, it has an authorized capital of 400,000,000 shares of
common stock, par value $0.10 per share, divided into four classes, designated
Class A, Class B, Class C and Class D common stock, each of which consists of
100,000,000 shares. Shares of Class A, Class B, Class C and Class D common stock
represent an interest in the same assets of the Fund and are identical in all
respects except that Class B, Class C and Class D shares bear certain expenses
related to the account maintenance fee relating to such shares and Class B and
Class C shares bear certain expenses related to the distribution of such shares.
Each class has exclusive voting rights with respect to matters

<PAGE>

relating to account maintenance and distribution expenditures, as applicable.
See 'Purchase of Shares'. The Directors of the Fund may classify and reclassify
the shares of the Fund into additional classes of common stock at a future date.

Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter on which shareholders are entitled to 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 stockholders be held upon the written request of
shareholders of the Fund as required by Maryland corporate law. Voting rights
for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive rights. Shares have the conversion rights
described in this Prospectus. Each share of common stock is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund upon liquidation or dissolution after satisfaction of

outstanding liabilities, except that, as noted above, the Class B, Class C and
Class D shares bear certain additional expenses.

SHAREHOLDER REPORTS

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

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

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

SHAREHOLDER INQUIRIES

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

<PAGE>

[This page is intentionally left blank.]

<PAGE>

MERRILL LYNCH AMERICAS INCOME FUND, INC.--AUTHORIZATION FORM (PART 1)

- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION

I, being of legal age, wish to purchase: (choose one)

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

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

Basis for establishing an Investment Account:

A. I enclose a check for $ . . . . payable to Merrill Lynch Financial
Data Services, Inc. as an initial investment (minimum $1,000). I
understand that this purchase will be executed at the applicable
offering price next to be determined after this Application is
received by you.

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

<TABLE>
<S> <C>
1. ................................... 4. ...................................

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

3. ................................... 6. ...................................
</TABLE>

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

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

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

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

Occupation ............................ .......................................

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

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

- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS

Ordinary Income Dividends Long-term Capital Gains

Select / / Reinvest Select / / Reinvest
One: / / Cash One: / / Cash

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

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

IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Americas Income Fund, Inc. Authorization Form.

SPECIFY TYPE OF ACCOUNT (CHECK ONE): / / checking / / savings

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

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

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

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

I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.

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

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

(If joint account, both must sign)

NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED 'VOID' OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY
THIS APPLICATION.

<PAGE>

MERRILL LYNCH AMERICAS INCOME FUND, INC.--AUTHORIZATION FORM
(PART 1)--(CONTINUED)

- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER

/ / / /-/ / / / /-/ / / /
Social Security Number or Taxpayer Identification Number

Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2) that
I am not subject to backup withholding (as discussed in the Prospectus under
'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 UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.

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

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

Dear Sir/Madam:

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

Date of Initial Purchase

Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Americas Income Fund, Inc. or any other investment company with an initial
sales charge or deferred sales charge for which Merrill Lynch Funds Distributor,
Inc. acts as distributor over the next 13-month period which will equal or
exceed:
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000

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

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

<TABLE>
<S> <C>
By: ................................... .......................................
Signature of Owner Signature of Co-Owner (If registered in
joint names, both must sign)
</TABLE>

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

<TABLE>
<S> <C>
(1) Name .............................. (2) Name ..............................

Account Number ........................ Account Number ........................
</TABLE>

- --------------------------------------------------------------------------------
5. FOR DEALER ONLY

Branch Office, Address, Stamp

This form, when completed, should be mailed to:

Merrill Lynch Americas Income Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289

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.

...............................................................................
Dealer Name and Address

By..............................................................................
Authorized Signature of Dealer

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

/ / / / / / / / / /
Dealer's Customer Account No.

<PAGE>

MERRILL LYNCH AMERICAS INCOME FUND, INC.--AUTHORIZATION FORM (PART 2)

- --------------------------------------------------------------------------------
Note: This form is required to apply for the Systematic Withdrawal or Automatic
Investment Plans only.
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION

<TABLE>
<S> <C>
Name of Owner .......................... / / / /-/ / / / /-/ / / /
Social Security Number
or Taxpayer Identification Number

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

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

......................................... Account Number ..................
(if existing account)
</TABLE>

- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)

MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A or / / Class D shares in Merrill Lynch Americas Income
Fund, Inc. at cost or current offering price. Withdrawals to be made either
(check one) / / Monthly on the 24th day of each month, or / / Quarterly on the
24th day of March, June, September and December. If the 24th falls on a weekend
or holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on _____________(month), or as soon as possible thereafter.

SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE):
/ / $_________ or / /_________% of the current value of
/ / Class A or / / Class D shares in the account.

SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):

DRAW CHECKS PAYABLE (CHECK ONE)

(a) I HEREBY AUTHORIZE PAYMENT BY CHECK
/ / as indicated in Item 1.
/ / to the order of ......................................................

Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (please print) ...................................................

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED 'VOID' OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.

<PAGE>

MERRILL LYNCH AMERICAS INCOME FUND, INC.--AUTHORIZATION FORM
(PART 2)--(CONTINUED)

- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN

I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ('ACH') debit on my checking account as described below
each month to purchase: (choose one)

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

of Merrill Lynch Americas Income Fund, Inc., subject to the terms set forth
below. In the event that I am not eligible to purchase Class A shares, I
understand that Class D shares will be purchased.

MERRILL LYNCH FINANCIAL DATA SERVICES, INC.

You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Americas Income Fund, Inc. as indicated below:

Amount of each ACH debit $ ................................................

Account Number ............................................................

Please date and invest ACH debits on the 20th of each month

beginning .................................. or as soon thereafter as possible.
(month)

I agree that you are preparing these ACH debits voluntarily at my request
and that you shall not be liable for any loss arising from any delay in
preparing or failure to prepare any such debit. If I change banks or desire to
terminate or suspend this program, I agree to notify you promptly in writing. I
hereby authorize you to take any action to correct erroneous ACH debits of my
bank account or purchases of fund shares including liquidating shares of the
Fund and credit my bank account. I further agree that if a debit is not honored
upon presentation, Merrill Lynch 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
dishonored debit.

<TABLE>
<S> <C>
...................................... .......................................
Date Signature of Depositor

.......................................
Signature of Depositor
(If joint account, both must sign)
</TABLE>

AUTHORIZATION TO HONOR ACH DEBITS
DRAWN BY MERRILL LYNCH FINANCIAL DATA SERVICES, INC.

To ....................................................................... Bank
(Investor's Bank)

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

City ............ State ............ Zip Code ...............................

As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.

<TABLE>
<S> <C>
...................................... .......................................
Date Signature of Depositor

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

NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
'VOID' SHOULD ACCOMPANY THIS APPLICATION.

<PAGE>

APPENDIX A

VARIOUS PORTFOLIO STRATEGIES

The Fund is authorized to engage in various portfolio hedging strategies.
These strategies are described in more detail below.

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

The purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate floor.

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

enhance its income through the positive differential between one week and one
year interest rates, but would preclude it from taking full advantage of rising
interest rates.

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

A-1

<PAGE>

transactions in interest rate swaps distributed to shareholders will be taxable
as ordinary income or, in certain circumstances, as long-term capital gains to
shareholders.

Call Options on Portfolio Securities. The Fund may purchase call options
on any of the types of securities in which it may invest. A purchased call
option gives the Fund the right to buy, and obligates the seller to sell, the
underlying security at the exercise price at any time during the option period.
The Fund also is authorized to write (i.e., sell) covered call options on the
securities in which it may invest and to enter into closing purchase
transactions with respect to certain of such options. A covered call option is
an option where the Fund, in return for a premium, gives another party a right
to buy specified securities owned by the Fund at a specified future date and
price set at the time of the contract. The principal reason for writing call
options is 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 also serve as a partial hedge against the price of the underlying
security declining. The Fund may also purchase and sell call options on indices.
Index options are similar to options on securities except that, rather than
taking or making delivery of securities underlying the option at a specified
price upon exercise, an index option gives the holder the right to receive cash
upon exercise of the option if the level of the index upon which the option is

based is greater than the exercise price of the option. The Fund will not
purchase options on securities 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.

Put Options on Portfolio Securities. The Fund is authorized to purchase
put options to hedge against a decline in the value of its securities. By buying
a put option, the Fund has a right to sell the underlying security at the 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. The
Fund also has authority to write (i.e., sell) put options on the types of
securities which may be held by the Fund, provided that such put options are
covered, meaning that such options are secured by segregated, high grade liquid
debt securities. In certain circumstances, the Fund may purchase call options on
securities held in its portfolio on which it has written call options or which
it intends to purchase. The Fund will receive a premium for writing a put
option, which increases the Fund's return. The Fund will not sell puts if, as a
result, more than 50% of the Fund's assets would be required to cover its
potential obligations under its hedging and other investment transactions. The
Fund may purchase and sell put options on indices. Index options are similar to
options on securities except that, rather than taking or making delivery of
securities underlying the option at a specified price upon exercise, an index
option gives the holder the right to receive cash upon exercise of the option if
the level of the index upon which the option is based is less than the exercise
price of the option.

A-2

<PAGE>

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

Transactions'.

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

The Fund also has the authority to purchase and write call and put options
on futures contracts 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 rather than selling the underlying futures
contract in anticipation of a decrease in the market value of securities or an
increase in interest rates. Similarly, the Fund may purchase call options, or
write put options on futures contracts, as a substitute for the purchase of such
futures to hedge against the increased cost resulting from an increase in the
market value or a decline in interest rates of securities which the Fund intends
to purchase.

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

To trade futures contracts, the Fund is not required to deposit funds equal
to the value of the futures contract. The Fund need only make a deposit, called
an 'initial margin deposit', equal to a small percentage (typically between 2%
and 15%) of the value of the futures contract. As a result, a relatively small
adverse move in the price of a futures contract may result in immediate and
substantial losses to the Fund. For example, if at the time

A-3

<PAGE>

of purchase 10% of the price of a futures contract is deposited as margin, a 10%

decrease in the price of that contract would, if the contract were then closed
out, result in a total loss of the initial margin deposit before any deduction
for brokerage commissions and other transaction costs. A decrease of more than
10% would result in a loss of more than the total initial margin deposit.

To some extent, options on futures contracts are even more highly leveraged
than futures contracts. For example, if an in-the-money call (put) option is
sold for its intrinsic value plus a premium representing the time value of that
option, a 10% rise (drop) in the value of the underlying futures contract does
not create a loss equal to just 10% of the value of the option. Such a rise
(drop) creates a loss approximately equal to 10% of the value of the underlying
interest, less the time value, which loss may be many times greater than the
price for which the Fund sold the option. In addition, investors who sell
options are required only to deposit a percentage of the value of the option at
the time of sale as margin, thereby leveraging the investment even further.

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 (up to one year) 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. In
this situation, the Fund also may, for example, enter into a forward contract to
sell or purchase a different foreign currency for a fixed U.S. dollar amount
where it is believed that the U.S. dollar value of the currency to be sold or
bought pursuant to the forward contract will fall or rise, as the case may be,
whenever there is a decline or increase, respectively, in the U.S. dollar value
of the currency in which portfolio securities of the Fund are denominated (this
practice being referred to as a 'cross-hedge').

The Fund will not speculate in forward foreign exchange. 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 Fund is also authorized to purchase or sell listed or OTC 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. denominated securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund.

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 of

A-4

<PAGE>
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 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.

In connection with its trading in forward foreign currency contracts, the
Fund will contract with a foreign or domestic bank, or foreign or domestic
securities dealer, to make or take future delivery of a specified amount of a
particular currency. There are no limitations on daily price moves in such
forward contracts, and banks and dealers are not required to continue to make
markets in such contracts. There have been periods during which certain banks
and dealers have refused to quote prices for such forward contracts or have
quoted prices with an unusually wide spread between the price at which the bank
or dealer is prepared to buy and that at which it is prepared to sell.
Governmental imposition of credit controls might limit any such forward contract
trading. With respect to its trading of forward contracts, if any, the Fund will
be subject to the risk of bank or dealer failure and the inability of, or
refusal by, a bank or dealer to perform with respect to such contracts. Any such
default would deprive the Fund of any profit potential or force the Fund to
cover its commitments for resale, if any, at the then-market price and could
result in a loss to the Fund.

Restrictions on the Use of Futures Transactions. Regulations of the CFTC
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.

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

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

Restrictions on OTC Options. The Fund will engage in OTC options 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 which have
capital of at least $50 million or whose obligations are guaranteed by an entity
having capital of at least $50 million.

Risk Factors in Interest Rate Transactions and Options, Futures and
Currency Transactions. The use of interest rate transactions is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. Interest
rate transactions involve the risk of an imperfect correlation between the index
used in the hedging transaction and that pertaining to the securities which are
the subject of such transaction. If the Investment Adviser is incorrect in its
forecasts of market values, interest rates and other applicable factors, the
investment performance of the Fund would diminish compared with what it would
have been if these investment techniques were not used. In addition, interest
rate transactions that may be entered into by the Fund do not involve the
delivery of securities or other underlying assets or

A-5

<PAGE>

principal. Accordingly, the risk of loss with respect to interest rate swaps is
limited to the net amount of interest payments that the Fund is contractually
obligated to make. If the security underlying an interest rate swap is prepaid
and the Fund continues to be obligated to make payments to the other party to
the swap, the Fund would have to make such payments from another source. If the
other party to an interest rate swap defaults, the Fund's risk of loss consists
of the net amount of interest payments that the Fund contractually is entitled
to receive. In the case of a purchase by the Fund of an interest rate cap or
floor, the amount of loss is limited to the fee paid. Since interest rate
transactions are individually negotiated, the Investment Adviser expects to
achieve an acceptable degree of correlation between the Fund's rights to receive
interest on securities and its rights and obligations to receive and pay
interest pursuant to interest rate swaps. Utilization of options and futures
transactions to hedge the portfolio involves the risk of imperfect correlation
in movements in the price of options and futures and movements in the prices of
the securities, interest rates 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
subject of the hedge, the Fund will experience a gain or loss which will not be
completely offset by movements in the price of the subject of the hedge. This
risk particularly applies to the Fund's use of futures and options thereon since
it will generally use such instruments as a so-called 'cross-hedge', which means
that the instrument that is the subject of the futures contract is different
from the instrument being hedged by the contract.

