MERRILL LYNCH ASSET GROWTH FUND INC, N-1A EL/A, 1994-08-25

MERRILL LYNCH ASSET GROWTH FUND INC
N-1A EL/A, 1994-08-25

Previous: MERRILL LYNCH ASSET GROWTH FUND INC, N-8A/A, 1994-08-25

Next: AETNA VARIABLE FUND, NSAR-A, 1994-08-26

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1994

SECURITIES ACT FILE NO. 33-54005

INVESTMENT COMPANY ACT FILE NO. 811-7183
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------

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

PRE-EFFECTIVE AMENDMENT NO. 2 /X/

POST-EFFECTIVE AMENDMENT NO. / /

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /

AMENDMENT NO. 2 /X/

(CHECK APPROPRIATE BOX OR BOXES)
---------------

MERRILL LYNCH ASSET GROWTH FUND, INC.

(FORMERLY MERRILL LYNCH ASSET ALLOCATION GROWTH FUND, INC.)

(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
</TABLE>

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

ARTHUR ZEIKEL

MERRILL LYNCH ASSET GROWTH FUND, INC.

800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)

Copies to:

<TABLE>
<S> <C>
Counsel for the Company: Philip L. Kirstein, Esq.
Leonard B. Mackey, Jr., Esq. MERRILL LYNCH ASSET
ROGERS & WELLS MANAGEMENT
200 Park Avenue Box 9011
New York, New York 10166 Princeton, N.J. 08543-9011
</TABLE>

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

/ / immediately upon filing pursuant to paragraph (b), or

/ / on (date) pursuant to paragraph (b), or

/ / 60 days after filing pursuant to paragraph (a), or

/ / on (date) pursuant to paragraph (a) of Rule 485.
---------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

MERRILL LYNCH ASSET GROWTH FUND, INC.

REGISTRATION STATEMENT ON FORM N-1A

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

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
N-1A ITEM
NO. LOCATION
- ---------- --------------------------------------
<C> <S> <C>
PART A
Item 1. Cover Page............................ Cover Page
Item 2. Synopsis.............................. Fee Table
Item 3. Financial Highlights.................. 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; Shareholder Services;
Purchase of Shares;
Item 8. Redemption or Repurchase.............. Fee Table; Alternative Sales
Arrangements; Shareholder Services;
Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings............. Not Applicable
PART B
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Back Cover Page
Item 12. General Information and History....... Not Applicable
Item 13. Investment Objectives and Policies.... Investment Objective and Policies
Item 14. Management of the Fund................ Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities....................... Management of the Fund
Item 16. Investment Advisory and Other
Services............................ Management of the Fund; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and Other
Practices........................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities.... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............ Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services; General
Information
Item 20. Tax Status............................ Dividends and Distributions; Taxes
Item 21. Underwriters.......................... Purchase of Shares
Item 22. Calculation of Performance Data....... Performance Data
Item 23. Financial Statements.................. Statement of Assets and Liabilities
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.
</TABLE>
<PAGE> 3

PROSPECTUS

ISSUED AUGUST 25, 1994

MERRILL LYNCH ASSET GROWTH FUND, INC.

BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------

Merrill Lynch Asset Growth Fund, Inc. (the "Fund") is a non-diversified
mutual fund seeking high total investment return, consistent with prudent risk,
through an investment policy utilizing United States and foreign equity, debt
and money market securities, the combination of which will be varied from time
to time both with respect to types of securities and markets in response to
changing market and economic trends. Total investment return is the aggregate of
capital value changes and income. Under normal conditions, at least 65%, and as
much as all, of the Fund's total assets will be invested in U.S. and foreign
equity securities. There can be no assurance that the Fund's investment
objective will be achieved. The Fund may employ a variety of instruments and
techniques to enhance income and to hedge against market and currency risk.
Investments on an international basis involve certain risks and special
considerations. See "Risk Factors and Special Considerations."

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

Each Class A share and Class B share represents identical interests in the
investment portfolio of the Fund and has the same rights, except that Class B
shares bear the expenses of the account maintenance fee

(continued on page 2)

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

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 August 25, 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> 4

(continued from cover page)

and distribution fee and certain other costs resulting from the deferred sales
charge arrangement, which will cause Class B shares to have a higher expense
ratio and to pay lower dividends than Class A shares. The two classes also have
different exchange privileges.

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 August 26, 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 shares and $10.00 per share plus a sales charge of 6.50%,
subject to reductions on purchases in single transactions of $10,000 or more, in
the case of Class A 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
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 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 if redeemed within four years of purchase and are subject to ongoing
account maintenance and distribution fees. The minimum initial purchase during
the subscription and continuous offerings is $1,000 and the minimum subsequent
purchase in the continuous offering is $50. Merrill Lynch may charge its
customers a processing fee (presently $4.85) for confirming purchases and
repurchases. Purchases and redemptions directly through the Fund's transfer
agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares."

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

2
<PAGE> 5

FEE TABLE

A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to Class A shares and Class B shares follows.

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
INITIAL SALES DEFERRED SALES
SHAREHOLDER TRANSACTION EXPENSES: CHARGE ALTERNATIVE CHARGE ALTERNATIVE
------------------ ----------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)................ 6.50%(a) None
Sales Charge Imposed on Dividend
Reinvestments................................ None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)................ None(f) 4.0% during the first
year, decreasing 1.0%
annually to 0.0% after
the fourth year(b)
Exchange Fee................................... None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Management Fees(c)............................. 0.75% 0.75%
Rule 12b-1 Fees................................ None 1.00%(d)
Custodial Fees................................. 0.09% 0.09%
Shareholder Servicing Costs(e)............ 0.23% 0.23%
Other..................................... 0.32% 0.32%
Total Other Expenses.................. 0.64% 0.64%
Total Fund Operating Expenses......... 1.39% 2.39%
</TABLE>

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

(a) Reduced for purchases of $10,000 and over, decreasing to 0.75% for purchases
of $1,000,000 and over. Certain investors making purchases of $1,000,000 and
over may, however, pay a contingent deferred sales charge ranging from a
high of 1.00% to a low of 0.25% of amounts redeemed within the first year
after purchase in lieu of the 0.75% initial sales charge. See "Purchase of
Shares--Initial Sales Charge Alternative--Class A Shares"--page 28.

(b) See "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares"--page 29.

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

(e) See "Management of the Fund--Transfer Agency Services"--page 24.

(f) Certain investors making purchases of $1,000,000 and over may, however, pay
a contingent deferred sales charge ranging from a high of 1.00% to a low of
0.25% of amounts redeemed within the first year after purchase in lieu of
the 0.75% initial sales charge. See "Purchase of Shares--Initial Sales
Charge Alternative--Class A Shares"--page 28.

3
<PAGE> 6

"Management Fees," "12b-1 Fees" and "Other Expenses," as shown above, are
based upon estimated amounts of expenses of the Fund expected to be incurred
during its current fiscal period ending August 31, 1994.

<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE
PERIOD OF:
---------------------------------------
10
EXAMPLE. 1 YEAR 3 YEARS 5 YEARS YEARS
------ ------- ------- -------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment including, for Class A shares, the
maximum $65 front-end sales charge and assuming (1)
an operating expense ratio of 1.39% for Class A
shares and 2.39% for Class B shares, (2) a 5% annual
return throughout the periods and (3) redemption at
the end of the period:
Class A........................................... $78.23 $106.14 $136.11 $221.01
Class B........................................... $64.21 $ 94.55 $127.55 $272.63
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A........................................... $78.23 $106.14 $136.11 $221.01
Class B........................................... $24.21 $ 74.55 $127.55 $272.63
</TABLE>

The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission regulations. The example should not be
considered a representation of past or future expenses or annual rates of
return, and actual expenses or annual rates of return may be more or less than
those assumed for purposes of the example. Class B shareholders who hold their
shares for an extended period of time may pay more in Rule 12b-1 distribution
fees than the economic equivalent of the maximum front-end sales charges
permitted under the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. Merrill Lynch may charge its customers a processing fee
(presently $4.85) for confirming purchases and repurchases. Purchases and
redemptions directly through the Fund's transfer agent are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares."

4
<PAGE> 7

ALTERNATIVE SALES ARRANGEMENTS

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

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

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

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

The distribution expenses incurred by the Distributor and dealers
(primarily Merrill Lynch) in connection with the sale of the shares will be
paid, in the case of the Class A shares, from the proceeds of the initial sales
charge, and in the case of the Class B shares, such distribution expenses will
be paid from the proceeds of the ongoing distribution fees and the contingent
deferred sales charge incurred upon redemption within four years of purchase.
Sales personnel may receive different compensation for selling Class A or Class
B shares. Investors should understand that the purpose and function of the
deferred sales charges and

5
<PAGE> 8

account maintenance fee with respect to the Class B shares are the same as those
of the initial sales charge with respect to the Class A shares.

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

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

THE ALTERNATIVE SALES ARRANGEMENTS PERMIT AN INVESTOR TO CHOOSE THE METHOD
OF PURCHASING SHARES THAT IS MOST BENEFICIAL GIVEN THE AMOUNT OF THE PURCHASE,
THE LENGTH OF TIME THE INVESTOR EXPECTS TO HOLD THE SHARES AND OTHER
CIRCUMSTANCES. INVESTORS SHOULD DETERMINE WHETHER UNDER THEIR PARTICULAR
CIRCUMSTANCES IT IS MORE ADVANTAGEOUS TO INCUR AN INITIAL SALES CHARGE AND NOT
BE SUBJECT TO ONGOING ACCOUNT MAINTENANCE AND DISTRIBUTION FEES OR TO HAVE THE
ENTIRE INITIAL PURCHASE PRICE INVESTED IN THE FUND WITH THE INVESTMENT
THEREAFTER BEING SUBJECT TO ONGOING ACCOUNT MAINTENANCE AND DISTRIBUTION FEES.
TO ASSIST INVESTORS IN MAKING THIS DETERMINATION, THE FEE TABLE ON PAGE 3 SETS
FORTH THE CHARGES APPLICABLE TO EACH CLASS OF SHARES, AND A DISCUSSION OF
FACTORS RELEVANT TO MAKING SUCH DETERMINATION IS SET FORTH UNDER "PURCHASE OF
SHARES--ALTERNATIVE SALES ARRANGEMENTS" ON PAGE 27.

6
<PAGE> 9

RISK FACTORS AND SPECIAL CONSIDERATIONS

As a global fund, the Fund may invest in U.S. and foreign securities. The
foreign securities in which the Fund may invest are not limited to securities of
issuers in developed countries or economies and may include securities of
issuers in less developed or emerging market economies. Investments in
securities of foreign entities and securities denominated in foreign currencies
involve risks not typically involved in domestic investment, including
fluctuations in foreign exchange rates, future foreign political and economic
developments, and the possible imposition of exchange controls or other foreign
or U.S. governmental laws or restrictions applicable to such investments. Since
the Fund may invest in securities denominated or quoted in currencies other than
the U.S. dollar, changes in foreign currency exchange rates may affect the value
of investments in the portfolio and the unrealized appreciation or depreciation
of investments insofar as U.S. investors are concerned. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in those currencies and the Fund's yield
on such assets. Foreign currency exchange rates are determined by forces of
supply and demand on the foreign exchange markets. These forces are, in turn,
affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation, and other factors.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position.

With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign financial
instrument than about a U.S. instrument, and foreign entities may not be subject
to accounting, auditing and financial reporting standards and requirements
comparable to those to which U.S. entities are subject. In addition, certain
foreign investments may be subject to foreign withholding taxes. Subject to
certain limitations, investors will be able to deduct such taxes in computing
their taxable income or to use such amounts as credits against their U.S. income
taxes if more than 50% of the Fund's total assets at the close of any taxable
year consists of stock or securities in foreign corporations and certain other
conditions are met. However, certain retirement accounts cannot claim foreign
tax credits on investments in foreign securities held in the Fund. See
"Additional Information--Taxes." Foreign financial markets, while generally
growing in volume, typically have substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. Foreign markets also
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than with transactions in U.S. securities. There
is generally less government supervision and regulation of exchanges, financial
institutions and issuers in foreign countries than there is in the U.S.

7
<PAGE> 10

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

The Fund may engage in various portfolio strategies to seek to increase its
return through the use of covered options on portfolio securities and to hedge
its portfolio against movements in the securities markets and exchange rates
between currencies by the use of derivatives, such as options, futures and
options thereon. Utilization of options and futures transactions involves the
risk of imperfect correlation in movements in the price of options and futures
and movements in the price of the securities or currencies which are the subject
of the hedge. There can be no assurance that a liquid secondary market for
options and futures contracts will exist at any specific time. Although the
Fund's use of futures and options transactions for hedging should tend to
minimize the risk of loss due to a decline in value of the hedged position, it
will also tend to limit any potential gain to the Fund that might result from an
increase in value of the hedged position and, to the extent that the Manager's
views as to certain market movements is incorrect, the use of hedging could
result in losses greater than if no hedging had been used. See "Investment
Objective and Policies--Portfolio Strategies Involving Options and Futures."

Certain indexed securities in which the Fund may invest, 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 values of
such securities will generally be more volatile than the market values of
fixed-rate securities. See "Investment Objective and Policies -- Other
Investment Policies and Practices -- Indexed and Inverse Securities."

The Fund has established no rating criteria for the fixed income securities
in which it may invest. Securities rated in the medium to lower rating
categories of nationally recognized statistical rating organizations are
predominately speculative with respect to the capacity to pay interest and repay
principal in accordance with the terms of the security and generally involve a
greater volatility of price than securities in higher rating categories. The
Fund does not intend to purchase securities that are in default.

The net asset value of the Fund's shares, to the extent the Fund invests in
fixed income securities, will be affected by changes in the general level of
interest rates. When interest rates decline, the value of a portfolio of fixed
income securities can be expected to rise. Conversely, when interest rates rise,
the value of a portfolio of fixed income securities can be expected to decline.

As a non-diversified investment company, the Fund may invest a larger
percentage of its assets in individual issuers than a diversified investment
company. In this regard, the Fund is not subject to the general limitation that
it not invest more than 5% of its total assets in the securities of any one
issuer. To the extent the Fund makes investments in excess of 5% of its assets
in a particular issuer, its exposure to credit and market risks associated with
that issuer is increased.

INVESTMENT OBJECTIVE AND POLICIES

The Fund is a non-diversified, open-end management investment company. The
Fund's investment objective is to seek a high total investment return,
consistent with prudent risk, through an investment policy utilizing United
States and foreign equity, debt and money market securities the combination of
which will be varied from time to time both with respect to types of securities
and markets in response to changing market

8
<PAGE> 11

and economic trends. Total investment return is the aggregate of capital value
changes and income. This objective is a fundamental policy which the Fund may
not change without a vote of a majority of the Fund's outstanding voting
securities. There can be no assurance that the Fund's investment objective will
be achieved. Under normal conditions, at least 65%, and as much as all, of the
Fund's total assets will be invested in equity securities.The Fund may employ a
variety of instruments and techniques to enhance income and to hedge against
market and currency risk, as described under "Portfolio Strategies Involving
Options and Futures" below.

The Fund will invest in a portfolio of U.S. and foreign equity, debt and
money market securities. The composition of the portfolio among these securities
and markets will be varied from time to time by the Fund's manager, Merrill
Lynch Asset Management, L.P., doing business as Merrill Lynch Asset Management
(the "Manager"), in response to changing market and economic trends. This
investment approach provides the Fund with the opportunity to benefit from
anticipated shifts in the relative performance of different types of securities
and different capital markets. For example, at times the Fund may emphasize
investments in equity securities in anticipation of significant advances in
stock markets and at times may emphasize debt securities in anticipation of
significant declines in interest rates. Similarly, the Fund may emphasize
foreign markets in its security selection when such markets are expected to
outperform, in U.S. dollar terms, the U.S. markets. The Fund will seek to
identify longer-term structural or cyclical changes in the various economies and
markets of the world which are expected to benefit certain capital markets and
certain securities in those markets to a greater extent than other investment
opportunities.

In determining the allocation of assets among capital markets, the Manager
will consider, among other factors, the relative valuation, condition and growth
potential of the various economies, including current and anticipated changes in
the rates of economic growth, rates of inflation, corporate profits, capital
reinvestment, resources, self-sufficiency, balance of payments, governmental
deficits or surpluses and other pertinent financial, social and political
factors which may affect such markets. In allocating among equity, debt and
money market securities within each market, the Manager also will consider the
relative opportunity for capital appreciation of equity and debt securities,
dividend yields, and the level of interest rates paid on debt securities of
various maturities.

In selecting securities denominated in foreign currencies, the Manager will
consider, among other factors, the effect of movement in currency exchange rates
on the U.S. dollar value of such securities. An increase in the value of a
currency will increase the total return to the Fund of securities denominated in
such currency. Conversely, a decline in the value of the currency will reduce
the total return. The Manager may seek to hedge all or a portion of the Fund's
foreign securities through the use of forward foreign currency contracts,
currency options, futures contracts and options thereon. See "Portfolio
Strategies Involving Options and Futures" below.

While there are no prescribed limits on the geographical allocation of the
Fund's assets, the Manager anticipates that it will invest primarily in the
securities of corporate and governmental issuers domiciled or located in the
U.S., Canada, Western Europe and the Far East. In addition, the Manager
anticipates that a portion of the Fund's assets normally will be invested in the
U.S. securities markets and three other major capital markets. Under normal
conditions, the Fund's investments will be denominated in at least three
currencies or multinational currency units. However, the Fund reserves the right
to invest substantially all of its assets in U.S. markets or U.S.
dollar-denominated obligations when market conditions warrant.

9
<PAGE> 12

Although up to 100% of the Fund's total assets may be invested in equity
securities, the Manager anticipates that the Fund's portfolio generally will
include both equity and debt securities.

EQUITY SECURITIES

Within the portion of the Fund's portfolio allocated to equity securities,
the Manager will seek to identify the securities of companies and industry
sectors which are expected to provide high total return relative to alternative
equity investments. The Fund generally will seek to invest in securities the
Manager believes to be undervalued. Undervalued issues include securities
selling at a discount from the price-to-book value ratios and price/earnings
ratios computed with respect to the relevant stock market averages. The Fund may
also consider as undervalued, securities selling at a discount from their
historic price-to-book value or price/earnings ratios, even though these ratios
may be above the ratios for the stock market averages. Securities offering
dividend yields higher than the yields for the relevant stock market averages or
higher than such securities' historic yield may also be considered to be
undervalued. The Fund may also invest in the securities of small and emerging
growth companies when such companies are expected to provide a higher total
return than other equity investments. Such companies are characterized by rapid
historical growth rates, above-average returns on equity or special investment
value in terms of their products or services, research capabilities or other
unique attributes. The Manager will seek to identify small and emerging growth
companies that possess superior management, marketing ability, research and
product development skills and sound balance sheets. Investment in the
securities of small and emerging growth companies involves greater risk than
investment in larger, more established companies. Such risks include the fact
that securities of small or emerging growth companies may be subject to more
abrupt or erratic market movements than larger, more established companies or
the market average in general. Also, these companies may have limited product
lines, markets or financial resources, or they may be dependent on a limited
management group.

There may be periods when market and economic conditions exist that favor
certain types of tangible assets as compared to other types of investments. For
example, the value of precious metals can be expected to benefit from such
factors as rising inflationary pressures or other economic, political or
financial uncertainty or instability. Real estate values, which are influenced
by a variety of economic, financial and local factors, tend to be cyclical in
nature. During periods when the Manager believes that conditions favor a
particular real asset as compared to other investment opportunities, the Fund
may emphasize investments related to that asset such as investments in precious
or industrial metal-related securities or real estate-related securities as
described below. The Fund may invest up to 25% of its total assets in any
particular industry sector.

Precious and Industrial Metal-Related Securities. Precious and industrial
metal-related securities are equity securities of companies that explore for,
extract, process or deal in precious or industrial metals, i.e., gold, silver,
platinum, iron, copper and aluminum, and asset-based securities indexed to the
value of such metals. Based on historical experience, during periods of economic
or financial instability the securities of such companies may be subject to
extreme price fluctuations, reflecting the high volatility of precious and
industrial metal prices during such periods. In addition, the instability of
precious and industrial metal prices may result in volatile earnings of precious
and industrial metal-related companies which, in turn, may affect adversely the
financial condition of such companies. Asset-based securities are debt
securities, preferred stock or convertible securities, the principal amount,
redemption terms or conversion terms of which are related to the market price of
some precious or industrial metal such as gold bullion. The Fund will purchase
only asset-based securities which are rated, or are issued by issuers that have
outstanding debt obligations rated, BBB or better

10
<PAGE> 13

by Standard & Poor's Corporation ("S&P") or Baa or better by Moody's Investors
Service, Inc. ("Moody's") or commercial paper rated A-1 by S&P or Prime-1 by
Moody's or of issuers that the Manager has determined to be of similar
creditworthiness. Securities rated BBB by S&P or Baa by Moody's, while
considered "investment grade," have certain speculative characteristics. If the
asset-based security is backed by a bank letter of credit or other similar
facility, the Manager may take such backing into account in determining the
creditworthiness of the issuer.

Real Estate-Related Securities. The real estate-related securities which
will be emphasized are equity securities of real estate investment trusts, which
own income-producing properties, and mortgage real estate investment trusts
which make various types of mortgage loans often combined with equity features.
The securities of such trusts generally pay above average dividends and may
offer the potential for capital appreciation. Such securities will be subject to
the risks customarily associated with the real estate industry, including
declines in the value of the real estate investments of the trusts. Real estate
values are affected by numerous factors including (i) governmental regulation
(such as zoning and environmental laws) and changes in tax laws; (ii) operating
costs; (iii) the location and the attractiveness of the properties; (iv) changes
in economic conditions (such as fluctuations in interest and inflation rates and
business conditions); and (v) supply and demand for improved real estate. Such
trusts also are dependent on management skill and may not be diversified in
their investments.

DEBT SECURITIES

The debt securities in which the Fund may invest include securities issued
or guaranteed by the U.S. Government and its agencies or instrumentalities, by
foreign governments (including foreign states, provinces and municipalities) and
agencies or instrumentalities thereof and debt obligations issued by U.S. and
foreign corporations. Such securities may include mortgage-backed securities
issued or guaranteed by governmental entities or by private issuers. In
addition, the Fund may invest in debt securities issued or guaranteed by
international organizations designed or supported by multiple governmental
entities (which are not obligations of the U.S. Government or foreign
governments) to promote economic reconstruction or development ("supranational
entities") such as the International Bank for Reconstruction and Development
(the "World Bank").

U.S. Government securities include: (i) U.S. Treasury obligations (bills,
notes and bonds), which differ in their interest rates, maturities and times of
issuance, all of which are backed by the full faith and credit of the U.S.; and
(ii) obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, including government guaranteed mortgage-related securities,
some of which are backed by the full faith and credit of the U.S. Treasury
(e.g., direct pass-through certificates of the Government National Mortgage
Association), some of which are supported by the right of the issuer to borrow
from the U.S. Government (e.g., obligations of Federal Home Loan Banks) and some
of which are backed only by the credit of the issuer itself (e.g., obligations
of the Student Loan Marketing Association).

In the case of mortgage-related securities, prepayments occur when the
holder of an individual mortgage prepays the remaining principal before the
mortgage's scheduled maturity date. As a result of the pass-through of
prepayments of principal on the underlying securities, a mortgage-related
security is often subject to more rapid prepayment of principal than its stated
maturity would indicate. Because the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict accurately the realized
yield or average life of a particular issue of pass-through certificates.
Prepayment rates are important because of their effect on the

11
<PAGE> 14

yield and price of the securities. Accelerated prepayments adversely impact
yields for pass-through securities purchased at a premium (i.e., a price in
excess of principal amount) and may involve additional risk of loss of principal
because the premium may not have been fully amortized at the time the obligation
is repaid. The opposite is true for pass-through securities purchased at a
discount. The Fund may purchase mortgage-related securities at a premium or at a
discount.

The obligations of foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing power. These obligations may or may not be
supported by the full faith and credit of a foreign government. The Fund will
invest in foreign government securities of issuers considered stable by the
Manager. The Manager does not believe that the credit risk inherent in the
obligations of stable foreign governments is significantly greater than that of
U.S. Government securities.

It is expected that the Fund generally will invest the portion, if any, of
its assets allocated to debt obligations in the securities of governmental
issuers and in corporate debt securities, including convertible debt securities,
rated BBB or better by S&P or Baa or better by Moody's or which, in the
Manager's judgment, possess similar credit characteristics ("investment grade
bonds"). Debt securities ranked in these rating categories, while considered
"investment grade," have more speculative characteristics and are more likely to
be downgraded than securities rated in the three highest rating categories. See
the Statement of Additional Information for more information regarding ratings
of debt securities. The Manager considers the ratings assigned by S&P and
Moody's as one of several factors in its independent credit analysis of issuers.
If a debt security in the Fund's portfolio is downgraded below investment grade,
the Manager will consider factors such as price, credit risk, market conditions
and interest rates and will sell such security only if, in the Manager's
judgment, it is advantageous to do so.

The Fund is authorized to invest a portion of its assets in fixed income
securities rated below investment grade by a nationally recognized rating agency
or in unrated securities which, in the Manager's judgment, possess similar
credit characteristics ("high yield, high risk bonds"). The Fund's Board of
Directors has adopted a policy that the Fund will not invest more than 35% of
its assets in obligations rated below Baa or BBB by Moody's or S&P,
respectively. Investment in high yield, high risk bonds (which are sometimes
referred to as "junk" bonds) involves substantial risk. Investments in high
yield, high risk bonds will be made only when, in the judgment of the Manager,
such securities provide attractive total return potential, relative to the risk
of such securities, as compared to higher quality debt securities. Securities
rated BB or lower by S&P or Ba or lower by Moody's are considered by those
rating agencies to have varying degrees of speculative characteristics.
Consequently, although high yield, high risk bonds can be expected to provide
higher yields, such securities may be subject to greater market price
fluctuations and risk of loss of principal than lower yielding, higher rated
fixed income securities. The Fund will not invest in debt securities in the
lowest rating categories (CC or lower for S&P or Ca or lower for Moody's) unless
the Manager believes that the financial condition of the issuer or the
protection afforded the particular securities is stronger than would otherwise
be indicated by such low ratings. See the Statement of Additional Information
for additional information regarding high yield, high risk bonds.

High yield, high risk bonds may be issued by less creditworthy companies or
by larger, highly leveraged companies and are frequently issued in corporate
restructurings such as mergers and leveraged buyouts. Such securities are
particularly vulnerable to adverse changes in the issuer's industry and in
general economic conditions. High yield, high risk bonds frequently are junior
obligations of their issuers, so that in the event of

12
<PAGE> 15

the issuer's bankruptcy, claims of the holders of high yield, high risk bonds
will be satisfied only after satisfaction of the claims of senior
securityholders. While the high yield, high risk bonds in which the Fund may
invest normally do not include securities which, at the time of investment, are
in default or the issuers of which are in bankruptcy, there can be no assurance
that such events will not occur after the Fund purchases a particular security,
in which case the Fund may experience losses and incur costs.

High yield, high risk bonds tend to be more volatile than higher rated
fixed income securities so that adverse economic events may have a greater
impact on the prices of high yield, high risk bonds than on higher rated fixed
income securities. Like higher rated fixed income securities, high yield, high
risk bonds are generally purchased and sold through dealers who make a market in
such securities for their own accounts. However, there are fewer dealers in the
high yield, high risk bond market which may be less liquid than the market for
higher rated fixed income securities even under normal economic conditions.
Also, there may be significant disparities in the prices quoted for high yield,
high risk bonds by various dealers. Adverse economic conditions or investor
perceptions (whether or not based on economic fundamentals) may impair the
liquidity of this market and may cause the prices the Fund receives for its high
yield, high risk bonds to be reduced, or the Fund may experience difficulty in
liquidating a portion of its portfolio. Under such conditions, judgment may play
a greater role in valuing certain of the Fund's portfolio securities than in the
case of securities trading in a more liquid market.

The average maturity of the Fund's portfolio of debt securities will vary
based on the Manager's assessment of pertinent economic market conditions. As
with all debt securities, changes in market yields will affect the value of such
securities. Prices generally increase when interest rates decline and decrease
when interest rates rise. Prices of longer term securities generally fluctuate
more in response to interest rate changes than do shorter term securities.

MONEY MARKET SECURITIES

Money market securities in which the Fund may invest consist of short-term
securities issued or guaranteed by the U.S. Government and its agencies and
instrumentalities; commercial paper, including variable amount master demand
notes, rated at least "A" by S&P or "Prime" by Moody's; and repurchase
agreements, purchase and sale contracts, and money market instruments issued by
commercial banks, domestic savings banks, and savings and loan associations with
total assets of at least one billion dollars. The obligations of commercial
banks may be issued by U.S. banks, foreign branches of U.S. banks ("Eurodollar"
obligations) or U.S. branches of foreign banks ("Yankeedollar" obligations).

PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES

The Fund may engage in various portfolio strategies to seek to increase its
return through the use of covered options on portfolio securities and to hedge
its portfolio against adverse movements in the equity, debt and currency
markets. The Fund has authority to write (i.e., sell) covered put and call
options on its portfolio securities, purchase put and call options on securities
and engage in transactions in stock index options, stock index futures and
financial futures, and related options on such futures. The Fund may also deal
in forward foreign exchange transactions and foreign currency options and
futures, and related options on such futures. Each of these portfolio strategies
is described below. Although certain risks are involved in options and futures
transactions (as discussed below and in "Risk Factors in Options and Futures
Transactions" further below), the Manager believes that, because the Fund will
(i) write only covered options on portfolio securities and

13
<PAGE> 16

(ii) engage in other options and futures transactions only for hedging purposes,
the options and futures portfolio strategies of the Fund will not subject the
Fund to the risks frequently associated with the speculative use of options and
futures transactions. While the Fund's use of hedging strategies is intended to
reduce the volatility of the net asset value of its shares, the net asset value
of the Fund's shares will fluctuate. There can be no assurance that the Fund's
hedging transactions will be effective. Furthermore, the Fund will only engage
in hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in the equity, debt and currency markets
occur. Reference is made to the Statement of Additional Information for further
information concerning these strategies.

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

The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so long
as the Fund is obligated as the writer of the option it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S. Government
securities or other high grade liquid debt or equity securities denominated in
U.S. dollars or non-U.S. currencies with a securities depository with a value
equal to or greater than the exercise price of the underlying securities. By
writing a put, the Fund will be obligated to purchase the underlying security at
a price that may be higher than the market value of that security at the time of
exercise for as long as the option is outstanding. The Fund may engage in
closing transactions in order to terminate put options that it has written.

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

14
<PAGE> 17

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

Stock Index Options and Futures and Financial Futures. The Fund is
authorized to engage in transactions in stock index options and futures and
financial futures, and related options on such futures. The Fund may purchase or
write put and call options on stock indices to hedge against the risks of
market-wide stock price movements in the securities in which the Fund invests.
Options on indices are similar to options on securities except that on exercise
or assignment, the parties to the contract pay or receive an amount of cash
equal to the difference between the closing value of the index and the exercise
price of the option times a specified multiple. The Fund may invest in stock
index options based on a broad market index, e.g., the S&P 500 Index, or on a
narrow index representing an industry or market segment, e.g., the AMEX Oil &
Gas Index.

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

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

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

15
<PAGE> 18

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

Foreign Currency Hedging. The Fund has authority to deal in forward foreign
exchange among currencies of the different countries in which it will invest and
multinational currency units as a hedge against possible variations in the
foreign exchange rates among these currencies. This is accomplished through
contractual agreements to purchase or sell a specified currency at a specified
future date and price set at the time of the contract. The Fund's dealings in
forward foreign exchange will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is the purchase or sale
of forward foreign currency with respect to specific receivables or payables of
the Fund accruing in connection with the purchase and sale of its portfolio
securities, the sale and redemption of shares of the Fund or the payment of
dividends and distributions by the Fund. Position hedging is the sale of forward
foreign currency with respect to portfolio security positions denominated or
quoted in such foreign currency. The Fund will not speculate in forward foreign
exchange. Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.

The Fund is also authorized to purchase or sell listed or 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 yen denominated security. In such
circumstances, for example, the Fund may purchase a foreign currency put option
enabling it to sell a specified amount of yen for dollars at a specified price
by a future date. To the extent the hedge is successful, a loss in the value of
the yen relative to the dollar will tend to be offset by an increase in the
value of the put option. To offset, in whole or in part, the cost of acquiring
such a put option, the Fund may also sell a call option which, if exercised,
requires it to sell a specified amount of yen 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 yen 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. A futures contract on
a foreign currency is an agreement between two parties to buy and sell a
specified amount of a currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards of trade or
futures exchanges. The Fund will not speculate in foreign currency options,
futures or related options. Accordingly, the Fund will not hedge a currency
substantially in excess of the market value of

16
<PAGE> 19

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. The Fund may not incur potential net liabilities of more than 20% of
its total assets from foreign currency options, futures or related options.

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

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

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

The staff of the Securities and Exchange Commission has taken the position
that purchased OTC options and the assets used as cover for written OTC options
are illiquid securities. Therefore, the Fund has adopted an investment policy
pursuant to which it will not purchase or sell OTC options (including OTC
options on futures contracts) if, as a result of such transaction, the sum of
the market value of OTC options currently outstanding which are held by the
Fund, the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceeds 10% of the total assets
of the Fund, taken at market value, together with all other assets of the Fund
which are illiquid or are not otherwise readily marketable. However, if the OTC
option is sold by the Fund to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and if the Fund has the
unconditional contractual right to repurchase such OTC option from the dealer at
a predetermined price, then the Fund will treat as illiquid such amount of the
underlying securities as is equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the underlying
security minus the option's strike price). The repurchase price with the primary
dealers is typically a formula price which is generally based on a multiple of
the premium received for the option, plus the amount by which the option is
"in-the-money." This policy as to OTC options is not a fundamental policy of the
Fund and may be amended by the Directors of the Fund without the approval of the
Fund's shareholders. However, the Fund will not change or modify this policy
prior to the change or modification by the Securities and Exchange Commission
staff of its position.

17
<PAGE> 20

Risk Factors in Options and Futures Transactions. Utilization of
derivatives, such as options and futures, to hedge the portfolio involves the
risk of imperfect correlation in movements in the price of options and futures
and movements in the price of the securities or currencies which are the subject
of the hedge. If the price of the options or futures moves more or less than the
price of the hedged securities or currencies, the Fund will experience a gain or
loss which will not be completely offset by movements in the price of the
subject of the hedge. The successful use of options and futures also depends on
the Manager's ability to correctly predict price movements in the market
involved in a particular options or futures transaction. To compensate for
imperfect correlations, the Fund may purchase or sell stock index options or
futures contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the stock index options or futures contracts. Conversely, the Fund may
purchase or sell fewer stock index options or futures contracts if the
volatility of the price of the hedged securities is historically less than that
of the stock index options or futures contracts. The risk of imperfect
correlation generally tends to diminish as the maturity date of the stock index
option or futures contract approaches.

