MIDDLE EAST AFRICA FUND, N-1A/A, 1994-10-07

MIDDLE EAST AFRICA FUND
N-1A/A, 1994-10-07

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<PAGE>
As filed with the Securities and Exchange Commission on October 7, 1994

Securities Act File No. 33-
Investment Company Act File No. 811-07155

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 1 /x/

(Check appropriate box or boxes)

MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.*
(exact name of registrant as specified in charter)

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

Registrant's Telephone Number, including Area Code (609) 282-2800

Arthur Zeikel
Merrill Lynch Middle East/Africa Fund, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey
Mailing Address: Box 9011, Princeton, New Jersey 08543-9011

Copies to:

Counsel for the Fund: Philip L. Kirstein, Esq.
Brown & Wood Michael J. Hennewinkel, Esq.
One World Trade Center Merrill Lynch Asset Management
New York, New York 10048-0557 Box 9011
Attention: Thomas R. Smith, Jr., Esq. Princeton, New Jersey 08543-9011
Frank P. Bruno, Esq.

Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration
Statement.

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

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

*Formerly Emerging Freedom Fund, Inc.

<PAGE>
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET

<PAGE>
<TABLE>
<CAPTION> N-1A Item No. Location
PART A
<S> <C> <C>
Item 1. Cover Page . . . .

Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Fee Table

Item 3. Condensed Financial Information . . . . . . . . . . Not Applicable

Item 4. General Description of Registrant . . . . . . . . . Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund . . . . . . . . . . . . . . Fee Table; Management of the Fund;
Inside Back Cover Page
Item 5A. Management's Discussion of Fund Performance . . . . Not Applicable

Item 6. Capital Stock and Other Securities . . . . . . . . Cover Page; Additional Information

Item 7. Purchase of Securities Being Offered . . . . . . . Cover Page; Merrill Lynch Select
Pricing/SM/ System; Fee Table;
Purchase of Shares; Shareholder
Services; Additional Information;
Inside Back Cover Page
Item 8. Redemption or Repurchase . . . . . . . . . . . . . Merrill Lynch Select Pricing/SM/
System; Fee Table; Purchase of
Shares; Redemption of Shares

Item 9. Pending Legal Proceedings . . . . . . . . . . . . . Not Applicable

PART B
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page

Item 11. Table of Contents . . . . . . . . . . . . . . . . . Back Cover Page

Item 12. General Information and History . . . . . . . . . . Not Applicable

Item 13. Investment Objective and Policies . . . . . . . . . Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund . . . . . . . . . . . . . . Management of the Fund

Item 15. Control Persons and Principal Holders of Securities Management of the Fund; Additional
Information
Item 16. Investment Advisory and Other Services . . . . . . Management of the Fund; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and Other Practices . . . . . Portfolio Transactions

Item 18. Capital Stock and Other Securities . . . . . . . . General Information--Description of
Shares
Item 19. Purchase, Redemption and Pricing of Securities Being Purchase of Shares; Redemption of
Offered . . . . . . . Shares; Determination of Net Asset
Value; Shareholder Services

Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . Taxes

Item 21. Underwriters . . . . . . . . . . . . . . . . . . . Purchase of Shares

Item 22. Calculation of Performance Data . . . . . . . . . . Performance Data

Item 23. Financial Statements . . . . . . . . . . . . . . . Statement of Assets and Liabilities

</TABLE>
<PAGE>

PART C

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

<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 7, 1994

PROSPECTUS
----------
, 1994
Merrill Lynch Middle East/Africa Fund, Inc.
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 PHONE NO. (609) 282-2800

Merrill Lynch Middle East/Africa Fund, Inc. (the "Fund") is a non-
diversified, open-end management investment company seeking long-term capital
appreciation by investing primarily in equity and debt securities of
corporate and governmental issuers in countries located in the Middle East
and Africa ("Middle Eastern/African countries"). For purposes of its
investment objective, the Fund may invest in the securities of issuers in all
countries in the Middle East and Africa. The Fund expects initially to
emphasize investments in Morocco, South Africa, Turkey and Israel. Under
normal market conditions, at least 65% of the Fund's total assets will be
invested in equity or debt securities of corporate and governmental issuers
in Middle Eastern/African countries. The Fund may employ a variety of
investments and techniques to hedge against market and currency risk. There
can be no assurance that the Fund's investment objective will be achieved.

Investments in securities of issuers in Middle Eastern/African countries
involve special considerations and risks which typically are not present in
investments in the securities of U.S. issuers. The Fund may invest without
limitation in debt securities that are in the lower rating categories or
unrated and may be in default as to payment of principal and/or interest at
the time of acquisition by the Fund. Such securities generally involve
greater volatility of price and risks to principal and income than securities
in the higher rating categories. The Fund also may invest without limitation
in securities that are not readily marketable. See "Risk Factors and Special
Considerations".

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES

COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_____________________

This Prospectus is a concise statement of information about the Fund
that is relevant to making an investment in the Fund. This Prospectus should
be retained for future reference. A statement containing additional
information about the Fund, dated _______, 1994 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
is available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is
hereby incorporated by reference into this Prospectus.
_____________________

Merrill Lynch Asset Management--Manager
Merrill Lynch Funds Distributor, Inc.--Distributor

<PAGE>

(Continued from Cover Page)

Merrill Lynch Funds Distributor, Inc. (the "Distributor"), Box 9011,
Princeton, New Jersey 08543-9011 ((609) 282-2800), and other securities
dealers which have entered into selected dealer agreements with the
Distributor, including Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), will solicit subscriptions for shares of the Fund during a
period expected to end on ___________, 1994, unless extended. On the fifth
business day after the conclusion of the subscription period, the
subscriptions will be payable, the shares will be issued and the Fund will
commence operations. The public offering price of the shares during the
subscription offering will be $10.00 per share in the case of Class B and
Class C shares and $10.00 per share plus a sales charge of 5.25%, subject to
reductions on purchases in single transactions of $_______ or more, in the
case of Class A and Class D shares. After the completion of the initial
subscription offering, the Fund will engage in a continuous offering of its
shares at a price equal to the next determined net asset value per share in
the case of Class B and Class C shares and the next determined net asset
value per share, plus a sales charge subject to reductions as noted above, in
the case of Class A and Class D shares. Shareholders may redeem their shares
at any time at the next determined net asset value. The Class B shares may
be subject to a contingent deferred sales charge (a "CDSC") of up to 4.0% if
redeemed within four years of purchase and are subject to ongoing account
maintenance and distribution fees. The Class C shares may be subject to a
CDSC of 1.0% if redeemed within one year of purchase and are subject to
ongoing account maintenance and distribution fees. The Class D shares are
subject to an ongoing account maintenance fee. The minimum initial purchase
during the subscription and continuous offerings is $(1,000) and the minimum
subsequent purchase in the continuous offering is $(50), except for
retirement plans, where the minimum initial purchase is $(100) and the
minimum subsequent purchase is $(1). Merrill Lynch may charge its customers
a processing fee (presently $4.85) for confirming purchases and repurchases.
Purchases and redemptions directly through Financial Data Services, Inc., the
Fund's transfer agent ("the "Transfer Agent"), are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares".

2
<PAGE>
PROSPECTUS SUMMARY

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

THE FUND

Merrill Lynch Middle East/Africa Fund, Inc. (the "Fund") is a non-
diversified, open-end management investment company investing primarily in
equity and debt securities of corporate and governmental issuers in countries
located in the Middle East and Africa ("Middle Eastern/African countries").

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to seek long-term capital
appreciation by investing primarily in equity and debt securities of
corporate and governmental issuers in Middle Eastern/African countries. For
purposes of its investment objective, the Fund may invest in the securities
of issuers in all countries in the Middle East and Africa. The Fund
initially expects to emphasize investments in Morocco, South Africa, Turkey
and Israel. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in equity or debt securities of corporate and
governmental issuers in Middle Eastern/African countries. For purposes of
the Fund's investment objective and policies, the term "Middle Eastern
countries" includes, but is not limited to: Israel, Jordan, Egypt, Syria,
Lebanon, Turkey, Saudi Arabia, Iraq, Iran, Libya, Kuwait, Qatar, Bahrain,
Yemen and Oman. See "Investment Objective and Policies."

The Fund is authorized to employ a variety of investment techniques to
hedge against market and currency risks, although at the present time
suitable hedging instruments may not be available with respect to securities
of companies or governments in Middle Eastern/African countries at all or on
a timely basis and on acceptable terms. Furthermore, even if hedging
techniques are available, the Fund only will engage in hedging activities
from time to time and may not necessarily be engaging in hedging activities
when market or currency movements occur. There are certain risks associated
with the use of futures and options to hedge investment portfolios. See the
Appendix to this Prospectus--"Futures, Options and Forward Foreign Exchange
Transactions--Risk Factors in Futures, Options and Currency Transactions."

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investment in securities of Middle Eastern/African issuers involves
risks and special considerations not typically associated with investment in
securities of U.S. issuers, including the risks associated with international
investing generally, such as currency fluctuations; the risks of investing in
countries with smaller capital markets, such as limited liquidity, price
volatility and restrictions on foreign investment; and the risks associated
with emerging economies of developing countries, including significant
political and social uncertainties, government involvement in the economies,
reliance upon exports of primary commodities and different legal systems from
the United States. See "Risk Factors and Special Considerations".

3
<PAGE>
nationally recognized statistical rating organizations and unrated securities
of comparable quality are speculative and generally involve greater
volatility of price than securities in higher rating categories. Also, the
Fund may invest in debt securities of corporate or governmental issuers that
are in default. See "Risk Factors and Special Considerations."

THE MANAGER

The Manager acts as an investment adviser for the Fund and provides the
Fund with management services. The Manager or its affiliate, Fund Asset
Management, L.P. ("FAM"), acts as the investment adviser for over 100 other
registered investment companies. The Manager and FAM also offer portfolio
management and portfolio analysis services to individuals and institutions.
As of August 31, 1994, the Manager and FAM had a total of approximately
$165.7 billion in investment company and other portfolio assets under
management, including accounts of certain affiliates of the Manager. See
"Management of the Fund--Management and Advisory Arrangements".

PURCHASE AND REDEMPTION OF SHARES

Shares of the Fund may be purchased during the subscription offering at
$10.00 per share and during the continuous offering at a price equal to the
next determined net asset value per share, plus a sales charge which, at the
election of the purchaser, may be imposed (i) in the case of Class A or Class
D shares, at the time of the purchase or (ii) in the case of Class B or Class
C shares, on a deferred basis. Class D shares pay an ongoing account
maintenance fee, and Class B and Class C shares pay ongoing account
maintenance and distribution fees. See "Purchase of Shares".

Shareholders may redeem their shares at any time at the next determined
net asset value, except that Class B shares may be subject to a CDSC on
shares redeemed within four years of purchase and Class C shares may be
subject to a CDSC on shares redeemed within one year of purchase. See
"Redemption of Shares".

DIVIDENDS

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

DETERMINATION OF NET ASSET VALUE

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

4
<PAGE>
FEE TABLE

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

Class A(a) Class B(b) Class C Class D
--------- --------- ------- ------

SHAREHOLDER TRANSACTION EXPENSES:

Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on
Dividend Reinvestments None None None None
Deferred Sales Charge
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is lower) None(d) 4.0% during 1.0% for None(d)
the first year one year
decreasing 1.0%
annually to 0.0%
after the fourth year
Exchange Fee None None None None

ANNUAL FUND OPERATING
EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS):
Management Fees(e) (1.00)% (1.00)% (1.00)% (1.00)%
Rule 12b-l Fees(f):
Account Maintenance
Fees None 0.(25)% 0.(25)% 0.(25)%
Distribution Fees None 0.(75)% 0.(75)% None
(Class B shares
convert to Class D
shares after approximately
(eight) years and cease being
subject to distribution fees)
Other Expenses
Shareholder Servicing
Costs(e) 0.02% 0.02% 0.02% 0.02%
Custodial Fees 0.41% 0.41% 0.41% 0.41%
Miscellaneous 0.22% 0.22% 0.22% 0.22%
Total Other Expenses 0.65% 0.65% 0.65% 0.65%

Total Fund Operating
Expenses 1.65% 2.65% 2.65% 1.90%
===== ===== ===== =====

(a) Class A shares are sold to a limited group of investors, including
existing Class A shareholders, certain retirement plans and investment
programs. See "Purchase of Shares--Initial Sales Charge Alternatives--
Class A and Class D Shares" on page __.
(b) Class B shares convert to Class D shares automatically approximately
(eight) years after initial purchase. See "Purchase of Shares--Deferred
Sales Charge Alternatives--Class B and Class C shares on page __.
(c) Reduced for purchases of $(10,000) and over. Class A or Class D
purchases of $(1,000,000) or more may not be subject to an initial sales
charge. See "Purchase of Shares--Initial Sales Charge Alternatives--
Class A and Class D Shares" on page __.
(d) Class A and Class D shares are not subject to a CDSC, except that
purchases of $1,000,000 or more which may not be subject to an initial
sales charge instead may be subject to a CDSC if redeemed within the
first year of purchase.
(e) See "Management of the Fund--Management and Advisory Arrangements" on
page __.
(f) See "Purchase of Shares--Distribution Plans" on page __.
(g) See "Management of the Fund--Transfer Agency Services" on page __.

5
<PAGE>
Cumulative Expenses
Paid
for the Period of:
----------------------

1 year 3 years 5 years 10 years
------ ------- ------- --------
EXAMPLE:
An investor would pay the following
expenses on a $1,000 investment
including, the maximum $52.50
initial sales charge (Class A
and Class D shares only)
and assuming (1) The Total Fund
Operating Expenses for each class

set forth above, (2) a 5% annual
return throughout the periods and
(3) redemption at the end
of the period:
Class A $68 $102 $137 $238
Class B $67 $102 $141 $280*
Class C $37 $82 $141 $298
Class D $71 $109 $150 $263

An investor would pay the following expenses
on the same $1,000 investment assuming
no redemption at the end of the period:
Class A $68 $102 $137 $238
Class B $27 $82 $141 $280
Class C $27 $82 $141 $298
Class D $71 $109 $150 $263

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

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

MERRILL LYNCH SELECT PRICING/SM/ SYSTEM

The Fund offers four classes of shares under the Merrill Lynch Select
Pricing/SM/ System. The shares of each class may be purchased during the
subscription offering at $10.00 per share and during the continuous offering
at a price equal to the next determined net asset value per share, subject
during both the subscription offering and the continuous offering to the
sales charges and ongoing fee arrangements described below. Shares of Class
A and Class D are sold to investors choosing the initial sales charge
alternatives, and shares of Class B and Class C are sold to investors
choosing the deferred sales charge alternatives. The Merrill Lynch Select
Pricing System is used by more than 50 mutual funds advised by the Manager or
its affiliate, FAM. Funds advised by the Manager or FAM are referred to
herein as "MLAM-advised mutual funds".

Each Class A, Class B, Class C or Class D share of the Fund represents
an identical interest in the investment portfolio of the Fund and has the
same rights, except that Class B, Class C and Class D shares bear the
expenses of the ongoing account
6
<PAGE>
maintenance fees and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency
costs resulting from the deferred sales charge arrangements. The deferred
sales charges and account maintenance fees that are imposed on Class B and
Class C shares, as well as the account maintenance fees that are imposed on
the Class D shares, will be imposed directly against those classes and not
against all assets of the Fund and, accordingly, such charges will not affect
the net asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by the Fund for each
class of shares will be calculated in the same manner at the same time and
will differ only to the extent that account maintenance and distribution fees
and any incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Each class has different exchange
privileges. See "Shareholder Services--Exchange Privilege".

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

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

<TABLE>
<CAPTION>
Account
Maintenance Distribution Conversion
CLASS SALES CHARGE(1) FEE FEE FEATURE

<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales None None None
charge/(2)/,/(3)/

B CDSC for periods of up to 4 years, 0.(25)% 0.(75)% B Shares convert to
at a rate of 4.0% during the first D shares
year, decreasing 1.0% annually to automatically after
0.0% approximately
(eight) years/(4)/

C 1.0% CDSC for one year 0.(25)% 0.(75)% None

D Maximum 5.25% initial sales 0.(25)% None None
charge/(3)/
__________________________
(1) Initial sales charges are imposed at the time of purchase as a percentage of the offering price.
Contingent deferred sales charges ("CDSCs") are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount to the lesser of the
protects of redemption or the cost of the share being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales Charge Alternatives--
Class A and Class D Shares -- Eligible Class A Investors".
(3) Reduced for purchases of $(10,000) or more. Class A and Class D share purchases of $l,000,000 or
more may not be subject to an initial sales charge but instead may be subject to a CDSC if
redeemed within one year. See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain retirement plans is modified.
Also, Class B shares of certain other MLAM-advised mutual funds into which exchanges may be made
have an (eight) year conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B
shares acquired in the exchange will apply, and the holding period for the shares exchanged will
be tacked onto the holding period for the shares acquired.

</TABLE>
7
<PAGE>
Class A: Class A shares incur an initial sales charge when they are
purchased and bear no ongoing distribution or account maintenance
fees. Class A shares are offered to a limited group of investors
and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A
shares in a shareholder account are entitled to purchase additional
Class A shares in that account. Other eligible investors include
certain retirement plans and participants in certain investment
programs. In addition, Class A shares will be offered to directors
and employees of Merrill Lynch & Co., Inc. ("ML & Co.") and its
subsidiaries (the term "subsidiaries", when used herein with
respect to ML & Co., includes the Manager, FAM and certain other
entities directly or indirectly wholly-owned and controlled by ML &
Co.) and to members of the Boards of MLAM-advised mutual funds.
The maximum initial sales charge is 5.25%, which is reduced for
purchases of $(10,000) and over. Purchases of $1,000,000 or more
are not subject to an initial sales charge but instead may be
subject to a CDSC if the shares are redeemed within one year after
purchase. Sales charges also are reduced under a right of
accumulation which takes into account the investor's holdings of
all classes of all MLAM-advised mutual funds. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D
Shares".

Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of
0.(25)% of the Fund's average net assets attributable to the Class
B shares, an ongoing distribution fee of 0.(75)% and a CDSC if they
are redeemed within four years of purchase. Approximately (eight)
years after issuance, Class B shares will convert automatically
into Class D shares of the Fund, which are subject to the same
account maintenance fee of 0.(25)% but no distribution fee; Class B
shares of certain other MLAM-advised mutual funds into which
exchanges may be made convert into Class D shares automatically
after approximately (ten) years. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund,
the conversion period applicable to the Class B shares acquired in
the exchange will apply, as will the Class D account maintenance
fee of the acquired fund upon the conversion and the holding period
for the shares exchanged will be tacked onto the holding period for
the shares acquired. Automatic conversion of Class B shares into
Class D shares will occur at least once a month on the basis of the
relative net asset values of the shares of the two classes on the
Conversion Date (as defined below), without the imposition of any
sales load, fee or other charge. Conversion of Class B shares to
Class D shares will not be deemed a purchase or sale of the shares
for Federal income tax purposes. Shares purchased through
reinvestment of dividends on Class B shares also will convert
automatically to Class D shares. The conversion period for
dividend reinvestment shares and for certain retirement plans is
modified as described under "Purchase of Shares -- Deferred Sales
Charge Alternatives--Class B and Class C Shares--Conversion of
Class B Shares to Class D Shares".

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

Class D: Class D shares incur an initial sales charge when they are
purchased and are subject to an ongoing account maintenance fee of
0.(25)% of average net assets. Class D shares are not subject to
an ongoing distribution fee
8
<PAGE>
or any CDSC when they are redeemed. The schedule of initial sales
charges and reductions for the Class D shares is the same as the
schedule for Class A shares. Class D shares also will be issued
upon conversion of Class B shares as described above under "Class
B". See "Purchase of Shares--Initial Sales Charge Alternatives --
Class A and Class D Shares".

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

Initial Sales Charge Alternatives. Investors who prefer an initial
sales charge alternative may elect to purchase Class D shares or, if an
eligible investor, Class A shares. Investors choosing the initial sales
charge alternative who are eligible to purchase Class A shares should
purchase Class A shares rather than Class D shares because of the 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 decide 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 that previously purchased Class A
shares may no longer be eligible to purchase Class A shares of other
MLAM-advised mutual funds, those previously purchased Class A shares,
together with Class B, Class C and Class D share holdings, will count toward
a right of accumulation which may qualify the investor for reduced initial
rules charges on new initial sales charge purchases. In addition, the
ongoing Class B and Class C account maintenance and distribution fees will
cause Class B and Class C shares to have higher expense ratios, pay lower
dividends and have lower total returns than the initial sales charge shares.
The ongoing Class D account maintenance fees will cause Class D shares to
have a higher expense ratio, pay lower dividends and have a lower total
return than Class A shares.

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

Certain investors may elect to purchase Class B shares if they determine
it to be most advantageous to have all of their funds invested initially and
intend to hold their shares for an extended period of time. Investors in
Class B shares should take into account whether they intend to redeem their
shares within the CDSC period and, if not, whether they intend to remain
vested until the end of the conversion period and thereby take advantage of
the reduction in ongoing fees resulting from the conversion into Class D
shares. Other investors, however, may elect to purchase Class C shares if
they determine that it is advantageous to have all of their assets invested
initially and they are uncertain as to the length of time they intend to hold
their assets in MLAM-advised mutual funds. Although Class C shareholders are
subject to a shorter CDSC period at a lower rate, they are subject to higher
distribution fees and forgo the Class B conversion feature, making their
investment subject to account maintenance and distribution fees for an
indefinite period of time. In addition, while both Class B and Class C
distribution fees are subject to the limitations on asset-based sales charges
imposed by the NASD, the Class B distribution fees are further limited
9
<PAGE>
under a voluntary waiver of asset-based sales charges. See "Purchase of
Shares--Limitations on the Payment of Deferred Sales Charges".
The Directors of the Fund have determined that currently no conflict of
interest exists between the Class A, Class B, Class C and Class D shares. On
an ongoing basis, the Directors of the Fund, pursuant to their fiduciary
duties under the Investment Company Act of 1940 and state laws, will seek to
assume that no such conflict arises.

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<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS

INVESTING ON AN INTERNATIONAL BASIS

Investing on an international basis involves certain risks not involved
in domestic investments, including fluctuations in foreign exchange rates,
future political and economic developments, and the possible imposition of
exchange controls or other foreign governmental laws or restrictions.
Securities prices in different countries are subject to different economic,
financial, political and social factors. Since the Fund invests heavily in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of
securities in the portfolio and the unrealized appreciation or depreciation
of investments. Currencies of certain Middle Eastern/African countries may
be volatile and therefore may affect the value of securities denominated in
such currencies. In addition, with respect to certain foreign countries,
there is the possibility of expropriation of assets, confiscatory taxation,
difficulty in obtaining or enforcing a court judgment, economic, political or
social instability or diplomatic developments which could affect investments
in those countries. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position. Certain foreign
investments also may be subject to foreign withholding taxes. These risks
often are heightened for investments in smaller, emerging capital markets,
such as those in Middle Eastern/African countries.

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

Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have failed to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in periods when
assets of the Fund are uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems or the risk of intermediary counter party failures could cause the
Fund to miss investment opportunities. The inability to dispose of a
portfolio security due to settlement problems could result either in losses
to the Fund due to subsequent declines in the value of such portfolio
security or, if the Fund has entered into a contract to sell the security,
could result in possible liability to the purchaser.

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

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

RISKS RELATING TO INVESTMENT IN MIDDLE EASTERN/AFRICAN COUNTRIES

Certain of the risks associated with international investments are
heightened for investments in Middle Eastern/African countries. Investment
in the securities of Middle Eastern/African issuers may increase the
volatility of the Fund's net asset value. The securities markets of Middle
Eastern/African countries are significantly smaller than the U.S. securities
markets and have substantially less trading volume, resulting in a lack of
liquidity with high price volatility. Certain markets are in only the
earliest stages of development. There also may be a high concentration of
market capitalization and trading volume in a small number of issuers
representing a limited number of industries, as well as a high concentration
of investors and financial intermediaries. Brokers in Middle Eastern/African
countries typically are fewer in number and less capitalized than brokers in
the United States. The Fund may not invest more than 25% of its total assets
in the sovereign debt securities of any particular Middle Eastern/African
country. These factors, combined with other U.S. regulatory requirements for
open-end investment companies and the restrictions on foreign investment
discussed below, result in potentially fewer investment opportunities for the
Fund, limit the degree to which the Fund may diversify among securities,
industries and countries and may have an adverse impact on the investment
performance of the Fund.

