MERRILL LYNCH AMERICAS INCOME FUND INC, 485BPOS, 1999-04-27

MERRILL LYNCH AMERICAS INCOME FUND INC
485BPOS, 1999-04-27

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<PAGE>

As filed with the Securities and Exchange Commission on April 27, 1999

Securities Act File No. 33-64398
Investment Company Act File No. 811-7794

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [_]
[X]
Post-Effective Amendment No. 8
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
Amendment No. 11
(Check appropriate box or boxes)

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Merrill Lynch Americas Income Fund, Inc.
(Exact Name of Registrant as Specified in Charter)

800 Scudders Mill Road, Plainsboro, New Jersey 08536
(Address of Principal Executive Offices)

Registrant's telephone number, including Area Code: (609) 282-2800

Terry K. Glenn
Merrill Lynch Americas Income Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)

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Copies to:
Counsel for the Fund: Michael J. Hennewinkel, Esq.
BROWN & WOOD LLP MERRILL LYNCH
One World Trade Center ASSET MANAGEMENT
New York, New York 10048-0557 P.O. Box 9011
Attention: Thomas R. Smith, Jr., Esq. Princeton, New Jersey 08543-9011

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It is proposed that this filing will become effective (check appropriate
box)

[X] immediately upon filing pursuant to paragraph (b)

[_] on (date) pursuant to paragraph (b)

[_] 60 days after filing pursuant to paragraph (a)(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.

If appropriate, check the following box:

[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

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Title of Securities Being Registered: Common Stock, par value $.10 per share.

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<PAGE>

[LOGO OF MERRILL LYNCH APPEARS HERE]

Prospectus

Merrill Lynch Americas Income Fund, Inc.
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- ----------------------------------------------------------April 27, 1999--------
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This Prospectus contains information you should know
before investing, including information about risks.
Please read it before you invest and keep it for
future reference.

The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.

<PAGE>

Table of Contents

<TABLE>
<CAPTION>
PAGE
<S> <C>
[LOGO]
KEY FACTS
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The Merrill Lynch Americas Income Fund at a Glance........................... 3
Risk/Return Bar Chart........................................................ 6
Fees and Expenses............................................................ 7

[LOGO]
DETAILS ABOUT THE FUND
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How the Fund Invests......................................................... 9
Investment Risks............................................................ 11

[LOGO]
YOUR ACCOUNT
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Merrill Lynch Select Pricing SM System...................................... 23
How to Buy, Sell, Transfer and Exchange Shares.............................. 28
Participation in Merrill Lynch Fee-Based Programs........................... 32

[LOGO]
MANAGEMENT OF THE FUND
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Merrill Lynch Asset Management.............................................. 34
Financial Highlights........................................................ 36

[LOGO]
FOR MORE INFORMATION
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Shareholder Reports................................................. Back Cover
Statement of Additional Information................................. Back Cover
</TABLE>

MERRILL LYNCH AMERICAS INCOME FUND, INC.
<PAGE>

[LOGO Key Facts]

In an effort to help you better understand the many concepts involved in making
an investment decision, we have defined highlighted terms in this prospectus in
the sidebar.

Fixed Income Securities -- security that pays a fixed rate of interest or a
fixed dividend.

Government Obligations -- fixed income securities issued by a government or its
agencies or instrumentalities, as distinct from securities issued by
corporations.

Corporate Bond or Note -- a fixed income debt security issued by a corporation,
as distinct from one issued by a government agency or instrumentality.

THE MERRILL LYNCH AMERICAS INCOME FUND AT A GLANCE
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What is the Fund's investment objective?

The Fund's investment objective is to seek a high level of current income by
investing primarily in debt securities denominated in a currency of a country
located in the Western Hemisphere (North, South and Central America and the
surrounding waters).

What are the Fund's main investment strategies?

The Fund tries to achieve its objective by investing in a non-diversified
portfolio of fixed income securities, such as government obligations, corporate
bonds and notes, mortgage backed securities and securities whose potential
investment return is based on the change in a particular index or rate. U.S.
and foreign companies, governments and supranational entities may issue these
securities. The Fund has established no rating criteria for the debt securities
in which it may invest. The Fund may also invest in high yield or "junk" bonds.

The Investment Adviser will actively manage the Fund's assets in response to
market, political and general economic conditions in the Western Hemisphere and
elsewhere. The Investment Adviser will seek to invest the Fund's assets based
on its perception of which investments would best enable the Fund to meet its
investment objective. In making this analysis, the Investment Adviser will
consider various factors including interest and currency exchange rate changes
and credit risks. We cannot guarantee that the Fund will achieve its investment
objective.

The Fund will generally invest at least 80% of its assets in debt securities
denominated in currencies of countries in the Western Hemisphere including
countries in emerging markets. It may also invest up to 20% of its total assets
in debt securities denominated in currencies of countries located outside of
the Western Hemisphere. Except for time deposits, certificates of deposit and
asset backed securities, the Fund does not intend to invest more than 10% of
its total assets in the securities of issuers that are domiciled in any one
country in the Western Hemisphere other than the United States, Canada, Mexico,
Argentina, Chile, Brazil, Colombia, Ecuador, Panama, Peru and Venezuela. In
addition, the Fund may not invest more than 10% of its net assets in the
currency of any country other than the United States, Canada, Mexico,
Argentina, Chile, Brazil and Venezuela. Under normal conditions, the Fund
expects to maintain at least 25% of its total assets in securities denominated
in the U.S. dollar.
MERRILL LYNCH AMERICAS INCOME FUND, INC.

3
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[LOGO Key Facts]

Dollar Rolls -- a transaction in which the Fund sells fixed income securities
for delivery in the current month and simultaneously contracts to purchase
similar securities on a specified future date.

Foreign Securities -- securities issued by a foreign corporation or government,
as distinct from securities issued by a U.S. corporation or the U.S.
Government.

Junk Bonds -- fixed income securities rated below investment grade by
recognized rating agencies, including Moody's Investors Service, Inc. and
Standard & Poor's, or unrated securities of comparable quality.

Investment Grade Securities -- fixed income securities rated in the four
highest rating categories by recognized rating agencies including Moody's
Investors Service, Inc. and Standard & Poor's.

The Fund will normally invest a portion of its assets in short term debt
securities and cash or cash equivalents (including repurchase agreements)
denominated in U.S. dollars or foreign currencies when Fund management is
unable to find attractive equity or long term debt securities. In addition,
when Fund management believes it is advisable to reduce exposure to equity
markets, the Fund may invest without percentage limitation in short term
securities or cash as a temporary defensive measure. Investment in these
securities may also be used to meet redemptions. Short term investments and
temporary defensive positions may limit the potential for an increase in the
value of your shares or for the Fund to achieve its investment objective.

Under normal conditions, the Fund will invest at least 25% of its total assets
in debt securities issued by Western Hemisphere companies engaged in the
financial services industry. For temporary defensive purposes, however, the
Fund may invest less than 25% of its total assets in this industry. This may
limit the potential for an increase in value of your shares or for the Fund to
achieve its investment objective.

The Fund may seek to increase investment return or to hedge all or a portion of
its portfolio against interest rate, market and currency risks through the use
of derivatives including options, futures, options on futures and currency
transactions. The Fund may at times borrow money from banks or use reverse
repurchase agreements or dollar rolls as leverage in amounts up to 33 1/3% of
the Fund's total assets.

What are the main risks of investing in the Fund?
As with any fixed income fund, the value of the Fund's investments -- and
therefore the value of the Fund's shares -- may go up or down. These changes
may occur in response to interest rate changes or other factors that may affect
a particular issuer or obligation. Generally, when interest rates go up, the
value of fixed income securities goes down. If the value of the Fund's
investments go down, you may lose money.

The Fund will invest in both U.S. and foreign securities. Foreign investing
involves special risks -- including foreign currency risk and the possibility
of substantial volatility due to adverse political, economic or other
developments. Foreign securities may also be less liquid and harder to value
than U.S. securities. These risks are greater for investments in emerging
markets such as Latin American markets. The Fund considers Latin American
markets to include countries in Central and South America and the surrounding
waters.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

4
<PAGE>

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 that industry, such as the impact of bank regulation, increases
in interest rates and exposure to credit losses.

The investments the Fund makes are also subject to credit risk. Credit risk is
the risk that the issuer will be unable to pay the interest or principal on an
obligation when due. The degree of credit risk depends on both the financial
condition of the issuer and the terms of the obligation.

The Fund may borrow to meet redemptions and as leverage. Borrowing may
exaggerate changes in the net asset value of Fund shares and in the yield on
the Fund's portfolio. Borrowing will cost the Fund interest expense and other
fees. The cost of borrowing may reduce the Fund's return. Certain investments
or trading strategies that involve leverage can result in losses that greatly
exceed the amount originally invested.

High yield or "junk" bonds and derivatives may be volatile and subject to
liquidity, credit and other types of risk.

The Fund is a non-diversified fund, which means that it may invest more of its
assets in fewer companies than if it were a diversified fund. By concentrating
in a smaller number of investments, the Fund's risk is increased because each
investment has a greater effect on the Fund's performance.

You should purchase shares of the Fund for diversification and not as a
balanced investment program. Whether shares of the Fund are appropriate for you
depends upon, among other things, your investment objectives and whether you
can accept the risks of investing in emerging markets and the possibility of
greater changes in the Fund's principal yield resulting from its use of
leverage.

Who should invest?

The Fund may be an appropriate investment for you if you:

. Are looking for an investment
that provides high current
income.
. Want a professionally managed
portfolio without the
administrative burdens of direct
investments in foreign
securities.
. Are willing to accept the risk of
loss of income and principal
caused by negative economic
developments, changes in interest
rates or adverse changes in the
price of bonds generally.

. Are willing to accept the risks
of foreign investing in order to
seek a high level of current
income.
MERRILL LYNCH AMERICAS INCOME FUND, INC.

5
<PAGE>

[LOGO Key Facts]
RISK/RETURN BAR CHART
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The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance
for Class B shares for each complete calendar year since the Fund's inception.
Sales charges are not reflected in the bar chart. If these amounts were
reflected, returns would be less than those shown. The table compares the
average annual total returns for each class of the Fund's shares for the
periods shown with those of the J.P. Morgan Emerging Markets Bond Index-Brady
Narrow. How the Fund performed in the past is not necessarily an indication of
how the Fund will perform in the future.

[MERRILL LYNCH AMERICAS INCOME FUND RISK/RETURN BAR CHART]

1994 1995 1996 1997 1998

-15.08% 26.10% 32.75% 1.12% -36.60%

During the period shown in the bar chart, the highest return for a quarter was
19.32% (quarter ended June 30, 1995) and the lowest return for a quarter was -
32.49% (quarter ended September 30, 1998). The year-to-date return as of March
31, 1999 was 6.67%.
<TABLE>
<CAPTION>
Past Past
Average Annual Total Returns (for the One Five Since
calendar year ended December 31, 1998) Year Years Inception
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<S> <C> <C> <C>
Merrill Lynch Americas Income Fund* -
Class A -38.73% N/A 0.31%+
J.P. Morgan Emerging Markets Bond
Index-Brady Narrow** -8.73% N/A 12.40%
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Merrill Lynch Americas Income Fund* -
Class B -38.84% -1.84% 0.26%++
J.P. Morgan Emerging Markets Bond
Index-Brady Narrow** -8.73% 7.70% 9.85%
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Merrill Lynch Americas Income Fund* -
Class C -37.20% N/A 0.42%+
J.P. Morgan Emerging Markets Index-
Brady Narrow** -8.73% N/A 12.40%
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Merrill Lynch Americas Income Fund* - Class D# -38.92% -2.17% -0.01%++
J.P. Morgan Emerging Markets Bond
Index-Brady Narrow** -8.73% 7.70% 9.85%
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</TABLE>
* Includes sales charge.
** This unmanaged index is comprised of dollar denominated restructured
sovereign bonds, the securities created through the restructuring of
commercial bank debt. It includes a large percentage of Brady Bonds. Past
performance is not predictive of future performance.
+ Inception date is October 21, 1994.
++ Inception date is August 27, 1993.

# As a result of the implementation of the Merrill Lynch Select Pricing SM
System, Class A shares outstanding prior to October 21, 1994 were
redesignated as Class D shares. Historical performance information
pertaining to these shares is included here.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

6
<PAGE>

UNDERSTANDING EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:

Expenses paid directly by the shareholder:

Shareholder fees -- these include sales charges which you may pay when you buy
or sell shares of the Fund.

Expenses paid indirectly by the shareholder:

Annual Fund Operating Expenses -- expenses that cover the costs of operating
the Fund.

Management Fee -- a fee paid to the Investment Adviser for managing the Fund.

Distribution Fees -- fees used to support the Fund's marketing and distribution
efforts, such as compensating Financial Consultants, advertising and promotion.

Service (Account Maintenance) Fees -- fees used to compensate securities
dealers for account maintenance activities.

FEES AND EXPENSES
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The Fund offers four different classes of shares. Although your money will be
invested the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not
everyone is eligible to buy every class. After determining which classes you
are eligible to buy, decide which class best suits your needs. Your Merrill
Lynch Financial Consultant can help you with this decision.

This table shows the different fees and expenses that you may pay if you buy
and hold the different classes of shares of the Fund. Future expenses may be
greater or less than those indicated below.

<TABLE>
<CAPTION>
Shareholder Fees (fees paid directly from
your investment) Class A Class B(a) Class C Class D
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<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering
price) 4.00%(b) None None 4.00%(b)
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Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds, whichever
is lower) None(c) 4.0%(b) 1.0%(b) None(c)
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Maximum Sales Charge (Load) imposed
on Dividend Reinvestments None None None None
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Redemption Fee None None None None
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Exchange Fee None None None None
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Maximum Account Fee None None None None
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Annual Fund Operating Expenses (expenses
that are deducted from Fund Assets)
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Management Fee(d) .60% .60% .60% .60%
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Distribution and/or
Service (12b-1) Fees(e) None .75% .80% .25%
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Other Expenses (including transfer
agency fees)(f) 2.06% 2.12% 2.12% 2.03%
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Total Annual Fund Operating
Expenses(g) 2.66% 3.47% 3.52% 2.88%
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</TABLE>
(a) Class B shares automatically convert to Class D shares about ten years
after you buy them and will no longer be subject to distribution fees.
(b) Some investors may qualify for reductions in the sales charge (load).
(c) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.

(d) The Fund pays the Investment Adviser a management fee of 0.60% of the
average daily net assets of the Fund plus the principal amount of
borrowings incurred by the Fund for leveraging purposes.
(e) The Fund calls the "Service Fee" an "Account Maintenance Fee." Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other Fund materials. If you hold Class B or Class C shares for a long
time, it may cost you more in distribution (12b-1) fees than the maximum
sales charge that you would have paid if you had bought one of the other
classes.
(f) The Fund pays the Transfer Agent $11.00 for each Class A and Class D
shareholder account and $14.00 for each Class B and Class C shareholder
account and reimburses the Transfer Agent's out-of-pocket expenses. The
Fund pays a 0.10% fee for certain accounts that participate in the Merrill
Lynch Mutual Fund Advisor program. The Fund also pays a $0.20 monthly
closed account charge, which is assessed upon all accounts that close
during the year. This fee begins the month following the month the account
is closed and ends at the end of the calendar year. For the fiscal year
ended December 31, 1998, the Fund paid the Transfer Agent fees totaling
$85,805. The Investment Adviser provides accounting services to the Fund at
its cost. For the fiscal year ended December 31, 1998, the Fund reimbursed
the Investment Adviser $69,046 for these services.
(g) In addition, Merrill Lynch may charge clients a processing fee (currently
$5.35) when a client buys or redeems shares.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

7
<PAGE>

[LOGO Key Facts]

Examples:
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.

These examples assume that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year, that you pay the
sales charges, if any, that apply to the particular class and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate
you will receive a 5% annual rate of return. Your annual return may be more or
less than the 5% used in this example. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:

EXPENSES IF YOU DID REDEEM YOUR SHARES:
---

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
Class A $658 $1,193 $1,754 $3,273
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Class B $750 $1,265 $1,803 $3,747
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Class C $455 $1,080 $1,826 $3,792
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Class D $679 $1,256 $1,858 $3,476
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EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
-------

<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------
<S> <C> <C> <C> <C>
Class A $658 $1,193 $1,754 $3,273
- -------------------------------------------
Class B $350 $1,065 $1,803 $3,747
- -------------------------------------------
Class C $355 $1,080 $1,826 $3,792
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Class D $679 $1,256 $1,858 $3,476
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</TABLE>
MERRILL LYNCH AMERICAS INCOME FUND, INC.

8
<PAGE>

[LOGO Details About the Fund]

ABOUT THE PORTFOLIO
MANAGER

Romualdo Roldan is the Fund's Portfolio Manager. Mr. Roldan has been a Vice
President of Emerging Markets, Global Fixed Income of Merrill Lynch Asset
Management since June 1998. Prior to joining Merrill Lynch Asset Management,
Mr. Roldan was a Senior Vice President at Santander Investment Securities from
1995 to 1998. Prior to 1995, Mr. Roldan was a Vice President of emerging
markets fixed income at J.P. Morgan Securities.

HOW THE FUND INVESTS
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The main objective of the Fund is to seek a high level of current income. The
Fund invests in a non-diversified portfolio of fixed income securities
denominated in currencies of countries located in the Western Hemisphere. It
may also invest up to 20% of its total assets in debt securities denominated in
currencies of countries located outside of the Western Hemisphere. Except for
time deposits, certificates of deposit and asset backed securities, the Fund
does not intend to invest more than 10% of its total assets in the securities
of issuers that are domiciled in any one country in the Western Hemisphere
other than the United States, Canada, Mexico, Argentina, Chile, Brazil,
Colombia, Panama, Peru, Ecuador and Venezuela. In addition, the Fund may not
invest more than 10% of its net assets in the currency of any country other
than the United States, Canada, Mexico, Argentina, Chile, Brazil and Venezuela.
Under normal conditions, the Fund expects to maintain at least 25% of its total
assets in securities denominated in the U.S. dollar. Further, under normal
conditions, the Fund will invest at least 25% of its total assets in debt
securities 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. For temporary
defensive purposes, however, the Fund may invest less than 25% in the financial
services industry.

The securities in which the Fund may invest include government obligations, and
debt securities issued by supranational entities, corporations and financial
institutions. The Fund can invest in all types of debt securities, including
U.S. and foreign government bonds, corporate bonds and convertible bonds,
mortgage and asset backed securities, and securities issued or guaranteed by
certain international organizations such as the World Bank. The Fund also 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 loans in connection with a restructuring of the sovereign's debt.

The Fund may invest a portion of its investments in short term debt securities
and cash or cash equivalents (including repurchase agreements) denominated in
U.S. dollars or foreign currencies ("money market securities"). Money market
securities include short term government obligations, bank instruments
including certificates of deposit, bankers' acceptances, deposit notes and
commercial paper.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

9
<PAGE>

[LOGO Details About the Fund]

ABOUT THE
INVESTMENT
ADVISER
The Fund is managed by Merrill Lynch Asset Management.

The Fund has established no rating criteria for the debt securities in which it
may invest. The Fund may invest in debt securities that are rated below
investment grade, which are commonly known as "junk" bonds. Some securities may
not be rated at all for creditworthiness. Investments in debt securities rated
in the medium to lower rating categories of independent ratings agencies such
as Standard & Poor's ("S&P") and Moody's Investors Service, Inc. ("Moody's") or
in unrated securities of comparable quality involve special risks which are
described more fully below.

The Fund may invest up to 15% of its net assets in illiquid securities that it
cannot easily resell. These securities may include securities for which there
is no readily available market and certain asset backed and receivable backed
securities. Other possibly illiquid securities in which the Fund may invest are
securities that have contractual or legal restrictions on resale, known as
restricted securities, including Rule 144A securities that can be resold to
qualified institutional buyers but not to the general public.

The Fund may use derivatives to hedge its portfolio against interest rate and
currency risks. Derivatives are financial instruments whose value is derived
from another security, a commodity (such as gold or oil) or an index, such as
the Standard & Poor's 500 Index. The derivatives that the Fund may use include
options on portfolio positions or currencies, financial and currency futures,
options on such futures, forward foreign currency transactions and indexed
securities and inverse floaters whose potential investment return is based on
the change in particular measurements of value or in a rate. The Fund may also
use options, indexed securities and inverse floaters to generate current
income, and to vary the degree of portfolio leverage.

The Fund may borrow money from banks 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

MERRILL LYNCH AMERICAS INCOME FUND, INC.

10
<PAGE>

as interest income and possible gains or losses upon liquidation. 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 upon date and price. The value of the securities subject to
such agreements will not exceed 125% of the proceeds of the reverse repurchase
agreements.

The Fund is a non-diversified fund, which means that it may invest more of its
assets in fewer companies than if it were a diversified fund.

INVESTMENT RISKS
- --------------------------------------------------------------------------------

This section contains a summary discussion of the general risks of investing in
the Fund. As with any mutual fund, there can be no guarantee that the Fund will
meet its goals or that the Fund's performance will be positive for any period
of time.

Market and Selection Risk -- Market risk is the risk that the bond market in
one or more countries in which the Fund invests will go down in value,
including the possibility that the market will go down sharply and
unpredictably. Selection risk is the risk that the investments that Fund
management selects will underperform the market or other funds with similar
investment objectives and investment strategies.

Foreign Market Risk -- Since the Fund invests in foreign securities, it offers
the potential for more diversification than an investment only in the United
States. This is because securities traded on foreign markets have often,
(though not always), performed differently from securities in the United
States. However, such investments involve special risks not present in U.S.
investments that can increase the chances that the Fund will lose money. In
particular, the Fund is subject to the risk that because there are generally
fewer investors on foreign exchanges and a smaller number of securities traded
each day, it may make it difficult for the Fund to buy and sell securities on
those exchanges. In addition, prices of foreign securities may go up and down
more than prices of securities traded in the United States.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

11
<PAGE>

[LOGO Details About the Fund]

Foreign Economy Risk -- The economies of certain foreign markets often do not
compare favorably with that of the United States with respect to such issues as
growth of gross national product, reinvestment of capital, resources, and
balance of payments position. Certain such economies may rely heavily on
particular industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular country
or countries, changes in international trading patterns, trade barriers, and
other protectionist or retaliatory measures.