Prior to exercise or expiration, an exchange-traded option position can

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

A-6

<PAGE>

APPENDIX B

RATING OF DEBT SECURITIES

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

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

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

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

Baa -- Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payment and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics

as well.

Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.

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

principal or interest.

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

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

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

B-1

<PAGE>

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

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

Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933 or issued in
conformity with any other applicable law or regulation. Obligations relying upon
support mechanisms such as letters-of-credit and bonds of indemnity are excluded

unless explicitly rated. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:

Issuers rated Prime-1 (or related supporting institutions) have a superior
ability for repayment of short-term promissory obligations. Prime-1 repayment
ability will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well established access
to a range of financial markets and assured sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
ability for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.

Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

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

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

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

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

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

B-2

<PAGE>

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

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

The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and (3)

protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.

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

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

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

BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in higher rated
categories. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
having predominantly speculative characteristics with respect to capacity
to pay interest and repay principal. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.

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

B -- Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity
or willingness to pay interest and repay principal. The B rating category
is also used for debt subordinated to senior debt that is assigned an
actual or implied BB or BB- rating.

CCC -- Debt rated CCC has a current identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions
to meet timely payments of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
</TABLE>

B-3

<PAGE>

<TABLE>
<S> <C>
CC -- The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.

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

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

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

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

<TABLE>
<S> <C>
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative
standing within the major ratings categories.

Provisional ratings: The letter 'p' indicates that the rating is provisional.
A provisional rating assumes the successful completion of
the project being financed by the debt being rated and
indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and

timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood or
risk of default upon failure of such completion. The
investor should exercise judgment with respect to such
likelihood and risk.

L The letter 'L' indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is federally insured and
interest is adequately collateralized.

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

NR Not rated.

</TABLE>

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

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

B-4

<PAGE>

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

<TABLE>
<S> <C>
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.

A-2 -- Capacity for timely payment on issues with this designation is

satisfactory. However, the relative degree of safety is not as high as
for issues designated 'A-1'.

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

B -- Issues rated 'B' are regarded as having only a speculative capacity for
timely payment.

C -- This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D -- Debt rated 'D' is in payment default. The 'D'rating category is used when
interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period.
</TABLE>

A commercial paper rating is not a recommendation to purchase, sell or hold
a security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. S&P
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in, or unavailability of, such information,
or based on other circumstances.

B-5

<PAGE>

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<PAGE>

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<PAGE>

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<PAGE>
INVESTMENT ADVISER

Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011

DISTRIBUTOR

Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081

TRANSFER AGENT

Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289

CUSTODIAN

Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109

INDEPENDENT AUDITORS

Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400

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 INVESTMENT ADVISER 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............................................................. 2
Merrill Lynch Select Pricing(Service Mark) System..................... 4
Financial Highlights.................................................. 8
Investment Objective and Policies..................................... 9
Special Considerations and Risk Factors............................. 11
Investments in Mortgage-Backed and Asset-Backed Securities.......... 16
Other Investment Practices.......................................... 19
Investment Restrictions............................................. 23
Management of the Fund................................................ 24
Board of Directors.................................................. 24
Advisory and Management Arrangements................................ 24
Code of Ethics...................................................... 25
Transfer Agency Services............................................ 25
Purchase of Shares.................................................... 26
Initial Sales Charge Alternatives--Class A and Class D Shares....... 28
Deferred Sales Charge Alternatives--Class B and Class C Shares...... 30
Distribution Plans.................................................. 33
Limitations on the Payment of Deferred Sales Charges................ 35
Redemption of Shares.................................................. 36
Redemption.......................................................... 36
Repurchase.......................................................... 36
Reinstatement Privilege--Class A and Class D Shares................. 37
Shareholder Services.................................................. 37
Performance Data...................................................... 40
Additional Information................................................ 41
Dividends and Distributions......................................... 41
Taxes............................................................... 41
Determination of Net Asset Value.................................... 43
Organization of the Fund............................................ 44
Shareholder Reports................................................. 45
Shareholder Inquiries............................................... 45
Authorization Form.................................................... 47
Appendix A--Various Portfolio Strategies.............................. A-1
Appendix B--Rating of Debt Securities................................. B-1
</TABLE>

Code #16802-0496

[LOGO] Merrill Lynch

Merrill Lynch
Americas Income
Fund, Inc.

[ILLUSTRATION]

PROSPECTUS

April 29, 1996

Distributor:
Merrill Lynch
Funds Distributor, Inc.

This prospectus should be
retained for future reference.

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

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

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

Merrill Lynch Americas Income Fund, Inc. (the 'Fund') is a non-diversified,
open-end management investment company seeking 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). The Fund
may at times utilize certain investment techniques, including options and
futures, to increase investment return or to hedge all or a portion of its
portfolio against interest rate, market and currency risks. In addition, the
Fund is authorized to borrow funds and to utilize leverage in amounts not to
exceed 33 1/3% of its total assets. There can be no assurance that the Fund's
investment objective will be achieved.

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

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

This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated April
29, 1996 (the 'Prospectus'), which has been filed with the Securities and
Exchange Commission (the 'Commission') and can be obtained, without charge, by
calling or 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--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR

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

The date of this Statement of Additional Information is April 29, 1996.

<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to seek 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). 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. (the 'Investment
Adviser') will effect portfolio transactions without regard to holding period
if, in its judgment, such transactions are advisable in light of a change in
circumstances of a particular company or within a particular industry or in
general market, economic or financial conditions. As a result of the investment
policies described in the Prospectus, under certain market conditions, the
Fund's portfolio turnover rate may be higher than that of other investment
companies; however, it is extremely difficult to predict portfolio turnover
rates with any degree of accuracy. 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 were one year or less and options, futures and currency
transactions) by the monthly average value of the securities in the portfolio
during the year. A high portfolio turnover rate involves certain tax
consequences and correspondingly greater transaction costs in the form of dealer
spreads and brokerage commissions which are borne directly by the Fund. For the
fiscal years ended December 31, 1995 and 1994, the Fund's portfolio turnover
rates were 127.17% and 353.33%, respectively. The high portfolio turnover in
1994 was the result of certain defensive measures taken by the Fund to guard
against extraordinary market volatility caused by interest rate uncertainties in
the United States during the first half of the year and the crisis in Mexico
during the fourth quarter of the year. The Fund is subject to the Federal income
tax requirement that less than 30% of the Fund's gross income be derived from
gains from the sale or other disposition of securities held for less than three
months.

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 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 asset value in U.S. dollars, the
Fund intends to manage its portfolio so as to give reasonable assurance that it
will be able to obtain U.S. dollars to the extent necessary to meet anticipated
redemptions. Under present conditions, the Investment Adviser 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 INTEREST RATE TRANSACTIONS, OPTIONS AND FUTURES

Reference is made to the discussion concerning various portfolio strategies
of the Fund under the caption 'Investment Objective and Policies--Other
Investment Practices--Portfolio Strategies Involving Interest Rate Transactions,
Options, Futures and Currency Transactions' in the Prospectus and to Appendix A
thereto.

2
<PAGE>
The Fund may engage in various portfolio strategies to seek to increase its
return through the use of options on portfolio securities and to hedge its
portfolio against market, interest rate and currency movements. The Fund has
authority to engage in interest rate transactions in order to hedge against
interest rate movements, purchase call and put options on securities, write
(i.e., sell) covered call options on its portfolio securities, and engage in
hedging transactions in 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.

Although certain risks are involved in interest rate, options and futures
transactions (as discussed below), the Investment Adviser believes that, because
the Fund will (i) write only covered options on portfolio securities and (ii)
engage in other transactions primarily for hedging purposes, the interest rate,
options and futures portfolio strategies of the Fund will not subject the Fund
to the risks frequently associated with the speculative use of such
transactions.

The following additional information relates to the instruments the Fund
may utilize with respect to its portfolio strategies involving interest rate
transactions, options and futures.

Interest Rate Hedging Transactions. The Fund usually will enter into
interest rate swap transactions on a net basis, i.e., the two payment streams
are netted out, with the Fund receiving or paying, as the case may be, only the
net amount of the two payments. Inasmuch as these transactions are entered into
for good faith hedging purposes, the Investment Adviser believes that such
obligations do not constitute senior securities and, accordingly, will not treat
them as being subject to its borrowing restrictions. The net amount of the

excess, if any, of the Fund's obligations over its entitlements with respect to
each interest rate swap will be accrued on a daily basis, and an amount of cash
or high grade liquid debt securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in a segregated account by
the Fund's custodian. If the interest rate swap transaction is entered into on
other than a net basis, the full amount of the Fund's obligations will be
accrued on a daily basis, and the full amount of the Fund's obligations will be
maintained in a segregated account by the Fund's custodian.

Writing Covered Options. 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 realizes a
gain in the amount of the premium. Such a gain, of course, could be offset if
the underlying security were sold at a loss. If a call option is exercised, the
writer realizes a gain or loss from the sale of the underlying security.

Put Options on Portfolio Securities. 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 with the
Fund's custodian 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.

Option Markets. The options in which the Fund invests may be options
issued by The Options Clearing Corporation (the 'Clearing Corporation') which
are currently traded on the Chicago Board Options Exchange, American Stock
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange, New York Stock
Exchange ('NYSE') or Midwest Stock Exchange. An option 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

3
<PAGE>
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
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
unforeseen 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 OTC options, which are two-party contracts
with prices and terms negotiated between the buyer and seller. The staff of the
Commission has taken the position that OTC options and the assets used as cover
for written OTC options are illiquid securities. 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 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 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.

Financial Futures and Options Thereon. 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 typically
between 2% and 15% of the value of the futures contract, 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 contracts fluctuates making the long and short positions in the futures
contracts 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 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.

The Fund has received an order from the Commission exempting it from the
provisions of Section 17(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.

<PAGE>

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. The
Fund has authority to deal in forward foreign exchange among currencies of the
different countries. 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. If the Fund enters into a position hedging
transaction, its custodian bank will place cash or liquid 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. The
Fund will enter into such transactions only to the extent, if any, deemed
appropriate by the Investment Adviser. The Fund will not enter into a forward
contract with a term of more than one year.

The Fund is also authorized to purchase or sell listed or over-the-counter
('OTC') 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 Canadian dollar denominated
security. In such circumstances, for example, the Fund may purchase a foreign
currency put option enabling it to sell a specified amount of Canadian dollars
for U.S. dollars at a specified price by a future date. To the extent the hedge
is successful, a loss in the value of the Canadian dollar relative to the U.S.
dollar will tend to be offset by an increase 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 Canadian dollars for U.S. 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 Canadian dollar to the U.S. dollar. The
Investment Adviser 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.

<PAGE>

Risk Factors in Options and Futures Transactions. 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 securities
underlying 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.

The exchanges on which the Fund intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying security (whether or not covered) which 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 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 Investment Adviser does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Fund's portfolio.

INVESTMENT RESTRICTIONS

In addition to the investment restrictions set forth in the Prospectus, the
Fund has adopted a number of fundamental and non-fundamental restrictions and
policies relating to the investment of its assets and its activities. The
fundamental policies set forth below may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities (which for
this purpose and under the Investment Company Act means the lesser of (i) 67% of
the 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).

Under the fundamental investment restrictions, the Fund may not:

1. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in securities of issuers in a single industry
(other than debt securities issued or guaranteed by a Western Hemisphere
governmental entity), except that, under normal circumstances, the Fund
will invest more than 25% of its total assets in the securities of issuers
in the financial services industry.

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

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

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

<PAGE>

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

6. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.

7. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,

as amended (the 'Securities Act'), in selling portfolio securities.

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

In addition, the Fund has adopted non-fundamental restrictions which may be
changed by the Board of Directors without the approval of shareholders. Under
the non-fundamental investment restrictions, the Fund may not:

a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.

b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law.

c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As of
the date hereof, therefore, the Fund will not invest more than 10% of its
total assets in securities which are subject to this investment restriction
(c). Securities purchased in accordance with Rule 144A under the Securities
Act and determined to be liquid by the Fund's Board of Directors are not
subject to the limitations set forth in this investment restriction (c).

d. 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 Stock Exchange or American Stock Exchange or a major foreign
exchange. For purposes of this restriction, warrants acquired by the Fund
in units or attached to securities may be deemed to be without value.

<PAGE>

e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such securities.

This restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.

f. Purchase or retain the securites of any issuer, if those individual
officers and directors of the Fund, the officers and general partner of the
Investment Adviser, the directors of such general partner or the officers
and directors of any subsidiary thereof each owning beneficially more than
one-half of one percent of the securities of such issuer own in the
aggregate more than 5% of the securities of such issuer.

g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or 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.

h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.

i. Notwithstanding fundamental investment restriction (6) above,
borrow money except that (i) the Fund may borrow from banks (as defined in
the Investment Company Act) in amounts up to 33 1/3% of its total assets
(including the amount borrowed), and (ii) the Fund may borrow up to an
additional 5% of its total assets for temporary purposes.

The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy pursuant to
which it will not purchase or sell OTC options if, as a result of any such
transaction, the sum of the market value of OTC options currently outstanding
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 15% 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. (Under the laws of certain states, the Fund presently is
limited with respect to such investments to 10% of its total assets.) However,
if the OTC option is sold by the Fund to a primary U.S. Government securities
dealer recognized by the Federal Reserve Bank of New York and if the Fund has
the unconditional contractual right to repurchase such OTC option from the
dealer at a predetermined price, then the Fund will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price less the
amount by which the option is 'in-the-money' (i.e., current market value of the
underlying securities minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price which is generally based
on a multiple of the premium received for the option, plus the amount by which
the option is 'in-the-money'. This policy as to OTC options is not a fundamental
policy of the Fund and may be amended by the Board of Directors of the Fund
without the approval of the Fund's shareholders. However, the Fund will not
change or modify this policy prior to the change or modification by the
Commission staff of its position.