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

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. 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.

The Fund presently does not intend to invest in other types of derivative
transactions; however, in response to changes in market conditions or if other
types of derivative instruments are developed in the future which the Manager
believes are appropriate for the Fund, the Fund will notify investors of its
intention to invest in these instruments.

OTHER INVESTMENT POLICIES AND PRACTICES

18
<PAGE> 21

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 yield 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.

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" above. Where
possible, the Fund will deal directly with the dealers who make a market in the
securities involved except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Such portfolio securities are generally traded on a net basis and do
not normally involve either brokerage commissions or transfer taxes. Securities
firms may receive brokerage commissions on certain portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon exercise of options. The Fund has no
obligation to deal with any broker in the execution of transactions in portfolio
securities. Under the Investment Company Act, persons affiliated with the Fund,
including Merrill Lynch, are prohibited from dealing with the Fund as a
principal in the purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the Securities and Exchange
Commission. Affiliated persons of the Fund, and affiliated persons of such
affiliated persons, may serve as its broker in transactions conducted on an
exchange and in over-the-counter transactions conducted on an agency basis. In
addition, consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., the Fund may consider sales of shares of the Fund
as a factor in the selection of brokers or dealers to execute portfolio
transactions for the Fund. It is expected that the majority of the shares of the
Fund will be sold by Merrill Lynch. Costs associated with transactions in
foreign securities are generally higher than with transactions in U.S.
securities, although the Fund will endeavor to achieve the best net results in
effecting such transactions.

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

Indexed and Inverse Securities. The Fund may invest in securities whose
potential investment return is based on the change in particular measurements of
value or rate (an "index"). As an illustration, the Fund may invest in a
security that pays interest and returns principal based on the change in an
index of interest rates or of the value of a precious or industrial metal.
Interest and principal payable on a security may also be

19
<PAGE> 22

based on relative changes among particular indices. In addition, the Fund may
invest in securities whose potential investment return is inversely based on the
change in particular indices. For example, the Fund may invest in securities
that pay a higher rate of interest and principal when a particular index
decreases and pay a lower rate of interest and principal when the value of the
index increases. To the extent that the Fund invests in such types of
securities, it will be subject to the risks associated with changes in the
particular indices, which may include reduced or eliminated interest payments
and losses of invested principal.

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

Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security which may
be issued and sold to the Fund at the option of the issuer. The price and coupon
of the security is fixed at the time of the commitment. At the time of entering
into the agreement, the Fund is paid a commitment fee, regardless of whether or
not the security is ultimately issued, which is typically approximately 0.5% of
the aggregate purchase price of the security which the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price which
is considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 90 days and will limit its
investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale, will not exceed 10% of its
assets taken at the time of acquisition of such commitment or security. The Fund
will at all times maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other high grade liquid debt or
equity securities denominated in U.S. dollars or non-U.S. currencies in an
aggregate amount equal to the purchase price of the securities underlying the
commitment.

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

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

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

20
<PAGE> 23

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 prices at which the
trades are conducted do not reflect the accrued interest on the underlying
obligations; whereas, in the case of purchase and sale contracts, the prices
take into account accrued interest. Such agreements usually cover short periods,
often 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
constitute only collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs of possible
losses in connection with the disposition of the collateral. A purchase and sale
contract differs from a repurchase agreement in that the contract arrangements
stipulate that the securities are owned by the Fund. In the event of a default
under such a repurchase agreement or under a purchase and sale contract, instead
of the contractual fixed rate of return, the rate of return to the Fund would
depend on intervening fluctuations of the market values of such securities and
the accrued interest on the securities. In such event, the Fund would have
rights against the seller for breach of contract with respect to any losses
arising from market fluctuations following the failure of the seller to perform.
The Fund may not invest more than 10% of its net assets in repurchase agreements
or purchase and sale contracts maturing in more than seven days. While the
substance of purchase and sale contracts is similar to repurchase agreements,
because of the different treatment with respect to accrued interest and
additional collateral, management believes that purchase and sale contracts are
not repurchase agreements as such term is understood in the banking and
brokerage community.

Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3 of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government.
Such collateral will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined in
the Investment Company Act. During the period of such a loan, the Fund receives
the income on the loaned securities and either receives the income on the
collateral or other compensation, i.e., negotiated loan premium or fee, for
entering into the loan and thereby increases its yield. In the event that the
borrower defaults on its obligation to return borrowed securities, because of
insolvency or otherwise, the Fund could experience delays and costs in gaining
access to the collateral and could suffer a loss to the extent that the value of
the collateral falls below the market value of the borrowed securities.

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

21
<PAGE> 24

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 of any particular industry (excluding
the U.S. Government and its agencies or instrumentalities). Other fundamental
policies include policies which (i) limit investments in securities which cannot
be readily resold because of legal or contractual restrictions or which are not
otherwise readily marketable, including repurchase agreements and purchase and
sale contracts maturing in more than seven days, if, regarding all such
securities, more than 15% of its net assets, taken at market value, would be
invested in such securities, (ii) limit investments in securities of other
investment companies, except in connection with certain specified transactions
and with respect to investments of up to 5% of the Fund's assets in the
securities of any one investment company and up to an aggregate of 10% of the
Fund's assets in securities of investment companies and (iii) restrict the
issuance of senior securities and limit bank borrowings except that the Fund may
borrow amounts of up to 33 1/3% of its assets. The Fund will not purchase
securities while borrowings exceed 5% of its total assets. The Fund has no
present intention to borrow money in amounts exceeding 5% of its total assets.
Although not a fundamental policy, the Fund will include OTC options and the
securities underlying such options in calculating the amount of its total assets
subject to the limitation set forth in clause (i) above. However, as discussed
above, the Fund may treat the securities it uses as cover for written OTC
options as liquid, and, therefore, will be excluded from this restriction,
provided it follows a specified procedure. The Fund will not change or modify
this policy prior to the change or modification by the staff of the Securities
and Exchange Commission of its position regarding OTC options, as discussed
above.

Portfolio Turnover. The Manager will effect portfolio transactions without
regard to holding period, if in its judgment, such transactions are advisable in
light of a change in 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 200% 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. High portfolio turnover involves correspondingly greater transaction costs
in the form of dealer spreads and brokerage commissions, which are borne
directly by the Fund. In addition, high portfolio turnover can be expected to
result in the recognition of capital gains and losses. To the extent the Fund
distributes short-term capital gains, such distributions will be taxable as
dividends. The Fund's ability to enter into certain short-term transactions will
be limited by the requirement that gains on certain securities held by the Fund
for less than three months may not exceed 30% of its annual gross income for
Federal income tax purposes.

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

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

22
<PAGE> 25

The Directors of the Fund and their principal employment are as follows:

ARTHUR ZEIKEL*--President and Chief Investment Officer of the Manager and
Fund Asset Management, L.P.; Executive Vice President of Merrill Lynch & Co.,
Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch");
and Director of Merrill Lynch Funds Distributor, Inc.

WALTER MINTZ--Special Limited Partner of Cumberland Partners (investment
partnership).

MELVIN R. SEIDEN--President of Silbanc Properties, Ltd. (real estate,
consulting and investments).

STEPHEN B. SWENSRUD--Principal of Fernwood Associates (financial
consultants).

JOE GRILLS--Member of the Committee on Investment of Employee Benefits
Assets of the Financial Executives Institute.

HARRY WOOLF--Professor and former Director of the Institute for Advanced
Study (private institution devoted to the encouragement, support and patronage
of learning).

MANAGEMENT AND ADVISORY ARRANGEMENTS

The Manager, Merrill Lynch Asset Management, L.P., which does business as
Merrill Lynch Asset Management, is owned and controlled by Merrill Lynch & Co.,
Inc., a financial services holding company and the parent of Merrill Lynch. The
Manager provides the Fund with management and investment advisory services. The
Manager or an affiliate, Fund Asset Management, L.P. ("FAM"), acts as the
manager for more than 90 other registered investment companies. The Manager also
offers portfolio management and portfolio analysis services to individuals and
institutions. As of June 30, 1994, the Manager and FAM had a total of
approximately $161.4 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Manager.

The management agreement with the Manager (the "Management Agreement")
provides that, subject to the direction of the Board of Directors of the Fund,
the Manager is responsible for the actual management of the Fund's portfolio.
The responsibility for making decisions to buy, sell or hold a particular
security rests with the Manager, subject to review by the Board of Directors.

The Manager provides the portfolio manager for the Fund who considers
analyses from various sources (including brokerage firms with which the Fund
does business), makes the necessary decisions, and places transactions
accordingly. The Manager is also obligated to perform certain administrative and
management services for the Fund and is obligated to provide all of the office
space, facilities, equipment and personnel necessary to perform its duties under
the Management Agreement. Joel Heymsfeld, who has been a Vice President of the
Manager since 1978, is primarily responsible for the day-to-day management of
the Fund's portfolio.

The Management Agreement provides that the Fund will pay the Manager a
monthly fee at the annual rate of 0.75% of the average daily net assets of the
Fund. This fee is higher than that of most mutual funds, but management of the
Fund believes this fee, which is typical for a global fund, is justified by the
global nature of the Fund.

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

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

23
<PAGE> 26

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

TRANSFER AGENCY SERVICES

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

PURCHASE OF SHARES

SUBSCRIPTION OFFERING

Merrill Lynch Funds Distributor, Inc. (the "Distributor"), a subsidiary of
the Manager and an affiliate of Merrill Lynch, acts as the distributor of Class
A and Class B 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 August
26, 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 and Class B 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 or Class B 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.

24
<PAGE> 27

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

SUBSCRIPTION PERIOD

<TABLE>
<CAPTION>
SALES SECURITIES DEALERS'
CHARGE CONCESSION
--------------------------------- ---------------------
PERCENTAGE* PERCENTAGE*
PUBLIC OF PUBLIC OF PUBLIC
OFFERING DOLLAR OFFERING DOLLAR OFFERING
AMOUNT OF PURCHASE PRICE AMOUNT PRICE AMOUNT PRICE
- ---------------------------------------------- -------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Less than $10,000............................. $ 10.695 $.695 6.50% $.695 6.50%
$10,000 but less than $25,000................. 10.638 .638 6.00 .638 6.00
$25,000 but less than 50,000.................. 10.526 .526 5.00 .526 5.00
$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........................... 10.076 .076 0.75 .076 0.75
</TABLE>

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

Initial sales charges will be waived for shareholders purchasing $1 million
or more in a single transaction (other than an employer sponsored retirement or
savings plan, such as a tax qualified retirement plan under Section 401 of the
Code, a deferred compensation plan under Section 403(b) and Section 457 of the
Code, other deferred compensation arrangements, VEBA plans and non-qualified
After Tax Savings and Investment Programs maintained on the Merrill Lynch Group
Employee Services system, herein referred to as "Employer Sponsored Retirement
or Savings Plans"), or a purchase by TMA(SM) Managed Trust, of Class A shares of
the Fund. Such purchases will be subject to a contingent deferred sales charge
if the shares are redeemed within one year after purchase at the following
rates:

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

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

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

The public offering price of the Class B shares during the subscription
offering will be $10.00 per share. However, the Class B shares may be subject to
a contingent deferred sales charge described below under

25
<PAGE> 28

"Deferred Sales Charge Alternative--Class B Shares--Contingent Deferred Sales
Charge" if redeemed within four years of purchase and are subject to ongoing
account maintenance and distribution fees as described below.

The minimum initial purchase for both Class A and Class B shares during the
subscription period is $1,000.

CONTINUOUS OFFERING

Commencing immediately after completion of the subscription offering, Class
A and Class B 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.

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

The Fund issues two classes of shares: Class A shares are sold to investors
choosing the initial sales charge alternative, and Class B shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B shares bear the expenses of the deferred sales arrangements, any expenses
(including incremental transfer agency costs) resulting from such sales
arrangements and the expenses paid by the account maintenance fee and have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
pursuant to which the account maintenance and distribution fees are paid. The
two classes also have different exchange privileges. See "Shareholder
Services--Exchange Privilege." The net income attributable to Class B shares and
the dividends payable on Class B shares will be reduced by the amount of the
account maintenance and distribution fees and incremental transfer agency costs
relating to Class B shares; likewise the net asset value of the Class B shares
will be reduced by such amount to the extent the Fund has undistributed net
income. Sales personnel may receive different compensation for selling Class A

26
<PAGE> 29

or Class B shares. Investors are advised that only Class A shares may be
available for purchase through securities dealers, other than Merrill Lynch,
which are eligible to sell shares.

The boards of directors or trustees of each of the mutual funds advised by
the Manager or FAM and presently offering two classes of shares, including the
Fund, considered and approved in August, 1994 whether to approve a new
distribution system for shares of the funds, which will be named the Merrill
Lynch Select Pricing System(SM). Under the Select Pricing System, eligible
investors would be permitted to choose from different sales charge alternatives
offered through four classes of shares. It is currently anticipated that,
subject to, in the case of some funds, the approval of shareholders of the
funds, the Select Pricing System will be implemented for all of such mutual
funds, including the Fund.

ALTERNATIVE SALES ARRANGEMENTS

The alternative sales arrangements of the Fund permit investors to choose
the method of purchasing shares that is most beneficial given the amount of
their purchase, the length of time the investor expects to hold the shares and
other relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur an initial sales
charge and not be subject to ongoing charges, as discussed below, or to have the
entire initial purchase price invested in the Fund with the investment
thereafter being subject to ongoing account maintenance and distribution fees.

As an illustration, investors who qualify for significantly reduced sales
charges, as described below, might elect the initial sales charge alternative
because similar sales charge reductions are not available for purchases under
the deferred sales charge alternative. Moreover, shares acquired under the
initial sales charge alternative would not be subject to an ongoing account
maintenance fee and a distribution fee, as described below. However, because
initial sales charges are deducted at the time of purchase, such investors would
not have all their funds invested initially.

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

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

27
<PAGE> 30

INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES

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

<TABLE>
<CAPTION>
SALES CHARGE
AS DISCOUNT TO
SALES CHARGE AS PERCENTAGE* OF SELECTED DEALERS
PERCENTAGE OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE THE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------------------------------------- ------------------ -------------- ------------------
<S> <C> <C> <C>
Less than $10,000................................ 6.50% 6.95% 6.25%
$10,000 but less than $25,000.................... 6.00 6.38 5.75
$25,000 but less than $50,000.................... 5.00 5.26 4.75
$50,000 but less than $100,000................... 4.00 4.17 3.75
$100,000 but less than $250,000.................. 3.00 3.09 2.75
$250,000 but less than $1,000,000................ 2.00 2.04 1.80
$1,000,000 and over.............................. .75 .76 .65
</TABLE>

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

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

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

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

REDUCED INITIAL SALES CHARGES

Sales charges are reduced under a Right of Accumulation and a Letter of
Intention. Class A shares of the Fund are offered at net asset value to
Directors of the Fund, to directors of Merrill Lynch & Co., Inc., to

28
<PAGE> 31

participants in certain benefit plans, to directors and trustees of certain
other Merrill Lynch sponsored investment companies, 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,
to directors of Merrill Lynch & Co., Inc. and to employees of Merrill Lynch &
Co., Inc. and its subsidiaries. Class A shares are offered at net asset value to
certain retirement plans, including eligible 401(k) plans, provided such plans
meet the required minimum number of eligible employees or required amount of
assets advised by the Manager or its affiliate, FAM. Also, Class A shares may be
offered at net asset value in connection with the acquisition of assets of other
investment companies. No initial sales charges are imposed upon Class A shares
issued as a result of the automatic reinvestment of dividends or capital gains
distributions. Class A shares of the Fund are also offered at net asset value,
without sales charge, to an investor who has a business relationship with a
Merrill Lynch financial consultant and who has invested in a mutual Fund
sponsored by a non-Merrill Lynch company for which Merrill Lynch has served as a
selected dealer and where Merrill Lynch has either received or given notice that
such arrangement will be terminated, if the following conditions are satisfied:
first, the investor must purchase Class A shares of the Fund with proceeds from
a redemption of shares of such other mutual Fund and such Fund imposed a sales
charge either at the time of purchase or on a deferred basis; second, such
purchase of Class A shares must be made within 90 days after such notice of
termination. Class A shares of the Fund are also offered at net asset value to
shareholders of certain closed-end funds advised by the Manager or FAM who wish
to reinvest the net proceeds from a sale of their closed-end fund shares of
common stock in shares of the Fund, provided certain conditions are met. For
example, Class A shares of the Fund and certain other mutual funds advised by
the Manager or FAM are offered at net asset value to shareholders of Merrill
Lynch Senior Floating Rate Fund, Inc. (formerly known as Merrill Lynch Prime
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 such funds.

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

DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES

Investors choosing the deferred sales charge alternative purchase Class B
shares at net asset value per share without the imposition of a sales charge at
the time of purchase. The Class B shares are being sold without an initial sales
charge so that the Fund will receive the full amount of the investor's purchase
payment. Merrill Lynch compensates its financial consultants for selling Class B
shares at the time of purchase from its own funds. The proceeds of the
contingent deferred sales charge and the ongoing distribution fee discussed
below are used to defray Merrill Lynch's expenses, including compensating its
financial consultants. The proceeds from the ongoing account maintenance fee are
used to compensate Merrill Lynch for providing continuing account maintenance
activities.

Proceeds from the contingent deferred sales charge are paid to the
Distributor and are used in whole or in part by the Distributor to defray the
expenses of dealers (including Merrill Lynch) related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares such as the payment, from its own funds of compensation to
financial consultants for selling Class B shares. Payments by the Fund to the
Distributor of the distribution fee under the Distribution Plan relating to
Class B shares also may be used in whole or in part by the Distributor for this
purpose. The combination of the contingent deferred sales

29
<PAGE> 32

charge and the ongoing distribution fee facilitates the ability of the Fund to
sell the Class B shares without a sales charge being deducted at the time of
purchase. Class B shareholders of the Fund exercising the exchange privilege
described under "Shareholders Services--Exchange Privilege" will continue to be
subject to the Fund's contingent deferred sales charge schedule if such schedule
is higher than the deferred sales charge schedule relating to the Class B shares
acquired as a result of the exchange.

CONTINGENT DEFERRED SALES CHARGE

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

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- ----------------------------------------------------------------------- -------------------------
<S> <C>
0-1.................................................................... 4.0%
1-2.................................................................... 3.0%
2-3.................................................................... 2.0%
3-4.................................................................... 1.0%
4 and thereafter....................................................... None
</TABLE>

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

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

The contingent deferred sales charge is waived on redemptions of shares in
connection with certain post-retirement withdrawals from Individual Retirement
Accounts ("IRAs") or other retirement plans or following the death or disability
(as defined in the Code) of a shareholder.

30
<PAGE> 33

The contingent deferred sales charge also is waived on redemptions of
shares by certain eligible 401(a) and eligible 401(k) plans and in connection
with certain group plans placing orders through the Merrill Lynch Blueprint(SM)
Program. The contingent deferred sales charge is also waived for any Class B
shares which are purchased by an eligible 401(k) or eligible 401(a) plan and
which are rolled over into a Merrill Lynch or Merrill Lynch Trust Company
custodied IRA and held in such account at the time of redemption. Additional
information concerning the waiver of the contingent deferred sales charge is set
forth in the Statement of Additional Information.

The contingent deferred sales charge is also waived for any Class B shares
which are purchased by a Merrill Lynch rollover IRA account, 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.

DISTRIBUTION PLAN

Pursuant to a distribution plan adopted by the Fund pursuant to Rule 12b-1
under the Investment Company Act (the "Distribution Plan"), the Fund pays the
Distributor an ongoing account maintenance fee and a distribution fee relating
to Class B shares, which are accrued daily and paid monthly, at the annual rates
of 0.25% and 0.75%, respectively, of the average daily net assets of the Class B
shares of the Fund. The ongoing account maintenance fee compensates the
Distributor and Merrill Lynch for providing account maintenance services to
Class B shareholders. The ongoing distribution fee compensates the Distributor
and Merrill Lynch for providing shareholder and distribution services and
bearing certain distribution-related expenses of the Fund, including payments to
financial consultants for selling Class B shares of the Fund.

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

The Fund has no obligation with respect to distribution and account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B shares, and there is no assurance that the Directors
of the Fund will approve the continuance of the Distribution Plan from year to
year. However, the Distributor intends to seek annual continuation of the
Distribution Plan. In their review of the Distribution Plan, the Directors will
not be asked to take into consideration expenses incurred in connection with the
distribution of Class A shares or of shares of other funds for which the
Distributor acts as distributor. The account maintenance fee, the distribution
fee and the contingent deferred sales charges in the case of Class B shares will
not be used to subsidize the sale of Class A shares. Similarly, the initial
sales charges in the case of Class A shares will not be used to subsidize the
sale of Class B shares. Payment of the distribution fee

31
<PAGE> 34

on Class B shares is subject to certain limits as set forth under "Deferred
Sales Charge Alternative--Class B Shares."

LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES

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

REDEMPTION OF SHARES

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

REDEMPTION

A shareholder wishing to redeem shares may do so 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 notice must be

32
<PAGE> 35

guaranteed by an "eligible guarantor institution" (including, for example,
Merrill Lynch branch offices and certain other financial institutions) as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, the existence and validity of which may be verified by the Transfer
Agent through the use of industry publications. Notarized signatures are not
sufficient. In certain instances, the Transfer Agent may require additional
documents, such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of corporate
authority. For shareholders redeeming directly with the Transfer Agent, payment
will be mailed within seven days of receipt of a proper notice of redemption.

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

REPURCHASE

The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the close of business on the New
York Stock Exchange 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
contingent deferred sales charge in the case of Class B shares). Securities
firms which do not have selected dealer agreements with the Distributor,
however, may impose a transaction charge on the shareholder for transmitting the
notice of repurchase to the Fund. Merrill Lynch may charge its customers a
processing fee (presently $4.85) to confirm a repurchase of shares 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, however, may redeem shares as set forth
above.

REINSTATEMENT PRIVILEGE--CLASS A SHARES

Shareholders who have redeemed their Class A shares have a one-time
privilege to reinstate their accounts by purchasing Class A shares 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 shareholder only the
first time such shareholder makes a redemption.

33
<PAGE> 36

SHAREHOLDER SERVICES

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

Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive quarterly statements
from the Transfer Agent. These quarterly statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
quarterly statements will also show any other activity in the account since the
preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the investment of ordinary income dividends and
long-term capital gain distributions. A shareholder may make additions to his
Investment Account at any time by mailing a check directly to the Transfer
Agent. Shareholders may also maintain their accounts through Merrill Lynch. Upon
the transfer of shares out of a Merrill Lynch brokerage account, an Investment
Account in the transferring shareholder's name will be opened automatically,
without charge, at the Transfer Agent. Shareholders considering transferring
their Class A shares from Merrill Lynch to another brokerage firm or financial
institution should be aware that, if the firm to which the Class A shares are to
be transferred will not take delivery of shares of the Fund, a shareholder
either must redeem the Class A shares so that the cash proceeds can be
transferred to the account at the new firm or such shareholder must continue to
maintain an Investment Account at the Transfer Agent for those Class A shares.
Shareholders interested in transferring their Class B shares from Merrill Lynch
and who do not wish to have an Investment Account maintained for such shares at
the Transfer Agent may request their new brokerage firm to maintain such shares
in an account registered in the name of the brokerage firm for the benefit of
the shareholder. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he be issued
certificates for his shares and then must turn the certificates over to the new
firm for re-registration as described in the preceding sentence. Shareholders
considering transferring a tax-deferred retirement account such as an individual
retirement account from Merrill Lynch to another brokerage firm or financial
institution should be aware that, if the firm to which the retirement account is
to be transferred will not take delivery of shares of the Fund, a shareholder
must either redeem the shares (paying any applicable contingent deferred sales
charge) so that the cash proceeds can be transferred to the account at the new
firm, or such shareholder must continue to maintain a retirement account at
Merrill Lynch for those shares.

Exchange Privilege. U.S. Class A and Class B shareholders of the Fund each
have an exchange privilege with certain other mutual funds sponsored by Merrill
Lynch. There is currently no limitation on the number of times a shareholder may
exercise the exchange privilege. The exchange privilege may be modified or
terminated in accordance with the rules of the Securities and Exchange
Commission. Class A shareholders of the Fund may exchange their shares
("outstanding Class A shares") for Class A shares of another fund ("new Class A
shares") on the basis of relative net asset value per Class A share, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the outstanding Class A shares and the sales charge payable at the time of
the exchange on the new Class A shares. The Fund's exchange privilege is

34
<PAGE> 37

modified with respect to purchases of Class A shares under the Merrill Lynch
Mutual Fund Adviser program. First, the initial allocation of assets is made
under the program. Then, any subsequent exchange under the program of Class A
shares of a fund for Class A shares of the Fund will be made solely on the basis
of the relative net asset values of the shares being exchanged. Therefore, there
will not be a charge for any difference between the sales charge previously paid
on the shares of the other fund and the sales charge payable on the shares of
the Fund being acquired in the exchange under this program.

Class B shareholders of the Fund may exchange their shares ("outstanding
Class B shares") for Class B shares of another fund ("new Class B shares") on
the basis of relative net asset value per share without the payment of any
contingent deferred sales charge that might otherwise be due on redemption of
the outstanding Class B shares. Class B shareholders of the Fund exercising the
exchange privilege will continue to be subject to the Fund's contingent deferred
sales charge schedule if such schedule is higher than the deferred sales charge
schedule relating to the new Class B shares. In addition, Class B shares of the
Fund acquired through use of the exchange privilege will be subject to the
Fund's contingent deferred sales charge schedule if such schedule is higher than
the deferred sales charge schedule relating to the Class B shares of the fund
from which the exchange has been made. For purposes of computing the contingent
deferred sales charge that may be payable upon a disposition of the new Class B
shares, the holding period for the outstanding Class B shares is "tacked" to the
holding period of the new Class B shares. Class A and Class B shareholders of
the Fund may also exchange their shares for shares of certain money market
funds, but in the case of an exchange from Class B shares, the period of time
that shares are held in a money market fund will not count toward satisfaction
of the holding period requirement for purposes of reducing the contingent
deferred sales charge. Exercise of the exchange privilege is treated as a sale
for Federal income tax purposes. For further information, see "Shareholder
Services--Exchange Privilege" in the Statement of Additional Information.

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

Automatic Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are reinvested automatically in full
and fractional shares of the Fund at the net asset value per share next
determined on the payable date of such dividend or distribution. A shareholder
may at any time, by written notification to Merrill Lynch if the shareholder's
account is maintained with Merrill Lynch or by written notification or telephone
call (1-800-MER-FUND) to the Transfer Agent if the shareholder's account is
maintained with the Transfer Agent, elect to have subsequent dividends or
capital gains distributions, or both, paid in cash, rather than reinvested, in
which event payment will be mailed on or about the payment date. No contingent
deferred sales charge will be imposed upon redemption of shares issued as a
result of the automatic reinvestment of dividends or capital gains
distributions.

Systematic Withdrawal and Automatic Investment Plans. A Class A shareholder
may elect to receive systematic withdrawal payments from his Investment Account
in the form of payments by check or through automatic payment by direct deposit
to his bank account on either a monthly or quarterly basis. A Class A
shareholder whose shares are held within a CMA(R), CBA(R) or Retirement Account
may elect to have shares redeemed on a monthly, bimonthly, quarterly, semiannual
or annual basis through the Systematic Redemption Program, subject to certain
conditions. Regular additions of Class A shares may be made to an investor's

35
<PAGE> 38

Investment Account by prearranged charges of $50 or more to his regular bank
account. Investors who maintain CMA accounts may arrange to have periodic
investments made in the Fund in their CMA accounts or in certain related
accounts in amounts of $250 or more through the CMA Automatic Investment
Program. The Automatic Investment Program is not available to shareholders whose
shares are held in a brokerage account with Merrill Lynch other than a CMA(R)
account.

Retirement Plans. Class A shares are offered at net asset value to
qualified retirement plans within the meaning of Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and deferred compensation plans
within the meaning of Section 403(b) and 457 of the Code ("Retirement Plans"),
provided the plan has $5 million or more in existing plan assets initially
invested in portfolios, mutual funds or trusts advised either directly or
through a subsidiary by the Manager or its affiliate, FAM. Class A shares may
also be offered at net asset value to Retirement Plans, provided the plan has
accumulated $5 million or more in existing plan assets invested in mutual funds
advised by the Manager or FAM charging a front-end sales charge or contingent
deferred sales charge. Assets of Retirement Plans with the same sponsor or an
affiliated sponsor may be aggregated. Retirement Plans that are also qualified
under Section 401(k) of the Code with a salary reduction feature offering a menu
of investments to plan participants ("Eligible 401(k) Plans") are also offered
Class A shares at net asset value, provided such plan initially has 1,000 or
more employees eligible to participate in the plan. Employees eligible to
participate in Retirement Plans of the same sponsoring employer or its
affiliates may be aggregated. Retirement Plans meeting any of the foregoing
requirements and which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a wide
range of investments including individual corporate equities and other
securities in addition to mutual fund shares) by the Merrill Lynch Blueprint(SM)
Program, are offered Class A shares at a price equal to net asset value per
share plus a reduced sales charge of 0.50%. Any Retirement Plan which does not
meet the above described qualifications to purchase Class A Shares at net asset
value has the option of purchasing Class A shares at the sales charge schedule
disclosed in this Prospectus, or if the Retirement Plan meets the specified
requirements, then it may purchase Class B shares with a waiver of the
contingent deferred sales charge upon redemption. The minimum initial and
subsequent purchase requirements are waived in connection with all the above
referenced Retirement Plans.

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 and Class B shares in accordance with a formula specified
by the Securities and Exchange Commission.

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

36
<PAGE> 39

transfer agency costs relating to Class B shares will be borne exclusively by
that class. The Fund will include performance data for both Class A and Class B
shares of the Fund in any advertisement or information including performance
data of the Fund.

The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return, and (2) the maximum applicable sales charges will not
be included with respect to 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 shares or waiver of the contingent deferred
sales charge in the case of Class B 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 contingent deferred
sales charge and therefore may reflect greater total return since, due to the
reduced sales charges or waiver of the contingent deferred sales charge, a lower
amount of expenses 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
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week, CDA
Investment Technology, Inc., Forbes Magazine, Fortune Magazine or other industry
publications. In addition, from time to time the Fund may include the Fund's
risk-adjusted performance ratings assigned by 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 AND DISTRIBUTIONS

It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid at least annually.
Shares will accrue dividends as long as they are issued and outstanding. Shares
are issued and outstanding as of the settlement date of a purchase order to the
settlement date of a redemption order. All net realized long-or short-term
capital gains, if any, are distributed to the Fund's shareholders at least
annually.

37
<PAGE> 40

The per share dividends and distributions on Class B shares will be lower
than the per share dividends and distributions on Class A shares as a result of
the account maintenance, distribution and higher transfer agency fees applicable
to the Class B shares. See "Additional Information--Determination of Net Asset
Value." Dividends and distributions may be reinvested automatically in shares of
the Fund, at net asset value without a sales charge. Shareholders may elect in
writing to receive any such dividends or distributions, or both, in cash.
Dividends and distributions are taxable to shareholders as described below
whether they are reinvested in shares of the Fund or received in cash. From time
to time, the Fund may declare a special distribution at or about the end of the
calendar year in order to comply with a Federal income tax requirement that
certain percentages of its ordinary income and capital gains be distributed
during the calendar year.

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

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

See "Shareholder Services--Automatic Reinvestment of Dividends and Capital
Gains Distributions" for information as to how to elect either dividend
reinvestment or cash payments. Dividends and distributions are taxable to
shareholders as described below whether they are reinvested in shares of any
portfolio or received in cash.

DETERMINATION OF NET ASSET VALUE

Net asset value per share is determined once daily as of 4:15 p.m., New
York time, on each day during which the New York Stock Exchange is open for
trading. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the day of valuation. The net
asset value is computed by dividing the market value of the securities held by
the Fund plus any cash or other assets (including interest and dividends accrued
but not yet received) minus all liabilities (including accrued expenses) by the
total number of shares outstanding at such time. Expenses, including the fees
payable to the Manager and the account maintenance and distribution fees payable
to the Distributor, are accrued daily. The per share net asset value of the
Class B shares generally will be lower than the per share net asset value of the
Class A shares reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the
Class B shares. It is expected, however, that the per share net asset value of
the two classes will tend to converge immediately after the payment of dividends
or distributions which will differ by approximately the amount of the expense
accrual differential between the classes.

Portfolio securities which are traded on stock exchanges are valued at the
last sale price on the exchange on which such securities are traded as of the
close of business on the day the securities are being valued or, lacking any
sales, at the last available bid price. In cases where securities are traded on
more than one

38
<PAGE> 41

exchange, the securities are valued on the exchange designated as the primary
market. Securities traded in the over-the-counter market are valued at the last
available bid price or yield equivalents obtained from one or more dealers in
the over-the-counter market prior to the time of valuation. Other investments,
including futures contracts and related options, are stated at market value.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Board of Directors of the Fund.

TAXES

The Fund intends to elect 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 and Class B shareholders (together, the "shareholders").
The Fund intends to distribute substantially all of such income and gains.

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

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 an applicable tax treaty. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the U.S.
withholding tax.

Dividends, interest and capital gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax treaties 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 expects to qualify for, and intends to make,
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 and treat
such proportionate shares as taxes paid by them.

39
<PAGE> 42

Shareholders will be entitled, subject to certain limitations, to deduct such
proportionate shares in computing their taxable incomes or, alternatively, to
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, certain non-corporate shareholders
may be subject to a 31% withholding tax on certain ordinary income dividends and
capital gain dividends and on redemption payments ("backup withholding").
Generally, shareholders subject to backup withholding will be those for whom no
certified taxpayer identification number is on file with the Fund or who, to the
Fund's knowledge, have furnished an incorrect number. When establishing an
account, an investor must certify under penalty of perjury that such number is
correct and that such investor is not otherwise subject to backup withholding.

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

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

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

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

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

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

ORGANIZATION OF THE FUND

40
<PAGE> 43

Common Stock and Class B Common Stock, each of which consists of 100,000,000
shares. Both Class A Common Stock and Class B Common Stock represent an interest
in the same assets of the Fund and are identical in all respects except that the
Class B shares bear certain expenses related to the account maintenance and
distribution of such shares and have exclusive voting rights with respect to
matters relating to such account maintenance and distribution expenditures. See
"Purchase of Shares." The Fund has received an order from the Securities and
Exchange Commission permitting the issuance and sale of two classes of Common
Stock. The Board of Directors of the Fund may classify and reclassify the shares
of the Fund into additional classes of Common Stock at a future date and may
change the rights and preferences of issued shares as long as such change does
not substantially adversely affect the rights of holders of such issued shares.
The creation of additional classes would require an additional order from the
Securities and Exchange Commission. There is no assurance that such an
additional order would be issued.