Investments in foreign markets may also be adversely affected by governmental
actions such as the imposition of capital controls, nationalization of
companies or industries, expropriation of assets, or the imposition of punitive
taxes. In addition, the governments of certain countries may prohibit or impose
substantial restrictions on foreign investing in their capital markets or in
certain industries. Any of these actions could severely affect security prices,
impair the Fund's ability to purchase or sell foreign securities or transfer
the Fund's assets or income back into the United States, or otherwise adversely
affect the Fund's operations.

Other foreign market risks include foreign exchange controls, difficulties in
enforcing favorable legal judgments in foreign courts, and political and social
instability. Legal remedies available to investors in certain foreign countries
may be less extensive than those available to investors in the United States or
other foreign countries.

Currency Risk -- Securities in which the Fund invests may be denominated or
quoted in currencies other than the U.S. dollar. Changes in foreign currency
exchange rates affect the value of the Fund's portfolio. Generally, when the
U.S. dollar rises in value against a foreign currency, a security denominated
in that currency loses value because the currency is worth fewer U.S. dollars.
Conversely, when the U.S. dollar decreases in value against a foreign currency,
a security denominated in that currency gains value because the currency is
worth more U.S. dollars. This risk, generally known as "currency risk," means
that a strong U.S. dollar will reduce returns for U.S. investors while a weak
U.S. dollar will increase those returns.

Governmental Supervision and Regulation/Accounting Standards -- Many foreign
governments supervise and regulate stock exchanges, brokers and the sale of
securities less than the United States does. Other countries do not have laws
to protect investors the way that the U.S. securities laws do. For example,
some countries may have no laws or rules

MERRILL LYNCH AMERICAS INCOME FUND, INC.

12
<PAGE>

against insider trading. Insider trading occurs when a person buys or sells a
company's securities based on non-public information about that company.
Accounting standards in other countries are not necessarily the same as in the
United States. If the accounting standards in another country do not require as
much detail as U.S. accounting standards, it may be harder for the Fund
management to completely and accurately determine a company's financial
condition. Also, brokerage commissions and other costs of buying or selling
securities often are higher in foreign countries than they are in the United
States. This reduces the amount the Fund can earn on its investments.

Certain Risks of Holding Fund Assets Outside the United States -- The Fund
generally holds its foreign securities and cash in foreign banks and securities
depositories. Some foreign banks and securities depositories may be recently
organized or new to the foreign custody business. In addition, there may be
limited or no regulatory oversight over their operations. Also, the laws of
certain countries may put limits on the Fund's ability to recover its assets if
a foreign bank, depository or issuer of a security, or any of their agents,
goes bankrupt. In addition, it is often more expensive for the Fund to buy,
sell and hold securities in certain foreign markets than in the U.S. The
increased expense of investing in foreign markets reduces the amount the Fund
can earn on its investments and typically results in a higher operating expense
ratio for the Fund than investment companies invested only in the U.S.

Settlement Risk -- Settlement and clearance procedures in certain foreign
markets differ significantly from those in the United States. Foreign
settlement procedures and trade regulations also may involve certain risks
(such as delays in payment for or delivery of securities) not typically
generated by the settlement of U.S. investments. Communications between the
United States and emerging market countries may be unreliable, increasing the
risk of delayed settlements or losses of security certificates. Settlements in
certain foreign countries at times have not kept pace with the number of
securities transactions; these problems may make it difficult for the Fund to
carry out transactions. If the Fund cannot settle or is delayed in settling a
purchase of securities, it may miss attractive investment opportunities and
certain of its assets may be uninvested with no return earned thereon for some
period. If the Fund cannot settle or is delayed in settling a sale of
securities, it may lose money if the value of the security then declines or, if
it has contracted to sell the security to another party, the Fund could be
liable to that party for any losses incurred.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

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[LOGO Details About the Fund]

Regional Risk -- When used in this Prospectus, Latin America refers to Central
and South America and the surrounding waters. The economies of Latin American
countries have experienced considerable difficulties in the past, including
high inflation rates and high interest rates. The emergence of the Latin
American economies and securities markets will require continued economic and
fiscal discipline that has been lacking at times in the past, as well as stable
political and social conditions. International economic conditions as well as
world prices for oil and other commodities may also influence the recovery of
the Latin American economies.

Some Latin American currencies have experienced steady devaluation relative to
the U.S. dollar and certain Latin American countries have had to make major
adjustments in the currencies from time to time. In addition, governments of
many Latin American countries have exercised and continue to exercise
substantial influence over many aspects of the private sector. Government
actions in the future could have a significant effect on economic conditions in
Latin American countries, which could affect the companies in which the Fund
invests and therefore the value of Fund shares.

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

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

Substantial limitations may exist in certain countries with respect to the
Fund's ability to repatriate investment income, capital or the proceeds of
sales of securities by foreign investors. For example, in Chile, with limited
exceptions, invested capital cannot be repatriated for three years. The Fund
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments. The Fund will not
invest more than 15% of its net assets in illiquid securities including
securities that are subject to material legal restrictions on repatriation.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

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<PAGE>

Certain Latin American countries have entered into regional trade agreements
that would, among other things, reduce barriers between countries, increase
competition among companies and reduce government subsidies in certain
industries. No assurance can be given that the changes planned will be
successfully implemented, or that these changes will result in the economic
stability intended. There is a possibility that these trade arrangements will
not be implemented, will be implemented but not completed, or will be completed
but then partially or completely unwound. It is also possible that a
significant participant could choose to abandon a trade agreement, which could
diminish its credibility and influence. Any of these occurrences could have
adverse effects on the markets of both participating and non-participating
countries, including sharp appreciation or depreciation of participants'
national currencies and a significant increase in exchange rate volatility, a
resurgence in economic protectionism, an undermining of confidence in the Latin
American markets, an undermining of Latin American economic stability, the
collapse or slowdown of the drive towards Latin American economic unity, and/or
reversion of the attempts to lower government debt and inflation rates that
were introduced in anticipation of such trade agreements. Such developments
could have an adverse impact on the Fund's investments in Latin America
generally or in specific countries participating in such trade agreements.

Emerging Markets Risk -- The risks of foreign investments are usually much
greater for emerging markets. Investments in emerging markets may be considered
speculative. Emerging markets include those in countries defined as emerging or
developing by the World Bank, the International Finance Corporation, or the
United Nations. Emerging markets are riskier because they develop unevenly and
may never fully develop. They are more likely to experience hyperinflation and
currency devaluations, which adversely affect returns to U.S. investors. In
addition, the securities markets in many of these countries have far lower
trading volumes and less liquidity than developed markets. Since these markets
are so small, they may be more likely to suffer sharp and frequent price
changes or long term price depression because of adverse publicity, investor
perceptions, or the actions of a few large investors. In addition, traditional
measures of investment value used in the United States, such as price to
earnings ratios, may not apply to certain small markets.

Many emerging markets have histories of political instability and abrupt
changes in policies. As a result, their governments are more likely to take
actions that are hostile or detrimental to private enterprise or foreign

MERRILL LYNCH AMERICAS INCOME FUND, INC.

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<PAGE>

[LOGO Details About the Fund]

investment than those of more developed countries. Certain emerging markets may
also face other significant internal or external risks, including the risk of
war, and ethnic, religious, and racial conflicts. In addition, governments in
many emerging market countries participate to a significant degree in their
economies and securities markets, which may impair investment and economic
growth.

Credit Risk -- Credit risk is the risk that the issuer will be unable to pay
the principal or interest when due. The degree of credit risk depends on both
the financial condition of the issuer and the terms of the obligation.

Interest Rate Risk -- Interest rate risk is the risk that prices of fixed
income securities generally increase when interest rates decline and decrease
when interest rates increase. Prices of longer term securities generally change
more in response to interest rate changes than prices of shorter term
securities.

Call and Redemption Risk -- A bond's issuer may call a bond for redemption
before it matures. If this happens to a bond the Fund holds, the Fund may lose
income and may have to invest the proceeds in bonds with lower yields.

Concentration Risk -- The Fund is a non-diversified fund. By concentrating in a
smaller number of investments, the Fund's risk is increased because each
investment has a greater effect on the Fund's performance.

Borrowing and Leverage Risk -- 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.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

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<PAGE>

Securities Lending -- The Fund may lend securities to financial institutions
which provide government securities as collateral. Securities lending involves
the risk that the borrower may fail to return the securities in a timely manner
or at all. As a result, the Fund may lose money and there may be a delay in
recovering the loaned securities. The Fund could also lose money if it does not
recover the securities and the value of the collateral falls. These events
could trigger adverse tax consequences to the Fund.

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
of a decline in the market price of that security. 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 turn over any payments received on such borrowed securities
to the lender of the securities.

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

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

MERRILL LYNCH AMERICAS INCOME FUND, INC.

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[LOGO Details About the Fund]

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 being subject 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 the identical security at no
additional cost.

Risks associated with certain types of securities in which the Fund may invest
include:

Sovereign Debt -- The Fund may invest in sovereign debt securities. These
securities are issued or guaranteed by foreign government entities. Investments
in sovereign debt subject the Fund to the risk that a government entity may
delay or refuse payment of interest or repayment of principal on its sovereign
debt. Reasons may include cash flow problems, insufficient foreign currency
reserves, political considerations, the relative size of its debt position to
its economy or its failure to put in place economic reforms required by the
International Monetary Fund or other multilateral agencies as a condition to
their contributions to the government entity. If a government entity defaults,
it may ask for more time in which to pay or for further loans. There is no
legal process for collecting sovereign debts that a government does not pay and
no bankruptcy proceeding by which all or part of a sovereign debt that a
government entity has not repaid may be collected.

Junk Bonds -- Junk bonds are debt securities that are rated below investment
grade by the major rating agencies or are unrated securities that the Fund
management believes are of comparable quality. Although junk bonds generally
pay higher rates of interest than investment grade bonds, they are high risk
investments that may cause income and principal losses for the Fund. Junk bonds
generally are less liquid and experience more price volatility than higher
rated debt securities. The issuers of junk bonds may have a larger amount of
outstanding debt relative to their assets than issuers of investment grade
bonds. In the event of an issuer's bankruptcy, claims of other creditors may
have priority over the claims of junk bond holders, leaving few or no assets
available to repay junk bond holders. Junk bonds may be subject to greater call
and redemption risk than higher rated debt securities.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

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<PAGE>

Derivatives -- The Fund may use derivative instruments including futures,
forwards, options, indexed securities and inverse securities. Derivatives allow
the Fund to increase or decrease its risk exposure more quickly and efficiently
than other types of instruments. Derivatives are volatile and involve
significant risks, including:

Credit risk -- the risk that the counterparty (the party on the other
side of the transaction) on a derivative transaction will be unable to
honor its financial obligation to the Fund.

Currency risk -- the risk that changes in the exchange rate between
currencies will adversely affect the value (in U.S. dollar terms) of an
investment.

Leverage risk -- the risk associated with certain types of investments or
trading strategies (such as borrowing money to increase the amount of
investments) that relatively small market movements may result in large
changes in the value of an investment. Certain investments or trading
strategies that involve leverage can result in losses that greatly exceed
the amount originally invested.

Liquidity risk -- the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the price
that the seller believes the security is currently worth.

The Fund may use derivatives for hedging purposes, including anticipatory
hedges. Hedging is a strategy in which the Fund uses a derivative to offset the
risk that other Fund holdings may decrease in value. While hedging can reduce
losses, it can also reduce or eliminate gains if the market moves in a
different manner than anticipated by the Fund or if the cost of the derivative
outweighs the benefit of the hedge. Hedging also involves the risk that changes
in the value of the derivative will not match those of the holdings being
hedged as expected by the Fund, in which case any losses on the holdings being
hedged may not be reduced. There can be no assurance that the Fund's hedging
strategy will reduce risk or that hedging transactions will be either available
or cost effective. The Fund is not required to use hedging and may choose not
to do so.

Indexed and Inverse Floating Rate Securities -- The Fund may invest in
securities whose potential returns are directly related to changes in an
underlying index or interest rate, known as indexed securities. The return on
MERRILL LYNCH AMERICAS INCOME FUND, INC.

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[LOGO Details About the Fund]

indexed securities will rise when the underlying index or interest rate rises
and fall when the index or interest rate falls. The Fund may also invest in
securities whose return is inversely related to changes in an index or interest
rate (inverse floaters). In general, income on inverse floaters will decrease
when interest rates increase and increase when interest rates decrease.
Investments in inverse floaters may subject the Fund to the risks of reduced or
eliminated interest payments and losses of principal. In addition, certain
indexed securities and inverse floaters may increase or decrease in value at a
greater rate than the underlying interest rate, which effectively leverages the
Fund's investment. Indexed securities and inverse floaters are derivative
securities and can be considered speculative. Indexed and inverse securities
involve credit risk and certain indexed and inverse floating rate securities
may involve currency risk, leverage risk and liquidity risk.

Investments in inverse floaters may subject the Fund to the risks of reduced or
eliminated interest payments and losses of principal. In addition, certain
indexed securities and inverse floaters may increase or decrease in value at a
greater rate than the underlying interest rate, which effectively leverages the
Fund's investment. As a result, the market value of such securities will
generally be more volatile than that of fixed rate securities. Both indexed
securities and inverse floaters are derivative securities and can be considered
speculative.

Repurchase Agreements; Purchase and Sale Contracts -- The Fund may enter into
certain types of repurchase agreements or purchase and sale contracts. Under a
repurchase agreement, the seller agrees to repurchase a security (typically a
security issued or guaranteed by the U.S. Government) at a mutually agreed upon
time and price. This insulates the Fund from changes in the market value of the
security during the period, except for currency fluctuations. A purchase and
sale contract is similar to a repurchase agreement, but purchase and sale
contracts provide that the purchaser receives any interest on the security paid
during the period. If the seller fails to repurchase the security in either
situation and the market value declines, the Fund may lose money.

Reverse Repurchase Agreements -- 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
MERRILL LYNCH AMERICAS INCOME FUND, INC.

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<PAGE>

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.

Mortgage and Asset Backed Securities -- Mortgage and asset backed securities
represent the right to receive a portion of principal and/or interest payments
made on a pool of residential or commercial mortgage loans or other types of
receivables. When interest rates fall, borrowers may refinance or otherwise
repay principal on their loans earlier than scheduled. When this happens,
certain types of mortgage and asset backed securities will be paid off more
quickly than originally anticipated and the Fund has to invest the proceeds in
securities with lower yields. This risk is known as "prepayment risk." When
interest rates rise, certain types of mortgage and asset backed securities will
be paid off more slowly than originally anticipated and the value of these
securities will fall. This risk is known as extension risk.

Because of prepayment risk and extension risk, mortgage and asset backed
securities react differently to changes in interest rates than other fixed
income securities. Small movements in interest rates (both increase and
decrease) may quickly and significantly reduce the value of certain mortgage
and asset backed securities.

Most mortgage backed securities are issued by Federal government agencies, such
as the Government National Mortgage Association (Ginnie Mae), the Federal Home
Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage
Association (Fannie Mae). Principal and interest payments on mortgage backed
securities issued by Federal government agencies are guaranteed by either the
Federal government or the government agency. Such securities have very little
credit risk. Mortgage backed securities that are issued by private corporations
rather than federal agencies have credit risk as well as prepayment risk and
extension risk.

Mortgage backed securities may be either pass through securities or
collateralized mortgage obligations (CMOs). Pass through securities represent a
right to receive principal and interest payments collected on a pool of
mortgages, which are passed through to security holders (less servicing costs).
CMOs are created by dividing the principal and interest payments collected on a
pool of mortgages into several revenue streams (tranches) with different
MERRILL LYNCH AMERICAS INCOME FUND, INC.

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[LOGO Details About the Fund]

priority rights to portions of the underlying mortgage payments. Certain CMO
tranches may represent a right to receive interest only (IOs), principal only
(POs) or an amount that remains after other floating rate tranches are paid (an
inverse floater). These securities are frequently referred to as "mortgage
derivatives" and may be extremely sensitive to changes in interest rates. If
the Fund invests in CMO tranches (including CMO tranches issued by government
agencies) and interest rates move in a manner not anticipated by Fund
management, it is possible that the Fund could lose all or substantially all of
its investment.

Illiquid Securities -- The Fund may invest up to 15% of its net assets in
illiquid securities that it cannot easily resell within seven days at current
value or that have contractual or legal restrictions on resale. If the Fund
buys illiquid securities it may be unable to quickly resell them or may be able
to sell them only at a price below current value.

Restricted Securities -- Restricted securities have contractual or legal
restrictions on their resale. They include private placement securities that
the Fund buys directly from the issuer. Private placement and other restricted
securities may not be listed on an exchange and may have no active trading
market.

Restricted securities may be illiquid. The Fund may be unable to sell them on
short notice or may be able to sell them only at a price below current value.
The Fund may get only limited information about the issuer, so it may be less
able to predict a loss. In addition, if Fund management receives material
adverse non-public information about the issuer, the Fund will not be able to
sell the security.

Rule 144A Securities -- Rule 144A securities are restricted securities that can
be resold to qualified institutional buyers but not to the general public. Rule
144A securities may have an active trading market, but carry the risk that the
active trading market may not continue.

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

If you would like further information about the Fund, including how it invests,
please see the Statement of Additional Information.
MERRILL LYNCH AMERICAS INCOME FUND, INC.

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[LOGO Your Account]

MERRILL LYNCH SELECT PRICING SM SYSTEM
- --------------------------------------------------------------------------------

The Fund offers four share classes, each with its own sales charge and expense
structure, allowing you to invest in the way that best suits your needs. Each
share class represents an ownership interest in the same investment portfolio.
When you choose your class of shares you should consider the size of your
investment and how long you plan to hold your shares. Your Merrill Lynch
Financial Consultant can help you determine which share class is best suited to
your personal financial goals.

For example, if you select Class A or Class D shares, you generally pay a sales
charge at the time of purchase. If you buy Class D shares, you also pay an
ongoing account maintenance fee of 0.25%. You may be eligible for a sales
charge waiver.

If you select Class B or C shares, you will invest the full amount of your
purchase price. However, with Class B shares, you will be subject to a
distribution fee of 0.50% with respect to Class B shares and 0.55% with respect
to Class C shares and an account maintenance fee of 0.25%. Because these fees
are paid out of the Fund's assets on an ongoing basis, over time these fees
increase the cost of your investment and may cost you more than paying an
initial sales charge. In addition, you may be subject to a deferred sales
charge when you sell Class B or C shares.

The Fund's shares are distributed by Merrill Lynch Funds Distributor, a
division of Princeton Funds Distributor, Inc., an affiliate of Merrill Lynch.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

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[LOGO Your Account]

The table below summarizes key features of the Merrill Lynch Select Pricing SM
System.

<TABLE>
<CAPTION>
Class A Class B Class C Class D
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Availability Limited to certain Generally available Generally available Generally available
investors through Merrill through Merrill through Merrill
including: Lynch. Limited Lynch. Limited Lynch. Limited
. Current Class A availability availability availability
shareholders through other through other through other
. Certain securities dealers. securities dealers. securities dealers.
Retirement Plans
. Participants in
certain Merrill
Lynch sponsored
programs
. Certain
affiliates of
Merrill Lynch.
- ----------------------------------------------------------------------------------------------------------
Initial Sales Charge? Yes. Payable at No. Entire purchase No. Entire purchase Yes. Payable at
time of purchase. price is invested price is invested time of purchase.
Lower sales charges in shares of the in shares of the Lower sales charges
available for Fund. Fund. available for
larger investments. larger investments.
- ----------------------------------------------------------------------------------------------------------
Deferred Sales Charge? No. (May be charged Yes. Payable if you Yes. Payable if you No. (May be charged
for purchases over redeem within four redeem within one for purchases over
$1 million that are years of purchase. year of purchase. $1 million that are
redeemed within one redeemed within one
year.) year.)
- ----------------------------------------------------------------------------------------------------------
Account Maintenance and No. 0.25% Account 0.25% Account 0.25% Account
Distribution Fees? Maintenance Fee Maintenance Fee Maintenance Fee No
0.50% Distribution 0.55% Distribution Distribution Fee.
Fee. Fee.
- ----------------------------------------------------------------------------------------------------------
Conversion to Class D No. Yes, automatically No. No.
shares? after approximately
ten years.
- ----------------------------------------------------------------------------------------------------------
</TABLE>

MERRILL LYNCH AMERICAS INCOME FUND, INC.

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<PAGE>

Right of Accumulation -- permits you to pay the sales charge that would apply
to the cost or value (whichever is higher) of all shares you own in the Merrill
Lynch mutual funds that offer Select Pricing options.

Letter of Intent -- permits you to pay the sales charge that would be
applicable if you add up all shares of Merrill Lynch Select PricingSM System
funds that you agree to buy within a 13 month period. Certain restrictions
apply.

Class A And Class D Shares -- Initial Sales Charge Options
If you select Class A or Class D shares, you will pay a sales charge at the
time of purchase.

<TABLE>
<CAPTION>
Dealer
Compensation
As a % of As a % of as a % of
Your Investment Offering Price Your Investment* 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** 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
</TABLE>
* Rounded to the nearest one-hundredth percent.
** If you invest $1,000,000 or more in Class A or Class D shares, you may not
pay an initial sales charge. However, if you redeem your shares within one
year after purchase, you may be charged a deferred sales charge. This charge
is 1% of the lesser of the original cost of the shares being redeemed or
your redemption proceeds. 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.

No initial sales charge applies to Class A or Class D shares that you buy
through reinvestment of dividends or distributions.

A reduced or waived sales charge on a purchase of Class A or Class D shares may
apply for:
. Purchases under a Right of Accumulation or Letter of Intent.
. TMA SM Managed Trusts.
. Certain Merrill Lynch investment or central asset accounts.
. Certain employer-sponsored retirement or savings plans.
. Purchases using proceeds from the sale of certain Merrill Lynch closed-
end funds under certain circumstances.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

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[LOGO Your Account]

. Certain investors, including directors or trustees of Merrill Lynch
mutual funds and Merrill Lynch employees.
. Certain Merrill Lynch fee-based programs.