Emerging economies present certain risks that do not exist in more
established economies; especially significant are the political and social
uncertainties that exist for many of the Middle Eastern/African countries.
Many of the Middle Eastern/African countries may be subject to a greater
degree of economic, political and social instability than is the case in the
United States and Western European countries. Such instability may result
from, among other things: (i) authoritarian governments or military
involvement in political and economic decision-making, including changes in
government through extra-constitutional means; (ii) popular unrest associated
with demands for improved political, economic and social conditions; (iii)
internal insurgencies; (iv) hostile relations with neighboring countries; and
(v) ethnic, religious and racial disaffection. For example, South Africa
currently is undergoing the drastic political transformation from a system of
apartheid to one of racial equality and democracy. South Africa is now led
by a national unity government comprised of three partners: the African
National Congress, the National Party and the Inkatha Freedom Party. In the
spring of 1994, Nelson Mandela, the leader of the dominant party in the
government, the African National Congress, became South Africa's first black
president in the country's first all-race elections. The abolition of
apartheid eliminated controversial racial legislation and led to the lifting
of economic sanctions, both of which had burdened South Africa's political
climate and economic structure. Many problems still persist, however, among
them the lingering economic disparity between the black and white
populations, as white citizens continue to hold a greatly disproportionate
portion of the country's wealth. Other difficulties that continue to beset
South Africa include a high rate of unemployment, labor unrest and ongoing
racial tensions. Despite the repeal of economic sanctions and the
government's stated intention to stabilize the economy, anticipated sustained
economic growth has not yet come to fruition.

12
<PAGE>

Certain economies in Middle Eastern/African countries depend to a
significant degree upon exports of primary commodities such as gold, silver,
copper, diamonds and oil and, therefore, are vulnerable to changes in
commodity prices which, in turn, may be affected by a variety of factors. In
addition, governments of many Middle Eastern/African countries have exercised
and continue to exercise substantial influence over many aspects of the
private sector. In certain cases, the government owns or controls many
companies, including the largest in the country. Accordingly, governmental
actions in the future could have a significant effect on economic conditions
in Middle Eastern/African countries, which could affect private sector
companies and the Fund, as well as the value of securities in the Fund's
portfolio.

The legal systems in certain Middle Eastern/African countries also may
have an adverse impact on the Fund. For example, while the potential
liability of a shareholder in a U.S. corporation with respect to acts of the
corporation generally is limited to the amount of the shareholder's
investment, the notion of limited liability is less clear in certain Middle
Eastern/African countries. The Fund, therefore, may be liable in certain
Middle Eastern/African countries for the acts of a corporation in which it
invests for an amount greater than the Fund's actual investment in such
corporation. Similarly, the rights of investors in Middle Eastern/African
issuers may be more limited than those of shareholders of U.S. corporations.
It may be difficult or impossible to obtain and/or enforce a judgment in a
Middle Eastern/African country.

Certain of the risks associated with international investment and
investment in smaller capital markets are heightened for investment in Middle
Eastern/African countries. For example, some of the currencies of Middle
Eastern/African countries have experienced devaluation relative to the U.S.
dollar and major adjustments have been made periodically in certain of such
currencies. Certain Middle Eastern/African countries face serious exchange
constraints.

In addition to the relative lack of publicly available information about
Middle Eastern/African issuers and the possibility that such issuers may not
be subject to the same accounting, auditing and financial reporting standards
as U.S. issuers, inflation accounting rules in some Middle Eastern/African
countries require, for issuers that keep accounting records in the local
currency, for both tax and accounting purposes, that certain assets and
liabilities be restated on the issuer's balance sheet in order to express
items in terms of currency of constant purchasing power. Inflation
accounting indirectly may generate losses or profits for certain Middle
Eastern/African issuers.

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

RESTRICTIONS ON FOREIGN INVESTMENT

Some Middle Eastern/African countries prohibit or impose substantial
restrictions on investments in their capital markets, particularly their
equity markets, by foreign entities such as the Fund. As illustrations,
certain countries may require governmental approval prior to investment by
foreign persons or limit the amount of investment by foreign persons in a
particular issuer or limit the investment by foreign persons to only a
specific class of securities of an issuer which may have less advantageous
terms (including price) than securities of the issuer available for purchase
by nationals. There can be no assurance that the Fund will be able to obtain
required governmental approvals in a timely manner. In addition, changes to
restrictions on foreign ownership of securities subsequent to the Fund's
purchase of such securities may have an
13
<PAGE>
adverse effect on the value of such securities. Certain countries may
restrict investment opportunities in issuers or industries deemed important
to national interests.

The manner in which foreign investors may invest in companies in certain
countries, as well as limitations on such investments, may have an adverse
impact on the operations of the Fund. For example, the Fund may be required
in certain of such countries to invest initially through a local broker or
other entity and then have the shares purchased re-registered in the name of
the Fund. Re-registration in some instances may not be able to occur on a
timely basis, resulting in a delay during which the Fund may be denied
certain of its rights as an investor, including rights as to dividends or to
be made aware of certain corporate actions. There also may be instances
where the Fund places a purchase order but is subsequently informed, at the
time of re-registration, that the permissible allocation of the investment to
foreign investors has been filled, depriving the Fund of the ability to make
its desired investment at that time.

Substantial limitations may exist in certain countries with respect to
the Fund's ability to repatriate investment income, capital or proceeds of
sales of securities by foreign investors. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental
approval for repatriation of capital, as well as by the application to the
Fund of any restrictions on investment.

A number of Middle Eastern/African countries have authorized the
formation of closed-end investment companies to facilitate indirect foreign
investment in their capital markets. There also are investment opportunities
in certain of such countries in pooled vehicles that resemble open-end
investment companies. Under the Investment Company Act, the Fund may invest
up to 10% of its total assets in shares of other investment companies and up
to 5% of its total assets in any one investment company, provided that the
investment does not represent more than 3% of the voting stock of the related
acquired investment company. This restriction on investments in securities
of investment companies may limit opportunities for the Fund to invest
indirectly in certain Middle Eastern/African countries. Shares of certain
investment companies at times may be acquired only at market prices
representing premiums to their net asset values. If the Fund acquires shares
of investment companies or of venture capital funds, shareholders would bear
both their proportionate share of expenses in the Fund (including management
and advisory fees) and, indirectly, the expenses of such investment companies
or venture capital funds. The Fund also may seek, at its own cost, to create
itsowninvestmententitiesunderthelawsof certainMiddleEastern/Africancountries.

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

SOVEREIGN DEBT

Certain developing countries are especially large debtors to commercial
banks and foreign governments. Investment in debt obligations ("sovereign
debt") issued or guaranteed by developing countries or their agencies,
political subdivisions and instrumentalities ("governmental entities")
involves a high degree of risk. The governmental entity that controls the
14
<PAGE>
repayment of sovereign debt may not be able or willing to repay the principal
and/or pay the interest when due in accordance with the terms of such debt.
A governmental entity's willingness or ability to repay principal and pay
interest when due in a timely manner may be affected by, among other factors,
its cash flow situation, the extent of its foreign reserves, the availability
of sufficient foreign exchange on the date a payment is due, the relative
size of the debt service burden to the economy as a whole, the governmental
entity's policy towards the International Monetary Fund and the political
constraints to which a governmental entity may be subject. Governmental
entities also may be dependent on expected disbursements from foreign
governments, multinational agencies and others abroad to reduce principal and
interest arrearage on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be
conditioned on a governmental entity's implementation of economic reforms
and/or economic performance and the timely service of such debtor's
obligations. Failure to implement such reforms, achieve such levels of
economic performance or repay principal or pay interest when due may result
in the cancellation of such third parties' commitments to lend funds to the
governmental entity, which further may impair such debtor's ability or
willingness to service timely its debts. Consequently, governmental entities
may default on their sovereign debt. Holders of sovereign debt securities,
including the Fund, may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which a governmental entity
has defaulted may be collected in whole or in part.

Certain of the sovereign debt securities in which the Fund may invest
involve great risk and are deemed to be the equivalent in terms of quality to
high yield/high risk securities discussed below and are subject to many of
the same risks as such securities. In addition, the Fund's investments in
non-dollar denominated sovereign debt securities are subject to foreign
currency risks. Also, the Fund's investments in dollar denominated sovereign
debt securities are subject to the risk that the issuer may be unable to
obtain, on favorable terms, dollars to service its interest payments and
principal repayments thereon. Similarly, the Fund may have difficulty
disposing of certain sovereign debt securities because there may be a thin
trading market for such securities.

The Fund also may invest in debt securities of supranational entities.
These entities include international organizations designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies. Examples
include the International Bank for Reconstruction and Development (the World
Bank) and the African Development Bank. The government members, or
"stockholders", usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional
capital contributions if the supranational entity is unable to repay its
borrowings.

NO RATING CRITERIA FOR DEBT SECURITIES

The Fund has not established any rating criteria for the debt securities
in which it may invest and such securities may not be rated at all for
creditworthiness. Securities rated in the medium to low rating categories of
nationally recognized statistical rating organizations, such as Standard &
Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's"),
and unrated securities of comparable quality (such lower rated and unrated
securities are referred to herein as "high yield/high risk securities") are
speculative with respect to the capacity to pay interest and repay principal
in accordance with the terms of the security and generally involve a greater
volatility of price than securities in higher rating categories. See the
Appendix to the Statement of Additional Information--"Ratings of Debt
Securities." These securities commonly are referred to as "junk" bonds. In
purchasing such securities, the Fund will rely on the Manager's judgment,
analysis and experience in evaluating the creditworthiness of an issuer of
such securities. The Manager will take into
15
<PAGE>
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. The Fund may
invest in debt securities of corporate or governmental issuers that are in
default as discussed below under "Distressed Securities.'

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

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

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

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

DISTRESSED SECURITIES

The Fund may invest in debt securities of corporate or governmental
issuers that are in default as to repayment of principal and/or payment of
interest at the time of acquisition by the Fund ("Distressed Securities").
Investment in Distressed
16
<PAGE>
Securities is speculative and involves significant risk. The Fund only will
make such investments when the Manager believes it is reasonably likely that
the issuer of the securities will make an exchange offer or will be the
subject of a plan of reorganization, such as the rescheduling or other
restructuring of debt by a corporate or governmental issuer. There can be no
assurance that such an exchange offer will be made or that such a plan of
reorganization will be adopted. In addition, a significant period of time
may pass between the time at which the Fund makes its investment in
Distressed Securities and the time that any such exchange offer or plan of
reorganization is completed. During this period, it is unlikely that the
Fund will receive any interest payments on the Distressed Securities, the
Fund will be subject to significant uncertainty as to whether or not the
exchange offer or plan of reorganization will be completed, and the Fund may
be required to bear certain expenses to protect its interest in the course of
negotiations surrounding any potential exchange offer or plan of
reorganization. In addition, even if an exchange offer is made or a plan of
reorganization is adopted with respect to Distressed Securities held by the
Fund, there can be no assurance that the securities or other assets received
by the Fund in connection with such exchange offer or plan of reorganization
will not have a lower value or income potential than anticipated when the
investment was made. Moreover, any securities received by the Fund upon
completion of an exchange offer or plan of reorganization may be restricted
as to resale. As a result of the Fund's participation in negotiations with
respect to any exchange offer or plan of reorganization with respect to an
issuer of Distressed Securities, the Fund may be precluded from disposing of
such securities.

DERIVATIVE INVESTMENTS

In order to seek to hedge various portfolio positions or to enhance its
return, the Fund may invest in certain instruments which may be characterized
as derivatives. These investments include various types of interest rate
transactions, futures and options. Such investments also may consist of
indexed securities, including inverse securities. The Fund has express
limitations on the percentage of its assets that may be committed to certain
of such investments. Other of such investments have no express quantitative
limitations, although they may be made solely for hedging purposes, not for
speculation, and may in some cases require limitations as to the type of
permissible counter-party to the transaction. Investments in indexed
securities, including inverse securities, subject the Fund to the risks
associated with changes in the particular indices, which may include reduced
or eliminated interest payments and losses of invested principal. Interest
rate transactions involve the risk of an imperfect correlation between the
index used in the hedging transactions and that pertaining to the securities
which are the subject of such transactions. Similarly, utilization of
futures and options transactions involves the risk of imperfect correlation
in movements in the price of futures and options and movements in the price
of the securities or interest rates which are the subject of the hedge. For
a further discussion of the risks associated with these investments, see
"Investment Objective and Policies--Description of Certain Investments--
Indexed and Inverse Securities,", "Other Investment Policies and Practices--
Portfolio Strategies Involving Futures, Options and Forward Foreign Exchange"
and the Appendix to this Prospectus--"Futures, Options and Forward Foreign
Exchange Transactions."

BORROWING

The Fund may borrow up to 331/3% of its total assets, taken at market
value, but only from banks as a temporary measure for extraordinary or
emergency purposes, including to meet redemptions (so as not to force the
Fund to liquidate securities at a disadvantageous time) or to settle
securities transactions. The Fund will not purchase securities while
borrowings exceed 5% of its total assets, except (a) to honor prior
commitments or (b) to exercise subscription rights when outstanding
borrowings have been obtained exclusively for settlements of other securities
transactions. The purchase of
17
<PAGE>
securities while borrowings are outstanding will have the effect of
leveraging the Fund. Such leveraging increases the Fund's exposure to
capital risk, and borrowed funds are subject to interest costs which will
reduce net income.

ILLIQUID SECURITIES

The Fund may invest up to 15% of its total assets in securities that
lack an established secondary trading market or otherwise are considered
illiquid. (However, under the law of certain states, the Fund presently is
limited with respect to such investments to 10% of its total assets).
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 a comparable more liquid security. Investment of the Fund's
assets in illiquid securities may restrict the ability of the Fund to dispose
of its investments in a timely fashion and for a fair price as well as its
ability to take advantage of market opportunities. The risks associated with
illiquidity will be particularly acute in situations in which the Fund's
operations require cash, such as when the Fund redeems shares or pays
dividends, and could result in the Fund borrowing to meet short-term cash
requirements or incurring capital losses on the sale of illiquid investments.
Further, issuers whose securities are not publicly traded are not subject to
the disclosure and other investor protection requirements which would be
applicable if their securities were publicly traded. Illiquid sovereign debt
securities and corporate fixed income and equity securities may trade at a
discount from comparable, more liquid investments. 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. In addition, the Fund may invest in privately placed
securities which may or may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. See
"Investment Objective and Policies--Description of Certain Investments--
Illiquid Securities".

WITHHOLDING AND OTHER TAXES

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

NON-DIVERSIFICATION

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

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FEES AND EXPENSES

The management fee (at the annual rate of (1.00%) of the Fund's average
daily net assets) and other operating expenses of the Fund may be higher than
the management fees and operating expenses of other mutual funds managed by
the Manager and other investment advisers or of investment companies
investing exclusively in the securities of U.S. issuers. The management fees
and operating expenses, however, are believed by the Manager to be comparable
to expenses of other open-end management investment companies that invest
primarily in the securities of issuers in emerging market countries with
investment objectives similar to the investment objective of the Fund.

FOREIGN SUB-CUSTODIANS AND SECURITIES DEPOSITORIES

Rules adopted under the Investment Company Act permit the Fund to
maintain its foreign securities and cash in the custody of certain eligible
non-U.S. banks and securities depositories. Certain banks in foreign
countries may not be eligible sub-custodians for the Fund, in which event the
Fund may be precluded from purchasing securities in certain foreign countries
in which it otherwise would invest or which may result in the Fund's
incurring additional costs and delays in providing transportation and custody
services for such securities outside of such countries. Other banks that are
eligible foreign sub-custodians may be recently organized or otherwise lack
extensive operating experience. In addition, in certain countries there may
be legal restrictions or limitations on the ability of the Fund to recover
assets held in custody by foreign sub-custodians in the event of the
bankruptcy of the sub-custodian.

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INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to seek long-term capital
appreciation by investing primarily in equity and debt securities of
corporate and governmental issuers in countries located in the Middle East
and Africa ("Middle Eastern/African countries"). For purposes of its
investment objective, the Fund may invest in the securities of issuers in all
countries in the Middle East and Africa. Under normal market conditions, at
least 65% of the Fund's total assets will be invested in equity or debt
securities of corporate and governmental issuers in Middle Eastern/African
countries. This investment objective is a fundamental policy of the Fund and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act. The Fund initially expects to emphasize investments in Morocco, South
Africa, Turkey and Israel. The Fund is authorized to employ a variety of
investment techniques to hedge against market and currency risks, although
suitable hedging instruments may not be available on a timely basis and on
acceptable terms. There can be no assurance that the Fund's investment
objective will be achieved.

The Fund only will invest in securities of issuers in Middle
Eastern/African countries that offer market accessibility and sub-custodial
arrangements either inside or outside of such countries that satisfy the
requirements of rules adopted under the Investment Company Act. Currently,
Middle Eastern/African countries where the Fund expects to maintain sub-
custodial arrangements satisfying the Investment Company Act rules include
Morocco, South Africa, Turkey, Jordan, Israel and Mauritius. See "Risk
Factors and Special Considerations--Foreign Sub-custodians and Securities
Depositories." For purposes of the Fund's investment objective and policies,
the term "Middle Eastern countries" includes, but is not limited to: Israel,
Jordan, Egypt, Syria, Lebanon, Turkey, Saudi Arabia, Iraq, Iran, Libya,
Kuwait, Qatar, Bahrain, Yemen and Oman.

The Manager believes that the quickening pace of political, social and
economic change in certain Middle Eastern/African countries creates the
potential for rapid economic growth which may be reflected in the prices of
securities of issuers in such countries. The Manager also believes that
regional growth may result from governmental policies directed toward market
oriented economic reform. In addition, certain Middle Eastern/African
countries have been introducing deregulatory reforms to encourage development
of their securities markets and, in varying degrees, to permit foreign
investment. Nevertheless, investments in Middle Eastern/African countries
are subject to considerable risks. See "Risk Factors and Special
Considerations."

In addition to making equity investments, the Fund seeks capital
appreciation through investment in sovereign and corporate debt securities of
issuers in Middle Eastern/African countries. Such debt securities may be
lower rated or unrated obligations of corporate or sovereign issuers. To the
extent such debt securities are traded in over-the-counter markets, they are
traded by a limited number of dealers. Consequently, these securities may be
less liquid than certain other securities which are traded in over-the-
counter markets. The Fund's investments in sovereign debt consists of debt
securities or obligations issued or guaranteed by foreign governments, their
agencies, instrumentalities and political subdivisions and by entities
controlled or sponsored by such governments. Since such debt securities
frequently trade in the secondary markets at substantial discounts, there is
opportunity for capital appreciation to the extent there is a favorable
change in the market perception of the creditworthiness of the issuer.
Capital appreciation in debt securities also may arise as a result of a
favorable change in relative foreign exchange rates or in relative interest
rate levels. In accordance with its investment objective, the Fund will not
seek to benefit from anticipated short-term fluctuations in currency exchange
rates. The receipt of income from such debt securities is incidental to the
Fund's objective of long-term capital appreciation. The Fund, from time to
time, may invest in debt securities with relatively high yields (as compared
with other debt securities meeting the Fund's investment criteria),
notwithstanding that the Fund may not anticipate that such securities will
experience substantial
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capital appreciation. Such income can be used, however, to offset the
operating expenses of the Fund. Debt securities with relatively high yields
usually are subject to a greater risk of default than other comparable debt
securities with lower yields.

The Fund's investments in high yield/high risk securities include debt
securities, preferred stocks and convertible securities which are rated in
the lower rating categories of the established rating services ("Baa" or
lower by Moody's Investors Service, Inc. ("Moody's") and "BBB" or lower by
Standard & Poor's Corporation ("S&P")), or, if unrated, which are considered
by the Manager to be of comparable quality. Securities rated below "Baa" by
Moody's or below "BBB" by S&P, and unrated securities of comparable quality,
are commonly known as "junk bonds." See "Risk Factors and Special
Considerations--No Rating Criteria for Debt Securities."

Further, the Fund may invest in debt securities that are in default as
to the payment of interest and/or the repayment of principal at the time of
acquisition by the Fund ("Distressed Securities"). The Fund will invest in
Distressed Securities only when the Manager believes it is reasonably likely
that the issuer of the securities will make an exchange offer or will be the
subject of a plan of reorganization, such as the rescheduling or other
restructuring of debt by a corporate or governmental issuer. Capital
appreciation in debt securities may arise as a result of a favorable change
in relative foreign exchange rates, in relative interest rate levels, or in
the creditworthiness of issuers. The receipt of income from such debt
securities is incidental to the Fund's objective of long-term capital
appreciation. See "Risk Factors and Special Considerations--Distressed
Securities."

The Fund may invest in debt securities ("sovereign debt securities")
issued or guaranteed by Middle Eastern/African governments (including Middle
Eastern/African countries, provinces and municipalities) or their agencies
and instrumentalities ("governmental entities"), debt securities issued or
guaranteed by international organizations designated or supported by multiple
foreign governmental entities (which are not obligations of foreign
governments) to promote economic reconstruction or development
("supranational entities"), debt securities issued by corporations or
financial institutions or debt securities issued by the U.S. Government or an
agency or instrumentality thereof. Sovereign debt securities may take the
form of Brady Bonds, which are debt securities issued under the framework of
the Brady Plan, an initiative established in 1989 as a mechanism for debtor
nations to restructure their outstanding external commercial bank
indebtedness. Presently, Nigeria is the only Middle Eastern/African country
which has issued Brady Bonds. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related governmental agencies. Examples include the International Bank
for Reconstruction and Development (the "World Bank") and the African
Development Bank. The governmental members or "stockholders" of a
supranational entity usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional
capital contributions if the supranational entity is unable to repay its
borrowings. The Fund may not invest more than 25% of its total assets in the
sovereign debt securities of any particular Middle Eastern/African country.

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

Investment in shares of the Fund potentially offers several benefits.
Many investors, particularly individuals, lack the information or capability
to invest in Middle Eastern/African countries. It also may not be
permissible for such investors to invest directly in the capital markets of
certain Middle Eastern/African countries. The Fund offers investors the
possibility of obtaining capital appreciation through a portfolio comprised
of securities of Middle Eastern/African issuers. In managing such portfolio,
the Manager will provide the Fund and its shareholders with professional
analysis of investment opportunities and the use of professional money
management techniques. In addition, unlike many intermediary investment
vehicles, such as investment companies that are limited to investment in a
single country, the Fund has the ability to diversify investment risk among
the capital markets of a number of countries. However, until additional
Middle Eastern/African countries become more readily accessible to investment
by foreign entities, the Fund may not be able to diversify investment risk or
realize any potential benefits from diversification.

The Fund will not necessarily seek to diversify investments among Middle
Eastern/African countries and is not limited as to the percentage of assets
it may invest per country. The allocation of the Fund's assets among the
various securities markets of the Middle Eastern/African countries will be
determined by the Manager. Under certain adverse investment conditions, the
Fund may restrict the Middle Eastern/African countries in which its assets
are invested.