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

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.
P.O. Box 45290
Jacksonville, FL 32232-5290

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

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.

41
<PAGE> 44

(This Page Intentionally Left Blank)

42
<PAGE> 45

MERRILL LYNCH ASSET GROWTH FUND, INC.--AUTHORIZATION FORM

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

NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST AN APPLICATION FOR PURCHASES THROUGH
MERRILL LYNCH BLUEPRINT(SM) PROGRAM BY CALLING (800) 637-3766.

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

I, being of legal age, wish to purchase ......... Class A shares or .........
Class B shares (choose one) of Merrill Lynch Asset Growth 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:
<TABLE>
<S> <C>
1. ................................................................. 4. ........................................................
2. ................................................................. 5. ........................................................
3. ................................................................. 6. ........................................................
</TABLE>

(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:

<TABLE>
<S> <C> <C> <C> <C>
------------------------------------- -------------------------------------
Distribution ELECT / / reinvest dividends ELECT / / reinvest dividends
Options ONE / / pay dividends in cash ONE / / pay dividends in cash
------------------------------------- -------------------------------------
</TABLE>

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

<TABLE>
<S> <C>
(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
Address............................................................................
........................ , 19....
Date
...................................................................................
(Zip Code)
</TABLE>

[CAPTION]
<TABLE>
<S> <C>
Occupation............................................................... Name and Address of Employer.............................
.........................................................
.........................................................
</TABLE>

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

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

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

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

- --------------------------------------------------------------------------------
2. LETTER OF INTENTION--CLASS A SHARES ONLY (SEE TERMS AND CONDITIONS IN THE
STATEMENT OF ADDITIONAL INFORMATION)
.........................., 19......
Date of Initial
GENTLEMEN: Purchase

Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Asset Growth 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 Asset Growth 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 Asset Growth Fund, Inc. held as security.

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

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

43
<PAGE> 46

MERRILL LYNCH ASSET GROWTH FUND, INC.--AUTHORIZATION FORM

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

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

Minimum Requirements: $10,000 for monthly disbursements, $5,000 for quarterly,
of shares in Merrill Lynch Asset Growth Fund, Inc., at cost or current offering
price. Begin systematic withdrawal on.................., 19..... Withdrawals to
(Date)
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):
- --------------------------------------------------------------------------------

(A) I HEREBY AUTHORIZE PAYMENT BY CHECK

Draw checks payable
(check one)
/ / as indicated in Item 1.
/ / to the order of............................................................

Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (Please Print)........................................................

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

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

Signature of Co-Owner (if any)..................................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND (IF
NECESSARY) DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE IN ERROR TO
MY ACCOUNT.

Specify type of account (check one): / / checking / / savings
I agree that this authorization will remain in effect until I provide written
notification to Financial Data Services, Inc. amending or terminating this
service.

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

Bank............................................................................

Bank #.................... Account #............................................

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.

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

4. APPLICATION FOR AUTOMATIC INVESTMENT PLAN

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

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

FINANCIAL DATA SERVICES, INC.

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

Amount of each check or ACH debit $............................................

Account No.....................................................................

Please date and invest checks or draw ACH debits on the 20th day of each
month beginning................................................................

(Month)
or as soon thereafter as possible.
I agree that you are preparing these checks or drawing these debits voluntarily
at my request and that you shall not be liable for any loss arising from any
delay in preparing or failure to prepare any such check or debit. If I change
banks or desire to terminate or suspend this program, I agree to notify you
promptly in writing. I further agree that if a check or debit is not honored
upon presentation, Financial Data Services, Inc. is authorized to discontinue
immediately the Automatic Investment Plan and to liquidate sufficient shares
held in my account to offset the purchase made with the returned check or
dishonored debit.

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

AUTHORIZATION TO HONOR CHECKS OR ACH
DEBITS DRAWN BY FINANCIAL DATA SERVICES, INC.

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

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

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

As a convenience to me, I hereby request and authorize you to pay and charge to
my account checks or ACH debits drawn on my account by and payable to Financial
Data Services, Inc., Transfer Agency Mutual Fund Operations, Jacksonville,
Florida 32232-5289. I agree that your rights in respect to each such check or
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked personally by me in
writing. Until you receive such notice, you shall be fully protected in honoring
any such check or debit. I further agree that if any such check or debit be
dishonored, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability.

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

NOTE: If Automatic Investment Plan is elected, your blank, unsigned check marked
"VOID" should accompany this Application.

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

5. FOR DEALER ONLY

Branch Office, Address, Stamp

This form when completed should be mailed to:

Merrill Lynch Asset Growth Fund, Inc.
c/o Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
P.O. Box 45289
Jacksonville, Florida 32232-5289

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

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

By
Authorized Signature of Dealer

<TABLE>
<S> <C> <C> <C>
------- ----------
------- ---------- .....................................
Branch-Code F/C No. F/C Last Name
------- ------------
------- ------------
Dealer's Customer A/C No.
</TABLE>

44
<PAGE> 47

(This Page Intentionally Left Blank)

45
<PAGE> 48

(This Page Intentionally Left Blank)

46
<PAGE> 49

MANAGER

Merrill Lynch Asset Management

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

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

DISTRIBUTOR

Merrill Lynch Funds Distributor, Inc.

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

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

TRANSFER AGENT

Financial Data Services, Inc.

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

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

CUSTODIAN

The Chase Manhattan Bank, N.A.

4 MetroTech Center, 18th Floor

Brooklyn, New York, 11245

INDEPENDENT AUDITORS

Deloitte & Touche LLP

117 Campus Drive
Princeton, New Jersey 08540

COUNSEL

Rogers & Wells
200 Park Avenue
New York, New York 10166
<PAGE> 50

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
----------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table............................... 3
Alternative Sales Arrangements.......... 5
Risk Factors and Special
Considerations........................ 7
Investment Objective and Policies....... 8
Equity Securities..................... 10
Debt Securities....................... 11
Money Market Securities............... 13
Portfolio Strategies Involving Options
and Futures......................... 13
Other Investment Policies and
Practices........................... 18
Management of the Fund.................. 22
Board of Directors.................... 22
Management and Advisory
Arrangements........................ 23
Transfer Agency Services.............. 24
Purchase of Shares...................... 24
Subscription Offering................. 24
Continuous Offering................... 26
Alternative Sales Arrangements........ 27
Initial Sales Charge Alternative--
Class A Shares...................... 28
Reduced Initial Sales Charge.......... 28
Deferred Sales Charge Alternative--
Class B Shares...................... 29
Contingent Deferred Sales Charge...... 30
Distribution Plan..................... 31
Limitations on the Payment of Deferred
Sales Charges....................... 32
Redemption of Shares.................... 32
Redemption............................ 32
Repurchase............................ 33
Reinstatement Privilege--Class A
Shares.............................. 33
Shareholder Services.................... 34
Performance Data........................ 36
Additional Information.................. 37
Dividends and Distributions........... 37
Determination of Net Asset Value...... 38
Taxes................................. 39
Organization of the Fund.............. 40
Shareholder Reports................... 41
Shareholder Inquiries................. 41
Authorization Form...................... 43
</TABLE>

- ---------------------------------------------------
MERRILL LYNCH

ASSET

GROWTH FUND, INC.

Prospectus

August 25, 1994

Distributor:
Merrill Lynch
Funds Distributor, Inc.

This prospectus should be
retained for future reference.

Code 18237--0794
<PAGE> 51

STATEMENT OF ADDITIONAL INFORMATION

August 25, 1994

MERRILL LYNCH ASSET GROWTH FUND, INC.

BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------

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

This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated August
25, 1994 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, by calling or by
writing the Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.

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

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is August 25, 1994.
<PAGE> 52

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to seek a high total investment return,
consistent with prudent risk, through an investment policy utilizing United
States and foreign equity, debt and money market securities the combination of
which will be varied from time to time both with respect to types of securities
and markets in response to changing market and economic trends. Total investment
return is the aggregate of capital value changes and income. This objective is a
fundamental policy which the Fund may not change without a vote of a majority of
the Fund's outstanding voting securities. Under normal conditions, at least 65%,
and as much as all, of the Fund's total assets will be invested in equity
securities. Reference is made to "Investment Objective and Policies" in the
Prospectus for a discussion of the investment objective and policies of the
Fund.

Although up to 100% of the Fund's total assets may be invested in equity
securities, the Manager anticipates that the Fund's portfolio generally will
include both equity and debt securities.

While it is the policy of the Fund generally not to engage in trading for
short-term gains, Merrill Lynch Asset Management, L.P., doing business as
Merrill Lynch Asset Management (the "Manager"), will effect portfolio
transactions without regard to holding period if, in its judgment, such
transactions are advisable in light of a change in circumstances of a particular
company or within a particular industry or due to general market, economic or
financial conditions. Accordingly, while the Fund anticipates that its annual
turnover rate should not exceed 200% 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 Fund does
not believe that these considerations will have any significant effect on its
portfolio strategy, although there can be no assurance in this regard.

PRECIOUS AND INDUSTRIAL METAL-RELATED SECURITIES

The Fund may invest in the equity securities of companies that explore for,
extract, process or deal in precious or industrial metals, i.e., gold, silver,
platinum, iron, copper and aluminum, and in asset-based securities indexed to
the value of such metals. Such securities may be purchased when they are
believed to be attractively priced in relation to the value of a company's
precious or industrial metal-related assets or when the value of precious or
industrial metals are expected to benefit from inflationary pressure or other
economic, political or financial uncertainty or instability. The prices of
precious and industrial metals and of the securities of precious and industrial
metal-related companies historically have been subject to high volatility. In
addition, the earnings of precious and industrial metal-related companies may be
adversely affected by volatile metals prices which may adversely affect the
financial condition of such companies.

2
<PAGE> 53

The major producers of gold include the Republic of South Africa, the
former republics of the Soviet Union, Canada, the United States, Brazil and
Australia. Sales of gold by the former republics of the Soviet Union are largely
unpredictable and often relate to political and economic considerations rather
than to market forces. Economic, social and political developments within South
Africa may significantly affect South African gold production.

The Fund may invest in debt securities, preferred stock or convertible
securities, the principal amount, redemption terms or conversion terms of which
are related to the market price of some metals such as gold bullion. These
securities are referred to as "asset-based securities." The Fund will purchase
only asset-based securities which are rated, or are issued by issuers that have
outstanding debt obligations rated, BBB or better by Standard & Poor's
Corporation ("S&P") or Baa or better by Moody's Investors Service, Inc.
("Moody's") or commercial paper rated A-1 by S&P or Prime-1 by Moody's or of
issuers that the Manager has determined to be of similar creditworthiness. If
the asset-based security is backed by a bank letter of credit or other similar
facility, the Manager may take such backing into account in determining the
creditworthiness of the issuer. While the market prices for an asset-based
security and the related natural resource asset generally are expected to move
in the same direction, there may not be perfect correlation in the two price
movements. Asset-based securities may not be secured by a security interest in
or claim on the underlying natural resource asset. The asset-based securities in
which the Fund may invest may bear interest or pay preferred dividends at below
market (or even at relatively nominal) rates. As an example, assume gold is
selling at a market price of $300 per ounce and an issuer sells a $1,000 face
amount gold related note with a seven year maturity, payable at maturity at the
greater of either $1,000 in cash or in the then market price of three ounces of
gold. If at maturity, the market price of gold is $400 per ounce, the amount
payable on the note would be $1,200. Certain asset-based securities may be
payable at maturity in cash at the stated principal amount or, at the option of
the holder, directly in a stated amount of the asset to which it is related. In
such instance, because the Fund presently does not intend to invest directly in
natural resource assets, the Fund would sell the asset-based security in the
secondary market, to the extent one exists, prior to maturity if the value of
the stated amount of the asset exceeds the stated principal amount and thereby
realize the appreciation in the underlying asset.

REAL ESTATE-RELATED SECURITIES

The real estate-related securities which will be emphasized by the Fund are
equity securities of real estate investment trusts, which own income-producing
properties, and mortgage real estate investment trusts which make various types
of mortgage loans often combined with equity features. The securities of such
trusts generally pay above average dividends and may offer the potential for
capital appreciation. Such securities will be subject to the risks customarily
associated with the real estate industry, including declines in the value of the
real estate investments of the trusts. Real estate values are affected by
numerous factors including (i) governmental regulations (such as zoning and
environmental laws) and changes in tax laws, (ii) operating costs, (iii) the
location and the attractiveness of the properties, (iv) changes in economic
conditions (such as fluctuations in interest and inflation rates and business
conditions) and (v) supply and demand for improved real estate. Such trusts also
are dependent on management skill and may not be diversified in their
investments.

3
<PAGE> 54

PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES

Reference is made to the discussion under the caption "Investment Objective
and Policies--Portfolio Strategies Involving Options and Futures" in the
Prospectus for information with respect to various portfolio strategies
involving options and futures. The Fund may seek to increase its return through
the use of options on portfolio securities and to hedge its portfolio against
movements in the equity, debt and currency markets. The Fund has authority to
write (i.e., sell) covered put and call options on its portfolio securities,
purchase put and call options on securities and engage in transactions in stock
index options, stock index futures and stock futures and financial futures, and
related options on such futures. The Fund may also deal in forward foreign
transactions and foreign currency options and futures, and related options on
such futures. Each of such portfolio strategies is described in the Prospectus.
Although certain risks are involved in transactions in derivatives, such as
options and futures (as discussed in the Prospectus and below), the Manager
believes that, because the Fund will (i) write only covered call options on
portfolio securities and (ii) engage in other options and futures transactions
only for hedging purposes, the options and futures portfolio strategies of the
Fund will not subject the Fund to the risks frequently associated with the
speculative use of options and futures transactions. While the Fund's use of
hedging strategies is intended to reduce the volatility of the net asset value
of its shares, the net asset value of the Fund's shares will fluctuate. There
can be no assurance that the Fund's hedging transactions will be effective. The
following is further information relating to portfolio strategies involving
options and futures that the Fund may utilize.

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

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

The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so long
as the Fund is obligated as the writer of the option, it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S. Government
securities or other high grade liquid debt or equity securities denominated in
U.S. dollars or non-U.S. currencies with a securities depository with a value
equal to or greater than the exercise price of the underlying securities. By
writing a put, the Fund will be obligated to purchase the

4
<PAGE> 55

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.

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

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

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

5
<PAGE> 56

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

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

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

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

Foreign Currency Hedging. Generally, the foreign exchange transactions of
the Fund will be conducted on a spot, i.e., cash basis at the spot rate of
purchasing or selling currency prevailing in the foreign exchange market. This
rate under normal market conditions differs from the prevailing exchange rate in
an amount generally less than one tenth of one percent due to the costs of
converting from one currency to another. However, the Fund has authority to deal
in forward foreign exchange among currencies of the different countries in which
it will invest as a hedge against possible variations in the foreign exchange
rates among these currencies. This is accomplished through contractual
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. The Fund's dealings in forward
foreign exchange will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is the purchase or sale
of forward foreign currency with respect to specific receivables or payables of
the Fund accruing in connection with the purchase and sale of its portfolio
securities, the sale and redemption of shares of the Fund or the payment of
dividends and distributions by the Fund. Position hedging is the sale of forward
foreign currency with respect to portfolio security positions denominated or
quoted in such foreign currency. The Fund will not speculate in forward foreign
exchange. The Fund may not position hedge with

6
<PAGE> 57

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 equity or 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 enter into such
transactions only to the extent, if any, deemed appropriate by the Manager. The
Fund will not enter into a forward contract with a term of more than one year.

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

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

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

Prior to exercise or expiration, an exchange-traded option or futures
position can only be terminated by entering into a closing purchase or sale
transaction. This requires a secondary market on an exchange for call

7
<PAGE> 58

or put options of the same series. The Fund will enter into an option or futures
transaction on an exchange only if there appears to be a liquid secondary market
for such options or futures. However, there can be no assurance that a liquid
secondary market will exist for any particular call or put option or futures
contract at any specific time. Thus, it may not be possible to close an option
or futures position. The Fund will acquire only over-the-counter options for
which management believes the Fund can receive on each business day at least two
independent bids or offers (one of which will be from an entity other than a
party to the option), unless there is only one dealer, in which case that
dealer's price is used. 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 futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to hedge effectively its
portfolio. There is also the risk of loss by the Fund of margin deposits in the
event of bankruptcy of a broker with whom the Fund has an open position in a
futures contract or related option. The risk of loss from investing in futures
transactions is theoretically unlimited.

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.

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. However, the Fund's investments will be limited
so as to qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended. See "Dividends, Distributions and
Taxes--Taxes." To qualify, among other requirements, the Fund will limit 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.

8
<PAGE> 59

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

Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security which may
be issued and sold to the Fund at the option of the issuer. The price and coupon
of the security is fixed at the time of the commitment. At the time of entering
into the agreement, the Fund is paid a commitment fee, regardless of whether or
not the security is ultimately issued, which is typically approximately 0.5% of
the aggregate purchase price of the security which the Fund has committed to
purchase. The Fund will enter into such agreement 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 90 days and will limit its
investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale, will not exceed 10% of its
assets taken at the time of acquisition of such commitment or security. The Fund
will at all times maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other high grade liquid debt or
equity securities denominated in U.S. dollars or non-U.S. currencies in an
aggregate amount equal to the purchase price of the securities underlying the
commitment.

There can be no assurance that the 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.

Repurchase Agreements; Purchase and Sale Contracts. The Fund may invest in
securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements may be entered into only with a member bank of the Federal
Reserve System or primary dealer in U.S. Government securities. Purchase and
sale contracts may be entered into only with financial institutions which have
capital of at least $50 million or whose obligations are guaranteed by an entity
having capital of at least $50 million. Under such agreements, the other party
agrees, upon entering into the contract with the Fund, to repurchase the
security at a mutually agreed upon time and price in a specified currency,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period

9
<PAGE> 60

although it may be affected by currency fluctuations. In the case of repurchase
agreements, the prices at which the trades are conducted do not reflect the
accrued interest on the underlying obligations; whereas, in the case of purchase
and sale contracts, the prices take into account accrued interest. Such
agreements usually cover short periods, often 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 constitute only collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs of possible losses in connection with the
disposition of the collateral. A purchase and sale contract differs from a
repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate of return, the rate of return to the Fund would depend on
intervening fluctuations of the market values of such securities and the accrued
interest on the securities. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. The Fund may not
invest more than 10% of its net assets in repurchase agreements or purchase and
sale contracts maturing in more than seven days. While the substance of purchase
and sale contracts is similar to repurchase agreements, because of the different
treatment with respect to accrued interest and additional collateral, management
believes that purchase and sale contracts are not repurchase agreements as such
term is understood in the banking and brokerage community.

Lending of Portfolio Securities. Subject to investment restriction (5)
below, the Fund may lend securities from its portfolio to approved borrowers and
receive therefor 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 borrower to use such securities for delivery to
purchasers when such borrower has sold short. If cash collateral is received by
the Fund, it is invested in short-term money market securities, and a portion of
the yield received in respect of such investment is retained by the Fund.
Alternatively, if securities are delivered to the Fund as collateral, the Fund
and the borrower negotiate a rate for the loan premium to be received by the
Fund for lending its portfolio securities. In either event, the total yield on
the Fund's portfolio is increased by loans of its portfolio securities. The Fund
will have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights, subscription rights and rights to
dividends, interest or other distributions. Such loans are terminable at any
time. 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.

High Yield, High Risk Bonds. The Fund is authorized to invest a portion of
its assets in fixed income securities rated below investment grade by a
nationally recognized statistical rating agency or in unrated bonds which, in
the Manager's judgment, possess similar credit characteristics ("high yield,
high risk bonds"). Issuers of high yield, high risk bonds may be highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risks 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 bonds may be more likely to

10
<PAGE> 61

experience financial stress, especially if such issuers are highly leveraged.
During such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations also may be adversely affected by specific issuer developments or
the issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing. The risk of loss due to default by the
issuer is significantly greater for the holder of high yield, high risk bonds
because such securities may be unsecured and may be subordinated to other
creditors of the issuer. The Fund's Board of Directors has adopted a policy that
the Fund will not invest more than 35% of its assets in obligations rated below
Baa or BBB by Moody's or S&P, respectively.

High yield, high risk bonds frequently have call or redemption features
which would permit issuers to repurchase such securities from the Fund. If a
call were exercised by an issuer during a period of declining interest rates,
the Fund likely would have to replace such called security with a lower yielding
security, 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
bonds because there may be a thin trading market for such securities. The
secondary trading market for high yield, high risk bonds is generally not as
liquid as the secondary market for higher rated securities. Reduced secondary
market liquidity may have an adverse impact on market price and the Fund's
ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer.

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 bonds, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield, high risk bonds are likely to affect
adversely the Fund's net asset value. In addition, the Fund may incur additional
expenses to the extent it is required to seek recovery upon a default on a
portfolio holding or to participate in the restructuring of the obligation.

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. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.

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

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

4. Purchase or sell real estate, except that the Fund may invest in
securities directly or indirectly secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein.

11
<PAGE> 62

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

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

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

8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933
in selling portfolio securities.

9. 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 registering as a commodity pool
operator under the Commodity Exchange Act.

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

(i) 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, except in connection with a plan of merger,
consolidation, reorganization, or acquisition, or by purchase in the open
market of securities of investment companies where no underwriter or
dealer's commission or profit, other than the customary broker's
commission, is involved and only if immediately thereafter not more than
(i) 3% of the total outstanding voting stock of such company is owned by
the Fund, (ii) 5% of the Fund's total assets, taken at market value, would
be invested in any one such company, (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 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.

(ii) 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.

12
<PAGE> 63

(iii) Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed, or put to the issuer or 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.

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

(v) 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 will not apply to mortgage-backed securities, asset-backed
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.

(vi) Purchase or retain the securities of any issuer, if those
individual officers and Directors of the Fund, the Manager or 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.

(vii) 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.

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

The Fund has undertaken to certain state securities administrators that as
a matter of operating policy it will not:

(a) Purchase securities of issuers which the Fund is restricted from
selling to the public without registration under the Securities Act of 1933
(including restricted securities determined by the Fund or the Board of
Directors to be liquid) if by any reason thereof the value of its aggregate
investment in such securities will exceed 10% of its total assets;

(b) Invest more than 5% of its total assets in the securities of
unseasoned issuers, including equity securities of issuers which are not
readily marketable;

(d) Engage in short term trading; or

(e) Invest in the securities of any open-end investment company.

The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities. Therefore, the Fund has adopted an
investment policy pursuant to which it will not purchase or sell OTC options if,
as a result of such transaction, the sum of the market value of OTC options
currently outstanding which are held

13
<PAGE> 64

by the Fund, the market value of the underlying securities covered by OTC call
options currently outstanding which were sold by the Fund and margin deposits on
the Fund's existing OTC options on futures contracts exceeds 10% of the total
assets of the Fund, taken at market value, together with all other assets of the
Fund which are illiquid or are not otherwise readily marketable. However, if the
OTC option is sold by the Fund to a primary U.S. Government securities dealer
recognized by the Federal 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 Directors of the Fund without the
approval of the Fund's shareholders. However, the Fund will not change or modify
this policy prior to the change or modification by the Commission staff of its
position.

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

Because of the affiliation of the Manager with the Fund, the Fund is
prohibited from engaging in certain transactions involving the Manager's
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage." Without such an exemptive order, the
Fund would be prohibited from engaging in portfolio transactions with Merrill
Lynch or its affiliates acting as principal and from purchasing securities in
public offerings which are not registered under the Securities Act of 1933, as
amended, in which such firm or any of its 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 of the Manager since
1977 and Chief Investment Officer and Director of the Manager since 1976;
President, Director and Chief Investment Officer of Fund Asset Management, L.P.
("FAM") since 1977; Director of Merrill Lynch Funds Distributor, Inc.; Executive
Vice President of Merrill Lynch & Co., Inc. and of Merrill Lynch, Pierce, Fenner
& Smith Incorporated since 1990.

WALTER MINTZ--Director(2)--1114 Avenue of the Americas, New York, New York
10036. Special Limited Partner of Cumberland Partners (investment partnership)
since 1982.

14
<PAGE> 65

MELVIN R. SEIDEN--Director(2)--780 Third Avenue, New York, New York 10017.
President of Silbanc Properties, Ltd. (real estate, consulting and investments)
since 1987; Chairman and President of Seiden & de Cuevas, Inc. (private
investment firm) from 1964 to 1987.

STEPHEN B. SWENSRUD--Director(2)--24 Federal Street, Boston, Massachusetts
02110. Principal of Fernwood Associates (financial consultants); Director,
Hitchiner Manufacturing Company.

JOE GRILLS--Director(2)--183 Soundview Lane, New Canaan, Connecticut 06840.
Member of the Committee on Investment of Employee Benefit Assets of the
Financial Executives Institute ("CIEBA") since 1986, member of CIEBA's Executive
Committee since 1988 and its Chairman from 1991 to 1992; Assistant Treasurer of
International Business Machines Corporation ("IBM") and Chief Investment Officer
of the IBM Retirement Funds from 1986 until 1992.

HARRY WOOLF--Director(2)--The Institute for Advanced Study, Olden Lane,
Princeton, New Jersey 08540. Professor and former Director of the Institute for
Advanced Study (private institution devoted to the encouragement, support and
patronage of learning) since 1976; Director, Alex. Brown Funds, Flag Investors
Funds and Advanced Technology Laboratories and Space Labs Medical (medical
equipment manufacturing and marketing).

TERRY K. GLENN--Executive Vice President(1)(2)--Executive Vice President of
the Manager and FAM since 1983 and Director since 1991; President and Director
of Merrill Lynch Funds Distributor, Inc. (the "Distributor") since 1986;
President of Princeton Administrators, Inc. since 1988; and Director of
Financial Data Services, Inc. since 1985.

BERNARD D. DURNIN--Senior Vice President(1)(2)--Senior Vice President of
the Manager since 1981 and Vice-President from 1977 to 1981.

DONALD C. BURKE--Vice President(1)(2)--Vice President of the Manager since
1990; accountant, Deloitte & Touche from 1982 to 1990.

JOEL HEYMSFELD--Vice President(1)(2)--Vice President of the Manager since
1978.

GERALD M. RICHARD--Treasurer(1)(2)--Senior Vice President and Treasurer of
the Manager and FAM since 1984; Treasurer of the Distributor since 1984 and Vice
President since 1981; and Senior Vice President and Treasurer of Princeton
Administrators, Inc. since 1988.

MARK B. GOLDFUS--Secretary(1)(2)--Vice President of the Manager since 1985.
- ---------------
(1) Interested person, as defined in the Investment Company Act of 1940, of the
Company.

(2) Mr. Zeikel is a director or trustee and officer, Messrs. Grills, Mintz,
Seiden, Swensrud and Woolf are directors, trustees or members of the
advisory board, and Messrs. Glenn, Durnin, Heymsfeld, Richard and Goldfus
are officers, of certain other investment companies for which the Manager or
FAM acts as investment adviser.

At August 15, 1994, the officers and Directors of the Fund as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director of the Fund, and the other officers
of the Fund, owned less than 1% of the outstanding shares of common stock of
Merrill Lynch & Co., Inc.

15
<PAGE> 66

The Fund pays each Director not affiliated with the Manager a fee of $2,600
per year plus $250 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 Committee, which consists of all of the non-
affiliated Directors, at a rate of $150 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 may also 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 it acts as
investment adviser or for its other advisory clients arise for consideration at
or about the same time, transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one client of the
Manager or its affiliates during the same period may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price.

The Fund has entered into a management agreement with the Manager (the
"Management Agreement"). As discussed in the Prospectus, the Management
Agreement provides that the Fund will pay the Manager a monthly fee at the
annual rate of 0.75% of the average daily net assets of the Fund. This fee is
higher than that of most mutual funds, but management of the Fund believes this
fee, which is typical for a global fund, is justified by the global nature of
the Fund.

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 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 any of
their affiliates. The Fund pays all other expenses incurred in its operation,
including, among other things, taxes; expenses for legal and auditing services;
costs of printing proxies, stock certificates, shareholder reports and
prospectuses and statements of additional information (except to the extent paid
by the Distributor); charges of the custodian, any sub-custodian and transfer
agent; expenses of redemption of shares; Commission fees; expenses of
registering the shares under

16
<PAGE> 67

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 in
connection with the distribution of Class B shares will be financed by the Fund
pursuant to a distribution plan 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 Merrill
Lynch & Co., Inc., Merrill Lynch Investment Management, Inc. and Princeton
Services, Inc.

Duration and Termination. Unless earlier terminated as described below, the
Management Agreement will remain in effect from year to year if approved
annually (a) by the Board of Directors or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Directors who are not parties to
such 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 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.

ALTERNATIVE SALES ARRANGEMENTS

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

17
<PAGE> 68

INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES

The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A shares of the
Fund, refers to a single purchase by an individual, or to concurrent purchases,
which in the aggregate are at least equal to the prescribed amounts, by an
individual, his spouse and their children under the age of 21 years purchasing
shares for his or their own account and to single purchases by a trustee or
other fiduciary purchasing shares for a single trust estate or single fiduciary
account (including a pension, profit-sharing or other employee benefit trust
created pursuant to a plan qualified under Section 401 of the Code) although
more than one beneficiary is involved. The term "purchase" also includes
purchases by any "company," as that term is defined in the Investment Company
Act, but does not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other than the
purchase of shares of the Fund or shares of other registered investment
companies at a discount; provided, however, that it does not include purchases
by any group of individuals whose sole organizational nexus is that the
participants therein are credit cardholders of a company, policyholders of an
insurance company, customers of either a bank or broker-dealer or clients of an
investment adviser. The term "purchase" also includes purchases by employee
benefit plans not qualified under Section 401 of the Code, including purchases
by employees or by employers on behalf of employees, by means of a payroll
deduction plan or otherwise, of shares of the Fund. Purchases by such a company
or non-qualified employee benefit plan will qualify for the quantity discounts
discussed above only if the Fund and the Distributor are able to realize
economies of scale in sales effort and sales related expense by means of the
company, employer or plan making the Fund's Prospectus available to individual
investors or employees and forwarding investments by such persons to the Fund
and by any such employer or plan bearing the expense of any payroll deduction
plan.

REDUCED INITIAL SALES CHARGES--CLASS A SHARES

Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase Class A
shares of the Fund at the offering price applicable to the total of (a) the
dollar amount then being purchased plus (b) an amount equal to the then current
net asset value or cost, whichever is higher, of the purchaser's combined
holdings of the Class A shares and Class B shares of the Fund and of any other
investment company with a sales charge for which the Distributor acts as the
distributor. For any such right of accumulation to be made available, the
Distributor must be provided at the time of purchase, by the purchaser or the
purchaser's securities dealer, with sufficient information to permit
confirmation of qualification. Acceptance of the purchase order is subject to
such confirmation. The right of accumulation may be amended or terminated at any
time.

Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $10,000 or more of Class A shares of the Fund or any other
investment company with an initial sales charge or a deferred sales charge for
which the Distributor acts as the distributor made within a thirteen-month
period starting with the first purchase pursuant to a Letter of Intention in the
form provided in the Prospectus. The Letter of Intention is available only to
investors whose accounts are maintained at the Fund's transfer agent. The Letter
of Intention is not available to employee benefit plans for which Merrill Lynch
provides plan-participant recordkeeping services. The Letter of Intention is not
a binding obligation to purchase any amount of Class A shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed

18
<PAGE> 69

in writing of this intent within such 90-day period. The value of Class A shares
of the Fund and of other investment companies with a sales charge for which the
Distributor acts as the distributor presently held, at cost or maximum offering
price (whichever is higher), on the date of the first purchase under the Letter
of Intention, may be included as a credit toward completion of such Letter, but
the reduced sales charge applicable to the amount covered by such Letter will be
applied only to new purchases. If the total amount of shares purchased does not
equal the amount stated in the Letter of Intention (minimum of $10,000), the
investor will be notified and must pay, within 20 days of the expiration of such
Letter, the difference between the sales charge on the Class A shares purchased
at the reduced rate and the sales charge applicable to the shares actually
purchased through the Letter. Class A shares equal to five percent of the
intended amount will be held in escrow during the thirteen-month period (while
remaining registered in the name of the purchaser) for this purpose. The first
purchase under the Letter of Intention must be at least five percent of the
dollar amount of such Letter. If a purchase during the term of such Letter would
otherwise be subject to a further reduced sales charge based on the right of
accumulation, the purchaser will be entitled on that purchase and subsequent
purchases to the reduced percentage sales charge which would be applicable to a
single purchase equal to the total dollar value of the Class A shares then being
purchased under such Letter, but there will be no retroactive reduction of the
sales charges on any previous purchase. The value of any shares redeemed or
otherwise disposed of by the purchaser prior to termination or completion of the
Letter of Intention will be deducted from the total purchases made under such
Letter. An exchange from Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch
Ready Assets Trust, Merrill Lynch Retirement Reserves Money Fund or Merrill
Lynch U.S.A. Government Reserves into the Fund that creates a sales charge will
count toward completing a new or existing Letter of Intention from the Fund.

Merrill Lynch Blueprint(SM) Program. Class A shares of the Fund are offered
to participants in the Merrill Lynch Blueprint(SM) Program ("Blueprint").
Blueprint is directed to small investors, group IRAs and participants in certain
affinity groups such as credit unions, trade associations and benefit plans.
Investors placing orders to purchase Class A shares of the Fund through
Blueprint will acquire the Class A shares at net asset value plus a sales charge
calculated in accordance with the Blueprint sales charge schedule (i.e., up to
$300 at 5.50%, $300.01 to $5,000 at 4.50% plus $3.00 and $5,000.01 or more at
the standard sales charge rates disclosed in the Prospectus). Class A shares of
the Fund are offered at net asset value plus a sales charge of 1/2 of 1% for
corporate or group IRA programs placing orders to purchase their Class A shares
through Blueprint. Services, including the exchange privilege, available to
Class A investors through Blueprint, however, may differ from those available to
other investors in Class A shares.