Only certain investors are eligible to buy Class A shares. Your Financial
Consultant can help you determine whether you are eligible to buy Class A
shares or to participate in any of these programs.

If you decide to buy shares under the initial sales charge alternative and you
are eligible to buy both Class A and Class D shares, you should buy Class A
since Class D shares are subject to an account maintenance fee, while Class A
shares are not.

If you redeem Class A or Class D shares and within 30 days buy new shares of
the same class, you will not pay a sales charge on the new purchase amount. The
amount eligible for this "Reinstatement Privilege" may not exceed the amount of
your redemption proceeds. To exercise the privilege, contact your Merrill Lynch
Financial Consultant or the Fund's Transfer Agent at 1-800-MER-FUND.

As a result of the implementation of the Merrill Lynch Select Pricing SM
System, Class A shares of the Fund outstanding prior to October 21, 1994, were
redesignated as Class D shares. The Class A shares offered here differ from the
Class A shares offered prior to October 21, 1994, in many respects, including
eligible investors, sales charges and exchange privileges.

Class B and Class C Shares -- Deferred Sales Charge Options

If you select Class B or Class C shares, you do not pay an initial sales charge
at the time of purchase. However, if you redeem your Class B shares within four
years after purchase, or your Class C shares within one year after purchase,
you may be required to pay a deferred sales charge. You will also pay
distribution fees of 0.50% with respect to Class B shares and 0.55% with
respect to Class C shares and account maintenance fees of 0.25% each year under
distribution plans that the Fund has adopted under Rule 12b-1. Because these
fees are paid out of the Fund's assets on an ongoing basis, over time these
fees increase the cost of your investment and may cost you more than paying an
initial sales charge. The Distributor uses the money that it receives from the
deferred sales charges and the distribution fees to cover the costs of
marketing, advertising and compensating the Merrill Lynch Financial Consultant
or other securities dealer who assists you in purchasing Fund shares.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

26
<PAGE>

Class B Shares
If you redeem Class B shares within four years after purchase, you may be
charged a deferred sales charge. The amount of the charge gradually decreases
as you hold your shares over time, according to the following schedule:

<TABLE>
<CAPTION>
Years Since Purchase Sales 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>

* The percentage charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. Shares acquired
through reinvestment of dividends are not subject to a deferred sales
charge. Not all Merrill Lynch funds have identical deferred sales charge
schedules. If you exchange your shares for shares of another fund, the
higher charge will apply.

The deferred sales charge relating to Class B shares may be reduced or waived
in certain circumstances, such as:

. Certain post-retirement
withdrawals from an IRA or other
retirement plan if you are over
59 1/2 years old.
. Redemption by certain eligible
401(a) and 401(k) plans, certain
related accounts and certain
retirement plan rollovers.
. Redemption in connection with
participation in certain Merrill
Lynch fee-based programs.
. Withdrawals resulting from
shareholder death or disability
as long as the waiver request is
made within one year of death or
disability or, if later,
reasonably promptly following
completion of probate, or in
connection with involuntary
termination of an account in
which Fund shares are held.
. Withdrawal through the Merrill
Lynch Systematic Withdrawal Plan
of up to 10% per year of your
Class B account value at the time
the plan is established.
MERRILL LYNCH AMERICAS INCOME FUND, INC.

27
<PAGE>

[LOGO Your Account]

Your Class B shares convert automatically into Class D shares approximately ten
years after purchase. Any Class B shares received through reinvestment of
dividends paid on converting shares will also convert at that time. Class D
shares are subject to lower annual expenses than Class B shares. The conversion
of Class B to Class D shares is not a taxable event for Federal income tax
purposes.

Different conversion schedules apply to Class B shares of different Merrill
Lynch mutual funds. For example, Class B shares of a fixed income fund convert
approximately ten years after purchase compared to approximately eight years
for equity funds. If you acquire your Class B shares in an exchange from
another fund with a shorter conversion schedule, the Fund's ten year conversion
schedule will apply. If you exchange your Class B shares in the Fund for Class
B shares of a fund with a longer conversion schedule, the other fund's
conversion schedule will apply. The length of time that you hold both the
original and exchanged Class B shares in both funds will count toward the
conversion schedule. The conversion schedule may be modified in certain other
cases as well.

Class C Shares

If you redeem Class C shares within one year after purchase, you may be charged
a deferred sales charge of 1.00%. The charge will apply to the lesser of the
original cost of the shares being redeemed or the proceeds of your redemption.
You will not be charged a deferred sales charge when you redeem shares that you
acquire through reinvestment of Fund dividends or distributions. The deferred
sales charge relating to Class C shares may be reduced or waived in connection
with involuntary termination of an account in which Fund shares are held and
withdrawals through the Merrill Lynch Systematic Withdrawal Plan.

Class C shares do not offer a conversion privilege.

HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
- --------------------------------------------------------------------------------

The chart below summarizes how to buy, sell, transfer and exchange shares
through Merrill Lynch or other securities dealers. You may also buy shares
through the Transfer Agent. To learn more about buying shares through the
Transfer Agent, call 1-800-MER-FUND. Because the selection of a mutual fund
involves many considerations, your Merrill Lynch Financial Consultant may help
you with this decision.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

28
<PAGE>

<TABLE>
<CAPTION>
If You Want To Your Choices Information Important for You to Know
- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
Buy Shares First, select the share Refer to the Merrill Lynch Select Pricing table on page
class appropriate for 24. Be sure to read this prospectus carefully.
you
-----------------------------------------------------------------------------------------
Next, determine the The minimum initial investment for the Fund is $1,000 for
amount of your all accounts except:
investment
.$250 for certain Merrill Lynch fee-based programs
.$100 for retirement plans

(The minimums for initial investments may be waived under
certain circumstances.)
-----------------------------------------------------------------------------------------
Have your Merrill Lynch The price of your shares is based on the next calculation
Financial Consultant or of net asset value after your order is placed. Any
securities dealer submit purchase orders placed within fifteen minutes after the
your purchase order close of business on the New York Stock Exchange will be
priced at the net asset value determined that day.

Purchase orders placed after that time will be priced at
the net asset value determined on the next business day.
The Fund may reject any order to buy shares and may
suspend the sale of shares at any time. Merrill Lynch may
charge a processing fee to confirm a purchase. This fee
is currently $5.35.
-----------------------------------------------------------------------------------------
Or contact the Transfer To purchase shares directly, call the Transfer Agent at
Agent 1-800-MER-FUND and request a purchase application. Mail
the completed purchase application to the Transfer Agent
at the address on the inside back cover of this
Prospectus.
- ----------------------------------------------------------------------------------------------------
Add to Your Purchase additional The minimum investment for additional purchases is $50
Investment shares for all accounts except $1 for retirement plans.

(The minimums for additional purchases may be waived
under certain circumstances.)
-----------------------------------------------------------------------------------------
Acquire additional All dividends are automatically reinvested without a
shares through the sales charge.
automatic dividend
reinvestment plan
-----------------------------------------------------------------------------------------
Participate in the You may invest a specific amount on a periodic basis
automatic investment through certain Merrill Lynch investment or central asset
plan accounts.
- ----------------------------------------------------------------------------------------------------
Transfer Shares Transfer to a You may transfer your Fund shares only to another
to Another participating securities securities dealer that has entered into an agreement with
Securities dealer Merrill Lynch. All shareholder services will be available
Dealer for the transferred shares. You may only purchase
additional shares of funds previously owned before the
transfer. All future trading of these assets must be
coordinated by the receiving firm.
-----------------------------------------------------------------------------------------
Transfer to a non- You must either:
participating securities .Transfer your shares to an account with the Transfer
dealer Agent; or
.Sell your shares.
- ----------------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH AMERICAS INCOME FUND, INC.

29
<PAGE>

[LOGO Your Account]

<TABLE>
<CAPTION>
If You Want To Your Choices Information Important for You to Know
- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
Sell Your Have your Merrill Lynch The price of your shares is based on the next calculation
Shares Financial Consultant or of net asset value after your order is placed. For your
securities dealer submit redemption request to be priced at the net asset value on
your sales order the day of your request, you must submit your request to
your dealer within fifteen minutes after that day's close
of business on the New York Stock Exchange (generally
4:00 p.m. Eastern time). Any redemption request placed
after that time will be priced at the net asset value at
the close of business on the next business day. Dealers
must submit redemption requests to the Fund not more than
thirty minutes after the close of business on the New
York Stock Exchange on the day the request was received.

Securities dealers, including Merrill Lynch, may charge a
fee to process a redemption of shares. Merrill Lynch
currently charges a fee of $5.35. No processing fee is
charged if you redeem shares directly through the
Transfer Agent.

The Fund may reject an order to sell shares under certain
circumstances.
------------------------------------------------------------------------------------------
Sell through the You may sell shares held at the Transfer Agent by writing
Transfer Agent to the Transfer Agent at the address on the inside back
cover of this prospectus. All shareholders on the account
must sign the letter and signatures must be guaranteed.
If you hold stock certificates, return the certificates
with the letter. The Transfer Agent will normally mail
redemption proceeds within seven days following receipt
of a properly completed request. If you make a redemption
request before the Fund has collected payment for the
purchase of shares, the Fund or the Transfer Agent may
delay mailing your proceeds. This delay will usually not
exceed ten days.

If you hold share certificates, they must be delivered to
the Transfer Agent before they can be converted. Check
with the Transfer Agent or your Merrill Lynch Financial
Consultant for details.
- -----------------------------------------------------------------------------------------------------
Sell Shares Participate in the You can choose to receive systematic payments from your
Systematically Fund's Systematic Fund account either by check or through direct deposit to
Withdrawal Plan your bank account on a monthly or quarterly basis. If you
have a Merrill Lynch CMA(R), CBA(R) or Retirement Account
you can arrange for systematic redemptions of a fixed
dollar amount on a monthly, bi-monthly, quarterly, semi-
annual or annual basis, subject to certain conditions.
Under either method you must have dividends and other
distributions automatically reinvested. For Class B and C
shares your total annual withdrawals cannot be more than
10% per year of the value of your shares at the time your
plan is established. The deferred sales charge is waived
for systematic redemptions. Ask your Merrill Lynch
Financial Consultant for details.
- -----------------------------------------------------------------------------------------------------
</TABLE>

MERRILL LYNCH AMERICAS INCOME FUND, INC.

30
<PAGE>

<TABLE>
<CAPTION>
If You Want To Your Choices Information Important for You to Know
- --------------------------------------------------------------------------------------------------
<C> <C> <S>
Exchange Your Select the fund into You can exchange your shares of the Fund for shares of
Shares which you want to many other Merrill Lynch mutual funds. You must have
exchange. Be sure to held the shares used in the exchange for at least 15
read that fund's calendar days before you can exchange to another fund.
prospectus

Each class of Fund shares is generally exchangeable for
shares of the same class of another fund. If you own
Class A shares and wish to exchange into a fund in
which you have no Class A shares, you will exchange
into Class D shares.

Some of the Merrill Lynch mutual funds impose a
different initial or deferred sales charge schedule. If
you exchange Class A or D shares for shares of a fund
with a higher initial sales charge than you originally
paid, you will be charged the difference at the time of
exchange. If you exchange Class B shares for shares of
a fund with a different deferred sales charge schedule,
the higher schedule will apply. The time you hold Class
B or C shares in both funds will count when determining
your holding period for calculating a deferred sales
charge at redemption. If you exchange Class A or D
shares for money market fund shares, you will receive
Class A shares of Summit Cash Reserves Fund. Class B or
C shares of the Fund will be exchanged for Class B
shares of Summit.

Although there is currently no limit on the number of
exchanges that you can make, the exchange privilege may
be modified or terminated at any time in the future.
- --------------------------------------------------------------------------------------------------
</TABLE>

MERRILL LYNCH AMERICAS INCOME FUND, INC.

31
<PAGE>

[LOGO Details About the Fund]

Net Asset Value --the market value of the Fund's total assets after deducting
liabilities, divided by the number of shares outstanding.

HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------

When you buy shares, you pay the net asset value, plus any applicable sales
charge. This is the offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Fund calculates its net
asset value (generally by using market quotations) each day the New York Stock
Exchange is open, fifteen minutes after the close of business on the Exchange
(the Exchange generally closes at 4:00 p.m. Eastern time). The net asset value
used in determining your price is the next one calculated after your purchase
or redemption order is placed. Foreign securities owned by the Fund may trade
on weekends or other days when the Fund does not price its shares. As a result,
the Fund's net asset value may change on days when you will not be able to
purchase or redeem the Fund's shares.

Generally, Class A shares will have the highest net asset value because that
class has the lowest expenses, and Class D shares will have a higher net asset
value than Class B or Class C shares. Class B shares will have a higher net
asset value than Class C shares because Class B shares have lower distribution
expenses than Class C shares. Also dividends paid on Class A and Class D shares
will generally be higher than dividends paid on Class B and Class C shares
because Class A and Class D shares have lower expenses.

PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
- --------------------------------------------------------------------------------

If you participate in certain fee-based programs offered by Merrill Lynch, you
may be able to buy Class A shares at net asset value, including by exchanges
from other share classes. Sales charges on the shares being exchanged may be
reduced or waived under certain circumstances.

You generally cannot transfer shares held through a fee-based program into
another account. Instead, you will have to redeem your shares held through the
program and purchase shares of another class, which may be subject to
distribution and account maintenance fees. This may be a taxable event and you
will pay any applicable sales charges.

If you leave one of these programs, your shares may be redeemed or
automatically exchanged into another class of Fund shares or into a money
market fund. The class you receive may be the class you originally owned when
you entered the program, or in certain cases, a different class. If the
exchange is into Class B shares, the period before conversion to Class D

MERRILL LYNCH AMERICAS INCOME FUND, INC.

32
<PAGE>

shares may be modified. Any redemption or exchange will be at net asset value.
However, if you participate in the program for less than a specified period,
you may be charged a fee in accordance with the terms of the program.

Details about these features and the relevant charges are included in the
client agreement for each fee-based program and are available from your Merrill
Lynch Financial Consultant.

DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------

The Fund will distribute any net investment income and any net realized long or
short term capital gains annually. The Fund may also pay a special distribution
at or about the end of the calendar year to comply with Federal tax
requirements. If your account is with Merrill Lynch and you would like to
receive dividends in cash, contact your Merrill Lynch Financial Consultant. If
your account is with the Transfer Agent and you would like to receive dividends
in cash, contact the Transfer Agent. Although this can not be predicted with
any certainty, the Fund anticipates that the majority of its dividends, if any,
will consist of ordinary income.

You will pay tax on dividends from the Fund whether you receive them in cash or
additional shares. If you redeem Fund shares or exchange them for shares of
another fund, any gain on the transaction may be subject to tax. The Fund
intends to make distributions that will either be taxed as ordinary income or
capital gains. Capital gain dividends are generally taxed at different rates
than ordinary income dividends.

If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Fund's ordinary income dividends (which include
distributions of net short term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.

By law, the Fund must withhold 31% of your dividends and proceeds if you have
not provided a taxpayer identification number or social security number.

Dividends -- ordinary income and capital gains paid to shareholders. Dividends
may be reinvested in additional Fund shares as they are paid.

"BUYING A DIVIDEND"
Unless your investment is in a tax deferred account, you may want to avoid
buying shares shortly before the Fund pays a dividend. The reason? If you buy
shares when a fund has realized but not yet distributed income or capital
gains, you will pay the full price for the shares and then receive a portion of
the price back in the form of a taxable dividend. Before investing you may want
to consult your tax adviser.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

33
<PAGE>

[LOGO Management of the Fund]

This section summarizes some of the consequences under current Federal tax law
of an investment in the Fund. It is not a substitute for personal tax advice.
Consult your personal tax adviser about the potential tax consequences of an
investment in the Fund under all applicable tax laws. The Fund's Statement of
Additional Information has more information about taxes.

MERRILL LYNCH ASSET MANAGEMENT
- --------------------------------------------------------------------------------

Merrill Lynch Asset Management, the Fund's Investment Adviser, manages the
Fund's investments and its business operations under the overall supervision of
the Fund's Board of Directors. The Investment Adviser has the responsibility
for making all investment decisions for the Fund. The Investment Adviser has a
sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited, an
affiliate, under which the Investment Adviser pays a fee for services it
receives in an amount to be determined from time to time by the Investment
Adviser and the affiliate. The Fund pays the Investment Adviser a fee at the
annual rate of .60% of the average daily net assets of the Fund plus the
principal amount of borrowings incurred by the Fund for leveraging purposes.

Merrill Lynch Asset Management is part of Merrill Lynch Asset Management Group,
which had approximately $515 billion in investment company and other portfolio
assets under management as of March 1999. This amount includes assets managed
for Merrill Lynch affiliates.

A Note About Year 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund management that they also
expect to resolve the Year 2000 Problem, and the Fund management will continue
to monitor the situation as the Year 2000 approaches. However, if the problem
has not been fully addressed, the Fund could be negatively affected. The Year
2000 Problem could also have a

MERRILL LYNCH AMERICAS INCOME FUND, INC.

34
<PAGE>

negative impact on the companies in which the Fund invests.This negative impact
may be greater for companies in foreign markets, especially emerging markets,
since they may be less prepared for the Year 2000 Problem than domestic
companies and markets. If the companies in which the Fund invests have Year
2000 Problems, the Fund's returns could be adversely affected.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

35
<PAGE>

[LOGO Management of the Fund]

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects the
financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends). This information has been audited by
Deloitte & Touche LLP, whose report, along with the Fund's financial
statements, are included in the Fund's annual report to shareholders, which is
available upon request.

<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------------- -----------------------------------------------
For the Year Ended For the Period
December 31, Oct. 21, 1994+ For the Year Ended December 31,
Increase (Decrease) in ---------------------------------- to December 31, -----------------------------------------------
Net Asset Value: 1998 1997 1996++ 1995 1994 1998 1997 1996++ 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $ 9.60 $11.36 $ 9.70 $ 8.51 $ 9.08 $ 9.57 $ 11.31 $ 9.65 $ 8.48 $ 10.84
- --------------------------------------------------------------------------------------------------------------------------------
Investment income --
net .76 .72 .97 .94 .17 .70 .63 .88 .88 .75
- --------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized
gain (loss) on
investments and foreign
currency
transactions -- net (4.06) (.54) 2.14 1.19 (.57) (4.04) (.52) 2.15 1.17 (2.36)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (3.30) .18 3.11 2.13 (.40) (3.34) .11 3.03 2.05 (1.61)
- --------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
Investment income --
net (.71) (.72) (1.00) (.94) (.14) (.65) (.63) (.93) (.88) (.64)
in excess of Investment
income -- net -- -- (.13) -- -- -- -- (.12) -- --
Return of capital --
net (.05) -- -- -- -- (.05) -- -- -- --
Realized gain on
investments -- net -- (.93) (.32) -- (.03) -- (.93) (.32) -- (.11)
In excess of realized
gain on investments
-- net -- (.29) -- -- -- -- (.29) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and
distributions (.76) (1.94) (1.45) (.94) (.17) (.70) (1.85) (1.37) (.88) (.75)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 5.54 $ 9.60 $ 11.36 $ 9.70 $ 8.51 $ 5.53 $ 9.57 $ 11.31 $ 9.65 $ 8.48
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Return:**
- --------------------------------------------------------------------------------------------------------------------------------
Based on net asset
value per share (36.18)% 1.74% 33.64% 27.27% (4.45)%# (36.60)% 1.12% 32.75% 26.10% (15.08)%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- --------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding
interest expense and
net of reimbursement 1.70% 1.38% 1.05% 1.20% 1.22%* 2.21% 2.16% 1.83% 1.97% 1.79%
- --------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding
interest expense 1.70% 1.38% 1.05% 1.20% 1.22%* 2.21% 2.16% 1.83% 1.97% 2.00%
- --------------------------------------------------------------------------------------------------------------------------------
Expenses 2.66% 1.48% 1.32% 1.36% 1.91%* 3.47% 2.26% 2.10% 2.13% 2.70%
- --------------------------------------------------------------------------------------------------------------------------------
Investment income --
net 9.59% 6.31% 8.97% 11.25% 8.63%* 8.93% 5.76% 8.36% 10.40% 8.14%
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of
period
(in thousands) $ 1,988 $4,842 $28,136 $ 1,165 $ 253 $33,374 $78,733 $160,204 $103,465 $101,933
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 618.06% 942.74% 420.35% 127.17% 353.33% 618.06% 942.74% 420.35% 127.17% 353.33%
- --------------------------------------------------------------------------------------------------------------------------------
Leverage:
Amount of reverse
repurchase agreements
outstanding, end of
period (in thousands) $ -- $ -- $22,350 $10,265 $17,058 $ -- $ -- $ 22,350 $ 10,265 $ 17,058
Average amount of
reverse repurchase
agreements outstanding
during the period (in
thousands) $14,306 $3,185 $ 8,277 $ 2,640 $17,315 $ 3,185 $14,306 $ 8,277 $ 2,640 $ 17,315
Average amount of
reverse repurchase
agreements per share
during the period $ 1.56 $ .20 $ .48 $ .20 $ 1.19 $ .20 $ 1.56 $ .48 $ .20 $ 1.19
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*Annualized.
**Total investment returns exclude the effects of sales loads.
+Commencement of operations.
++Based on average shares outstanding.

#Aggregate total investment returns.
MERRILL LYNCH AMERICAS INCOME FUND, INC.