The staff of the Commission has also taken the following position with
respect to investments in certain forms of stripped mortgage-backed securities,
namely the principal-only or PO class and the interest-only or IO class of such
derivative securities. Such position has been adopted as an investment policy of
the Fund, subject to amendment as discussed further below. The staff of the
Commission has taken the position that the determination of whether a particular
U.S. Government issued IO or PO that is backed by fixed-rate mortgages is liquid
may be

<PAGE>
made by the Investment Adviser under guidelines and standards established by the
Fund's Board of Directors. Such a security may be deemed liquid if it can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's net asset value per share.
The Commission's staff also has taken the position that all other IOs and POs
are illiquid securities which are subject to the restriction limiting the Fund's
investments in illiquid securities to 15% of its total assets. (Under the laws
of certain states, the Fund presently is limited with respect to such
investments to 10% of its total assets.) This policy as to IOs and POs is not a
fundamental policy of the Fund and may be amended by the Board of Directors of
the Fund without the approval of the Fund's shareholders. However, the Fund will
not change or modify this policy prior to the change or modification by the
Commission's staff of its position.

Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ('Merrill Lynch') with the Fund, the Fund is prohibited from
engaging in certain transactions involving such firm or its affiliates except
for brokerage transactions permitted under the Investment Company Act involving
only usual and customary commissions or transactions 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 firms or any of their
affiliates participate as an underwriter or dealer.

MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

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

ARTHUR ZEIKEL (63)--President and Director(1)(2)--President of the
Investment Adviser (which term as used herein includes its corporate

predecessors) since 1977; President of Fund Asset Management, L.P. ('FAM')
(which term as used herein includes its corporate predecessors) since 1977;
President and Director of Princeton Services, Inc. ('Princeton Services') since
1993; Executive Vice President of Merrill Lynch & Co., Inc. ('ML & Co.') since
1990; Director of Merrill Lynch Funds Distributor, Inc. (the 'Distributor').

DONALD CECIL (69)--Director(2)--1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Partners (an 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 (69)--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 (64)--Director(2)--9 Hampton Harbor Road, Hampton Bays,
New York 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

<PAGE>

Professor, Columbia University Graduate School of Business, 1990; Adjunct
Professor, Wharton School, University of Pennsylvania, 1990; Partner, Small
Cities Cablevision, Inc.

RICHARD R. WEST (58)--Director(2)--Box 604, Genoa, Nevada 89491. Professor
of Finance since 1984, Dean from 1984 to 1993 and currently Dean Emeritus, 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. (real estate company).

EDWARD D. ZINBARG (61)--Director(2)--5 Hardwell Road, Short Hills, New
Jersey 07078-2117. Executive Vice President of The Prudential Insurance Company
of America from 1988 to 1994; former Director of Prudential Reinsurance Company
and former Trustee of the Prudential Foundation.

TERRY K. GLENN (55)--Executive Vice President(1)(2)--Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President and Director of the
Distributor since 1986, and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.

JOSEPH T. MONAGLE, JR. (45)--Senior Vice President(1)(2)--Senior Vice
President of the Investment Adviser and FAM since 1990; Vice President of the
Investment Adviser from 1978 to 1990; Senior Vice President of Princeton
Services since 1993.

ALEX V. BOUZAKIS (38)--Vice President(1)(2)--Vice President and Senior
Portfolio Manager of the Investment Adviser and associated therewith since 1982.

DONALD C. BURKE (35)--Vice President(1)(2)--Vice President and Director of
Taxation of the Investment Adviser since 1990.

PAOLO H. VALLE (38)--Vice President(1)(2)--Vice President and Senior
Portfolio Manager of the Investment Adviser since 1992; Vice President and
Manager, Emerging Markets Trading, PNC Bank prior thereto.

GERALD M. RICHARD (46)--Treasurer(1)(2)--Senior Vice President and
Treasurer of the Investment Adviser and FAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of the
Distributor since 1981 and Treasurer thereof since 1984.

MARK B. GOLDFUS (49)--Secretary(1)(2)--Vice President of the Investment
Adviser and FAM 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 Investment Adviser or FAM acts as
investment adviser.

At March 31, 1996, the officers and Directors of the Fund as a group (13
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director and officer of the Fund, and the

other officers of the Fund, owned less than 1% of the outstanding shares of
common stock of ML & Co.

<PAGE>

COMPENSATION OF DIRECTORS

The Fund pays each Director not affiliated with the Investment Adviser an
annual retainer of $3,500 per year plus $500 per Board meeting attended,
together with such Director's actual out-of-pocket expenses relating to
attendance at meetings. The Fund also compensates members of its Audit and
Nominating Committee (the 'Committee'), which consists of all of the
non-affiliated Directors, at a rate of $500 per Committee meeting attended. The
Chairman of the Committee receives an additional fee of $250 per meeting
attended. For the fiscal year ended December 31, 1995, fees and expenses paid to
non-affiliated Directors aggregated $39,032.

The following table sets forth for the fiscal year ended December 31, 1995,
compensation paid by the Fund to the non-affiliated Directors and for the
calendar year ended December 31, 1995, the aggregate compensation paid by all
registered investment companies advised by the Investment Adviser and its
affiliate, FAM ('MLAM/FAM Advised Funds') to the non-interested Directors.

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT AGGREGATE COMPENSATION
BENEFITS FROM FUND AND OTHER
ACCRUED AS MLAM/FAM
NAME OF COMPENSATION PART OF FUND ADVISED FUNDS PAID
DIRECTOR FROM FUND EXPENSES TO DIRECTORS(1)
-------- ------------ ------------ ----------------------
<S> <C> <C> <C>
Donald Cecil......... $8,500 None $271,850
Edward H. Meyer...... $7,500 None $239,225
Charles C. Reilly.... $7,500 None $269,600
Richard R. West...... $7,500 None $294,600
Edward D. Zinbarg.... $8,083 None $155,063
</TABLE>

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

(1) In addition to the Fund, the Directors serve on the boards of other MLAM/FAM
Advised Funds as follows: Mr. Cecil (35 funds and portfolios); Mr. Meyer (35

funds and portfolios); Mr. Reilly (54 funds and portfolios); Mr. West (54
funds and portfolios); and Mr. Zinbarg (17 funds and portfolios).

ADVISORY AND MANAGEMENT ARRANGEMENTS

Reference is made to 'Management of the Fund--Advisory and Management
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 investment advisory clients for which the
Investment Adviser 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 Investment Adviser 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 Investment Adviser 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 an investment advisory agreement (the 'Investment
Advisory Agreement') with the Investment Adviser. As described in the
Prospectus, the Investment Adviser receives for its services to the

<PAGE>

Fund monthly compensation at the rate of 0.60% of the average daily net assets
of the Fund plus the principal amount of borrowings incurred by the Fund for
leverage purposes. For the fiscal period August 27, 1993 (commencement of
operations) to December 31, 1993, the investment advisory fees paid by the Fund
to the Investment Adviser aggregated $197,936, all of which was voluntarily
waived. For the fiscal year ended December 31, 1994, the investment advisory
fees paid by the Fund to the Investment Adviser aggregated $876,465, of which
$277,033 was voluntarily waived. For the fiscal year ended December 31, 1995,
the investment advisory fee paid by the Fund to the Investment Adviser
aggregated $680,512, none of which was voluntarily waived.

California imposes limitations on the expenses of the Fund. These expense
limitations require that the Investment Adviser reimburse the Fund in an amount
necessary to prevent the ordinary operating expenses of the Fund (excluding
interest, taxes, distribution fees, brokerage fees and commissions and
extraordinary charges such as litigation costs) from exceeding 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 remaining average daily net
assets. The Investment Adviser's obligation to reimburse the Fund is limited to
the amount of the investment advisory fee. No fee payment will be made to the

Investment Adviser during any fiscal year which will cause such expenses to
exceed the most restrictive expense limitation applicable at the time of such
payment.

The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the fees of all Directors of the Fund who are affiliated persons of the
Investment Adviser. The Fund pays all other expenses incurred in the operation
of the Fund, including, among other things, taxes; expenses for legal and
auditing services; costs of printing proxies, stock certificates, shareholder
reports and prospectuses and statements of additional information (except to the
extent paid by the Distributor); charges of the custodian, any sub-custodian and
transfer agent; expenses of redemption of shares; Commission fees; expenses of
registering the shares under Federal, state or foreign laws; fees and expenses
of 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 Investment Adviser, and the Fund reimburses the Investment Adviser for its
costs in connection with such services on a semi-annual basis. For the fiscal
period August 27, 1993 (commencement of operations) to December 31, 1993, the
amount of such reimbursement was $21,800. For the fiscal years ended December
31, 1994 and 1995, the amount of such reimbursement was $100,005 and $122,063,
respectively. The Distributor will pay certain promotional expenses of the Fund
incurred in connection with the offering of its shares. Certain expenses in
connection with the distribution of Class B, Class C and Class D shares will be
financed by the Fund pursuant to distribution plans in compliance with Rule
12b-1 under the Investment Company Act. See 'Purchase of Shares--Distribution
Plans'.

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

Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement will continue in effect for a period of two
years from the date of its execution and will remain in effect from year to year
thereafter if approved annually (a) by the Board of Directors of the Fund or by
a majority

<PAGE>
of the outstanding shares of the Fund and (b) by a majority of the Directors who
are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and

may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of a majority of the shareholders of the
Fund.

PURCHASE OF SHARES

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

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

The Merrill Lynch Select Pricing(Service Mark) System is used by more than
50 mutual funds advised by the Investment Adviser or its affiliate, FAM. Funds
advised by the Investment Adviser or FAM which utilize the Merrill Lynch Select
Pricing(Service Mark) System are referred to herein as 'MLAM-advised mutual
funds'.

The Fund has entered into separate distribution agreements with Merrill
Lynch Funds Distributor, Inc. (the 'Distributor') in connection with the
continuous offering of each class of shares of the Fund (the 'Distribution
Agreements'). The Distribution Agreements obligate the Distributor to pay
certain expenses in connection with the offering of each class of shares of the
Fund. After the prospectuses, statements of additional information and periodic
reports have been prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies thereof used in
connection with the offering to dealers and 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 Investment Advisory Agreement described under 'Management of
the Fund--Advisory and Management Arrangements'.

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

As a result of the implementation of the Merrill Lynch Select
Pricing(Service Mark) System, Class A shares of the Fund outstanding prior to
October 21, 1994, were redesignated Class D shares. The Class A shares currently
being offered differ from the Class A shares offered prior to October 21, 1994

in many respects, including sales charges, exchange privilege and the classes of
persons to whom such shares are offered. The gross sales charges for the sale of
its former Class A shares (now redesignated Class D shares) for the fiscal
period August 27, 1993 (commencement of operations) to December 31, 1993, were
$317,743, of which $5,926 and $311,817 were received by the Distributor and
Merrill Lynch, respectively. The Distributor and Merrill Lynch received no sales
charges for the sale of its new Class A shares for the fiscal period October 21,
1994 (commencement of operations) to December 31, 1994. The gross sales charges
for the sale of the Class A Shares of the Fund for the fiscal year ended
December 31, 1995 were $395, of which $20 and $375 were received by the
Distributor and Merrill Lynch, respectively. The gross sales charges for the
sale of its Class D shares (including redesignated Class A shares) for the
fiscal year ended December 31, 1994, were $18,983, of which $2,329 and $16,654
were received by the Distributor and

<PAGE>

Merrill Lynch, respectively. The gross sales charges for the sale of its Class
D shares for the fiscal year ended December 31, 1995 were $15,631, of which
$1,252 and $14,379 were received by the Distributor and Merrill Lynch,
respectively. During such periods, the Distributor received no contingent
deferred sales charges ('CDSCs') with respect to redemptions within one year
after purchase of Class A or Class D shares purchased subject to front-end
sales charge waivers. 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 and Class D
shares of the Fund refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his 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.

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

<PAGE>

investment option, shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that shareholders already
owning Class A shares of the Fund will be eligible to purchase additional Class
A shares pursuant to this option, if such additional Class A shares will be held
in the same account as the existing Class A shares and the other requirements
pertaining to the reinvestment privilege are met. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an 'eligible fund') must sell his or her shares of
common stock of the eligible fund (the 'eligible shares') back to the eligible
fund in connection with a tender offer conducted by the eligible fund and
reinvest the proceeds immediately in the designated class of shares of the Fund,
except that shareholders already owning Class A shares of the Fund will be
eligible to purchase additional Class A shares pursuant to this option, if such
additional Class A shares will be held in the same account as the existing Class
A shares and the other requirements pertaining to the reinvestment privilege are

met. This investment option is available only with respect to eligible shares as
to which no Early Withdrawal Charge or CDSC (each as defined in the eligible
fund's prospectus) is applicable. Purchase orders from eligible fund
shareholders wishing to exercise this investment option will be accepted only on
the day that the related tender offer terminates and will be effected at the net
asset value of the designated class of the Fund on such day. Third, the
closed-end fund shares must have been continuously maintained in a Merrill Lynch
securities account. Fourth, there must be a minimum purchase of $250 to be
eligible for the investment option.

REDUCED INITIAL SALES CHARGES

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

Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Fund or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at 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 or Class D 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 and Class
D shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward
completion of such Letter, but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new

<PAGE>

purchases. If the total amount of shares does not equal the amount stated in the
Letter of Intention (minimum of $25,000), the investor will be notified and must
pay, within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares purchased at the reduced rate and
the sales charge applicable to the shares actually purchased through the Letter.
Class A or Class D shares equal to five percent of the intended amount will be
held in escrow during the 13-month period (while remaining registered in the
name of the purchaser) for this purpose. The first purchase under the Letter of
Intention must be at least five percent of the dollar amount of such Letter. If
a purchase during the term of such Letter 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 a MLAM-advised
money market fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intention from the Fund.

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

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

Class D shares of the Fund are also offered at net asset value, without
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 D shares of the Fund with proceeds from a
redemption of shares of the other mutual fund and such shares of such other fund
were subject to a sales charge either at the time of purchase or on a deferred
basis, and second, such purchase of Class D shares must be made within 90 days
after notice of termination.

Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: first, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from the redemption of such shares of
the other mutual fund and such shares have been outstanding for a period of no
less than six months;

<PAGE>

and second, such purchase of Class D shares must be made within 60 days after
the redemption and the proceeds from the redemption must be maintained in the
interim in cash or a money market fund.

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

Employee Access Accounts(Service Mark). Class A or Class D shares are
offered at net asset value to Employee Access Accounts(Service Mark) available
through employers that provide employer-sponsored retirement or savings plans
that are eligible to purchase such shares at net asset value. The initial
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is $50.

Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a public or private investment company. The value of the assets or company
acquired in a tax-free transaction may be adjusted in appropriate cases to
reduce possible adverse tax consequences to the Fund 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. The issuance of Class D shares for

consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities which (i) meet the
investment objective and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, which
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under 'Investment Objective and
Policies' herein).

EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS

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

DISTRIBUTION PLANS

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.

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

<PAGE>

Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In

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

LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES

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

The following table sets forth comparative information as of December 31,
1995, indicating the maximum allowable payments that can be made under the NASD
maximum sales charge rule with respect to Class B and Class C shares, and the
Distributor's voluntary maximum with respect to Class B shares, for the periods
indicated.

<PAGE>

DATA CALCULATED AS OF DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
ALLOWABLE AMOUNTS
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE
-------- --------- --------- ------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES, FOR THE FISCAL PERIOD AUGUST 27,
1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1995:
Under NASD Rule as Adopted...................... $133,397 $ 8,337 $ 1,367 $9,704 $1,732 $ 7,972
Under Distributor's Voluntary Waiver............ $133,397 $ 8,337 $ 667 $9,004 $1,732 $ 7,272

CLASS C SHARES, FOR THE FISCAL PERIOD OCTOBER 21,
1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1995:
Under NASD Rule as Adopted...................... $ 1,551 $ 97 $ 5 $ 102 $ 4 $ 98

<CAPTION>
ANNUAL
DISTRIBUTION
FEE AT CURRENT
NET ASSET
LEVEL(4)
--------------
<S> <C>
CLASS B SHARES, FOR THE FISCAL PERIOD AUGUST 27,
1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1995:
Under NASD Rule as Adopted...................... $517
Under Distributor's Voluntary Waiver............ $517

CLASS C SHARES, FOR THE FISCAL PERIOD OCTOBER 21,
1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1995:
Under NASD Rule as Adopted...................... $ 8

</TABLE>

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

(1) Purchase price of all eligible Class B or Class C shares sold during periods
indicated 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 CDSC payments, distribution fee payments and accruals. See
'Purchase of Shares--Distribution Plans' in the Prospectus.

(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the NASD maximum or, with respect to Class B shares, the
voluntary maximum.

REDEMPTION OF SHARES

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

The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the NYSE is restricted as determined by the Commission or the
NYSE 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.

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.

DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES

As discussed in the Prospectus under 'Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares', while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in connection with certain
post-retirement withdrawals from an Individual Retirement Account ('IRA') or
other retirement plan or on

<PAGE>

redemptions of Class B shares 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 part of a series of equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) or any redemption resulting from the tax-free return of an excess
contribution to an IRA; or (b) any partial or complete redemption following the
death or disability (as defined in the Code) of a Class B shareholder (including
one who owns the Class B shares as joint tenant with his or her spouse),
provided the redemption is requested within one year of the death or initial
determination of disability. For the fiscal period August 27, 1993 (commencement
of operations) to December 31, 1993 and to the fiscal years ended December 31,
1994 and 1995, the Distributor received CDSCs of $51,471, $257,524 and $265,027,
respectively, with respect to redemptions of Class B shares, all of which was
paid to Merrill Lynch. For the fiscal period October 21, 1994 (commencement of
operations) to December 31, 1994, the Distributor received no CDSCs with
respect to redemptions of Class C shares. For the fiscal year ended December
31, 1995, the Distributor received CDSCs of $552 with respect to redemptions of
Class C shares, all of which was paid to Merrill Lynch.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions and the allocation of brokerage. In executing such
transactions, the Investment Adviser seeks to obtain the best net results for
the Fund, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Investment Adviser generally seeks
reasonably competitive commission rates, the Fund does not necessarily pay the
lowest commission or spread available. The Fund has no obligation to deal with
any broker or group of brokers in execution of transactions in portfolio
securities. Subject to obtaining the best price and execution, brokers who
provide supplemental investment research to the Investment Adviser may receive
orders for transactions by the Fund. Information so received will be in addition
to and not in lieu of the services required to be performed by the Investment
Adviser under the Investment Advisory Agreement, and the expenses of the
Investment Adviser will not necessarily be reduced as a result of the receipt of
such supplemental information. It is possible that 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. In addition, consistent with the Rules

of Fair Practice of the NASD and policies established by the Board of Directors
of the Fund, the Investment Adviser 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. For the fiscal year ended December 31, 1994, the Fund
paid total brokerage commissions of $8,109, none of which was paid to Merrill
Lynch. For the fiscal year ended December 31, 1995, the Fund did not pay any
brokerage commissions.

The Board of Directors has considered the possibilities 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 Board of Directors made a
determination not to seek such recapture. The Board will reconsider this
matter from time to time.

<PAGE>

DETERMINATION OF NET ASSET VALUE

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

differ by approximately the amount of the expense accrual differentials between
the classes.

Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the time
of valuation. Securities which are traded both in the OTC market and on a stock
exchange will be valued according to the broadest and most representative
market. When the Fund writes a call option, the amount of the premium received
is recorded on the books of the Fund as an asset and an equivalent liability.
The amount of the liability is subsequently valued to reflect the current market
value of the option written, based upon the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased by the Fund are
valued at their last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last bid price.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as obtained from one
or more dealers. Other investments, including futures contracts and related
options, will be 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.

21
<PAGE>

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

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services summarized 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 services or plans, or how to change options with
respect thereto, can be obtained from the Fund, the Distributor or Merrill
Lynch. Certain of these services are available only to U.S. investors.

INVESTMENT ACCOUNT

Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements, at least quarterly, from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The 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 Fund's transfer agent.

Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Fund's transfer agent.

Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or such shareholder
must continue to maintain an Investment Account at the transfer agent for those
Class A or Class D shares. Shareholders interested in transferring their Class B
or Class C shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the transfer agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder at the transfer agent.
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

<PAGE>

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
CDSC) so that the cash proceeds can be transferred to the account at the new
firm, or such shareholder must continue to maintain a retirement account at
Merrill Lynch for those shares.

AUTOMATIC INVESTMENT PLANS

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

AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be reinvested automatically in additional shares of the Fund.
Such reinvestment will be at the net asset value of the shares of the Fund, as
of the close of business on the monthly payment date of the dividend or
distribution. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed on or about the payment date. Cash payments can also be
directly deposited to the shareholder's bank account. No CDSC will be imposed on
redemption of shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions.

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.

SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES

A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired

Class A or Class D shares of the Fund having a value, based upon cost or the
current offering price, of $5,000 or more, and monthly withdrawals are available
for shareholders with Class A or Class D shares with such a value of $10,000 or
more.

At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder may
specify either a dollar amount or a percentage of the value of his Class A or
Class D shares. Redemptions will be made at net asset value as determined as of
15 minutes after the close of business of the NYSE (generally, 4:00 p.m., New
York time) on the 24th day of each month or the 24th day of the last month of
each quarter, whichever is applicable. If the NYSE is not open for business on
such date, the Class A or Class D
23

<PAGE>

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 or Class D shares in the Investment Account are automatically
reinvested in Class A or Class D shares of the Fund, respectively. A
shareholder's Systematic Withdrawal Plan may be terminated at any time, without
charge or penalty, by the shareholder, the Fund, the Fund's 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
correspondingly reduced. Purchases of additional Class A or Class D shares
concurrent with withdrawals are ordinarily disadvantageous to the shareholder
because of sales charges and tax liabilities. The Fund will not knowingly accept
purchase orders for Class A or Class D shares of the Fund from investors who
maintain a Systematic Withdrawal Plan unless such purchase is equal to at least
one year's scheduled withdrawals or $1,200, whichever is greater. Periodic
investments may not be made into an Investment Account in which the shareholder
has elected to make systematic withdrawals.

Alternatively, a Class A or Class D shareholder whose shares are held
within a CMA(Registered), CBA(Registered) or Retirement Account may elect to
have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual
basis through the CMA(Registered) or CBA(Registered) Systematic Redemption
Program. The minimum fixed dollar amount redeemable is $25. The proceeds of
systematic redemptions will be posted to the shareholder's account five business
days after the date the shares are redeemed. Monthly systematic redemptions will
be made at net asset value on the first Monday of each month; bimonthly
systematic redemptions will be made at net asset value on the first Monday of
every other month; and quarterly, semiannual or annual redemptions are made at
net asset value on the first Monday of months selected at the shareholder's

option. If the first Monday of the month is a holiday, the redemption will be
processed at net asset value on the next business day. The Systematic Redemption
Program is not available if Fund shares are being purchased within the account
pursuant to the Automatic Investment Program. For more information on the
CMA(Registered) or CBA(Registered) Systematic Redemption Program, eligible
shareholders should contact their Merrill Lynch Financial Consultant.

EXCHANGE PRIVILEGE

Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds. Under the Merrill Lynch Select
Pricing(Service Mark) System, Class A shareholders may exchange Class A shares
of the Fund for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in his account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his account at the time of
the exchange and is not otherwise eligible to acquire Class A shares of the
second fund, the shareholder will receive Class D shares of the second fund as
a result of the exchange. Class D shares also may be exchanged for Class A
shares of a second MLAM-advised mutual fund at any time as long as, at the time
of the exchange, the shareholder holds Class A shares of the second fund in the
account in which the exchange is made or is otherwise eligible to purchase
Class A shares of the second fund. Class B, Class C and Class D shares are
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of
the shares acquired in the exchange, the holding period for the previously
owned shares of the Fund is 'tacked' to the holding period for

<PAGE>

the newly acquired shares of the other fund as more fully described below.
Class A, Class B, Class C and Class D shares are also exchangeable for shares
of certain MLAM-advised money market funds as follows: Class A shares may be
exchanged for shares of Merrill Lynch Ready Assets Trust, Merrill Lynch
Retirement Reserves Money Fund (available only for exchanges within certain
retirement plans), Merrill Lynch U.S.A. Government Reserves and Merrill Lynch
U.S Treasury Money Fund; Class B, Class C and Class D shares may be exchanged
for shares of Merrill Lynch Government Fund, Merrill Lynch Institutional Fund,
Merrill Lynch Institutional Tax-Exempt Fund and Merrill Lynch Treasury Fund.
Shares with a net asset value of at least $100 are required to qualify for the
exchange privilege, and any shares utilized in an exchange must have been held
by the shareholder for at least 15 days. It is contemplated that the exchange
privilege may be applicable to other new mutual funds whose shares may be
distributed by the Distributor.

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

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

<PAGE>

The exchange privilege is modified with respect to certain retirement plans

which participate in the Merrill Lynch Mutual Fund Adviser ('MFA') program. Such
retirement plans may exchange Class B, Class C or Class D shares that have been
held for at least one year for Class A shares of the same fund on the basis of
relative net asset values in connection with the commencement of participation
in the MFA program, i.e., no CDSC will apply. The one year holding period does
not apply to shares acquired through reinvestment of dividends. Upon termination
of participation in the MFA program, Class A shares will be re-exchanged for the
class of shares originally held. For purposes of computing any CDSC that may be
payable upon redemption of Class B or Class C shares so reacquired, or the
conversion period for Class B shares so reacquired, the holding period for the
Class A shares will be 'tacked' to the holding period for the Class B or Class C
shares originally held.

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

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

To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant who will advise the Fund of the exchange.
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 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.

<PAGE>

TAXES

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

Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, generally will not be eligible for the dividends received deduction
allowed to corporations under the Code. If the Fund pays a dividend in January
that was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.

<PAGE>

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 among the Class A, Class B, Class C and Class D
shareholders according to a method (which it believes is consistent with the
Commission rule permitting the issuance and sale of multiple classes of stock)
that is based on the gross income allocable to Class A, Class B, Class C and
Class D shareholders during the taxable year, or such other method as the
Internal Revenue Service may prescribe.

If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the

exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.

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

The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ('high yield/high risk securities'), as described in the Prospectus.
Some of these high yield/high risk securities may be purchased at a discount and
may therefore cause the Fund to accrue income before amounts due under the
obligations are paid. In addition, a portion of the interest payments on such
high yield/high risk securities may be treated as dividends for Federal income
tax purposes; in such case, if the issuer of such high yield/high risk
securities is a domestic corporation, dividend payments by the Fund will be
eligible for the dividends received deduction to the extent of the deemed
dividend portion of such interest payments.

<PAGE>

TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS

The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are 'Section 1256
contracts' will be 'marked to market' for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option

or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. Application of these rules to
Section 1256 contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above, however,
will not apply to certain transactions entered into by the Fund solely to reduce
the risk of changes in price or interest or currency exchange rates with respect
to its investments.

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

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

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

SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS

In general, gains from 'foreign currencies' and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, 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.

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

<PAGE>

investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary income dividend distributions, and all or a portion of
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Fund shares and resulting in a capital
gain for any shareholder who received a distribution greater than such
shareholder's basis in Fund shares (assuming the shares were held as a capital
asset). These rules and the mark-to-market rules described above, however, will
not apply to certain transactions entered into by the Fund solely to reduce the
risk of currency fluctuations with respect to its investments.

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 South American countries in which the Fund intends to
invest. No such regulations have been issued.

Ordinary income 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 is determined separately for Class A, Class B, Class
C and Class D shares in accordance with a formula specified by the Commission.

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

The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual

<PAGE>

data, may be quoted, 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 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, Class B, Class
C and Class D shares of the Fund for the periods indicated. As a result of the
implementation of the Merrill Lynch Select Pricing(Service Mark) System, Class
A shares of the Fund outstanding prior to October 21, 1994, were redesignated
Class D shares, and historical performance data pertaining to such shares is
provided below under the caption 'Class D Shares'.