Class A shares are offered at net asset value, with a waiver of the
front-end sales charge, to Blueprint participants through the Merrill Lynch
Directed IRA Rollover Program ("IRA Rollover Program") available from Merrill
Lynch Business Financial Services, a business unit of Merrill Lynch. The IRA
Rollover Program is available to custodian rollover assets from Eligible
Retirement Plans (as defined below) whose Trustee and/or Plan Sponsor offers the
Merrill Lynch Directed IRA Rollover Program. Eligible Retirement Plans include
(a) plans qualified under Section 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), with a salary reduction feature offering a menu of
investments to plan participants, provided such plan initially has 1,000 or more
employees eligible to participate in the plan (employees eligible to participate
in retirement plans of the same sponsoring employer or its affiliates may be
aggregated); or (b) tax qualified retirement plans within the meaning of Section
401(a) of the Code or deferred compensation plans within the meaning of Section
403(b) of the Code, provided the plan (i) initially invested $5 million or more
in existing plan assets in portfolios, mutual funds or trusts advised by the
Manager or its subsidiaries or (ii) has

19
<PAGE> 70

accumulated $5 million or more in existing plan assets invested in mutual funds
advised by the Manager or its subsidiaries, which charge a front-end sales
charge or contingent deferred sales charge (assets of retirement plans with the
same sponsor or an affiliated sponsor may be aggregated).

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

Employer Sponsored Retirement and Savings Plans. Class A shares are offered
at net asset value to employer sponsored retirement or savings plans, such as
tax qualified retirement plans within the meaning of Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), deferred compensation
plans within the meaning of Sections 403(b) and 457 of the Code, other deferred
compensation arrangements, VEBA plans, and non-qualified After Tax Savings and
Investment programs, maintained on the Merrill Lynch Group Employee Services
system, herein referred to as "Employer Sponsored Retirement or Savings Plans,"
provided the plan has $5 million or more in existing plan assets initially
invested in portfolios, mutual funds or trusts advised by the Manager either
directly or through an affiliate. Class A shares may also be offered at net
asset value to Employer Sponsored Retirement or Savings Plans, provided the plan
has accumulated $5 million or more in existing plan assets invested in mutual
funds advised by the Manager charging a front-end sales charge or contingent
deferred sales charge. Assets of Employer Sponsored Retirement or Savings Plans
sponsored by the same sponsor or an affiliated sponsor may be aggregated. The
Class A share reduced load breakpoints also apply to these aggregated assets.
Class A shares may be offered at net asset value to multiple plans sponsored by
the same sponsor or an affiliated sponsor provided that the addition of one or
more of the multiple plans results in aggregate assets of $5 million or more
invested in portfolios, mutual funds or trusts advised by the Manager either
directly or through an affiliate. Employer Sponsored Retirement or Savings Plans
are also offered Class A shares at net asset value, provided such plan initially
has 1,000 or more employees eligible to participate in the plan. Employees
eligible to participate in Employer Sponsored Retirement or Savings Plan of the
same sponsoring employer or its affiliates may be aggregated. Tax qualified
retirement plans within the meaning of Section 401(a) of the Code meeting any of
the foregoing requirements and which are provided specialized services (e.g.,
plans whose participants may direct on a daily basis their plan allocations
among a wide range of investments including individual corporate equities and
other securities in addition to mutual fund shares) by the Merrill Lynch
Blueprint(SM) Program, are offered Class A shares at a price equal to net asset
value per share plus a reduced sales charge of 0.50%. Any Employer Sponsored
Retirement or Savings Plan which does not meet the above described
qualifications to purchase Class A shares at net asset value has the option of
purchasing Class A shares at the sales charge schedule disclosed in the
Prospectus, or if the Employer Sponsored Retirement or Savings Plan is a tax
qualified retirement plan and meets the specified requirements, then it may
purchase Class B shares with a waiver of the contingent deferred sales charge
upon redemption. The minimum initial and subsequent purchase requirements are
waived in connection with all the above referenced Employer Sponsored Retirement
or Savings Plans.

20
<PAGE> 71

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

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

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

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

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

21
<PAGE> 72

Fund which might result from an acquisition of assets having net unrealized
appreciation which is disproportionately higher at the time of acquisition than
the realized or unrealized appreciation of the Fund.

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

DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES

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

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

REDEMPTION OF SHARES

Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares. The right to
redeem shares or to receive payment with respect to any such redemption may be
suspended only for any period during which trading on the New York Stock
Exchange is restricted as determined by the Commission or such Exchange is
closed (other than customary weekend and holiday closings), for any period
during which an emergency exists as defined by the Commission as a result of
which disposal of portfolio securities or determination of the net asset value
of the Fund is not reasonably practicable, and for such other periods as the
Commission may by order permit for the protection of shareholders of the Fund.

22
<PAGE> 73

CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternative--Class B Shares," while Class B shares redeemed within four
years of purchase are subject to a contingent deferred sales charge under most
circumstances, the charge is waived on redemptions of Class B shares in
connection with certain post-retirement withdrawals from an Individual
Retirement Account ("IRA") or other retirement plan or following the death or
disability of a Class B shareholder. Redemptions for which the waiver applies
are: (a) any partial or complete redemption in connection with a tax-free
distribution following retirement under a tax-deferred retirement plan or
attaining age 59 1/2 in the case of an IRA or other retirement plan, or any
redemption resulting from the tax-free return of an excess contribution to an
IRA or (b) any partial or complete redemption following the death or disability
(as defined in the Code) of a Class B shareholder (including one who owns the
Class B shares as joint tenant with his or her spouse), provided the redemption
is requested within one year of the death or initial determination of
disability.

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

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

23
<PAGE> 74

PORTFOLIO TRANSACTIONS AND BROKERAGE

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

Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions. 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. 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. In addition, consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and policies established by the
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. It is possible that certain of the supplementary investment
research so received will primarily benefit one or more other investment
companies or other accounts for which investment discretion is exercised.
Conversely, the Fund may be the primary beneficiary of the research or services
received as a result of portfolio transactions effected for such other accounts
or investment companies.

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

The Fund invests in certain securities traded in the over-the-counter
market and, where possible, deals directly with the dealers who make a market in
the securities involved except in those circumstances in which better prices and
execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Fund and persons who are affiliated with such affiliated
persons are prohibited from dealing with the Fund as principal in the purchase
and sale of securities unless a permissive order allowing such transactions is
obtained from the Commission. Since transactions in the over-the-counter market
usually involve transactions with dealers acting as principal for their own
accounts, affiliated persons of the Fund, including Merrill Lynch and any of its
affiliates, will not serve as the Fund's dealer in such transactions. However,
affiliated persons of the Fund may serve as its broker in listed or
over-the-counter transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated broker is
reasonable and fair compared to the fee or commission received by non-affiliated
brokers in connection with comparable transactions.

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.

24
<PAGE> 75

Under present conditions, it is not believed that these considerations will have
any significant effect on its portfolio strategy.

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

The Directors have considered the 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 Directors made a determination not to seek such
recapture. The Directors will reconsider this matter from time to time.

DETERMINATION OF NET ASSET VALUE

Reference is made to "Additional Information--Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value. The
net asset value of the shares of the Fund is determined once daily Monday
through Friday as of 4:15 p.m., New York time, on each day the New York Stock
Exchange is open for trading. The New York Stock Exchange is not open on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
on the day of valuation. Net asset value is computed by dividing the value of
the securities held by the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares outstanding at such
time. Expenses, including the fees payable to the Manager and the Distributor,
are accrued daily. The per share net asset value of the Class B shares generally
will be lower than the per share net asset value of the Class A shares
reflecting the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to the Class B shares.
It is expected, however, that the per share net asset value of the two classes
will tend to converge immediately after the payment of dividends or
distributions, which will differ by approximately the amount of the expense
accrual differential between the classes.

Securities traded in the over-the-counter market are valued at the last
available bid price or yield equivalents obtained from one or more dealers in
the over-the-counter 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 over-the-counter market, the average of the
last asked price as obtained from one or more dealers. Options purchased by the
Fund are valued at their last bid price in the case of

25
<PAGE> 76

exchange-traded options or, in the case of options traded in the
over-the-counter market, the average of the last bid price as obtained from two
or more dealers unless there is only one dealer, in which case that dealer's
price is used. Portfolio securities which are traded on stock exchanges are
valued at the last sale price on the principal market on which such securities
are traded, as of the close of business on the day the securities are being
valued, or lacking any sales, at the last available bid price. 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. Other investments, including futures contracts and related
options, are stated at market value. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund, which may
utilize a matrix system for valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.

SHAREHOLDER SERVICES

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

INVESTMENT ACCOUNT

Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive monthly statements from the transfer agent
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Shareholders also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains distributions. A shareholder
may make additions to his Investment Account at any time by mailing a check
directly to the transfer agent.

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

AUTOMATIC INVESTMENT PLAN

A shareholder may make additions to an Investment Account at any time by
purchasing Class A or Class B shares at the applicable public offering price
either through the shareholder's securities dealer or by mail directly to the
transfer agent, acting as agent for such securities dealer. Voluntary
accumulation can also be made through a service known as the Automatic
Investment Plan whereby the Fund is authorized through pre-authorized checks of
$50 or more to charge the regular bank account of the shareholder on a regular
basis to provide systematic additions to the Investment Account of such
shareholder. An investor whose shares of the Fund are held within a CMA(R)
account may arrange to have periodic investments made in the Fund in amounts of
$250 or more through the CMA Automatic Investment Program. The Automatic
Investment Program is not available to shareholders whose shares are held in a
brokerage account with Merrill Lynch other than a CMA(R) account.

26
<PAGE> 77

AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

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

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

SYSTEMATIC WITHDRAWAL PLANS--CLASS A SHARES

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

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

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

A Class A shareholder whose shares are held within a CMA(R), CBA(R) or
Retirement Account may elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the Systematic Redemption Program.
The minimum fixed dollar amount redeemable is $25. The proceeds of systematic
redemptions will be posted to the shareholder's account five business days after
the date the shares

27
<PAGE> 78

are redeemed. Monthly systematic redemptions will be made at net asset value on
the first Monday of each month, bimonthly systematic redemptions will be made at
net asset value on the first Monday of every other month, and quarterly,
semiannual or annual redemptions are made at net asset value on the first Monday
of months selected at the shareholder's option. If the first Monday of the month
is a holiday, the redemption will be processed at net asset value on the next
business day. The Systematic Redemption Program is not available if Fund shares
are being purchased within the account pursuant to the Automatic Investment
Program. For more information on the Systematic Redemption Program, eligible
shareholders should contact their Financial Consultant.

EXCHANGE PRIVILEGE

U.S. Class A or Class B shareholders of the Fund may exchange their Class A
or Class B shares of the Fund for shares of the same class of Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc.,
Merrill Lynch Arizona Limited Maturity Municipal Bond Fund, Merrill Lynch
Arizona Municipal Bond Fund, Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Balanced Fund for Investment and Retirement, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Insured Municipal Bond Fund, Merrill Lynch
California Limited Maturity Municipal Bond Fund, Merrill Lynch California
Municipal Bond Fund, Merrill Lynch Capital Fund, Inc., Merrill Lynch Colorado
Municipal Bond Fund, Merrill Lynch Connecticut Municipal Bond Fund, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing Capital Markets Fund,
Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Federal Securities Trust, Merrill Lynch Florida Limited Maturity Municipal Bond
Fund, Merrill Lynch Florida Municipal Bond Fund, Merrill Lynch Fund For
Tomorrow, Inc., Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global
Holdings (residents of Arizona must meet investor suitability standards),
Merrill Lynch Global Resources Trust, Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch
Healthcare Fund, Inc. (residents of Wisconsin must meet investor suitability
standards), Merrill Lynch International Equity Fund, Merrill Lynch Latin America
Fund, Inc., Merrill Lynch Maryland Municipal Bond Fund, Merrill Lynch
Massachusetts Limited Maturity Municipal Bond Fund, Merrill Lynch Massachusetts
Municipal Bond Fund, Merrill Lynch Michigan Limited Maturity Municipal Bond
Fund, Merrill Lynch Michigan Municipal Bond Fund, Merrill Lynch Minnesota
Municipal Bond Fund, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Municipal Intermediate Term Fund, Merrill Lynch New Jersey Limited Maturity
Municipal Bond Fund, Merrill Lynch New Jersey Municipal Bond Fund, Merrill Lynch
New Mexico Municipal Bond Fund, Merrill Lynch New York Limited Maturity
Municipal Bond Fund, Merrill Lynch New York Municipal Bond Fund, Merrill Lynch
North Carolina Municipal Bond Fund, Merrill Lynch Ohio Municipal Bond Fund,
Merrill Lynch Oregon Municipal Bond Fund, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund, Merrill Lynch
Pennsylvania Municipal Bond Fund, Merrill Lynch Phoenix Fund, Inc., Merrill
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch SmallCap Global Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch Texas Municipal Bond
Fund, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch World Income
Fund, Inc. on the basis described below. In addition, Class A shareholders of
the Fund may exchange their Class A shares for shares of Merrill Lynch U.S.A.
Government Reserves, Merrill Lynch Ready Assets Trust and Merrill Lynch U.S.
Treasury Money Fund (or Merrill Lynch Retirement Reserves Money Fund if the

28
<PAGE> 79

exchange occurs within certain retirement plans) (together, the "Class A money
market funds"), and Class B shareholders of the Fund may exchange their Class B
shares for shares of Merrill Lynch Government Fund, Merrill Lynch Institutional
Fund, Merrill Lynch Institutional Tax-Exempt Fund and Merrill Lynch Treasury
Fund (together, the "Class B money market funds") on the basis described below.
Shares with a net asset value of at least $250 are required to qualify for the
exchange privilege, and any shares utilized in an exchange must have been held
by the shareholder for at least 15 days. Certain funds into which exchanges may
be made may impose a redemption fee (not in excess of 2.00% of the amount
redeemed) on shares purchased through the exchange privilege when such shares
are subsequently redeemed, including redemption through subsequent exchanges.
Such redemption fee would be in addition to any contingent deferred sales charge
otherwise applicable to a redemption of Class B shares. It is contemplated that
the exchange privilege may be applicable to other new mutual funds whose shares
may be distributed by the Distributor. The exchange privilege available to
participants in the Merrill Lynch Blueprint(SM) Program may be different than
that available to other investors.

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

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

29
<PAGE> 80

shares to the three year holding period for the Merrill Lynch Global Resources
Trust Class B shares, the investor will be deemed to have held the new Class B
shares for more than five years.

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

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

MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. High current income consistent with a
policy of limiting the degree of
fluctuation in net asset value by
investing primarily in a portfolio
of adjustable rate securities,
consisting principally of
mortgage-backed and asset-backed
securities.
MERRILL LYNCH AMERICAS INCOME FUND,
INC. A high level of current income,
consistent with prudent investment
risk, by investing primarily in
debt securities denominated in a
currency of a country located in
the Western Hemisphere (i.e., North
and South America and the
surrounding waters).
MERRILL LYNCH ARIZONA LIMITED MATURITY
MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to provide
as high a level of income exempt
from Federal and Arizona income
taxes as is consistent with prudent
investment management through
investment in a portfolio primarily
of intermediate-term investment
grade Arizona Municipal Bonds.

30
<PAGE> 81

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

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

31
<PAGE> 82

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 objective is
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, INC. A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal and 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, other than Japan, Australia
and New Zealand.

MERRILL LYNCH EUROFUND Capital appreciation primarily
through investment in equity
securities of corporations
domiciled in Europe.
MERRILL LYNCH FEDERAL SECURITIES
TRUST High current return through
investments in U.S. Government and
Government agency securities,
including GNMA mortgage-backed
certificates and other
mortgage-backed Government
securities.

32
<PAGE> 83

MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
income taxes as is consistent with
prudent investment management while
serving to offer shareholders the
opportunity to own securities
exempt from Florida intangible
personal property taxes through
investment in a portfolio primarily
of intermediate-term investment
grade Florida Municipal Bonds.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal income taxes as is
consistent with prudent investment
management, while seeking to offer
shareholders the opportunity to own
securities exempt from Florida
intangible personal property taxes.
MERRILL LYNCH FUND FOR
TOMORROW, INC. Long-term growth through investment
in a portfolio of good quality
securities, primarily common stock,
potentially positioned to benefit
from demographic and cultural
changes as they affect consumer
markets.

MERRILL LYNCH FUNDAMENTAL
GROWTH FUND, INC. Long-term growth 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 investment return,
consistent with prudent risk,
through a fully managed investment
policy utilizing United States and
foreign equity, debt, and money
market securities, the combination
of which will be varied from time
to time both with respect to types
of securities and markets in
response to changing market and
economic trends.

33
<PAGE> 84

MERRILL LYNCH GLOBAL BOND FUND
FOR INVESTMENT AND RETIREMENT High total investment return from
investment in a global portfolio of
debt instruments denominated in
various currencies and
multinational currency units.
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC. High total return from investment
primarily in an internationally
diversified portfolio of
convertible debt securities,
convertible preferred stock and
"synthetic" convertible securities
consisting of a combination of debt
securities or preferred stock and
warrants or options.
MERRILL LYNCH GLOBAL HOLDINGS
(RESIDENTS OF ARIZONA MUST
MEET INVESTOR SUITABILITY
STANDARDS) The highest total investment return
consistent with prudent risk
through worldwide investment in an
internationally diversified
portfolio of securities.
MERRILL LYNCH GLOBAL RESOURCES
TRUST Long-term growth and protection of
capital from investment in
securities of domestic and foreign
companies that possess substantial
natural resource assets.
MERRILL LYNCH GLOBAL UTILITY
FUND, INC. Capital appreciation and current
income through investment of at
least 65% of its total assets in
equity and debt securities issued
by domestic and foreign companies
which are primarily engaged in the
ownership or operation of
facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.

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

34
<PAGE> 85

securities placing principal
emphasis on those securities which
management of the fund believes to
be undervalued.

MERRILL LYNCH HEALTHCARE
FUND, INC. (RESIDENTS OF
WISCONSIN MUST MEET INVESTOR
SUITABILITY STANDARDS) Capital appreciation through
worldwide investment in equity
securities of companies that derive
or are expected to derive a
substantial portion of their sales
from products and services in
healthcare.

MERRILL LYNCH INSTITUTIONAL FUND A portfolio of Merrill Lynch Funds
for Institutions Series, a series
fund, whose objective is to provide
maximum current income consistent
with liquidity and the maintenance
of a high quality portfolio of
money market securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND A portfolio of Merrill Lynch Funds
for Institutions Series, a series
fund, whose objective is to provide
current income exempt from Federal
income taxes, preservation of
capital and liquidity available
from investing in a diversified
portfolio of short-term, high
quality municipal bonds.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND Capital appreciation and,
secondarily, income by investing in
a diversified portfolio of equity
securities of issuers located in
countries other than the United
States.
MERRILL LYNCH 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 objective is
as high a level of income exempt
from Federal and Maryland income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH MASSACHUSETTS
LIMITED MATURITY MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund,

35
<PAGE> 86
whose objective is as high a
level of income exempt from
Federal and Massachusetts income
taxes as is consistent with
prudent investment management
through investment in a portfolio
primarily of intermediate-term
investment grade Massachusetts
Municipal Bonds.

MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal and Massachusetts
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and Michigan income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of
intermediate-term investment grade
Michigan Municipal Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal and Michigan income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH MINNESOTA
MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal and Minnesota income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC. Tax-exempt income from three separate
diversified portfolios of municipal
bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND Currently the only portfolio of
Merrill Lynch Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level as possible of income exempt
from Federal income taxes by
investing in

36
<PAGE> 87
investment grade obligations
with a dollar weighted average
maturity of five to twelve years.

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

37
<PAGE> 88

high a level of income exempt
from Federal and North Carolina
income taxes as is consistent with
prudent investment management.

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

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

MERRILL LYNCH PHOENIX FUND, 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.

38
<PAGE> 89

MERRILL LYNCH READY ASSETS TRUST Preservation of capital, liquidity
and the highest possible current
income consistent with the
foregoing objectives from the
short-term money market securities
in which the Trust invests.
MERRILL LYNCH RETIREMENT RESERVES
MONEY FUND (AVAILABLE ONLY IF
THE EXCHANGE OCCURS WITHIN CERTAIN
RETIREMENT PLANS) Currently the only portfolio of
Merrill Lynch Retirement Series
Trust, a series fund, whose
objectives are current income,
preservation of capital and
liquidity available from investing
in a diversified portfolio of
short-term money market securities.
MERRILL LYNCH SHORT-TERM GLOBAL INCOME
FUND, INC. As high a level of current income as
is consistent with prudent
investment management from a global
portfolio of high quality debt
securities denominated in various
currencies and multinational
currency units and having remaining
maturities not exceeding three
years.
MERRILL LYNCH SMALLCAP GLOBAL
FUND, INC. Long-term growth of capital from
investments in securities,
primarily common stocks, of
companies with relatively small
market capitalizations located in
various foreign countries and in
the United States.

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

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

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

39
<PAGE> 90

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

MERRILL LYNCH TREASURY FUND A portfolio of Merrill Lynch Funds
for Institutions Series, a series
fund, whose objective is to provide
current income consistent with
liquidity and security of principal
from investment in direct
obligations of the U.S. Treasury
and up to 10% of its total assets
in repurchase agreements secured by
such obligations.
MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES Preservation of capital, current
income and liquidity available from
investing in direct obligations of
the U.S. Government and repurchase
agreements relating to such
securities.
MERRILL LYNCH U.S. TREASURY
MONEY FUND Preservation of capital, liquidity
and current income through
investment exclusively in a
diversified portfolio of short-term
marketable securities which are
direct obligations of the U.S.
Treasury.
MERRILL LYNCH UTILITY INCOME
FUND, INC. High current income through
investment in equity and debt
securities issued by companies
which are primarily engaged in the
ownership or operation of
facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME
FUND, INC. High current income by investing in a
global portfolio of fixed income
securities denominated in various
currencies, including multinational
currencies.

Before effecting an exchange, shareholders of the Fund should obtain a
currently effective prospectus of the fund into which the exchange is to be
made. Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes and, depending on the circumstances, a short-or long-term capital
gain or loss may be realized. In addition, a shareholder exchanging shares of
any of the funds may be subject to a backup

40
<PAGE> 91

withholding tax unless such shareholder certifies under penalty of perjury that
the taxpayer identification number on file with any such fund is correct and
that such shareholder is not otherwise subject to backup withholding. See
"Dividends, Distributions and Taxes--Taxes" below.

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

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid at least annually.
All net realized long-or short-term capital gains, if any, are distributed to
the Fund's shareholders at least annually. 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 taxable year. See
"Shareholder Services--Automatic Reinvestment of Dividends and Capital Gains
Distributions" for information concerning the manner in which dividends and
distributions may be reinvested automatically in shares of the Fund.
Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash. Dividends and distributions are taxable to
shareholders as described below whether they are invested in shares of the Fund
or received in cash. The per share dividends and distributions on Class B shares
will be lower than the per share dividends and distributions on Class A shares
as a result of the distribution and higher transfer agency fees applicable with
respect to the Class B shares. See "Determination of Net Asset Value."

TAXES

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

41
<PAGE> 92

Dividends are taxable to shareholders even if 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 and capital gain
dividends. A portion of the Fund's ordinary income dividends may be eligible for
the dividends received deduction allowed to corporations under the Code, if
certain requirements are met. For this purpose, the Fund will allocate dividends
eligible for the dividends received deduction between the Class A and Class B
shareholders according to a method (which it believes is consistent with the
Securities and Exchange Commission exemptive order permitting the issuance and
sale of two classes of stock) that is based on the gross income allocable to
Class A and Class B shareholders during the taxable year, or such other method
as the Internal Revenue Service may prescribe. If the Fund pays a dividend in
January that was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, then such
dividend will be treated for tax purposes as being paid by the Fund and received
by its shareholders on December 31 of the year in which such dividend was
declared.

Dividends, interest and capital gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax treaties 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 expects to qualify for, and intends to make,
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

42
<PAGE> 93

their U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them. Shareholders will be entitled, subject to certain
limitations to deduct such proportionate shares in computing their taxable
incomes or, alternatively, use them as foreign tax credits against their U.S.
income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The Fund will report annually to its shareholders the amount per share of such
withholding taxes. For this purpose, the Fund will allocate foreign taxes and
foreign source income between the Class A and Class B shareholders according to
a method similar to that described above for the allocation of dividends
eligible for the dividends received deduction.

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.

Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions. The Fund may write, purchase or sell options, futures or forward
foreign exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year, which may
cause the Fund to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy certain distribution requirements
for relief from income and excise taxes. Unless such contract is a non-equity
option or a regulated futures contract for a non-U.S. currency and the Fund
elects to have gain or loss in connection with the contract treated as ordinary
gain or loss under Code Section 988 (as described below), gain or loss from
Section 1256 contracts will be 60% long-term and 40% short-term capital gain or
loss. The mark-to-market rules outlined above, however, will not apply to
certain transactions entered into by the Fund solely to reduce the risk of
changes in price or interest or currency exchange rates with respect to its
investments.

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

43
<PAGE> 94

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

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

Special Rules for Certain Foreign Currency Transactions. In general, gains
from "foreign currencies" and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in 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. The Fund intends to monitor developments in
this area and may request a private letter ruling from the Internal Revenue
Service on some or all of these issues.

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

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

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

44
<PAGE> 95

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 and Class B
shares in accordance with a formula specified by the Commission.

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

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

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

45
<PAGE> 96

GENERAL INFORMATION

DESCRIPTION OF SHARES

The Fund was incorporated under Maryland law on June 6, 1994. It has an
authorized capital of 200,000,000 shares of Common Stock, par value $0.10 per
share, divided into two classes, designated Class A Common Stock and Class B
Common Stock, each of which consists of 100,000,000 shares. Both Class A Common
Stock and Class B Common Stock represent an interest in the same assets of the
Fund and are identical in all respects except that the Class B shares bear
certain expenses related to the account maintenance and distribution of such
shares and have exclusive voting rights with respect to matters relating to such
account maintenance and distribution expenditures. The Fund has received an
order from the Commission permitting the issuance and sale of two classes of
Common Stock. The Board of Directors of the Fund may classify and reclassify the
shares of the Fund into additional classes of Common Stock at a future date and
may change the rights and preferences of issued shares as long as such change
does not substantially adversely affect the rights of holders of such issued
shares. The creation of additional classes would require an additional order
from the Commission. There is no assurance that such an additional order would
be issued.

Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of stockholders be held upon the written request of at least 10% of the
outstanding shares of the Fund entitled to vote at such meeting. Voting rights
for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive or conversion rights. Redemption rights
are discussed elsewhere herein and in the Prospectus. Each share is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund upon liquidation or dissolution after satisfaction of
outstanding liabilities. Stock certificates are issued by the transfer agent
only on specific request. Certificates for fractional shares are not issued in
any case.

The Manager provided the initial capital for the Fund by purchasing 5,000
shares of each class of stock for an aggregate of $100,000. Such shares were
acquired for investment and can only be disposed of by redemption. The
organizational expenses of the Fund will be paid by the Fund and amortized over
a period not exceeding five years. The proceeds realized by the Manager upon
redemption of any of such shares will be reduced by the proportionate amount of
the unamortized organizational expenses which the number of shares redeemed
bears to the number of shares initially purchased.

46
<PAGE> 97

COMPUTATION OF OFFERING PRICE PER SHARE

An illustration of the computation of the offering price for Class A and
Class B shares of the Fund based on the projected value of the Fund's estimated
net assets on July 22, 1994, and its shares outstanding on that date is as
follows:

<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
Net Assets........................................................ $50,000 $50,000
======= =======
Number of Shares Outstanding...................................... 5,000 5,000
======= =======
Net Asset Value Per Share (net assets divided by number of shares
outstanding).................................................... $ 10.00 $ 10.00
Sales Charge (for Class A shares: 6.50% of offering price (6.95%
of net amount invested))*....................................... $ 0.70 $ --**
------- -------
Offering Price.................................................... $ 10.70 $ 10.00
======= =======
</TABLE>

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

** Class B shares are not subject to an initial sales charge but may be subject
to a contingent deferred sales charge on redemption of shares within four
years of purchase. See "Purchase of Shares--Deferred Sales Charge
Alternative--Class B Shares" in the Prospectus and "Redemption of
Shares--Contingent Deferred Sales Charge--Class B Shares" herein.

INDEPENDENT AUDITORS

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

CUSTODIAN

The Chase Manhattan Bank, N.A., 4 MetroTech Center, 18th Floor Brooklyn,
New York 11245 (the "Custodian"), acts as the custodian of the Fund's assets.
Under its contract with the Fund, the Custodian is authorized to establish
separate accounts in foreign currencies and to cause foreign securities owned by
the Fund to be held in its offices outside the U.S. and with certain foreign
banks and securities depositories. The Custodian is responsible for safeguarding
and controlling the Fund's cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Fund's
investments.

TRANSFER AGENT

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

47
<PAGE> 98

LEGAL COUNSEL

Rogers & Wells, 200 Park Avenue, New York, New York 10166, is counsel for
the Fund.

REPORTS TO SHAREHOLDERS

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

ADDITIONAL INFORMATION

The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act, to which reference is hereby made.

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

48
<PAGE> 99

APPENDIX

RATINGS OF FIXED INCOME SECURITIES

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

<TABLE>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds. They
are rated lower than the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations, (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and 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 investment.
Assurance of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real investment
standing.
</TABLE>

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

49
<PAGE> 100

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:

PRIME-1. Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt 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.

PRIME-2. Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt 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.

PRIME-3. Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short term 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.

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

If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within the parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the affiliated corporations, commercial banks, insurance companies, foreign
governments

50
<PAGE> 101

or other entities, but only as one factor in the total rating assessment.
Moody's makes no representation and gives no opinion on the legal validity or
enforceability of any support arrangement. You are cautioned to review with your
counsel any questions regarding particular support arrangements.

DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS

Because of the fundamental differences between preferred stocks and bonds,
a variation of the bond rating symbols is being used in the quality ranking of
preferred stock. 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:

<TABLE>
<S> <C>
"aaa" An issue which is rated "aaa" is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
within the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade preferred stock. This rating
indicates that there is a 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 protections 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.
</TABLE>

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.

51
<PAGE> 102

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 any audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.

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

<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative
GRADE 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 and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B Debt rated B has a greater vulnerability to default but 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
</TABLE>

52
<PAGE> 103

<TABLE>
<S> <C>
category is also used for debt subordinated to senior debt that is assigned an
actual or implied BB or BB- rating.
CCC Debt rated CCC has a 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 is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC The rating CC is typically applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI The rating CI is reserved for income bonds on which no interest is being paid.
D Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
</TABLE>

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
categories.

N.R. 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.

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 Legal Investment Laws of various states may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

53
<PAGE> 104

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

<TABLE>
<S> <C>
A Issues assigned this highest rating are regarded as having the greatest capacity for
timely payment. Issues in this category are delineated with the numbers 1, 2, and 3 to
indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is strong. However,
the relative degree of safety is not as high as for issues designated "A-1."
A-3 Issues carrying this designation have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated "B" are regarded as having only an adequate capacity for timely payment.
However, such capacity may be damaged by changing conditions or short-term adversities.
C This rating is assigned to short-term debt obligations with a doubtful capacity for
payment.
D Debt rated "D" is in payment default. The "D" rating category is used when interest
payments or principal payments are not made on the date due even if the applicable grace
period has not expired, unless Standard & Poor's believes that such payments will be made
during such grace period.
</TABLE>

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

DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS

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

The preferred stock ratings are based on the following considerations:

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

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

54
<PAGE> 105

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.

<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong, although
not as overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to make payments for a preferred stock in this category
than for issues in the "A" category.
BB 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.
CCC "BB" indicates the lowest degree of speculation and "CCC" the highest degree of
speculation. While such issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk exposures
to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in default on debt
instruments.
</TABLE>

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

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

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

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

55
<PAGE> 106

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of
MERRILL LYNCH ASSET GROWTH FUND, INC.:

We have audited the accompanying statement of assets and liabilities, of Merrill
Lynch Asset Growth Fund, Inc. as of July 22, 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial 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 audits provide a reasonable basis for our opinion.

In our opinion, such financial statement presents fairly, in all material
respects, the financial position of Merrill Lynch Asset Growth Fund, Inc. as of
July 22, 1994, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Princeton, New Jersey
July 26, 1994.

56
<PAGE> 107

MERRILL LYNCH ASSET GROWTH FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES

JULY 22, 1994

<TABLE>
<S> <C>
Assets:
Cash in Bank................................................................. $100,000
Prepaid registration fees (Note 3)........................................... 53,450
Deferred organization expenses (Note 4)...................................... 57,100
--------
Total Assets...................................................................... 210,550
Liabilities--accrued expenses..................................................... (110,550)
--------
Net Assets (equivalent to $10.00 per share on 5,000 Class A shares of common stock
(par value $0.10) and 5,000 Class B shares of common stock (par value $0.10)
outstanding with 200,000,000 shares authorized) (Note 1)........................ $100,000
========
</TABLE>

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

(1) Merrill Lynch Asset Growth Fund, Inc. (the "Fund") was incorporated in the
State of Maryland on June 6, 1994. The Fund is registered under the
Investment Company Act of 1940 as an open-end investment company.

(2) The Fund intends to enter into an Investment Management Agreement (the
"Management Agreement") with Merrill Lynch Asset Management, L.P. (the
"Manager"), and a distribution agreement (the "Distribution Agreement") with
Merrill Lynch Funds Distributor, Inc. (the "Distributor"). (See "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 will 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) will bear the
unamortized deferred organization expenses.

57
<PAGE> 108

(This Page Intentionally Left Blank)

58
<PAGE> 109

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Investment Objective and Policies........ 2
Precious and Industrial Metal-Related
Securities........................... 2
Real Estate-Related Securities......... 3
Portfolio Strategies Involving Options
and Futures.......................... 4
Other Investment Policies and
Practices............................ 8
Investment Restrictions................ 11
Management of the Fund................... 14
Directors and Officers................. 14
Management and Advisory Arrangements... 16
Purchase of Shares....................... 17
Alternative Sales Arrangements......... 17
Initial Sales Charge Alternative--Class
A Shares............................. 18
Reduced Initial Sales Charges--Class A
Shares............................... 18
Deferred Sales Charge
Alternative--Class B Shares.......... 22
Redemption of Shares..................... 22
Contingent Deferred Sales Charge--Class
B Shares............................. 23
Portfolio Transactions and Brokerage..... 24
Determination of Net Asset Value......... 25
Shareholder Services..................... 26
Investment Account..................... 26
Automatic Investment Plan.............. 26
Automatic Reinvestment of Dividends and
Capital Gains Distributions.......... 27
Systematic Withdrawal Plans--Class A
Shares............................... 27
Exchange Privilege..................... 28
Dividends, Distributions and Taxes....... 41
Dividends and Distributions............ 41
Taxes.................................. 41
Performance Data......................... 45
General Information...................... 46
Description of Shares.................. 46
Computation of Offering Price Per
Share................................ 47
Independent Auditors..................... 47
Custodian................................ 47
Transfer Agent........................... 47
Legal Counsel............................ 48
Reports to Shareholders.................. 48
Additional Information................... 48
Appendix................................. 49
Independent Auditors' Report............. 56
Statement of Assets and Liabilities...... 57
</TABLE>

- ---------------------------------------------------
MERRILL LYNCH

ASSET

GROWTH FUND, INC.