36
<PAGE>

FINANCIAL HIGHLIGHTS (concluded)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class C Class D
--------------------------------------------------- --------------------------------------------
For the Year Ended December For the Period
31, Oct. 21, 1994+ For the Year Ended December 31,
Increase (Decrease) in ---------------------------------- to December 31, --------------------------------------------
Net Asset Value: 1998 1997 1996++ 1995 1994 1998 1997 1996++ 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $ 9.57 $11.31 $ 9.65 $ 8.47 $ 9.08 $ 9.57 $ 11.31 $ 9.65 $ 8.48 $ 10.84
- -----------------------------------------------------------------------------------------------------------------------------
Investment income --
net .69 .63 .87 .87 .15 .74 .69 .95 .92 .80
- -----------------------------------------------------------------------------------------------------------------------------
Realized and unrealized
gain (loss) on
investments and foreign
currency transactions
-- net (4.04) (.52) 2.15 1.18 (.61) (4.05) (.52) 2.13 1.17 (2.36)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (3.35) .11 3.02 2.05 (.46) (3.31) .17 3.08 2.09 (1.56)
- -----------------------------------------------------------------------------------------------------------------------------
Less dividends and
distributions:
Investment income --
net (.64) (.63) (.92) (.87) (.13) (.69) (.69) (.97) (.92) (.68)
In excess of investment
income -- net -- -- (.12) -- -- -- -- (.13) -- --
Return of capital --
net (.05) -- -- -- -- (.05) -- -- -- --
Realized gain on
investments--net -- (.93) (.32) -- (.02) -- (.93) (.32) -- (.12)
In excess of realized
gain on investments
-- net -- (.29) -- -- -- -- (.29) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total dividends and
distributions (.69) (1.85) (1.36) (.87) (.15) (.74) (1.91) (1.42) (.92) (.80)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 5.53 $ 9.57 $ 11.31 $ 9.65 $ 8.47 $ 5.52 $ 9.57 $ 11.31 $ 9.65 $ 8.48
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment
Return:**
- -----------------------------------------------------------------------------------------------------------------------------
Based on net asset
value per share (36.64)% 1.06% 32.66% 26.18% (5.06)%# (36.37)% 1.65% 33.44% 26.75% (14.65)%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net
Assets:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses, excluding
interest expense and
net
of reimbursement 2.25% 2.23% 1.90% 2.05% 2.24%* 1.84% 1.63% 1.31% 1.44% 1.28%
- -----------------------------------------------------------------------------------------------------------------------------
Expense, excluding
interest expense 2.25% 2.23% 1.90% 2.05% 2.24%* 1.84% 1.63% 1.31% 1.44% 1.48%
- -----------------------------------------------------------------------------------------------------------------------------
Expenses 3.52% 2.33% 2.17% 2.19% 3.05%* 2.88% 1.73% 1.58% 1.60% 2.17%
- -----------------------------------------------------------------------------------------------------------------------------
Investment income --
net 8.85% 5.64% 8.17% 10.23% 8.87%* 9.51% 6.30% 8.92% 10.85% 8.65%
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of
period
(in thousands) $ 1,730 $4,222 $11,436 $ 1,396 $ 75 $ 6,316 $12,066 $18,402 $14,169 $14,938
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 618.06% 942.74% 420.35% 127.17% 353.33% 618.06% 942.74% 420.35% 127.17% 353.33%
- -----------------------------------------------------------------------------------------------------------------------------
Leverage:
Amount of reverse
repurchase agreements
outstanding end of
period (in thousands) $ -- $ -- $22,350 $10,265 $17.058 $ -- $ -- $22,350 $10,265 $17,058
Average amount of
reverse repurchase
agreements outstanding
during the period
(in thousands) $14,306 $3.185 $ 8,277 $ 2,640 $17,315 $14,306 $ 3,185 $ 8,277 $ 2,640 $17,315
Average amount of
reverse repurchase
agreements per share
during the period $ 1.56 $ .20 $ .48 $ .20 $ 1.19 $ 1.56 $ .20 $ .48 $ .20 $ 1.19
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
**Total investment returns exclude the effects of sales loads.
+Commencement of operations.
++Based on average shares outstanding.

#Aggregate total investment returns.

MERRILL LYNCH AMERICAS INCOME FUND, INC.

37
<PAGE>

[This page intentionally left blank]

MERRILL LYNCH AMERICAS INCOME FUND, INC.

<PAGE>

------------------------------
POTENTIAL
_____________ INVESTORS ____________
| Open an account (two options). |
| ------------------------------ |
1 2
| |
- ----------------------- --------------------------------
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT FINANCIAL DATA SERVICES, INC.
OR SECURITIES DEALER P.O. Box 45289
Advises shareholders on Jacksonville, Florida 32232-5289
their Fund investments. Performs recordkeeping and
- ----------------------- reporting services.
| --------------------------------
| |
|_______________________________________________________|
|
|
----------------------------------------------
DISTRIBUTOR
MERRILL LYNCH FUNDS DISTRIBUTOR,
A DIVISION OF PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081

Arranges for the sale of Fund shares.
----------------------------------------------
|
|
- ---------------------- | -----------------------------
COUNSEL --------------------- CUSTODIAN
BROWN & WOOD LLP ___ THE FUND ___ BROWN BROTHERS HARRIMAN & CO.
One World Trade Center The Board of Directors 40 Water Street
New York, New York oversees the Fund. Boston, Massachusetts
10048-0557 --------------------- 02109
Provides legal advice | | Holds the Fund's assets
to the Fund. | | for safekeeping.
- ----------------------- | | -----------------------------
| |
___________| |_________________
| |
- ---------------------------------- -----------------------------------------
INDEPENDENT AUDITORS INVESTMENT ADVISER
DELOITTE & TOUCHE LLP MERRILL LYNCH
117 Campus Drive ASSET MANAGEMENT, L.P.
Princeton, New Jersey 08540-6400 ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Audits the financial Plainsboro, New Jersey 08536
statements of the Fund on behalf of
the shareholders. MAILING ADDRESS
- ---------------------------------- P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's day-to-day activities.
-----------------------------------------

MERRILL LYNCH AMERICAS INCOME FUND, INC.
<PAGE>

[LOGO] For More Information

Shareholder Reports
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. You
may obtain these reports at no cost by calling 1-800-MER-FUND.

The Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account, call your Merrill Lynch
Financial Consultant or write to the Transfer Agent at its mailing address.
Include your name, address, tax identification number and Merrill Lynch
brokerage or mutual fund account number. If you have any questions, please call
your Merrill Lynch Financial Consultant or the Transfer Agent at
1-800-MER-FUND.

Statement of Additional Information
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this prospectus). You may request a free copy by writing the Fund at Finan-
cial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289 or
by calling 1-800-MER-FUND.

Contact your Merrill Lynch Financial Consultant or the Fund, at the telephone
number or address indicated above if you have any questions.

Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet site
at http://www.sec.gov and copies may be obtained upon payment of a duplicating
fee by writing the Public Reference Section of the SEC, Washington, D.C. 20549-
6009.

You should rely only on the information contained in this Prospectus. No one is
authorized to provide you with information that is different from information
contained in this Prospectus.

Investment Company Act file #811-7794
Code #16802-04-99
(C)Merrill Lynch Asset Management, L.P.

Prospectus
[LOGO FOR MERRILL LYNCH APPEARS HERE]

Merrill Lynch Americas Income
Fund, Inc.

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- -------------------------------------------------------------APRIL 27, 1999-----
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<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 investment company that seeks a high level of current income by
investing primarily in debt securities denominated in a currency of a country
located in the Western Hemisphere (i.e., North, South and Central 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 the portfolio against 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 total assets. There can be no assurance that
the Fund's investment objectives can be achieved.

Pursuant to the Merrill Lynch Select PricingSM 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 PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"Purchase of Shares."

-----------

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 27,
1999 (the "Prospectus"), which has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained, without charge, by calling
(800) MER-FUND or by writing the Fund at the above address. The Prospectus is
incorporated by reference into this Statement of Additional Information, and
this Statement of Additional Information is incorporated by reference into the
Prospectus. The Fund's audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.

-----------

Merrill Lynch Asset Management -- Investment Adviser
Merrill Lynch Funds Distributor -- Distributor

-----------

The date of this Statement of Additional Information is April 27, 1999.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objective and Policies......................................... 2
Certain Risks of Debt Securities......................................... 4
Derivatives.............................................................. 6
Other Investment Policies, Practices and Risk Factors.................... 12
Investment Restrictions.................................................. 17
Portfolio Turnover....................................................... 20
Management of the Fund.................................................... 20
Directors and Officers................................................... 20
Compensation of Directors................................................ 22
Management and Advisory Arrangements..................................... 22
Code of Ethics........................................................... 24
Purchase of Shares........................................................ 24
Initial Sales Charge Alternatives -- Class A and Class D Shares.......... 25
Deferred Sales Charge Alternatives -- Class B and Class C Shares......... 29
Distribution Plans....................................................... 32
Limitations on the Payment of Deferred Sales Charges..................... 33
Redemption of Shares...................................................... 34
Redemption............................................................... 35
Repurchase............................................................... 35
Reinstatement Privilege -- Class A and Class D Shares.................... 35
Pricing of Shares......................................................... 36
Determination of Net Asset Value......................................... 36
Computation of Offering Price Per Share.................................. 37
Portfolio Transactions and Brokerage...................................... 37
Shareholder Services...................................................... 39
Investment Account....................................................... 39
Exchange Privilege....................................................... 39
Fee-Based Programs....................................................... 41
Retirement Plans......................................................... 42
Automatic Investment Plans............................................... 42
Automatic Dividend Reinvestment Plan..................................... 42
Systematic Withdrawal Plan............................................... 42
Dividends and Taxes....................................................... 43
Dividends................................................................ 43
Taxes.................................................................... 44
Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions............................................................ 46
Special Rules for Certain Foreign Currency Transactions.................. 46
Performance Data.......................................................... 47
General Information....................................................... 50
Description of Shares.................................................... 50
Independent Auditors..................................................... 50
Custodian................................................................ 50
Transfer Agent........................................................... 51
Legal Counsel............................................................ 51
Reports to Shareholders.................................................. 51
Shareholder Inquiries.................................................... 51
Additional Information................................................... 52
Financial Statements...................................................... 52
</TABLE>
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The Fund is a non-diversified, open-end management investment company that
seeks a high level of current income by investing primarily in debt securities
denominated in a currency of a country located in the Western Hemisphere
(i.e., North, South and Central 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.

Merrill Lynch Asset Management, L.P. (the "Investment Adviser" or "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. The Fund also is authorized
to invest up to 20% of its total assets in debt securities denominated in
currencies of countries located outside of the Western Hemisphere.

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 increase or decrease in response to any change 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 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 although issued by a governmental entity, corporation or
financial institution of another 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.

2
<PAGE>

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 returns, 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 "Other Risks--Mortgage
backed Securities" 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 "Other Risks--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 ("S&P") and Moody's Investors Service, Inc.
("Moody's") or in unrated securities of comparable quality involve special
risks which are described more fully below under "Certain Risks of Debt
Securities--Junk Bonds."

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 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

3
<PAGE>

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
"Derivatives." 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 Risks -- Borrowing and Leverage."

Certain Risks of Debt Securities

Sovereign Debt. The Fund may invest in sovereign debt securities issued or
guaranteed by foreign government entities. Investments in sovereign debt
subjects the Fund to a higher degree of risk that a government entity may
delay or refuse payment of interest or repayment of principal on its sovereign
debt. A government may fail to make payment for many reasons including cash
flow problems, lack of foreign exchange, political constraints, the relative
size of its debt position to its economy or its failure to put in place
economic reforms required by the International Monetary Fund or other
multilateral agencies as a condition to their contributions to the government
entity. If a government entity fails to make its payments, the Fund may be
requested to extend the period in which the government entity must pay and to
make further loans to the government entity. There is no bankruptcy proceeding
by which all or part of sovereign debt that a government entity has not repaid
may be collected.

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.

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, the Philippines, Brazil, Peru, Ecuador, Panama, Poland and
Bulgaria. To date, Brady Bonds aggregating approximately $150 billion have
been issued, based on current estimates, with the largest proportion of Brady
Bonds having been issued by Mexico, Argentina and Venezuela. The Fund
anticipates that it will invest in bank loans (through participations or
assignments) that may be restructured as Brady Bond obligations.

4
<PAGE>

Brady Bonds 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 Brady Bonds issued to date by Costa
Rica, Nigeria, the Philippines, Brazil, Peru, Ecuador, Panama, Poland,
Bulgaria, Venezuela and Argentina 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.

Junk Bonds. Junk bonds are debt securities that are rated below investment
grade by the major rating agencies or are unrated securities that Fund
management believes are of comparable quality. Although junk bonds generally
pay higher rates of interest than investment grade bonds, they are high-risk
investments that may cause income and principal losses for the Fund. The major
risks in junk bond investments include the following:

Junk bonds may be issued by less creditworthy companies. The securities are
vulnerable to adverse changes in the issuer's industry and to general economic
conditions. Issuers of junk bonds may be unable to meet their interest or
principal payment obligations because of an economic downturn, specific issuer
developments or the unavailability of additional financing.

The issuers of junk bonds may have a large amount of outstanding debt
relative to their assets than issuers of investment grade bonds. If the issuer
experiences financial stress, it may be unable to meet its debt obligations.
The issuer's ability to pay its debt obligations also may be lessened by
specific issuer developments, or the unavailability of additional financing.

Junk bonds are frequently ranked junior to claims by other creditors. If the
issuer cannot meet its obligations, the senior obligations are generally paid
off before the junior obligations.

Junk bonds frequently have redemption features that permit an issuer to
repurchase the security from the Fund before it matures. If an issuer redeems
the junk bonds, the Fund may have to invest the proceeds in bonds with lower
yields and may lose income.

Prices of junk bonds are subject to extreme price fluctuations. Negative
economic developments may have a greater impact on the prices of junk bonds
than on other higher rated fixed income securities.

Junk bonds may be less liquid than higher rated fixed income securities even
under normal economic conditions. There are fewer dealers in the junk bond
market, and there may be significant differences in the prices quoted for junk
bonds by the dealers. Because they are less liquid, judgment may play a
greater role in valuing certain of the Fund's portfolio securities than in the
case of securities trading in a more liquid market.

The Fund may incur expenses to the extent necessary to seek recovery upon
default or to negotiate new terms with a defaulting issuer.

5
<PAGE>

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% if its total assets while such sovereign debt
securities are in default.

Derivatives

The Fund may use instruments referred to as "Derivatives." Derivatives are
financial instruments the value of which is derived from another security, a
commodity (such as gold or oil) or an index (a measure of value or rates, such
as the Standard & Poor's 500 Index or the prime lending rate). Derivatives
allow the Fund to increase or decrease the level of risk to which the Fund is
exposed more quickly and efficiently than transactions in other types of
instruments.

Hedging. The Fund may use Derivatives for hedging purposes and to increase
income. Hedging is a strategy in which a Derivative is used to offset the risk
that other Fund holdings may decrease in value. Losses on the other investment
may be substantially reduced by gains on a Derivative that reacts in an
opposite manner to market movements. While hedging can reduce losses, it can
also reduce or eliminate gains if the market moves in a different manner than
anticipated by the Fund or if the cost of the Derivative outweighs the benefit
of the hedge. Hedging also involves the risk that changes in the value of the
Derivative will not match those of the holdings being hedged as expected by the
Fund, in which case any losses on the holdings being hedged may not be reduced.

The Fund may use the following types of derivative instruments and trading
strategies:

Indexed and Inverse Floating Rate Securities

The Fund may invest in securities the potential return of which is based on
an index. As an illustration, the Fund may invest in a debt security that pays
interest based on the current value of an interest rate index, such as the
prime rate. The Fund may also invest in a debt security which returns principal
at maturity based on the level of a securities index or a basket of securities,
or based on the relative changes of two indices. In addition, the Fund may
invest in securities the potential return of which is based inversely on the
change in an index (that is, a security the value of which will move in the
opposite direction of changes to an index). For example, the Fund may invest in
securities that pay a higher rate of interest when a particular index decreases
and pay a lower rate of interest (or do not fully return principal) when the
value of the index increases. If the Fund invests in such securities, it may be
subject to reduced or eliminated interest payments or loss of principal in the
event of an adverse movement in the relevant index or indices. Indexed and
inverse floating rate securities involve credit risk, and certain indexed and
inverse floating rate securities may involve leverage risk, liquidity risk, and
currency risk. The Fund may invest in indexed and inverse floating rate
securities for hedging purposes only. When used for hedging purposes, indexed
and inverse floating rate securities involve correlation risk.

Options on Securities and Securities Indices

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

Purchasing Call Options. The Fund may also purchase call options on
securities it intends to purchase or securities or interest rate indices, which
are correlated with the types of securities it intends to purchase. When the

6
<PAGE>

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

The Fund is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold. However, the Fund
will not purchase options on securities if, as a result of such purchase, the
aggregate cost (option plus premiums paid) of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.

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

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

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

Other than with respect to closing transactions, the Fund will only write
call or put options that are "covered." A call or put option will be considered
covered if the Fund has segregated assets with respect to such option in the
manner described in "Risk Factors in Derivatives" below. A call option will
also be considered

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<PAGE>

covered if the Fund owns the securities it would be required to deliver upon
exercise of the option (or, in the case of an option on a securities index,
securities which substantially correlate with the performance of such index)
or owns a call option, warrant or convertible instrument which is immediately
exercisable for, or convertible into, such security.

The Fund may not write covered options on underlying securities exceeding 5%
of its total assets, taken at market value.

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

Futures

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

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

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

The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying asset is
a currency or securities or interest rate index) purchased or sold for hedging
purposes (including anticipatory hedges). The Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent the Fund from being deemed a "commodity pool" under regulations of the
Commodity Futures Trading Commission.

Swaps

The Fund is authorized to enter into swaps, which are OTC contracts in which
each party agrees to make a periodic payment based on an index or the value of
an asset in return for a periodic payment from the other party based on a
different index or asset.

Equity Swaps. The Fund is authorized to enter into equity swap agreements,
which are OTC contracts in which one party agrees to make periodic payments
based on the change in market value of a specified equity security, basket of
equity securities or equity index in return for periodic payments based on a
fixed or variable interest rate or the change in market value of a different
equity security, basket of equity securities or equity index. Swap agreements
may be used to obtain exposure to an equity or market without owning or taking
physical custody of securities in circumstances in which direct investment is
restricted by local law or is otherwise impractical.

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<PAGE>

The Fund will enter into a swap transaction only if, immediately following
the time the Fund enters into the transaction, the aggregate notional
principal amount of swap transactions to which the Fund is a party would not
exceed 5% of the Fund's net assets.

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 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 liquid
securities having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian. If
the interest rate swap transaction is entered into on other than a net basis,
the full amount of the Fund's obligations will be accrued on a daily basis,
and the full amount of the Fund's obligations will be maintained in a
segregated account by the Fund's custodian.

The 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 transactions 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 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.

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<PAGE>

Foreign Exchange Transactions

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

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

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

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

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 in part the cost of acquiring such a put option,
the Fund may also sell a call option which, if exercised, requires it to sell
a specified amount of 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.

Limitations on Currency Hedging. The Fund will not speculate in Currency
Instruments. Accordingly, the Fund will not hedge a currency in excess of the
aggregate market value of the securities which it owns (including receivables
for unsettled securities sales), or has committed to or anticipates
purchasing, which are denominated in such currency. The Fund may, however,
hedge a currency by entering into a transaction in a Currency Instrument
denominated in a currency other than the currency being hedged (a "cross-
hedge"). The Fund will only enter into a cross-hedge if the Investment Adviser
believes that (i) there is a demonstrable high correlation between the
currency in which the cross-hedge is denominated and the currency being
hedged, and (ii) executing a cross-hedge through the currency in which the
cross-hedge is denominated will be significantly more cost-effective or
provide substantially greater liquidity than executing a similar hedging
transaction by means of the currency being hedged.

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<PAGE>

Risk Factors in Hedging Foreign Currency Risks. Hedging transactions
involving Currency Instruments involve substantial risks, including
correlation risk. While the Fund's use of Currency Instruments to effect
hedging strategies is intended to reduce the volatility of the net asset value
of the Fund's shares, the net asset value of the Fund's shares will fluctuate.
Moreover, although Currency Instruments will be used with the intention of
hedging against adverse currency movements, transactions in Currency
Instruments involve the risk that anticipated currency movements will not be
accurately predicted and that the Fund's hedging strategies will be
ineffective. To the extent that the Fund hedges against anticipated currency
movements which do not occur, the Fund may realize losses, and decrease its
total return, as the result of its hedging transactions. Furthermore, the Fund
will only engage in hedging activities from time to time and may not be
engaging in hedging activities when movements in currency exchange rates
occur.

It may not be possible for the Fund to hedge against currency exchange rate
movements, even if correctly anticipated, in the event that (i) the currency
exchange rate movement is so generally anticipated that the Fund is not able
to enter into a hedging transaction at an effective price, or (ii) the
currency exchange rate movement relates to a market with respect to which
Currency Instruments are not available (such as certain developing markets)
and it is not possible to engage in effective foreign currency hedging.

Risk Factors in Derivatives

Derivatives are volatile and involve significant risks, including:

Credit risk--the risk that the counterparty on a Derivative transaction will
be unable to honor its financial obligation to the Fund.

Currency risk--the risk that changes in the exchange rate between two
currencies will adversely affect the value (in U.S. dollar terms) of an
investment.

Leverage risk--the risk associated with certain types of investments or
trading strategies (such as borrowing money to increase the amount of
investments) that relatively small market movements may result in large
changes in the value of an investment. Certain investments or trading
strategies that involve leverage can result in losses that greatly exceed the
amount originally invested.

Liquidity Risk--the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the price that
the seller believes the security is currently worth.

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

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

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

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<PAGE>

Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives

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

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

Other Investment Policies, Practices and Risk Factors

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. See "Redemption of Shares." 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.

Securities Lending. The Fund may lend securities with a value not exceeding
33 1/3% of its total assets. In return, the Fund receives collateral in an
amount equal to at least 100% of the current market value of the loaned
securities in cash or securities issued or guaranteed by the U.S. Government.
The Fund receives securities as collateral for the loaned securities and the
Fund and the borrower negotiate a rate for the loan premium to be received by
the Fund for the loaned securities, which increases the Fund's yield. The Fund
may receive a flat fee for its loans. The loans are terminable at any time and
the borrower, after notice, is required to return borrowed securities within
five business days. The Fund may pay reasonable finder's, administrative and
custodial fees in connection with its loans. In the event that the borrower
defaults on its obligation to return borrowed securities because of insolvency
or for any other reason, 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.

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.

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<PAGE>

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

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

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

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

Illiquid or Restricted Securities. The Fund may invest up to 15% of its net
assets in securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security relates to the
ability to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be obtained for a
comparable more liquid security. Illiquid securities may trade at a discount
from comparable, more liquid investments. Investment of the Fund's assets in
illiquid securities may restrict the ability of the Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute where the Fund's operations require cash, such as
when the Fund redeems shares or pays dividends, and could result in the Fund
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.