A company ordinarily will be considered to be in a Middle
Eastern/African country when it is organized in, or the primary trading
market of its securities is located in, a Middle Eastern/African country.
The Fund may consider a company to be in a Middle Eastern/African country,
without reference to such company's domicile or to the primary trading market
of its securities, when at least 50% of the company's non-current assets,
capitalization, gross revenues or profits in any one of the two most recent
fiscal years represents (directly or indirectly through subsidiaries) assets
or activities located in such countries. The Fund may acquire securities of
companies or governments in Middle Eastern/African countries that are
denominated in currencies other than a Middle Eastern/African country's
currency. The Fund also may consider a debt security that is denominated in
a Middle Eastern/African country's currency to be a security of an issuer in
a Middle Eastern/African country without reference to the principal trading
market of the security or to the location of its issuer. Additionally, the
Fund may consider a derivative product tied to securities or issuers located
in Middle Eastern/African countries to be the security of a Middle
Eastern/African issuer. The Fund may consider investment companies or other
pooled investment vehicles to be located in the country or countries in which
they primarily make their portfolio investments.

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The Fund reserves the right, as a temporary defensive measure or in
anticipation of investment in Middle Eastern/African countries, to hold cash
or cash equivalents (in U.S. dollars or foreign currencies) and short-term
securities including money market securities denominated in U.S. dollars or
foreign currencies ("Temporary Investments").

DESCRIPTION OF CERTAIN INVESTMENTS

Warrants. The Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other
securities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holders to
purchase, and they do not represent any rights in the assets of the issuer.
As a result, an investment in warrants may be considered more speculative
than certain other types of investments. In addition, the value of a warrant
does not necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to its expiration
date.

Convertible Securities. A convertible security is a bond, debenture,
note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest generally paid
or accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged.
Convertible securities have several unique investment characteristics such as
(i) higher yields than common stocks, but lower yields than comparable
nonconvertible securities, (ii) a lesser degree of fluctuation in value than
the underlying stock since they have fixed income characteristics, and (iii)
the potential for capital appreciation if the market price of the underlying
common stock increases. A convertible security might be subject to
redemption at the option of the issuer at a price established in the
convertible security's governing instrument. If a convertible security held
by the Fund is called for redemption, the Fund may be required to permit the
issuer to redeem the security, convert it into the underlying common stock or
sell it to a third party.

Illiquid Securities. The Fund may invest up to 15% of its total assets
in securities that lack an established secondary trading market or otherwise
are considered illiquid. (However, under the laws of certain states, the
Fund presently is limited with respect to such investments to 10% of its
total assets.) The Fund may invest in securities of issuers in Middle
Eastern/African countries that are sold in private placement transactions
between the issuers and their purchasers and that are neither listed on an
exchange nor traded in other established markets. In many cases, privately
placed securities will be subject to contractual or legal restrictions on
transfer. As a result of the absence of a public trading market, privately
placed securities in turn may be less liquid or illiquid and more difficult
to value than publicly traded securities. To the extent that privately
placed securities may be resold in privately negotiated transactions, the
prices realized from the sales, due to illiquidity, could be less than those
originally paid by the Fund or less than their fair market value. In
addition, issuers whose securities are not publicly traded may not be subject
to the disclosure and other investor protection requirements that may be
applicable if their securities were publicly traded. If any privately placed
securities held by the Fund are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund
may be required to bear the expenses of registration. Certain of the Fund's
investments in private placements may consist of direct investments and may
include investments in smaller, less-seasoned issuers, which may involve
greater risks. These issuers may have limited product lines, markets or
financial resources, or they may be dependent on a limited management group.
In making investments in such securities, the Fund may obtain access to
material nonpublic information which may restrict the Fund's ability to
conduct portfolio transactions in such securities.

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The Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under that Act. The Board of Directors has determined to treat as
liquid Rule 144A securities which are freely tradeable in their primary
markets offshore. The Board of Directors may adopt guidelines and delegate
to the Manager the daily function of determining and monitoring liquidity of
restricted securities. The Board of Directors, however, will retain
sufficient oversight and be ultimately responsible for the determinations.

Since it is not possible to predict with assurance exactly how this
market for restricted securities sold and offered under Rule 144A will
develop, the Board of Directors will carefully monitor the Fund's investments
in these securities, focusing on such factors, among others, as valuation,
liquidity and availability of information. This investment practice could
have the effect of increasing the level of illiquidity in the Fund to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these securities.

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

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
generally will be more volatile than the market values of fixed-rate
securities. Management of the Fund believes that indexed securities,
including inverse securities, represent flexible portfolio management
instruments that may allow the Fund to seek potential investment rewards,
hedge other portfolio positions, or vary the degree of portfolio leverage
relatively efficiently under different market conditions.

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

OTHER INVESTMENT POLICIES AND PRACTICES

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Portfolio Strategies Involving Futures, Options and Forward Foreign
Exchange Transactions. The Fund is authorized to engage in various portfolio
strategies to hedge its portfolio against adverse movements in the equity,
debt and currency markets.

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

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

Portfolio Transactions. Subject to policies established by the Board of
Directors of the Fund, the Manager is primarily responsible for the execution
of the Fund's portfolio transactions. Since portfolio transactions may be
effected on foreign securities exchanges, the Fund may incur settlement
delays on certain of such exchanges. See "Risk Factors and Special
Considerations". In executing portfolio transactions, the Manager seeks to
obtain the best net results for the Fund, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), size
of order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Manager generally seeks reasonably competitive fees, commissions or spreads,
the Fund does not necessarily pay the lowest fee, commission or spread
available. The Fund may invest in certain securities traded in the OTC
market and, where possible, will deal directly with the dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such portfolio securities are generally
traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes. Securities firms may receive brokerage
commissions on certain portfolio transactions, including futures, options and
options on futures transactions and the purchase and sale of underlying
securities upon exercise of options. The Fund has no obligation to deal with
any broker or group of brokers in the execution of transactions in portfolio
securities. Subject to obtaining the best price and execution, securities
firms which provide supplemental investment research to the Manager,
including Merrill Lynch, may receive orders for transactions by the Fund.
Information so received will be in addition to and not in lieu of the
services required to be performed by the Manager under the Management
Agreement and the expenses of the Manager will not necessarily be reduced as
a result of the receipt of such supplemental information.

Under the Investment Company Act, persons affiliated with the Fund and
persons who are affiliated with such affiliated persons, including Merrill
Lynch, are prohibited from dealing with the Fund as a principal in the
purchase and sale
25
<PAGE>
of securities unless a permissive order allowing such transactions is
obtained from the Securities and Exchange Commission. Affiliated persons of
the Fund, and affiliated persons of such affiliated persons, may serve as the
Fund's broker in transactions conducted on an exchange and in OTC
transactions conducted on an agency basis and may receive brokerage
commissions from the Fund. In addition, the Fund may not purchase securities
during the existence of any underwriting syndicate for such securities of
which Merrill Lynch is a member except pursuant to procedures approved by the
Board of Directors of the Fund which comply with rules adopted by the
Securities and Exchange Commission. To the extent Merrill Lynch is active in
distributions of securities of issuers in Middle Eastern/African countries,
the Fund may be disadvantaged in that it may not purchase securities in such
distributions. In addition, consistent with the Rules of Fair Practice of
the NASD, the Fund may consider sales of shares of the Fund as a factor in
the selection of brokers or dealers to execute portfolio transactions for the
Fund. It is expected that the majority of the shares of the Fund will be
sold by Merrill Lynch. Costs associated with transactions in foreign
securities are generally higher than in the U.S., although the Fund will
endeavor to achieve the best net results in effecting its portfolio
transactions.

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

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

Lending of Portfolio Securities. The Fund, from time to time, may lend
securities from its portfolio, with a value not exceeding 331/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined
in the Investment Company Act. During the period of such a loan, the Fund
typically receives the income on both the loaned securities and the
collateral and thereby increases its yield. In certain circumstances, the
Fund may receive a flat fee. Such loans are terminable at any time, and the
borrower, after notice, will be required to return borrowed securities within
five business days. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or otherwise,
the Fund could experience delays and costs in gaining access to the
collateral and could suffer a loss to the extent the value of the collateral
falls below the market value of the borrowed securities.

Portfolio Turnover. Generally, the Fund does not purchase securities
for short-term trading profits. However, the Fund may dispose of securities
without regard to the time they have been held when such actions, for
defensive or other reasons, appear advisable to the Manager in light of a
change in circumstances in general market, economic or financial conditions.
As a result of its investment policies, the Fund may engage in a substantial
number of portfolio transactions. Accordingly, while the Fund anticipates
that its annual portfolio turnover rate should not exceed 100% under normal
conditions, it is impossible to predict portfolio turnover rates. The
portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of securities whose maturities at the time of acquisition were one year
or less) by the monthly average value of the securities in the portfolio
during the year. A high portfolio turnover rate involves certain tax
consequences and correspondingly greater transaction costs in the form of
dealer spreads and brokerage commissions, which are borne directly by the
Fund.

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OTHER INVESTMENT STRATEGIES

When-Issued Securities and Forward Commitment Transactions. The Fund
may purchase securities on a "when-issued" basis, and it may purchase or sell
securities through a forward commitment. When such transactions are
negotiated, the price is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date; this is
to secure what is considered an advantageous yield and price to the Fund at
the time of entering into the transaction. When-issued securities and
forward commitments may be sold prior to the settlement date, but the Fund
will enter into when-issued transactions and forward commitments only with
the intention of actually receiving or delivering the securities, as the case
may be. If the Fund disposes of the right to acquire a when-issued security
prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it can incur a gain or loss. Although the Fund
has not established any limit on the percentage of its assets that may be
committed in connection with such transactions, at the time the Fund enters
into a transaction on a when-issued or forward commitment basis, it will
maintain with the custodian a segregated account of cash, cash equivalents,
U.S. Government securities or other high grade liquid debt securities
denominated in U.S. dollars or non-U.S. currencies with a value of not less
than the value of the when-issued or forward commitment securities. The
value of these assets will be monitored daily to ensure that their marked-
to-market value at all times will exceed the corresponding obligations of the
Fund. There is always a risk that the securities may not be delivered, and
the Fund may incur a loss. Settlements in the ordinary course, which may
take substantially more than five business days, are not treated by the Fund
as when-issued or forward commitment transactions and accordingly are not
subject to the foregoing restrictions.

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

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

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

27
<PAGE>

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

Repurchase Agreements and Purchase and Sale Contracts. The Fund may
invest in securities pursuant to repurchase agreements or purchase and sale
contracts. Repurchase agreements may be entered into only with a member bank
of the Federal Reserve System or a primary dealer in U.S. Government
securities, or an affiliate thereof. Purchase and sale contracts may be
entered into only with financial institutions which have capital of at least
$50 million or whose obligations are guaranteed by an entity having capital
of at least $50 million. Under such agreements, the other party agrees, upon
entering into the contract with the Fund, to repurchase the security at a
mutually agreed upon time and price in a specified currency, thereby
determining the yield during the term of the agreement. This results in a
fixed rate of return insulated from market fluctuations during such period
although it may be affected by currency fluctuations. In the case of
repurchase agreements, the price at which the trades are conducted do not
reflect accrued interest on the underlying obligation; whereas, in the case
of purchase and sale contracts, the prices take into account accrued
interest. Such agreements usually cover short periods, such as under one
week. Repurchase agreements may be construed to be collateralized loans by
the purchaser to the seller secured by the securities transferred to the
purchaser. In the case of a repurchase agreement, as a purchaser, the Fund
will require the seller to provide additional collateral if the market value
of the securities falls below the repurchase price at any time during the
term of the repurchase agreement; the Fund does not have the right to seek
additional collateral in the case of purchase and sale contracts. In the
event of default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by the Fund but
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs or
possible losses in connection with the disposition of the collateral. A
purchase and sale contract differs from a repurchase agreement in that the
contract arrangements stipulate that the securities are owned by the Fund.
In the event of a default under such a repurchase agreement or under a
purchase and sale contract, instead of the contractual fixed rate, the rate
of return to the Fund would be dependent upon intervening fluctuations of the
market values of such securities and the accrued interest on the securities.
In such event, the Fund would have rights against the seller for breach of
contract with respect to any losses arising from market fluctuations
following the failure of the seller to perform. Repurchase agreements and
purchase and sale contracts maturing in more than seven days are deemed to be
illiquid by the Securities and Exchange Commission and are therefore subject
to the Fund's investment restriction limiting investments in securities that
are not readily marketable to 15% of the Fund's total assets. (However,
under the law of certain states, the Fund presently is limited with respect
to such investments to 10% of its total assets.) See "Investment
Restrictions" below.

28
<PAGE>
INVESTMENT RESTRICTIONS

The Fund's investment activities are subject to further restrictions
that are described in the Statement of Additional Information. Investment
restrictions and policies which are fundamental policies may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company
Act means the lesser of (a) 67% of the shares represented at a meeting at
which more than 50% of the outstanding shares are represented or (b) more
than 50% of the outstanding shares). Among its fundamental policies, the
Fund may not invest more than 25% of its total assets, taken at market value
at the time of each investment, in the securities of issuers in any
particular industry (excluding the U.S. Government and its agencies and
instrumentalities). Investment restrictions and policies that are non-
fundamental policies may be changed by the Board of Directors without
shareholder approval. As a non-fundamental policy, the Fund may not borrow
money or pledge its assets, except that the Fund (a) may borrow from a bank
as a temporary measure for extraordinary or emergency purposes or to meet
redemptions in amounts not exceeding 33 1/3% (taken at market value) of its
total assets and pledge its assets to secure such borrowings, (b) may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (c) may purchase securities on margin to
the extent permitted by applicable law. (However, at the present time,
applicable law prohibits the Fund from purchasing securities on margin.) (The
deposit or payment by the Fund of initial or variation margin in connection
with financial futures contracts or options transactions is not considered to
be the purchase of a security on margin.) The purchase of securities while
borrowings are outstanding will have the effect of leveraging the Fund. Such
leveraging or borrowing increases the Fund's exposure to capital risk, and
borrowed funds are subject to interest costs which will reduce net income.

As a non-fundamental policy, the Fund will not invest in securities
which cannot readily be resold because of legal or contractual restrictions
or which are not otherwise readily marketable, including repurchase
agreements and purchase and sale contracts maturing in more than seven days,
if, regarding all such securities, more than 15% of its total assets (or 10%
of its total assets as presently required by certain state law) taken at
market value would be invested in such securities. Notwithstanding the
foregoing, the Fund may purchase without regard to this limitation securities
that are not registered under the Securities Act, but that can be offered and
sold to "qualified institutional buyers" under Rule 144A under the Securities
Act, provided that the Fund's Board of Directors continuously determines,
based on the trading markets for the specific Rule 144A security, that it is
liquid. The Board of Directors may adopt guidelines and delegate to the
Manager the daily function of determining and monitoring liquidity of
restricted securities. The Board has determined that securities which are
freely tradeable in their primary market offshore should be deemed liquid.
The Board, however, will retain sufficient oversight and be ultimately
responsible for the determinations.

NON-DIVERSIFIED STATUS

The Fund is classified as non-diversified within the meaning of the
Investment Company Act, which means that the Fund is not limited by such Act
in the proportion of its assets that it may invest in securities of a single
issuer. The Fund's investments will be limited, however, in order to qualify
as a "regulated investment company" for purposes of the Code. See "Taxes."
To qualify, the Fund will comply with certain requirements, including
limiting its investments so that at the close of each quarter of the taxable
year (i) not more than 25% of the market value of the Fund's total assets
will be invested in the securities of a single issuer and (ii) with respect
to 50% of the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the securities of a
single issuer, and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer. A fund which elects to be classified
as "diversified" under the Investment Company Act must satisfy the foregoing
5% and 10% requirements with respect to 75% of its total assets. To
29
<PAGE>
the extent that the Fund assumes large positions in the securities of a small
number of issuers, the Fund's net asset value may fluctuate to a greater
extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers, and the
Fund may be more susceptible to any single economic, political or regulatory
occurrence than a diversified company.

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

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

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

The Directors of the Fund are:

ARTHUR ZEIKEL (1)(2) -- President and Chief Investment Officer of the
Manager and FAM; President and Director of Princeton Services, Inc.
("Princeton Services"); Executive Vice President of ML & Co.; Executive Vice
President of Merrill Lynch; Director of the Distributor.

(OTHER DIRECTORS TO BE PROVIDED BY AMENDMENT)

__________________
(1) Interested person, as defined in the Investment CompanyAct, of the Fund.
(2) Such Director is a director of one or more other investment companies
for which the Manager or FAM acts as investment adviser or manager.

MANAGEMENT AND ADVISORY ARRANGEMENTS

Merrill Lynch Asset Management, L.P. (the "Manager") acts as the manager
of the Fund and provides the Fund with management and investment advisory
services. The Manager is owned and controlled by ML & Co., a financial
services holding company and the parent of Merrill Lynch. The Manager, or an
affiliate of the Manager, FAM, acts as the investment adviser to more than
100 other registered investment companies and provides investment advisory
services to individual and institutional accounts. As of August 31, 1994,
the Manager and FAM had a total of approximately $165.7 billion in investment
company and other portfolio assets under management, including accounts of
certain affiliates of the Manager. In addition to such assets under
management, as of that date ML & Co. and its subsidiaries held assets
aggregating over ($500) billion on behalf of their customers. The principal
business address of the Manager is 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.

30
<PAGE>

The Fund has entered into a management agreement (the "Management
Agreement") with the Manager. The Management Agreement provides that,
subject to the direction of the Board of Directors of the Fund, the Manager
is responsible for the actual management of the Fund's portfolio and
constantly reviews the Fund's holdings in light of its own research analysis
and that from other relevant sources. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Manager,
subject to review by the Board of Directors. The Manager provides the
portfolio managers for the Fund, who consider analyses from various sources
(including brokerage firms with which the Fund does business), make the
necessary investment decisions and place orders for transactions accordingly.
The Manager also is obligated to perform certain administrative and
management services for the Fund and is obligated to provide all of the
office space, facilities, equipment and personnel necessary to perform its
duties under the Management Agreement.

For the services rendered, the facilities furnished and the expenses
assumed by the Manager under the Management Agreement, the Fund pays the
Manager a monthly fee at the annual rate of (1.00)% of the Fund's average
weekly net assets ("average weekly net assets" means the average weekly value
of the total assets of the Fund minus the sum of (i) accrued liabilities of
the Fund and (ii) any accrued and unpaid interest on outstanding borrowings).
For purposes of this calculation, average weekly net assets are determined at
the end of each month on the basis of the average net assets of the Fund for
each week during the month. The assets for each weekly period are determined
by averaging the net assets at the last business day of a week with the net
assets at the last business day of the prior week.

The Fund pays certain expenses incurred in its operations, including,
among other things, the investment advisory fees; legal and audit fees;
unaffiliated Directors' fees and expenses; registration fees; custodian and
transfer agency fees; accounting and pricing costs; and certain of the costs
of printing proxies, shareholder reports, prospectuses and statements of
additional information. Also, accounting services are provided to the Fund
by the Manager, and the Fund reimburses the Manager for its costs in
connection with such services on a semi-annual basis.

Grace Pineda is a Vice President of and Portfolio Manager for the Fund.
Ms Pineda has been a Vice President of the Manager since 1989. Prior to
joining the Manager, Ms. Pineda was a portfolio manager with Clemente
Capital, Inc.

TRANSFER AGENCY SERVICES

Financial Data Services, Inc. (the "Transfer Agent"), which is a
wholly-owned subsidiary of ML & Co., acts as the Fund's transfer agent
pursuant to a transfer agency, dividend disbursing agency and shareholder
servicing agency agreement (the "Transfer Agency Agreement"). Pursuant to
the Transfer Agency Agreement, the Transfer Agent is responsible for the
issuance, transfer and redemption of shares and the opening and maintenance
of shareholder accounts. Pursuant to the Transfer Agency Agreement, the
Transfer Agent receives an annual fee of $11.00 per Class A or Class D
shareholder account, $14.00 per Class B or Class C shareholder account and
nominal miscellaneous fees (e.g., account closing fees), and the Transfer
Agent is entitled to reimbursement for out-of-pocket expenses incurred by the
Transfer Agent under the Transfer Agency Agreement.

31
<PAGE>
PURCHASE OF SHARES

SUBSCRIPTION OFFERING

Merrill Lynch Funds Distributor, Inc. (the "Distributor"), a subsidiary
of the Manager and an affiliate of both FAM and Merrill Lynch, acts as the
distributor of the shares of the Fund.

The Distributor, Merrill Lynch and other securities dealers which have
entered into selected dealer agreements with the Distributor will solicit
subscriptions for shares of the Fund during a period expected to end on
__________, 1994. The subscription period may be extended for up to an
additional 30 days upon agreement between the Fund and the Distributor. On
the fifth business day after the conclusion of the subscription period, the
subscriptions will be payable, the Class A, Class B, Class C and Class D
shares will be issued and the Fund will commence operations. The
subscription offering may be terminated by the Fund or the Distributor at any
time, in which event no Class A, Class B, Class C or Class D shares will be
issued (and, therefore, the Fund will not commence operations and no amounts
will be payable by subscribers, and no sales charges will be assessed) or a
limited number of shares will be issued.

The public offering price of the Class A and Class D shares during the
subscription offering is set forth in the table below:

<TABLE>
<CAPTION> Subscription Period
Percentage* Percentage*
Public of Public of Public
Offering Dollar Offering Dollar Offering
Price Amount Price Amount Price
<S> <C> <C> <C> <C> <C>
Less than $25,000 . . . . . . . . . . . . . $10.554 $.554 5.25% $.554 5.25%
$25,000 but less than $50,000 . . . . . . . 10.499 .499 4.75 .499 4.75
$50,000 but less than $100,000 . . . . . . 10.417 .417 4.00 .417 4.00
$100,000 but less than $250,000 . . . . . . 10.309 .309 3.00 .309 3.00
$250,000 but less than $1,000,000 . . . . . 10.204 .204 2.00 .204 2.00
$1,000,000 and over** . . . . . . . . . . . 10.000 .000 0.00 .000 0.00

</TABLE>
_______________
* Rounded to the nearest one-hundredth percent.
** Purchases of $1,000,000 or more will be subject to a CDSC of 1.0% if the
shares are redeemed within one year after purchase. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption
or the cost of the shares being redeemed. A sales charge of 0.75% will
be charged on purchases of $1,000,000 or more of Class A or Class D
shares by certain 401(k) plans.

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

The proceeds per share to the Fund from the sale of all Class A and
Class D shares sold during the subscription period will be $10.00.

32
<PAGE>
The public offering price of the Class B and Class C shares during the
subscription offering will be $10.00 per share. However, the Class B and
Class C shares may be subject to the CDSCs described below under "Deferred
Sales Charge Alternatives--Class B and Class C Shares" if redeemed within
four years of purchase, in the case of Class B shares, or one year of
purchase, in the case of Class C shares, and are subject to ongoing account
maintenance and distribution fees as described below.

The minimum initial purchase for Class A, Class B, Class C or Class D
shares during the subscription period is $(1,000), except for retirement
plans, where the minimum initial purchase is ($100).

CONTINUOUS OFFERING

Commencing immediately after completion of the subscription offering,
shares of the Fund will be offered continuously for sale by the Distributor
and other eligible securities dealers (including Merrill Lynch). During the
continuous offering, shares of the Fund may be purchased from securities
dealers or by mailing a purchase order directly to the Transfer Agent. The
minimum initial purchase during the continuous offering is $(1,000). The
minimum subsequent purchase is $(50), except for retirement plans, where the
minimum initial purchase is $(100) and the minimum subsequent purchase is
$(1).

The Fund will offer its shares in four classes during the continuous
offering at a public offering price equal to the next determined net asset
value per share plus sales charges imposed either at the time of purchase or
on a deferred basis depending upon the class of shares selected by the
investor under the Merrill Lynch Select Pricing System, as described below.
The applicable offering price for purchase orders is based upon the net asset
value of the Fund next determined after receipt of the purchase orders by the
Distributor. As to purchase orders received by securities dealers prior to
4:15 P.M., New York time, which includes orders received after the
determination of net asset value on the previous day, the applicable offering
price will be based on the net asset value, as of 4:15 P.M. on the day the
order is placed with the Distributor, provided the orders are received by the
Distributor prior to 4:30 P.M., New York time, on that day. If the purchase
orders are not received prior to 4:30 P.M., New York time, such orders shall
be deemed received on the next business day. The Fund or the Distributor may
suspend the continuous offering of the Fund's shares of any class at any time
in response to conditions in the securities markets or otherwise and may
thereafter resume such offering from time to time. Any order may be rejected
by the Distributor or the Fund. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently $4.85) to
confirm a sale of shares to such customers. Purchases directly through the
Transfer Agent are not subject to the processing fee.
__________________________

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

33
<PAGE>

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

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

34
<PAGE>
The following table sets forth a summary of the distribution
arrangements for each class of shares under the Merrill Lynch Select Pricing
System, followed by a more detailed description of each class.