Statement of

Additional Information

August 25, 1994

Distributor:
Merrill Lynch
Funds Distributor, Inc.

Code 18239--0794
<PAGE> 110

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS

Contained in Part A: None.

Contained in Part B:

Statement of Assets and Liabilities, July 22, 1994.

(B) EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<S> <C>
1 -- Articles of Incorporation of the Registrant, as amended.
2 -- By-Laws of the Registrant, as amended.
3 -- None.
4 -- Copies of instruments defining the rights of shareholders, including the
relevant portions of the Articles of Incorporation, as amended, and
By-Laws of Registrant.(a)
5 -- Form of Management Agreement between Registrant and Merrill Lynch Asset
Management, L.P.
6(a) -- Form of Class A Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.
(b) -- Form of Class B Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.
7 -- None.
8 -- Form of Custodian Agreement between Registrant and The Chase Manhattan
Bank, N.A.
9(a) -- Form of Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial Data
Services, Inc.
(b) -- Form of Agreement between Merrill Lynch & Co., Inc. and the Registrant
relating to use by Registrant of Merrill Lynch name.
10(a) -- Opinion and consent of Rogers & Wells.
(b) -- Opinion and consent of Galland, Kharasch, Morse & Garfinkle, P.C.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management, L.P.
14 -- None.
15 -- Class B Distribution Plan of the Registrant and Distribution Plan
Sub-Agreement.
</TABLE>

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

(a) Reference is made to Article II (Sections 3 and 4), Article V (Section 3),
Article IV, Article VI, Article VII and Article IX of the Registrant's Articles
of Incorporation, filed as Exhibit (1) to the Registration Statement; and
Article II, Article III (Sections 1, 3, 5, 6 and 17), Article IV (Section 2),
Article V (Section 7), Article VI, Article VII, Article XII, Article XIII, and
Article XIV of the Registrant's By-Laws, as amended, previously filed as Exhibit
(2) to the Registration Statement.

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

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

C-1
<PAGE> 111

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT EFFECTIVE
DATE OF THE
TITLE OF CLASS REGISTRATION STATEMENT
----------------------------------------------------------------- ----------------------
<S> <C>
Shares of Class A Common Stock, par value $0.10 per share........ One
Shares of Class B Common Stock, par value $0.10 per share........ One
</TABLE>

ITEM 27. INDEMNIFICATION.

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

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

The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.

Insofar as the conditional advancing of indemnification moneys for actions
based upon the Investment Company Act of 1940 may be concerned, 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 upon receipt of a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds the
amount to which it is ultimately determined that he is entitled to receive from
the Registrant by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party Directors, or an independent legal
counsel in a written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be found
entitled to indemnification.

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

C-2
<PAGE> 112

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

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

(a) Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch
Asset Management (the 'Manager'), acts as investment adviser for the following
registered investment companies: Convertible Holdings, Inc., Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc.,
Merrill Lynch 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 Bond
Fund for Investment and Retirement, Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings,
Merrill Lynch Global Resources Trust, Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc.,
Merrill Lynch Institutional Intermediate Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch SmallCap Global
Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology
Fund, Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income
Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and Senior Floating Rate
Fund, Inc. Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager,
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., Financial Institutions Series Trust,
Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Municipal Series Trust, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The Municipal
Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund,
Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured
Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund
II, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund,
MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund,
Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc.,
Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc.,

C-3
<PAGE> 113

Taurus MuniNew York Holdings, Inc. and Worldwide DollarVest Fund, Inc. The
address of each of these investment companies is Box 9011, Princeton, New Jersey
08543-9011, except that the address of Merrill Lynch Funds for Institutions
Series and Merrill Lynch Institutional Intermediate Fund is One Financial
Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of the Manager
and FAM is also Box 9011, Princeton, New Jersey 08543-9011. The address of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill
Lynch & Co., Inc. ("ML&Co.") is World Financial Center, North Tower, 250 Vesey
Street, New York, New York 10281.

Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
November 1, 1991, for his or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard
is Treasurer and Mr. Glenn is Executive Vice President of substantially all of
the investment companies described in the preceding paragraph, and Messrs.
Durnin, Giordano, Harvey, Kirstein and Monagle are directors, trustees or
officers of one or more of such companies.

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION,
NAME THE MANAGER VOCATION OR EMPLOYMENT
- ------------------------------------ ------------------------- --------------------------------
<S> <C> <C>
ML & Co............................. Limited Partner Financial Services Holding
Company
Merrill Lynch Management, Inc....... Limited Partner Investment Advisory Services;
Limited Partner of FAM
Princeton Services, Inc.
("Princeton Services")............ General Partner General Partner of FAM
Arthur Zeikel....................... President President of FAM; President and
Director of Princeton
Services; Director of Merrill
Lynch Funds Distributor, Inc.
("MLFD"); Executive Vice
President of ML & Co.;
Executive Vice President of
Merrill Lynch
Terry K. Glenn...................... Executive Vice President Executive Vice President of the
Manager and FAM; Executive
Vice President and Director of
Princeton Services; President
and Director of MLFD; Director
of Financial Data Services,
Inc. ("FDS"); President of
Princeton Administrators
Bernard J. Durnin................... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Vincent R. Giordano................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Elizabeth Griffin................... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
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 Counsel and Secretary of FAM;
</TABLE>

C-4
<PAGE> 114

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION,
NAME THE MANAGER VOCATION OR EMPLOYMENT
- ------------------------------------ ------------------------- --------------------------------
<S> <C> <C>
Secretary Senior Vice President, General
Counsel, Director and
Secretary of Princeton
Services, Director of MLF
Ronald M. Kloss..................... Senior Vice President and Senior Vice President and
Controller Controller
of FAM; Senior Vice President
and Controller of Princeton
Services
Stephen M.M. Miller................. Senior Vice President Executive Vice President of
Princeton Administrators;
Senior Vice President of
Princeton Services
Joseph T. Monagle, Jr............... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Gerard M. Richard................... Senior Vice President and Senior Vice President and
Treasurer Treasurer of the Manager and
FAM;
Senior Vice President and
Treasurer of Princeton
Services;
Vice President and Treasurer
of MLFD
Richard L. Rufener.................. Senior Vice President Vice President of FAM;
Senior Vice President of
Princeton
Services
Ronald L. Welburn................... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Anthony Wiseman..................... Senior Vice President Senior Vice President of
Princeton Services
</TABLE>

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., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund
Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund,
Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New
Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania
Fund, MuniYield Arizona Fund, MuniYield Arizona Fund II, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield
Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield New York Insured Fund III,
Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield
Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income
Portfolio II, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York
Holdings, Inc. and Worldwide DollarVest Fund, Inc.

C-5
<PAGE> 115

(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, Brody,
Breen, Graczyk, Fatseas, Maguire, Schena and Wasel is One Financial Center,
Boston, Massachusetts 02111-2646.

<TABLE>
<CAPTION>
(3)
(2) POSITION(S) AND
(1) POSITION(S) AND OFFICE(S) OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
- --------------------------------- -------------------------------------- ------------------------
<S> <C> <C>
Terry K. Glenn................... President and Director Executive Vice President
Arthur Zeikel.................... Director President and Director
Philip L. Kirstein............... Director None
William E. Aldrich............... Senior Vice President None
Robert W. Crook.................. Senior Vice President None
Kevin Boman...................... Vice President None
Michael J. Brady................. Vice President None
William M. Breen................. Vice President None
Sharon Creveling................. Vice President and Assistant Treasurer None
Mark A. DeSario.................. Vice President None
James T. Fatseas................. Vice President None
Stanley Graczyk.................. Vice President None
Michelle T. Lau.................. Vice President None
Debra W. Landsman-Yaros.......... Vice President None
Gerald M. Richard................ Vice President and Treasurer Treasurer
Richard L. Rufener............... Vice President None
Salvatore Venezia................ Vice President None
Valerie Argentieri............... Assistant Vice President None
Lisa Gobora...................... Assistant Vice President None
Susan Kibler..................... Assistant Vice President None
Mark E. Maguire.................. Assistant Vice President None
Richard Ronnan................... Assistant Vice President None
Patricia A. Schena............... Assistant Vice President None
William Wasel.................... Assistant Vice President None
Robert Harris.................... Secretary None
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

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

ITEM 31. MANAGEMENT SERVICES.

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

ITEM 32. UNDERTAKINGS.

The Registrant undertakes to file a post-effective amendment to this
Registration Statement, using financial statements which need not be certified,
within four to six months from the effective date of this Registration
Statement.

C-6
<PAGE> 116

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, THE REGISTRANT HAS DULY CAUSED
THIS AMENDMENT TO THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, AND STATE
OF NEW JERSEY ON THE 24TH DAY OF AUGUST, 1994.

MERRILL LYNCH ASSET

GROWTH FUND, INC.

By /s/ ARTHUR ZEIKEL
------------------------------------

(ARTHUR ZEIKEL, PRESIDENT)

EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY AUTHORIZES MARK B.
GOLDFUS, GERALD M. RICHARD AND TERRY K. GLENN OR ANY OF THEM, AS
ATTORNEY-IN-FACT, TO SIGN ON HIS BEHALF, INDIVIDUALLY AND IN EACH CAPACITY
STATED BELOW, ANY AMENDMENTS TO THIS REGISTRATION STATEMENT (INCLUDING
POST-EFFECTIVE AMENDMENTS) AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, WITH
THE SECURITIES AND EXCHANGE COMMISSION.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------- ------------------------- -----------------
<C> <S> <C>
/s/ ARTHUR ZEIKEL President and Director August 24, 1994
- ------------------------------------------------- (Principal Executive
(ARTHUR ZEIKEL) Officer)

/s/ JOE GRILLS Director August 24, 1994
- -------------------------------------------------
(JOE GRILLS)

/s/ WALTER MINTZ Director August 24, 1994
- -------------------------------------------------
(WALTER MINTZ)

/s/ MELVIN R. SEIDEN Director August 24, 1994
- -------------------------------------------------
(MELVIN R. SEIDEN)

/s/ HARRY WOOLF Director August 24, 1994
- -------------------------------------------------
(HARRY WOOLF)

/s/ STEPHEN B. SWENSRUD Director August 24, 1994
- -------------------------------------------------
(STEPHEN B. SWENSRUD)

/s/ GERALD M. RICHARD Treasurer (Principal August 24, 1994
- ------------------------------------------------- Financial and Accounting
(GERALD M. RICHARD) Officer)

</TABLE>

C-7
<PAGE> 117

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NUMBERED
NUMBER PAGE
- ------ ----------
<C> <S> <C>
1 -- Articles of Incorporation of the Registrant, as amended. ..............
2 -- By-Laws of the Registrant, as amended. ................................
5 -- Form of Management Agreement between Registrant and Merrill Lynch Asset
Management, L.P........................................................
6(a) -- Form of Class A Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc......................................
(b) -- Form of Class B Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.
8 -- Form of Custodian Agreement between Registrant and The Chase Manhattan
Bank, N.A..............................................................
9(a) -- Form of Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial Data Services,
Inc....................................................................
(b) -- Form of Agreement between Merrill Lynch & Co., Inc. and the Registrant
relating to use by Registrant of Merrill Lynch name.......................
10(a) -- Opinion and consent of Rogers & Wells. ................................
(b) -- Opinion and consent of Galland, Kharasch, Morse & Garfinkle, P.C. .....
11 -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant................................................................
13 -- Certificate of Merrill Lynch Asset Management, L.P. ...................
15 -- Class B Distribution Plan of the Registrant and Distribution Plan
Sub-Agreement..........................................................
</TABLE>

C-8

<PAGE> 1

MERRILL LYNCH ASSET ALLOCATION GROWTH FUND, INC.

ARTICLES OF AMENDMENT AND RESTATEMENT

MERRILL LYNCH ASSET ALLOCATION GROWTH FUND, INC., a Maryland
corporation (the "Corporation"), DOES HEREBY CERTIFY:

1. The name of the Corporation is MERRILL LYNCH ASSET ALLOCATION
GROWTH FUND, INC. The Corporation desires to amend and restate its Charter as
currently in effect. The original Articles of Incorporation were filed with
the Maryland State Department of Assessments and Taxation on June 6, 1994.

2. Pursuant to Section 2-609 of the Maryland General corporation
Law, these Articles of Amendment and Restatement restate and integrate and
further amend the provisions of the Articles of Incorporation of the
Corporation.

3. The text of the Charter of the Corporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:

AMENDED AND RESTATED ARTICLES OF INCORPORATION

MERRILL LYNCH ASSET ALLOCATION GROWTH FUND, INC.

THE UNDERSIGNED, JOHN D. LAMB, whose post office address is 200 Park
Avenue, New York, New York 10166-0153, being at least eighteen years of age,
does hereby act as an incorporator, under and by virtue of the General Laws of
the State of Maryland authorizing the formation of corporations and with the
intention of forming a corporation.

<PAGE> 2
ARTICLE I

NAME

The name of the corporation is MERRILL LYNCH ASSET GROWTH FUND, INC.
(the "Corporation").

ARTICLE II

PURPOSES AND POWERS

The purpose or purposes for which the Corporation is formed, the
powers, rights and privileges that the Corporation shall be authorized to
exercise and enjoy, and the business or objects to be transacted, carried on
and promoted by it are as follows:

(1) To conduct and carry on the business of an investment company
of the management type.

(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.

(3) To issue and sell shares of its own capital stock in such
amounts and on such terms and conditions for such purposes and for such amount
or kind of consideration now or hereafter permitted by the General Laws of the
State of Maryland and by these Articles of Incorporation, as its Board of
Directors may determine; provided, however, that the value of the consideration
per share to be received by the Corporation upon the sale or other disposition
of any shares of its capital stock shall not be less than the net asset value
per share of such capital stock outstanding at the time of such event.

(4) To exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the

2
<PAGE> 3
vote or consent of the stockholders of the Corporation) shares of its issued or
unissued capital stock of any class or series, as its Board of Directors may
determine, in any manner and to the extent now or hereafter permitted by the
General Laws of the State of Maryland and by these Articles of Incorporation.

(5) To do any and all such further acts or things and to exercise
any and all such further powers or rights as may be necessary, incidental,
relative, conducive, appropriate or desirable for the accomplishment, carrying
out or attainment of all or any of the foregoing purposes or objects.

The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing purposes, powers, rights and privileges shall not
be deemed to exclude any powers, rights or privileges so granted or conferred.

ARTICLE III

PRINCIPAL OFFICE AND RESIDENT AGENT

The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202. The name of the resident agent of
the Corporation in this State is the Corporation Trust Incorporated, a
corporation of this State, and the post office address of the resident agent is
32 South Street, Baltimore, Maryland 21202.

3
<PAGE> 4
ARTICLE IV

CAPITAL STOCK

(1) The total number of shares of capital stock which the
Corporation shall have authority to issue is Two Hundred Million (200,000,000)
shares, of the par value of Ten Cents ($.10) per share, and of the aggregate
par value of Twenty Million Dollars ($20,000,000). The capital stock initially
is classified into two classes, consisting of One Hundred Million (100,000,000)
shares of Class A Common Stock and One Hundred Million (100,000,000) shares of
Class B Common Stock.

(2) The Board of Directors may classify and reclassify any
unissued shares of capital stock of any class or series into one or more
additional or other classes or series as may be established from time to time
by setting or changing in any one or more respects the designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of such shares of stock and pursuant to such classification or
reclassification to increase or decrease the number of authorized shares of any
existing class or series.

(3) The Board of Directors may classify and reclassify any issued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to

4
<PAGE> 5
such classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series; provided, however, that any
such classification or reclassification shall not substantially adversely
affect the rights of holders of such issued shares. The Board's authority
pursuant to this paragraph shall include, but not be limited to, the power to
vary among all the holders of a particular class or series (a) the length of
time shares must be held prior to reclassification to shares of another class
or series (the "Holding Period(s)"), (b) the manner in which the time for such
Holding Period(s) is determined and (c) the class or series into which the
particular class or series is being reclassified; provided, however, that
subject to the first sentence of this section, with respect to holders of the
Corporation's shares issued on or after the date of the Corporation's first
effective prospectus which sets forth Holding Period(s) (the "First Holding
Period Prospectus"), the Holding Period(s), the manner in which the time for
such Holding Period(s) is determined and the class or series into which the
particular class or series is being reclassified shall be disclosed in the
Corporation's prospectus or statement of additional information in effect at
the time such shares, which are the subject of the reclassification, were
issued; and provided, further, that subject to the first sentence of this
section, with respect to holders of the Corporation's Class B shares issued
prior to the date of the Corporation's First Holding Period Prospectus, the
Holding Period shall be ten (10) years for retirement plan (as recognized by
the Internal Revenue Code of 1986, as amended from

5
<PAGE> 6
time to time) holders of issued Class B shares purchased without a contingent
deferred sales charge (a "CDSC-Waived Retirement Plan") and shall be the
Holding Period set forth in the Corporation's First Holding Period Prospectus,
for all other holders of issued Class B shares; Class B shares held by a
CDSC-Waived Retirement Plan shall be reclassified to Class D shares in the
month following the month in which the first Class B share of any mutual fund
advised by Merrill Lynch Asset Management, L.P., Fund Asset Management, L.P.,
or their affiliates or successors, held by such CDSC-Waived Retirement Plan has
been held for the ten (10) year Holding Period established by the Corporation's
Board of Directors for such CDSC-Waived Retirement Plan Class B shareholder;
and the Class B shares of every shareholder other than CDSC-Waived Retirement
Plans shall be reclassified to Class D shares in the month following the month
in which such shares have been held for the Holding Period established by the
Corporation's Board of Directors for shareholders other than CDSC-Waived
Retirement Plans in the Corporation's First Holding Period Prospectus.

(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class or series of capital stock shall be
entitled to dividends and distributions in such amounts and at such times as
may be determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series of capital
stock may vary among such classes and series. Dividends on a class or series
may be declared or paid only out of the net

6
<PAGE> 7
assets of that class or series. Expenses related to the distribution of, and
other identified expenses that should properly be allocated to, the shares of a
particular class or series of capital stock may be charged to and borne solely
by such class or series and the bearing of expenses solely by a class or series
of capital stock may be appropriately reflected (in a manner determined by the
Board of Directors) and cause differences in the net asset value attributable
to, and the dividend, redemption and liquidation rights of, the shares of each
class or series of capital stock.

(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Section (4)
hereof and including any Articles Supplementary creating any class or series of
capital stock, on each matter submitted to a vote of stockholders, each holder
of a share of capital stock of the Corporation shall be entitled to one vote
for each share standing in such holder's name on the books of the Corporation,
irrespective of the class or series thereof, and all shares of all classes and
series shall vote together as a single class; provided, however, that (a) as to
any matter with respect to which a separate vote of any class or series is
required by the Investment Company Act of 1940, as amended, and in effect from
time to time, or any rules, regulations or orders issued thereunder, or by the
Maryland General Corporation Law, such requirement as to a separate vote by
that class or series shall apply in lieu of a general vote of all classes and
series as described above, (b) in the event that the separate vote requirements
referred to in (a)

7
<PAGE> 8
above apply with respect to one or more classes or series, then, subject to
paragraph (c) below, the shares of all other classes and series not entitled to
a separate class vote shall vote as a single class, and (c) as to any matter
which does not affect the interest of a particular class or series, such class
or series shall not be entitled to any vote and only the holders of shares of
the affected classes and series, if any, shall be entitled to vote.

(6) Notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority of the votes of
all classes or series of capital stock of the Corporation (or of any class or
series entitled to vote thereon as a separate class or series) to take or
authorize any action, the Corporation is hereby authorized (subject to the
requirements of the Investment Company Act of 1940, as amended, and in effect
from time to time, and any rules, regulations and orders issued thereunder) to
take such action upon the concurrence of a majority of the votes entitled to be
cast by holders of capital stock of the Corporation (or a majority of the votes
entitled to be cast by holders of a class or series entitled to vote thereon as
a separate class or series).

(7) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of each class or
series of capital stock of the Corporation shall be entitled, after payment or
provision for payment of the debts and other liabilities of the Corporation,

8
<PAGE> 9
to share ratably in the remaining net assets of the Corporation applicable to
that class or series.

(8) Any fractional shares shall carry proportionately all the
rights of a whole share, excepting any right to receive a certificate
evidencing such fractional share, but including, without limitation, the right
to vote and the right to receive dividends.

(9) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute a
quorum at any meeting of stockholders, except with respect to any matter which
requires approval by a separate vote of one or more classes of stock, in which
case the presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast by each class entitled to vote
as a separate class shall constitute a quorum.

(10) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of the charter and By-Laws of the
Corporation. As used in the charter of the Corporation, the terms "charter"
and "Articles of Incorporation" shall mean and include the Articles of
Incorporation of the Corporation as amended, supplemented and restated from
time to time by Articles of Amendment, Articles Supplementary, Articles of
Restatement or otherwise.

9
<PAGE> 10
ARTICLE V

PROVISIONS FOR DEFINING, LIMITING AND

REGULATING CERTAIN POWERS OF THE CORPORATION

AND OF THE DIRECTORS AND STOCKHOLDERS

(1) The number of directors of the Corporation shall be three,
which number may be increased pursuant to the By-Laws of the Corporation but
shall never be less than three. The names of the directors who shall act until
their successors are duly elected and qualify are:

Philip L. Kirstein
Mark B. Goldfus
Robert Harris

(2) The Board of Directors of the Corporation is hereby empowered
to authorize the issuance from time to time of shares of capital stock of any
class or series, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable, subject to such limitations as may
be set forth in these Articles of Incorporation or in the By-Laws of the
Corporation or in the General Laws of the State of Maryland.

(3) No holder of stock of the Corporation shall, as such holder,
have any rights to purchase or subscribe for any shares of the capital stock of
the Corporation or any other security of the Corporation which it may issue or
sell (whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation, of
any class or series, acquired by it after the issue thereof, or otherwise)
other

10
<PAGE> 11
than such right, if any, as the Board of Directors, in its discretion, may
determine.

(4) Each director and each officer of the Corporation shall be
indemnified by the Corporation to the full extent permitted by the General Laws
of the State of Maryland, subject to the requirements of the Investment Company
Act of 1940, as amended. No amendment of these Articles of Incorporation or
repeal of any provision hereof shall limit or eliminate the benefits provided
to directors and officers under this provision in connection with any act or
omission that occurred prior to such amendment or repeal.

(5) To the fullest extent permitted by the General Laws of the
State of Maryland, subject to the requirements of the Investment Company Act of
1940, as amended, no director or officer of the Corporation shall be personally
liable to the Corporation or its security holders for money damages. No
amendment of these Articles of Incorporation or repeal of any provision hereof
shall limit or eliminate the benefits provided to directors and officers under
this provision in connection with any act or omission that occurred prior to
such amendment or repeal.

(6) The Board of Directors of the Corporation is vested with the
sole power, to the exclusion of the stockholders, to make, alter or repeal from
time to time any of the By-Laws of the Corporation except any particular By-Law
which is specified as not subject to alteration or repeal by the Board of
Directors, subject to the requirements of the Investment Company Act of 1940,
as amended.

11
<PAGE> 12
(7) The Board of Directors of the Corporation from time to time
may change the Corporation's name, without the vote or consent of the
stockholders of the Corporation, in any manner and to the extent now or
hereafter permitted by the General Laws of the State of Maryland and by these
Articles of Incorporation.

ARTICLE VI

REDEMPTION

Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of such holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the
redemption price of such shares as in effect from time to time as may be
determined by the Board of Directors of the Corporation in accordance with the
provisions hereof, subject to the right of the Board of Directors of the
Corporation to suspend the right of redemption of shares of capital stock of
the Corporation or postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemption price of shares
of capital stock of the Corporation shall be the net asset value thereof as
determined by the Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such redemption fee or
other charge, if any, as may be fixed by resolution of the Board of Directors
of the Corporation. Payment of the redemption price shall be made in cash by
the Corporation at

12
<PAGE> 13
such time and in such manner as may be determined from time to time by the
Board of Directors of the Corporation.

ARTICLE VII

DETERMINATION BINDING

Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors, as to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created, shall have been paid or
discharged or shall be then or thereafter required to be paid or discharged),
as to the price of any security owned by the Corporation or as to any other
matters relating to the issuance, sale, redemption or other acquisition or
disposition of securities or shares of capital stock of the Corporation, and
any reasonable determination made in good faith by the Board of Directors as to
whether any transaction constitutes a purchase of securities on "margin," a
sale of securities "short," or an underwriting or the sale of, or a
participation in any underwriting or selling group in connection with the
public distribution of, any securities, shall be final and

13
<PAGE> 14
conclusive, and shall be binding upon the Corporation and all holders of its
capital stock, past, present and future, and shares of the capital stock of the
Corporation are issued and sold on the condition and understanding, evidenced
by the purchase of shares of capital stock or acceptance of share certificates,
that any and all such determinations shall be binding as aforesaid. No
provision of these Articles of Incorporation shall be effective to (a) require
a waiver of compliance with any provision of the Securities Act of 1933, as
amended, or the Investment Company Act of 1940, as amended, or of any valid
rule, regulation or order of the Securities and Exchange Commission thereunder
or (b) protect or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

ARTICLE VIII

PERPETUAL EXISTENCE

The duration of the Corporation shall be perpetual.

ARTICLE IX

AMENDMENT

The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in any manner now
or hereafter prescribed by statute, including any

14
<PAGE> 15
amendment which alters the contract rights, as expressly set forth in the
charter, of any outstanding stock and substantially adversely affects the
stockholder's rights, and all rights conferred upon stockholders herein are
granted subject to this reservation.

IN WITNESS WHEREOF, the undersigned incorporator of MERRILL LYNCH
ASSET GROWTH FUND, INC. hereby executes the foregoing Articles of Incorporation
and acknowledges the same to be his act.

Dated this 2nd day of June, 1994.

_______________________
John D. Lamb

4. The amendment to and restatement of the Charter of the Corporation
as hereinabove set forth has been duly approved by the Board of Directors and
no stock entitled to be voted on the matter was outstanding or subscribed for
at the time of approval.

5. The current address of the principal office of the Corporation in
the State of Maryland is as set forth in Article III of the foregoing amendment
and restatement of the Charter. The name and address of the Corporation's
current resident agent is as set forth in Article III of the foregoing
amendment and restatement of the Charter. The number of directors of the
Corporation and the names of those currently in office are as set forth in
Article V of the foregoing amendment and restatement of the Charter.

6. (a) The foregoing amendment and restatement of the Charter does
not increase the authorized capital stock of the Corporation.

(b) A description of each class of capital stock, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption are set forth in the foregoing amendment and restatement of the
Charter.

7. These Articles of Amendment and Restatement shall be effective on
the date of acceptance for record by the Maryland State Department of
Assessments and Taxation.

15
<PAGE> 16
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
President and attested to by its Secretary on this day of August, 1994.

MERRILL LYNCH ASSET GROWTH FUND, INC.

By ________________________________(SEAL)
Title: President

ATTEST:

___________________________
Mark B. Goldfus, Secretary

THE UNDERSIGNED, President of MERRILL LYNCH ASSET GROWTH FUND,
INC., who executed on behalf of the Corporation the foregoing Articles of
Amendment and Restatement of which this Certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the foregoing
Articles of Amendment and Restatement to be the corporate act of said
Corporation and hereby certifies that to the best of his knowledge, information
and belief the matters and facts set forth therein with respect to the
authorization and approval thereof are true in all material respects under the
penalties of perjury.

______________________________
Title: President

<PAGE> 1

BY-LAWS, AS AMENDED

MERRILL LYNCH ASSET GROWTH FUND, INC.

ARTICLE I

Offices

Section 1. Principal Office. The principal office of Merrill
Lynch Asset Growth Fund, Inc. (the "Corporation") shall be in the City of
Baltimore, State of Maryland.

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

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

ARTICLE II

Meetings of Stockholders

Section 1. Annual Meeting. The Corporation shall not be
required to hold an annual meeting of its stockholders in any year in which the
election of directors is not required to be acted upon under the Investment
Company Act of 1940. In the event that the Corporation shall be required to
hold an annual meeting of stockholders to elect directors by the Investment
Company Act of 1940, as amended, such meeting shall be held no later than 120
days after the occurrence of the event requiring the meeting. Any
<PAGE> 2
stockholders' meeting held in accordance with this Section shall for all
purposes constitute the annual meeting of stockholders for the year in which
the meeting is held.

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

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

Section 4. Notice of Meetings; Waiver of Notice. Notice of
the place, date and time of the holding of each stockholders' meeting and, if
the meeting is a special meeting, the purpose or purposes of the special
meeting, shall be given personally or by mail, not less than ten nor more than
ninety days before the date of such meeting, to each stockholder entitled to
vote at such meeting and to each other stockholder entitled to notice of the
meeting. Notice by mail shall be deemed to be duly given when deposited in the
United States mail addressed to the stockholder at his address as it appears on
the records of the Corporation, with postage thereon prepaid.

Notice of any meeting of stockholders shall be deemed waived
by any stockholder who shall attend such meeting in person or by proxy, or who
shall, either before or after the meeting,

2
<PAGE> 3
submit a signed waiver of notice which is filed with the records of the
meeting. When a meeting is adjourned to another time and place, unless the
Board of Directors, after the adjournment, shall fix a new record date for an
adjourned meeting, or the adjournment is for more than one hundred and twenty
days after the original record date, notice of such adjourned meeting need not
be given if the time and place to which the meeting shall be adjourned were
announced at the meeting at which the adjournment is taken.

Section 5. Quorum. At all meetings of the stockholders, the
holders of shares of stock of the Corporation entitled to cast one-third of the
votes entitled to be cast, present in person or by proxy, shall constitute a
quorum for the transaction of any business, except with respect to any matter
which requires approval by a separate vote of one or more classes of stock, in
which case the presence in person or by proxy of the holders of shares entitled
to cast one-third of the votes entitled to be cast by each class entitled to
vote as a separate class shall constitute a quorum. In the absence of a quorum
no business may be transacted, except that the holders of a majority of the
shares of stock present in person or by proxy and entitled to vote may adjourn
the meeting from time to time, without notice other than announcement thereat
except as otherwise required by these By-Laws, until the holders of the
requisite amount of shares of stock shall be so present. At any such adjourned
meeting at which a quorum may be present any business may be transacted which
might have been transacted at the meeting as originally called. The absence
from any meeting, in person or by proxy, of holders of the number of

3
<PAGE> 4
shares of stock of the Corporation in excess of a majority thereof which may be
required by the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Articles of Incorporation,
or these By-Laws, for action upon any given matter shall not prevent action at
such meeting upon any other matter or matters which may properly come before
the meeting, if there shall be present thereat, in person or by proxy, holders
of the number of shares of stock of the Corporation required for action in
respect of such other matter or matters.

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

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

Section 8. Voting. Except as otherwise provided by statute
or the Articles of Incorporation, each holder of record of shares of stock of
the Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of

4
<PAGE> 5
stockholders of the Corporation as of the record date determined pursuant to
Section 9 of this Article or if such record date shall not have been so fixed,
then at the later of (i) the close of business on the day on which notice of
the meeting is mailed or (ii) the thirtieth day before the meeting.

Each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for him by a proxy
signed by such stockholder or his attorney-in-fact. No proxy shall be valid
after the expiration of eleven months from the date thereof, unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where such proxy states that it
is irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders (other than the
election of directors, which shall be by plurality vote) may be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.

If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then unless required
by statute or these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his proxy, if there be
such proxy, and shall state the number of shares voted.

5
<PAGE> 6
Section 9. Fixing of Record Date. The Board of Directors may
set a record date for the purpose of determining stockholders entitled to vote
at any meeting of the stockholders. The record date, which may not be prior to
the close of business on the day the record date is fixed, shall be not more
than ninety nor less than ten days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time,
and not others, shall be entitled to vote at such meeting and any adjournment
thereof.

Section 10. Inspectors. The Board may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may
appoint inspectors. Each inspector, before entering upon the discharge of his
duties, may be required to take and sign an oath to execute faithfully the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors may be empowered to determine the
number of shares outstanding and the voting powers of each, the number of
shares represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all stockholders. On request of the chairman of the meeting or any stockholder
entitled to vote

6
<PAGE> 7
thereat, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director shall
act as inspector of an election of directors. Inspectors need not be
stockholders.

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

ARTICLE III

Board of Directors

Section 1. General Powers. Except as otherwise provided in
the Articles of Incorporation, the business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. All powers of
the Corporation may be exercised by or under authority of the Board of
Directors except as conferred on or reserved to the stockholders by law or by
the Articles of Incorporation or these By-Laws.

Section 2. Number of Directors. The number of directors
shall be fixed from time to time by resolution of the Board of

7
<PAGE> 8
Directors adopted by a majority of the entire Board of Directors; provided,
however, that the number of directors shall in no event be less than three nor
more than fifteen. Any vacancy created by an increase in Directors may be
filled in accordance with Section 6 of this Article III. No reduction in the
number of directors shall have the effect of removing any director from office
prior to the expiration of his term unless such director is specifically
removed pursuant to Section 5 of this Article III at the time of such decrease.
Directors need not be stockholders.

Section 3. Election and Term of Directors. Directors shall
be elected annually at a meeting of stockholders held for that purpose;
provided, however, that if no meeting of the stockholders of the Corporation is
required to be held in a particular year pursuant to Section 1 of Article II of
these By-Laws, directors shall be elected at the next meeting held. The term
of office of each director shall be from the time of his election and
qualification until the election of directors next succeeding his election and
until his successor shall have been elected and shall have qualified, or until
his death, or until he shall have resigned or until December 31 of the year in
which he shall have reached seventy-two years of age, or until he shall have
been removed as hereinafter provided in these By-Laws, or as otherwise provided
by statute or the Articles of Incorporation.

Section 4. Resignation. A director of the Corporation may
resign at any time by giving written notice of his resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time

8
<PAGE> 9
specified therein or, if the time when it shall become effective shall not be
specified therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.

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

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

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

9
<PAGE> 10
Section 8. Regular Meetings. Regular meetings of the Board
may be held without notice at such time and place as may be determined by the
Board of Directors.

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

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

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

Section 12. Waiver of Notice of Meetings. Notice of any
special meeting need not be given to any director who shall, either before or
after the meeting, sign a written waiver of notice which

10
<PAGE> 11
is filed with the records of the meeting or who shall attend such meeting.
Except as otherwise specifically required by these By-Laws, a notice or waiver
or notice of any meeting need not state the purposes of such meeting.

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

Section 14. Organization. The Board may, by resolution
adopted by a majority of the entire Board, designate a Chairman of the Board,
who shall preside at each meeting of the Board. In the absence or inability of
the Chairman of the Board to preside at a meeting, the President or, in his
absence or inability to act,

11
<PAGE> 12
another director chosen by a majority of the directors present, shall act as
chairman of the meeting and preside thereat. The Secretary (or, in his absence
or inability to act, any person appointed by the Chairman) shall act as
secretary of the meeting and keep the minutes thereof.