The Fund may invest in securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"). Restricted securities may be sold in private placement transactions
between the issuers and their purchasers and may be neither listed on an
exchange nor traded in other established markets. In many cases, privately
placed securities may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. As a
result of the absence of a public trading market, privately placed securities
may be less liquid and more difficult to value than publicly traded
securities. To the extent that privately placed securities may be resold in
privately negotiated transactions, the prices realized from the sales, due to
illiquidity, could be less than those originally paid by the Fund or less than
their fair market value. In addition, issuers whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their securities were
publicly traded. If any privately placed securities held by the Fund are
required to be registered under the securities laws of one or more
jurisdictions before being resold, the Fund may be required to bear the
expenses of registration. Certain of the Fund's investments in private
placements may consist of direct investments and may include investments in
smaller, less seasoned issuers, which may involve greater risks. These issuers
may have limited product lines, markets or financial resources, or they may be
dependent on a limited management group. In making investments in such
securities, the Fund may obtain access to material nonpublic information which
may restrict the Fund's ability to conduct portfolio transactions in such
securities.

144A Securities. The Fund may purchase restricted securities that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. The Board has determined to treat as liquid Rule

13
<PAGE>

144A securities that are either freely tradable in their primary markets
offshore or have been determined to be liquid in accordance with the policies
and procedures adopted by the Fund's Board. The Board has adopted guidelines
and delegated to the Investment Adviser the daily function of determining and
monitoring liquidity of restricted securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how this market for
restricted securities sold and offered under Rule 144A will continue to
develop, the Board of Directors will carefully monitor the Funds's investments
in these securities. The 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.

Borrowing and Leverage. The use of leverage by the Fund creates an
opportunity for greater total return, but, at the same time, creates special
risks. 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. Borrowings will create
interest expenses for the Fund which can exceed the income from the assets
purchased with the borrowings. To the extent the income or capital
appreciation derived from securities purchased with borrowed funds exceeds the
interest the Fund will have to pay on the borrowings, the Fund's return will
be greater than if leverage had not been used. Conversely, if the income or
capital appreciation from the securities purchased with such borrowed funds is
not sufficient to cover the cost of borrowing, the return to the Fund will be
less than if leverage had not been used, and therefore the amount available
for distribution to shareholders as dividends and other distributions will be
reduced. In the latter case, the Investment Adviser in its best judgment
nevertheless may determine to maintain the Fund's leveraged position if it
expects that the benefits to the Fund's shareholders of maintaining the
leveraged position will outweigh the current reduced return.

Certain types of borrowings by the Fund may result in the Fund being subject
to covenants in credit agreements relating to asset coverage, portfolio
composition requirements and other matters. It is not anticipated that
observance of such covenants would impede the Investment Adviser from managing
the Fund's portfolio in accordance with the Fund's investment objectives and
policies. However, a breach of any such covenants 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 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 at times may borrow from affiliates of the Investment Adviser,
provided that the terms of such borrowings are no less favorable than those
available from comparable sources of funds in the marketplace.

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. 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 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

14
<PAGE>

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 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 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 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 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.

Mortgage Backed Securities. Mortgage backed securities are "pass through"
securities, meaning that principal and interest payments made by the borrower
on the underlying mortgages are passed through to the Fund. The value of
mortgage backed securities, like that of traditional fixed income securities,
typically increases when interest rates fall and decreases when interest rates
rise. However, mortgage backed securities differ from traditional fixed income
securities because of their potential for prepayment without penalty. The
price paid by the Fund for its mortgage backed securities, the yield the Fund
expects to receive from such securities and the average life of the securities
are based on a number of factors, including the anticipated rate of prepayment
of the underlying mortgages. In a period of declining interest rates,
borrowers may prepay the underlying mortgages more quickly than anticipated,
thereby reducing the yield to maturity and the average life of the mortgage
backed securities. Moreover, when the Fund reinvests the proceeds of a
prepayment in these circumstances, it will likely receive a rate of interest
that is lower than the rate on the security that was prepaid.

To the extent that the Fund purchases mortgage backed securities at a
premium, mortgage foreclosures and principal prepayments may result in a loss
to the extent of the premium paid. If the Fund buys such securities at a
discount, both scheduled payments of principal and unscheduled prepayments
will increase current and total returns and will accelerate the recognition of
income which, when distributed to shareholders, will be taxable as ordinary
income. In a period of rising interest rates, prepayments of the underlying
mortgages may occur at a slower than expected rate, creating maturity
extension risk. This particular risk may effectively change a security that
was considered short or intermediate term at the time of purchase into a long
term security. Since long term

15
<PAGE>

securities generally fluctuate more widely in response to changes in interest
rates than short term securities, maturity extension risk could increase the
inherent volatility of the Fund.

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.

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 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.

Asset Backed Securities. Asset backed securities are "pass through"
securities, meaning that principal and interest payments made by the borrower
on the underlying assets (such as credit card receivables) are passed through
to the Fund. The value of asset backed securities, like that of traditional
fixed income securities, typically increases when interest rates fall and
decreases when interest rates rise. However, asset backed securities differ
from traditional fixed income securities because of their potential for
prepayment. The price paid by the Fund for its asset backed securities, the
yield the Fund expects to receive from such securities and the average life of
the securities are based on a number of factors, including the anticipated
rate of prepayment of the underlying assets. In a period of declining interest
rates, borrowers may prepay the underlying assets more quickly than
anticipated, thereby reducing the yield to maturity and the average life of
the asset backed securities. Moreover, when the Fund reinvests the proceeds of
a prepayment in these circumstances, it will likely receive a rate of interest
that is lower than the rate on the security that was prepaid. To the extent
that the Fund purchases asset backed securities at a premium, prepayments may
result in a loss to the extent of the premium paid. If the Fund buys such
securities at a discount, both scheduled payments and unscheduled prepayments
will increase current and total returns and will accelerate the recognition of
income which, when distributed to shareholders, will be taxable as ordinary
income. In a period of rising interest rates, prepayments of the underlying
assets may occur at a slower than expected rate, creating maturity extension
risk. This particular risk may effectively change a security that was
considered short or intermediate term at the time of purchase into a long term
security. Since long term securities generally fluctuate more widely in
response to changes in interest rates than shorter term securities, maturity
extension risk could increase the inherent volatility of the Fund.

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

16
<PAGE>

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 of the fixed rate securities. Under certain interest
rate scenarios, the Fund may decide to retain investments in IOs or inverse
floaters yielding less that 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.

Repurchase Agreements; Purchase and Sale Contracts. The Fund may invest in
securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements may be entered into only with financial institutions
which (i) have, in the opinion of the Investment Adviser, substantial capital
relative to the Fund's exposure, or (ii) have provided the Fund with a third-
party guaranty or other credit enhancement. Under a repurchase agreement or a
purchase and sale contract the counterparty agrees, upon entering into the
contract to repurchase a security at a mutually agreed-upon time and price in
a specified currency, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from market
fluctuations during such period, although it may be affected by currency
fluctuations.

Suitability. The economic benefit of an investment in the Fund depends upon
many factors beyond the control of the Fund, the Investment Adviser and its
affiliates. Because of its emphasis on foreign securities, the Fund should be
considered a vehicle for diversification and not as a balanced investment
program. The suitability for any particular investor of a purchase of shares
in the Fund will depend upon, among other things, such investor's investment
objectives and such investor's ability to accept the risks associated with
investing in foreign securities, including the risk of loss of principal.

Investment Restrictions

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

(1) Invest more than 25% of its 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.

17
<PAGE>

(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.

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

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

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

(d) 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.

18
<PAGE>

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. 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 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 net 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 Investment Adviser, 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.

Non-Diversified Status

The Fund is classified as non-diversified within the meaning of the
Investment Company Act, which means that the Fund is not limited by such Act
in the proportion of its assets that it may invest in securities of a single
issuer. The Fund's investments are limited, however, in order to allow the
Fund to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"). See "Dividends and Taxes -- Taxes." To
qualify, the Fund complies with certain requirements, including limiting its
investments so that at the close of each quarter of the taxable year (i) not
more than 25% of the market value of the Fund's total assets will be invested
in the securities of a single issuer and (ii) with respect to 50% of the
market value of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities of a single issuer. A fund
that elects to be classified as "diversified" under the Investment Company Act
must satisfy the foregoing 5% and 10% requirements with respect to 75% of its
total assets. To the extent that the Fund assumes large positions in the
securities of a small number of issuers, the Fund's net asset value may
fluctuate to a greater extent than that of a diversified company as a result
of changes in the financial condition or in the market's assessment of the
issuers, and the Fund may be more susceptible to any single economic,
political or regulatory occurrence than a diversified company.

19
<PAGE>

Portfolio Turnover

The Investment Adviser will effect portfolio transactions without regard to
the time the securities have been held, if, in its judgement, such
transactions are advisable in light of a change in circumstances of a
particular company or within a particular industry or in general market,
financial or economic conditions. As a result of its investment policies, the
Fund may engage in a substantial number of portfolio transactions and the
Fund's portfolio turnover rate may vary greatly from year to year or during
periods within a year. 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) by the monthly average value of the
securities in the portfolio during the year. A high portfolio turnover may
result in negative tax consequences, such as an increase in capital gain
dividends or in ordinary income dividends of accrued market discount. High
portfolio turnover may also involve correspondingly greater transaction costs
in the form of dealer spreads and brokerage commissions, which are borne
directly by the Fund.

MANAGEMENT OF THE FUND

Directors and Officers

The Board of Directors of the Fund consists of eight individuals, six of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act (the "non-interested Directors"). The Trustees are responsible for
the overall supervision of the operations of the Fund and perform the various
duties imposed on the directors of investment companies by the Investment
Company Act.

Information about the Directors, executive officers and the portfolio
manager 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 Director, executive officer and the portfolio manager is P.O.
Box 9011, Princeton, New Jersey 08543-9011.

Terry K. Glenn (58) -- President and Director(1)(2) -- Executive Vice
President of the Investment Adviser and Fund Asset Management, L.P. ("FAM")
(which terms as used herein include their corporate predecessors) since 1983;
Executive Vice President and Director of Princeton Services, Inc. ("Princeton
Services") since 1993; President of Princeton Funds Distributor, Inc. ("PFD")
since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.

Donald Cecil (72) -- Director(2)(3) -- 1114 Avenue of the Americas, New
York, New York 10036. Special Limited Partner of Cumberland Associates (an
investment partnership) since 1982; Member of Institute of Chartered Financial
Analysts; Member and Chairman of Westchester County (N.Y.) Board of
Transportation.

Roland M. Machold (62) -- Director(2)(3) -- 1091 Princeton-Kingston Road,
Princeton, New Jersey 08540. Director of the State of New Jersey Division of
Investment from 1977 to 1998; Trustee of Bryn Mawr College since 1990 and of
Teacher's College, Columbia University since 1985; Co-Chair Emeritus and
Founding Director of the Council of Institutional Investors; Member of the
Capital Formation and Regulatory Processes Advisory Committee of the
Securities and Exchange Commission from 1995 to 1996; Member of the
Institutional Investor Advisory Committee of the New York Stock Exchange from
1992 to 1995.

Edward H. Meyer (72) -- Director(2)(3) -- 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.

20
<PAGE>

Charles C. Reilly (67) -- Director(2)(3) -- 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; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to
1990; Partner, Small Cities Cable Television from 1986 to 1997.

Richard R. West (61) -- Director(2)(3) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, Dean from 1984 to 1993, and currently Dean
Emeritus of New York University Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc. (financial printers), Vornado
Realty Trust, Inc. (real estate holding company), Vornado Operating Company,
Inc. and Alexander's, Inc. (real estate company).

Arthur Zeikel (66) -- Director(1)(2) -- 300 Woodland Avenue, Westfield, New
Jersey 07090. Chairman of the Investment Adviser and FAM from 1997 to 1999 and
President thereof from 1977 to 1997; Chairman of Princeton Services from 1997
to 1999, Director thereof from 1993 to 1999 and President thereof from 1993 to
1997; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") from
1990 to 1999.

Edward D. Zinbarg (64) -- Director(2)(3) -- 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.

Joseph T. Monagle, Jr. (50) -- Senior Vice President(1)(2) -- Senior Vice
President of the Investment Adviser and FAM and Department Head of Global
Fixed Income Division since 1990; Vice President of the Investment Adviser
from 1978 to 1990; Senior Vice President of Princeton Services since 1993.

Romualdo Roldan (52) -- Vice President and Portfolio Manager(1)(2) -- Vice
President of the Investment Adviser since 1998; Senior Vice President of
Santander Investment Securities from 1995 to 1998; Vice President (Emerging
Markets Fixed Income) of J.P. Morgan Securities.

Donald C. Burke (38) -- Vice President and Treasurer(1)(2) -- Senior Vice
President and Treasurer of the Investment Adviser and FAM since 1999; Senior
Vice President and Treasurer of Princeton Services since 1999; First Vice
President of the Investment Adviser from 1997 to 1999; Vice President of PFD
since 1999; Vice President of the Investment Adviser from 1990 to 1997;
Director of Taxation of the Investment Adviser since 1990.

Barbara G. Fraser (55) -- Secretary(1)(2) -- First Vice President of the
Investment Adviser since 1996; Vice President of the Investment Adviser from
1994 to 1996; attorney in private practice from 1991 to 1994.
- ----------
(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
the investment adviser.
(3) Member of the Fund's Audit and Nominating Committee, which is responsible
for the selection of the independent auditors and the selection and
nomination of non-interested Directors.

As of April 1, 1999, the Directors and officers of the Fund as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director of the Fund, Mr. Glenn, an officer
and a Director of the Fund, and the other officers of the Fund owned an
aggregate of less than 1% of the outstanding shares of common stock of ML &
Co.

21
<PAGE>

Compensation of Directors

The Fund pays each non-interested Director a fee of $3,500 per year plus
$500 per Board meeting attended. The Fund also compensates members of its
Audit and Nominating Committee (the "Committee"), which consists of all the
non-interested Directors, a fee of $500 per meeting attended. The Fund pays
the Chairman of the Committee an additional fee of $250 per meeting attended.
The Fund reimburses each non-interested Director for his out-of-pocket
expenses relating to attendance at Board and Committee meetings.

The following table shows the compensation earned by the non-interested
Directors for the fiscal year ended December 31, 1998 and the aggregate
compensation paid to them from all registered investment companies advised by
the Investment Adviser and its affiliate, FAM ("MLAM/FAM-advised funds"), for
the calendar year ended December 31, 1998.

<TABLE>
<CAPTION>
Aggregate
Pension or Estimated Compensation from
Retirement Benefits Annual Fund and Other
Position with Compensation Accrued as Part of Benefits upon MLAM/FAM-
Name Fund from Fund Fund Expense Retirement Advised Funds(1)
- ---- ------------- ------------ ------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Donald Cecil............ Director $8,500 None None $277,808
Roland M. Machold....... Director $1,083(2) None None $ 39,208(2)
Edward H. Meyer......... Director $5,500 None None $214,558
Charles C. Reilly....... Director $7,500 None None $362,858
Richard R. West......... Director $7,500 None None $346,125
Edward D. Zinbarg....... Director $7,500 None None $133,959
</TABLE>
- ----------

(1) The Directors serve on the boards of MLAM/FAM-advised funds as follows:
Mr. Cecil (34 registered investment companies consisting of 34
portfolios); Mr. Machold (19 registered investment companies consisting of
19 portfolios); Mr. Meyer (34 registered investment companies consisting
of 34 portfolios); Mr. Reilly (57 registered investment companies
consisting of 70 portfolios); Mr. West (58 registered investment companies
consisting of 79 portfolios); and Mr. Zinbarg (19 registered investment
companies consisting of 19 portfolios).

(2) Mr. Machold was elected a Director of the Fund and a director or trustee
of certain other MLAM/FAM-advised funds on October 20, 1998.

Directors of the Fund may purchase Class A shares of the Fund at net asset
value. See "Purchase of Shares --Initial Sales Charge Alternatives -- Class A
and Class D Shares -- Reduced Initial Sales Charges -- Purchase Privilege of
Certain Persons."

Management and Advisory Arrangements

Investment Advisory Services. The Investment Adviser provides the Fund with
investment advisory and management services. Subject to the supervision of the
Board of Directors, 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. The Investment Adviser performs
certain of the other administrative services and provides all the office
space, facilities, equipment and necessary personnel for management of the
Fund.

Investment Advisory Fee. The Fund has entered into an investment advisory
agreement with the Investment Adviser (the "Investment Advisory Agreement"),
pursuant to which the Investment Adviser receives for its services to the Fund
monthly compensation at the annual rate of .60% of the average daily net
assets of the Fund plus the principal amount of borrowings incurred for
leveraging purposes. The table below sets forth information about the total
investment advisory fees paid by the Fund to the Investment Adviser for the
periods indicated.

<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Investment Advisory Fee
------------------------------ -----------------------
<S> <C>
1998................ $ 517,793
1997................ $1,056,656
1996................ $1,139,364
</TABLE>

22
<PAGE>

The Investment Adviser has entered into a sub-advisory agreement with
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") pursuant to which
MLAM U.K. provides investment advisory services to the Investment Adviser with
respect to the Fund. The Investment Adviser paid no fees to MLAM U.K. in the
fiscal years ended December 31, 1997 or 1998.

Payment of Fund Expenses. 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 ML & Co. or any of its affiliates. 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, prospectuses and statements
of additional information, except to the extent paid by Merrill Lynch Funds
Distributor, a division of PFD (the "Distributor"); charges of the custodian
and the transfer agent; expenses of redemption of shares; Commission fees;
expenses of registering the shares under Federal, state or foreign securities
laws; fees and expenses of non-interested Directors; accounting and pricing
costs (including the daily calculations 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 for the Fund by the Investment Adviser and the Fund reimburses
the Investment Adviser for its costs in connection with such services. Certain
expenses will be financed by the Fund pursuant to distribution plans in
compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of
Shares -- Distribution Plans."

Organization of the Investment Adviser. The Investment Adviser is a limited
partnership, the partners of which are ML & Co., a financial services holding
company and the parent of Merrill Lynch, 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.

The following entities may be considered "controlling persons" of MLAM U.K.:
Merrill Lynch Europe PLC (MLAM U.K.'s parent), a subsidiary of Merrill Lynch
International Holdings, Inc., a subsidiary of Merrill Lynch International,
Inc., a subsidiary of ML & Co.

Duration and Termination. Unless earlier terminated as described herein, the
Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the Fund or by a majority
of the outstanding shares of the Fund and (b) by a majority of the Directors
who are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contracts are not assignable
and may be terminated without penalty on 60 days' written notice at the option
of either party or by vote of the shareholders of the Fund.

Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Fund's Transfer Agent pursuant
to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer
Agency Agreement, the Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent
receives a fee of $11.00 per Class A or Class D account and $14.00 per Class B
or Class C account and is entitled to reimbursement for certain transaction
charges and out-of-pocket expenses incurred by the Transfer Agent under the
Transfer Agency Agreement. Additionally, a $.20 monthly closed account charge
will be assessed on all accounts which close during the calendar year.
Application of this fee will commence the month following the month the
account is closed. At the end of the calendar year, no further fees will be
due. For purposes of the Transfer Agency Agreement, the term "account"
includes a shareholder account maintained directly by the Transfer Agent and
any other account representing the beneficial interest of a person in the
relevant share class on a recordkeeping system, provided the recordkeeping
system is maintained by a subsidiary of ML & Co.

Distribution Expenses. The Fund has entered into four separate distribution
agreements with the Distributor in connection with the continuous offering of
each class of shares of the Fund (the "Distribution Agreements"). The
Distribution Agreements obligate the Distributor to pay certain expenses in
connection with the offering of

23
<PAGE>

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 above.

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 pre-clear any
personal securities investment (with limited exceptions, such as government
securities). The pre-clearance 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 that at the time is being purchased or sold (as the case may be), or
to the knowledge of the employee is being considered for purchase or sale, by
any fund advised by the Investment Adviser. Furthermore, the Codes provide for
trading "blackout periods" 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).

PURCHASE OF SHARES

Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in the
Prospectus.

The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) 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 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 (also known as service 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 contingent deferred sales charges ("CDSCs"),
distribution fees and account maintenance fees that are imposed on Class B and
Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, are imposed directly against those classes and not against all
assets of the Fund and, accordingly, such charges do 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 are
calculated in the same manner at the same time and differ only to the extent
that account maintenance and distribution fees and any incremental transfer
agency costs relating to a particular class are borne exclusively by that
class. Each class has different exchange privileges. See "Shareholder
Services -- Exchange Privilege."

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

The Merrill Lynch Select Pricing(SM) System is used by more than 50 registered
investment companies advised by MLAM or FAM. Funds advised by MLAM or FAM that
utilize the Merrill Lynch Select Pricing(SM) System are referred to herein as
"Select Pricing Funds."

24
<PAGE>

As a result of the implementation of the Merrill Lynch Select PricingSM
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 privileges and the classes of persons to
whom shares are offered. 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. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently $5.35) to
confirm a sale of shares to such customers. Purchases made directly through
the Transfer Agent are not subject to the processing fee.

Initial Sales Charge Alternatives -- Class A and Class D Shares

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. Although some investors who previously purchased
Class A shares may no longer be eligible to purchase Class A shares of other
Select Pricing Funds, those previously purchased Class A shares, together with
Class B, Class C and Class D share holdings, will count toward a right of
accumulation which may qualify the investor for a reduced initial sales charge
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.

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

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, including participants in a shareholder
account, 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 Select Pricing Funds. Also eligible to
purchase Class A shares at net asset value are participants in certain
investment programs including TMA(SM) Managed Trusts to which Merrill Lynch
Trust Company provides

25
<PAGE>

discretionary trustee services, collective investment trusts for which Merrill
Lynch Trust Company serves as trustee and certain purchases made in connection
with certain fee-based programs. In addition, Class A shares are offered at
net asset value to ML & Co. and its subsidiaries and their directors and
employees and to members of the Boards of MLAM/FAM-advised investment
companies. Certain persons who acquired shares of certain MLAM/FAM-advised
closed-end funds in their initial offerings who wish to reinvest the net
proceeds from a sale of their closed-end fund shares of common stock in shares
of the Fund also may purchase Class A shares of the Fund if certain conditions
are met. In addition, Class A shares of the Fund and certain other Select
Pricing Funds are offered at net asset value to shareholders of Merrill Lynch
Senior Floating Rate Fund, Inc. and, if certain conditions are met, to
shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch
High Income Municipal Bond Fund, Inc. who wish to reinvest the net proceeds
from a sale of certain of their shares of common stock pursuant to a tender
offer conducted by such funds in shares of the Fund and certain other Select
Pricing Funds.