<TABLE>
<CAPTION>
Account
Maintenance Distribution Conversion
CLASS SALES CHARGE(1) FEE FEE FEATURE

<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales None None None
charge/(2)/,/(3)/

B CDSC for periods of up to 4 years, 0.25% 0.75% B Shares convert to
at a rate of 4.0% during the first D shares
year, decreasing 1.0% annually to automatically after
0.0% approximately
(eight) years/(4)/

C 1.0% CDSC for one year 0.25% 0.75% None

D Maximum 5.25% initial sales
charge/(3)/ 0.25% None None

</TABLE>

__________________________
(1) Initial sales charges are imposed at the time of purchase as a
percentage of the offering price CDSCs are imposed if the redemption
occurs within the applicable CDSC time period. The charge will be
assessed on an amount to the lesser of the protects of redemption or the
cost of the share being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $(10,000) or more. Class A and Class D share
purchases of $l,000,000 or more may not be subject to an initial sales
charge but instead may be subject to a CDSC if redeemed within one year.
See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have an
(eight) year conversion period. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged
will be tacked onto the holding period for the shares acquired.

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

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

35
<PAGE>
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net
asset value plus varying sales charges (i.e., sales loads), as set forth
below.

<TABLE>
<CAPTION> Discount to
Sales Charge as Selected
Percentage * Dealers
Sales Charge as of the Net As Percentage
Percentage of Amount of the
Amount of Purchase the Offering Invested Offering Price
Price
<S> <C> <C> <C>
Less than $25,000 . . . . . . . . . . . . . . . 5.25% 5.54% 5.00%
$25,000 but less than $50,000 . . . . . . . . . 4.75 4.99 4.50
$50,000 but less than $100,000 . . . . . . . . 4.00 4.17 3.75
$100,000 but less than $250,000 . . . . . . . . 3.00 3.09 2.75
$250,000 but less than $1,000,000 . . . . . . . 2.00 2.04 1.80
$1,000,000 and over . . . . . . . . . . . . . 0.00 0.00 0.00

</TABLE>

* Rounded to the nearest one-hundredth percent
** Purchases of $1,000,000 or more will be subject to a CDSC of 1.0% if the
shares are redeemed within one year after purchase. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption
or the cost of the shares being redeemed. A sales charge of 0.75% will
be charged on purchases of $1,000,000 or more of Class A or Class D
shares by certain 401(k) plans.

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

Eligible Class A Investors. Class A shares are offered to a limited
group of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares in a
shareholder account (, including participants in the Merrill Lynch
Blueprint/SM/ program,) are entitled to purchase additional Class A shares 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 that such plans meet the required minimum number of eligible
employees or required amount of assets advised by the Manager or any of its
affiliates. Class A shares are available at net asset value to corporate
warranty insurance reserve fund programs provided that the program has $3
million or more initially invested in MLAM-advised mutual funds. Also
eligible to purchase Class A shares at net asset value are participants in
certain investment programs including TMA/SM/ Managed Trusts to which Merrill
Lynch Trust Company provides discretionary trustee services and certain
purchases made in connection with the Merrill Lynch Mutual Fund Adviser
program. In addition, Class A shares will be offered at net asset value to
ML & Co. and its subsidiaries and their directors and employees and to
members of the Boards of MLAM-advised mutual funds, including the Fund.
Certain persons who acquired shares of certain MLAM-advised closed-end funds
who wish to reinvest the net proceeds from a sale of their closed-end fund
shares of common stock in shares of the Fund also may purchase Class A shares
of the Fund if certain conditions set forth in the Statement of Additional
Information are met. For example, Class A shares of the Fund and certain
other MLAM-advised mutual funds are offered at net asset value to
shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. who wish to
reinvest the net proceeds from a sale of certain of their shares of common
stock of Merrill Lynch Senior Floating Rate Fund, Inc. in shares of such
funds.

36
<PAGE>
Reduced Initial Sales Charges. No initial sales charges are imposed
upon Class A and Class D shares issued as a result of the automatic
reinvestment of dividends. Class A and Class D sales charges also may be
reduced under a Right of Accumulation and a Letter of Intention.

Class A shares are offered at net asset value to certain eligible Class
A investors as set forth above under "Eligible Class A Investors".

Class D shares are offered at net asset value to an investor who has a
business relationship with a financial consultant who joined Merrill Lynch
from another investment firm within six months prior to the date of purchase
if certain conditions set forth in the Statement of Additional Information
are met. Class D shares may be offered at net asset value in connection with
the acquisition of assets of other investment companies. Class D shares also
are offered at net asset value, without charge, to an investor who has a
business relationship with a Merrill Lynch financial consultant and who has
invested in a mutual fund sponsored by a non-Merrill Lynch company for which
Merrill Lynch has served as a selected dealer and where Merrill Lynch has
either received or given notice that such arrangement will be terminated, if
the following conditions are satisfied: first, the investor must purchase
Class D shares with proceeds from a redemption of shares of such other mutual
fund, and such fund imposed a sales charge either at the time of purchase or
on a deferred basis; second, such purchase of Class D shares must be made
within 90 days after such notice of termination.

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

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

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

The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year
CDSC, while Class C shares are subject only to a one year 1.0% CDSC. On the
other hand, approximately (eight) years after Class B shares are issued, such
Class B shares, together with shares issued upon dividend reinvestment with
respect to those shares, automatically are converted into Class D shares of
the Fund and thereafter will be subject to lower continuing fees. See
"Conversion of Class B Shares to Class D Shares" below. Class B and Class C
shares are both subject to an account maintenance fee of 0.(25)% of net
assets and Class B and Class C shares are both subject to distribution fees
of 0.(75)% of net assets as discussed below under "Distribution Plans".

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

Proceeds from the CDSC and the distribution fee are paid to the
Distributor and are used in whole or in part by the Distributor to defray the
expenses of dealers (including Merrill Lynch) related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to financial
consultants for selling Class B and Class C shares, from the dealer's own
funds. The combination of the CDSC and the
37
<PAGE>
ongoing distribution fee facilitates the ability of the Fund to sell the
Class B and Class C shares without a sales charge being deducted at the time
of purchase. Approximately (eight) years after issuance, Class B shares will
convert automatically into Class D shares of the Fund, which are subject to
the same account maintenance fee but no distribution fee; Class B shares of
certain other MLAM-advised mutual funds into which exchanges may be made
convert into Class D shares automatically after approximately (ten) years.
If Class B shares of the Fund are exchanged for Class B shares of another
MLAM-advised mutual fund, the conversion period applicable to the Class B
shares acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked onto the holding period for the shares
acquired.

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

Contingent Deferred Sales Charges--Class B Shares. Class B shares which
are redeemed within four years of purchase may be subject to a CDSC at the
rates set forth below charged as a percentage of the dollar amount subject
thereto. The charge will be assessed on an amount equal to the lesser of the
current market value 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.

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

Year Since Purchase Payment Made Class B CDSC as a Percentage of Dollar

Amount Subject to Charge
0-1 4.0%
1-2 3.0%
2-3 2.0%
3-4 1.0%
4 and thereafter None

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

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

The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Code) of a shareholder. The Class B CDSC also is waived on
redemptions of shares by certain eligible 401(a) and eligible 401(k) plans
and in connection with certain group plans. The CDSC also is waived for any
Class B shares which are purchased by eligible 401(k) or eligible 401(a)
plans which are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied IRA and held in such account at the time of redemption.
The Class B CDSC also is waived for any Class B shares which are purchased by
a Merrill Lynch rollover IRA that was funded by a rollover from a terminated
401(k) plan managed by the MLAM Private Portfolio Group and held in such
account at the time of redemption. Additional information concerning the
waiver of the Class B CDSC is set forth in the Statement of Additional
Information.

Contingent Deferred Sales Charges---Class C Shares. Class C shares
which are redeemed within one year of purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject thereto. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no Class C
CDSC will be imposed on increases in net asset value above the initial
purchase price. In addition, no Class C CDSC will be assessed on shares
derived from reinvestment of dividends.

In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over one year or shares acquired
pursuant to reinvestment of dividends 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. That is, a transfer of
shares will be treated as a redemption of shares and may be subject to a CDSC
under the same circumstances as any other redemption as explained above.

The Class C CDSC is waived on redemptions of shares under the same
circumstances as is the case for Class B shares described above. Additional
information concerning the waiver of the Class C CDSC is set forth in the
Statement of Additional Information.

Conversion of Class B Shares to Class D Shares. After approximately
(eight) years (the "Conversion Period"), Class B shares will be converted
automatically into Class D shares of the Fund. Class D shares are subject to
the same ongoing account maintenance fee as Class B shares of 0.(25)% of net
assets but are not subject to the distribution fee that is borne by Class B
shares. Automatic conversion of Class B shares into Class D shares will
occur at least once each month (on the "Conversion Date") on the basis of the
relative net asset values of the shares of the two classes on the Conversion
Date, without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not result in recognized
gain or loss to shareholders 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. In the event that all Class B shares of the Fund held in a
single account are converted to Class D shares on a Conversion Date, shares
representing reinvestment
39
<PAGE>
of declared but unpaid dividends on those Class B shares also will be
converted to Class D shares; otherwise, only Class B shares purchased through
reinvestment of dividends paid will convert to Class D shares on the
Conversion Date.

The minimum value of Class B shares of the Fund held in a single account
that will be converted on any Conversion Date is $50; however, if at a
Conversion Date the conversion of Class B shares to Class D shares of the
Fund in a single account will result in less than $50 worth of Class B shares
being left in the account, all of the Class B shares of the Fund held in the
account on the Conversion Date will be converted to Class D shares of the
Fund.

Share certificates for Class B shares of the Fund to be converted must
be delivered to the Transfer Agent at least one week prior to the Conversion
Date applicable to those shares. In the event that such certificates are not
received y 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.

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

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

DISTRIBUTION PLANS

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

The Distribution Plans for Class B, Class C and Class D shares each
provide that the Fund pays the Distributor an account maintenance fee
relating to the shares of the relevant class, accrued daily and paid monthly,
at the annual rates of 0.(25)%, 0.(25)% and 0.(25)%, respectively, of the
average daily net assets of the Fund attributable to shares of the relevant
class in order to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) in connection with account maintenance activities.

The Distribution Plans for Class B and Class C shares each provide that
the Fund also pays the Distributor a distribution fee relating to the shares
of the relevant class, accrued daily and paid monthly, at the annual rate of
0.(75)% and
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0.(75)%, respectively, 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 related to Class B and Class C shares are designed to
permit an investor to purchase Class B and Class C shares through dealers
without the assessment of an initial sales charge and at the same time permit
the dealer to compensate its financial consultants in connection with the
sale of the Class B and Class C shares. In this regard, the purpose and
function of the ongoing distribution fees and the CDSC are the same as those
of the initial sales charges with respect to the Class A and Class D shares
of the Fund in that the deferred sales charges provide for the financing of
the distribution of the Fund's Class B and Class C shares.

The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount
of expenses incurred, and, accordingly, distribution-related revenues from
the Distribution Plans may be more or less than distribution-related
expenses. Information with respect to the distribution-related revenues and
expenses is presented to the Directors for their consideration in connection
with their deliberations as to the continuance of the Class B and Class C
Distribution Plans. This information is presented annually as of December 31
of each year on a "fully allocated accrual" basis and quarterly on a "direct
expense and revenue/cash" basis. On the fully allocated accrual basis,
revenues consist of the account maintenance fees, distribution fees, the CDSC
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 promotional and
market 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.

LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES

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

The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no
assurance that the Directors of the Fund will approve the continuance of the
Distribution Plans from year to year. However, the Distributor
41
<PAGE>
intends to seek annual continuation of the Distribution Plans. In their
review of the Distribution Plans, the Directors will be asked to take into
consideration expenses incurred in connection with the account maintenance
and/or distribution of each class of shares separately. The initial sales
charges, the account maintenance fee, the distribution fee and/or the CDSCs
received with respect to one class will not be used to subsidize the sale of
shares of another class. Payments of the distribution fee on Class B shares
will terminate upon conversion of those Class B shares into Class D shares as
set forth under "Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares".

REDEMPTION OF SHARES

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

REDEMPTION

A shareholder wishing to redeem shares may do so without charge by
tendering the shares directly to the Transfer Agent, Financial Data Services,
Inc., Transfer Agency Mutual Fund Operations, P.O. Box 45289, Jacksonville,
Florida 32232-5289. Redemption requests delivered other than by mail should
be delivered to Financial Data Services, Inc., Transfer Agency Mutual Fund
Operations, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Proper notice of redemption in the case of shares deposited with the Transfer
Agent may be accomplished by a written letter requesting redemption. Proper
notice of redemption in the case of shares for which certificates have been
issued may be accomplished by a written letter as noted above accompanied by
certificates for the shares to be redeemed. The notice in either event
requires the signatures of all persons in whose names the shares are
registered, signed exactly as their names appear on the Transfer Agent's
register or on the certificate, as the case may be. The signature(s) on the
redemption request must be guaranteed by an "eligible guarantor institution"
(including, for example, Merrill Lynch branches and certain other financial
institutions) as such is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, the Transfer
Agent may require additional documents, such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator,
or certificates of corporate authority. For shareholders redeeming directly
with the Transfer Agent, payment will be mailed within seven days of receipt
of a proper notice of redemption.

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

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<PAGE>
REPURCHASE

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

The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any
applicable CDSC in the case of Class B or Class C shares). Securities firms
which do not have selected dealer agreements with the Distributor, however,
may impose a transaction charge on the shareholder for transmitting the
notice of repurchase to the Fund. Merrill Lynch may charge its customers a
processing fee (presently $4.85) to confirm a repurchase of shares to such
customers. Redemptions directly through the Transfer Agent are not subject
to the processing fee. The Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect shareholders
seeking redemption through the repurchase procedure. A shareholder whose
order for repurchase is rejected by the Fund may redeem shares as set forth
above.

REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES

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

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services and investment plans
designed to facilitate investment in shares of the Fund. Full details as to
each of such services, copies of the various plans described below and
instructions as to how to participate in the various services or plans, or to
change options with respect thereto, can be obtained from the Fund by calling
the telephone number on the cover page hereof or from the Distributor or
Merrill Lynch. Certain of these services are available only to U.S.
investors. Included in the Fund's shareholder services are the following:

Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an "Investment Account" and will receive, at least
quarterly, statements from the Transfer Agent. The statements will serve as
transaction confirmations for automatic investment purchases and the
reinvestment of ordinary income dividends. The statements also will show any
other activity in the account since the preceding statement. Shareholders
will receive separate transaction confirmations for each purchase or sale
transaction other than automatic investment purchases and the reinvestment of
income dividends. A shareholder may make additions to his or her Investment
Account at any time by mailing a check directly to
43
<PAGE>
the Transfer Agent. Shareholders also may maintain their accounts through
Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch brokerage
account, an Investment Account in the transferring shareholder's name will be
opened automatically without charge, at the Transfer Agent. Shareholders
considering transferring their Class A or Class D shares from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if
the firm to which the Class A or Class D shares are to be transferred will
not take delivery of shares of the Fund, a shareholder either must redeem the
Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do
not wish to have an Investment Account maintained for such shares at the
Transfer Agent may request their new brokerage firm to maintain such shares
in an account registered in the name of the brokerage firm for the benefit of
the shareholder at the Transfer Agent. Shareholders considering transferring
a tax deferred retirement account such as an IRA from Merrill Lynch to
another brokerage firm or financial institution should be aware that, if the
firm to which the retirement account is to be transferred will not take
delivery of shares of the Fund, a shareholder must either redeem the shares
(paying any applicable CDSC) so that the cash proceeds can be transferred to
the account at the new firm, or such shareholder must continue to maintain a
retirement account at Merrill Lynch for those shares.

Systematic Withdrawals and Automatic Investment Plans. A Class A or
Class D shareholder may elect to receive systematic withdrawal payments from
his or her Investment Account in the form of payments by check or through
automatic payment by direct deposit to his or her bank account on either a
monthly or quarterly basis. A Class A or Class D shareholder whose shares
are held within a CMA(Registered Trademark), CBA(Registered Trademark) or
Retirement Account may elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the Systematic Redemption
Program, subject to certain conditions. Regular additions of shares may be
made to an investor's Investment Account by pre-arranged charges of $50 or
more to his or her regular bank account. Investors who maintain
CMA(Registered Trademark) accounts may arrange to have periodic investments
made in the Fund in their CMA(Registered Trademark) accounts or in certain
related accounts in amounts of $(250) or more through the CMA Automated
Investment Program.

Automatic Reinvestment of Dividends. All dividends are automatically
reinvested in full and fractional shares of the Fund, without a sales charge,
at the net asset value per share next determined after the close of the New
York Stock Exchange on the ex-dividend date of such dividend. A shareholder,
at any time, by written notification to Merrill Lynch if the shareholder's
account is maintained with Merrill Lynch or by written notification or
telephone call (1-800-MER-FUND) to the Transfer Agent if the shareholder's
account is maintained with the Transfer Agent, may elect to have subsequent
dividends paid in cash, rather than reinvested, in which event payment will
be mailed on or about the payment date. No deferred sales charge will be
imposed on redemptions of shares issued as a result of the automatic
reinvestment of dividends.

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

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

Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously

paid on the Class A or Class D shares being exchanged and the sales charge
payable at the time of the exchange on the shares being acquired.

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

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

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

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

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

The Fund's exchange privilege is modified with respect to purchases of
Class A and Class D shares under the Merrill Lynch Mutual Fund Adviser
("MFA") program. First, the initial allocation of assets is made under the
MFA program. Then, any subsequent exchange under the MFA program of Class A
or Class D shares of a MLAM-advised mutual fund for Class A or Class D shares
of the Fund will be made solely on the basis of the relative net asset values
of the shares being exchanged. Therefore, there will not be a charge for any
difference between the sales charge previously paid on the shares of the
other MLAM-advised mutual fund and the sales charge payable on the shares of
the Fund being acquired in the exchange under the MFA program.

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<PAGE>

PERFORMANCE DATA

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

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

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

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

On occasion, the Fund may compare its performance to the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, or
to performance data published by Lipper Analytical Services, Inc.,
Morningstar
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<PAGE>
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week,
CDA Investment Technology, Inc., Forbes Magazine, Fortune Magazine or other
industry publications. In addition, from time to time the Fund may include
the Fund's risk adjusted performance ratings assigned by Morningstar
Publications, Inc. in advertising or supplemental sales literature. As with
other performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period.

ADDITIONAL INFORMATION

DIVIDENDS

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

The per share dividends on each class of shares will be reduced as a
result of any account maintenance, distribution and transfer agency fees
applicable to that class.

Certain gains or losses attributable to foreign currency gains or losses
from certain forward contracts may increase or decrease the amount of the
Fund's income available for distribution to shareholders. If such losses
exceed other ordinary income during a taxable year, (a) the Fund would not be
able to make any ordinary income dividend distributions and
(b) distributions made before the losses were realized but in the same
taxable year would be recharacterized as a return of capital to shareholders,
rather than as an ordinary income dividend, reducing each shareholder's tax
basis in Fund shares for Federal income tax purposes, and resulting in a
capital gain for any shareholder who received a distribution greater than
such shareholder's tax basis in Fund shares (assuming that the shares were
held as a capital asset). See "Additional Information--Taxes".

TAXES

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

Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from the Fund's net realized long-term
capital gains (including long-term gains from certain transactions in futures
and options) ("capital gain dividends") are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder has
owned Fund shares. Distributions in excess of the Fund's earnings and
profits will first
47
<PAGE>
reduce the adjusted tax basis of a holder's shares and, after such adjusted
tax basis is reduced to zero, will constitute capital gains to such holder
(assuming the shares are held as a capital asset).

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

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

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

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

The Fund may invest up to 10% of its total assets in securities of
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
48
<PAGE>
will allow it to avoid the taxes on excess distributions. However, such
election may cause the Fund to recognize income in a particular year in
excess of the distributions received from such PFICs. Alternatively, under
proposed regulations the Fund would be able to elect to "mark to market" at
the end of each taxable year all shares that it holds in PFICs. If it made
this election, the Fund would recognize as ordinary income any increase in
the value of such shares. Unrealized losses, however, would not be
recognized. By making the mark-to-market election, the Fund could avoid
imposition of the interest charge with respect to its distributions from
PFICs, but in any particular year might be required to recognize income in
excess of the distributions it received from PFICs and its proceeds from
dispositions of PFIC stock.

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

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 for the
acquired Class D shares will include the holding period for the converted
Class B shares.

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

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

_______________________________

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively .
Ordinary income and capital gain dividends also may be subject to state
and local taxes.

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

49
<PAGE>

Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors

should consider applicable foreign taxes in their evaluation of an investment
in the Fund.

DETERMINATION OF NET ASSET VALUE

Net asset value per share of each class is determined by the Manager
once daily at 4:15 p.m., New York time, on each day during which the New York
Stock Exchange is open for trading and, under certain circumstances, on other
days. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the day of valuation. The
net asset value per share is computed by dividing the value of the securities
held by the Fund plus any cash or other assets (including interest and
dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares outstanding at such time.
Expenses, including the fees payable to the Manager and the Distributor, are
accrued daily.

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

Certain portfolio securities (other than short-term obligations but
including listed issues) may be valued on the basis of prices furnished by
one or more pricing services which determine prices for normal,
institutional-size trading units of such securities using market information,
transactions for comparable securities and various relationships between
securities which are generally recognized by institutional traders. Rights
or warrants to acquire stock, or stock acquired pursuant to the exercise of a
right or warrant, may be valued taking into account various factors such as
original cost to the Fund, earnings and net worth of the issuer, market
prices for securities of similar issuers, assessment of the issuer's future
prosperity, liquidation value or third party transactions involving the
issuer's securities. Securities for which there exist no price quotations or
valuations and all other assets are valued at fair market value as determined
in good faith by or on behalf of the Board of Directors of the Fund.

ORGANIZATION OF THE FUND

The Fund was incorporated under Maryland law on March 15, 1994. It has
an authorized capital of (400,000,000) shares of Common Stock, par value
$0.10 per share, divided into four classes, designated Class A, Class B,
Class C and
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<PAGE>
Class D Common Stock, each of which consists of 100,000,000 shares. Shares
of Class A, Class B, Class C and Class D represent interests in the same
assets of the Fund and are identical in all respects except that Class B,
Class C and Class D shares bear certain expenses related to the account
maintenance fee associated with such shares, and Class B and Class C shares
bear certain expenses related to the distribution of such shares. Each class
has exclusive voting rights with respect to matters relating to account
maintenance and distribution expenditures, as applicable. See "Purchase of
Shares". The Fund has received an order (the "Multi-Class System Order")
from the Securities and Exchange Commission permitting the issuance and sale
of multiple classes of shares. The Multi-Class System Order permits the Fund
to issue additional classes of stock if the Board of Directors deems such
issuance to be in the best interests of the Fund. Shares issued by the Fund
are fully paid, non-assessable and have no preemptive or conversion rights.

Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors
and any other matters submitted to a shareholder vote. The Fund does not
intend to hold an annual meeting 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. The Fund will assist in shareholder communications in the
manner described in Section 16(c) of the Investment Company Act. Voting
rights for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive or conversion rights. Each share of
Common Stock is entitled to participate equally in dividends declared by the
Fund and in the net assets of the Fund upon liquidation or dissolution after
satisfaction of outstanding liabilities, except that, as noted above, the
Class B, Class C and Class D shares bear certain additional expenses.