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

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

Section 17. Investment Policies. It shall be the duty of the
Board of Directors to direct that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the Prospectus of the Corporation included in the Registration Statement of
the Corporation, as recited in the current Prospectus and Statement of
Additional Information of the Corporation, as filed from time to time with the
Securities and Exchange Commission

12
<PAGE> 13
and as required by the Investment Company Act of 1940, as amended. The Board
however, may delegate the duty of management of the assets and the
administration of its day to day operations to an individual or corporate
management company and/or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors and/or the
stockholders of the Corporation in accordance with the provisions of the
Investment Company Act of 1940, as amended.

ARTICLE IV

Committees

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

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

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

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

(d) the approval or termination of any contract
with an investment adviser or principal underwriter, as such terms

13
<PAGE> 14
are defined in the Investment Company Act of 1940, as amended, or the taking of
any other action required to be taken by the Board of Directors by the
Investment Company Act of 1940, as amended;

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

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

(g) the declaration of dividends and, except to
the extent permitted by law, the issuance of capital stock of the Corporation;
and

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

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

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

Section 3. General. One-third, but not less than two, of the
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business at
such meeting, and the act of a majority

14
<PAGE> 15
present shall be the act of such committee. The Board may designate a chairman
of any committee and such chairman or any two members of any committee may fix
the time and place of its meetings unless the Board shall otherwise provide.
In the absence or disqualification of any member of any committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. The Board shall have the power at any time to
change the membership of any committee, to fill all vacancies, to designate
alternate members to replace any absent or disqualified member, or to dissolve
any such committee. Nothing herein shall be deemed to prevent the Board from
appointing one or more committees consisting in whole or in part of persons who
are not directors of the Corporation; provided, however, that no such committee
shall have or may exercise any authority or power of the Board in the
management of the business or affairs of the Corporation, except as may be
prescribed by the Board.

ARTICLE V

Officers, Agents and Employees

Section 1. Number of Qualifications. The officers of the
Corporation shall be a President (who shall be a Director of the Corporation),
a Secretary and a Treasurer, each of whom shall be elected by the Board of
Directors. The Board of Directors may elect or appoint one or more Vice
Presidents and may also appoint such other officers, agents and employees as
it may deem necessary or proper. Any two or more offices may be held by the
same person, except the offices of President and Vice

15
<PAGE> 16
President, but no officer shall execute, acknowledge or verify any instrument
in more than one capacity. Such officers shall be elected by the Board of
Directors each year at a meeting of the Board of Directors, each to hold office
for the ensuing year and until his successor shall have been duly elected and
shall have qualified, or until his death, or until he shall have resigned, or
have been removed, as hereinafter provided in these By-Laws. The Board may
from time to time elect, or delegate to the President the power to appoint,
such officers (including one or more Assistant Vice Presidents, one or more
Assistant Treasurers and one or more Assistant Secretaries) and such agents, as
may be necessary or desirable for the business of the Corporation. Such
officers and agents shall have such duties and shall hold their offices for
such terms as may be prescribed by the Board or by the appointing authority.

Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of resignation to the Board, the
Chairman of the Board, President or the Secretary. Any such resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.

Section 3. Removal of Officer, Agent or Employee. Any
officer, agent or employee of the Corporation may be removed by the Board of
Directors with or without cause at any time, and the Board may delegate such
power of removal as to agents and employees not

16
<PAGE> 17
elected or appointed by the Board of Directors. Such removal shall be without
prejudice to such person's contract rights, if any, but the appointment of any
person as an officer, agent or employee of the Corporation shall not of itself
create contract rights.

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

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

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

Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
stockholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs
of the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may
delegate these powers.

17
<PAGE> 18
Section 8. Vice President. Each Vice President shall have
such powers and perform such duties as the Board of Directors or the President
may from time to time prescribe.

Section 9. Treasurer. The Treasurer shall

(a) have charge and custody of, and be
responsible for, all the funds and securities of the Corporation, except those
which the Corporation has placed in the custody of a bank or trust company or
member of a national securities exchange (as that term is defined in the
Securities Exchange Act of 1934, as amended) pursuant to a written agreement
designating such bank or trust company or member of a national securities
exchange as custodian of the property of the Corporation;

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

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

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

(f) in general, perform all the duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.

18
<PAGE> 19
Section 10. Secretary. The Secretary shall

(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders;

(b) see that all notices are duly given in
accordance with the provisions of these By-Laws and as required by Law;

(c) be custodian of the records and the seal of
the Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;

(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and

(e) in general, perform all the duties incident
to the office of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.

Section 11. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or
any of them, of such officer upon any other officer or upon any director.

19
<PAGE> 20
ARTICLE VI

Indemnification

Each officer and director of the Corporation shall be
indemnified by the Corporation to the full extent permitted under the
General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Corporation or
any stockholder thereof to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. Absent a court
determination that an officer or director seeking indemnification was not
liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, the decision by the Corporation to indemnify such person must be based
upon the reasonable determination of independent legal counsel in a written
opinion or the vote of a majority of a quorum of the directors who are neither
"interested persons," as defined in Section 2(a)(19) of the Investment Company
Act of 1940, as amended, nor parties to the proceeding ("non-party independent
directors"), after review of the facts, that such officer or director is not
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.

Each officer and director of the Corporation claiming
indemnification within the scope of this Article VI shall be entitled to
advances from the Corporation for payment of the reasonable expenses incurred
by him in connection with proceedings

20
<PAGE> 21
to which he is a party in the manner and to the full extent permitted under the
Maryland General Corporation Law without a preliminary determination as to his
or her ultimate entitlement to indemnification (except as set forth below);
provided, however, that the person seeking indemnification shall provide to the
Corporation a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the Corporation has been met and a
written undertaking to repay any such advance, if it should ultimately be
determined that the standard of conduct has not been met, and provided further
that at least one of the following additional conditions is met: (a) the person
seeking indemnification shall provide a security in form and amount acceptable
to the Corporation for his undertaking; (b) the Corporation is insured against
losses arising by reason of the advance; (c) a majority of a quorum of
non-party independent directors, or independent legal counsel in a written
opinion, shall determine, based on a review of the facts readily available to
the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.

The Corporation may purchase insurance on behalf of an officer
or director protecting such person to the full extent permitted under the
General Laws of the State of Maryland, from liability arising from his
activities as officer or director of the Corporation. The Corporation,
however, may not purchase insurance on behalf of any officer or director of the
Corporation that protects or purports to protect such person from liability to
the

21
<PAGE> 22
Corporation or to its stockholders to which such officer or director would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.

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

ARTICLE VII

Capital Stock

Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by or in the name of
the Corporation by the Chairman, President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and sealed with the seal of the Corporation. Any or all of the signatures or
the seal on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate shall be issued, it may be issued by the
Corporation with the same effect

22
<PAGE> 23
as if such officer, transfer agent or registrar were still in office at the
date of issue.

Section 2. Books of Account and Record of Stockholders.
There shall be kept at the principal executive office of the Corporation
correct and complete books and records of account of all the business and
transactions of the Corporation. There shall be made available upon request of
any stockholder, in accordance with Maryland law, a record containing the
number of shares of stock issued during a specified period not to exceed twelve
months and the consideration received by the Corporation for each such share.

Section 3. Transfers of Shares. Transfers of shares of stock
of the Corporation shall be made on the stock records of the Corporation only
by the registered holder thereof, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates,
if issued, for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.

23
<PAGE> 24
Section 4. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation. It may appoint, or authorize any officer
or officers to appoint, one or more transfer agents or one or more transfer
clerks and one or more registrars and may require all certificates for shares
of stock to bear the signature or signatures of any of them.

Section 5. Lost, Destroyed or Mutilated Certificates. The
holder of any certificates representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of stock
in the place of any certificate theretofore issued by it which the owner
thereof shall allege to have been lost or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his
legal representatives to give to the Corporation a bond in such sum, limited
or unlimited, and in such form and with such surety or sureties, as the Board
in its absolute discretion shall determine, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Board, in its absolute
discretion, may refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Maryland.

24
<PAGE> 25
Section 6. Fixing of a Record Date for Dividends and
Distributions. The Board may fix, in advance, a date not more than ninety days
preceding the date fixed for the payment of any dividend or the making of any
distribution or the allotment of rights to subscribe for securities of the
Corporation, or for the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or exchange of common stock or
other securities, as the record date for the determination of the stockholders
entitled to receive any such dividend, distribution, allotment, rights or
interests, and in such case only the stockholders of record at the time so
fixed shall be entitled to receive such dividend, distribution, allotment,
rights or interests.

Section 7. Information to Stockholders and Others. Any
stockholder of the Corporation or his agent may inspect and copy during usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statement of its affairs, and voting trust agreements on
file at its principal office.

ARTICLE VIII

Seal

The seal of the Corporation shall be circular in form and
shall bear, in addition to any other emblem or device approved by the Board of
Directors, the name of the Corporation, the year of its incorporation and the
words "Corporate Seal" and "Maryland." Said seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any other manner
reproduced.

25
<PAGE> 26
ARTICLE IX

Fiscal Year

Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the 31st day of August.

ARTICLE X

Depositories and Custodians

Section 1. Depositories. The funds of the Corporation shall
be deposited with such banks or other depositories as the Board of Directors of
the Corporation may from time to time determine.

Section 2. Custodians. All securities and other investments
shall be deposited in the safe keeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safe keeping of
the securities and investments of the Corporation shall contain provisions
complying with the Investment Company Act of 1940, as amended, and the general
rules and regulations thereunder.

ARTICLE XI

Execution of Instruments

Section 1. Checks, Notes, Drafts, etc. Checks, notes,
drafts, acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or person or
persons as the Board of Directors by resolution shall from time to time
designate.

26
<PAGE> 27
Section 2. Sale or Transfer of Securities. Stock
certificates, bonds or other securities at any time owned by the Corporation
may be held on behalf of the Corporation or sold, transferred or otherwise
disposed of subject to any limits imposed by these By-Laws and pursuant to
authorization by the Board and, when so authorized to be held on behalf of the
Corporation or sold, transferred or otherwise disposed of, may be transferred
from the name of the Corporation by the signature of the President or a Vice
President or the Treasurer or pursuant to any procedure approved by the Board
of Directors, subject to applicable law.

ARTICLE XII

Independent Public Accountants

The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and, if required by the provisions of the Investment Company Act of
1940, as amended, ratified by the stockholders.

ARTICLE XIII

Annual Statement

The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed to
each stockholder of the Corporation of record on such date with respect to each
report as

27
<PAGE> 28
may be determined by the Board, at his address as the same appears on the books
of the Corporation. Such annual statement shall also be available at the
annual meeting of stockholders, if any, and, within 20 days after the meeting
(or, in the absence of an annual meeting, within 120 days after the end of the
fiscal year), shall be placed on file at the Corporation's principal office.
Each such report shall show the assets and liabilities of the Corporation as of
the close of the annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then invested. Such
report shall also show the Corporation's income and expenses for the period
from the end of the Corporation's preceding fiscal year to the close of the
annual or quarterly period covered by the report and any other information
required by the Investment Company Act of 1940, as amended, and shall set forth
such other matters as the Board or such firm of independent public accountants
shall determine.

ARTICLE XIV

Amendments

These By-Laws or any of them may be amended, altered or
repealed by the Board of Directors. The stockholders shall have no power to
make, amend, alter or repeal By-Laws.

<PAGE> 1

FORM OF
MANAGEMENT AGREEMENT

AGREEMENT made this 25th day of August, 1994, by and between
MERRILL LYNCH ASSET GROWTH FUND, INC., a Maryland corporation (the "Fund"), and
MERRILL LYNCH ASSET MANAGEMENT, L.P., a Delaware limited partnership (the
"Manager"):

W I T N E S S E T H:

WHEREAS, the Fund is engaged in business as a non-diversified,
open-end management investment company and is registered as such under the
Investment Company Act of 1940 (the "Investment Company Act");

WHEREAS, the Manager is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940;

WHEREAS, the Fund desires to retain the Manager to provide
management and investment advisory services to the Fund in the manner and on
the terms hereinafter set forth; and

WHEREAS, the Manager is willing to provide management and
investment advisory services to the Fund on the terms and conditions
hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, the Fund and the Manager hereby agree as
follows:

ARTICLE 1.

Duties of the Manager

The Fund hereby employs the Manager to act as a manager and
investment adviser of the Fund and to furnish, or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to the policies of, review by and overall control of the Board of
Directors of the Fund, for the period and on the terms and conditions set forth
in this Agreement. The Manager hereby accepts such employment and agrees
during such period, at its own expense, to render, or arrange for the rendering
of, such services and to assume the obligations herein set forth for the
compensation provided for herein. The Manager and its affiliates shall for all
purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly
<PAGE> 2
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed agents of the Fund.

(a) Administrative Services. The Manager shall perform
(or arrange for the performance by affiliates of) the management, investment
advisory and administrative services necessary for the operation of the Fund
including administering shareholder accounts and handling shareholder
relations. The Manager shall provide the Fund with office space, facilities,
equipment and necessary personnel and such other services as the Manager,
subject to review by the Board of Directors, shall from time to time determine
to be necessary or useful to perform its obligations under this Agreement. The
Manager shall also, on behalf of the Fund, conduct relations with custodians,
sub-custodians, depositaries, transfer agents, pricing agents, dividend
disbursing agents, other shareholder servicing agents, accountants, attorneys,
distributors, brokers and dealers, corporate fiduciaries, insurers, banks and
such other persons in any such other capacity deemed to be necessary or
desirable. The Manager shall generally monitor the Fund's compliance with
investment policies and restrictions as set forth in filings made by the Fund
under the Federal securities laws. The Manager shall make reports to the Board
of Directors of its performance of obligations hereunder and furnish advice and
recommendations with respect to such other aspects of the business and affairs
of the Fund as it shall determine to be desirable.

(b) Investment Advisory Services. The Manager shall
provide (or arrange for affiliates to provide) the Fund with such investment
research, advice and supervision as the latter may from time to time consider
necessary for the proper supervision of the assets of the Fund, shall furnish
continuously an investment program for the Fund and shall determine from time
to time which securities shall be purchased, sold or exchanged and what portion
of the assets of the Fund shall be held in the various securities in which the
Fund invests, options, futures, options on futures or cash, subject always to
the restrictions of the Articles of Incorporation and By-Laws of the Fund, as
amended from time to time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objectives, investment policies
and investment restrictions as the same are set forth in filings made by the
Fund under the Federal securities laws. The Manager shall make decisions for
the Fund as to foreign currency matters and make determinations as to foreign
exchange contracts, foreign currency options, foreign currency futures and
related options on foreign currency futures. The Manager shall make decisions
for the Fund as to the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the Fund's portfolio
securities shall be exercised. Should the Directors at any time, however, make
any definite determination as to investment policy and notify the Manager
thereof in writing, the Manager shall be bound by such determination for the
period, if any, specified in such notice or until similarly notified that such
determination has been revoked.

2
<PAGE> 3
The Manager shall take, on behalf of the Fund, all actions which it deems
necessary to implement the investment policies determined as provided above,
and in particular to place all orders for the purchase or sale of portfolio
securities for the Fund's account with brokers or dealers selected by it, and
to that end, the Manager is authorized as the agent of the Fund to give
instructions to the Custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund. In connection with the selection
of such brokers or dealers and the placing of such orders with respect to
assets of the Fund, the Manager is directed at all times to seek to obtain
execution and prices within the policy guidelines determined by the Board of
Directors and set forth in filings made by the Fund under the Federal
securities laws. Subject to this requirement and the provisions of the
Investment Company Act, the Securities Exchange Act of 1934, as amended, and
other applicable provisions of law, the Manager may select brokers or dealers
with which it or the Fund is affiliated.

ARTICLE 2.

Allocation of Charges and Expenses

(a) The Manager. The Manager assumes and shall pay for
maintaining the staff and personnel necessary to perform its obligations under
this Agreement, and shall at its own expense, provide the equipment, office
space, facilities, and necessary personnel which it is obligated to provide
under Article I hereof, and shall pay all compensation of officers and
employees of the Fund and the fees of all directors of the Fund who are
affiliated persons of the Manager.

(b) The Fund. The Fund assumes and shall pay or cause to
be paid all other expenses of the Fund, including, without limitation,
organizational costs, insurance, taxes, expenses for legal and auditing
services, costs of printing proxies, stock certificates, shareholder reports
and prospectuses and statements of additional information (except to the extent
paid by the Distributor), charges of the Custodian, any sub-custodian and
Transfer Agent, expenses of redemption of shares, Securities and Exchange
Commission fees, expenses of registering the shares under Federal, state or
foreign laws, fees and expenses of directors who are not affiliated persons of
Merrill Lynch & Co., Inc. or its subsidiaries, accounting and pricing costs
(including the daily calculation of net asset value), interest, brokerage
costs, litigation and other extraordinary or non-recurring expenses, and other
expenses properly payable by the Fund.

3
<PAGE> 4
ARTICLE 3.

Compensation of the Manager

(a) Investment Advisory Fee. For the services rendered,
the facilities furnished and expenses assumed by the Manager, the Fund shall
pay to the Manager at the end of each calendar month a fee based upon the
average daily value of the net assets of the Fund at the annual rate of 0.75%
of the Fund's average daily net assets, as determined and computed in
accordance with the description of the method of determination of net asset
value contained in the Prospectus. During any period when the determination of
net asset value is suspended by the Board of Directors of the Fund, the net
asset value of a share as of the last business day prior to such suspension
shall for this purpose be deemed to be the net asset value at the close of each
succeeding business day until it is again determined.

(b) Expense Limitations. In the event the operating
expenses of the Fund, including the investment advisory fee payable to the
Manager pursuant to subsection (a) hereof, for any fiscal year ending on a date
on which this Agreement is in effect exceed the expense limitations applicable
to the Fund imposed by state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, the Manager shall
reduce its investment advisory fee by the extent of such excess and, if
required pursuant to any such laws or regulations, will reimburse the Fund in
the amount of such excess; provided, however, to the extent permitted by law,
there shall be excluded from such expenses the amount of any interest, taxes,
brokerage commissions and extraordinary expenses (including but not limited to
legal claims and liabilities and litigation costs and any indemnification
related thereto) paid or payable by the Fund. Whenever the expenses of the
Fund exceed the applicable annual expense limitations, the estimated amounts of
reimbursement under such limitations shall be applicable as an offset against
the monthly payment of the advisory fee due to the Manager.

ARTICLE 4.

Limitation of Liability of the Manager

The Manager shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article 4, the term "Manager" shall include any affiliates of the Manager
performing services for the Fund contemplated hereby and directors, partners,
officers and employees of the Manager and such affiliates.

4
<PAGE> 5
ARTICLE 5.

Activities of the Manager

The services of the Manager to the Fund are not to be deemed
to be exclusive: the Manager and any person controlled by or under common
control with the Manager (for purposes of this Article 5 referred to as
"affiliates") are free to render services to others. It is understood that
Directors, officers, employees and shareholders of the Fund are or may become
interested in the Manager and its affiliates, as directors, officers,
employees, partners and shareholders or otherwise, and that directors,
officers, employees, partners and shareholders of the Manager and its
affiliates are or may become similarly interested in the Fund, and that the
Manager and directors, officers, employees, partners and shareholders of its
affiliates may become interested in the Fund as a shareholder or otherwise.

ARTICLE 6.

Duration and Termination of this Agreement

This Agreement shall become effective as of the date first
above written and shall remain in force until August 24, 1996, and
thereafter, but only so long as such continuance is specifically approved at
least annually by (i) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding shares of the Fund, and (ii) a majority of those
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.

This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors of the Fund or by vote of a
majority of the outstanding shares of the Fund, or by the Manager on sixty
days' written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment.

ARTICLE 7.

Definitions.

The terms "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective meanings
specified in the Investment Company Act. As used with respect to the Fund, the
term "majority of the outstanding shares" means the lesser of (i) at least 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.

5
<PAGE> 6
ARTICLE 8.

Amendments of this Agreement

This Agreement may be amended by the parties only if such
amendment is specifically approved by (i) the Board of Directors of the Fund,
or by the vote of a majority of outstanding shares of the Fund, and (ii) a
majority of those Directors of the Fund who are not parties to this Agreement
or interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.

ARTICLE 9.

Governing Law

The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as at the time
in effect and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.

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

MERRILL LYNCH ASSET
GROWTH FUND, INC.

By____________________________________
President

MERRILL LYNCH ASSET
MANAGEMENT, L.P.

By: PRINCETON SERVICES, INC.,
its General Partner

By____________________________________
President

<PAGE> 1

CLASS A SHARES
DISTRIBUTION AGREEMENT

AGREEMENT made as of the 25th day of August, 1994, between
MERRILL LYNCH ASSET GROWTH FUND, INC., a Maryland corporation (the "Fund"), and
MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the
"Distributor").

W I T N E S S E T H :

WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as an open-end
investment company, and it is affirmatively in the interest of the Fund to
offer its shares for sale continuously; and

WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly to
purchasers or through other securities dealers; and

WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of the Class
A shares of common stock in the Fund.

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Distributor. The Fund
hereby appoints the Distributor as the principal underwriter and distributor of
the Fund to sell Class A shares of common stock in the Fund (sometimes herein
referred to as "Class A shares") to eligible investors (as defined below) and
hereby agrees during the term of this Agreement to sell Class A shares of the
Fund to the Distributor upon the terms and conditions herein set forth.

1
<PAGE> 2
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as principal
underwriter and distributor, except that:

(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and
distributors of Class A shares with respect to areas other than the
United States as to which the Distributor may have expressly waived in
writing its right to act as such. If such designation is deemed
exclusive, the right of the Distributor under this Agreement to sell
Class A shares in the areas so designated shall terminate, but this
Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.

(b) The exclusive right granted to the Distributor to
purchase Class A shares from the Fund shall not apply to Class A
shares issued in connection with the merger or consolidation of any
other investment company or personal holding company with the Fund or
the acquisition by purchase or otherwise of all (or substantially all)
the assets or the outstanding shares of any such company by the Fund.

(c) Such exclusive right shall not apply to Class A
shares issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.

(d) Such exclusive right shall not apply to Class A
shares issued by the Fund pursuant to any conversion, exchange or
reinstatement privilege afforded redeeming shareholders or
<PAGE> 3
to any other Class A shares as shall be agreed between the Fund and
the Distributor from time to time.

Section 3. Purchase of Class A Shares from the Fund.

(a) The Distributor shall have the right to buy from the
Fund the Class A shares needed, but not more than the Class A shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Class A shares of the Fund placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class A shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information (the "prospectus" and "statement of additional
information," respectively) under the Securities Act of 1933, as amended (the
"Securities Act"), relating to such Class A shares ("eligible investors"). The
price which the Distributor shall pay for any Class A shares so purchased from
the Fund shall be the net asset value, determined as set forth in Section 3(d)
hereof, used in determining the public offering price on which such orders were
based.

(b) The Class A shares are to be resold by the
Distributor to eligible investors at the public offering price, as set forth in
Section 3(c) hereof, or to securities dealers having agreements with the
Distributor upon the terms and conditions set forth in Section 7 hereof.

(c) The public offering price of the Class A shares,
i.e., the price per share at which the Distributor or selected dealers may sell
Class A shares to eligible investors, shall be the public offering price as set
forth in the prospectus and statement

3
<PAGE> 4
of additional information relating to such Class A shares, but not to exceed
the net asset value at which the Distributor is to purchase the Class A shares,
plus a sales charge not to exceed 6.5% of the public offering price (6.95% of
the net amount invested), subject to reductions for volume purchases. Class A
shares may be sold to certain Directors, officers and employees of the Fund,
directors of Merrill Lynch & Co., Inc., and certain directors, officers and
employees of the Manager (as that term is defined in the prospectus and
statement of additional information), the Distributor and their (subsidiaries)
(affiliates), and to certain other persons described in the prospectus and
statement of additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the prospectus and the
statement of additional information. If the public offering price does not
equal an even cent, the public offering price may be adjusted to the nearest
cent. All payments to the Fund hereunder shall be made in the manner set forth
in Section 3(f).

(d) The net asset value of the Class A shares shall be
determined by the Fund or any agent of the Fund, in accordance with the method
set forth in the prospectus and statement of additional information of the Fund
and guidelines established by the Directors.

(e) The Fund shall have the right to suspend the sale of
its Class A shares at times when redemption is suspended pursuant to the
conditions set forth in Section 4(b) hereof. The Fund shall also have the
right to suspend the sale of its Class A shares if

4
<PAGE> 5
trading on the New York Stock Exchange shall have been suspended, if a banking
moratorium shall have been declared by Federal or New York authorities, or if
there shall have been some other extraordinary event, which, in the judgment of
the Fund, makes it impracticable or inadvisable to sell the Class A shares.

(f) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase orders for Class
A shares received by the Distributor. Any order may be rejected by the Fund;
provided, however, that the Fund will not arbitrarily or without reasonable
cause refuse to accept or confirm orders for the purchase of Class A shares for
eligible investors. The Fund (or its agent) will confirm orders upon their
receipt, will make appropriate book entries and, upon receipt by the Fund (or
its agent) of payment therefor, will deliver deposit receipts or certificates
for such Class A shares pursuant to the instructions of the Distributor.
Payment shall be made to the Fund in New York Clearing House funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).

Section 4. Repurchase or Redemption of Shares by the
Fund.

(a) Any of the outstanding Class A shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or redeem the
Class A shares so tendered in accordance with its obligations as set forth in
Article VI of its Articles of Incorporation, as amended from time to time, and
in accordance with the applicable provisions set forth in the prospectus and
statement

5
<PAGE> 6
of additional information. The price to be paid to redeem or repurchase the
Class A shares shall be equal to the net asset value calculated in accordance
with the provisions of Section 3(d) hereof less any contingent deferred sales
charge ("CDSC"), redemption fee or other charge(s), if any, set forth in the
prospectus and statement of additional information of the Fund. All payments
by the Fund hereunder shall be made in the manner set forth below. The
redemption or repurchase by the Fund of any of the Class A shares purchased by
or through the Distributor will not affect the sales charge secured by the
Distributor or any selected dealer in the course of the original sale, except
that if any Class A shares are tendered for redemption or repurchase within
seven business days after the date of the confirmation of the original
purchase, the right to the sales charge shall be forfeited by the Distributor
and the selected dealer which sold such Class A shares.

The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
in New York Clearing House funds on or before the seventh business day
subsequent to its having received the notice of redemption in proper form.

The proceeds of any redemption of shares shall be paid by the
Fund as follows: (i) any applicable CDSC shall be paid to the Distributor, and
(ii) the balance shall be paid to or for the account of the shareholder, in
each case in accordance with the applicable provisions of the prospectus and
statement of additional information.

6
<PAGE> 7
(b) Redemption of Class A shares or payment may be
suspended at times when the New York Stock Exchange is suspended, when trading
on said Exchange is suspended, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange Commission, by order,
so permits.

Section 5. Duties of the Fund.

(a) The Fund shall furnish to the Distributor copies of
all information, financial statements and other papers which the Distributor
may reasonably request for use in connection with the distribution of Class A
shares of the Fund, and this shall include, upon request by the Distributor,
one certified copy of all financial statements prepared for the Fund by
independent public accountants. The Fund shall make available to the
Distributor such number of copies of the prospectus and statement of additional
information as the Distributor shall reasonably request.

(b) The Fund shall take, from time to time, but subject
to any necessary approval of the Class A shareholders, all necessary action to
fix the number of authorized Class A shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor reasonably
may be expected to sell.

7
<PAGE> 8
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of Class A shares for sale
under the securities laws of such states as the Distributor and the Fund may
approve. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 8(c) hereof,
the expense of qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualification.

(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports of the Fund.

Section 6. Duties of the Distributor.

(a) The Distributor shall devote reasonable time and
effort to effect sales of Class A shares of the Fund, but shall not be
obligated to sell any specific number of Class A shares. The services of the
Distributor to the Fund hereunder are not to be deemed exclusive and nothing
herein contained shall prevent the Distributor from entering into like
arrangements with other investment companies so long as the performance of its
obligations hereunder is not impaired thereby.

(b) In selling the Class A shares of the Fund, the
Distributor shall use its best efforts in all respects duly to conform with the
requirements of all federal and state laws relating to the sale of such
securities. Neither the Distributor nor any selected dealer, as defined in
Section 7 hereof, nor any

8
<PAGE> 9
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.

(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of sales to eligible
investors and selected dealers, the collection of amounts payable by eligible
investors and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.

Section 7. Selected Dealers Agreement.

(a) The Distributor shall have the right to enter into
selected dealers agreements with securities dealers of its choice ("selected
dealers") for the sale of Class A shares and fix therein the portion of the
sales charge which may be allocated to the selected dealers; provided that the
Fund shall approve the forms of agreements with dealers and the dealer
compensation set forth therein. Class A shares sold to selected dealers shall
be for resale by such dealers only at the public offering price(s) set forth in
the prospectus and statement of additional information. The form of agreement
with selected dealers to be used during the subscription period described in
Section 3(a) is attached hereto as Exhibit A and the initial form of agreement
with selected dealers

9
<PAGE> 10
to be used in the continuous offering of the Class A shares is attached hereto
as Exhibit B.

(b) Within the United States, the Distributor shall offer
and sell Class A shares only to selected dealers which are members in good
standing of the NASD.

Section 8. Payment of Expenses.

(a) The Fund shall bear all costs and expenses of the
Fund, including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required registration
statements and/or prospectuses and statements of additional information under
the Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports and
proxy materials to Class A shareholders (including but not limited to the
expense of setting in type any such registration statements, prospectuses,
statements of additional information, annual or interim reports or proxy
materials).

10
<PAGE> 11
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class A shares for sale to eligible investors and any expenses of
advertising incurred by the Distributor in connection with such offering.

(c) The Fund shall bear the cost and expenses of
qualification of the Class A shares for sale pursuant to this Agreement, and,
if necessary or advisable in connection therewith, of qualifying the Fund as a
broker or dealer in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such qualification
pursuant to Section 5(c) hereof.

Section 9. Indemnification.

(a) The Fund shall indemnify and hold harmless the
Distributor and each person, if any, who controls the Distributor against any
loss, liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class A shares, which
may be based upon the Securities Act, or on any other statute or at common law,
on the ground that the registration statement or related prospectus or
statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to shareholders of the Fund,
includes an untrue statement of a material fact or omits

11
<PAGE> 12
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, unless such statement or omission
was made in reliance upon, and in conformity with, information furnished to the
Fund in connection therewith by or on behalf of the Distributor; provided,
however, that in no case (i) is the indemnity of the Fund in favor of the
Distributor and any such controlling persons to be deemed to protect such
Distributor or any such controlling persons thereof against any liability to
the Fund or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of the reckless disregard of their obligations and duties under
this Agreement, or (ii) is the Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Fund will be entitled to participate at its

12
<PAGE> 13
own expense in the defense, or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Fund does not elect to assume the defense of any such suit, it will
reimburse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issuance or sale of any of the Class A
shares.

(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if any, who
controls the Fund against any loss, liability, claim, damage or expense
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance
upon, and in conformity with, information furnished to the Fund in writing by
or on behalf of the Distributor for use in connection with the registration
statement or related prospectus or statement of additional information, as from
time to time amended, or the annual or interim reports to

13
<PAGE> 14
shareholders. In case any action shall be brought against the Fund or any
person so indemnified, in respect of which indemnity may be sought against the
Distributor, the Distributor shall have the rights and duties given to the
Fund, and the Fund and each person so indemnified shall have the rights and
duties given to the Distributor by the provisions of subsection (a) of this
Section 9.

Section 10. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above written and
shall remain in force until August 24, 1996 and thereafter, but only so long
as such continuance is specifically approved at least annually by (i) the
Directors, or by the vote of a majority of the outstanding voting securities of
the Fund, and (ii) by a vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.

The terms "vote of a majority of the outstanding voting
securities," "assignment," "affiliated person" and "interested person," when
used in this Agreement, shall have the respective meanings specified in the
Investment Company Act.

14
<PAGE> 15
Section 11. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifically approved
by (i) the Directors, or by the vote of a majority of the outstanding voting
securities of the Fund and (ii) by a vote of a majority of those Directors of
the Fund who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.

Section 12. Governing Law. The provisions of this
Agreement shall be construed and interpreted in accordance with the laws of the
State of New York as at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of the State of
New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.

Section 13. This Agreement supersedes the prior
Distribution Agreement entered into by the parties hereto with respect to the
Class A shares of the Fund.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of August 25, 1994.

MERRILL LYNCH ASSET GROWTH
FUND, INC.

By:_____________________________________

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By:_____________________________________

15
<PAGE> 16
EXHIBIT A

MERRILL LYNCH ASSET GROWTH FUND, INC.
CLASS A SHARES OF COMMON STOCK

SELECTED DEALERS AGREEMENT
FOR SUBSCRIPTION PERIOD

Gentlemen:

Merrill Lynch Funds Distributor, Inc. (the "Distributor") has
an agreement with Merrill Lynch Asset Growth Fund, Inc., a Maryland corporation
(the "Fund"), pursuant to which it acts as the distributor for the sale of
Class A shares of common stock, par value $0.10 per share, ("herein referred to
as "Class A shares") of the fund, and as such has the right to distribute
shares of the Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and its Class
A shares being offered to the public are registered under the Securities Act of
1933, as amended. You have received a copy of the Class A Shares Distribution
Agreement (the "Distribution Agreement") between ourself and the Fund and
reference is made herein to certain provisions of such Distribution Agreement.
The terms "Prospectus" and "Statement of Additional Information" as used herein
refer to the prospectus and statement of additional information, respectively,
on file with the Securities and Exchange Commission which is part of the most
recent effective registration statement pursuant to the Securities Act of 1933,
as amended. We offer to sell to you, as a member of the Selected Dealers
Group, Class A shares of the Fund for resale to investors identified in the
Prospectus and Statement of Additional Information as eligible to purchase
Class A shares ("eligible investors") upon the following terms and conditions:

1. The subscription period referred to in Section 3(a)
of the Distribution Agreement will continue through August 26, 1994. The
subscription period may be extended upon agreement between the Fund and the
Distributor. Subject to the provisions of such Section and the conditions
contained herein, we will sell to you on the fifth business day following the
termination of the subscription period, or such other date as we may advise
(the "Closing Date"), such number of shares as to which you have placed orders
with us not later than 5:00 P.M. on the second full business day preceding the
Closing Date.

2. In all sales of these Class A shares to eligible
investors you shall act as dealer for your own account, and in no transaction
shall you have any authority to act as agent for the Fund, for us or for any
other member of the Selected Dealers Group, except in connection with the
Merrill Lynch Mutual Fund Adviser
<PAGE> 17
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.