Class A and Class D Sales Charge Information

<TABLE>
<CAPTION>
Class A Shares
---------------------------------------------------------------------------------
For the Fiscal Year Gross Sales Sales Charges Sales Charges CDSCs Received on
Ended Charges Retained by Paid to Redemption of
December 31, Collected Distributor Merrill Lynch Load-Waived Shares
------------------- ----------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
1998 $ 0 $ 0 $ 0 $ 0
1997 $ 515 $ 55 $ 460 $ 0
1996 $ 1,372 $ 135 $ 1,237 $ 0
<CAPTION>
Class D Shares
---------------------------------------------------------------------------------
For the Fiscal Year Gross Sales Sales Charges Sales Charges CDSCs Received on
Ended Charges Retained by Paid to Redemption of
December 31, Collected Distributor Merrill Lynch Load-Waived Shares
------------------- ----------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
1998 $ 7,358 $ 568 $ 6,790 $5,530
1997 $31,118 $2,989 $28,129 $ 0
1996 $45,778 $3,912 $41,866 $ 0
</TABLE>

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.

Reduced Initial Sales Charges

Reinvested Dividends. No initial sales charges are imposed upon Class A and
Class D shares issued as a result of the automatic reinvestment of dividends.

Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value
or cost, whichever is higher, of the purchaser's combined holdings of all
classes of shares of the Fund and of any other Select Pricing 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 Intent. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or
any Select Pricing Funds made within a 13-month period starting with the first
purchase pursuant to a Letter of Intent. The Letter of Intent is available
only to investors whose accounts are established and maintained at the Fund's
Transfer Agent. The Letter of Intent is not available to employee benefit

26
<PAGE>

plans for which Merrill Lynch provides plan participant recordkeeping
services. The Letter of Intent 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 Intent may be
included under a subsequent Letter of Intent 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 Select Pricing Funds presently held, at cost or maximum offering price
(whichever is higher), on the date of the first purchase under the Letter of
Intent, may be included as a credit toward the completion of such Letter, but
the reduced sales charge applicable to the amount covered by such Letter will
be applied only to new purchases. If the total amount of shares does not equal
the amount stated in the Letter of Intent (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 at least 5.0% 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 Intent must be at least
5.0% 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 further reduced percentage sales charge that
would be applicable to a single purchase equal to the total dollar value of
the Class A or Class D shares then being purchased under such Letter, but
there will be no retroactive reduction of the sales charge 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 Intent will be deducted
from the total purchases made under such Letter. An exchange from the Summit
Cash Reserves Fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the Fund.

TMA SM Managed Trusts. Class A shares are offered at net asset value to
TMASM Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services.

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

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. 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.

Purchase Privilege of Certain Persons. Directors of the Fund, members of the
Boards of other MLAM/FAM-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. The Fund realizes
economies of scale and reduction of sales-related expenses by virtue of the
familiarity of these persons with the Fund. Employees and directors or
trustees wishing to purchase shares of the Fund must satisfy the Fund's
suitability standards.

Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor that 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
shares 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 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.

27
<PAGE>

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

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

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

Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond
Fund, Inc. will receive Class D shares of the Fund, except that shareholders
already owning Class A shares of the Fund will be eligible to purchase
additional Class A shares pursuant to this option, if such additional Class A
shares will be held in the same account as the existing Class A shares and 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. 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.

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 personal holding company or a public or private investment company. The
value of the assets or company acquired in a tax-free transaction may be
adjusted in appropriate cases to reduce possible adverse tax consequences to
the Fund that might result from an acquisition of assets having net unrealized
appreciation that is disproportionately higher at the time of acquisition than
the realized or unrealized appreciation of the Fund. The

28
<PAGE>

issuance of Class D shares for consideration other than cash is limited to
bona fide reorganizations, statutory mergers or other acquisitions of
portfolio securities that (i) meet the investment objectives 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).

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.

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 Select Pricing 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. See "Pricing of Shares -- Determination of Net Asset Value" below.

Because no initial sales charges are deducted at the time of the 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 that do
not qualify for the reduction in initial sales charges. Both Class B and Class
C shares are subject to ongoing account maintenance fees and distribution
fees; however, the ongoing account maintenance and distribution fees
potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Fund after a
conversion period of approximately eight years, and thereafter investors will
be subject to lower ongoing fees.

Contingent Deferred Sales Charges -- Class B Shares

Class B shares that are redeemed within four years of purchase may be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. In determining whether a CDSC is applicable to
a redemption, the calculation will be determined in the manner that results in
the lowest applicable rate being charged. 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. It will be assumed
that the redemption is first of shares held for over four years or shares
acquired pursuant to reinvestment of dividends and then of shares held longest
during the four-year period. A transfer of shares from a shareholder's account
to another account will be assumed to be made in the same order as a
redemption.

The following table sets forth the Class B CDSC:

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

29
<PAGE>

To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired
10 additional shares upon 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 charge is applied only to the original cost of
$10 per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
2.0% (the applicable rate in the third year after purchase).

The Class B CDSC may be 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 disability (as
defined in the Internal Revenue Code of 1986, as amended) of a 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 or, if later, reasonably promptly
following completion of probate. The Class B CDSC also may be waived on
redemptions of shares by certain eligible 401(a) and eligible 401(k) plans.
The CDSC may also be waived for any Class B shares that are purchased by
eligible 401(k) or eligible 401(a) plans that are rolled over into a Merrill
Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at
the time of redemption. The Class B CDSC may be waived for any Class B shares
that were acquired and held at the time of the redemption in an Employee
AccessSM Account available through employers providing eligible 401(k) plans.
The Class B CDSC may be waived or its terms may be modified in connection with
certain fee-based programs. The Class B CDSC may also be waived in connection
with involuntary termination of an account in which Fund shares are held or
for withdrawals through the Merrill Lynch Systematic Withdrawal Plan. See
"Shareholder Services -- Fee-Based Programs" and "-- Systematic Withdrawal
Plan."

Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class B shares with a waiver of the
CDSC upon redemption, 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. Such Class B shares will convert into Class D shares approximately ten
years after the plan purchases the first share of any Select Pricing 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.

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 average daily 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 value 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 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 the 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.

In general, Class B shares of equity Select Pricing Funds will convert
approximately eight years after initial purchase and Class B shares of taxable
and tax-exempt fixed income Select Pricing Funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa,

30
<PAGE>

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 on to the holding period for the shares acquired. The Conversion Period
also may be modified for investors that participate in certain fee-based
programs. See "Shareholder Services -- Fee-Based Programs."

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.

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.

Contingent Deferred Sales Charges -- Class C Shares

Class C shares that 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.
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. 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. It will be
assumed that the redemption is first of shares held for over one year or
shares acquired pursuant to reinvestment of dividends and then of shares held
longest during the one-year period. The charge will not be applied to dollar
amounts representing an increase in the net asset value since the time of
purchase. A transfer of shares from a shareholder's account to another account
will be assumed to be made in the same order as a redemption. The Class C CDSC
may be waived in connection with involuntary termination of an account in
which Fund shares are held and withdrawals through the Merrill Lynch
Systematic Withdrawal Plan. See "Shareholder Services -- Systematic Withdrawal
Plans."

Class B and Class C Sales Charge Information

<TABLE>
<CAPTION>
Class B Shares*
----------------------------------------------------------------------------
For the Fiscal Year CDSCs Received CDSCs Paid to
Ended December 31, by Distributor Merrill Lynch
------------------- -------------- -------------
<S> <C> <C>
1998 $173,676 $173,676
1997 $320,570 $320,570
1996 $369,566 $369,566

* Additional Class B CDSCs payable to the Distributor
with respect to the fiscal years ended December 31,
1997 and 1998 may have been waived or converted to a
contingent obligation in connection with a
shareholder's participation in certain fee-based
programs.

<CAPTION>
Class C Shares
----------------------------------------------------------------------------
For the Fiscal Year CDSCs Received CDSCs Paid to
Ended December 31, by Distributor Merrill Lynch
------------------- -------------- -------------
<S> <C> <C>
1998 $ 1,462 $ 1,462
1997 $ 7,621 $ 7,621
1996 $ 4,459 $ 4,459
</TABLE>

Merrill Lynch compensates its Financial Consultants for selling Class B and
Class C shares at the time of purchase from its own funds. 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,

31
<PAGE>

such as the payment of compensation to financial consultants for selling Class
B and Class C shares from the dealer's 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. See "Distribution Plans" below. 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.

Distribution Plans

Reference is made to "Fees and Expenses" 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.

The Distribution Plans for Class B, Class C and Class D shares each provides
that the Fund pay 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 with respect to Class B, Class C and Class D shares.
Each of those classes has exclusive voting rights with respect to the
Distribution Plan adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid (except that Class B
shareholders may vote upon any material changes to expenses charged under the
Class D Distribution Plan).

The Distribution Plans for Class B and Class C shares each provides that the
Fund also pay the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.50%
for Class B and 0.55% for 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.

The Fund's Distribution Plans are subject to the provisions of Rule 12b-1
under the Investment Company Act. 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 each
related class of shareholders. Each Distribution Plan further provides that,
so long as the Distribution Plan remains in effect, the selection and
nomination of 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 reasonable likelihood that each Distribution Plan will benefit the Fund and
its related class of shareholders. Each Distribution Plan can be terminated at
any time, without penalty, by the vote of a majority of the Independent
Directors or by the vote of the holders of a majority of the outstanding
related class of voting securities of the Fund. A Distribution Plan cannot be
amended to increase materially the amount to be spent by the Fund without the
approval of the related class of shareholders and all material amendments are
required to be approved by the vote of Directors, including a majority of the
Independent Directors who have no direct or indirect financial interest in the
Distribution Plan, cast in person at a meeting called for that purpose. Rule
12b-1 further requires that the Fund preserve copies of the Distribution Plan
and any report made pursuant to such plan for a period of not less than six
years from the date of the Distribution Plan or such report, the first two
years in an easily accessible place.

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 and/or distribution fees paid to the
Distributor. 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

32
<PAGE>

connection with their deliberations as to the continuance of the Class B and
Class C Distribution Plans annually, as of December 31 of each year, on a
"fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation.

As of December 31, 1998, the fully allocated accrual expenses incurred by
the Distributor and Merrill Lynch for the period since the commencement of
operations of Class B shares exceeded the fully allocated accrual revenues by
approximately $612,000 (1.83% of Class B net assets at that date). As of
December 31, 1998, direct cash revenues for the period since the commencement
of operations of Class B shares exceeded direct cash expenses by $3,225,733
(9.67% of Class B net assets at that date). As of December 31, 1998, the fully
allocated accrual expenses incurred by the Distributor and Merrill Lynch for
the period since the commencement of operations of Class C shares exceeded the
fully allocated accrual revenues by approximately $6,000 (0.35% of Class C net
assets at that date). As of December 31, 1998, direct cash revenues for the
period since the commencement of operations of Class C shares exceeded direct
cash expenses by $116,547 (6.74% of Class C net assets at that date).

For the fiscal year ended December 31, 1998, the Fund paid the Distributor
$416,636 pursuant to the Class B Distribution Plan (based on average daily net
assets subject to such Class B Distribution Plan of approximately $55.2
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. For the fiscal year ended December 31, 1998, the Fund
paid the Distributor $23,339 pursuant to the Class C Distribution Plan (based
on average daily net assets subject to such Class C Distribution Plan of
approximately $2.9 million), 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,
1998, the Fund paid the Distributor $24,491 pursuant to the Class D
Distribution Plan (based on average daily net assets subject to such Class D
Distribution Plan of approximately $9.7 million), all of which was paid to
Merrill Lynch for providing account maintenance activities in connection with
Class D shares.

Limitations on the Payment of Deferred Sales Charges

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

33
<PAGE>

The following table sets forth comparative information as of December 31,
1998 with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales
charge rule and, with respect to the Class B shares, the Distributor's
voluntary maximum.

<TABLE>
<CAPTION>
Data Calculated as of December 31, 1998
----------------------------------------------------------------------------------
(in thousands)
Annual
Distribution
Allowable Amounts Fee at
Eligible Allowable Interest on Maximum Previously Aggregate Current Net
Gross Aggregate Unpaid Amount Paid to Unpaid Asset
Sales(1) Sales Charge(2) Balance(3) Payable Distributor(4) Balance Level(5)
-------- --------------- ----------- ------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class B Shares for the
period August 27, 1993
(commencement of
operations) to December
31, 1998
Under NASD Rule as
Adopted................ $183,149 $11,332 $4,105 $15,437 $4,454 $10,983 $167
Under Distributor's
Voluntary Waiver....... $183,149 $11,332 $1,031 $12,363 $4,454 $ 7,909 $167

Class C Shares, for the
period October 21, 1994
(commencement of
operations) to December
31, 1998
Under NASD Rule as
Adopted................ $ 10,566 $ 659 $ 140 $ 799 $ 122 $ 677 $ 10
</TABLE>
- ----------
(1) Purchase price of all eligible Class B or Class C shares sold during the
periods indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Includes amounts attributable to exchanges from Summit Cash Reserves Fund
("Summit") which are not reflected in Eligible Gross Sales. Shares of Summit
can only be purchased by exchange from another fund (the "redeemed fund").
Upon such an exchange, the maximum allowable sales charge payment to the
redeemed fund is reduced in accordance with the amount of the redemption.
This amount is then added to the maximum allowable sales charge payment with
respect to Summit. Upon an exchange out of Summit, the remaining balance of
this amount is deducted form the maximum allowable sales charge payment to
Summit and added to the maximum allowable sales charge payment to the fund
into which the exchange is made.
(3) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0%, as permitted under the
NASD Rule.
(4) Consists of CDSC payments, distribution fee payments and accruals. See
"Fees and Expenses" in the Prospectus. This figure may include CDSCs that
were deferred when a shareholder redeemed shares prior to the expiration
of the applicable CDSC period and invested the proceeds, without the
imposition of a sales charge, in Class A shares in conjunction with the
shareholder's participation in the Merrill Lynch Mutual Fund Advisor
(Merrill Lynch MFA SM) Program (the "MFA Program"). The CDSC is booked as a
contingent obligation that may be payable if the shareholder terminates
participation in the MFA Program.
(5) 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 voluntary maximum (with respect to
Class B shares) or the NASD maximum (with respect to Class B and Class C
shares).

REDEMPTION OF SHARES

Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in the
Prospectus.

The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset
value per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no
charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption.

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 any period
during which trading on the New York Stock Exchange (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 in part on the market value of the securities
held by the Fund at such time.

34
<PAGE>

Redemption

A shareholder wishing to redeem shares held with the Transfer Agent may do
so without charge by tendering the shares directly to the Transfer Agent at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-
5289. Redemption requests delivered other than by mail should be delivered to
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Proper notice of redemption in the case of shares
deposited with the Transfer Agent may be accomplished by a written letter
requesting redemption. Proper notice of redemption in the case of shares for
which certificates have been issued may be accomplished by a written letter as
noted above accompanied by certificates for the shares to be redeemed.
Redemption requests should not be sent to the Fund. The redemption request in
either event requires the signature(s) of all persons in whose name(s) the
shares are registered, signed exactly as such name(s) appear(s) on the
Transfer Agent's register. The signature(s) on the redemption requests must be
guaranteed by an "eligible guarantor institution" 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,
payments will be mailed within seven days of receipt of a proper notice of
redemption.

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

Repurchase

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

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 that 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 $5.35) to confirm a
repurchase of shares to such customers. Repurchases made directly through the
Transfer Agent on accounts held at 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. However, a shareholder
whose order for repurchase is rejected by the Fund may redeem Fund shares as
set forth above.

Reinstatement Privilege -- Class A and Class D Shares

Shareholders who have redeemed their Class A or Class D shares of the Fund
have a privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor.
Alternatively, the reinstatement privilege may be exercised through the
investor's Merrill Lynch Financial Consultant within 30 days after the date

35
<PAGE>

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.

PRICING OF SHARES

Determination of Net Asset Value

Reference is made to "How Shares are Priced" in the Prospectus.

The net asset value of the shares of all classes of the Fund is determined
once daily Monday through Friday as of 15 minutes after the close of business
on the NYSE on each day the NYSE is open for trading. The NYSE generally
closes at 4:00 p.m., Eastern time. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation. The NYSE is not open for trading on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

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, rounded to
the nearest cent. Expenses, including the fees payable to the Investment
Adviser and Distributor, are accrued daily.

The per share net asset value of Class B, Class C and Class D shares
generally will be lower than the per share net asset value of Class A shares,
reflecting the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares, and the daily expense accruals of the account maintenance fees
applicable with respect to 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 Class D shares reflecting the daily expense
accruals of the distribution fees and higher transfer agency fees applicable
with respect to Class B and Class C shares of the Fund. Since the distribution
fees borne by Class C shares are higher than the distribution fees borne by
Class B shares, 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. 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, which will differ by approximately the amount of the expense
accrual differentials between the classes.

Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions, and
at the last available ask price for short positions. 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 Directors as the primary
market. Long positions in securities traded in the over-the-counter ("OTC")
market are valued at the last available bid price in the OTC market prior to
the time of valuation. Portfolio securities that are traded both in the OTC
market and on a stock exchange are valued according to the broadest and most
representative market. Short positions in securities traded in the OTC market
are valued at the last available ask price in the OTC market prior to the time
of valuation. When the Fund writes an option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based upon the last sale price in
the case of exchange-traded options or, in the case of options traded in the
OTC market, the last asked price. Options purchased by the Fund are valued at
their last sale price in the case of exchange-traded options or, in the case
of options traded in the OTC market, the last bid price. Other investments,
including financial futures contracts and related options, are 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 Directors of the Fund. Such valuations and
procedures will be reviewed periodically by the Directors.

36
<PAGE>

Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day
at various times prior to the close of business on the NYSE. The values of
such securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may
occur between the times at which they are determined and the close of business
on the NYSE that may not be reflected in the computation of the Fund's net
asset value.

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 and number of shares outstanding on December 31, 1998 is set forth
below.

<TABLE>
<CAPTION>
Class A Class B Class C Class D
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net Assets....................... $1,988,060 $33,373,704 $1,729,864 $6,316,599
========== =========== ========== ==========
Number of Shares Outstanding..... 358,921 6,039,430 313,049 1,143,723
========== =========== ========== ==========
Net Asset Value Per Share (net
assets divided by number of
shares outstanding)............. $ 5.54 $ 5.53 $ 5.53 $ 5.52
Sales Charge (for Class A and
Class D shares: 4.00% of
offering price; 4.17% of net
asset value per share)*......... .23 ** ** .23
---------- ----------- ---------- ----------
Offering Price................... $ 5.77 $ 5.53 $ 5.53 $ 5.75
========== =========== ========== ==========
</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 redemption of shares. See "Purchase of
Shares -- Deferred Sales Charge Alternatives -- Class B and Class C
Shares -- Contingent Deferred Sales Charges -- Class B Shares" and "--
Contingent Deferred Sales Charges--Class C Shares" herein.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to policies established by the Board of Directors the Investment
Adviser is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. The Fund has no obligation to
deal with any dealer or group of dealers in the execution of transactions in
portfolio securities of the Fund. Where possible, the Fund deals directly with
the dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. It is
the policy of the Fund to obtain the best results in conducting portfolio
transactions for the Fund, taking into account such factors as price
(including the applicable dealer spread or commission), the size, type and
difficulty of the transaction involved, the firm's general execution and
operations facilities and the firm's risk in positioning the securities
involved. The portfolio securities of the Fund generally are traded on a
principal basis and normally do not involve either brokerage commissions or
transfer taxes. The cost of portfolio securities transactions of the Fund
primarily consists of dealer or underwriter spreads. While reasonable
competitive spreads or commissions are sought, the Fund will not necessarily
be paying the lowest spread or commission available. Transactions with respect
to the securities of small and emerging growth companies in which the Fund may
invest may involve specialized services on the part of the broker or dealer
and thereby entail higher commissions or spreads than would be the case with
transactions involving more widely traded securities.

Subject to obtaining the best net results, dealers who provide supplemental
investment research (such as information concerning tax-exempt securities,
economic data and market forecasts) 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 its 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. Supplemental investment research
obtained from such dealers might be used by the Investment

37
<PAGE>

Adviser in servicing all of its accounts and all such research might not be
used by the Investment Adviser in connection with the Fund. Consistent with
the Conduct Rules of the NASD and policies established by the 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.

Information about the brokerage commissions paid by the Fund, including
commissions paid to Merrill Lynch, is set forth in the following table:

<TABLE>
<CAPTION>
Aggregate Brokerage Commissions Paid
Fiscal Year Ended December 31, Commissions Paid to Merrill Lynch
------------------------------ ------------------- ----------------
<S> <C> <C>
1998................................ $ 5,590 $1,250
1997................................ $10,309 0
1996................................ $ 3,200 0
</TABLE>

For the fiscal year ended December 31, 1998, the brokerage commissions paid
to Merrill Lynch represented 22.36% of the aggregate brokerage commissions
paid and involved 2.62% of the Fund's dollar amount of transactions involving
payment of commissions during the year.

Under the Investment Company Act, persons affiliated with the Fund and
persons who are affiliated with such persons are prohibited from dealing with
the Fund as principal in the purchase and sale of securities unless a
permissive order allowing such transactions is obtained from the Commission.
Since transactions in the over-the-counter market usually involve transactions
with dealers acting as principal for their own accounts, affiliated persons of
the Fund, including Merrill Lynch and any of its affiliates, will not serve as
the Fund's dealer in such transactions. However, affiliated persons of the
Fund may serve as its broker in listed or over-the-counter transactions
conducted on an agency basis provided that, among other things, the fee or
commission received by such affiliated broker is reasonable and fair compared
to the fee or commission received by non-affiliated brokers in connection with
comparable transactions. In addition, the Fund may not purchase securities
during the existence of any underwriting syndicate for such securities of
which Merrill Lynch is a member or in a private placement in which Merrill
Lynch serves as placement agent except pursuant to procedures adopted by the
Board of Directors of the Fund that either comply with rules adopted by the
Commission or with interpretations of the Commission staff.