SHAREHOLDER REPORTS

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

Financial Data Services, Inc.
Attn: Transfer Agency Mutual Fund Operations
P.O. Box 45289
Jacksonville, FL 32232-5289

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

SHAREHOLDER INQUIRIES

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

FUTURES, OPTIONS AND FORWARD FOREIGN EXCHANGE TRANSACTIONS

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

The Fund may engage in various portfolio strategies to hedge its
portfolio against investment and currency risks. These strategies include
the use of options on portfolio securities, currency and stock index options
and futures, options on such futures and forward foreign exchange
transactions. The Fund may enter into such transactions only in connection
with its hedging strategies. While the Fund's use of hedging strategies is
intended to reduce the volatility of the net asset value of Fund shares, the
net asset value of the Fund's shares will fluctuate. There can be no
assurance that the Fund's hedging transactions will be effective.
Furthermore, the Fund may not necessarily be engaging in hedging activities
when movements in the equity markets or currency exchange rates occur.
Reference is made to the Statement of Additional Information for further
information concerning these strategies.

Although certain risks are involved in futures and options transactions
(as discussed below in "Risk Factors in Futures, Options and Currency
Transactions"), the Manager believes that, because the Fund only will engage
in these transactions for hedging purposes, the futures and options portfolio
strategies of the Fund will not subject the Fund to the risks frequently
associated with the speculative use of futures and options transactions. Tax
requirements may limit the Fund's ability to engage in the hedging
transactions and strategies discussed below. See "Additional Information--
Taxes".

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

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

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

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

In certain circumstances, the Fund may purchase call options on
securities held in its portfolio on which it has written call options or on
securities which it intends to purchase. The Fund will not purchase options
on securities (including stock index options discussed below) if, as a result
of such purchase, the aggregate cost of all outstanding options on securities
held by the Fund would exceed 5% of the market value of the Fund's total
assets.

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

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

The Fund may sell financial futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
the Fund's securities portfolio that might otherwise result. When the Fund
is not fully invested in the securities markets and anticipates a significant
market advance, it may purchase futures in order to gain rapid market
exposure. This technique generally will allow the Fund to gain exposure to a
market in a manner which is more efficient than purchasing individual
securities, and may in part or entirely offset increases in the cost of
securities in such markets that the Fund ultimately purchases. As such
purchases are made, an equivalent amount of financial futures contracts will
be terminated by offsetting sales. The Manager does not consider purchases
of financial futures contracts to be a speculative practice under these
circumstances. It is anticipated that, in a substantial majority of these
transactions, the Fund will
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<PAGE>

purchase such securities upon termination of the long futures position,
whether the long position is the purchase of a financial futures contract or
the purchase of a call option or the writing of a put option on a future, but
under unusual circumstances (e.g., the Fund experiences a significant amount
of redemptions), a long futures position may be terminated without the
corresponding purchase of securities.

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

The Fund may engage in futures and options transactions on U.S. and
foreign exchanges and in options in the over-the-counter markets ("OTC
options"). Exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or
clearing corporation) which, in general, have standardized strike prices and
expiration dates. OTC options transactions are two-party contracts with
prices and terms negotiated by the buyer and seller. The Fund may engage in
OTC options to effect the same strategies as it would through exchange-traded
options. See "Restrictions on OTC Options" below for information as to
restrictions on the use of OTC options.

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

certain developing countries no forward market for foreign currencies
currently exists or such market may be closed to investment by the Fund.

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

Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right
to buy or sell a currency at a fixed price on a future date. Listed options
are third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) which are issued by a
clearing corporation, traded on an exchange and have standardized strike
prices and expiration dates. OTC options are two-party contracts and have
negotiated strike prices and expiration dates. A financial futures contract
on a foreign currency is an agreement between two parties to buy and sell a
specified amount of a currency for a set price on a future date. Financial
futures contracts and options on financial futures contracts are traded on
boards of trade or futures exchanges. The Fund will not speculate in foreign
currency futures, options or related options. Accordingly, the Fund will not
hedge a currency substantially in excess of the market value of securities
which it has committed or anticipates to purchase which are denominated in
such currency and, in the case of securities which have been sold by the Fund
but not yet delivered, the proceeds thereof in its denominated currency.
Further, the Fund will segregate at its custodian cash, liquid equity or debt
securities having a market value substantially representing any subsequent
decrease in the market value of such hedged security, less any initial or
variation margin held in the account of its broker. The Fund may not incur
potential net liabilities of more than 331/3% of its total assets from
foreign currency futures, options or related options.

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

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

A-4
<PAGE>
Restrictions on OTC Options. The Fund will engage in OTC options,
including OTC stock index options, OTC foreign currency options and options
on foreign currency futures, only with member banks of the Federal Reserve
System and primary dealers in U.S. Government securities or with affiliates
of such banks or dealers that have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50
million or any other bank or dealer having capital of at least $150 million
or whose obligations are guaranteed by an entity having capital of at least
$150 million.

The staff of the Securities and Exchange Commission has taken the
position that purchased OTC options and the assets used as cover for written
OTC options are illiquid securities. Therefore, the Fund has adopted an
investment policy pursuant to which it will not purchase or sell OTC options
(including OTC options on financial futures contracts) if, as a result of
such transaction, the sum of the market value of OTC options currently
outstanding which are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding which were sold
by the Fund and margin deposits on the Fund's existing OTC options on
financial 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 security minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price which is generally
based on a multiple of the premium received for the option, plus the amount
by which the option is "in-the-money". This policy as to OTC options is not
a fundamental policy of the Fund and may be amended by the Directors of the
Fund without the approval of the Fund's shareholders. However, the Fund will
not change or modify this policy prior to the change or modification by the
commission staff of its position.

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

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

A-5
<PAGE>
The exchanges on which the Fund intends to conduct options transactions
generally have established limitations governing the maximum number of call
or put options on the same underlying security or currency (whether or not
covered) that may be written be a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). "Trading limits"are imposed on the maximum
number of contracts that any person may trade on a particular trading day.
The Manager does not believe that these trading and position limits will have
any adverse impact on the portfolio strategies for hedging the Fund's
portfolio.

A-6
<PAGE>
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.--AUTHORIZATION FORM

1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase ...... shares of / /Class A,
/ /Class B, / /Class C or / /Class D (choose one) of Merrill Lynch Middle
East/Africa Fund, Inc. and establish an Investment Account as described in
the Prospectus.
Basis for establishing an Investment Account:
A. I enclose a check for $ .............payable to Financial Data
Services, Inc., as an initial investment (minimum $1,000) (subsequent
investments $50 or more). I understand that this purchase will be executed
at the applicable offering price next to be determined after this Application
is received by you.
B. I already own shares of the following Merrill Lynch mutual funds
that would qualify for the Right of Accumulation as outlined in the Statement
of Additional Information:
1. 4.
------------------------------------ ------------------------------
2. 5.
------------------------------------ ------------------------------
3. 6.
------------------------------------ ------------------------------

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

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

Distribution Elect/ / reinvest dividends Elect/ / reinvest capital gains
Options One/ /pay dividends in cash One/ /pay capital gains in cash

If no election is made, dividends and capital gains automatically will be
reinvested at net asset value without a sales charge.
-----------------------------
(PLEASE PRINT)
Name / / / / / / / / / / / / / / / / / /
------------------------------------------
First Name Initial Last Name Social
Security No.
or Taxpayer Identification No.
Name of Co-Owner (if any)
------------------------------------------
First Name Initial Last Name -----------, 19--
Date
Address

------------------------------------------
(Zip Code)
Occupation

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

Name and Address of Employer

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

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

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

Signature of Owner
--------------------------------------------

Signature of Co-Owner (if any)

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

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

Gentlemen:

Although I am not obligated to do so, I intend to purchase / /Class A or
/ /Class D shares (choose one) of Merrill Lynch Middle East/Africa Fund, Inc.
or any other investment company with an initial sales charge or deferred
sales charge for which Merrill Lynch Funds Distributor, Inc. acts as
distributor over the next 13-month period which will equal or exceed:

/ / $10,000 / / $25,000 / / $50,000 / / $100,000

/ / $250,000 / / $1,000,000

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

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

By:
-----------------------------------------
Signature of Owner

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

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

(1) Name

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

(2) Name

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

B-1
<PAGE>
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.--AUTHORIZATION FORM

3. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION) Minimum Requirements:
$10,000 for monthly disbursements, $5,000 for quarterly, of / /Class A or
/ /Class D shares (choose one) in Merrill Lynch Middle East/Africa Fund,
Inc., at cost or current offering price. Begin systematic withdrawal on
(Date), 19..Withdrawals to be made either (check one) / /Monthly / /Quarterly*
*Quarterly withdrawals are made on the 24th day of March, June,
September and December.

Specify withdrawal amount (check one): / / $ . . . . . or
/ / . . . . . .% of the current value of Class A shares in the account.
Specify withdrawal method: / /check or / /direct deposit to bank
account (check one and complete part (a) or (b) below):
<TABLE>
<CAPTION>
<S> <C>
(A) I HEREBY AUTHORIZE PAYMENT BY CHECK (B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT
Draw checks payable TO BANK ACCOUNT AND (IF NECESSARY) DEBIT ENTRIES
(check one) AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE IN
/ / as indicated in Item 1. ERROR TO MY ACCOUNT.
/ / to the order of . . . . . . . . . . . . . Specify type of account (check one): / / checking
Mail to (check one) / / savings
/ / the address indicated in Item 1. I agree that this authorization will remain in
/ / Name (Please Print) . . . . . . . . . . . effect until I provide written notification to
Financial Data Services, Inc. amending or
Address . . . . . . . . . . . . . . . . . . . . . terminating this service.
Name on your Account . . . . . . . . . . . . . .
Signature of Owner . . . . . . . . . . . . . . . Bank . . . . . . . . . . . . . . . . . . . . . .
Bank# . . . . . . . . . . . . . . . . . Account #
Signature of Co-Owner (if any) . . . . . . . . . Bank Address . . . . . . . . . . . . . . . . . .
Signature of Depositor. . . . . . . . . . . . . .
. . . . . . . Date . . . . . . . . . . . . . . .
Signature of Depositor (if joint account) . . . .
NOTE: IF AUTOMATIC DIRECT DEPOSIT IS ELECTED, YOUR
BLANK, UNSIGNED CHECK MARKED "VOID" OR A DEPOSIT
SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY
THIS APPLICATION.
<TABLE/>

4. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw a check or an
automated clearing house ("ACH") debit on my checking account as described
below each month to purchase .... shares of / /Class A, / /Class B,
/ /Class C or / /Class D (choose one) of Merrill Lynch Middle East/Africa
Fund, Inc., subject to the terms set forth below.

</TABLE>
<TABLE>
<CAPTION>
FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR CHECKS
<S> <C>
You are hereby authorized to draw checks
Please date and invest checks or draw ACH debits
on the 20th day of each month beginning . . . . . City. . . . . . . . . . . .State. . . . . . . . .
or as soon thereafter as possible. (Month) .. . .Zip Code . . . . . . . . . . . . . . . . .
I agree that you are preparing these checks or
drawing these debits voluntarily at my request and As a convenience to me, I hereby request and
that you shall not be liable for any loss arising authorize you to pay and charge to my account
er as possible. (Month) .. . .Zip Code . . . . . . . . . . . . . . . . .
I agree that you are preparing these checks or
drawing these debits voluntarily at my request and As a convenience to me, I hereby request and
that you shall not be liable for any loss arising authorize you to pay and charge to my account
from any delay in preparing or failure to prepare checks or ACH debits drawn on my account by and
any such check or debit. If I change banks or payable to Financial Data Services, Inc.,Transfer
desire to terminate or suspend this program, I Agency Mutual Fund Operations, Jacksonville,
agree to notify you promptly in writing. Florida 32232-5289. I agree that your rights in
I further agree that if a check or debit is not respect to each such check or debit shall be the
honored upon presentation, Financial Data same as if it were a check drawn on you and signed
Services, Inc. is authorized to discontinue personally by me. This authority is to remain in
immediately the Automatic Investment Plan and to effect until revoked personally by me in writing.
liquidate sufficient shares held in my account to Until you receive such notice, you shall be fully
offset the purchase made with the returned check protected in honoring any such check or debit. I
or dishonored debit. further agree that if any such check or debit be
. . . . . . . . . . . . . . . . . . . . . . . . dishonored, whether with or without cause and
Date Signature of Depositor whether intentionally or inadvertently, you shall
. . . . . . . . . . . . . . . . . be under no liability.
Signature of Depositor . . . . . . . . . . . . . . . . . . . . . . . .
(If joint account, both must sign) Date Signature of Depositor
. . . . . . . . . . . . . . . . . . . . .
Bank Account Number Signature of Depositor
(If joint
account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED,
YOUR BLANK, UNSIGNED CHECK MARKED "VOID" SHOULD
ACCOMPANY THIS APPLICATION.

5. FOR DEALER ONLY We hereby authorize Merrill Lynch Funds
Branch Office, Address, Stamp
--- ---
. . . . . . . . . . . . . . . . . . . . . . . . .
Dealer Name and Address
By . . . . . . . . . . . . . . . . . . . . . . .
This form when completed should be mailed to: Authorized Signature of Dealer
Merrill Lynch Middle East/Africa Fund, Inc. / // // / / // // // / . . . . . . . . .
c/o Financial Data Services, Inc. Branch Code F/C No.
By . . . . . . . . . . . . . . . . . . . . . . .
This form when completed should be mailed to: Authorized Signature of Dealer
Merrill Lynch Middle East/Africa Fund, Inc. / // // / / // // // / . . . . . . . . .
c/o Financial Data Services, Inc. Branch Code F/C No.
Transfer Agency Mutual Fund Operations F/C Last Name
P.O. Box 45289 / // // / / // // // /
Jacksonville, Florida 32232-5289 Dealer's Customer A/C No.

</TABLE>

B-2
<PAGE>
Manager
Merrill Lynch Asset Management

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

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

Distributor
Merrill Lynch Funds Distributor, Inc.

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

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

Transfer Agent
Financial Data Services, Inc.

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

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

Custodian
____________________________
____________________________
____________________________

Independent Auditors

____________________________
____________________________
____________________________

Counsel
Brown & Wood
One World Trade Center
New York, New York 10048-0057

<PAGE>
NO PERSON HAS BEEN AUTHORIZED PROSPECTUS DOES NOT CONSTITUTE AN
TO GIVE ANY INFORMATION OR TO MAKE OFFERING IN ANY STATE IN WHICH SUCH
ANY REPRESENTATIONS, OTHER THAN OFFERING MAY NOT LAWFULLY BE MADE.
THOSE CONTAINED IN THIS PROSPECTUS,
IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROSPECTUS, AND, ---------------
IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST TABLE OF CONTENTS
NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND, THE MANAGER Page
OR THE DISTRIBUTOR. THIS ---
Prospectus Summary Prospectus
Fee Table
Merrill Lynch Select Pricing/SM/
System
Risk Factors and Special (PICTURE)
Considerations
Investment Objective and Policies

Investment Restrictions
Management of the Fund
Board of Directors
Management and Advisory MIDDLE EAST/AFRICA
Arrangements FUND, INC.
Transfer Agency Services

Purchase of Shares
Subscription Offering
Continuous Offering ____________, 1994
Initial Sales Charge
Alternatives- Distributor:
Class A and Class D Shares Merrill Lynch
Funds Distributor, Inc.
Deferred Sales Charge
Alternatives- This Prospectus should be
Class B and Class C Shares retained for future reference.

Distribution Plans
Limitations on the Payments of
Deferred Sales Charges
Redemption of Shares
Redemption
Repurchase
Reinstatement Privilege-Class A
and Class D Shares
Shareholder Services
Performance Data
Additional Information
Dividends
Taxes
Determination of Net Asset Value

Organization of the Fund

Shareholder Reports
Shareholder Inquiries
Appendix
Authorization Form

Code # ___________

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information does not
constitute a prospectus.

SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 7, 1994

STATEMENT OF ADDITIONAL INFORMATION
- - - - --------------------------------
, 1994

Merrill Lynch Middle East/Africa Fund, Inc.
Box 9011, Princeton, New Jersey 08543-9011 Phone No. (609) 282-2800
_______________________

Merrill Lynch Middle East/Africa Fund, Inc. (the "Fund") is a non-
diversified, open-end management investment company seeking long-term capital
appreciation by investing primarily in equity and debt securities of
corporate and governmental issuers in countries located in the Middle East
and Africa ("Middle Eastern/African countries"). For purposes of its
investment objective, the Fund may invest in the securities of issuers in all
countries in the Middle East and Africa. The Fund initially expects to
emphasize investments in Morocco, South Africa, Turkey and Israel. Under
normal market conditions, at least 65% of the Fund's total assets will be
invested in equity or debt securities of corporate and governmental issuers
in Middle Eastern/African countries. The Fund may employ a variety of
investments and techniques to hedge against market and currency risk. There
can be no assurance that the Fund's investment objective will be achieved.

_______________________

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
____________, 1994 (the "Prospectus"), which has been filed with the
Securities and Exchange Commission and can be obtained, without charge, by
calling or by writing to the Fund at the above telephone number or address.
This Statement of Additional Information has been incorporated by reference
into the Prospectus. Capitalized terms used but not defined herein have the
same meanings as in the Prospectus.
_______________________

MERRILL LYNCH ASSET MANAGEMENT /___/ MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. /___/ DISTRIBUTOR
_______________________

The date of this Statement of Additional Information is ______________, 1994.

1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

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

While it is the policy of the Fund generally not to engage in trading
for short-term gains, Merrill Lynch Asset Management, L.P., the manager for
the Fund (the "Manager"), will effect portfolio transactions without regard
to holding period if, in its judgment, such transactions are advisable in
light of a change in circumstances of a particular company or within a
particular industry or in general market, economic or financial conditions.
As a result of the investment policies described in the Prospectus, the
Fund's portfolio turnover rate may be higher than that of other investment
companies. Accordingly, while the Fund anticipates that its annual portfolio
turnover rate should not exceed 100% under normal conditions, it is
impossible to predict portfolio turnover rates. The portfolio turnover rate
is calculated by dividing the lesser of the Fund's annual sales or purchases
of portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year. The Fund
is subject to the Federal income tax requirement that less than 30% of the
Fund's gross income must be derived from gains from the sale or other
disposition of securities held for less than three months.

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

HEDGING TECHNIQUES

Reference is made to the discussion concerning hedging techniques under
the caption "Investment Objective and Policies--Other Investment Policies and
Practices--Portfolio Strategies Involving Futures, Options and Forward
Foreign Exchange Transactions" and in the Appendix to the Prospectus.

Although certain risks are involved in futures and options transactions
(as discussed in the Prospectus and below), the Manager believes that,
because the Fund will only engage in these transactions for hedging purposes,
the futures and options portfolio strategies of the Fund will not subject the
Fund to the risks frequently associated with the speculative use of futures
and options transactions.

The following information relates to the hedging instruments the Fund
may utilize with respect to currency risks.

2
<PAGE>
Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter
into closing purchase transactions with respect to certain of such options.
A covered call option is an option where the Fund, in return for a premium,
gives another party a right to buy specified securities owned by the Fund at
a specified future date and price set at the time of the contract. The
principal reason for writing call options is to attempt to realize, through
the receipt of premiums, a greater return than would be realized on the
securities alone. By writing covered call options, the Fund gives up the
opportunity, while the option is in effect, to profit from any price increase
in the underlying security above the option exercise price. In addition, the
Fund's ability to sell the underlying security will be limited while the
option is in effect unless the Fund effects a closing purchase transaction.
A closing purchase transaction cancels out the Fund's position as the writer
of an option by means of an offsetting purchase of an identical option prior
to the expiration of the option it has written. Covered call options serve
as a partial hedge against a decline in the price of the underlying security.

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

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

Options referred to herein and in the Prospectus may be options traded
on foreign securities exchanges. An option position may be closed only on an
exchange which provides a secondary market for an option of the same series.
If a secondary market does not exist, it might not be possible to effect
closing transactions in particular options, with the result, in the case of a
covered call option, that the Fund will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation (the
"Clearing Corporation") may not, at all times, be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which
event the secondary market on that exchange (or in that class or series of
options) would cease to exist, although outstanding options on that exchange
that had been issued by the Clearing Corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their
terms.

The Fund also may enter into over-the-counter options transactions ("OTC
options"), which are two party contracts with prices and terms negotiated
between the buyer and seller. The Fund will only enter into OTC options
transactions with respect to portfolio securities for which management
believes the Fund can receive on each business day at least two independent
bids or offers (one of which will be from an entity other than a party to the
option). The staff of the Securities and Exchange Commission (the
"Commission") has taken the position that OTC options and the assets used as
cover for written OTC options are illiquid securities.

Purchasing Options. The Fund may purchase put options to hedge against
a decline in the market value of its equity holdings. By buying a put, the
Fund has a right to sell the underlying security at the exercise price, thus
limiting the
3
<PAGE>
Fund's risk of loss through a decline in the market value of the security
until the put option expires. The amount of any appreciation in the value of
the underlying security will be offset partially by the amount of the premium
paid for the put option and any related transaction costs. Prior to its
expiration, a put option may be sold in a closing sale transaction; profit or
loss from the sale will depend on whether the amount received is more or less
than the premium paid for the put option plus the related transaction cost.
A closing sale transaction cancels out the Fund's position as the purchaser
of an option by means of an offsetting sale of an identical option prior to
the expiration of the option it has purchased. In certain circumstances, the
Fund may purchase call options on securities held in its portfolio on which
it has written call options or on securities which it intends to purchase.
The Fund may purchase either exchange-traded options or OTC options. The
Fund will not purchase options on securities (including stock index options
discussed below) if as a result of such purchase, the aggregate cost of all
outstanding options on securities held by the Fund would exceed 5% of the
market value of the Fund's total assets.

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

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

The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or
received. Instead, an amount of cash or securities acceptable to the broker
and the relevant contract market, which varies, but is generally about 5% of
the contract amount, must be deposited with the broker. This amount is known
as "initial margin" and represents a "good faith" deposit assuring the
performance of both the purchaser and seller under the financial futures
contract. Subsequent payments to and from the broker, called "variation
margin", are required to be made on a daily basis as the price of the
financial futures contract fluctuates, making the long and short positions in
the financial futures contract more or less valuable, a process known as
"mark to the market". At any time prior to the settlement date of the
financial futures contract, the position may be closed out by taking an
opposite position which will operate to terminate the position in the
financial futures contract. A final determination of variation margin is
then made, additional cash is required to be paid to or released by the
broker, and the purchaser realizes a loss or gain. In addition, a nominal
commission is paid on each completed sale transaction.

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

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

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

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

Forward Foreign Exchange Transactions. Generally, the foreign exchange
transactions of the Fund will be conducted on a spot, i.e., cash, basis at
the spot rate for purchasing or selling currency prevailing in the foreign
exchange market. This rate under normal market conditions differs from the
prevailing exchange rate in an amount generally less than 1/10 of 1% due to
the costs of converting from one currency to another. However, the Fund has
authority to deal in forward foreign exchange between currencies of the
different countries in whose securities it will invest as a hedge against
possible variations in the foreign exchange rates between these currencies.
This is accomplished through contractual agreements to purchase or sell a
specified currency at a specified future date and price set at the time of
the contract. The Fund's dealings in forward foreign exchange will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward foreign
currency with respect to specific receivables or payables of the Fund
accruing in connection with the purchase and sale of its portfolio
securities, the sale and redemption of shares of the Fund or the payment of
dividends by the Fund. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted
in such foreign currency. The Fund will not speculate in forward foreign
exchange. The Fund may not position hedge with respect to the currency of a
particular country to an extent greater than the aggregate market value (at
the time of making such sale) of the securities held in its portfolio
denominated or quoted in that particular foreign currency. If the Fund
enters into a position hedging transaction, its custodian will place cash or
liquid debt securities in a separate account of the Fund in an amount equal
to the value of the Fund's total assets committed to the consummation of such
forward contract. If the value of the securities placed in the separate
account declines, additional cash or securities will be placed in the account
so that the value of the account will equal the amount of the Fund's
commitment with respect to such contracts. The Fund will not enter into a
position hedging commitment if, as a result thereof, the Fund would have more
than 15% of the value of its total assets committed to such contracts. The
Fund will not enter into a forward contract with a term of more than one
year.