<TABLE>
<CAPTION>
CLASS A CLASS B

------------------------------ ------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT BASED ON A INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
$1,000 OF THE $1,000 OF THE
PERIOD INVESTMENT PERIOD INVESTMENT PERIOD
- ----------------------------------------------------- ------------ ------------ ------------ ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended December 31, 1995..................... 22.18% $ 1,221.80 22.10% $ 1,221.00
Inception (October 21, 1994) to December 31, 1995.... 13.84% $ 1,167.40
Inception (August 27, 1993) to December 31, 1995..... 7.01% $ 1,172.10

<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended December 31, 1995..................... 27.27% $ 1,272.70 26.10% $ 1,261.00
One Year Ended December 31, 1994..................... (15.08)% $ 849.20
Inception (October 21, 1994) to December 31, 1994.... (4.45)% $ 955.50
Inception (August 27, 1993) to December 31, 1993..... 11.30% $ 1,113.00

<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (October 21, 1994) to December 31, 1995.... 16.74% $ 1,167.40
Inception (August 27, 1993) to December 31, 1995..... 17.21% $ 1,172.10
</TABLE>

31
<PAGE>

<TABLE>
<CAPTION>
CLASS C CLASS D
------------------------------ ------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT BASED ON A INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
$1,000 OF THE $1,000 OF THE
PERIOD INVESTMENT PERIOD INVESTMENT PERIOD
- ----------------------------------------------------- ------------ ------------ ------------ ------------
AVERAGE ANNUAL TOTAL RETURN

(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended December 31, 1995..................... 25.18% $ 1,251.80 21.68% $ 1,216.80
Inception (October 21, 1994) to December 31, 1995.... 16.33% $ 1,198.00
Inception (August 27, 1993) to December 31, 1995..... 6.45% $ 1,157.90

<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended December 31, 1995..................... 26.18% $ 1,261.80 26.75% $ 1,267.50
One Year Ended December 31, 1994..................... (14.65)% $ 853.50
Inception (October 21, 1994) to December 31, 1994.... (5.06)% $ 949.40
Inception (August 27, 1993) to December 31, 1993..... 11.49% $ 1,114.90

<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (October 21, 1994) to December 31, 1995.... 19.80% $ 1,198.00
Inception (August 27, 1993) to December 31, 1995..... 15.79% $ 1,157.90
</TABLE>

In order to reflect the reduced sales charges, in the case of Class A or
Class D shares, or the waiver of the CDSC in the case of Class B 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 reduced, and
not the maximum, sales charge or may not take into account the CDSC and
therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of CDSCs, a lower amount of expenses may be deducted.

GENERAL INFORMATION

DESCRIPTION OF SHARES

The Fund was incorporated under Maryland law on June 10, 1993. As of the
date of this Statement of Additional Information, the Fund has an authorized
capital of 400,000,000 shares of common stock, par value $0.10 per share,
divided into four classes, designated Class A, Class B, Class C and Class D
common stock, each of which consists of 100,000,000 shares. Each share of Class
A, Class B, Class C and Class D common stock represents an interest in the same
assets of the Fund and is identical in all respects except that the Class B,

<PAGE>

Class C and Class D shares bear certain expenses related to the account
maintenance and/or distribution of such shares and have exclusive voting rights
with respect to matters relating to such account maintenance and/or distribution
expenditures. The Board of Directors of the Fund may classify and reclassify the
shares of the Fund into additional classes of common stock at a future date.

Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter on which shareholders are entitled to vote. The Fund does not
intend to hold annual meetings of shareholders in any year in which the
Investment Company Act does not require shareholders to elect Directors. Also,
the by-laws of the Fund require that a special meeting of shareholders be held
upon the written request of at least 10% of the outstanding shares of the Fund
entitled to vote at such meeting, if they comply with applicable Maryland law.
Voting rights for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive rights. Redemption and conversion rights
are discussed elsewhere herein and in the Prospectus. Each share 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 within 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 Investment Adviser 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 will be paid by the Fund and amortized over a period not
exceeding five years. The proceeds realized by the Investment Adviser (or any
subsequent holder) upon redemption of any of such shares will be reduced by 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 offering price for Class A, Class
B, Class C and Class D shares of the Fund based on the value of the Fund's net
assets on December 31, 1995, and its shares outstanding on that date is set
forth below.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
---------- ------------ ---------- -----------

<S> <C> <C> <C> <C>
Net Assets........................................ $1,164,711 $103,464,533 $1,396,123 $14,169,527
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
Number of Shares Outstanding...................... 120,124 10,721,140 144,704 1,468,891
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
Net Asset Value Per Share (net assets divided by
number of shares outstanding)................... $ 9.70 $ 9.65 $ 9.65 $ 9.65
Sales Charge (for Class A and Class D shares:
4.00% of offering price (4.17% of net asset
value per share))*.............................. .40 ** ** .40
---------- ------------ ---------- -----------
Offering Price.................................... $ 10.10 $ 9.65 $ 9.65 $ 10.05
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
</TABLE>

- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.

** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemptions of shares. See 'Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares' in
the Prospectus and 'Redemption of Shares--Deferred Sales Charges--Class B and
Class C Shares' herein.

<PAGE>

INDEPENDENT AUDITORS

Deloitte & Touche LLP, 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 approval by the independent Directors of the
Fund. The independent auditors are responsible for auditing the annual financial
statements of the Fund.

CUSTODIAN

Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109
(the 'Custodian'), acts as the custodian of the Fund's assets. 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

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

LEGAL COUNSEL

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

REPORTS TO SHAREHOLDERS

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

ADDITIONAL INFORMATION

The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Commission, Washington,
D.C., under the Securities Act 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 common stock on March 31, 1996.

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders,

MERRILL LYNCH AMERICAS INCOME FUND, INC.:

We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Americas Income Fund, Inc. as of
December 31, 1995, the related statements of operations and cash flows for the
year then ended, changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
two-year period then ended and the period August 27, 1993 (commencement of
operations) to December 31, 1993. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1995, 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 financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Americas Income Fund, Inc. as of December 31, 1995, the results of its
operations, the changes in its net assets, its cash flows, and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.

Deloitte & Touche LLP
Princeton, New Jersey
February 12, 1996

<PAGE>

<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Interest Maturity Value Percent of
COUNTRY Industry Face Amount Bonds Rate Date (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C> <C>

Argentina Banking $ 6,000,000 Banco de Galicia y Buenos Aires
S.A.--Yankee 9.00 % 11/01/2003 $ 5,235,000 4.4%
7,000,000 Banco Rio de la Plata S.A.--Yankee 8.75 12/15/2003 6,125,000 5.1
------------ ------
11,360,000 9.5
<PAGE>
Conglomerate 2,000,000 Sociedad Commercial del Plata 8.75 12/14/1998 1,875,000 1.5
Energy

Utilities 1,000,000 Telecom Argentina Stet--France
Telecom S.A. 12.00 11/15/2002 1,060,000 0.9

Total Bonds in Argentina
(Cost--$15,902,304) 14,295,000 11.9

Brazil Banking 4,000,000 Banco do Estado de Parana 10.00 2/27/1996 3,975,000 3.3
850,000 Usinas Siderurgicas de Minas
Gerais--Usiminas S.A. 10.00 1/15/1996 848,938 0.7
------------ ------
4,823,938 4.0

Energy 1,000,000 Celulose Nipo--Brasileira S.A.
(CENIBRA) 9.375 12/21/2003 970,000 0.8

Oil Service 1,000,000 ++Compania Brazileira de Petroleo
Ipiranga (a) 8.625 2/25/2002 975,000 0.8

Paper 1,000,000 Klabine Fabricadora Papel 10.00 12/20/2001 977,500 0.8

Total Bonds in Brazil
(Cost--$7,885,175) 7,746,438 6.4

Colombia Banking 2,000,000 Banco de Colombia 7.50 10/21/1998 1,930,000 1.6

Total Bonds in Colombia
(Cost--$1,952,500) 1,930,000 1.6

Mexico Banking 1,500,000 Banamex Eurobond, S.A. 9.125 4/06/2000 1,436,250 1.2
1,000,000 Banco de Atlantico, S.A. 7.875 11/05/1998 850,000 0.7
8,000,000 Banco Nacional Comercio Exterior 7.25 2/02/2004 6,270,000 5.2

------------ ------
8,556,250 7.1

Chemicals 1,000,000 Grupo Desc--IRSA 8.375 7/15/1998 895,000 0.8

Steel 2,000,000 ++Grupo Simec, S.A. de C.V.,
guaranteed by Grupo Sidek, S.A. 8.875 12/15/1998 1,111,250 0.9

Tourism 2,500,000 Grupo Situr, S.A. de C.V.,
guaranteed by Grupo Sidek, S.A. 8.75 9/14/1998 1,350,000 1.1

Total Bonds in Mexico
(Cost--$13,873,444) 11,912,500 9.9

<PAGE>
Venezuela Oil 1,000,000 Bariven S.A. 10.625 3/17/2002 957,500 0.8

Total Bonds in Venezuela
(Cost--$1,075,000) 957,500 0.8

Total Investments in Bonds
(Cost--$40,688,423) 36,841,438 30.6

Brady Bonds***

Argentina Sovereign 28,000,000 Republic of Argentina,
Government Floating Rate Bond* 6.812 3/31/2005 19,950,000 16.6
Obligations

Total Brady Bonds in Argentina
(Cost--$17,281,750) 19,950,000 16.6

Brazil Sovereign 26,530,200 Republic of Brazil, C Bonds (a) 8.00 4/15/2014 15,254,865 12.7
Government 2,500,000 Republic of Brazil, EI Bonds 6.812 4/15/2006 1,715,625 1.4
Obligations 3,000,000 Republic of Brazil, Exit Bonds 6.00 9/15/2013 1,680,000 1.4
500,000 Republic of Brazil, Floating
Rate Bond, Debenture 6.875 4/15/2012 286,250 0.2
11,000,000 Republic of Brazil, Floating
Rate Bond, New Money 6.875 4/15/2009 6,792,500 5.7

Total Brady Bonds in Brazil
(Cost--$23,763,100) 25,729,240 21.4

Ecuador Sovereign 10,000,000 Republic of Ecuador--Discount 6.812 2/28/2025 5,037,500 4.2
Government
Obligations
Total Brady Bonds in Ecuador
(Cost--$4,945,595) 5,037,500 4.2

Mexico Sovereign 25,000,000 United Mexican States, Par 'A'* 6.25 12/31/2019 16,281,250 13.5
Government 25,001,000 United Mexican States, Value
Obligations Recovery Rights (b) 0.00 25 0.0

Total Brady Bonds in Mexico
(Cost--$15,380,844) 16,281,275 13.5
</TABLE>

<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Interest Maturity Value Percent of

COUNTRY Industry Face Amount Bonds Rate Date (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C> <C>
Venezuela Sovereign $ 7,250,000 Republic of Venezuela, DCB 6.562% 12/18/2007 $ 3,960,312 3.3%
Government 2,000,000 Republic of Venezuela, Floating
Obligations Rate Bond 6.812 3/31/2007 1,110,000 0.9
2,000,000 Republic of Venezuela, Par Bond,
Series `B' 6.75 3/31/2020 1,142,500 1.0
10,000 Republic of Venezuela,
Recovery Rights (c) 0.00 0 0.0

Total Brady Bonds in Venezuela
(Cost--$5,881,313) 6,212,812 5.2

Total Investments in Brady Bonds
(Cost--$67,252,602) 73,210,827 60.9

Short-Term Investments

Certificates 2,000,000 Banca Promex 13.50 2/13/1996 1,968,000 1.6
of Deposit

Total Certificates of Deposit
(Cost--$1,969,539) 1,968,000 1.6

Foreign 7,495,520 Mexican Cetes 36.15 3/07/1996 893,019 0.8
Government 8,512,500 Mexican Cetes 36.20 9/05/1996 837,076 0.7
Obligations**

Total Foreign Government Obligations
(Cost--$2,218,623) 1,730,095 1.5

Total Short-Term Investments
(Cost--$4,188,162) 3,698,095 3.1

Total Investments (Cost--$112,129,187) 113,750,360 94.6

Other Assets Less Liabilities 6,444,534 5.4
------------ ------
Net Assets $120,194,894 100.0%
============ ======

<PAGE>
<FN>
(a)Represents a zero coupon or step bond; the interest rate shown is
the effective yield at the time of purchase by the Fund.
(b)The rights may be exercised until 12/31/2019.
(c)The rights may be exercised until 3/31/2020.
*Security represents collateral in connection with reverse
repurchase agreements (Note 5).
**Certain Foreign Government Obligations are traded on a discount
basis; the interest rates shown are the discount rates paid at the
time of purchase by the Fund.
***Brady Bonds are securities which have been issued to refinance
commercial bank loans and other debt. They are created when

creditors tender eligible debt in exchange for new bonds.
++Restricted security as to resale. The value of the Fund's
investment in restricted securities was approximately $2,086,000,
representing 1.7% of net assets.