Certain court decisions have raised questions as to the extent to which
investment companies should seek exemptions under the Investment Company Act
in order to seek to recapture underwriting and dealer spreads from affiliated
entities. The Directors have considered all factors deemed relevant and have
made a determination not to seek such recapture at this time. The Directors
will reconsider this matter from time to time.

Section 11(a) of the Exchange Act generally prohibits members of the U.S.
national securities exchanges from executing exchange transactions for their
affiliates and institutional accounts that they manage unless the member (i)
has obtained prior express authorization from the account to effect such
transactions, (ii) at least annually furnishes the account with a statement
setting forth the aggregate compensation received by the member in effecting
such transactions, and (iii) complies with any rules the Commission has
prescribed with respect to the requirements of clauses (i) and (ii). To the
extent Section 11(a) would apply to Merrill Lynch acting as a broker for the
Fund in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents have been obtained from
the Fund and annual statements as to aggregate compensation will be provided
to the Fund. Securities may be held by, or be appropriate investments for, the
Fund as well as other funds or investment advisory clients of the Investment
Adviser or FAM.

Because of different objectives or other factors, a particular security may
be bought for one or more clients of the Investment Adviser or an affiliate
when one or more clients of the Investment Adviser or an affiliate are selling
the same security. If purchases or sales of securities arise for consideration
of the Investment Adviser at or about the same time that would involve the
Fund or other clients or funds for which the Investment Adviser or an
affiliate act as adviser, 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 an affiliate 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.

38
<PAGE>

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services and investment plans
described below that are designed to facilitate investment in shares of the
Fund. Full details as to each of such services, copies of the various plans
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, 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 dividends. The
statements will also show any other activity in the account since the
preceding statement. Shareholders will also receive separate confirmations for
each purchase or sale transaction other than automatic investment purchases
and the reinvestment of dividends. A shareholder with an account held at the
Transfer Agent may make additions to his or her Investment Account at any time
by mailing a check directly to the Transfer Agent. A shareholder may also
maintain an account through Merrill Lynch. Upon the transfer of shares out of
a Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name may be opened automatically at the Transfer Agent.

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

Shareholders may transfer their Fund shares from Merrill Lynch to another
securities dealer that has entered into a selected dealer agreement with
Merrill Lynch. All shareholder services will be available for the transferred
shares. After the transfer, the shareholder may purchase additional shares of
funds owned before the transfer and all future trading of these assets must be
coordinated by the new firm. If a shareholder wishes to transfer his or her
shares to a securities dealer that has not entered into a selected dealer
agreement with Merrill Lynch, the shareholder must either (i) redeem his or
her shares, paying any applicable CDSC or (ii) continue to maintain an
Investment Account at the Transfer Agent for those shares. The shareholder may
also request the new securities dealer to maintain the shares in an account at
the Transfer Agent registered in the name of the securities dealer for the
benefit of the shareholder whether the securities dealer has entered into a
selected dealer agreement or not.

Shareholders considering transferring a tax-deferred retirement account,
such as an individual retirement account, from Merrill Lynch to another
securities dealer 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.

Exchange Privilege

U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other Select Pricing Funds and Summit, a series of
Financial Institutions Series Trust, which is a Merrill Lynch-sponsored money
market fund specifically designated for exchange by holders of Class A, Class
B, Class C and Class D shares of Select Pricing Funds. 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. Before effecting an exchange, shareholders should obtain a
currently effective prospectus of the fund into which the exchange is to be
made. Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.

Exchanges of Class A and Class D Shares. Class A shareholders may exchange
Class A shares of the Fund for Class A shares of a second Select Pricing Fund
if the shareholder holds any Class A shares of the second fund in his or her
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 Select
Pricing Fund, but does not hold Class A shares of the second fund in his or
her account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive Class
D shares of the second fund as a result of the exchange. Class D shares also
may be exchanged for

39
<PAGE>

Class A shares of a second Select Pricing 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 D shares are exchangeable
with shares of the same class of other Select Pricing Funds.

Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of other Select Pricing Funds
or Class A shares of Summit ("new Class A or Class D shares"), are transacted
on the basis of relative net asset value per Class A or Class D share,
respectively, plus an amount equal to the difference, if any, between the
sales charge previously paid on the outstanding Class A or Class D shares and
the sales charge payable at the time of the exchange on the new Class A or
Class D shares. With respect to outstanding Class A or Class D shares as to
which previous exchanges have taken place, the "sales charge previously paid"
shall include the aggregate of the sales charges paid with respect to such
Class A or Class D shares in the initial purchase and any subsequent exchange.
Class A or Class D shares issued pursuant to dividend reinvestment are sold on
a no-load basis in each of the funds offering Class A or Class D shares. For
purposes of the exchange privilege, Class A or 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
generally may be exchanged into the Class A or Class D shares, respectively,
of the other funds with a reduced sales charge or without a sales charge.

Exchanges of Class B and Class C Shares. Certain Select Pricing Funds with
Class B or Class C shares outstanding ("outstanding Class B or Class C
shares") offer to exchange their Class B or Class C shares for Class B or
Class C shares, respectively, of certain other Select Pricing Funds or for
Class B shares of Summit ("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 or Class C shares of the fund from which the exchange has been made.
For purposes of computing the CDSC that may be payable on a disposition of the
new Class B or Class C shares, the holding period for the outstanding Class B
or Class C shares is "tacked" to the holding period of the new Class B shares.
For example, an investor may exchange Class B or Class C shares of the Fund
for those of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund")
after having held the Fund's Class B shares for two and a half years. The 2%
CDSC that generally would apply to a redemption would not apply to the
exchange. Three years later the investor may decide to redeem the Class B
shares of Special Value Fund and receive cash. There will be no CDSC due on
this redemption, since by "tacking" the two and a half year holding period of
Fund Class B shares to the three-year holding period for the Special Value
Fund Class B shares, the investor will be deemed to have held the Special
Value Fund Class B shares for more than five years.

Exchanges for Shares of a Money Market Fund. Class A and Class D shares are
exchangeable for Class A shares of Summit and Class B and Class C shares are
exchangeable for Class B shares of Summit. Class A shares of Summit have an
exchange privilege back into Class A or Class D shares of Select Pricing
Funds; Class B shares of Summit have an exchange privilege back into Class B
or Class C shares of Select Pricing Funds and, in the event of such an
exchange, the period of time that Class B shares of Summit are held will count
toward satisfaction of the holding period requirement for purposes of reducing
any CDSC and toward satisfaction of any Conversion Period with respect to
Class B shares. Class B shares of Summit will be subject to a distribution fee
at an annual rate of 0.75% of average daily net assets of such Class B shares.
This exchange privilege does not apply with respect to certain Merrill Lynch
fee-based programs for which alternative exchange arrangements may exist.
Please see your Merrill Lynch Financial Consultant for further information.

Prior to October 12, 1998, exchanges from the Fund and other Select Pricing
Funds into a money market fund were directed to certain Merrill Lynch-
sponsored money market funds other than Summit. Shareholders who have
exchanged Select Pricing Fund shares for shares of such other money market
funds and subsequently wish to exchange those money market fund shares for
shares of the Fund will be subject to the CDSC schedule applicable to such
Fund shares, if any. The holding period for the money market fund shares will
not count toward

40
<PAGE>

satisfaction of the holding period requirement for reduction of the CDSC
imposed on such shares, if any, and, with respect to Class B shares, toward
satisfaction of the Conversion Period. However, the holding period for Class B
or Class C shares received in exchange for such money market fund shares will
be aggregated with the holding period for the original shares for purposes of
reducing the CDSC or satisfying the Conversion Period.

Exchanges by Participants in the MFA Program. 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 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. The
Fund's exchange privilege is also modified with respect to purchases of Class
A and Class D shares by non-retirement plan investors under the 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 Select Pricing 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 Select Pricing
Fund and the sales charge payable on the shares of the Fund being acquired in
the exchange under the MFA Program.

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

Fee-Based Programs

Certain Merrill Lynch fee-based programs, including pricing alternatives for
securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares which will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of
shares held therein or the automatic exchange thereof to another class at net
asset value, which may be shares of a money market fund. In addition, upon
termination of participation in a Program, shares that have been held for less
than specified periods within such Program may be subject to a fee based upon
the current value of such shares. These Programs also generally prohibit such
shares from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance
fees) in order for the investment not to be subject to Program fees.
Additional information regarding a specific Program (including charges and
limitations on transferability applicable to shares that may be held in such
Program) is available in such Program's client agreement and from the Transfer
Agent at 1-800-MER-FUND (1-800-637-3863.)

41
<PAGE>

Retirement Plans

Individual retirement accounts and other retirement plans are available from
Merrill Lynch. Under these plans, investments may be made in the Fund and
certain of the other mutual funds sponsored by Merrill Lynch as well as in
other securities. Merrill Lynch charges an initial establishment fee and an
annual custodial fee for each account. Information with respect to these plans
is available on request from Merrill Lynch. The minimum initial purchase to
establish any such plan is $100, and the minimum subsequent purchase is $1.

Automatic Investment Plans

A 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) or
Class B, Class C or Class D shares at the applicable public offering price.
These purchases may be made 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. The Fund would be authorized,
on a regular basis, to provide systematic additions to the Investment Account
of such shareholder through charges of $50 or more to the regular bank account
of the shareholder by either pre-authorized checks or automated clearing house
debits. For investors who buy shares of the Fund through Blueprint, no minimum
charge to the investor's bank account is required. Alternatively, an investor
that maintains a CMA(R) or CBA(R) account may arrange to have periodic
investments made in the Fund of amounts of $100 or more ($1 or more for
retirement accounts) or more through the CMA(R) or CBA(R) Automated Investment
Program.

Automatic Dividend Reinvestment Plan

Unless specific instructions are given as to the method of payment,
dividends will be automatically reinvested, without sales charge, in
additional full and fractional shares of the Fund. Such reinvestment will be
at the net asset value of shares of the Fund as of the close of business on
the NYSE on the monthly payment date for such dividends. No CDSC will be
imposed upon redemption of shares issued as a result of the automatic
reinvestment of dividends.

Shareholders may, at any time, by written notification to Merrill Lynch if
their account is maintained with Merrill Lynch, or by written notification or
by telephone (1-800-MER-FUND) to the Transfer Agent, if their account is
maintained with the Transfer Agent elect to have subsequent dividends paid in
cash, rather than reinvested in shares of the Fund or vice versa (provided
that, in the event that a payment on an account maintained at the Transfer
Agent would amount to $10.00 or less, a shareholder will not receive such
payment in cash and such payment will automatically be reinvested in
additional shares). Commencing ten days after the receipt by the Transfer
Agent of such notice, those instructions will be effected. The Fund is not
responsible for any failure of delivery to the shareholder's address of record
and no interest will accrue on amounts represented by uncashed dividend
checks. Cash payments can also be directly deposited to the shareholder's bank
account.

Systematic Withdrawal Plan

A shareholder may elect to receive systematic withdrawals from his or her
Investment Account by check or through automatic payment by direct deposit to
his or her bank account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders that have acquired
shares of the Fund having a value, based on cost or the current offering
price, of $5,000 or more, and monthly withdrawals are available for
shareholders with shares having a value of $10,000 or more.

At the time of each withdrawal payment, sufficient 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 the dollar
amount and the class of shares to be redeemed. With respect to shareholders
who hold accounts directly at the Transfer Agent, redemptions will be made at
net asset value as determined 15 minutes after the close of business on the
NYSE (generally, 4:00 p.m., New York time) on the 24th day of each month or
the 24th

42
<PAGE>

day of the last month of each quarter, whichever is applicable. With respect
to shareholders who hold accounts with their broker-dealer, redemptions will
be made at net asset value as determined 15 minutes after the close of
business on the NYSE (generally, 4:00 p.m., New York time) on the first,
second, third, or fourth Monday of each month or the first, second, third, or
fourth Monday of the last month of each quarter, whichever is applicable. If
the NYSE is not open for business on such date, the shares will be redeemed at
the close of business on the following business day. The check for the
withdrawal payment will be made, on the next business day following
redemption. When a shareholder is making systematic withdrawals, dividends on
all shares in the Investment Account are reinvested automatically in Fund
shares. A shareholder's Systematic Withdrawal Plan may be terminated at any
time, without charge or penalty, by the shareholder, the Fund, the Transfer
Agent or the Distributor.

With respect to redemptions of Class B or Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares
that can be redeemed from an account annually shall not exceed 10% of the
value of shares of such class in that account at the time the election to join
the systematic withdrawal plan was made. Any CDSC that otherwise might be due
on such redemption of Class B or Class C shares will be waived. Shares
redeemed pursuant to a systematic withdrawal plan will be redeemed in the same
order as Class B or Class C shares are otherwise redeemed. See "Purchase of
Shares -- Deferred Sales Charge Alternatives -- Class B and Class C Shares."
Where the systematic withdrawal plan is applied to Class B shares, upon
conversion of the last Class B shares in an account to Class D shares, the
systematic withdrawal plan will be applied thereafter to Class D shares if the
shareholder so elects. If an investor wishes to change the amount being
withdrawn in a systematic withdrawal plan the investor should contact his or
her Financial Consultant.

Withdrawal payments should not be considered as dividends. Each withdrawal
is a taxable event. If periodic withdrawals continuously exceed reinvested
dividends, the shareholder's original investment may be reduced
correspondingly. Purchases of additional 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 shares
of the Fund from investors that maintain a Systematic Withdrawal Plan unless
such purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Automatic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.

Alternatively, a shareholder whose shares are held within a CMA(R), CBA(R)
Account or Retirement Account may elect to have shares redeemed on a monthly,
bimonthly, quarterly, semiannual or annual basis through the CMA(R) or CBA(R)
Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$50. The proceeds of systematic redemptions will be posted to the
shareholder's account three business days after the date the shares are
redeemed. All redemptions are made at net asset value. A shareholder may elect
to have his or her shares redeemed on the first, second, third or fourth
Monday of each month, in the case of monthly redemptions, or of every other
month, in the case of bimonthly redemptions. For quarterly, semiannual or
annual redemptions, the shareholder may select the month in which the shares
are to be redeemed and may designate whether the redemption is to be made on
the first, second, third or fourth Monday of the month. If the Monday selected
is not a business day, the redemption will be processed at net asset value on
the next business day. The CMA(R) or CBA(R) Systematic Redemption Program is
not available if Fund shares are being purchased within the account pursuant
to the Automated Investment Program. For more information on the CMA(R) or
CBA(R) Systematic Redemption Program, eligible shareholders should contact
their Merrill Lynch Financial Consultant.

DIVIDENDS AND TAXES

Dividends

It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such investment income are paid annually. All net
realized capital gains, if any, are distributed to the Fund's shareholders at
least annually. Premiums from expired call options written by the Fund and net
gains from closing purchase transactions are treated as short-term capital
gains for Federal income tax purposes. Shareholders may elect in writing to
receive any such dividends in cash. See "Shareholder Services--Automatic
Dividend Reinvestment Plan" for information concerning the manner in which
dividends may be reinvested automatically in shares of the Fund.

43
<PAGE>

Dividends are taxable to shareholders, as described below, whether they are
invested in shares of the Fund or received in cash. The per share dividends
and distributions on Class B and Class C shares will be lower than the per
share dividends on Class A and Class D shares as a result of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to the Class B and Class C shares; similarly, the per share dividends
on Class D shares will be lower than the per share dividends on Class A shares
as a result of the account maintenance fees applicable with respect to the
Class D shares. See "Pricing of Shares --Determination of Net Asset Value."

Taxes

The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). As long as the Fund so qualifies, the
Fund (but not its shareholders) will not be subject to Federal income tax on
the part of its net ordinary income and net realized capital gains that it
distributes to Class A, Class B, Class C and Class D shareholders (together,
the "shareholders"). The Fund intends to distribute substantially all of such
income.

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

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 gains, regardless of the length of time
the shareholder has owned Fund shares. Any loss upon the sale or exchange of
Fund shares held for six months or less will be treated as long-term capital
loss to the extent of any capital gain dividends received by the shareholder.
Distributions in excess of the Fund's earnings and profits will first reduce
the adjusted tax basis of a holder's shares and, after such adjusted tax basis
is reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset). Certain categories of capital gains are
taxable at different rates. Generally not later than 60 days after the close
of its taxable year, the Fund will provide its shareholders with a written
notice designating the amount of any capital gain dividends, as well as any
amount of capital gain dividends in the different categories of capital gain
referred to above.

Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. 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.

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

44
<PAGE>

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.

Ordinary income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult
their own tax advisers concerning applicability of the United States
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 United States may reduce or eliminate such taxes.
Shareholders may be able to claim United States foreign tax credits with
respect to such taxes, subject to certain conditions and limitations contained
in the Code. For example, certain retirement accounts cannot claim foreign tax
credits on investments in foreign securities held in the Fund. In addition,
recent legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend paid by the Fund only if the shareholder meets
certain holding period requirements. The Fund also must meet these holding
period requirements, and if the Fund fails to do so, it will not be able to
"pass through" to shareholders the ability to claim a credit or deduction for
the related foreign taxes paid by the Fund. If the Fund satisfies the holding
period requirements and more than 50% in value of its total assets at the
close of its taxable year consists of securities of foreign corporations, the
Fund will be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
include their proportionate shares of such withholding taxes in their United
States income tax returns as gross income, treat such proportionate shares as
taxes paid by them, and deduct such proportionate shares computing in their
taxable incomes or, alternatively, use them as foreign tax credits against
their United States income taxes. No deductions for foreign taxes, moreover,
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 United States withholding taxes 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 United States 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 and other
information needed to claim the foreign tax credit. 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 the
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.

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

The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield securities"), as described in the Prospectus. Some of
these high yield securities may be purchased at a discount and may therefore
cause the Fund to accrue and distribute income before amounts due under the
obligations are paid. In addition, a portion of the interest payments on such
high yield securities may be treated as dividends for Federal income tax
purposes; in such case, if the issuer of such high yield 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.

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

45
<PAGE>

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

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

The Fund may also invest in asset backed securities, mortgage backed
securities and derivative mortgage backed securities. Because such obligations
could have original issue discount, accrue negative amortization or be
subordinated in the mortgage backed securities structure, these investments
could cause the Fund to accrue and distribute income before or, possibly,
without a corresponding receipt of cash.

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. 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.

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,

46
<PAGE>

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

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 United States Government obligations. State
law varies as to whether dividend income attributable to United States
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 investment in
the Fund.

PERFORMANCE DATA

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

Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on
net investment income and any realized and unrealized capital gains or losses
on portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of each
period. Average annual total return is computed assuming all dividends 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 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 data, may be quoted and (2) the
maximum applicable sales charges will not be included

47
<PAGE>

with respect to annual or annualized rates of return calculations. Aside from
the impact on the performance data calculations of including or excluding the
maximum applicable sales charges, actual annual or annualized total return
data generally will be lower than average annual total return data since the
average rates of return reflect compounding of return; aggregate total return
data generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time. In
order to reflect the reduced sales charges in the case of Class A or Class D
shares or the waiver of the CDSC in the case of Class B or Class C shares
applicable to certain investors, as described under "Purchase of Shares" the
total return data quoted by the Fund in advertisements directed to such
investors may take into account the reduced, and not the maximum, sales charge
or may take into account the waiver of the CDSC and therefore may reflect
greater total return since, due to the reduced sales charges or the waiver of
sales charges, a lower amount of expenses is deducted. The Fund's total return
may be expressed either as a percentage or as a dollar amount in order to
illustrate such total return on a hypothetical $1,000 investment in the Fund
at the beginning of each specified period.

Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield of each security earned during the period by
(b) the average daily number of shares outstanding during the period that were
entitled to receive dividends multiplied by (c) the maximum offering price per
share on the last day of the period.

Set forth in the tables 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 PricingSM 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 are provided below under the caption "Class D."

<TABLE>
<CAPTION>
Class A Shares Class B Shares
----------------------------------- -----------------------------------
Expressed as Redeemable Value Expressed as Redeemable Value
a percentage of a hypothetical a percentage of a hypothetical
based on a $1,000 investment based on a $1,000 investment
hypothetical at the end of hypothetical at the end of
Period $1,000 investment the period $1,000 investment the period
- ------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Average Annual Total Return
(including maximum applicable sales charges)
One Year Ended December
31, 1998............... (38.73)% $ 612.70 (38.84)% $ 611.60
Five Years Ended
December 31, 1998...... -- -- (1.84)% $ 911.30
Inception (October 21,
1994) to December 31,
1998................... 0.31 % $1,013.00 -- --
Inception (August 27,
1993) to
December 31, 1998...... -- -- 0.26 % $1,014.20
<CAPTION>
Annual Total Return
(excluding maximum applicable sales charges)
<S> <C> <C> <C> <C>
Year Ended December 31,
1998.................... (36.18)% $ 638.20 (36.60)% $ 634.00
1997.................... 1.74 % $1,017.40 1.12 % $1,011.20
1996.................... 33.64 % $1,336.40 32.75 % $1,327.50
1995.................... 27.27 % $1,272.70 26.10 % $1,261.00
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,
1998................... 1.30 % $1,013.00 -- --
Inception (August 27,
1993) to
December 31, 1998...... -- -- 1.42 % $1,014.20
<CAPTION>
Yield
<S> <C> <C> <C> <C>
30 days Ended December
31, 1998............... 8.68 % -- 8.31 % --
</TABLE>

48
<PAGE>

<TABLE>
<CAPTION>
Class C Shares Class D Shares
----------------------------------- -----------------------------------
Expressed as Redeemable Value Expressed as Redeemable Value
a percentage of a hypothetical a percentage of a hypothetical
based on a $1,000 investment based on a $1,000 investment
hypothetical at the end of hypothetical at the end of
Period $1,000 investment the period $1,000 investment the period
- ------ ----------------- ----------------- ----------------- -----------------
Average Annual Total Return
(including maximum applicable sales
charges)

<S> <C> <C> <C> <C>
One Year Ended December
31, 1998............... (37.20)% $ 628.00 (38.92)% $ 610.80
Five Years Ended
December 31, 1998...... -- -- (2.17)% $ 896.30
Inception (October 21,
1994) to December 31,
1998................... 0.42 % $1,017.60 -- --
Inception (August 27,
1993) to
December 31, 1998...... -- -- (0.01)% $ 999.30

Annual Total Return
(excluding maximum applicable sales
charges)

Year Ended December 31,
1998.................... (36.64)% $ 633.60 (36.37)% $ 636.30
1997.................... 1.06 % $1,010.60 1.65 % $1,016.50
1996.................... 32.66 % $1,326.60 33.44 % $1,334.40
1995.................... 26.18 % $1,261.80 26.75 % $1,267.50
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

Aggregate Total Return
(including maximum applicable sales
charges)

Inception (October 21,
1994) to December 31,
1998................... 1.76% $1,017.60 -- --
Inception (August 27,
1993)
to December 31, 1998... -- -- (0.07)% $ 999.30

Yield

30 Days Ended December
31, 1998............... 8.24% -- 8.50% --
</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 or Class C
shares applicable to certain investors, as described under "Purchase of
Shares," the total return data quoted by the Fund in advertisements directed
to such investors may take into account the reduced, and not the maximum,
sales charge or may not take into account the CDSC, and, therefore, may
reflect greater total return since, due to the reduced sales charges or the
waiver of CDSCs, a lower amount of expenses may be deducted.