3. During the subscription period, orders received from
you will be accepted through us only at the public offering price of $10.00 per
Class A share, plus the appropriate sales charge as set forth in Section 4
hereof. The procedures relating to the handling of orders shall be subject to
Section 6 hereof and instructions which we or the Fund shall forward from time
to time to you. All orders are subject to acceptance or rejection by the
Distributor or the Fund in the sole discretion of either. The minimum initial
purchase is $1,000. The minimum subsequent purchase is $50.

4. The sales charges for sales to eligible investors,
computed as percentages of the public offering price and the amount invested,
and the related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Sales Charge Selected
Sales Charge as Percentage(1) Dealers as
Amount as Percentage of the Net Percentage
of of the Amount of the
Purchase Offering Price Invested Offering Price
-------- -------------- -------- --------------
<S> <C> <C> <C>
Less than $10,000 6.50% 6.95% 6.25%
$10,000 but less
than $25,000 6.00 6.38 5.75
$25,000 but less
than $50,000 5.00 5.26 4.75
$50,000 but less
than $100,000 4.00 4.17 3.75
$100,000 but less
than $250,000 3.00 3.09 2.75
$250,000 but less
than $1,000,000 2.00 2.04 1.80
$1,000,000 and over
(2) .75 .76 .65
</TABLE>

____________________

(1) Rounded to the nearest one-hundredth percent.

(2) Initial sales charges will be waived for certain classes of offerees
as set forth in the current Prospectus and Statement of Additional
Information of the Fund. Such purchases will be subject to a
contingent deferred sales charge if the shares are redeemed within
one year after purchase at the following rates.

2
<PAGE> 18
<TABLE>
<CAPTION>
Amount of Purchase Contingent Deferred Sales
- ------------------ Charge as a Percentage of
Dollar Amount Subject to
Charge
------------------------
<S> <C>
$1 million up to $2.5 million . . . . . . . . . . . . . 1.00%
Over $2.5 million up to $3.5 million . . . . . . . . . 0.60%
Over $3.5 million up to $5 million . . . . . . . . . . 0.40%
Over $5 million . . . . . . . . . . . . . . . . . . . . 0.25%
</TABLE>

The term "purchase" refers to a single purchase by an
individual, or to concurrent purchases, which in the aggregate are at least
equal to the prescribed amounts, by an individual, his spouse and their
children under the age of 21 years purchasing Class A shares for his or their
own account and to single purchases by a trustee or other fiduciary purchasing
Class A shares for a single trust estate or single fiduciary account although
more than one beneficiary is involved. The term "purchase" also includes
purchases by any "company" as that term is defined in the Investment Company
Act of 1940, as amended, 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.

The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class A shares of the Fund at the offering price applicable to the total of (a)
the dollar amount then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of the Class A shares of the Fund and of any other investment
company with an initial sales charge or deferred sales charge for which the
Distributor acts as the distributor. For any such right of accumulation to be
made available, the Distributor must be provided at the time of purchase, by
the purchaser or you, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation.

The reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A shares or of any other investment
company with an initial sales charge for which the Distributor acts as the
distributor made through you within a thirteen-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. A

3
<PAGE> 19
purchase not originally made pursuant to a Letter of Intention may be included
under a subsequent letter executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period.
If the intended amount of Class A shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.

You agree to advise us promptly at our request as to amounts
of any sales made by you to eligible investors qualifying for reduced sales
charges. Further information as to the reduced sales charges pursuant to the
right of accumulation or a Letter of Intention is set forth in the Prospectus
and Statement of Additional Information.

5. You shall not place orders for any of the Class A
shares unless you have already received purchase orders for such Class A shares
at the applicable public offering prices and subject to the terms hereof and of
the Distribution Agreement. You agree that you will not offer or sell any of
the Class A shares except under circumstances that will result in compliance
with the applicable Federal and state securities laws and that in connection
with sales and offers to sell Class A shares you will furnish to each person to
whom any such sale or offer is made a copy of the Prospectus (as then amended
or supplemented) and will not furnish to any person any information relating to
the Class A shares of the Fund which is inconsistent in any respect with the
information contained in the Prospectus or Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Fund.

6. As a selected dealer, you are hereby authorized (i)
to place orders directly with the Fund for Class A shares of the Fund to be
resold by us to you subject to the applicable terms and conditions governing
the placement of orders by us set forth in Section 3 of the Distribution
Agreement and subject to the compensation provisions of Section 4 hereof, and
(ii) to tender Class A shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.

7. You shall not withhold placing orders received from
your customers so as to profit yourself as a result of such withholding: e.g.,
by a change in the "net asset value" from that used in determining the offering
price to your customers.

8. If any Class A shares sold to you under the terms of
this Agreement are repurchased by the Fund or by us for the account of the Fund
or are tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class A shares.

4
<PAGE> 20
9. No person is authorized to make any representations
concerning Class A shares of the issuer except those contained in the current
Prospectus or Statement of Additional Information of the Fund and in such
printed information subsequently issued by us or the Fund as information
supplemental to such Prospectus and Statement of Additional Information. In
purchasing Class A shares through us you shall rely solely on the
representations contained in the Prospectus or Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospectus or Statement
of Additional Information, periodic reports and proxy solicitation material is
our sole responsibility and not the responsibility of the Fund, and you agree
that the Fund shall have no liability or responsibility to you in these
respects unless expressly assumed in connection therewith.

10. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if requested, the
statement of Additional Information at or prior to the time of offering or sale
and you agree thereafter to deliver to such purchasers copies of the annual and
interim reports and proxy solicitation materials of the Fund. You further
agree to endeavor to obtain proxies from such purchasers. Additional copies of
the Prospectus and the Statement of Additional Information, annual or interim
reports and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.

11. We reserve the right in our discretion, without
notice, to suspend sales or withdraw the offering of Class A shares entirely or
to certain persons or entities in a class or classes specified by us. Each
party hereto has the right to cancel this agreement upon notice to the other
party.

12. We shall have full authority to take such action as
we may deem advisable in respect of all matters pertaining to the continuous
offering. We shall be under no liability to you except for lack of good faith
and for obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.

13. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any sales in the
United States, we both hereby agree to abide by the Rules of Fair Practice of
such Association.

14. Upon application to us, we will inform you as to the
states in which we believe the Class A shares have been qualified for sale
under, or are exempt from the requirements of, the respective securities laws
of such states, but we assume no responsibility or obligation as to your right
to sell shares in any

5
<PAGE> 21
jurisdiction. We will file with the Department of State in New York a Further
State Notice with respect to the shares, if necessary.

15. All communications to us should be sent to the
address set forth below. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.

16. Your first order placed pursuant to this Agreement
for the purchase of Class A shares of the Fund will represent your acceptance
of this Agreement.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By:_____________________________________
Authorized Signature

Please return one signed copy
of this agreement to:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, N.J. 08543-9011

Accepted:

Firm Name:_____________________________________________

By:____________________________________________________

Address:_______________________________________________

_______________________________________________________

Date:__________________________________________________

6
<PAGE> 22

EXHIBIT B

MERRILL LYNCH ASSET GROWTH FUND, INC.
CLASS A SHARES OF COMMON STOCK

SELECTED DEALERS AGREEMENT

Gentlemen:

Merrill Lynch Funds Distributor, Inc. (the "Distributor") has
an agreement with Merrill Lynch Asset Growth Fund, Inc., a Maryland corporation
(the "Fund"), pursuant to which it acts as the distributor for the sale of
Class A shares of common stock, par value $0.10 per share, (herein referred to
as "Class A shares"), of the Fund and as such has the right to distribute
shares of the Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and its Class
A shares are registered under the Securities Act of 1933, as amended. You have
received a copy of the Class A shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund and reference is made herein to
certain provisions of such Distribution Agreement. The terms "Prospectus" and
"Statement of Additional Information" as used herein refer to the prospectus
and statement of additional information, respectively, on file with the
Securities and Exchange Commission which is part of the most recent effective
registration statement pursuant to the Securities Act of 1933, as amended. We
offer to sell to you, as a member of the Selected Dealers Group, Class A shares
of the Fund for resale to investors identified in the Prospectus and Statement
of Additional Information as eligible to purchase Class A shares ("eligible
investors") upon the following terms and conditions:

1. In all sales of these Class A shares to eligible
investors you shall act as dealer for your own account, and in no transaction
shall you have any authority to act as agent for the Fund, for us or for any
other member of the Selected Dealers Group, except in connection with the
Merrill Lynch Mutual Fund Adviser program and such other special programs as we
from time to time agree, in which case you shall have authority to offer and
sell shares, as agent for the Fund, to participants in such program.

<TABLE>
<CAPTION>
Discount to
Sales Charge Selected
Sales Charge as Percentage(1) Dealers as
Amount as Percentage of the Net Percentage
of of the Amount of the
Purchase Offering Price Invested Offering Price
-------- -------------- -------- --------------
<C> <C> <C> <C>
Less than $10,000 6.50% 6.95% 6.25%
$10,000 but less
than $25,000 6.00 6.38 5.75
$25,000 but less
than $50,000 5.00 5.26 4.75
$50,000 but less
than $100,000 4.00 4.17 3.75
$100,000 but less
than $250,000 3.00 3.09 2.75
$250,000 but less
than $1,000,000 2.00 2.04 1.80
$1,000,000 and over
(2) .75 .76 .65
</TABLE>

__________________________________

(1) Rounded to the nearest one-hundredth percent.

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Amount of Purchase Amount Subject to Charge
- ------------------ ------------------------
<S> <C>
$1 million up to $2.5 million . . . . . . . . . . . . 1.00%
Over $2.5 million
up to $3.5 million . . . . . . . . . . . . . . . 0.60%
Over $3.5 million
up to $5 million . . . . . . . . . . . . . . . . 0.40%
Over $5 million . . . . . . . . . . . . . . . . . . . 0.25%
</TABLE>

2
<PAGE> 24
by a trustee or other fiduciary purchasing Class A shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company" as that
term is defined in the Investment Company Act of 1940, as amended, 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.

The reduced sales charges are applicable to purchases
aggregating $10,000 or more of Class A shares or of any other investment
company with an initial sales charge for which the Distributor acts as the
distributor made through you within a thirteen-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. A purchase not originally made pursuant to a Letter of Intention
may be included under a subsequent letter executed within 90 days of such
purchase if the Distributor is informed in writing of this intent within such
90-day period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.

You agree to advise us promptly at our request as to amounts
of any sales made by you to the eligible investors qualifying for reduced sales
charges. Further information as to the reduced sales charges pursuant to the
right of accumulation or a Letter of Intention is set forth in the Prospectus
and Statement of Additional Information.

4. You shall not place orders for any of the Class A
shares unless you have already received purchase orders for such Class A shares
at the applicable public offering prices and subject

3
<PAGE> 25
to the terms hereof and of the Distribution Agreement. You agree that you will
not offer or sell any of the Class A shares except under circumstances that
will result in compliance with the applicable Federal and state securities laws
and that in connection with sales and offers to sell Class A shares you will
furnish to each person to whom any such sale or offer is made a copy of the
Prospectus (as then amended or supplemented) and will not furnish to any person
any information relating to the Class A shares of the Fund, which is
inconsistent in any respect with the information contained in the Prospectus or
Statement of Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in any public
place without our consent and the consent of the Fund.

5. As a selected dealer, you are hereby authorized (i)
to place orders directly with the Fund for Class A shares of the Fund to be
resold by us to you subject to the applicable terms and conditions governing
the placement of orders by us set forth in Section 3 of the Distribution
Agreement and subject to the compensation provisions of Section 3 hereof, and
(ii) to tender Class A shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.

6. You shall not withhold placing orders received from
your customers so as to profit yourself as a result of such withholding: e.g.,
by a change in the "net asset value" from that used in determining the offering
price to your customers.

7. If any Class A shares sold to you under the terms of
this Agreement are repurchased by the Fund or by us for the account of the Fund
or are tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class A shares.

8. No person is authorized to make any representations
concerning Class A shares of the issuer except those contained in the current
Prospectus or Statement of Additional Information of the Fund and in such
printed information subsequently issued by us or the Fund as information
supplemental to such Prospectus and Statement of Additional Information. In
purchasing Class A shares through us you shall rely solely on the
representations contained in the Prospectus or Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospectus or Statement
of Additional Information, periodic reports and proxy solicitation material is
our sole responsibility and not the responsibility of the Fund, and you agree
that the Fund shall have no liability or responsibility to you in these
respects unless expressly assumed in connection therewith.

9. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus

4
<PAGE> 26
and, if requested, the Statement of Additional Information at or prior to the
time of offering or sale and you agree thereafter to deliver to such purchasers
copies of the annual and interim reports and proxy solicitation materials of
the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and the Statement of
Additional Information, annual or interim reports and proxy solicitation
materials of the Fund will be supplied to you in reasonable quantities upon
request.

10. We reserve the right in our discretion, without
notice, to suspend sales or withdraw the offering of Class A shares entirely or
to certain persons or entities in a class or classes specified by us. Each
party hereto has the right to cancel this agreement upon notice to the other
party.

11. We shall have full authority to take such action as
we may deem advisable in respect of all matters pertaining to the continuous
offering. We shall be under no liability to you except for lack of good faith
and for obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.

12. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any sales in the
United States, we both hereby agree to abide by the Rules of Fair Practice of
such Association.

13. Upon application to us, we will inform you as to the
states in which we believe the Class A shares have been qualified for sale
under, or are exempt from the requirements of, the respective securities laws
of such states, but we assume no responsibility or obligation as to your right
to sell shares in any jurisdiction. We will file with the Department of State
in New York a Further State Notice with respect to the shares, if necessary.

14. All communications to us should be sent to the
address set forth below. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.

5
<PAGE> 27
15. Your first order placed pursuant to this Agreement
for the purchase of Class A shares of the Fund will represent your acceptance
of this Agreement.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By:_____________________________________
Authorized Signature

Please return one signed copy
of this agreement to:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, N.J. 08543-9011

Accepted:

Firm Name:_______________________________________________________

By:______________________________________________________________

Address:_________________________________________________________

_________________________________________________________________

Date:____________________________________________________________

<PAGE> 1

CLASS B SHARES
DISTRIBUTION AGREEMENT

W I T N E S S E T H:

WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended to date (the "Investment Company Act"), as an open-end
investment company, and it is affirmatively in the interest of the Fund to
offer its shares for sale continuously; and

WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly to
purchasers or through other securities dealers; and

WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of the Fund's
Class B shares in order to promote the growth of the Fund and facilitate the
distribution of its Class B shares.

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Distributor. The Fund
hereby appoints the Distributor as the principal underwriter and distributor of
the Fund to sell Class B shares of common stock in the Fund (sometimes herein
referred to as "Class B Shares") to the
<PAGE> 2
public and hereby agrees during the term of this Agreement to sell shares of
the Fund to the Distributor upon the terms and conditions herein set forth.

Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as principal
underwriter and distributor of the Class B shares, except that:

(a) The Fund may, upon written notice to the
Distributor, from time to time designate other principal underwriters and
distributors of Class B shares with respect to areas other than the United
States as to which the Distributor may have expressly waived in writing its
right to act as such. If such designation is deemed exclusive, the right of
the Distributor under this Agreement to sell Class B shares in the areas so
designated shall terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions hereof.

(b) The exclusive right granted to the
Distributor to purchase Class B shares from the Fund shall not apply to Class B
shares of the Fund issued in connection with the merger or consolidation of any
other investment company or personal holding company with the Fund or the
acquisition by purchase or otherwise of all (or substantially all) the assets
or the outstanding Class B shares of any such company by the Fund.

(c) Such exclusive right also shall not apply to
Class B shares issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.

2
<PAGE> 3
(d) Such exclusive rights also shall not apply to
Class B shares issued by the Fund pursuant to any conversion, exchange or
reinstatement privilege afforded redeeming shareholders or to any other Class B
shares as shall be agreed between the Fund and the Distributor from time to
time.

Section 3. Purchase of Class B Shares from the Fund.

(a) The Distributor shall have the right to buy
from the Fund the Class B shares needed, but not more than the Class B shares
needed (except for clerical errors in transmission) to fill unconditional
orders for Class B shares of the Fund placed with the Distributor by eligible
investors or securities dealers. Investors eligible to purchase Class B shares
shall be those persons so identified in the currently effective prospectus and
statement of additional information (the "prospectus" and "statement of
additional information," respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class B shares. The price
which the Distributor shall pay for the Class B shares so purchased from the
Fund shall be the net asset value, determined as set forth in Section 3(c)
hereof.

(b) The Class B shares are to be resold by the
Distributor to investors at net asset value, as set forth in Section 3(c)
hereof, or to securities dealers having agreements with the Distributor upon
the terms and conditions set forth in Section 7 hereof.

(c) The net asset value of Class B shares of the
Fund shall be determined by the Fund or any agent of the Fund in accordance
with the method set forth in the prospectus and

3
<PAGE> 4
statement of additional information and guidelines established by the Board of
Directors.

(d) The Fund shall have the right to suspend the
sale of its Class B shares at times when redemption is suspended pursuant to
the conditions set forth in Section 4(b) hereof. The Fund shall also have the
right to suspend the sale of its Class B shares if trading on the New York
Stock Exchange shall have been suspended, if a banking moratorium shall have
been declared by Federal or New York authorities, or if there shall have been
some other event, which, in the judgment of the Fund, makes it impracticable or
inadvisable to sell the Class B shares.

(e) The Fund, or any agent of the Fund designated
in writing by the Fund, shall be promptly advised of all purchase orders for
Class B shares received by the Distributor. Any order may be rejected by the
Fund; provided, however, that the Fund will not arbitrarily or without
reasonable cause refuse to accept or confirm orders for the purchase of Class B
shares. The Fund (or its agent) will confirm orders upon their receipt, will
make appropriate book entries and, upon receipt by the Fund (or its agent) of
payment therefor, will deliver deposit receipts or certificates for such Class
B shares pursuant to the instructions of the Distributor. Payment shall be made
to the Fund in New York Clearing House funds. The Distributor agrees to cause
such payment and such instructions to be delivered promptly to the Fund (or its
agent).

4
<PAGE> 5
Section 4. Repurchase or Redemption
of Class B Shares by the Fund.

(a) Any of the outstanding Class B shares may be
tendered for redemption at any time, and the Fund agrees to repurchase or
redeem the Class B shares so tendered in accordance with its obligations as set
forth in Article VI of its Articles of Incorporation, as amended from time to
time, and in accordance with the applicable provisions set forth in the
prospectus and statement of additional information of the Fund. The price to be
paid to redeem or repurchase the Class B shares shall be equal to the net asset
value calculated in accordance with the provisions of Section 3(c) hereof, less
any contingent deferred sales charge ("CDSC") or other charge, if any, set
forth in the prospectus and statement of additional information of the Fund.
All payments by the Fund hereunder shall be made in the manner set forth below.

The Fund shall pay the total amount of the
redemption price as defined in the above paragraph pursuant to the instructions
of the Distributor on or before the seventh business day subsequent to its
having received the notice of redemption in proper form. The proceeds of any
redemption of Class B shares shall be paid by the Fund as follows: (i) any
applicable CDSC shall be paid to the Distributor and (ii) the balance shall be
paid to or for the account of the shareholder, in each case in accordance with
the applicable provisions of the prospectus and statement of additional
information.

(b) Redemption of Class B shares or payment may
be suspended at times when the New York Stock Exchange is closed, when trading
on that Exchange is suspended, when trading on said

5
<PAGE> 6
Exchange is restricted, when an emergency exists as a result of which disposal
by the Fund of securities owned by it is not reasonably practicable or it is
not reasonably practicable for the Fund fairly to determine the value of its
net assets, or during any other period when the Securities and Exchange
Commission, by order, so permits.

Section 5. Duties of the Fund.

(a) The Fund shall furnish to the Distributor
copies of all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the distribution
of Class B shares of the Fund, and this shall include, upon request by the
Distributor, one certified copy of all financial statements prepared for the
Fund by independent public accountants. The Fund shall make available to the
Distributor such number of copies of its prospectus and statement of additional
information as the Distributor shall reasonably request.

(b) The Fund shall take, from time to time, but
subject to the necessary approval of the shareholders, all necessary action to
fix the number of authorized shares and such steps as may be necessary to
register the same under the Securities Act to the end that there will be
available for sale such number of Class B shares as the Distributor reasonably
may be expected to sell.

(c) The Fund shall use its best efforts to
qualify and maintain the qualification of an appropriate number of its Class B
shares for sale under the securities laws of such states as the Distributor and
the Fund may approve. Any such qualification

6
<PAGE> 7
may be withheld, terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 8(c) hereof, the expense of qualification
and maintenance of qualification shall be borne by the Fund. The Distributor
shall furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualification.

(d) The Fund will furnish, in reasonable
quantities upon request by the Distributor, copies of annual and interim
reports of the Fund.

Section 6. Duties of the Distributor.

(a) The Distributor shall devote reasonable time
and effort to effect sales of the Fund, but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.

(b) In selling the Class B shares of the Fund,
the Distributor shall use its best efforts in all respects duly to conform with
the requirements of all federal and state laws relating to the sale of such
securities. Neither the Distributor nor any selected dealer, as defined in
Section 7 hereof, nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
registration statement or related prospectus and statement of

7
<PAGE> 8
additional information and any sales literature specifically approved by the
Fund.

(c) The Distributor shall adopt and follow
procedures, as approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.

Section 7. Selected Dealer Agreements.

(a) The Distributor shall have the right to enter
into selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of Class B shares; provided that the Fund
shall approve the forms of agreements with dealers. Class B shares sold to
selected dealers shall be for resale by such dealers only at net asset value
determined as set forth in Section 3(c) hereof. The form of agreement with
selected dealers to be used during the subscription period described in Section
3(a) is attached hereto as Exhibit A and the initial form of agreement with
selected dealers to be used in the continuous offering of the shares is
attached hereto as Exhibit B.

(b) Within the United States, the Distributor
shall offer and sell Class B shares only to such selected dealers as are
members in good standing of the NASD.

8
<PAGE> 9
Section 8. Payment of Expenses.

(a) The Fund shall bear all costs and expenses of
the Fund, including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required registration
statements and/or prospectuses and statements of additional information under
the Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports and
proxy materials to Class B shareholders (including but not limited to the
expense of setting in type any such registration statements, prospectuses,
statements of additional information, annual or interim reports or proxy
materials).

(b) The Distributor shall be responsible for any
payments made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial consultants. In
addition, after the prospectuses, statements of additional information and
annual and interim reports have been prepared and set in type, the Distributor
shall bear the costs and expenses of printing and distributing any copies
thereof which are to be used in connection with the offering of Class B shares
to selected dealers or investors pursuant to this Agreement. The Distributor
shall bear the costs and expenses of preparing, printing and distributing any
other literature used by the Distributor or furnished by it for use by selected
dealers in connection with the offering of the Class B shares for sale to the
public and any expenses of advertising incurred by the Distributor in
connection with such offering. It is understood and agreed

9
<PAGE> 10
that, so long as the Fund's Class B Shares Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act remains in effect, any expenses incurred
by the Distributor hereunder may be paid from amounts recovered by it from the
Fund under such Plan.

(c) The Fund shall bear the cost and expenses of
qualification of the Class B shares for sale pursuant to this Agreement and, if
necessary or advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such qualification
pursuant to Section 5(c) hereof.

Section 9. Indemnification.

(a) The Fund shall indemnify and hold harmless
the Distributor and each person, if any, who controls the Distributor against
any loss, liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class B shares, which
may be based upon the Securities Act, or on any other statute or at common law,
on the ground that the registration statement or related prospectus and
statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to Class B shareholders of the
Fund, includes an untrue statement of a material fact or omits to state a
material fact required to be

10
<PAGE> 11
stated therein or necessary in order to make the statements therein not
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Distributor; provided, however, that in no case (i) is the
indemnity of the Fund in favor of the Distributor and any such controlling
persons to be deemed to protect such Distributor or any such controlling
persons thereof against any liability to the Fund or its security holders to
which the Distributor or any such controlling persons would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have
notified the Fund in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense or, if it so elects, to assume
the

11
<PAGE> 12
defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the Fund elects to
assume the defense of any such suit and retain such counsel, the Distributor or
such controlling person or persons, defendant or defendants in the suit shall
bear the fees and expenses, as incurred, of any additional counsel retained by
them, but in case the Fund does not elect to assume the defense of any such
suit, it will reimburse the Distributor or such controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses, as
incurred, of any counsel retained by them. The Fund shall promptly notify the
Distributor of the commencement of any litigation or proceedings against it or
any of its officers or Directors in connection with the issuance or sale of any
of the Class B shares.

(b) The Distributor shall indemnify and hold
harmless the Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim, damage or
expense described in the foregoing indemnity contained in subsection (a) of
this Section, but only with respect to statements or omissions made in reliance
upon, and in conformity with, information furnished to the Fund in writing by
or on behalf of the Distributor for use in connection with the registration
statement or related prospectus and statement of additional information, as
from time to time amended, or the annual or interim reports to shareholders.
In case any action shall be brought

12
<PAGE> 13
against the Fund or any person so indemnified, in respect of which indemnity
may be sought against the Distributor, the Distributor shall have the rights
and duties given to the Fund, and the Fund and each person so indemnified shall
have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.

Section 10. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above written and
shall remain in force until August 24, 1996 and thereafter, but only so long
as such continuance is specifically approved at least annually by (i) the
Directors of the Fund, or by the vote of a majority of the outstanding voting
securities of the Fund and (ii) by the vote of a majority of those Directors of
the Fund who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.

This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority of the
outstanding voting securities of the Fund, or by the Distributor, on sixty
days' written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment. The terms "vote of a majority of the
outstanding voting securities," "assignment," and "affiliated person" and
"interested person," when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.

Section 11. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment

13
<PAGE> 14
is specifically approved by (i) the Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Fund and (ii) by the vote
of a majority of those Directors of the Fund who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.

Section 12. Governing Law. The provisions of this
Agreement shall be construed and interpreted in accordance with the law of the
State of New York as at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable laws of the State of
New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of August 25, 1994.

MERRILL LYNCH ASSET GROWTH FUND, INC.

By______________________________________
_

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By______________________________________
_

14
<PAGE> 15

EXHIBIT A

MERRILL LYNCH ASSET GROWTH FUND, INC.
CLASS B SHARES OF COMMON SHARES

SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD

Gentlemen:

Merrill Lynch Funds Distributor, Inc. (the "Distributor") has
an agreement with Merrill Lynch Asset Growth Fund, Inc., a Maryland corporation
(the "Fund"), pursuant to which it acts as the distributor for the sale of
Class B shares of common stock, par value $0.10 per share, (herein referred to
as "Class B shares"), of the Fund and as such has the right to distribute
shares of the Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and its Class
B shares being offered to the public are registered under the Securities Act of
1933, as amended. Such shares and certain of the terms on which they are being
offered are more fully described in the enclosed Prospectus and Statement of
Additional Information. You have received a copy of the Class B Shares
Distribution Agreement (the "Distribution Agreement") between ourself and the
Fund and reference is made herein to certain provisions of such Distribution
Agreement. The terms "Prospectus" and "Statement of Additional Information" as
used herein refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission which is part
of the most recent effective registration statement pursuant to the Securities
Act of 1933, as amended. We offer to sell to you, as a member of the Selected
Dealers Group, Class B shares of the Fund for resale to investors identified in
the Prospectus and Statement of Additional Information as eligible to purchase
Class B shares ("eligible investors") upon the following terms and conditions:

2. In all sales of these Class B shares to eligible
investors you shall act as dealer for your own account, and in no transaction
shall you have any authority to act as agent for the Fund, for us or for any
other member of the Selected Dealers Group, except in connection with the
Merrill Lynch Mutual Fund Adviser program and such other special programs as we
from time to time
<PAGE> 16
agree, in which case you shall have authority to offer and sell shares, as
agent for the Fund, to participants in such program.

3. Orders received from you will be accepted through us
only at the public offering price of $10.00 per share. The procedure relating
to the handling of orders shall be subject to Section 5 hereof and instructions
which we or the Fund shall forward from time to time to you. All orders shall
be subject to acceptance or rejection by the Distributor or the Fund in the
sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund. We will pay you such commission based on
the total dollar value of Class B shares sold by you, as you and we agree.

4. You shall not place orders for any of the Class B
shares unless you have already received purchase orders for such shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. All orders are subject to acceptance by the
Distributor or the Fund in the sole discretion of either. The minimum initial
and subsequent purchase requirements are as set forth in the Prospectus, as
amended from time to time. You agree that you will not offer or sell any of
the Class B shares except under circumstances that will result in compliance
with the applicable federal and state securities laws and that in connection
with sales and offers to sell Class B shares you will furnish to each person to
whom any such sale or offer is made a copy of the Prospectus and, if requested,
the Statement of Additional Information (as then amended or supplemented) and
will not furnish to any person any information relating to the Class B shares
of the Fund which is inconsistent in any respect with the information contained
in the Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.

5. Payment for shares purchased by you is to be made by
certified or official bank check at the office of Merrill Lynch Funds
Distributor, Inc., Box 9011, Princeton, New Jersey 08543-9011, on such date as
we may advise, in New York Clearing House funds payable to the order of Merrill
Lynch Funds Distributor, Inc. against acknowledgement from the Fund's transfer
agent that the appropriate entries in the Fund's books evidencing such payment
and the transfer of Class B shares to you or delivery by us of non-negotiable
share deposit receipts ("Receipts") issued by Financial Data Services, Inc., as
shareholder servicing agent, acknowledging the deposit with it of the Class B
shares so purchased by you. You agree that as promptly as practicable after
the delivery of such Class B shares you will issue appropriate written transfer
instructions to the Fund or to the shareholder servicing agent as to the
purchasers to whom you sold the Class B shares.

6. No person is authorized to make any representations
concerning shares of the Fund except those contained in the current

2
<PAGE> 17
Prospectus and Statement of Additional Information of the Fund and in such
printed information subsequently issued by us or the Fund as information
supplemental to such Prospectus and Statement of Additional Information. In
purchasing Class B shares through us you shall rely solely on the
representations contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospectus and Statement
of Additional Information, periodic reports and proxy solicitation material is
our sole responsibility and not the responsibility of the Fund, and you agree
that the Fund shall have no liability or responsibility to you in these
respects unless expressly assumed in connection therewith.

7. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if requested, the
Statement of Additional Information at or prior to the time of offering or sale
and you agree thereafter to deliver to such purchasers copies of the annual and
interim reports and proxy solicitation materials of the Fund. You further
agree to endeavor to obtain Proxies from such purchasers. Additional copies of
the Prospectus and Statement of Additional Information, annual or interim
reports and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.

8. We reserve the right in our discretion, without
notice, to suspend sales or withdraw the offering of shares entirely or to
certain persons or entities in a class or classes specified by us. Each party
hereto has the right to cancel this Agreement upon notice to the other party.

9. We shall have full authority to take such action as
we may deem advisable in respect of all matters pertaining to the continuous
offering. We shall be under no liability to you except for lack of good faith
and for obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.

10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any sales in the
United States, we both hereby agree to abide by the Rules of Fair Practice of
such Association.

11. Upon application to us, we will inform you as to the
states in which we believe the shares have been qualified for sale under, or
are exempt from the requirements of, the respective securities laws of such
states, but we assume no responsibility or obligation as to your right to sell
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the shares, if necessary.

3
<PAGE> 18
12. All communications to us should be sent to the
address below. Any notice to you shall be duly given if mailed or telegraphed
to you at the address specified by you below.

13. You agree that you will not sell any shares of the
Fund to any account over which you exercise discretionary authority.

14. This Agreement shall terminate at the close of
business on the Closing Date, unless earlier terminated; provided, however,
this Agreement shall continue after termination for the purpose of settlement
of accounts hereunder.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By_____________________________________
(Authorized Signature)

Please return one signed copy
of this Agreement to:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011

Accepted:

Firm Name:__________________________________

By:_________________________________________

Address:____________________________________

Date:_______________________________________

4
<PAGE> 19
EXHIBIT B

MERRILL LYNCH ASSET GROWTH FUND, INC.
CLASS B SHARES OF COMMON STOCK

SELECTED DEALER AGREEMENT

Gentlemen:

Merrill Lynch Funds Distributor Inc. (the "Distributor") has
an agreement with Merrill Lynch Asset Growth Fund, Inc., a Maryland corporation
(the "Fund"), pursuant to which it acts as the distributor for the sale of
Class B shares of common stock, par value $0.10 per share (herein referred to
as the "Class B shares") of the Fund and as such has the right to distribute
Class B shares of the Fund for resale. The Fund is an open-end investment
company registered under the Investment Company Act of 1940, as amended, and
its Class B shares being offered to the public are registered under the
Securities Act of 1933, as amended. You have received a copy of the Class B
Shares Distribution Agreement (the "Distribution Agreement") between ourself
and the Fund and reference is made herein to certain provisions of such
Distribution Agreement. The terms "Prospectus" and "Statement of Additional
Information" as used herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and Exchange Commission
which is part of the most recent effective registration statement pursuant to
the Securities Act of 1933, as amended. We offer to sell to you, as a member
of the Selected Dealers Group, Class B shares of the Fund for resale to
investors identified in the Prospectus and Statement of Additional Information
as eligible to purchase Class B shares ("eligible investors") upon the
following terms and conditions:

1. In all sales of these Class B shares to the public
you shall act as dealer for your own account, and in no transaction shall you
have any authority to act as agent for the Fund, for us or for any other member
of the Selected Dealers Group, except in connection with the Merrill Lynch
Mutual Fund Adviser program and such other special programs as we from time to
time agree, in which case you shall have authority to offer and sell shares, as
agent for the Fund, to participants in such program.

2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as set forth in the
current Prospectus and Statement of Additional Information of the Fund. The
procedure relating to the handling of orders shall be subject to Section 4
hereof and instructions which we or the Fund shall forward from time to time to
you. All orders shall be subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum initial and
subsequent purchase requirements are as set forth in the current Prospectus and
Statement of Additional Information of the Fund.
<PAGE> 20
3. You shall not place orders for any of the Class B
shares unless you have already received purchase orders for such shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class B shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class B shares you will furnish to each person to whom
any such sale or offer is made a copy of the Prospectus and, if requested, the
Statement of Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class B shares of the
Fund which is inconsistent in any respect with the information contained in the
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.

4. As a selected dealer, you are hereby authorized (i)
to place orders directly with the Fund for Class B shares of the Fund to be
resold by us to you subject to the applicable terms and conditions governing
the placement of orders by us set forth in Section 3 of the Distribution
Agreement and (ii) to tender Class B shares directly to the Fund or its agent
for redemption subject to the applicable terms and conditions set forth in
Section 4 of the Distribution Agreement.

5. You shall not withhold placing orders received from
your customers so as to profit yourself as a result of such withholding: e.g.,
by a change in the "net asset value" from that used in determining the offering
price to your customers.