<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Compania Brazileira de
Petroleo Ipiranga 2/15/1994 $ 999,175 $ 975,000
Grupo Simec, S.A. de C.V.,
guaranteed by Grupo Sidek, S.A. 12/02/1993 1,990,880 1,111,250

Total $2,990,055 $2,086,250
========== ==========

See Notes to Financial Statements.
</TABLE>

<PAGE>

<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1995
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$112,129,187) (Note 1a) $113,750,360
Receivables:
Securities sold $ 13,598,956
Interest 2,702,944
Reverse repurchase agreements (Note 5) 1,535,409
Capital shares sold 325,713 18,163,022
------------
Deferred organization expenses (Note 1f) 55,277
Prepaid registration fees and other assets (Note 1f) 65,018
------------
Total assets 132,033,677
------------
<PAGE>
Liabilities: Payables:
Reverse repurchase agreements (Note 5) 10,265,476
Dividends to shareholders (Note 1g) 938,240
Capital shares redeemed 336,996
Distributor (Note 2) 68,899
Investment adviser (Note 2) 64,173
Interest expense (Note 5) 7,628 11,681,412
------------
Accrued expenses and other liabilities 157,371
------------
Total liabilities 11,838,783

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

Net Assets: Net assets $120,194,894
============

Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares authorized $ 12,012
Consist of: Class B Common Stock, $0.10 par value, 100,000,000 shares authorized 1,072,114
Class C Common Stock, $0.10 par value, 100,000,000 shares authorized 14,470
Class D Common Stock, $0.10 par value, 100,000,000 shares authorized 146,889
Paid-in capital in excess of par 129,096,359
Undistributed investment income--net 950,933
Accumulated realized capital losses on investments and foreign
currency transactions--net (Note 6) (12,709,426)
Unrealized appreciation on investments and foreign currency
transactions--net 1,611,543
------------
Net assets $120,194,894
============

Net Asset Class A--Based on net assets of $1,164,711 and 120,124
Value: shares outstanding $ 9.70
============
Class B--Based on net assets of $103,464,533 and 10,721,140

shares outstanding $ 9.65
============
Class C--Based on net assets of $1,396,123 and 144,704
shares outstanding $ 9.65
============
Class D--Based on net assets of $14,169,527 and 1,468,891
shares outstanding $ 9.65
============

See Notes to Financial Statements.
</TABLE>

39
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1995
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 13,873,521
(Note 1e):

Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 683,769
Investment advisory fees (Note 2) 680,512
Interest expense (Note 5) 169,737
Printing and shareholder reports 139,585
Accounting services (Note 2) 122,063
Transfer agent fees--Class B (Note 2) 114,804
Professional fees 92,219
Registration fees (Note 1f) 58,427

Custodian fees 56,327
Account maintenance fees--Class D (Note 2) 44,979
Trustees' fees and expenses 39,032
Amortization of organization expenses (Note 1f) 20,965
Transfer agent fees--Class D (Note 2) 19,874
Account maintenance and distribution fees--Class C (Note 2) 4,589
Transfer agent fees--Class A (Note 2) 1,111
Transfer agent fees--Class C (Note 2) 526
Pricing fees 110
Other 11,288
------------

Total expenses 2,259,917
------------
Investment income--net 11,613,604
------------

Realized & Realized loss from:
Unrealized Gain Investments--net (4,316,378)
(Loss) on Foreign currency transactions--net (391,070) (4,707,448)
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 18,071,468

(Notes 1b, 1c, Foreign currency transactions--net (9,623) 18,061,845
1e & 3): ------------ ------------
Net realized and unrealized gain on investments
and foreign currency transactions 13,354,397
------------
Net Increase in Net Assets Resulting from Operations $ 24,968,001
============

See Notes to Financial Statements.
</TABLE>

40
<PAGE>

<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended
December 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C> <C>
Operations: Investment income--net $ 11,613,604 $ 10,802,121
Realized loss on investments and foreign currency
transactions--net (4,707,448) (8,693,336)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 18,061,845 (22,739,647)
------------ ------------
Net increase (decrease) in net assets resulting from
operations 24,968,001 (20,630,862)
------------ ------------

Dividends & Investment income--net:
Distributions to Class A (119,581) (11,403)
Shareholders Class B (9,482,996) (7,795,228)
(Note 1g): Class C (58,666) (1,064)
Class D (1,952,361) (1,352,808)
Realized gain on investments--net:
Class A -- (2,044)
Class B -- (1,396,952)
Class C -- (191)
Class D -- (242,431)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (11,613,604) (10,802,121)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from
Transactions capital share transactions (10,358,969) 34,708,277
(Note 4): ------------ ------------

Net Assets: Total increase in net assets 2,995,428 3,275,294
Beginning of year 117,199,466 113,924,172
------------ ------------
End of year* $120,194,894 $117,199,466

============ ============
<FN>
*Undistributed net investment income--net (Note 1h) $ 950,933 $ 1,641,618
============ ============

See Notes to Financial Statements.
</TABLE>

41
<PAGE>

<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
For the Year Ended December 31, 1995
<S> <C> <C>
Cash Provided by Net increase in net assets resulting from operations $ 24,968,001
Operating Adjustments to reconcile net increase in net assets resulting
Activities: from operations to net cash provided by operating activities:
Increase in receivables (344,191)
Increase in other assets (9,207)
Decrease in other liabilities (228,134)
Realized and unrealized gain on investments and foreign
currency transactions--net (13,354,397)
Amortization of discount (1,720,330)
---------------
Net cash provided by operating activities 9,311,742
---------------

Cash Provided by Proceeds from sales of long-term securities 124,170,698

Investing Purchases of long-term securities (130,397,131)
Activities: Purchases of short-term investments (1,057,787,514)
Proceeds from sales and maturities of short-term investments 1,086,048,026
---------------
Net cash provided by investing activities 22,034,079
---------------

Cash Used for Cash receipts from issuance of common stock 51,478,023
Financing Repayments of borrowings--net (8,327,933)
Activities: Cash payments on shares of beneficial interest redeemed (67,895,167)
Dividends paid to shareholders (6,601,277)
---------------
Net cash used for financing activities (31,346,354)
---------------

Cash: Net decrease in cash (533)
Cash at beginning of year 533
---------------
Cash at end of year $ 0
===============

Cash Flow Cash paid for interest $ 314,569
Information: ===============

Non-Cash Capital shares issued on reinvestment of dividends paid to shareholders $ 4,957,965
Financing ===============
Activities:
See Notes to Financial Statements.
</TABLE>
42

<PAGE>

<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
For the For the
The following per share data and ratios For the Period For the Period
have been derived from information provided Year Oct. 21, Year Ended Aug. 27,
in the financial statements. Ended 1994++ to December 31, 1993++ to
Dec. 31, Dec. 31, ------------- Dec. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.51 $ 9.08 $ 8.48 $ 10.84 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .94 .17 .88 .75 .24
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.19 (.57) 1.17 (2.36) .88
-------- -------- -------- -------- --------
Total from investment operations 2.13 (.40) 2.05 (1.61) 1.12
-------- -------- -------- -------- --------

Less dividends and distributions:
Investment income--net (.94) (.14) (.88) (.64) (.24)
Realized gain on investments--net -- (.03) -- (.11) (.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.94) (.17) (.88) (.75) (.28)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.70 $ 8.51 $ 9.65 $ 8.48 $ 10.84
======== ======== ======== ======== ========

Total Investment Based on net asset value per share 27.27% (4.45%)+++26.10% (15.08%) 11.30%+++
Return:** ======== ======== ======== ======== ========

Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees, interest expense and net
of reimbursement 1.20% 1.22%* 1.22% 1.04% .27%*
======== ======== ======== ======== ========
Expenses, excluding interest expense and
net of reimbursement 1.20% 1.22%* 1.97% 1.79% 1.03%*
======== ======== ======== ======== ========
Expenses, excluding interest expense 1.20% 1.22%* 1.97% 2.00% 2.45%*
======== ======== ======== ======== ========
Expenses 1.36% 1.91%* 2.13% 2.70% 2.53%*
======== ======== ======== ======== ========
Investment income--net 11.25% 8.63%* 10.40% 8.14% 6.76%*

======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, end of period (in thousands) $ 1,165 $ 253 $103,465 $101,933 $ 98,848
Data: ======== ======== ======== ======== ========
Portfolio turnover 127.17% 353.33% 127.17% 353.33% 75.18%
======== ======== ======== ======== ========

Leverage: Amount of reverse repurchase agreements
outstanding, end of period (in thousands) $ 10,265 $ 17,058 $ 10,265 $ 17,058 $ 21,546
======== ======== ======== ======== ========
Average amount of reverse repurchase
agreements outstanding during the period
(in thousands) $ 2,640 $ 17,315 $ 2,640 $ 17,315 $ 18,977
======== ======== ======== ======== ========
Average amount of reverse repurchase
agreements per share during the period $ .20 $ 1.19 $ .20 $ 1.19 $ 1.81
======== ======== ======== ======== ========

<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.

See Notes to Financial Statements.
</TABLE>

<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C Class D
For the For the
The following per share data and ratios For the Period For the Period
have been derived from information provided Year Oct. 21, Year Ended Aug. 27,
in the financial statements. Ended 1994++ to December 31, 1993++ to
Dec. 31, Dec. 31, ------------- Dec. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.47 $ 9.08 $ 8.48 $ 10.84 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .87 .15 .92 .80 .26
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.18 (.61) 1.17 (2.36) .88
<PAGE> -------- -------- -------- -------- --------
Total from investment operations 2.05 (.46) 2.09 (1.56) 1.14

-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.87) (.13) (.92) (.68) (.26)
Realized gain on investments--net -- (.02) -- (.12) (.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.87) (.15) (.92) (.80) (.30)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.65 $ 8.47 $ 9.65 $ 8.48 $ 10.84
======== ======== ======== ======== ========

Total Investment Based on net asset value per share 26.18% (5.06%)+++26.75% (14.65%) 11.49%+++
Return:** ======== ======== ======== ======== ========

Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees, interest expense and net
of reimbursement 1.25% 1.44%* 1.19% 1.03% .25%*
======== ======== ======== ======== ========
Expenses, excluding interest expense and net
of reimbursement 2.05% 2.24%* 1.44% 1.28% .50%*
======== ======== ======== ======== ========
Expenses, excluding interest expense 2.05% 2.24%* 1.44% 1.48% 1.93%*
======== ======== ======== ======== ========
Expenses 2.19% 3.05%* 1.60% 2.17% 2.03%*
======== ======== ======== ======== ========
Investment income--net 10.23% 8.87%* 10.85% 8.65% 7.14%*
======== ======== ======== ======== ========

Supplemental Net assets, end of period (in thousands) $ 1,396 $ 75 $ 14,169 $ 14,938 $ 15,076
Data: ======== ======== ======== ======== ========
Portfolio turnover 127.17% 353.33% 127.17% 353.33% 75.18%
======== ======== ======== ======== ========

Leverage: Amount of reverse repurchase agreements
outstanding, end of period (in thousands) $ 10,265 $ 17,058 $ 10,265 $ 17,058 $ 21,546

======== ======== ======== ======== ========
Average amount of reverse repurchase
agreements outstanding during the period
(in thousands) $ 2,640 $ 17,315 $ 2,640 $ 17,315 $ 18,977
======== ======== ======== ======== ========
Average amount of reverse repurchase
agreements per share during the period $ .20 $ 1.19 $ .20 $ 1.19 $ 1.81
======== ======== ======== ======== ========

<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.

See Notes to Financial Statements.
</TABLE>
44

<PAGE>

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies:
Merrill Lynch Americas Income Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified, open-
end management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing (Service Mark) System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.

(a) Valuation of securities--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities 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. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last

asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market value quotations are not available are valued at
their fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
<PAGE>
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.

* Forward foreign exchange contracts--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
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.

* Options--The Fund is authorized to write and purchase call and put
options. When the Fund writes 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 market 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 exceeds the premium paid or received).

Written and purchased options are non-income producing
investments.

* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts as
a hedge against adverse changes in interest rates. A futures
contract is an agreement between two parties to buy and sell a
security, respectively, for a set price on a future date. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal
to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund

as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.

45
<PAGE>

NOTES TO FINANCIAL STATEMENTS (continued)

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

investments.

(d) 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 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 and capital gains at various rates.

(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). 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.

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

(g) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distribution of capital
gains are recorded on the ex-dividend date.

(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $1,146 and $690,685 have been reclassified from paid-in capital
in excess of par and undistributed net investment income,
respectively, to accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset values
per share.

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

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 operation of the Fund. For such
services, the Fund pays a monthly fee of 0.60%, on an annual basis,
of the average daily value of the Fund's net assets plus the
principal amount of borrowings incurred by the Fund for leverage
purposes. The most restrictive annual expense limitation requires
that MLAM reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution 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. MLAM's obligation to reimburse the
Fund is limited to the amount of the investment advisory fee. No fee
payment will be made to MLAM during any fiscal year which will cause
such expenses to exceed the most restrictive expense limitation at
the time of such payment.

Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:

Account Distribution
Maintenance Fee Fee

Class B 0.25% 0.50%
Class C 0.25% 0.55%
Class D 0.25% --

Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.

46
<PAGE>
For the year ended December 31, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:

MLFD MLPF&S

Class A $ 20 $ 375
Class D $1,252 $14,379

For the year ended December 31, 1995, MLPF&S received contingent
deferred sales charges of $265,027 and $552 relating to transactions
in Class B and Class C Shares, respectively.

During the year ended December 31, 1995, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $48 for security
price quotations to compute the net asset value of the Fund.

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

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 MLAM, PSI, MLPF&S, MLFD, MLFDS, and/or ML & Co.

3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1995 were $124,169,770 and
$125,040,179, respectively.

Realized and unrealized gains (losses) as of December 31, 1995 were
as follows:

Realized Unrealized
Gains Gains
(Losses) (Losses)

Long-term investments $ (4,606,350) $ 2,111,240
Short-term investments 432 (490,067)
Foreign currency transactions (391,070) (9,630)
Options written 329,769 --
Options purchased (40,229) --
------------ ------------
Total $ (4,707,448) $ 1,611,543
============ ============
<PAGE>
Transactions in call options written for the year ended December 31,
1995 were as follows:

Premiums
Call Options Written Par Value Received

Outstanding call options
written, beginning of year $ 21,500,000 $ 271,000
Options written 3,656,775 58,769
Options expired (25,156,775) (329,769)
------------ ------------
Outstanding call options
written, end of year $ -- $ --
============ ============

Transactions in put options written for the year ended December 31,
1995 were as follows:

Premiums
Put Options Written Par Value Received

Outstanding put options written,
beginning of year $ 6,500,000 $ 131,000
Options written 3,000,000 72,000
Options exercised (9,500,000) (203,000)
------------ ------------
Outstanding put options written,
end of year $ -- $ --
============ ============

As of December 31, 1995, net unrealized depreciation for Federal
income tax purposes aggregated $1,860,565 of which $5,141,337
related to appreciated securities and $7,001,902 related to
depreciated securities. At December 31, 1995, the aggregate cost of
investments for Federal income tax purposes was $115,610,925.

4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(10,358,969) and $34,708,277 for the years ended
December 31, 1995 and December 31, 1994, respectively.