On occasion, the Fund may compare its performance to various indices
including the J.P. Morgan Emerging Market Bond Index-Brady Narrow, Standard &
Poor's 500 Index, the Dow Jones Industrial Average, or to performance data
published by Lipper Analytical Services, Inc., Morningstar Publications, Inc.
("Morningstar"), CDA Investment Technology, Inc., Money Magazine, U.S. News &
World Report, Business Week, Forbes Magazine, Fortune Magazine or other
industry publications. When comparing its performance to a market index, the
Fund may refer to various statistical measures derived from the historic
performance of the Fund and the index such as standard deviation and beta. In
addition, from time to time the Fund may include the Fund's Morningstar risk-
adjusted performance ratings in advertisements 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.

49
<PAGE>

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.

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, 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 of a class will be borne solely by such class.
Stock certificates are issued by the transfer agent only on specific request.
Certificates for fractional shares are not issued in any case.

The 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 proceeds realized by
the Investment Adviser (or any subsequent holder) upon redemption of any of
the shares initially purchased by it will be reduced by the proportional
amount of the unamortized organizational expenses which the number of such
initial shares being redeemed bears to the number of shares initially
purchased.

Independent Auditors

Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the non-interested 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 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

50
<PAGE>

and controlling the Fund's cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Fund's
investments.

Transfer Agent

Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Fund's Transfer Agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the
opening, maintenance and servicing of shareholder accounts. See "How to Buy,
Sell, Transfer and Exchange Shares -- Through the Transfer Agent" in the
Prospectus.

Legal Counsel

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

Reports to Shareholders

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

Shareholder Inquiries

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

51
<PAGE>

Additional Information

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

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

To the knowledge of the Fund, the following persons or entities owned
beneficially 5% or more of a class of the Fund's shares as of April 1, 1999:

<TABLE>
<CAPTION>
Name Address Percent of Class
---- ------- ----------------
<S> <C> <C>
Merrill Lynch Trust Attn: Robert Arimenta Jr. 21.2% of Class A
Company P.O. Box 30532
FBO MLSIP New Brunswick, NJ 08989
Investment Account
1998 Deferred Attn: Victoria Niles 12.2% of Class A
Compensation 400 Atrium Drive; 1st Floor
Somerset, NJ 08873
Bryan N. Ison 48 Maddock Rd., 9.5% of Class A
Titusville, NJ 08560
Drummond Scientific Co. Attn: Mr. R.J. Drummond 5.9% of Class A
Pension Trust UAD 500 Parkway
12/15/64 Broomall, PA 19008
Dr. Sim Fass and 8 Hamlin Road 6.9% of Class C
Mrs. Esther Fass JTWROS Edison, NJ 08817
Granofsky Holdings 2255 Glades Road 6.0% of Class C
America Inc. Suite 324A
Boca Raton, FL 33431
Mr. Stephen D. Sheldon 85/150 Fah Luang Village 5.3% of Class C
Chae NG Wattana Road
501 27 Klongklua Pak Kred Nonthaburi 11120
Thailand
Bio-Technology General Attn: Janice Polites 33.2% of Class D
Corp. 70 Wood Avenue South
Iselin, NJ 08830
</TABLE>

FINANCIAL STATEMENTS

The Fund's audited financial statements are incorporated in this Statement
of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any
business day.

52
<PAGE>

[This page intentionally left blank]

<PAGE>

CODE #: 16800-04-99
<PAGE>

PART C. OTHER INFORMATION

Item 24. Exhibits.

<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1(a) --Amended and Restated Articles of Incorporation of the Registrant.(a)

(b) --Articles of Amendment to the Articles of Incorporation of the
Registrant.(b)

2 --By-Laws of the Registrant.(c)

3 --Copies of instruments defining the rights of shareholders, including
the relevant portions of the Articles of Incorporation, as amended,
and By-Laws of the Registrant.(d)

4(a) --Investment Advisory Agreement between the Registrant and Merrill
Lynch Asset Management, L.P.(e)

(b) --Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P.
and Merrill Lynch Asset Management U.K. Limited.(f)

(c) --Supplement to Investment Advisory Agreement between the Registrant
and Merrill Lynch Asset Management, L.P., dated January 3, 1994.(g)

5(a) --Class A Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(g)

(b) --Class B Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(e)

(c) --Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund
Advisor Program.(e)

(d) --Class C Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(g)

(e) --Class D Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(g)

6 --None.

7 --Custodian Agreement between the Registrant and Brown Brothers
Harriman & Co.(e)

8(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and Merrill Lynch
Financial Data Services, Inc. (now known as Financial Data Services,
Inc.)(e)

(b) --Licence Agreement relating to the use of name between the Registrant
and Merrill Lynch & Co., Inc.(e)

9(a) --Opinion of Brown & Wood, LLP, counsel to the Registrant.(i)

(b) --Consent of Brown & Wood LLP, counsel to the Registrant.

10 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.

11 --None.

12 --Certificate of Merrill Lynch Asset Management, L.P.(a)

13(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.(g)

C-1
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
14(a) --Financial Data Schedule for Class A shares. (j)

(b) --Financial Data Schedule for Class B shares. (j)

(d) --Financial Data Schedule for Class D shares. (j)

15 --Merrill Lynch Select Pricing SM System Plan pursuant to Rule 18f-
3.(h)
</TABLE>
- ----------
(a) Filed on August 20, 1993 as an Exhibit to Pre-Effective Amendment No. 3 to
the Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (File No. 33-64398) (the "Registration
Statement").
(b) Filed on April 28, 1995 as an Exhibit to Post-Effective Amendment No. 3 to
the Registration Statement.
(c) Filed on April 29, 1996 as an Exhibit to Post-Effective Amendment No. 4 to
the Registration Statement.
(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 Registration Statement; Articles of Amendment
to the Articles of Incorporation filed as Exhibit 1(b) to the Registration
Statement; Articles Supplementary to the Articles of Incorporation filed
as Exhibit 1(c) to the Registration Statement; and Article II, Article III
(Sections 1, 2, 3, 5, 6 and 7), Article VI, Article VII, Article XII,
Article XIII and Article XIV of the Registrant's By-Laws filed as Exhibit
2 to the Registration Statement.
(e) Filed on February 18, 1994, as an Exhibit to Post-Effective Amendment No.
1 to the Registration Statement.
(f) Filed on April 29, 1997, as an Exhibit to Post-Effective Amendment No. 5
to the Registration Statement.
(g) Filed on October 17, 1994, as an Exhibit to Post-Effective Amendment No. 2
to the Registration Statement.
(h) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of
1933, as amended, filed on January 25, 1996, relating to shares of Merrill
Lynch New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).

(i) Filed on August 20, 1993 as an Exhibit to Pre-Effective Amendment No. 3 to
the Registration Statement.

(j) Filed on February 26, 1999 as an Exhibit to Post-Effective Amendment No. 7
to the Registration Statement.

Item 24. Persons Controlled by or under Common Control with Registrant.

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

Item 25. Indemnification.

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

Insofar as the conditional advancing of indemnification moneys for actions
based on the Investment Company Act of 1940, as amended (the "1940 Act") may
be concerned, Article VI of the Registrant's By-Laws provides that such
payments will be made only on the following conditions: (i) advances may be
made only on receipt of a written affirmation of such person's good faith
belief that the standard of conduct necessary for indemnification has been met
and a written undertaking to repay any such advance if it is ultimately
determined that the standard of conduct has not been met; and (ii) (a) such
promise must be secured by a security for the undertaking in form and amount
acceptable to the Registrant, (b) the Registrant is insured against losses
arising by receipt by the advance, or (c) 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 at the time the advance is proposed to be made, there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.

In Section 9 of the Class A, Class B, Class C and Class D Shares
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, as
amended (the "1933 Act"), against certain types of civil liabilities arising
in connection with the Registration Statement or Prospectus and Statement of
Additional Information.

C-2
<PAGE>

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

Item 26. Business and Other Connections of the Investment Adviser.

Merrill Lynch Asset Management, L.P. (the "Investment Adviser" or "MLAM"),
acts as the investment adviser for the following open-end registered
investment companies: Merrill Lynch Adjustable Rate Securities Fund, Inc.,
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program,
Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund,
Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund,
Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch Global Growth Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology
Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global
Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund,
Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill
Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable
Series Funds, Inc. and Hotchkis and Wiley funds (advised by Hotchkis and
Wiley, a division of MLAM); and for the following closed-end registered
investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts as sub-adviser to
Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity
Portfolio, two investment portfolios of EQ Advisory Trust.

Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment Adviser,
acts as the investment adviser for the following open-end registered
investment companies: CBA Money Fund, CMA Governmental 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 Corporate High Yield Fund, Inc., Merrill Lynch Emerging Tigers
Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., and The
Municipal Fund Accumulation Program, Inc.; and for the following closed-end
registered investment companies: Apex Municipal Fund, Inc., Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield
Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc.,
Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc.,
MuniAsset Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings
Florida Insured Fund III, MuniHoldings Florida Insured Fund IV, MuniHoldings
Insured Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Michigan
Insured Fund, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings

C-3
<PAGE>

New Jersey Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund III,
Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund,
Inc., MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York
Insured Fund III, Inc., MuniHoldings Pennsylvania Insured Fund, MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida
Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc.,
MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield
California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida
Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc.

The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill
Lynch Funds for Institutions Series and Merrill Lynch Intermediate Government
Bond Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-
2665. The address of FAM, MLAM, Princeton Services, Inc. ("Princeton
Services") and Princeton Administrators, L.P. ("Princeton Administrators") is
also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Princeton
Funds Distributor, Inc. ("PFD") and of Merrill Lynch Funds Distributor
("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 10281-1201. The address of the Fund's
transfer agent, Financial Data Services, Inc. ("FDS"), 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, 1997 for his, her or its own account or in the
capacity of director, officer, partner or trustee. In addition, Mr. Glenn is
President and Mr. Burke is Vice President and Treasurer of all or
substantially all of the investment companies described in the first two
paragraphs of this Item 26, and Messrs. Giordano and Monagle are officers of
one or more of such companies.

<TABLE>
<CAPTION>
Position(s) 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

Jeffrey M. Peek......... President President of FAM; President and Director of
Princeton Services; Executive Vice
President of ML & Co.; Managing Director
and Co-Head of the Investment Banking
Division of Merrill Lynch in 1997; Senior
Vice President and Director of the Global
Securities and Economics Division of
Merrill Lynch from 1995 to 1997
Terry K. Glenn.......... Executive Vice Executive Vice President of FAM; Executive
President Vice President and Director of Princeton
Services; President and Director of PFD;
Director of FDS; President of Princeton
Administrators

Donald C. Burke......... Senior Vice Senior Vice President and Treasurer of FAM;
President, Treasurer Senior Vice President and Treasurer of
and Director of Princeton Services; Vice President of PFD;
Taxation First Vice President of the Investment
Adviser from 1997 to 1999; Vice President
of the Investment Adviser from 1990 to 1997

</TABLE>

C-4
<PAGE>

<TABLE>
<CAPTION>
Position(s) with Other Substantial Business,
Name the Investment Adviser Profession, Vocation or Employment
- ---- --------------------- -------------------------------------------
<S> <C> <C>
Michael G. Clark........ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Treasurer
and Director of PFD; First Vice President
of the Investment Adviser from 1997 to
1999; Vice President of the Investment
Adviser from 1996 to 1997

Mark A. Desario......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services

Linda L. Federici....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services

Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services

Michael J. Hennewinkel.. Senior Vice Senior Vice President, Secretary and
President, General Counsel of FAM; Senior Vice
Secretary and General President of Princeton Services
Counsel

Philip L. Kirstein...... Senior Vice President Senior Vice President of FAM; Senior Vice
President, General Counsel, Director and
Secretary of Princeton Services

Ronald M. Kloss......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services

Debra W. Landsman- Senior Vice President Senior Vice President of FAM; Senior Vice
Yaros................... President of Princeton Services; Vice
President of PFD

Stephen M. M. Miller.... Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services

Joseph T. Monagle, Senior Vice President Senior Vice President of FAM; Senior Vice
Jr. .................... President of Princeton Services

Brian A. Murdock........ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services

Gregory D. Upah......... Senior Vice President Senior Vice President of FAM; Senior Vice
President and Treasurer of Princeton
Services
</TABLE>

Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as sub-
adviser for the following registered investment companies: The Corporate Fund
Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies
Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc.,
Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program,
Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund,
Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Consults International Portfolio, Merrill Lynch Convertible
Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate
High Yield Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Corporate High Yield
Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund,
Merrill Lynch Healthcare Fund, Inc., Merrill Lynch International Equity Fund,
Merrill Lynch Latin

C-5
<PAGE>

America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Real
Estate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch Senior
Floating Rate Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch Utility Income Fund, Inc.,
Merrill Lynch Variable Series Fund, Inc., Merrill Lynch World Income Fund,
Inc., The Municipal Fund Accumulation Program, Inc. and Worldwide DollarVest
Fund, Inc. The address of each of these registered investment companies is
P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of MLAM U.K. is
33 King William Street, London EC4R 9AS, England.

Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since January 1,
1997, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Albert, Burke and Glenn are officers
of one or more of the registered investment companies listed in the first two
paragraphs of this Item 26:

<TABLE>
<CAPTION>
Other Substantial Business,
Name Position with MLAM U.K. Profession, Vocation or Employment
- ---- ----------------------- ----------------------------------
<S> <C> <C>
Terry K. Glenn.......... Chairman and Director Executive Vice President of MLAM and
FAM; Executive Vice President and
Director of Princeton Services;
President and Director of PFD; Director
of FDS; President of Princeton
Administrators
Alan J. Albert.......... Senior Managing Director Vice President of MLAM; Managing
Director of Prime Investment Management
Group of Merrill Lynch Mercury Asset
Management Since 1997; Managing Director
of Merrill Lynch Asset Management U.K.
Limited from 1995 to 1997.
Nicholas C.D. Hall...... Director Director of Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch Mercury
Asset Management Group.
Donald C. Burke......... Treasurer Senior Vice President and Treasurer of
MLAM and FAM; Director of Taxation of
MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President of PFD; First Vice President
of MLAM from 1997 to 1999; Vice
President of MLAM from 1990 to 1997
Carol Ann Langham....... Company Secretary None
Debra Anne Searle....... Assistant Company Secretary None
</TABLE>

Item 27. Principal Underwriters.

(a) MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the open-end registered investment companies
referred to in the first two paragraphs of Item 26 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 registered
investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc.,
Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating
Rate Fund, Inc. A separate division of PFD acts as the principal underwriter
of a number of other investment companies.

C-6
<PAGE>

(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9081,
except that the address of Messrs. Breen, Crook, Fatseas and Wasel is One
Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665.

<TABLE>
<CAPTION>
Position(s) and
Office(s) Position(s) and Office(s)
Name with PFD with Registrant
- ---- --------------- -------------------------
<S> <C> <C>
Terry K. Glenn............. President and Director President and Director
Michael G. Clark........... Treasurer and Director None
Thomas J. Verage........... Director None
Robert W. Crook............ Senior Vice President None
Michael J. Brady........... Vice President None
William M. Breen........... Vice President None
Donald C. Burke............ Vice President Vice President and Treasurer
James T. Fatseas........... Vice President None
Debra W. Landsman-Yaros.... Vice President None
Michelle T. Lau............ Vice President None
Salvatore Venezia.......... Vice President None
William Wasel.............. Vice President None
Robert Harris.............. Secretary None
</TABLE>

Item 28. Location of Accounts and Records.

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

Item 29. Management Services.

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

Item 30. Undertakings.

Not applicable.

C-7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant certifies that it meets all of the requirements
for effectiveness of this registration statement under Rule 485(b) under the
Securities Act and has duly caused this registration statement to be signed on
its behalf by the undersigned, duly authorized, in the Township of Plainsboro,
and State of New Jersey, on the 27th day of April, 1999.

Merrill Lynch Americas Income Fund,
Inc.
(Registrant)

/s/ Donald C. Burke
By: __________________________________

(Donald C. Burke, Vice President
and Treasurer)

Pursuant to the requirements of the Securities Act, this 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>
Terry K. Glenn* President and Director
______________________________________ (Principal Executive
(Terry K. Glenn) Officer)

Donald C. Burke* Vice President and
______________________________________ Treasurer (Principal
(Donald C. Burke) Financial and Accounting
Officer)

Donald Cecil* Director
______________________________________
(Donald Cecil)

Roland M. Machold* Director
______________________________________
(Roland M. Machold)

Edward H. Meyer* Director
______________________________________
(Edward H. Meyer)

Charles C. Reilly* Director
______________________________________
(Charles C. Reilly)

Richard R. West* Director
______________________________________
(Richard R. West)
Arthur Zeikel* Director
______________________________________
(Arthur Zeikel)

Edward D. Zinbarg* Director
______________________________________
(Edward D. Zinbarg)

/s/ Donald C. Burke April 27, 1999
*By: _________________________________
(Donald C. Burke, Attorney-in-Fact)
</TABLE>

C-8
<PAGE>

POWER OF ATTORNEY

The undersigned, the Directors/Trustees and the Officers of each of the
registered investment companies listed below, hereby authorize Terry K. Glenn,
Donald C. Burke, and Joseph T. Monagle, Jr. or any of them, as attorney-in-
fact, to sign on his or her behalf in the capacities indicated any
Registration Statement or amendment thereto (including post-effective
amendments) for each of the following registered investment companies and to
file the same, with all exhibits thereto, with the Securities and Exchange
Commission: Merrill Lynch Americas Income Fund, Inc.; Merrill Lynch Developing
Capital Markets Fund, Inc.; Merrill Lynch Dragon Fund, Inc.; Merrill Lynch
Emerging Tigers Fund, Inc.; Merrill Lynch EuroFund; Merrill Lynch Global
Allocation Fund, Inc.; Merrill Lynch Global Bond Fund for Investment and
Retirement; Merrill Lynch Global Holdings, Inc.; Merrill Lynch Global SmallCap
Fund, Inc.; Merrill Lynch Global Technology Fund, Inc.; Merrill Lynch Global
Value Fund, Inc.; Merrill Lynch Healthcare Fund, Inc.; Merrill Lynch
International Equity Fund; Merrill Lynch Latin America Fund, Inc.; Merrill
Lynch Middle East/Africa Fund, Inc.; Merrill Lynch Pacific Fund, Inc.; Merrill
Lynch Short-Term Global Income Fund, Inc.; Merrill Lynch Technology Fund,
Inc.; and Worldwide DollarVest Fund, Inc.

Dated: April 16, 1999

<TABLE>
<S> <C>
/s/ Terry K. Glenn /s/ Donald C. Burke
- ------------------------------------- -------------------------------------
Terry K. Glenn Donald C. Burke
(President/Principal (Vice President/Treasurer/Principal
Executive Officer/Director/Trustee) Financial and Accounting Officer)

/s/ Donald Cecil /s/ Roland M. Machold
- ------------------------------------- -------------------------------------
Donald Cecil Roland M. Machold
(Director/Trustee) (Director/Trustee)

/s/ Edward H. Meyer /s/ Charles C. Reilly
- ------------------------------------- -------------------------------------
Edward H. Meyer Charles C. Reilly
(Director/Trustee) (Director/Trustee)

/s/ Richard R. West /s/ Arthur Zeikel
- ------------------------------------- _____________________________________
Richard R. West Arthur Zeikel
(Director/Trustee) (Director/Trustee)

/s/ Edward D. Zinbarg
- -------------------------------------
Edward D. Zinbarg
(Director/Trustee)

</TABLE>
C-9
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
9(b) Consent of Brown & Wood, LLP, counsel to the Registrant.
10 Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.

</TABLE>

<PAGE>

EXHIBIT 9(b)

BROWN & WOOD LLP

ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557

TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599

April 27, 1999
Merrill Lynch Americas Income Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536

Ladies and Gentlemen:

We consent to the incorporation by reference in this Post-Effective Amendment
No. 8 to the Registration Statement on Form N-1A (File Nos. 33-64398 and
811-7794) of our opinion dated August 19, 1993 filed on August 20, 1993 as an
Exhibit to Pre-Effective Amendment No. 3 to such 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 LLP

<PAGE>

INDEPENDENT AUDITORS' CONSENT

Merrill Lynch Americas Income Fund, Inc.:

We consent to the incorporation by reference in this Post-Effective Amendment
No. 8 to Registration Statement No. 33-64398 of our report dated February 23,
1999 appearing in the annual report to shareholders of Merrill Lynch Americas
Income Fund, Inc. for the year ended December 31, 1998, and to the reference to
us under the caption "Financial Highlights" in the Prospectus, which is a part
of such Registration Statement.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Princeton, New Jersey
April 22, 1999