The Fund also is authorized to purchase or sell listed or over-the-
counter foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-U.S. Dollar denominated securities owned by the
Fund, sold by the Fund but not yet delivered, or committed or anticipated to
be purchased by the Fund. As an illustration, the Fund may use such
techniques to hedge the stated value in U.S. dollars of an investment in a
pound denominated security. In such circumstances, for example, the Fund may
purchase a foreign currency put option enabling it to sell a specified amount
of pounds for dollars at a specified price by a future date. To the extent
the hedge is successful, a loss in the value of the relative to the dollar
will tend to be offset by an increase in the value of the put option.
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<PAGE>
To offset, in whole or part, the cost of acquiring such a put option, the
Fund also may sell a call option which, if exercised, requires it to sell a
specified amount of pounds for dollars 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 pound to the dollar. The Manager
believes that "straddles" of the type which may be utilized by the Fund
constitute hedging transactions and are consistent with the policies
described above.

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

OTHER INVESTMENT POLICIES AND PRACTICES

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

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

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<PAGE>

Repurchase Agreements and Purchase and Sale Contracts. The Fund may
invest in securities pursuant to repurchase agreements or purchase and sale
contracts. Repurchase agreements may be entered into only with a member bank
of the Federal Reserve System or a primary dealer in U.S. Government
securities, or an affiliate thereof. Purchase and sale contracts may be
entered into only with financial institutions which have capital of at least
$50 million or whose obligations are guaranteed by an entity having capital
of at least $50 million. Under such agreements, the other party agrees, upon
entering into the contract with the Fund, to repurchase the security at a
mutually agreed upon time and price in a specified currency, thereby
determining the yield during the term of the agreement. This results in a
fixed rate of return insulated from market fluctuations during such period
although it may be affected by currency fluctuations. In the case of
repurchase agreements, the price at which the trades are conducted do not
reflect accrued interest on the underlying obligation; whereas, in the case
of purchase and sale contracts, the prices take into account accrued
interest. Such agreements usually cover short periods, such as under one
week. Repurchase agreements may be construed to be collateralized loans by
the purchaser to the seller secured by the securities transferred to the
purchaser. In the case of a repurchase agreement, as a purchaser, the Fund
will require the seller to provide additional collateral if the market value
of the securities falls below the repurchase price at any time during the
term of the repurchase agreement; the Fund does not have the right to seek
additional collateral in the case of purchase and sale contracts. In the
event of default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by the Fund but
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs or
possible losses in connection with the disposition of the collateral. A
purchase and sale contract differs from a repurchase agreement in that the
contract arrangements stipulate that the securities are owned by the Fund.
In the event of a default under such a repurchase agreement or under a
purchase and sale contract, instead of the contractual fixed rate, the rate
of return to the Fund would be dependent upon intervening fluctuations of the
market values of such securities and the accrued interest on the securities.
In such event, the Fund would have rights against the seller for breach of
contract
7
<PAGE>
with respect to any losses arising from market fluctuations following the
failure of the seller to perform. Repurchase agreements and purchase and
sale contracts maturing in more than seven days are deemed to be illiquid by
the Securities and Exchange Commission and are therefore subject to the
Fund's investment restriction limiting investments in securities that are not
readily marketable to 15% of the Fund's total assets. (However, under the
law of certain states, the Fund presently is limited with respect to such
investments to 10% of its total assets.) See "Investment Restrictions"
below.

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

INVESTMENT RESTRICTIONS

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

1. Invest more than 25% of its total assets, taken at market value at
the time of each investment, in the securities of issuers in any
particular industry (excluding the U.S. Government and its agencies and
instrumentalities).

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

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

4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances and repurchase agreements
and purchase and sale contracts and 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 this Prospectus and the 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.

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<PAGE>
6. Borrow money, except that the Fund (i) 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) may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) 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 this Prospectus and the Statement of Additional Information, as they
may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.

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

8. Purchase or sell commodities or contracts on commodities, except to
the extent 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 the Fund registering as a
commodity pool operator under the Commodity Exchange Act.

Notwithstanding the provisions of investment restriction (6) above, the
Fund currently does not intend to purchase any securities on margin. The
deposit or payment by the Fund of initial or variation margin in connection
with financial futures contracts or the related options, if applicable, shall
not be considered the purchase of a security on margin.

Additional non-fundamental investment restrictions adopted by the Fund,
which may be changed by the Directors without shareholder approval, provide
that the Fund may not:

a. Purchase securities of other investment companies, except to the
extent that such purchases are permitted by applicable law. Applicable
law currently prohibits the Fund from purchasing the securities of other
investment companies only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the
Fund, (ii) 5% of the Fund's total assets, taken at market value, would
be invested in any one such company, (iii) 10% of the Fund's total
assets, taken at market value, would be invested in such securities, and
(iv) the Fund, together with other investment companies having the same
investment adviser and companies controlled by such companies, owns not
more than 10% of the total outstanding stock of any one closed-end
investment company. Investments by the Fund in wholly-owned investment
entities created under the laws of certain countries will not be deemed
an investment in other investment companies.

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

c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions, or which cannot otherwise be
marketed, redeemed, put to the issuer or to a third party, if at the
time of acquisition more than 15% of its total assets would be invested
in such securities. This restriction shall not apply to securities
which mature within seven days or securities which the Board of
Directors of the Fund has otherwise determined to be liquid pursuant to
applicable law. Notwithstanding the 15% limitation herein, to the
extent that the laws of any state in which the Fund's shares are
registered or qualified for sale require a lower limitation, the Fund
will observe such limitation. As of the date hereof, therefore, the
Fund will not invest more than 10% of its total assets in securities
which are subject to this investment restriction (c). Securities
purchased in accordance with Rule 144A under the Securities Act (each, a
"Rule 144A security") and determined to be liquid by the Board of
Directors are not subject to the limitations set forth in this
investment restriction (c). Notwithstanding the fact that the Board may
determine that a Rule 144A security is liquid and not subject to
limitations set forth in this investment restriction (c), the State of
Ohio does not recognize Rule 144A securities as securities that are free
or restrictions as to resale. To the extent required by Ohio law, the
Fund will not invest more than 50% of its total assets in securities of
issuers that are restricted as to disposition, including Rule 144A
securities.

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

e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities, asset-
backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.

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

g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development
activities.

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

i. Notwithstanding fundamental investment restriction (6) above,
borrow money or pledge its assets, except that the Fund (a) may borrow
from a bank as a temporary measure for extraordinary or emergency
purposes or to meet redemptions in amounts not exceeding 33 1/3% (taken
at market value) of its total assets and pledge its assets to secure
such borrowings, (b) may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of portfolio
securities and (c) may purchase securities on margin to the extent
permitted by applicable law. However, at the present time, applicable
law prohibits the Fund from purchasing securities on margin. The
deposit or payment by the Fund of initial or variation margin in
connection with financial futures contracts or options transactions is
not considered to be the purchase of a security on margin. The purchase
of securities while borrowings are outstanding will have the effect of
leveraging the Fund. Such leveraging or borrowing increases the Fund's
exposure to capital risk, and borrowed funds are subject to interest
costs which will reduce net income. The Fund will not purchase
securities while borrowings exceed 5% of its total assets.

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

The staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased over-the-counter ("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 financial futures
contracts exceeds 15% of the total assets of the Fund, taken at market value,
together with all other assets of the Fund which are illiquid or are not
otherwise readily marketable. (Under the law of certain states, the Fund
presently is limited with respect to such investments to 10% of its net
assets.) However, if the OTC option is sold by the Fund to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New
York and if the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund will
treat as illiquid such amount of the underlying securities as is equal to the
repurchase price less the amount by which the option is "in-the-money" (i.e.,
current market value of the underlying securities minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received for the
option, plus the amount by which the option is "in-the-money". This policy
as to OTC options is not a fundamental policy of the Fund and may be amended
by the Board of Directors of the Fund without the approval of the Fund's
shareholders. However, the Fund will not
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<PAGE>
change or modify this policy prior to the change or modification by the
Securities and Exchange Commission staff of its position.

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

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

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

MANAGEMENT OF THE FUND

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

ARTHUR ZEIKEL-President and Director(1)(2)-President and Chief
Investment Officer of the Manager (which term, as used herein, includes its
corporate predecessors) since 1976; President of Fund Asset Management, L.P.
("FAM"; which term, as used herein, includes its corporate predecessors)
since 1977 and Chief Investment Officer since 1976; President and Director of
Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice
President of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") since 1990 and a Senior Vice President thereof from 1985 to 1990;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since
1990; Director of Merrill Lynch Funds Distributor, Inc. (the "Distributor").

(OTHER DIRECTORS TO BE PROVIDED BY AMENDMENT)

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

DONALD C. BURKE-Vice President(1)(2)-Vice President and Director of
Taxation of the Manager and FAM since 1990; employee of Deloitte & Touche LLP
from 1982 to 1990.

GRACE PINEDA-Vice President(1)-Vice President of the Manager since 1989.
Prior to joining the Manager, Ms. Pineda was a portfolio manager with
Clemente Capital, Inc.

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GERALD M. RICHARD-Treasurer(1)(2)-Senior Vice President and Treasurer of
the Manager and FAM since 1974; Senior Vice President and Treasurer of
Princeton Services since 1993; Vice President of the Distributor since 1981
and Treasurer since 1984.

MICHAEL J. HENNEWINKEL-Secretary(1)(2)-Vice President of the Manager and
FAM since 1985; attorney associated with the Manager and FAM since 1982.

______________________
(1) Interested person, as defined in the Investment Company Act, of the
Fund.
(2) Such Director or officer is a director, trustee or officer of certain
other investment companies for which the Manager, or an affiliate, FAM,
acts as investment adviser or manager.

At ____________, 1994, the Directors and officers of the Fund as a group
(__ persons) owned an aggregate of less than 1% of the outstanding shares of
the Fund. At such date, Mr. Zeikel, a Director of the Fund, and the other
officers of the Fund, owned less than 1% of the outstanding shares of common
stock of ML & Co.

The Fund pays each Director who is not affiliated with the Manager
(each, a "non-affiliated Director") a fee of $_____ per year plus $___ per
Board meeting attended, together with such Director's actual out-of-pocket
expenses relating to attendance at meetings. The Fund also compensates
members of its Audit and Nominating Committee, which consists of all of the
non-affiliated Directors, at a rate of $___ per meeting attended. The
Chairman of the Audit and Nominating Committee receives an additional fee of
$___ per meeting attended.

MANAGEMENT AND ADVISORY ARRANGEMENTS

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

Securities held by the Fund also may be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Manager or its affiliates act as an adviser. Because of different objectives
or other factors, a particular security may be bought for one or more clients
when one or more clients are selling the same security. If purchases or
sales of securities by the Manager for the Fund or other funds for which they
act as investment adviser or for other advisory clients arise for
consideration at or about the same time, transactions in such securities will
be made, insofar as feasible, for the respective funds and clients in a
manner deemed equitable to all. To the extent that transactions on behalf of
more than one client of the Manager or its affiliates during the same period
may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.

The Fund has entered into a management agreement (the "Management
Agreement") with the Manager. As described in the Prospectus, the Manager
receives for its services to the Fund monthly compensation at the annual rate
of (1.00)% of the average daily net assets of the Fund.

The State of California imposes limitations on the expenses of the Fund.
These expense limitations require that the Manager reimburse the Fund in an
amount necessary to prevent the ordinary operating expenses of the Fund
(excluding interest, taxes, distribution fees, brokerage fees and commissions
and extraordinary charges such as litigation costs) from exceeding in any
fiscal year 2.5% of the Fund's first $30 million of average daily net assets,
2.0% of the next $70 million of average daily net assets and 1.5% of the
remaining average daily net assets. The Manager's obligation to reimburse
the Fund is limited to the amount of the management fee. No fee payment will
be made to the Manager during any fiscal year which will cause such expenses
to exceed the most restrictive expense limitation applicable at the time of
such payment.

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

The Manager is a limited partnership, the partners of which are ML &
Co., Merrill Lynch Investment Management, Inc. and Princeton Services.
Duration and Termination. Unless earlier terminated as described below,
the Management Agreement will continue in effect for a period of two years
from the date of execution and will remain in effect from year to year
thereafter if approved annually (a) by the Board of Directors 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 contracts or "interested persons"
(as defined in the Investment Company Act) of any such party. Such contracts
are not assignable and may be terminated without penalty on 60 days' written
notice at the option of either party thereto or by the vote of a majority of
the shareholders of the Fund.

PURCHASE OF SHARES

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

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

The Merrill Lynch Select Pricing System is used by more than 50 mutual
funds advised by the Manager or an affiliate, FAM. Funds advised by the
Manager or FAM are referred to herein as "MLAM-advised mutual funds".

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

13
<PAGE>
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES

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

Closed-End Fund Investment Option. Class A shares of the Fund and of other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net
asset value to shareholders of certain MLAM-advised closed-end funds who 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. First, the sale of the closed-end fund shares must be made
through Merrill Lynch, and the net proceeds therefrom must be reinvested
immediately in Eligible Class A Shares or Class D shares. Second, the
closed-end fund shares must either have been acquired in the initial public
offering or be shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares must have been
maintained continuously in a Merrill Lynch securities account. Fourth, there
must be a minimum purchase of $250 to be eligible for the investment option.
For example, Class A shares of the Fund are offered at net asset value to
shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. ("Senior
Floating Rate Fund") who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock of Senior Floating Rate Fund in
shares of the Fund. In order to exercise this investment option, Senior
Floating Rate Fund shareholders must sell their Senior Floating Rate Fund
shares to the Senior Floating Rate Fund and reinvest the proceeds immediately
in the Fund. This investment option is available only with respect to the
proceeds of Senior Floating Rate Fund shares as to which no Early Withdrawal
Charge (as defined in the Senior Floating Rate Fund's prospectus) is
applicable. Purchase orders from Senior Floating Rate Fund shareholders
wishing to exercise this investment option will be accepted only on the day
that the related Senior Floating Rate Fund tender offer terminates and will
be effected at the net asset value of the Fund at such day.

REDUCED INITIAL SALES CHARGES

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

Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $(10,000) or more of Class A or Class D shares of the Fund or any
other MLAM-advised mutual fund made within a thirteen-month period starting
with the first purchase pursuant to a Letter of Intention in the form
provided in the Prospectus. The Letter of Intention is available only to
investors whose accounts are maintained at Financial Data Services, Inc., the
Fund's transfer agent (the "Transfer Agent"). The Letter of Intention is not
available to employee benefit plans for which Merrill Lynch provides
plan-participant record-keeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares;
however, its execution will result in the purchaser paying a lower sales
charge at the appropriate quantity purchase level. A purchase not originally
made pursuant to a Letter of Intention may be included under a subsequent
Letter of Intention executed within 90 days of such purchase if the
Distributor is informed in writing
14
<PAGE>
of this intent within such 90-day period. The value of Class A or Class D
shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the
first purchase under the Letter of Intention, may be included as a credit
toward completion of such Letter, but the reduced sales charge applicable to
the amount covered by such Letter will be applied only to new purchases. If
the total amount of shares does not equal the amount stated in the Letter of
Intention (minimum of $10,000), the investor will be notified and must pay,
within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares purchased at the reduced rate
and the sales charge applicable to the shares actually purchased through the
Letter. Class A or Class D shares equal to five percent of the intended
amount will be held in escrow during the 13-month period (while registered in
the name of the purchaser) for this purpose. The first purchase under the
Letter of Intention must be at least five percent of the dollar amount of
such Letter. If a purchase during the term of such Letter otherwise would be
subject to a further reduced sales charge based on the right of accumulation,
the purchaser will be entitled on that purchase and subsequent purchases to
the reduced percentage sales charge which would be applicable to a single
purchase equal to the total dollar value of the Class A or Class D shares
then being purchased under such Letter, but there will be no retroactive
reduction of the sales charges on any previous purchase.

The value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the Letter of Intention will
be deducted from the total purchases made under such Letter. An exchange
from Merrill Lynch Government Fund, Merrill Lynch Institutional Fund, Merrill
Lynch U.S. Treasury Money Fund, Merrill Lynch Ready Assets Trust, Merrill
Lynch Retirement Reserves Money Fund Merrill Lynch Institutional Tax-Exempt
Fund or Merrill Lynch U.S.A. Government Reserves into the Fund that creates a
sales charge will count toward completing a new or existing Letter of
Intention from the Fund.

(ADD BLUEPRINT PROGRAM DISCLOSURE?)

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

Employer Sponsored Retirement or Savings Plans. Class A and Class D
shares are offered at net asset value to employer sponsored retirement or
savings plans, such as tax qualified retirement plans within the meaning of
Section 401(a) of the Code and deferred compensation plans within the meaning
of Sections 403(b) and 457 of the Code, other deferred compensation
arrangements, Voluntary Employee Benefits Association ("VEBA") plans, and
non-qualified After Tax Savings and Investment programs, maintained on the
Merrill Lynch Group Employee Services system, herein referred to as "Employer
Sponsored Retirement or Savings Plans", provided that the plan has
accumulated $20 million or more in MLAM-advised mutual funds (in the case of
Class A shares) or $5 million or more in MLAM-advised mutual funds (in the
case of Class D shares). Class D shares may be offered at net asset value to
new Employer Sponsored Retirement or Savings Plans, provided that the plan
has $3 million or more initially invested in MLAM-advised mutual funds.
Assets of Employer Sponsored Retirement or Savings Plans with the same
sponsor or an affiliated sponsor may be aggregated. Class A and Class D
shares also are offered at net asset value to Employer Sponsored Retirement
or Savings Plans that have at least 1,000 employees eligible to participate
in the plan (in the case of Class A shares) or between 500 and 999 employees
eligible to participate in the plan (in the case of Class D shares).
Employees eligible to participate in Employer Sponsored Retirement or Savings
Plans of the same sponsoring employer or its affiliates may be aggregated.
(ADD BLUEPRINT SENTENCE?) Any Employer Sponsored Retirement or Savings Plan
which does not meet the above described qualifications to purchase Class A
shares or Class D at net asset value has the option of (i) purchasing Class A
shares at the initial sales charge schedule and possible CDSC schedule
disclosed in the Prospectus if it is otherwise eligible to purchase Class A
shares, (ii) purchasing Class D shares at the initial sales charge and
possible CDSC schedule disclosed in the Prospectus, (iii) if the Employer
Sponsored Retirement or Savings Plan meets the specified requirements,
purchasing Class B shares with a waiver of the CDSC upon redemption, or (iv)
if the Employer Sponsored Retirement or Savings Plan does not qualify to
purchase Class B shares with a waiver of the CDSC upon redemption, purchasing
Class C shares at the CDSC schedule disclosed in the Prospectus. The minimum
initial and subsequent purchase requirements are waived in connection with
all of the above referenced Employer Sponsored Retirement or Savings Plans.

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

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

Class D shares of the Fund also are offered at net asset value, without
a sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund 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 such fund
was subject to a sales charge either at the time of purchase or on a deferred
basis. Second, such purchase of Class D shares must be made within 90 days
after such notice.

Class D shares of the Fund will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer, if the following
conditions are satisfied: First, the investor must advise Merrill Lynch that
it will purchase Class D shares of the Fund with proceeds from a redemption
of shares of such other mutual fund and that such shares have been
outstanding for a period of no less than six months. 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.
Acquisition of Certain Investment Companies. The public offering price
of Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation
with a public or private investment company. The value of the assets or
company acquired in a tax-free transaction may be adjusted in appropriate
cases to reduce possible adverse tax consequences to the Fund which might
result from an acquisition of assets having net unrealized appreciation which
is disproportionately higher at the time of acquisition than the realized or
unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations,
statutory mergers or other acquisitions of portfolio securities which (i)
meet the investment 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 at all times shall 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 Objectives 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.

DISTRIBUTION PLANS

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

16
<PAGE>
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act.
Among other things, each Distribution Plan provides that the Distributor
shall provide and the Directors shall review quarterly reports of the
disbursement of the account maintenance fees and/or distribution fees paid to
the Distributor. In their consideration of each Distribution Plan, the
Directors must consider all factors that they deem relevant, including
information as to the benefits of the Distribution Plan to the Fund and its
related class of shareholders. Each Distribution Plan further provides that,
so long as the Distribution Plan remains in effect, the selection and
nomination of Directors who are not "interested persons", as defined in the
Investment Company Act, of the Fund (the "Independent Directors"), shall be
committed to the discretion of the Independent Directors then in office. In
approving each Distribution Plan in accordance with Rule 12b-1, the
Independent Directors concluded that there is a reasonable likelihood that
such Distribution Plan will benefit the Fund and its related class of
shareholders. Each Distribution Plan may be terminated at any time, without
penalty, by the vote of a majority of the Independent Directors or by the
vote of the holders of a majority of the outstanding related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of the Directors, including a majority of the
Independent Directors who have no direct or indirect financial interest in
such Distribution Plan, cast in person at a meeting called for that purpose.
Rule 12b-1 further requires that the Fund preserve copies of each
Distribution Plan and any report made pursuant to such plan for a period of
not less than six years from the date of such Distribution Plan or such
report, the first two years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES

REDEMPTION OF SHARES

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

The right to redeem shares or to receive payment with respect to any
such redemption may be suspended for more than seven days only for periods
during which trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission or such Exchange is
closed (other than customary weekend and holiday closings), for any period
during which an emergency exists, as defined by the Securities and Exchange
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 Securities and Exchange
Commission by order may permit for the protection of shareholders of the
Fund.

The value of shares at the time of redemption may be more or less than
the shareholder's cost, depending on the market value of the securities held
by the Fund at such time.

17
<PAGE>

DEFERRED SALES CHARGES--CLASS B SHARES

As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares", while Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived on redemptions of Class B shares in
connection with certain post-retirement withdrawals from an Individual
Retirement Account ("IRA") or other retirement plan or following the death or
disability of a Class B shareholder. Redemptions for which the waiver
applies are: (a) any partial or complete redemption in connection with a
tax-free distribution following retirement under a tax-deferred retirement
plan or attaining age 59 1/2 in the case of an IRA or other retirement plan,
or part of a series of equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) or any redemption resulting
from the tax-free return of an excess contribution to an IRA; or (b) any
partial or complete redemption following the death or disability (as defined
in the Code) of a Class B or Class C shareholder (including one who owns the
Class B shares as joint tenant with his or her spouse), provided that the
redemption is requested within one year of the death or initial determination
of disability.

(ADD BLUEPRINT DISCLOSURE?)

Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A or Class D shares at net asset value has
the option of purchasing Class A or Class D shares at the sales charge
schedule disclosed in the Prospectus, or if the Retirement Plan meets the
following requirements, then it may purchase Class B shares with a waiver of
the CDSC upon redemption. The CDSC is waived for any Eligible 401(k) Plan
redeeming Class B shares. "Eligible 401(k) Plan" is defined as a retirement
plan qualified under Section 401(k) of the Code with a salary reduction
feature offering a menu of investments to plan participants. The CDSC also
is waived for redemptions from a 401(a) plan qualified under the Code,
provided, however, that each such plan has the same or an affiliated
sponsoring employer as an Eligible 401(k) Plan purchasing Class B shares of
MLAM-advised mutual funds ("Eligible 401(a) Plan"). Other tax qualified
retirement plans within the meaning of Section 401(a) of the Code which are
provided specialized services (e.g., plans whose participants may direct on a
daily basis their plan allocations among a menu of investments) by
independent administration firms contracted through Merrill Lynch also may
purchase Class B shares with a waiver of the CDSC. The CDSC also is waived
for any Class B shares which are purchased by an Eligible 401(k) Plan or
Eligible 401(a) Plan and are rolled over into a Merrill Lynch or Merrill
Lynch Trust Company custodied IRA and held in such account at the time of
redemption. The Class B CDSC also is waived for any Class B shares which are
purchased by a Merrill Lynch rollover IRA that was funded by a rollover from
a terminated 401(k) plan managed by the MLAM Private Portfolio Group and held
in such account at the time of redemption. The minimum initial and
subsequent purchase requirements are waived in connection with all the above
referenced Retirement Plans.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to policies established by the Board of Directors of the Fund,
the Manager is primarily responsible for the execution of the Fund's
portfolio transactions and the allocation of brokerage. In executing such
transactions, the Manager seeks to obtain the best net results for the Fund,
taking into account such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Manager generally seeks
reasonably competitive commission rates, the Fund does not necessarily pay
the lowest commission or spread available. The Fund has no obligation to
deal with any broker or group of brokers in execution of transactions in
portfolio securities. Subject to obtaining the best price and execution,
brokers who provide supplemental investment research to the Manager may
receive orders for transactions by the Fund. Information so received will be
in addition to and not in lieu of the services required to be performed by
the Manager under the Management Agreement and the expenses of the Manager
will not necessarily be reduced as a result of the receipt of such
supplemental information. It is possible that certain supplementary
investment research so received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised. Conversely, the Fund may be the primary beneficiary of the
research or services received as a result of portfolio transactions effected
for such other accounts or investment companies. In addition, consistent
with the
18
<PAGE>
Rules of Fair Practice of the NASD and policies established by the Board of
Directors of the Fund, the Manager may consider sales of shares of the Fund
as a factor in the selection of brokers or dealers to execute portfolio
transactions for the Fund.

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

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

The Fund may invest in securities traded in the OTC markets and intends
to deal directly with the dealers who make markets in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Under the Investment Company Act, persons affiliated with the
Fund and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Fund as principal in the purchase and sale
of securities unless a permissive order allowing such transactions is
obtained from the Securities and Exchange Commission. Since transactions in
the OTC market usually involve transactions with dealers acting as principal
for their own account, the Fund will not deal with affiliated persons,
including Merrill Lynch and its affiliates, in connection with such
transactions. However, affiliated persons of the Fund may serve as its
broker in OTC transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated broker is
reasonable and fair compared to the fee or commission received by
non-affiliated brokers in connection with comparable transactions. See
"Investment Objective and Policies--Investment Restrictions".

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

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

Section 11(a) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), generally prohibits members of the U.S. national
securities exchanges from executing exchange transactions for their
affiliates and institutional accounts which they manage unless the member (i)
has obtained prior express authorization from the account to effect such
transactions, (ii) at least annually furnishes the account with the aggregate
compensation received by the member in effecting such transactions, and (iii)
complies with any rules the Securities and Exchange 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.

DETERMINATION OF NET ASSET VALUE

The net asset value of the shares of the Fund is determined by the
Manager once daily Monday through Friday at 4:15 p.m., New York time, on each
day during which the New York Stock Exchange is open for trading. The New
York
19
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Stock Exchange is not open on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. Any assets or liabilities initially expressed in terms of non-U.S.
Dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the day of valuation. The
Fund also will determine its net asset value on any day in which there is
sufficient trading in its portfolio securities that the net asset value might
be affected materially, but only if on any such day the Fund is required to
sell or redeem shares. Net asset value is computed by dividing the value of
the securities held by the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares outstanding at
such time. Expenses, including the investment advisory fees and any account
maintenance and/or distribution fees, are accrued daily. The per share net
asset value of the Class B, Class C and Class D shares generally will be
lower than the per share net asset value of the Class A shares, reflecting
the daily expense accruals of the account maintenance, distribution and
higher transfer agency fees applicable with respect to the Class B and Class
C shares and the daily expense accruals of the account maintenance fees
applicable with respect to the Class D shares; moreover, the per share net
asset value of the Class B and Class C shares generally will be lower than
the per share net asset value of the Class D shares, reflecting the daily
expense accruals of the distribution fees and higher transfer agency fees
applicable with respect to the Class B and Class C shares of the Fund. It is
expected, however, that the per share net asset value of the four classes
will tend to converge immediately after the payment of dividends or
distributions, which will differ by approximately the amount of the expense
accrual differentials between the classes.

Portfolio securities which are traded on stock exchanges are valued at
the last sale price (regular way) on the exchange on which such securities
are traded, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price. In cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the Board of
Directors as the primary market. Securities traded in the OTC market are
valued at the last available bid price in the OTC market prior to the time of
valuation. When the Fund writes a call option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based upon the last asked price
in the case of exchange-traded options or, in the case of options traded in
the OTC market, the average of the last asked price as obtained from one or
more dealers. Options purchased by the Fund are valued at their last bid
price in the case of exchange-traded options or, in the case of options
traded in the OTC market, the average of the last bid price as obtained from
two or more dealers unless there is only one dealer, in which case that
dealer's price is used. Other investments, including 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 Board of Directors of the Fund. Such valuations and
procedures will be reviewed periodically by the Board of Directors.

Generally, trading in foreign securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day
at various times prior to the close of the New York Stock Exchange. 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 the New York Stock Exchange.
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 the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by the
Directors.

SHAREHOLDER SERVICES

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

INVESTMENT ACCOUNT

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<PAGE>
Each shareholder whose account is maintained at the Transfer Agent has
an "Investment Account" and will receive, at least quarterly, statements from
the Transfer Agent. The statements will serve as transaction confirmations
for automatic investment purchases and the reinvestment of income dividends.
The statements also will show any other activity in the account since the
preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of income dividends.

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

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

AUTOMATIC INVESTMENT PLANS

A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if an eligible Class A investor as described in
the Prospectus) or Class B, Class C or Class D shares at the applicable
public offering price either through the shareholder's securities dealer or
by mail directly to the Transfer Agent, acting as agent for such securities
dealer. Voluntary accumulation also can be made through a service known as
the Automatic Investment Plan whereby the Fund is authorized through
pre-authorized checks or automated clearing house debits of $50 or more to
charge the regular bank account of the shareholder on a regular basis to
provide systematic additions to the Investment Account of such shareholder.
An investor whose shares of the Fund are held within a CMA(Registered
Trademark) account may arrange to have periodic investments made in the Fund
in amounts of $250 or more ($1 for retirement accounts) through the
CMA(Registered Trademark) Automated Investment Program.

AUTOMATIC REINVESTMENT OF DIVIDENDS

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

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

SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES

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

21
<PAGE>
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder
may specify either a dollar amount or a percentage of the value of his or her
Class A or Class D shares. Redemptions will be made at net asset value as
determined at the close of business of the New York Stock Exchange (currently
4:00 P.M., New York City time) on the 24th day of each month or the 24th day
of the last month of each quarter, whichever is applicable. If the New York
Stock Exchange is not open for business on such date, the Class A or Class D
shares will be redeemed at the close of business on the following business
day. The check for the withdrawal payment will be mailed or the direct
deposit of the withdrawal payment will be made on the next business day
following redemption. When a shareholder is making systematic withdrawals,
dividends on all Class A or Class D shares in his or her Investment Account
automatically are reinvested in Fund Class A or Class D shares, respectively.
A shareholder's Systematic Withdrawal Plan may be terminated at any time,
without charge or penalty, by the shareholder, the Fund, the Transfer Agent
or the Distributor.

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

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

RETIREMENT PLANS

Self-directed 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 upon request from Merrill Lynch.
The minimum initial purchase to establish any such plan is $(100) and the
minimum subsequent purchase is $(1).

Capital gains and income received in each of the plans referred to above
are exempt from Federal taxation until distributed from the plan. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with
respect to the establishment and maintenance of any such plan.

EXCHANGE PRIVILEGE

Shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds listed below. Under
the Merrill Lynch Select Pricing System, Class A shareholders may exchange
Class A shares of the Fund for Class A shares of a second MLAM-advised mutual
fund if the shareholder holds any Class A shares of the second fund in his 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
MLAM-advised mutual fund, and the shareholder does not hold Class A shares of
the second fund in his or
22
<PAGE>
her account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive Class
D shares of the second fund as a result of the exchange. Class D shares also
may be exchanged for Class A shares of a second MLAM-advised mutual fund at
any time as long as, at the time of the exchange, the shareholder holds Class
A shares of the second fund in the account in which the exchange is made or
is otherwise eligible to purchase Class A shares of the second fund. Class
B, Class C and Class D shares will be exchangeable with shares of the same
class of other MLAM-advised mutual funds. For purposes of computing the CDSC
that may be payable upon a disposition of the shares acquired in the
exchange, the holding period for the previously owned shares of the Fund is
"tacked" to the holding period of the newly acquired shares of the other fund
as more fully described below. Class A, Class B, Class C and Class D shares
also will be exchangeable for shares of certain MLAM-advised money market
funds specifically designated below as available for exchange by holders of
Class A, Class B, Class C or Class D shares. Shares with a net asset value
of at least $100 are required to qualify for the exchange privilege, and any
shares utilized in an exchange must have been held by the shareholder for 15
days. It is contemplated that the exchange privilege may be applicable to
other new mutual funds whose shares may be distributed by the Distributor.

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

In addition, each of the funds with Class B or Class C shares
outstanding ("outstanding Class B or Class C shares") offers to exchange its
Class B or Class C shares for Class B or Class C shares, respectively, of
another MLAM-advised mutual fund ("new Class B or Class C shares") on the
basis of relative net asset value per Class B or Class C share, without the
payment of any CDSC that might otherwise be due on redemption of the
outstanding Class B or Class C shares. Class B or Class C 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 or Class C shares acquired through use of the
exchange privilege. In addition, Class B or Class C shares of the Fund
acquired through use of the exchange privilege will be subject to the Fund's
CDSC schedule if such schedule is higher than the CDSC schedule relating to
the Class B or Class C shares of the fund from which the exchange has been
made. For purposes of computing the sales charge that may be payable on a
disposition of the new Class B or Class C shares, the holding period for the
outstanding Class B or Class C shares is "tacked" to the holding period of
the new Class B or Class C shares. For example, an investor may exchange
Class B shares of the Fund for those of Merrill Lynch Special Value Fund,
Inc. ("Special Value Fund") after having held the Fund's Class B shares for
two and a half years. The 2.0% 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 Merrill Lynch 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 Merrill Lynch Special Value Fund Class
B shares, the investor will be deemed to have held the new Class B shares for
more than five years.

Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Manager or its affiliates, but the period of time
that Class B or Class C shares are held in a money market fund will not count
towards satisfaction of the holding period requirement for purposes of
reducing the CDSC, or with respect to Class B shares, towards satisfaction of
the conversion period. However, shares of a money market fund which were
acquired as a result of an exchange for Class B or Class C shares of the
Fund, in turn, may be exchanged back into Class B or Class C shares,
respectively, of any fund offering such shares, in which event the holding
period for Class B or Class C shares of the Fund will be aggregated with
previous holding periods for purposes of reducing the CDSC. Thus, for
example,
23
<PAGE>
an investor may exchange Class B shares of the Fund for shares of Merrill
Lynch Institutional Fund after having held the Fund Class B shares for two
and a half years and three years later decide to redeem the shares of Merrill
Lynch Institutional Fund for cash. At the time of this redemption, the 2.0%
CDSC that would have been due had the Class B shares of the Fund been
redeemed for cash rather than exchanged for shares of Merrill Lynch
Institutional Fund will be payable. If instead of such redemption the
shareholder exchanged such shares for Class B shares of a fund which the
shareholder continues to hold for an additional two and a half years, any
subsequent redemption will not incur a CDSC.

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

Funds Issuing Class A, Class B, Class C and Class D Shares:

MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. High current income consistent with a
policy of limiting the degree of
fluctuation in net asset value by
investing primarily in a portfolio of
adjustable rate securities,
consisting principally of
mortgage-backed and asset-backed
securities.

MERRILL LYNCH AMERICAS
INCOME FUND, INC. A high level of current income, consistent with
prudent investment risk, by investing
primarily in debt securities denominated
in a currency of a country located in the
Western Hemisphere (i.e., North and South
America and the surrounding waters).

MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose investment objective
is to provide investors with as
high a level of income exempt
from Federal and Arizona income
taxes as is consistent with
prudent investment management
through investment in a
portfolio primarily of

intermediate-term investment
grade Arizona Municipal Bonds.

MERRILL LYNCH ARIZONA
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and Arizona income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH ARKANSAS
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and Arkansas income
taxes as is consistent with prudent
investment management.

24
<PAGE>
MERRILL LYNCH ASSET GROWTH
FUND, INC. High total investment return, consistent with
prudent risk, from investment in United States
and foreign equity, debt and money market
securities the combination of which will be
varied both with respect to types of securities
and markets in response to changing market and
economic trends.

MERRILL LYNCH ASSET INCOME
FUND, INC. A high level of current income through investment
primarily in United States fixed income
securities.

MERRILL LYNCH BALANCED FUND
FOR INVESTMENT AND RETIREMENT As high a level of total investment
return as is consistent with
reasonable risk by investing in
common stocks and other types of
securities, including fixed
income securities and
convertible securities.

MERRILL LYNCH BASIC
VALUE FUND, INC. Capital appreciation and, secondarily, income
through investment in securities,
primarily equities, that are undervalued
and therefore represent basic investment
value.

MERRILL LYNCH CALIFORNIA
INSURED MUNICIPAL BOND FUND A portfolio of Merrill Lynch
California Municipal Series
Trust, a series fund, whose
investment objective is to
provide investors with as high a
level of income exempt from
Federal and California income
taxes as is consistent with
prudent investment management
through investment in a
portfolio consisting primarily

of insured California Municipal
Bonds.

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

25
<PAGE>
MERRILL LYNCH CALIFORNIA
MUNICIPAL BOND FUND A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and California income
taxes as is consistent with prudent
investment management.

MERRILL LYNCH
CAPITAL FUND, INC. The highest total investment return consistent
with prudent risk through a fully managed
investment policy utilizing equity, debt
and convertible securities.

MERRILL LYNCH COLORADO
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and Colorado income
taxes as is consistent with prudent
investment management.

MERRILL LYNCH CONNECTICUT
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and Connecticut income
taxes as is consistent with prudent
investment management.

MERRILL LYNCH CORPORATE
BOND FUND, INC. Current income from three separate diversified
portfolios of fixed income securities.

MERRILL LYNCH DEVELOPING
CAPITAL MARKETS FUND, INC. Long-term appreciation through
investment in securities,
principally equities, of issuers
in countries having smaller
capital markets.

MERRILL LYNCH DRAGON
FUND, INC. Capital appreciation primarily through investment in
equity and debt securities of issuers domiciled
in developing countries located in Asia and the
Pacific Basin.

MERRILL LYNCH EUROFUND Capital appreciation primarily through
investment in equity securities of
corporations domiciled in Europe.

26
<PAGE>
MERRILL LYNCH FEDERAL
SECURITIES TRUST High current return through investment in U.S.
Government and Government agency
securities, including GNMA mortgage-
backed certificates and other
mortgage-backed Government securities.

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

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

MERRILL LYNCH FUND
FOR TOMORROW, INC. Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially
positioned to benefit from demographic and
cultural changes as they affect consumer
markets.

MERRILL LYNCH FUNDAMENTAL
GROWTH FUND, INC. Long-term growth of capital through investment
in a diversified portfolio of equity
securities placing particular emphasis on
companies that have exhibited an
above-average growth rate in earnings.

MERRILL LYNCH GLOBAL
ALLOCATION FUND, INC. High total return consistent with prudent
risk, through a fully managed
investment policy utilizing U.S. and
foreign equity, debt and money market
securities, the combination of which
will be varied from time to time both
with respect to the types of
securities and markets in response to
changing market and economic trends.

27
<PAGE>
MERRILL LYNCH GLOBAL BOND FUND FOR
INVESTMENT AND RETIREMENT High total investment return from
investment in a global portfolio
of debt investments denominated
in various currencies and multi-
national currency units.

MERRILL LYNCH GLOBAL
CONVERTIBLE FUND, INC. High total return from investment
primarily in an internationally
diversified portfolio of convertible
debt securities, convertible
preferred stock and "synthetic"
convertible securities consisting of
a combination of debt securities or
preferred stock and warrants or
options.

MERRILL LYNCH GLOBAL HOLDINGS
(residents of Arizona must meet
investor suitability standards). The highest total investment
return consistent with
prudent risk through
worldwide investment in an
internationally diversified
portfolio of securities.

MERRILL LYNCH GLOBAL RESOURCES TRUST Long-term growth and protection
of capital from investment
in securities of domestic
and foreign companies that
possess substantial natural
resource assets.

MERRILL LYNCH GLOBAL SMALLCAP
FUND, INC. Long-term growth of capital by investing primarily
in equity securities of companies with
relatively small market capitalizations located
in various foreign countries and in the United
States.

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

MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT Growth of capital and, secondarily,
income from investment in a
diversified portfolio of equity
securities placing a principal
emphasis on those securities
which management of the fund
believes to be undervalued.

MERRILL LYNCH HEALTHCARE FUND, INC.
(residents of Wisconsin must meet
investor suitability standards) Capital appreciation through
worldwide investment in
equity securities of
companies that derive or
are expected to derive a
substantial portion of
their sales from products
and services in healthcare.

28
<PAGE>
MERRILL LYNCH INTERNATIONAL
EQUITY FUND Capital appreciation and, secondarily, income by
investing in a diversified portfolio of equity
securities of issuers located in countries
other than the United States.

MERRILL LYNCH LATIN
AMERICA FUND, INC. Capital appreciation by investing primarily in
Latin American equity and debt securities.

MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and Maryland income
taxes as is consistent with prudent
investment management.

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

MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and Massachusetts
income taxes as is consistent with prudent
investment management.

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

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<PAGE>
MERRILL LYNCH MICHIGAN
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and Michigan income
taxes as is consistent with prudent
investment management.

MERRILL LYNCH MINNESOTA
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and Minnesota income
taxes as is consistent with prudent
investment management.

MERRILL LYNCH MUNICIPAL
BOND FUND, INC Tax-exempt income from three separate diversified
portfolios of municipal bonds.

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

MERRILL LYNCH NEW JERSEY LIMITED
MATURITY MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose investment objective
is to provide investors with as
high a level of income exempt
from Federal and New Jersey
income taxes as is consistent
with prudent investment
management through a portfolio
primarily of intermediate-term
investment grade New Jersey
Municipal Bonds.

MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and New Jersey income
taxes as is consistent with prudent
investment management.

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MERRILL LYNCH NEW MEXICO
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and New Mexico income
taxes as is consistent with prudent
investment management.

MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose investment objective
is to provide investors with as
high a level of income exempt
from Federal, New York State and
New York City income taxes as is
consistent with prudent
investment management through
investment in a portfolio
primarily of intermediate-term
investment grade New York
Municipal Bonds.

MERRILL LYNCH NEW YORK
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal, New York State and
New York City income taxes as is
consistent with prudent investment
management.

MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and North Carolina
income taxes as is consistent with prudent
investment management.

MERRILL LYNCH OHIO
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and Ohio income taxes
as is consistent with prudent investment
management.

MERRILL LYNCH OREGON
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series
fund, whose investment objective is
to provide investors with as high a
level of income exempt from Federal
and Oregon income taxes as is
consistent with prudent investment
management.

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<PAGE>
MERRILL LYNCH PACIFIC FUND, INC. Capital appreciation by investing in
equity securities of
corporations domiciled in Far
Eastern and Western Pacific
countries, including Japan,
Australia, Hong Kong, Singapore
and the Philippines.

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

MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose investment objective is to provide
investors with as high a level of income
exempt from Federal and Pennsylvania
income taxes as is consistent with prudent
investment management.

MERRILL LYNCH PHOENIX
FUND, INC. Long-term growth of capital by investing in equity
and fixed income securities, including
tax-exempt securities, of issuers in weak
financial condition or experiencing poor
operating results believed to be undervalued
relative to the current or prospective
condition of such issuer.

MERRILL LYNCH SHORT-TERM
GLOBAL INCOME FUND, INC. As high a level of current income as is
consistent with prudent investment
management from a global portfolio of
high quality debt securities
denominated in various currencies and
multinational currency units and
having remaining maturities not
exceeding three years.

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

MERRILL LYNCH STRATEGIC
DIVIDEND FUND Long-term total return from investment in dividend
paying common stocks which yield more than
Standard & Poor's 500 Composite Stock Price
Index.

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<PAGE>

MERRILL LYNCH TECHNOLOGY FUND, INC. Capital appreciation through
worldwide investment in
equity securities of
companies that derive or
are expected to derive a
substantial portion of
their sales from products
and services in technology.

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

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

MERRILL LYNCH WORLD INCOME FUND, INC. High current income by investing
in a global portfolio of
fixed income securities
denominated in various
currencies, including
multi-national currencies.

33
<PAGE>
Class A Share Money Market Funds:

MERRILL LYNCH READY ASSETS TRUST Preservation of capital, liquidity
and the highest possible current
income consistent with the
foregoing investment objectives
from the short-term money market
securities in which the Trust
invests.

MERRILL LYNCH RETIREMENT RESERVES
MONEY FUND (available only for exchanges
within certain retirement plans) Currently the only portfolio of
Merrill Lynch Retirement
Series Trust, a series
fund, whose investment
objectives are current
income, preservation of
capital and liquidity
available from investment
in a diversified portfolio
of short-term money market
securities.

MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES Preservation of capital, liquidity and current income
available from investment in direct obligations of the
U.S. Government and repurchase agreements relating to
such securities.

MERRILL LYNCH U.S. TREASURY
MONEY FUND Preservation of capital, liquidity and current income
through investment exclusively in a diversified
portfolio of short-term marketable securities which
are direct obligations of the U.S. Treasury.

Class B, Class C and Class D Share Money Market Funds:

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

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

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<PAGE>
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
investment objectives are to provide
investors with current income exempt from
Federal income taxes, preservation of
capital and liquidity available from
investment in a diversified portfolio of
short-term, high quality municipal bonds.

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

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

To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund
reserves the right to require a properly completed Exchange Application.
This exchange privilege may be modified or terminated in accordance with the
rules of the Securities and Exchange 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 thereafter may resume such offering from time
to time. The exchange privilege is available only to U.S. shareholders in
states where the exchange legally may be made.

TAXES

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

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

Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or
capital gains, generally will not be eligible for the dividends received
deduction allowed to corporations under the Code. If the Fund pays a
dividend in January that was declared in the previous October, November or
December to
35
<PAGE>
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.

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.

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 U.S. foreign tax credits with respect to
such taxes, subject to certain conditions and limitations contained in the
Code. For example, certain retirement accounts cannot claim foreign tax
credits on investments in foreign securities held in the Fund. If more than
50% in value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible,
and intends, to file an election with the Internal Revenue Service pursuant
to which shareholders of the Fund will be required to include their
proportionate shares of such withholding taxes in their U.S. income tax
returns as gross income, treat such proportionate shares as taxes paid by
them and deduct such proportionate shares in computing their taxable incomes
or, alternatively, use them as foreign tax credits against their U.S. income
taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that
is a nonresident alien individual or a foreign corporation may be subject to
U.S. withholding tax on the income resulting from the Fund's election
described in this paragraph but may not be able to claim a credit or
deduction against such U.S. tax for the foreign taxes treated as having been
paid by such shareholder. The Fund will report annually to its shareholders
the amount per share of such withholding taxes. For this purpose, the Fund
will allocate foreign taxes and foreign source income among the Class A,
Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Securities and Exchange Commission exemptive
order permitting the issuance and sale of multiple classes of stock) that is
based on the gross income allocable to Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other method as the Internal
Revenue Service may prescribe.

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

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<PAGE>
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 proposed regulations the Fund would be able to elect to
"mark to market" at the end of each taxable year all shares that it holds in
PFICs. If it made this election, the Fund would recognize as ordinary income
any increase in the value of such shares. Unrealized losses, however, would
not be recognized. By making the mark-to-market election, the Fund could
avoid imposition of the interest charge with respect to its distributions
from PFICs, but in any particular year might be required to recognize income
in excess of the distributions it received from PFICs and its proceeds from
dispositions of PFIC stock.