Transactions in shares of capital were as follows:

<PAGE>
Class A Shares for the Year Dollar
Ended December 31, 1995 Shares Amount

Shares sold 424,389 $ 3,709,129
Shares issued to shareholders
in reinvestment of dividends 31,496 58,341
------------ ------------
Total issued 455,885 3,767,470
Shares redeemed (365,478) (3,126,616)
------------ ------------
Net increase 90,407 $ 640,854
============ ============

NOTES TO FINANCIAL STATEMENTS (concluded)

Class A Shares for the Period
October 21, 1994++ to Dollar
December 31, 1994 Shares Amount

Shares sold 398,776 $ 3,605,150
Shares issued to shareholders
in reinvestment of dividends &
distributions 52 444

------------ ------------
Total issued 398,828 3,605,594
Shares redeemed (369,111) (3,244,117)
------------ ------------
Net increase 29,717 $ 361,477
============ ============

[FN]
Class B Shares for the Year Dollar
Ended December 31, 1995 Shares Amount

Shares sold 2,917,112 $ 25,020,930
Shares issued to shareholders
in reinvestment of dividends 466,431 3,936,697
------------ ------------
Total issued 3,383,543 28,957,627
Shares redeemed (4,688,387) (38,740,392)
------------ ------------
Net decrease (1,304,844) $ (9,782,765)
============ ============

<PAGE>
Class B Shares for the Year Dollar
Ended December 31, 1994 Shares Amount

Shares sold 7,923,270 $ 75,478,521
Shares issued to shareholders
in reinvestment of dividends &
distributions 386,490 3,561,014
------------ ------------
Total issued 8,309,760 79,039,535
Shares redeemed (5,404,682) (48,873,193)
------------ ------------
Net increase 2,905,078 $ 30,166,342
============ ============

Class C Shares for the Year Dollar
Ended December 31, 1995 Shares Amount

Shares sold 201,258 $ 1,740,118
Shares issued to shareholders
in reinvestment of dividends 3,112 27,775
------------ ------------
Total issued 204,370 1,767,893

Shares redeemed (68,570) (583,898)
------------ ------------
Net increase 135,800 $ 1,183,995
============ ============

Class C Shares for the Period

October 21, 1994++ to Dollar
December 31, 1994 Shares Amount

Shares sold 21,072 $ 188,454
Shares issued to shareholders
in reinvestment of dividends &
distributions 13 115
------------ ------------
Total issued 21,085 188,569
Shares redeemed (12,181) (107,206)
------------ ------------
Net increase 8,904 $ 81,363
============ ============

[FN]
++Commencement of Operations.

<PAGE>
Class D Shares for the Year Dollar
Ended December 31, 1995 Shares Amount

Shares sold 2,439,964 $ 21,030,210
Shares issued to shareholders
in reinvestment of dividends 108,946 935,152
------------ ------------
Total issued 2,548,910 21,965,362
Shares redeemed (2,842,527) (24,366,415)
------------ ------------
Net decrease (293,617) $ (2,401,053)
============ ============

Class D Shares for the Year Dollar
Ended December 31, 1994 Shares Amount

Shares sold 1,554,975 $ 15,123,677
Shares issued to shareholders
in reinvestment of dividends &
distributions 77,493 648,127
------------ ------------
Total issued 1,632,468 15,771,804
Shares redeemed (1,261,103) (11,672,709)
------------ ------------
Net increase 371,365 $ 4,099,095
============ ============

++Commencement of Operations.

As a result of the implementation of the Merrill Lynch Select
Pricing (Service Mark) System, Class A Shares of the Fund outstanding prior to
October 21, 1994 have been redesignated Class D Shares. There were
1,959,335 shares redesignated amounting to $19,962,223.

5. Reverse Repurchase Agreements:
Under a reverse repurchase agreement, the Fund sells securities and
agrees to repurchase them at a mutually agreed upon date and price.
At the time the Fund enters into a reverse repurchase agreement, it
may establish a segregated account with the custodian containing
cash, cash equivalents or liquid high grade debt securities having a
value at least equal to the repurchase price.

As of December 31, 1995, the Fund had entered into reverse
repurchase agreements in the amount of $10,265,476. For the year
ended December 31, 1995, the maximum amount entered into was
$17,058,000, the average amount outstanding was $2,639,633, and the
daily weighted average interest rate was 6.45%.

6. Capital Loss Carryforward:
At December 31, 1995, the Fund had a net capital loss carryforward
of approximately $9,400,000, of which $3,796,000 expires in 2002 and
$5,604,000 expires in 2003. This amount is available to offset like
amounts of any future taxable gains.

<PAGE>

[This page is intentionally left blank.]

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies..................................... 2
Portfolio Strategies Involving Interest Rate Transactions, Options
and Futures....................................................... 2
Investment Restrictions............................................. 6
Management of the Fund................................................ 9
Directors and Officers.............................................. 9
Compensation of Directors........................................... 11
Advisory and Management Arrangements................................ 11
Purchase of Shares.................................................... 13
Initial Sales Charge Alternatives--Class A and Class D Shares....... 13
Reduced Initial Sales Charges....................................... 15
Employer-Sponsored Retirement or Savings Plans and Certain Other

Arrangements...................................................... 17
Distribution Plans.................................................. 17
Limitations on the Payment of Deferred Sales Charges................ 18
Redemption of Shares.................................................. 19
Deferred Sales Charges--Class B and Class C Shares.................. 19
Portfolio Transactions and Brokerage.................................. 20
Determination of Net Asset Value...................................... 21
Shareholder Services.................................................. 22
Investment Account.................................................. 22
Automatic Investment Plans.......................................... 23
Automatic Reinvestment of Dividends and Capital Gains
Distributions..................................................... 23
Systematic Withdrawal Plans--Class A and Class D Shares............. 23
Exchange Privilege.................................................. 24
Taxes................................................................. 27
Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions...................................................... 29
Special Rules for Certain Foreign Currency Transactions............. 29
Performance Data...................................................... 30
General Information................................................... 32
Description of Shares............................................... 32
Computation of Offering Price Per Share............................. 33
Independent Auditors................................................ 34
Custodian........................................................... 34
Transfer Agent...................................................... 34
Legal Counsel....................................................... 34
Reports to Shareholders............................................. 34
Additional Information.............................................. 34
Independent Auditors' Report.......................................... 35
Financial Statements.................................................. 36
</TABLE>

Code #16800-0496

[LOGO] Merrill Lynch

Merrill Lynch
Americas Income
Fund, Inc.

[ILLUSTRATION]

STATEMENT OF
ADDITIONAL
INFORMATION

April 29, 1996

Distributor:

Merrill Lynch
Funds Distributor, Inc.

<PAGE>
PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS:

Contained in Part A:

Financial Highlights for each of the years in the two-year period
ended December 31, 1995, and for the period August 27, 1993
(commencement of operations) to December 31, 1993.

Contained in Part B:

Financial Statements:

Schedule of Investments as of December 31, 1995.

Statement of Assets and Liabilities as of December 31, 1995.

Statement of Operations for the year ended December 31, 1995.

Statements of Changes in Net Assets for each of the years in the
two-year period ended December 31, 1995.

Statement of Cash Flows for the year ended December 31, 1995.

Financial Highlights for each of the years in the two-year period
ended December 31, 1995, and for the period August 27, 1993
(commencement of operations) to December 31, 1993.

(B) EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT

NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------
<S> <C>

1(a) -- Amended and Restated Articles of Incorporation. (e)
(b) -- Articles of Amendment to the Articles of Incorporation. (e)
(c) -- Articles Supplementary to the Articles of Incorporation. (f)
2 -- By-Laws of Registrant.
3 -- None.
4 -- Copies of instruments defining the rights of shareholders, including the relevant portions of the
Articles of Incorporation and By-Laws of Registrant. (d)
5(a) -- Investment Advisory Agreement between Registrant and Merrill Lynch Investment Management, Inc. (b)
(b) -- Supplement to Investment Advisory Agreement between Registrant and Merrill Lynch Asset Management
L.P., dated January 3, 1994. (c)
6(a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (e)
(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. (b)
(d) -- Class C Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (e)
(e) -- Class D Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (e)
7 -- None.
8 -- Custodian Agreement between Registrant and Brown Brothers Harriman & Co. (b)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between
Registrant and Financial Data Services, Inc. (now known as Merrill Lynch Financial Data Services,
Inc.) (b)
(b) -- Agreement relating to the use of the 'Merrill Lynch' name. (b)
10 -- Opinion of Brown & Wood, counsel for the Registrant.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Investment Management, Inc. (a)
14 -- None.
</TABLE>

C-1

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------
<S> <C>
15(a) -- Class B Shares Distribution Plan and Class B Shares Distribution Plan Sub-Agreement of the
Registrant. (e)
(b) -- Class C Shares Distribution Plan and Class C Shares Distribution Plan Sub-Agreement of the
Registrant. (e)
(c) -- Class D Shares Distribution Plan and Class D Shares Distribution Plan Sub-Agreement of the
Registrant. (e)
16(a) -- Schedule of computation of each performance quotation for Class A shares provided in the Registration
Statement in response to Item 22. (e)
(b) -- Schedule of computation of each performance quotation for Class B shares provided in the Registration

Statement in response to Item 22. (b)
(c) -- Schedule of computation of each performance quotation for Class C shares provided in the Registration
Statement in response to Item 22. (e)
(d) -- Schedule of computation of each performance quotation for Class D shares provided in the Registration
Statement in response to Item 22. (b)
17(a) -- Financial Data Schedule for Class A Shares for the Year Ended December 31, 1995.
(b) -- Financial Data Schedule for Class B Shares for the Year Ended December 31, 1995.
(c) -- Financial Data Schedule for Class C Shares for the Year Ended December 31, 1995.
(d) -- Financial Data Schedule for Class D Shares for the Year Ended December 31, 1995.
18 -- Merrill Lynch Select Pricing(Service Mark) System Plan pursuant to Rule 18f-3. (f)
</TABLE>

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

(a) Filed as an Exhibit to Pre-Effective Amendment No. 3 to Registrant's
Registration Statement under the Securities Act of 1933, on Form N-1A.

(b) Filed as an Exhibit to Post-Effective Amendment No. 1 to Registrant's
Registration Statement under the Securities Act of 1933, on Form N-1A.

(c) Filed as an Exhibit to Post-Effective Amendment No. 2 to the Registrant's
Registration Statement under the Securities Act of 1933, on Form N-1A.

(d) Reference is made to Article III (Sections 2, 3, 4 and 5), Article IV,
Article V (Sections 2, 3, 4, 5, 6 and 7), Article VI, Article VII, Article
IX of the Registrant's Amended and Restated Articles of Incorporation filed
as Exhibit 1(a) to the Registrant's Registration Statement; Articles of
Amendment to the Articles of Incorporation filed as Exhibit 1(b) to the
Registrant's Registration Statement; Articles Supplementary to the Articles
of Incorporation filed as Exhibit 1(c) to the Registrant's Registration
Statement; and Article II, Article III (Sections 1, 2, 3, 5, 6 and 17),
Article VI, Article VII, Article XII, Article XIII and Article XIV of the
Registrant's By-Laws filed as Exhibit 2 to the Registrant's Registration
Statement.

(e) Filed as an Exhibit to Post-Effective Amendment No. 3 to the Registrant's
Registration Statement under the Securities Act of 1933, on Form N-1A.

(f) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Merrill Lynch New York Municipal Bond
Fund of Merrill Lynch Multi-State Municipal Series Trust (File No. 2-99473),
filed on January 25, 1996.

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

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

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS MARCH 31, 1996
- -------------------------------------------------- ----------------
<S> <C>
Class A Common Stock, par value $.10 per share.... 4,994
Class B Common Stock, par value $.10 per share.... 13,045
Class C Common Stock, par value $.10 per share.... 1,174
Class D Common Stock, par value $.10 per share.... 872
</TABLE>

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

Note: The number of holders shown above includes holders of record plus
beneficial owners, whose shares are held of record by Merrill Lynch, Pierce,
Fenner & Smith Incorporated.

C-2

<PAGE>

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 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 provides 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 which it is ultimately
determined 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 and (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 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 Securities Act
of 1933 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 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 INVESTMENT ADVISER.

Merrill Lynch Asset Management, L.P. ('MLAM' or the 'Investment Adviser'),
acts as investment adviser for the following open-end investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Developing Capital
Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund,
Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund for Tomorrow,
Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund
for Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund,
Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Institutional Intermediate Fund, Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund,
Inc. and Merrill Lynch Variable Series Funds, Inc., and for the following
closed-end investment companies: Convertible Holdings, Inc., Merrill Lynch High

Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund,
Inc.

C-3

<PAGE>

Fund Asset Management, L.P. ('FAM'), an affiliate of MLAM, acts as the
investment adviser for the following open-end investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust, 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 Limited Maturity
Muncipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill
Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., and The
Municipal Fund Accumulation Program, Inc.; and for the following closed-end
investment companies; Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, 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 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., Taurus MuniCalifornia Holdings, Inc.,
Taurus MuniNewYork Holdings, Inc., and Worldwide DollarVest Fund, Inc.

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

Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
since January 1, 1994 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.
Giordano, Harvey, Kirstein and Monagle are directors, trustees or officers of
one or more of such companies.

<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------- ------------------------------ --------------------------------------------------
<S> <C> <C>
ML & Co.................. Limited Partner Financial Services Holding Company, Limited
Partner of FAM

Princeton Services....... General Partner General Partner of FAM

Arthur Zeikel............ President President of FAM; President and Director of
Princeton Services; Director of MLFD; Executive
Vice President of ML & Co.
</TABLE>

C-4
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------- ------------------------------ --------------------------------------------------
<S> <C> <C>
Terry K. Glenn........... Executive Vice President Executive Vice President of FAM; Executive Vice
President and Director of Princeton Services;
President and Director of MLFD; Director of
MLFDS; President of Princeton Administrators,
L.P.

Vincent R. Giordano...... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services

Elizabeth Griffin........ Senior Vice President Senior Vice President of FAM

Norman R. Harvey......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services

N. John Hewitt........... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services

Michael J. Hennewinkel... Senior Vice President Senior Vice President of FAM

Philip L. Kirstein....... Senior Vice President, General Senior Vice President, General Counsel and
Counsel and Secretary Secretary of FAM; Senior Vice President, General
Counsel and Secretary of Princeton Services;
Director of MLFD

Ronald M. Kloss.......... Senior Vice President and Senior Vice President and Controller of FAM;
Controller Senior Vice President and Controller of
Princeton Services

Stephen M.M. Miller...... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.