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

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.

TAX TREATMENT OF FUTURES, OPTIONS AND FORWARD FOREIGN EXCHANGE TRANSACTIONS

The Fund may write, purchase or sell futures, options or forward foreign
exchange contracts. Futures and options 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 financial futures
contract will be treated as sold for its fair market value on the last day of
the taxable year. Unless such contract is a non-equity option or a regulated
financial 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. The mark-to-market rules
outlined above, however, will not apply to certain transactions entered into
by the Fund solely to reduce the risk of changes in price or interest or
currency exchange rates with respect to its investments.

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

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

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

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<PAGE>

SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS

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

Under Code Section 988, special rules are provided for certain
transactions in a currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
Dollar). In general, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from financial futures contracts
that are not "regulated futures contracts" and from unlisted options will be
treated as ordinary income or loss under Code Section 988. In certain
circumstances, the Fund may elect capital gain or loss treatment for such
transactions. Regulated financial 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 any distributions made before the
losses were realized but in the same taxable year would be recharacterized as
a return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares, and resulting in a capital gain for any
shareholder who received a distribution greater than the shareholder's tax
basis in Fund shares (assuming that the shares were held as a capital asset).
These rules and the mark-to-market rules described above, however, will not

apply to certain transactions entered into by the Fund solely to reduce the
risk of currency fluctuations with respect to its investments.

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

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

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

PERFORMANCE DATA

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

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

The Fund also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and
as a dollar amount based on a hypothetical $1,000 investment, for various
periods other than those noted below. Such data will be computed as
described above, except that
(1) as required by the periods of the quotations, actual annual, annualized
or aggregate data, rather than average annual data, may be quoted, and (2)
the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the
average rates of return reflect compounding of return; aggregate total return
data generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over 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" and "Redemption of Shares", respectively, the total return data
quoted by the Fund in advertisements directed to such investors may take into
account reduced, and not the maximum, sales charge or may not take into
account the CDSC and therefore may reflect greater total return since, due to
the reduced sales charges or the waiver of sales charges, a lower amount of
expenses may be deducted.

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GENERAL INFORMATION

DESCRIPTION OF SHARES

The Fund was incorporated under Maryland law on March 15, 1994. It has
an authorized capital of 400,000,000 shares of Common Stock, par value $0.10
per share, divided into four classes, designated Class A, Class B, Class C
and Class D Common Stock, each of which consists of 100,000,000 shares.
Shares of Class A, Class B, Class C and Class D Common Stock represent
interests in the same assets of the Fund and have identical voting, dividend,
liquidation and other rights and the same terms and conditions 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 Fund has received an order (the
"Multi-Class System Order") from the Securities and Exchange Commission
permitting the issuance and sale of multiple classes of shares. The Multi-
Class System Order permits the Fund to issue additional classes of shares if
the Board of Directors deems such reissuance to be in the best interest of
the Fund. Upon liquidation of the Fund, shareholders of each class are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders, except for any expenses which may be
attributable only to one class. Shares have no preemptive or conversion
rights. The rights of redemption and exchange are described elsewhere herein
and in the Prospectus. Shares are fully paid and nonassessable by the Fund.

Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Directors (to
the extent hereafter provided) and on other matters submitted to a vote of
shareholders, except that shareholders of a class bearing account maintenance
and/or distribution expenses as provided above shall have exclusive voting
rights with respect to matters relating to such account maintenance and/or
distribution expenditures. 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 or conversion rights. Redemption
rights are discussed elsewhere herein and in the Prospectus. Each share of
Class A, Class B, Class C and Class D Common Stock is entitled to participate
equally in dividends declared by the Fund and in the net assets of the Fund
upon liquidation or dissolution after satisfaction of outstanding
liabilities, except that, as noted above, expenses related to the account
maintenance and/or distribution of the Class B, Class C and Class D shares
will be borne solely by such class. Stock certificates are issued by the
Transfer Agent only on specific request. Certificates for fractional shares
are not issued in any case.
The Manager provided the initial capital for the Fund by purchasing
10,000 shares of common stock of the Fund for $100,000. Such shares were
acquired for investment and can only be disposed of by redemption. The
organizational expenses of the Fund (estimated at approximately $________)
will be paid by the Fund and will be amortized over a period not exceeding
five years. The proceeds realized by the Manager upon the 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.

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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 projected value
of the Fund's estimated net assets and projected number of shares outstanding
on the date its shares first are offered for sale to public investors is as
follows:

CLASS A CLASS B CLASS C CLASS
------ ------ ------
D

Net Assets $25,000 $25,000 $25,000
$25,000
Number of Shares Outstanding 2,500 2,500
2,500 2,500
Net Asset Value Per Share (net
assets divided by number of
shares outstanding) $10.00 $10.00 $10.00$10.00
Sales Charge (for Class A and Class D
Shares: 5.25% of offering price
(______% of net amount invested*) $ . ** **$
--- ---- --
- - - - --
.
Offering Price $10. $10.00 $10.00$10.
____________________
* 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. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares"
in the Prospectus and "Redemption of Shares--Deferred Sales
Charges--Class B and Class C Shares" herein.

INDEPENDENT AUDITORS

__________________________________________, has been selected as the
independent auditors of the Fund. The selection of independent auditors is
subject to ratification by the shareholders of the Fund. In addition, the
employment of such auditors may be terminated without penalty by a vote of a
majority of the outstanding shares of the Fund at a meeting called for the
purpose of terminating such employment. The independent auditors are
responsible for auditing the annual financial statements of the Fund.

CUSTODIAN

_________________________________________, (the "Custodian"), acts as
the custodian of the Fund's assets. Under its contract with the Fund, the
Custodian is authorized, among other things, to establish separate accounts
in foreign currencies and to cause foreign securities owned by the Fund to be
held in its offices outside of the United States and with certain foreign
banks and securities depositories. The Custodian is responsible for
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and dividends on
the Fund's investments.

TRANSFER AGENT

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

LEGAL COUNSEL

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

41
<PAGE>
REPORTS TO SHAREHOLDERS

The fiscal year of the Fund ends on ___________ 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.

ADDITIONAL INFORMATION

The Prospectus and this Statement of Additional Information do not
contain all of 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.

42
<PAGE>
APPENDIX

RATINGS OF DEBT SECURITIES

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

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

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

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

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

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

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

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

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

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

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

43
<PAGE>
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

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

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

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

-- Leading market positions in well established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.

-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.

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

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

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

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

If an issuer represents to Moody's that its Commercial Paper obligations
are supported by the credit of another entity or entities, in assigning
ratings to such issuers, Moody's evaluates the financial strength of the
affiliated corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the total rating
assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement.

DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS

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

Preferred stock rating symbols and their definitions are as follows:

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

44
<PAGE>
"aa" An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance
the earnings and asset protection will remain relatively well
maintained in the foreseeable future.

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

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

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

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

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

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

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

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

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

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

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

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

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

45
<PAGE>
AAA Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.

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

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

BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.

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

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

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

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

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

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

C rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.

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

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

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

46
<PAGE>
c The letter c indicates that the holder's option to tender the
security for purchase may be canceled under certain prestated
conditions enumerated in the tender option documents.

L The letter L indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is federally insured and interest is adequately
collateralized. In the case of certificates of deposit, the letter
L indicates that the deposit, combined with other deposits being
held in the same right and capacity, will be honored for principal
and accrued pre-default interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the
event that the deposit is assumed by a successor insured
institution, upon maturity.

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

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

N.R. Not rated.

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

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

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the
relevant market. Ratings are graded into several categories, ranging from
"A-l" for the highest quality obligations to "D" for the lowest. These
categories are as follows:

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

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1".

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

B Issues rated "B" are regarded as having only speculative capacity
for timely payment.

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

47
<PAGE>
D Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal repayments are not made on
the date due, even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period.

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

DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS

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

The preferred stock ratings are based on the following considerations:

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

II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.

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

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

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

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

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

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

48
<PAGE>
C A preferred stock rated "C" is a non-paying issue.

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

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

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

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

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

of changes in, or unavailability of, such information, or based on other
circumstances.

49
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholder,
Merrill Lynch Middle East/Africa Fund, Inc.:

We have audited the accompanying statement of assets and liabilities of
Merrill Lynch Middle East/Africa Fund, Inc. as of ____________, 1994. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, such statement of assets and liabilities presents fairly, in
all material respects, the financial position of Merrill Lynch Middle
East/Africa Fund, Inc. as of _______________, 1994 in conformity with
generally accepted accounting principles.

Princeton, New Jersey
_______________, 1994

50
<PAGE>
MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES

_______________, 1994

Assets:
Cash in Bank $100,000
Prepaid registration fees (Note 3)

Deferred organization expenses (Note 4)
-------

Total Assets
Liabilities--accrued expenses
--------

Net Assets (equivalent to $10.00 per share
on 2,500 Class A shares of Common Stock
(par value $0.10), 2,500 Class B shares
of Common Stock (par value $0.10),
2,500 Class C shares of Common Stock
(par value $0.10) and 2,500 Class D
shares of Common Stock (par value $0.10)
outstanding with 400,000,000 shares authorized)
(Note 1) $100,000
_______________
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Middle East/Africa Fund, Inc. (the "Fund") was organized
as a Maryland corporation on March 15, 1994. The Fund is registered
under the Investment Company Act of 1940 as an open-end management
investment company. To date, the Fund has not had any transactions
other than those relating to organizational matters and the sale of
2,500 Class A shares, 2,500 Class B shares, 2,500 Class C shares and
2,500 Class D shares of Common Stock to Merrill Lynch Asset Management,
L.P. (the "Manager").

(2) The Fund has entered into a management agreement (the "Management
Agreement") with the Manager, and distribution agreements (the
"Distribution Agreements") with Merrill Lynch Funds Distributor, Inc.
(the "Distributor"). (See "Management of the Fund--Management and
Advisory Arrangements" in the Statement of Additional Information.)
Certain officers and/or directors of the Fund are officers and/or
directors of the Manager and the Distributor.

(3) Prepaid registration fees are charged to income as the related shares
are issued.

(4) Deferred organization expenses will be amortized over a period from the
date the Fund commences operations not exceeding five years. In the
event that the Manager (or any subsequent holder) redeems any of its
original shares prior to the end of the five-year period, the proceeds
of the redemption payable in respect of such shares shall be reduced by
the pro rata share (based on the proportionate share of the original
shares redeemed to the total number of original shares outstanding at
the time of redemption) of the unamortized deferred organization
expenses as of the date of such redemption. In the event that the Fund
is liquidated prior to the end of the five-year period, the Manager (or
any subsequent holder) shall bear the unamortized deferred organization
expenses.
51
<PAGE>

STATEMENT OF
ADDITIONAL INFORMATION
________________ (PICTURE)
TABLE OF CONTENTS
<S> <C>
Page
Investment Objective and Policies . . . . . . .
Hedging Techniques . . . . . . . . . . . .
Other Investment Policies and Practices .
Investment Restrictions . . . . . . . . .
Management of the Fund . . . . . . . . . . . .
Management and Advisory Arrangements . . .
Purchase of Shares . . . . . . . . . . . . . .
Initial Sales Charge Alternatives--
Class A and Class D Shares . . . . . . . MIDDLE EAST/AFRICA
Reduced Initial Sales Charges . . . . . . FUND, INC.
Distribution Plans . . . . . . . . . . . . .
Limitations on the Payment of
Deferred Sales Charges . . . . . . . . . .
Redemption of Shares . . . . . . . . . . . . .
Deferred Sales Charge--
Class B and Class C Shares . . . . . . . . . .
Portfolio Transactions and Brokerage . . . . .
Determination of Net Asset Value . . . . . . .
Shareholder Services . . . . . . . . . . . . .
Investment Account . . . . . . . . . . . .
Automatic Investment Plan . . . . . . . .
Automatic Reinvestment of Dividends . . . .
Systematic Withdrawal Plans--
Class A and Class D Shares . . . . . . . ___________, 1994
Exchange Privilege . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . Distributor:
Tax Treatment of Futures, Options and Merrill Lynch
Forward Foreign Exchange Funds Distributor, Inc.
Transactions . . . . . . . . . . . .
Performance Data . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . .
Description of Shares . . . . . . . . . .
Computation of Offering
Price Per Share . . . . . . . . . . . .
Independent Auditors . . . . . . . . . . .
Custodian . . . . . . . . . . . . . . . .
Transfer Agent . . . . . . . . . . . . . .
Legal Counsel . . . . . . . . . . . . . .
Reports to Shareholders . . . . . . . . .
Additional Information . . . . . . . . . .
Appendix . . . . . . . . . . . . . . . . . . .
Independent Auditors' Report . . . . . . . . .
Financial Statements . . . . . . . . . . . . . .

</TABLE>

<PAGE>
PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(A) FINANCIAL STATEMENTS

Contained in Part B:

Independent Auditors' Report

Statement of Assets and Liabilities as of ________, 1994.

(B) EXHIBITS

Exhibit
Number
- - - - ------
1 -- Amended and Restated Articles of Incorporation of the
Registrant.(a)
2 -- By-Laws of the Registrant.(a)
3 -- None.
4(a) -- Portions of the Articles of Incorporation and the By-Laws of the
Registrant defining the rights of shareholders.(b)
(b) -- Specimen Share Certificates for Class A, Class B, Class C and Class
D Shares.(a)
5 -- Form of Management Agreement between the Registrant and
Merrill Lynch Asset Management, L.P. (the "Manager").(a)
6(a) -- Form of Class A Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc. (the
"Distributor").(a)
(b) -- Form of Class B Shares Distribution Agreement between the
Registrant and the Distributor.(a)
(c) -- Form of Class C Shares Distribution Agreement between the
Registrant and the Distributor.(a)
(d) -- Form of Class D Shares Distribution Agreement between the
Registrant and the Distributor.(a)
(c) -- Letter Agreement between the Registrant and the Distributor with
respect to the Merrill Lynch Mutual Fund Adviser Program.(a)
7 -- None.
8 -- Form of Custody Agreement between the Registrant and
_____________________.(a)
9 -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the Registrant
and Financial Data Services, Inc. (the "Transfer Agent").(a)
10 -- Opinion of Brown & Wood, counsel for the Registrant.(a).
11 -- Consent of ____________, independent auditors for the
Registrant.(a)
12 -- None.
13 -- Certificate of the Manager.(a)
14 -- None.
15(a) -- Form of Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(a)
(b) -- Form of Class C Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(a)
(c) -- Form of Class D Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(a)
16 -- None.
17(a) -- Financial Data Schedule for Class A Shares.(a)
(b) -- Financial Data Schedule for Class B Shares.(a)
(c) -- Financial Data Schedule for Class C Shares.(a)
(d) -- Financial Data Schedule for Class D Shares.(a)
___________________
(a) To be filed by amendment.
(b) Reference is made to Article IV, Article V (Sections 3, 5, 6 and 7) and
Articles VI, VII and IX of the Registrant's Articles of Incorporation,
filed herewith as Exhibit 1 to the Registration Statement on Form N-1A
and to Article II, Article III (Sections 1, 3, 5 and 6) and Articles VI,
VII, XIII and XIV of the Registrant's By-Laws, filed herewith as Exhibit
2 to the Registration Statement on Form N-1A.

C-1
<PAGE>

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

Prior to the effective date of this Registration Statement, the Fund
will sell 2,500 Class A shares of its Common Stock, 2,500 Class B shares of
its Common Stock, 2,500 Class C shares of its Common Stock and 2,500 Class D
shares of its Common Stock to the Manager for an aggregate of $100,000.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS , 1994
------------- ------------

Class A Shares of Common Stock, par value $0.10 per share 0
Class B Shares of Common Stock, par value $0.10 per share 0
Class C Shares of Common Stock, par value $0.10 per share 0
Class D Shares of Common Stock, par value $0.10 per share 0

ITEM 27. 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 each of the Class A, Class
B, Class C and Class D Shares 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) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with the
preparation of a settlement; (ii) advances may be made only on receipt of a
written promise by, or on behalf of, the recipient to repay that amount of
the advance which exceeds the amount to which it is ultimately determined
that he is entitled to receive from the Registrant by reason of
indemnification; and (iii) (a) such promise must be secured by a surety bond,
other suitable insurance or an equivalent form of security which assumes that
any repayments may be obtained by the Registrant without delay or litigation,
which bond, insurance or other form of security must be provided by the
recipient of the advance and (b) a majority of a quorum of the Registrant's
disinterested non-party Directors, or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily available
facts, that the recipient of the advance ultimately will be found entitled to
indemnification.

In Section 9 of each 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 the Prospectus and Statement
of Additional Information.

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

C-2
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE MANAGER

The Manager acts as the investment adviser for the following registered
investment companies: Convertible Holdings, Inc., Merrill Lynch Adjustable
Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Balanced Fund for Investment and Retirement, Merrill Lynch Capital
Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill
Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental
Growth Fund, Inc., Merrill Lynch Fund for Tomorrow, Inc., Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment
and Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch
Global Holdings, Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch
Growth Fund for Investment and Retirement, Merrill Lynch Healthcare Fund,
Inc., Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund, Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc.,
Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust,
Merrill Lynch Senior Floating Rate Fund, Inc., 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.

Fund Asset Management, L.P., an affiliate of the Manager ("FAM"), acts
as the investment adviser for the following investment companies: Apex
Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA
Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA
Treasury Fund, The Corporate Fund Accumulation Program, Inc., Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund,
Inc., Financial Institutions Series Trust, Income Opportunities Fund 1999,
Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Basic Value Fund,
Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill
Lynch Funds for Institutions Series, Merrill Lynch Multi-State 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., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The Municipal
Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund,
Inc., MuniVest Fund, Inc., MuniVest Fund II Inc., MuniVest California Insured
Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc.,
MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield
Arizona Fund II, Inc., MuniYield California Fund, Inc., MuniYield California
Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield
Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund,
Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured
Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior
High Income Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and
Worldwide DollarVest Fund, Inc.

The address of each of these investment companies is Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series, Merrill Lynch Institutional Fund and Merrill
Lynch Institutional Tax-Exempt Fund is One Financial Center, 15th Floor,
Boston, Massachusetts 02111-2646. The address of the Manager, FAM, the
Distributor and Princeton Administrators, L.P. is also Box 9011, Princeton,
New Jersey 08543-9011. The address of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is
World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281. The address of the Transfer Agent is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.

Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
September 1, 1992, for his or her or its own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Zeikel is
President, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice President
of substantially all of the investment companies described in the preceding
paragraph, and Messrs. Durnin, Giordano, Harvey, Hewitt and Monagle are
directors, trustees or officers of one or more of such companies.

C-3
<PAGE>

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER VOCATION OR EMPLOYMENT
<S> <C> <C>
ML & CO. . . . . . . . . . . . . Limited Partner Financial Services Holding
Company; Limited Partner of FAM
MERRILL LYNCH INVESTMENT Investment Advisory Services
MANAGEMENT, INC. . . . . . . . . Limited Partner
PRINCETON SERVICES, INC.
("Princeton Services") . . . . . General Partner General Partner of FAM
ARTHUR ZEIKEL . . . . . . . . . . President President of FAM; President and
Director of Princeton Services;
Director of MLFD; Executive Vice
President of ML & Co.; Executive
Vice President of Merrill Lynch
TERRY K. GLENN . . . . . . . . . Executive Vice President Executive Vice President of FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
Director of the Transfer Agent;
President of Princeton
Administrators, L.P.
BERNARD J. DURNIN . . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
VINCENT R. GIORDANO . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services

ELIZABETH GRIFFIN Senior Vice President Senior Vice President of FAM
NORMAN R. HARVEY . . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
N. JOHN HEWITT . . . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
PHILIP L. KIRSTEIN . . . . . . . Senior Vice President, Senior Vice President, General
General Counsel and Secretary Counsel and Secretary of FAM;
Senior Vice President, General
Counsel, Director and Secretary
of Princeton Services; Director
of MLFD
RONALD M. KLOSS . . . . . . . . . Senior Vice President and Senior Vice President and
Controller Controller of FAM; Senior Vice
President of Princeton Services
STEPHEN M.M. MILLER . . . . . . . Senior Vice President Executive Vice President of
Princeton Administrators, L.P.

JOSEPH T. MONAGLE, JR. . . . . . Senior Vice President Senior Vice President of FAM;
Treasurer Treasurer of FAM; Senior Vice
President and Treasurer of
Princeton Services; Vice
President and Treasurer of MLFD
RICHARD L. RUFENER . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services; Vice
President of FAM;
Senior Vice President of
Princeton Services; Vice
President of MLFD
RONALD L. WELBURN . . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
ANTHONY WISEMAN . . . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services

</TABLE>

ITEM 29. PRINCIPAL UNDERWRITERS

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

(b) Set forth below is information concerning each director and officer
of MLFD. The principal business address of each such person is Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook,
Aldrich, Breen, Graczyk, Fatseas, and Wasel is One Financial Center, Boston,
Massachusetts 02111-2665.
C-5
<PAGE>

<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
Name WITH MLFD WITH THE REGISTRANT
<S> <C> <C>
TERRY K. GLENN . . . . . . . . . President and Director Executive Vice President
ARTHUR ZEIKEL . . . . . . . . . . Director President and Director
PHILIP L. KIRSTEIN . . . . . . . Director None
WILLIAM E. ALDRICH . . . . . . . Senior Vice President None

KEVIN BOMAN . . . . . . . . . . . Vice President None
ROBERT W. CROOK . . . . . . . . . Senior Vice President None
MICHAEL J. BRADY . . . . . . . . Vice President None
WILLIAM M. BREEN . . . . . . . . Vice President None
SHARON CREVELING . . . . . . . . Vice President and Assistant None
Treasurer
MARK A. DESARIO . . . . . . . . . Vice President None
JAMES T. FATSEAS . . . . . . . . Vice President None
STANLEY GRACZYK . . . . . . . . . Vice President None
MICHELLE T. LAU . . . . . . . . . Vice President None
GERALD M. RICHARD . . . . . . . . Vice President and Treasurer Treasurer
RICHARD L. RUFENER . . . . . . . Vice President None
SALVATORE VENEZIA . . . . . . . . Vice President None
WILLIAM WASEL . . . . . . . . . . Vice President None
ROBERT HARRIS . . . . . . . . . . Secretary Secretary
(c) Not applicable.

</TABLE>

ITEM 30. 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 the Transfer Agent (4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484).

ITEM 31. MANAGEMENT SERVICES

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

ITEM 32. UNDERTAKINGS

(a) The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months
from the effective date of the Registrant's registration statement under the
1933 Act.

C-6
<PAGE>
(b) The Fund, if requested to do so by the holders of at least 10% of
the Fund's outstanding shares, will call a meeting of shareholders for the
purpose of voting upon the question of removal of a director or directors and
will assist communications with other shareholders as required by Section
16(c) of the 1940 Act.

C-7
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Plainsboro and the State of New
Jersey, on the ____ day of October, 1994.

MERRILL LYNCH MIDDLE EAST/AFRICA FUND, INC.
(Registrant)

By: /s/ PHILIP L. KIRSTEIN
------------------------
(Philip L. Kirstein, President)

Each person whose signature appears below hereby authorizes Philip L.
Kirstein, Mark B. Goldfus, or Michael J. Hennewinkel, or any of them, as
attorney-in-fact, to sign on his behalf, individually and in each capacity
stated below, any amendments (including post-effective amendments) to this
Registration Statement and to file the same, with all exhibits thereto, with
the Securities and Exchange Commission.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
-------- ---- ---
(s> <C> <C>
/s/ PHILIP L. KIRSTEIN President (Principal October __, 1994
_______________________ Executive Officer)
(Philip L. Kirstein) and Director

/s/ MARK B. GOLDFUS Treasurer (Principal Financial October __, 1994
- - - - ---------------------------- and Accounting Officer)
(Mark B. Goldfus) and Director

/s/ MICHAEL J. HENNEWINKEL Director October __, 1994
- - - - ----------------------------
(Michael J. Hennewinkel)

C-8

<PAGE>

</TABLE>