Joseph T. Monagle, Jr.... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services

Gerald M. Richard........ Senior Vice President and Senior Vice President and Treasurer of FAM; Senior
Treasurer Vice President and Treasurer of Princeton
Services; Vice President and Treasurer of MLFD

Richard L. Reller........ Senior Vice President Senior Vice President of FAM; 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>

C-5

<PAGE>

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

(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Brady, Breen, Crook, Fatseas and Wasel is One Financial Center, 15th Floor,
Boston, Massachusetts 02111-2646.

<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
NAME MLFD REGISTRANT
- -------------------------- -------------------------------------- --------------------------
<S> <C> <C>
Terry K. Glenn............ President and Director Executive Vice President
Arthur Zeikel............. Director President and Director
Philip L. Kirstein........ Director None
William E. Aldrich........ Senior Vice President None
Robert W. Crook........... Senior Vice President None
Kevin P. Boman............ Vice President None
Michael J. Brady.......... Vice President None
William M. Breen.......... Vice President None
Sharon Creveling.......... Vice President and Assistant Treasurer None
Mark A. DeSario........... Vice President None
James T. Fatseas.......... Vice President None
Michelle T. Lau........... Vice President None
Debra W. Landsman-Yaros... Vice President None
Gerald M. Richard......... Vice President and Treasurer Treasurer
Salvatore Venezia......... Vice President None
William Wasel............. Vice President None
Robert Harris............. Secretary None
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

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

ITEM 31. MANAGEMENT SERVICES.

Other than as set forth under the caption 'Management of the Fund--Advisory
and Management Arrangements' in the Prospectus constituting Part A of the
Registration Statement and under 'Management of the Fund--Advisory and
Management 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.

(a) Not applicable.

(b) Not applicable.

(c) Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's latest 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 26th day of April 1996.

MERRILL LYNCH AMERICAS INCOME FUND, INC.
(Registrant)

/s/ TERRY K. GLENN
By ..........................................
(Terry K. Glenn, Executive Vice President)

Pursuant to the requirements of the Securities Act of 1933, this 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>
ARTHUR ZEIKEL* President and Director
..................................... (Principal Executive
(Arthur Zeikel) Officer)

GERALD M. RICHARD* Treasurer (Principal
..................................... Financial and
(Gerald M. Richard) Accounting Officer)

DONALD CECIL* Director
.....................................
(Donald Cecil)

EDWARD H. MEYER* Director

.....................................
(Edward H. Meyer)

CHARLES C. REILLY* Director
.....................................
(Charles C. Reilly)

RICHARD R. WEST* Director

.....................................
(Richard R. West)

EDWARD D. ZINBARG* Director
.....................................
(Edward D. Zinbarg)

*By /s/ TERRY K. GLENN April 26, 1996
.....................................
(Terry K. Glenn, Attorney-in-Fact)
</TABLE>

C-7

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
2 -- By-Laws of Registrant.

10 -- Opinion of Brown & Wood, counsel for the Registrant.

11 -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.

17(a) -- Financial Data Schedule for Class A Shares for the Year
Ended December 31, 1995.

(b) -- Financial Data Schedule for Class B Shares for the Year
Ended December 31, 1995.

(d) -- Financial Data Schedule for Class D Shares for the Year
Ended December 31, 1995.
</TABLE>

Adopted October 14, 1994

BY-LAWS
OF
MERRILL LYNCH AMERICAS INCOME FUND, INC.

ARTICLE I
Offices
Section 1. Principal Office. The principal office of Merrill Lynch
Americas Income Fund, Inc. (the "Corporation") shall be in the City of
Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive
office of the Corporation shall be at 800 Scudders Mill Road, Plainsboro,
New Jersey 08536.
Section 3. Other Offices. The Corporation may have such other
offices in such places as the Board of Directors may from time to time
determine.

ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. The Corporation shall not be required to
hold an annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act of
1940. In the event that the Corporation shall be required to hold an annual
meeting of stockholders to elect directors by the Investment Company Act of
1940, as amended, such meeting shall be held no later than 120 days after the
occurrence of the event requiring the meeting. Any stockholders' meeting held in
accordance with this Section shall for all purposes constitute the annual
meeting of stockholders for the year in which the meeting is held.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the written request of
the holders of at least 10% of the outstanding shares of capital stock of the
Corporation entitled to vote at such meeting if they comply with Section
2-502(b) or (c) of the Maryland General Corporation Law.
Section 3. Place of Meetings. Meetings of the stockholders shall be
held at such place within the United States as the Board of Directors may from
time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,

date and time of the holding of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the special meeting, shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
one hundred and twenty days after the original record date, notice of such
adjourned meeting need not be given if the time and place to which the meeting
shall be adjourned were announced at the meeting at which the adjournment is
taken.
Section 5. Quorum. At all meetings of the stockholders, the holders of
shares of stock of the Corporation entitled to cast one-third of the votes
entitled to be cast, present in person or by proxy, shall constitute a quorum
for the transaction of any business, except with respect to any matter which
requires approval by a separate vote of one or more classes of stock, in which
case the presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast by each class entitled to vote
as a separate class shall constitute a quorum. In the absence of a quorum no
business may be transacted, except that the holders of a majority of the shares
of stock present in person or by proxy and entitled to vote may adjourn the
meeting from time to time, without notice other than announcement thereat except
as otherwise required by these By-Laws, until the holders of the requisite
amount of shares of stock shall be so present. At any such adjourned meeting at
which a quorum may be present any business may be transacted which might have
been transacted at the meeting as originally called. The absence from any
meeting, in person or by proxy, of holders of the number of shares of stock of
the Corporation in excess of a majority thereof which may be required by the
laws of the State of Maryland, the Investment Company Act of 1940, as amended,
or other applicable statute, the Articles of Incorporation, or these By-Laws,
for action upon any given matter shall not prevent action at such meeting upon
any other matter or matters which may properly come before the meeting, if there
shall be present thereat, in person or by proxy, holders of the number of shares
of stock of the Corporation required for action in respect of such other matter
or matters.
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, shall act
as chairman of the meeting. The Secretary, or in his absence or inability to
act, any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the

stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 9 of this Article or if such record date shall not have been
so fixed, then at the later of (i) the close of business on the day on which
notice of the meeting is mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders (other than the
election of directors, which shall be by plurality vote) may be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than
ninety nor less than ten days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time, and
not others, shall be entitled to vote at such meeting and any adjournment
thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
may be required to take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors may be empowered to determine the number of shares
outstanding and the voting powers of each, the number of shares represented at
the meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as inspector of an
election of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may be

taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.

ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Articles
of Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Articles of Incorporation or
these By-Laws.

Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the entire Board of Directors; provided, however, that the number of
directors shall in no event be less than one nor more than fifteen. Any vacancy
created by an increase in Directors may be filled in accordance with Section 6
of this Article III. No reduction in the number of directors shall have the
effect of removing any director from office prior to the expiration of his term
unless such director is specifically removed pursuant to Section 5 of this
Article III at the time of such decrease.
Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall be elected
annually at a meeting of stockholders held for that purpose; provided, however,
that if no meeting of the stockholders of the Corporation is required to be held
in a particular year pursuant to Section 1 of Article II of these By-Laws,
directors shall be elected at the next meeting held. The term of office of each
director shall be from the time of his election and qualification until the
election of directors next succeeding his election and until his successor shall
have been elected and shall have qualified, or until his death, or until he
shall have resigned or until December 31 of the year in which he shall have
reached seventy-two years of age, or until he shall have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Articles of Incorporation.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation
may be removed by the stockholders by a vote of a majority of the votes
entitled to be cast for the election of directors.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any other
cause, may be filled by a vote of the majority of the Board of Directors then in
office even though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors, if after the
filling of said vacancy or vacancies, less than two-thirds of the directors then

holding office shall have been elected by the stockholders of the Corporation.
In the event that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
sixty days, for the purpose of filling said vacancy or vacancies.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the Board may be
held without notice at such time and place as may be determined by the Board
of Directors.
Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors or of
any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act of 1940, as amended, participation in a meeting by
these means constitutes presence in person at the meeting.
Section 11. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver or notice of any meeting need not state the
purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or
other applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
or inability to act, another director chosen by a majority of the directors

present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
Section 16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
Prospectus of the Corporation included in the Registration Statement of the
Corporation, as recited in the current Prospectus and Statement of Additional
Information of the Corporation, as filed from time to time with the Securities
and Exchange Commission and as required by the Investment Company Act of 1940,
as amended. The Board however, may delegate the duty of management of the assets
and the administration of its day to day operations to an individual or
corporate management company and/or investment adviser pursuant to a written
contract or contracts which have obtained the requisite approvals, including the
requisite approvals of renewals thereof, of the Board of Directors and/or the
stockholders of the Corporation in accordance with the provisions of the
Investment Company Act of 1940, as amended.

ARTICLE IV
Committees

Section 1. Executive Committee. The Board may, by resolution adopted by
a majority of the entire Board, designate an Executive Committee consisting of
two or more of the directors of the corporation, which committee shall have and
may exercise all the powers and authority of the Board with respect to all
matters other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required to
be taken by the Board of Directors by the Investment Company Act of
1940, as amended;
(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(f) the amendment or repeal of any resolution of the Board which by
its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of

the Corporation; and
(h) the approval of any merger or share exchange which does not
require stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority or
power of the Board in the management of the business or affairs of the
Corporation.

ARTICLE V
Officers, Agents and Employees
Section 1. Number of Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. Such officers shall be elected by the Board of Directors each year at
a meeting of the Board of Directors, each to hold office for the ensuing year
and until his successor shall have been duly elected and shall have qualified,
or until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws. The Board may from time to time elect
such officers (including one or more Assistant Vice Presidents, one or more
Assistant Treasurers and one or more Assistant Secretaries) and such agents, as
may be necessary or desirable for the business of the Corporation. The President
also shall have the power to appoint such assistant officers (including one or
more Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) as may be necessary or appropriate to facilitate the
management of the Corporation's affairs. Such officers and agents shall have
such duties and shall hold their offices for such terms as may be prescribed by

the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, President or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the stockholders and of the
Board of Directors. He shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He may
employ and discharge employees and agents of the Corporation, except such as
shall be appointed by the Board, and he may delegate these powers.
Section 8. Vice President. Each Vice President shall have such
powers and perform such duties as the Board of Directors or the President may
from time to time prescribe.
Section 9. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has placed
in the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank or trust company
or member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and

(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.

ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be indemnified by
the Corporation to the full extent permitted under the Maryland General
Corporation Law, except that such indemnity shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. Absent a court determination that an officer or director
seeking indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the Corporation to
indemnify such person must be based upon the reasonable determination of
independent legal counsel or the vote of a majority of a quorum of the directors
who are neither "interested persons," as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the Maryland General Corporation Law without a preliminary
determination as to his or her ultimate entitlement to indemnification (except
as set forth below); provided, however, that the person seeking indemnification
shall provide to the Corporation a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Corporation

has been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent directors, or independent legal counsel in a
written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his activities as
officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.

ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the Chairman, President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
Section 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of shares of stock
issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by a duly executed stock

transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during usual business hours
the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.

ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.

ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of December.

ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of
the Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.

ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President or a Vice President or the Treasurer or pursuant
to any procedure approved by the Board of Directors, subject to applicable law.

ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors
and, if required by the provisions of the Investment Company Act of 1940, as
amended, ratified by the stockholders.

ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be available at
the annual meeting of stockholders, if any, and, within 20 days after the
meeting (or, in the absence of an annual meeting, within 20 days after the end
of the month of October following the end of the fiscal year), be placed on file
at the Corporation's principal office. Each such report shall show the assets

and liabilities of the Corporation as of the close of the annual or quarterly
period covered by the report and the securities in which the funds of the
Corporation were then invested. Such report shall also show the Corporation's
income and expenses for the period from the end of the Corporation's preceding
fiscal year to the close of the annual or quarterly period covered by the report
and any other information required by the Investment Company Act of 1940, as
amended, and shall set forth such other matters as the Board or such firm of
independent public accountants shall determine.

ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed by the
Board of Directors. The stockholders shall have no power to make, amend, alter
or repeal By-Laws.

April 29, 1996

Merrill Lynch Americas Income Fund, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011

Ladies and Gentlemen:

This opinion is furnished in connection with the
registration by Merrill Lynch Americas Income Fund, Inc. a
Maryland corporation (the "Company"), of shares of common stock,
par value $0.10 per share, of the Company (the "Shares"), under
the Securities Act of 1933, as amended, pursuant to the Company's
registration statement on Form N-1A (File No. 33-64398), as
amended (the "Registration Statement"), in the amount set forth
under "Amount Being Registered" on the facing page of the
Registration Statement.
As counsel for the Company, we are familiar with the
proceedings taken by it in connection with the authorization,
issuance and sale of the Shares. In addition, we have examined
and are familiar with the Articles of Incorporation of the
Company, as amended, the By-Laws of the Company and such other
documents as we have deemed relevant to the matters referred to
in this opinion.

Based upon the foregoing, we are of the opinion that the
Shares, upon issuance and sale in the manner referred to in the
Registration Statement for consideration not less than the par
value thereof, will be legally issued, fully paid and non-
assessable shares of common stock of the Company.
We hereby consent to the filing of this opinion as an

exhibit to the Registration Statement and to the use of our name
in the Prospectus and Statement of Additional Information
constituting parts thereof.

Very truly yours,

/s/ Brown & Wood

EXHIBIT 11

INDEPENDENT AUDITORS' CONSENT

Merrill Lynch Americas Income Fund, Inc.:

We consent to the use in Post-Effective Amendment No. 4 to Registration
Statement No. 33-64398 of our report dated February 12, 1996 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption 'Financial Highlights'
appearing in the Prospectus, which also is a part of such Registration
Statement.

DELOITTE & TOUCHE LLP
Princeton, New Jersey
April 26, 1996

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