6. No person is authorized to make any representations
concerning Class B shares of the Fund except those contained in the current
Prospectus and Statement of Additional Information of the Fund and in such
printed information subsequently issued by us or the Fund as information
supplemental to such Prospectus and Statement of Additional Information. In
purchasing Class B shares through us you shall rely solely on the
representations contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospectus and Statement
of Additional Information, periodic reports and proxy solicitation material is
our sole responsibility and not the responsibility of the Fund, and you agree
that the Fund shall have no liability or responsibility to you in these
respects unless expressly assumed in connection therewith.

2
<PAGE> 21
endeavor to obtain Proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.

8. We reserve the right in our discretion, without
notice, to suspend sales or withdraw the offering of Class B shares entirely or
to certain persons or entities in a class or classes specified by us. Each
party hereto has the right to cancel this Agreement upon notice to the other
party.

11. Upon application to us, we will inform you as to the
states in which we believe the Class B shares have been qualified for sale
under, or are exempt from the requirements of, the respective securities laws
of such states, but we assume no responsibility or obligation as to your right
to sell Class B shares in any jurisdiction. We will file with the Department
of State in New York a Further State Notice with respect to the Class B shares,
if necessary.

12. All communications to us should be sent to the
address below. Any notice to you shall be duly given if mailed or telegraphed
to you at the address specified by you below.

3
<PAGE> 22
13. Your first order placed pursuant to this Agreement
for the purchase of Class B shares of the Fund will represent your acceptance
of this Agreement.

14. This Agreement supersedes any prior Selected Dealers
Agreement entered into by the parties hereto with respect to the Class B shares
of the Fund.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By_____________________________________
(Authorized Signature)

Please return one signed copy
of this Agreement to:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011

Accepted:

Firm Name:__________________________________

By:

Address:____________________________________

Date:_______________________________________

<PAGE> 1

(CHASE LOGO)

GLOBAL
CUSTODY
AGREEMENT

<PAGE> 2

This AGREEMENT is effective September 2, 1994 and is between THE CHASE MANHATTAN
BANK, N.A. (the "Bank") and MERRILL LYNCH ASSET GROWTH FUND, INC.
(the "Customer").

1. CUSTOMER ACCOUNTS.

The Bank agrees to establish and maintain the following accounts
("Accounts"):

(a) a custody account in the name of the Customer ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any other rights or
interests therein and other similar property whether certificated or
uncertificated as may be received by the Bank or its Subcustodian (as defined
in Section 3) for the account of the Customer ("Securities"); and

(b) a deposit account in the name of the Customer ("Deposit Account") for
any and all cash in any currency received by the Bank or its Subcustodian for
the account of the Customer, which cash shall not be subject to withdrawal by
draft or check.

The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give instructions (as defined in
Section 11) concerning the Accounts. The Bank may deliver securities of the
same class in place of those deposited in the Custody Account.

Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.

2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS.

Unless instructions specifically require another location acceptable to the
Bank:

(a) Securities will be held in the country or other jurisdiction in which
the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and

(b) cash will be credited to an account in a country or other jurisdiction
in which such cash may be legally deposited or is the legal currency for the
payment of public or private debts.

Cash may be held pursuant to instructions in either interest or non-interest
bearing accounts as may be available for the particular currency. To the extent
instructions are issued and the Bank can comply with such instructions, the Bank
is authorized to maintain cash balances on deposit for the Customer with itself
or one of its affiliates at such reasonable rates of interest as may from time
to time be paid on such accounts, or in non-interest bearing accounts as the
Customer may direct, if acceptable to the Bank.

If the Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians or their securities
depositories, such arrangement must be authorized by a written agreement, signed
by the Bank and the Customer.

3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.

The Bank may act under this Agreement through the subcustodians listed in
Schedule A of this Agreement with which the Bank has entered into subcustodial
agreements ("Subcustodians"). The Customer authorizes the Bank to hold Assets in
the Accounts in accounts which the Bank has established with one or more of its
branches or Subcustodians. The Bank and Subcustodians are authorized to hold any
of the Securities in their account with any securities depository in which they
participate.

The Bank reserves the right to add new, replace or remove Subcustodians. The
Customer will be given reasonable notice by the Bank of any amendment to
Schedule A. Upon request by the Customer, the Bank will identify the name,
address and principal place of business of any Subcustodian of the Customer's
Assets and the name and address of the governmental agency or other regulatory
authority that supervises or regulates such Subcustodian.

4. USE OF SUBCUSTODIAN.

(a) The Bank will identify Assets on its books as belonging to the Customer.

(b) A Subcustodian will hold Assets together with assets belonging to other
Customers of the Bank in accounts identified on such Subcustodian's books as
special custody accounts for the exclusive benefit of customers of the Bank.

(c) Any Assets in the Accounts held by a Subcustodian will be subject only
to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian.

(d) Any agreement the Bank enters into with a Subcustodian for holding its
customer's assets shall provide that such assets will not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets will be freely transferrable without the payment of
money or value other than for safe custody or administration. The foregoing
shall not apply to the extent of any special agreement or arrangement made by
the Customer with any particular Subcustodian.

<PAGE> 3

5. DEPOSIT ACCOUNT TRANSACTIONS.

(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of instructions which include all information required by
the Bank.

(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, the Bank, in its discretion, may
advance the Customer such excess amount which shall be deemed a loan payable on
demand, bearing interest at the rate customarily charged by the Bank on similar
loans.

(c) If the Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, the Customer will
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If the Customer does not promptly return
any amount upon such notification, the Bank shall be entitled, upon oral or
written notification to the Customer, to reverse such credit by debiting the
Deposit Account for the amount previously credited. The Bank or its Subcustodian
shall have no duty or obligation to institute legal proceedings, file a claim or
a proof of claim in any insolvency proceeding or take any other action with
respect to the collection of such amount, but may act for the Customer upon
instructions after consultation with the Customer.

6. CUSTODY ACCOUNT TRANSACTIONS.

(a) Securities will be transferred, exchanged or delivered by the Bank or
its Subcustodian upon receipt by the Bank of Instructions which include all
information required by the Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
instructions acceptable to the Bank.

(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Accounts on the date cash or Securities are actually
received by the Bank and reconciled to the Accounts.

(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transaction.

(ii) If any Securities delivered pursuant to this Section 6 are returned
by the recipient thereof, the Bank may reverse the credits and debits of
the particular transaction at any time.

7. ACTIONS OF THE BANK.

The Bank shall follow instructions received regarding Assets held in the
Accounts. However, until it receives instructions to the contrary, the Bank will
perform the following functions.

(a) Present for payment any Securities which are called, redeemed or retired
or otherwise become payable and all coupons and other income items which call
for payment upon presentation, to the extent that the Bank or Subcustodian is
actually aware of such opportunities.

(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.

(d) Appoint brokers and agents for any transaction involving the Securities,
including, without limitation, affiliates of the Bank or any Subcustodian.

(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.

The Bank will send the Customer an advice or notification of any transfers
of Assets to or from the Accounts. Such statements, advices or notifications
shall indicate the identity of the entity having custody of the Assets. Unless
the Customer sends the Bank a written exception or objection to any Bank
statement within sixty days of receipt, the Customer shall be deemed to have
approved such statement. In such event, or where the Customer has otherwise
approved any such statement, the Bank shall, to the extent permitted by law, be
released, relieved and discharged with respect to all matters set forth in such
statement or reasonably implied therefrom as though it had been settled by the
decree of a court of competent jurisdiction in an action where the Customer and
all persons having or claiming an interest in the Customer or the Customer's
Accounts were parties.

<PAGE> 4

All collections of funds or other property paid or distributed in respect of
Securities in the Custody Account shall be made at the risk of the Customer. The
Bank shall have no liability for any loss occasioned by delay in the actual
receipt of notice by the Bank or by its Subcustodians of any payment, redemption
or other transaction regarding Securities in the Custody Account in respect of
which the Bank has agreed to take any action under this Agreement.

8. CORPORATE ACTIONS; PROXIES.

Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities (other
than a proxy), such as subscription rights, bonus issues, stock repurchase plans
and rights offerings, or legal notices or other material intended to be
transmitted to securities holders ("Corporate Actions"), the Bank will give the
Customer notice of such Corporate Actions to the extent that the Bank's central
corporate actions department has actual knowledge of a Corporate Action in time
to notify its customers.

When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received which
bears an expiration date, the Bank will endeavor to obtain Instructions from the
Customer or its Authorized Person, as defined in Section 10, but if Instructions
are not received in time for the Bank to take timely action, or actual notice of
such Corporate Action was received too late to seek Instructions, the Bank is
authorized to sell such rights entitlement or fractional interest and to credit
the Deposit Account with the proceeds or take any other action it deems, in good
faith, to be appropriate in which case it shall be held harmless for any such
action.

The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing. Such
proxies shall be executed in the appropriate nominee name relating to Securities
in the Custody Account registered in the name of such nominee but without
indicating the manner in which such proxies are to be voted; and where bearer
Securities are involved, proxies will be delivered in accordance with
Instructions.

9. NOMINEES.

Securities which are ordinarily held in registered form may be registered in
a nominee name of the Bank, Subcustodian or securities depository, as the case
may be. The Bank may, without notice to the Customer, cause any such Securities
to cease to be registered in the name of any such nominee and to be registered
in the name of the Customer. In the event that any Securities registered in a
nominee name are called for partial redemption by the issuer, the Bank may allot
the called portion to the respective beneficial holders of such class of
security in any manner the Bank deems to be fair and equitable. The Customer
agrees to hold the Bank, Subcustodians, and their respective nominees harmless
from any liability arising directly or indirectly from their status as a mere
record holder of Securities in the Custody Account.

10. AUTHORIZED PERSONS.

As used in this Agreement, the term "Authorized Person" means employees or
agents including investment managers as have been designated by written notice
from the Customer or its designated agent to act on behalf of the Customer under
this Agreement. Such persons shall continue to be Authorized Persons until such
time as the Bank receives Instructions from the Customer or its designated agent
that any such employee or agent is no longer an Authorized Person.

11. INSTRUCTIONS.

The term "Instructions" means instructions of any Authorized Person received
by the Bank, via telephone, telex, TWX, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank believes in good faith to have been given
by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until cancelled or superseded.

Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Customer will hold the
Bank harmless for the failure of an Authorized Person to send such confirmation
in writing, the failure of such confirmation to conform to the telephone
Instructions received or the Bank's failure to produce such confirmation at any
subsequent time. Either Party may electronically record any Instructions given
by telephone, and any other telephone discussions with respect to the Custody
Account. The Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which the Bank shall make
available to the Customer or its Authorized Persons.

<PAGE> 5

12. STANDARD OF CARE; LIABILITIES.

(a) The Bank shall be responsible for the performance of only such duties as
are set forth in this Agreement or expressly contained in Instructions which are
consistent with the provisions of this Agreement.

(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be
liable to the Customer for any loss which shall occur as the result of
the failure of a Subcustodian to exercise reasonable care with respect to
the safekeeping of such Assets to the same extent that the Bank would be
liable to the Customer if the Bank were holding such Assets in New York.
In the event of any loss to the Customer by reason of the failure of the
Bank or its Subcustodian to utilize reasonable care, the Bank shall be
liable to the Customer only to the extent of the Customer's direct
damages, to be determined based on the market value of the property which
is the subject of the loss at the date of discovery of such loss and
without reference to any special conditions or circumstances.

(ii) The Bank will not be responsible for any act, omission, default or
for the solvency of any broker or agent which it or a Subcustodian
appoints unless such appointment was made negligently or in bad faith.

(iii) The Bank shall be indemnified by, and without liability to the
Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise within the scope of this Agreement if such act
or omission was in good faith, without negligence. In performing its
obligations under this Agreement, the Bank may rely on the genuineness of
any document which it believes in good faith to have been validly
executed.

(iv) The Customer agrees to pay for and hold the Bank harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges, and any related expenses with
respect to income from or Assets in the Accounts.

(v) The Bank shall be entitled to rely, and may act upon the advice of
counsel (who may be counsel for the Customer) on all matters, and shall
be without liability for any action reasonably taken or omitted pursuant
to such advice.

(vi) The Bank need not maintain any insurance for the benefit of the
Customer.

(vii) Without limiting the foregoing, the Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from nationalization, expropriation or other
governmental actions; regulation of the banking or securities industry;
currency restrictions, devaluations or fluctuations; and market
conditions which prevent the orderly execution of securities transactions
or affect the value of Assets.

(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to, strikes or
work stoppages, acts of war or terrorism, insurrection, revolution,
nuclear fusion, fission or radiation, or acts of God.

(b) Consistent with and without limiting the first paragraph of this Section
12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:

(i) question Instructions or make any suggestions to the Customer or an
Authorized Person regarding such Instructions;

(ii) supervise or make recommendations with respect to investments or
the retention of Securities;

(iii) advise the Customer or an Authorized Person regarding any default
in the payment of principal or income of any security other than as
provided in Section 5(c) of this Agreement;

(iv) evaluate or report to the Customer or an Authorized Person regarding
the financial condition of any broker, agent or other party to which
Securities are delivered or payments are made pursuant to this Agreement;
or

(v) review or reconcile trade confirmations received from brokers. The
Customer or its Authorized Persons issuing instructions shall bear any
responsibility to review such confirmations against instructions issued
to and statements issued by the Bank.

(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have a
material interest in a transaction, or circumstances are such that the Bank may
have a potential conflict of duty or interest including the fact that the Bank
or any of its affiliates may provide brokerage services to other customers, act
as financial advisor to the issuer of Securities, act as a lender to the issuer
of Securities, act in the same transaction as agent for more than one customer,
have a material interest in the issue of Securities, or earn profits from any of
the activities listed herein.

<PAGE> 6

13. FEES AND EXPENSES.

The Customer agrees to pay the Bank for its services under this Agreement
such amount as may be agreed upon in writing, together with the Bank's
reasonable out-of-pocket or incidental expenses, including, but not limited to
legal fees. The Bank shall have a lien on and is authorized to charge any
Accounts of the Customer for any amount owing to the Bank under any provision of
this Agreement.

14. MISCELLANOUS.

(a) Foreign Exchange Transactions. To facilitate the administration of the
Customer's trading and investment activity, the Bank is authorized to enter into
spot or forward foreign exchange contracts with the Customer or an Authorized
Person for the Customer and may also provide foreign exchange through its
subsidiaries, affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but the Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of the Bank,
its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent,
this Agreement, shall apply to such transaction.

(b) Certification of Residency, etc. The Customer certifies that it is a
resident of the United States and agrees to notify the Bank of any changes in
residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.

(c) Access to Records. The Bank shall allow the Customer's independent
public accountants reasonable access to the records of the Bank relating to the
Assets as is required in connection with the examination of books and records
pertaining to the Customer's affairs. Subject to restrictions under applicable
law, the Bank shall also obtain an undertaking to permit the Customer's
independent public accountants reasonable access to the records of any
Subcustodian which has physical possession of any Assets as may be required in
connection with the examination of the Customer's books and records.

(d) Governing Law; Successors and Assigns. This Agreement shall be governed
by the laws of the State of New York and shall not be assignable by either
party, but shall bind the successors in interest of the Customer and the Bank.

(e) Entire Agreement; Applicable Riders. Customer represents that the Assets
deposited in the Accounts are (check one):

employee benefit plan or other assets subject to the
-------------- Employee Retirement Income Security Act of 1974, as amended
("ERISA");

X mutual fund assets subject to Securities and Exchange
-------------- Commission ("SEC") rules and regulations;

neither of the above.
--------------

This Agreement consists exclusively of this document together with Schedule
A, and the following rider(s) (check applicable rider(s)):

ERISA
--------------

X MUTUAL FUND
--------------

SPECIAL TERMS AND CONDITIONS
--------------

There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.

(f) Severability. In the event that one or more provisions of this Agreement
are held invalid, illegal or unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of any such provision and the remaining provisions, under other
circumstances or in other jurisdictions will not in any way be affected or
impaired.

<PAGE> 7

(g) Waiver. Except as otherwise provided in this Agreement, no failure or
delay on the part of either party in exercising any power or right under this
Agreement operates as a waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise thereof, or the exercise
of any other power or right. No waiver by a party of any provision of this
Agreement or waiver of any breach or default is effective unless in writing and
signed by the party against whom the waiver is to be enforced.

(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses or
such other addresses as may subsequently be given to the other party in writing:

<TABLE>
<S> <C>
Bank: The Chase Manhattan Bank, N.A.
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245

Attention: Global Securities Services

Customer: Merrill Lynch Asset Management
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attn: Treasurer
</TABLE>

(i) Termination. This Agreement may be terminated by the Customer or the
Bank by giving sixty days written notice to the other, provided that such notice
to the Bank shall specify the names of the persons to whom the Bank shall
deliver the Assets in the Accounts. If notice of termination is given by the
Bank, the Customer shall, within sixty days following receipt of the notice,
deliver to the Bank Instructions specifying the names of the persons to whom the
Bank shall deliver the Assets. In either case the Bank will deliver the Assets
to the persons so specified, after deducting any amounts which the Bank
determines in good faith to be owed to it under Section 13. If within sixty days
following receipt of a notice of termination by the Bank, the Bank does not
receive Instructions from the Customer specifying the names of the persons to
whom the Bank shall deliver the Assets, the Bank, at its election, may deliver
the Assets to a bank or trust company doing business in the State of New York to
be held and disposed of pursuant to the provisions of this Agreement, or to
Authorized Persons, or may continue to hold the Assets until Instructions are
provided to the Bank.

MERRILL LYNCH ASSET GROWTH FUND, INC.

By ________________________________________
________________________________________
Title

THE CHASE MANHATTAN BANK, N.A.

By /s/ MICHAEL RAVENSBERGEN
Vice President
Title

<PAGE> 8

STATE OF )
) ss.
COUNTY OF )

On this ____________ day of _____________, 19___ before me personally came
___________________ to me known, who being by me duly sworn, did depose and say
that he/she resides in ___________________ at _________________; that he/she is
_______________ of _______________ ("Customer"), the Customer which executed the
foregoing Agreement; that he/she knows the seal of the Customer; that the seal
affixed to the Agreement is such seal; that it was affixed by order of the
Customer; and that he/she signed his/her name thereto by like order.

____________________________________

Sworn to before me this _____
day of _____________, 19___.

___________________________________
Notary

STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )

On this 11th day of July, 1994 before me personally came Michael
Ravensbergen, to me known, who being by me duly sworn, did depose and say that
he resides in Hackensack, N.J., at 14 Brock Street; that he is a Vice President
of THE CHASE MANHATTAN BANK, N.A. ("Bank"), the Bank which executed the
foregoing Agreement; that he knows the seal of the Bank; that the seal affixed
to the Agreement is such corporate seal; that it was so affixed by order of the
Board of Directors of the Bank, and that he signed his name thereto by like
order.

____________________________________

Sworn to before me this 11th
day of July, 1994.

/s/ LAIYEE NG
Notary
LAIYEE NG
Notary Public, State of New York
No. 01NG5012928
Qualified in Queens County
Cert. Filed in Kings & N.Y. Counties
Commission Expires June 15, 1995

<PAGE> 9

MUTUAL FUND RIDER TO GLOBAL CUSTODY AGREEMENT
BETWEEN THE CHASE MANHATTAN BANK, N.A. AND
MERRILL LYNCH GLOBAL GROWTH
PORTFOLIO, INC., EFFECTIVE ___________

Customer represents that the Assets being placed in the Bank's custody are
subject to the Investment Company Act of 1940 (the "Act"), as the same may be
amended from time to time.

Except to the extent that the Bank has specifically agreed to comply with a
condition of a rule, regulation or interpretation promulgated by or under the
authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940, Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of the
Securities Exchange Commission.

The following modifications are made to the Agreement:

SECTION 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.

Add the following language to the end of Section 3:

The terms Subcustodian and securities depositions as used in this Agreement
shall mean a branch of a qualified U.S. bank, an eligible foreign custodian or
an eligible foreign securities depository, which are further defined as follows:

(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in
Rule 17f-5 under the Act.

(b) "eligible foreign custodian" shall mean (i) a banking institution or
trust company incorporated or organized under the laws of a country other than
the United States that is regulated as such by that country's government or an
agency thereof and that has shareholders' equity in excess of $200 million in
U.S. currency (or a foreign currency equivalent thereof), (ii) a majority owned
direct or indirect subsidiary of a qualified U.S. bank or bank holding company
that is incorporated or organized under the laws of a country other than the
United States and that has shareholders' equity in excess of $100 million in
U.S. currency (or a foreign currency equivalent thereof), (iii) a banking
institution or trust company incorporated or organized under the laws of a
country other than the United States or a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is incorporated
or organized under the laws of a country other than the United States which has
such other qualifications as shall be specified in instructions and approved by
the Bank or (iv) any other entity that shall have been so qualified by exemptive
order, rule or other appropriate action of the SEC; and

(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws of a
country other than the United States, which operates (i) the central system for
handling securities or equivalent book-entries in that country or (ii) a
transnational system for the central handling of securities or equivalent
book-entries.

The Customer represents that its Board of Directors has approved each of the
Subcustodians listed in Schedule A to this Agreement and the terms of the
subcustody agreements between the Bank and each Subcustodian, and further
represents that its Board has determined that the use of each Subcustodian and
the terms of each subcustody agreement are consistent with the best interests of
the Customer's fund(s) and its (their) shareholders. The Bank will supply the
Customer with any amendment to Schedule A for approval. The Customer has
supplied or will supply the Bank with certified copies of its Board of Directors
resolution(s) with respect to the foregoing prior to placing Assets with any
Subcustodian so approved.

SECTION 11. INSTRUCTIONS.

Add the following language to the end of Section 11:

Account transactions made pursuant to Sections 5 and 6 of this Agreement may
be made only for the purposes listed below. Instructions must specify the
purpose for which any transaction is to be made and the Customer shall be solely
responsible to assure that Instructions are in accord with any limitations or
restrictions applicable to the Customer by law or as may be set forth in its
prospectus.

<PAGE> 10

(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.

(b) When Securities are called, redeemed or retired, or otherwise become
payable.

(c) In exchange for or upon conversion into other securities alone or other
securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.

(d) Upon conversion of Securities pursuant to their terms into other
securities.

(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.

(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.

(g) In connection with any borrowings by the Customer requiring a pledge of
Securities, but only against receipt of amounts borrowed.

(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.

(i) For the purpose of redeeming shares of the capital stock of the Customer
and the delivery to, or the crediting to the account of the Bank, its
Subcustodian or the Customer's transfer agent, such shares to be purchased or
redeemed.

(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Bank, its Subcustodian or the
Customer's transfer agent.

(k) For delivery in accordance with the provisions of any agreement among
the Customer, the Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of the National
Association of Securities Dealers, Inc., relating to compliance with the rules
of The Options Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the Customer.

(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Bank of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Bank will receive the Securities previously deposited from
brokers. The Bank will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.

(m) For spot or forward foreign exchange transactions to facilitate security
trading, receipt of income from Securities or related transactions.

(n) For other proper purposes as may be specified in Instructions issued by
an officer of the Customer which shall include a statement of the purpose for
which the delivery or payment is to be made, the amount of the payment or
specific Securities to be delivered, the name of the person or persons to whom
delivery or payment is to be made, and a certification that the purpose is a
proper purpose under the instruments governing the Customer.

(o) Upon the termination of this Agreement as set forth in Section 14(i).

SECTION 12. STANDARD OF CARE; LIABILITIES.

Add the following subsection (d) to Section 12:

(d) The Bank hereby warrants to the Customer that in its opinion, after due
inquiry, the established procedures to be followed by each of its branches, each
branch of a qualified U.S. bank, each eligible foreign custodian and each
eligible foreign securities depository holding the Customer's Securities
pursuant to this Agreement afford protection for such Securities at least equal
to that afforded by the Bank's established procedures with respect to similar
securities held by the Bank and its securities depositories in New York.

SECTION 14. ACCESS TO RECORDS.

Add the following language to the end of Section 14(c):

Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of internal
accounting controls applicable to the Bank's duties under this Agreement. The
Bank shall endeavor to obtain and furnish the Customer with such similar reports
as it may reasonably request with respect to each Subcustodian and securities
depository holding the Customer's assets.

<PAGE> 11
1

SCHEDULE A

June, 1994

SUB-CUSTODIANS EMPLOYED BY

THE CHASE MANHATTAN BANK, N.A. LONDON, GLOBAL CUSTODY

<TABLE>
<CAPTION>
COUNTRY SUB-CUSTODIAN CORRESPONDENT BANK
- ------- ------------- ------------------
<S> <C> <C>
ARGENTINA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Main Branch Buenos Aires
25 De Mayo 130/140
Buenos Aires
ARGENTINA

AUSTRALIA The Chase Manhattan Bank The Chase Manhattan Bank
Australia Limited Australia Limited
36th Floor Sydney
World Trade Centre
Jamison Street
Sydney
New South Wales 2000
AUSTRALIA

AUSTRIA Creditanstalt - Bankverein Credit Lyonnais
Schottengasse 6 Vienna
A - 1011, Vienna
AUSTRIA

BANGLADESH Standard Chartered Bank Standard Chartered Bank
18-20 Motijheel C.A. Dhaka
Box 536,
Dhaka-1000
BANGLADESH

BELGIUM Generale Bank Credit Lyonnais Bank
3 Montagne Du Parc Brussels
1000 Bruxelles
BELGIUM
</TABLE>

<PAGE> 12
2

<TABLE>
<S> <C> <C>
BOTSWANA Standard Chartered Bank Standard Chartered Bank
Botswana Ltd. Botswana Ltd.
4th Floor Commerce House Gaborone
The Mall
Gaborone
BOTSWANA

BRAZIL Banco Chase Manhattan, S.A. Banco Chase Manhattan S.A.
Chase Manhattan Center Sao Paulo
Rua Verbo Divino, 1400
Sao Paulo, SP 04719-002
BRAZIL

CANADA The Royal Bank of Canada Toronto Dominion Bank
Royal Bank Plaza Toronto
Toronto
Ontario M5J 2J5
CANADA

Canada Trust Toronto Dominion Bank
Canada Trust Tower Toronto
BCE Place
161 Bay at Front
Toronto
Ontario M5J 2T2
CANADA

CHILE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Agustinas 1235 Santiago
Casilla 9192
Santiago
CHILE

COLOMBIA Cititrust Colombia S.A. Cititrust Colombia S.A.
Sociedad Fiduciaria Sociedad Fiduciaria
Carrera 9a No 99-02 Santafe de Bogota
Santafe de Bogota, DC
COLOMBIA

CZECH REPUBLIC Ceskoslovenska Obchodni Banka, A.S. Ceskoslovenska Obchodni Banka,
Na Prikope 14 A.S.
115 20 Praha 1 Praha
CZECH REPUBLIC
</TABLE>

<PAGE> 13
3

<TABLE>
<S> <C> <C>
DENMARK Den Danske Bank Den Danske Bank
2 Holmens Kanala DK 1091 Copenhagen
Copenhagen
DENMARK

EGYPT National Bank of Egypt
24 Sherif Street
Cairo
EGYPT

EUROBONDS Cedel S.A. ECU:Lloyds Bank PLC
67 Boulevard Grande Duchesse Charlotte International Banking Division
LUXEMBOURG London
A/c The Chase Manhattan Bank, N.A. For all other currencies: see
London relevant country
A/c No. 17817

EURO CDS First Chicago Clearing Centre ECU:Lloyds Bank PLC
27 Leadenhall Street Banking Division London
London EC3A 1AA For all other currencies: see
UNITED KINGDOM relevant country

FINLAND Kansallis-Osake-Pankki Kanasallis-Osake-Pankki
Aleksanterinkatu 42 Helsinki
00100 Helsinki 10
FINLAND

FRANCE Banque Paribas Societe Generale
Ref 256 Paris
BP 141
3, Rue D'Antin
75078 Paris
Cedex 02
FRANCE

GERMANY Chase Bank A.G. Chase Bank A.G.
Alexanderstrasse 59 Frankfurt
Postfach 90 01 09
60441 Frankfurt/Main
GERMANY

GREECE Barclays Bank Plc National Bank of Greece S.A.
1 Kolokotroni Street Athens
10562 Athens A/c Chase Manhattan Bank, N.A.,
GREECE London
A/c No. 040/7/921578-68
</TABLE>

<PAGE> 14
4

<TABLE>
<S> <C> <C>
HONG KONG The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
40/F One Exchange Square Hong Kong
8, Connaught Place
Central, Hong Kong
HONG KONG

HUNGARY Citibank Budapest Rt. Citibank Budapest Rt.
Vaci Utca 19-21 Budapest
1052 Budapest V
HUNGARY

INDIA The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
52/60 Mahatma Gandhi Road Bombay
Bombay 400 001
INDIA

INDONESIA The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
Banking Corporation Limited Jakarta
World Trade Center
J1. Jend Sudirman Kav. 29-31
Jakarta 10023
INDONESIA

IRELAND Bank of Ireland Allied Irish Bank
International Financial Services Centre Dublin
1 Harbourmaster Place
Dublin 1
IRELAND

ISRAEL Bank Leumi Le-Israel B.M. Bank Leumi Le-Israel B.M.
19 Herzl Street Tel Aviv
65136 Tel Aviv
ISRAEL

ITALY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Piazza Meda 1 Milan
20121 Milan
ITALY

JAPAN The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
1-3 Marunouchi 1-Chome Tokyo
Chiyoda-Ku
Tokyo 100
JAPAN
</TABLE>

<PAGE> 15
5

<TABLE>
<S> <C> <C>
JORDAN Arab Bank Limited Arab Bank United
P.O. Box 950544-5 Amman
Amman
Shmeisani
JORDAN

LUXEMBOURG Banque Generale du Luxembourg S.A. Banque Generale du Luxembourg S.A.
27 Avenue Monterey Luxembourg
LUXEMBOURG

MALAYSIA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Pernas International Kuala Lumpur
Jalan Sultan Ismail
50250, Kuala Lumpur
MALAYSIA

MEXICO The Chase Manhattan Bank, N.A. No correspondent Bank
(Equities) Hamburgo 213, Piso 7
Colonia Juarez, 06660 Mexico D.F.
MEXICO

(Government Bonds) Banco Nacional de Mexico No correspondent Bank
Avenida Juarez No. 104-11 Piso
06040 Mexico D.F.
MEXICO

MOROCCO Banque Commerciale du Maroc Banque Commerciale du Maroc
1 Rue Idriss Lahrizi Casablanca
Casablanca 01
MOROCCO

NETHERLANDS ABN AMRO N.V. Credit Lyonnais
Securities Centre Bank Nederland N.V.
P.O. Box 3200 Rotterdam
4800 De Breda
NETHERLANDS

NEW ZEALAND National Nominees Limited National Bank of New Zealand
Level 2 BNZ Tower Wellington
125 Queen Street
Auckland
NEW ZEALAND

NORWAY Den Norske Bank Den Norske Bank
Kirkegaten 21 Oslo
Oslo 1
NORWAY
</TABLE>

<PAGE> 16
6

<TABLE>
<S> <C> <C>
PAKISTAN Citibank N.A. Citibank N.A.
State Life Building No. 1 Karachi
I.I. Chundrigar Road
Karachi
PAKISTAN

PERU Citibank, N.A. Citibank N.A.
Camino Real 457 Lima
CC Torre Real - 5th Floor
San Isidro, Lima 27
PERU

PHILIPPINES The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
Hong Kong Bank Centre 3/F Manila
San Miguel Avenue
Ortigas Commercial Centre
Pasig Metro Manila
PHILIPPINES

POLAND Bank Polska Kasa Opieki S.A. Bank Polska Kasa Opieki S.A.
6/12 Nowy Swiat Str Warsaw
00-920 Warsaw
POLAND

For Mutual Funds: Bank Polska Kasa Opieki S.A.
Bank Handlowy W. Warsawie, S.A. Warsaw
6/12 Nowy Swiat Street
00-920 Warsaw
Poland

PORTUGAL Banco Espirito Santo & Comercial de Lisboa Banco Pinto & Sotto Mayor
Servico de Gestaode Titulos Avenida Fontes Pereira de Melo
R. Mouzinho da Silveira, 36 r/c 1000 Lisbon
1200 Lisbon
PORTUGAL

SHANGHAI (CHINA) The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
Banking Corporation Limited Hong Kong
Shanghai Branch
Corporate Banking Centre
Unit 504, 5/F Shanghai Centre
1376 Nanjing Xi Lu
Shanghai
THE PEOPLE'S REPUBLIC OF CHINA
</TABLE>

<PAGE> 17
7

<TABLE>
<S> <C> <C>
SHENZHEN (CHINA) The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
Banking Corporation Limited Hong Kong
1st Floor
Central Plaza Hotel
No. 1 Chun Feng Lu
Shenzhen
THE PEOPLE'S REPUBLIC OF CHINA

SINGAPORE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Shell Tower Singapore
50 Raffles Place
Singapore 0104
SINGAPORE

SOUTH AFRICA Standard Bank of South Africa Standard Bank of South Africa
Standard Bank Chambers Standard Bank Chambers
46 Marshall Street South Africa
Johannesburg 2001
South Africa

SOUTH KOREA The Hongkong & Shanghai The Hongkong & Shanghai
Banking Corporation Limited Banking Corporation Limited
6/F Kyobo Building Seoul
#1 Chongro, 1-ka Chongro-Ku,
Seoul
SOUTH KOREA

SPAIN The Chase Manhattan Bank, N.A. Banco Zaragozano, S.A.
Calle Peonias 2 Madrid
7th Floor
La Piovera
28042 Madrid
SPAIN

SRI LANKA The Hongkong & Shanghai The Hongkong & Shanghai
Banking Corporation Limited Banking Corporation Limited
24, Sir Baron Jayatilaka Mawatha Colombo
Colombo 1,
SRI LANKA

SWEDEN Skandinaviska Enskilda Banken Svenska Handelsbanken
Kungstradgardsgatan 8 Stockholm
Stockholm S-106 40
SWEDEN
</TABLE>

<PAGE> 18
8

<TABLE>
<S> <C> <C>
SWITZERLAND Union Bank of Switzerland Union Bank of Switzerland
45 Bahnhofstrasse Zurich
8021 Zurich
SWITZERLAND

TAIWAN The Chase Manhattan Bank, N.A. No correspondent Bank
673 Min Sheng East Road -- 9th Floor
Taipei
TAIWAN
Republic of China

THAILAND The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Bubhajit Building Bangkok
20 North Sathorn Road
Silim, Bangrak
Bangkok 10500
THAILAND

TUNISIA Banque Internationale Arabe de Tunisie Banque Internationale Arabe de
70-72 Avenue Habib Bourguiba Tunisie, Tunisia
P.O. Box 520
1080 Tunis Cedex
Tunisia

TURKEY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Yildiz Posta Caddesi 52 Istanbul
Dedeman Ticaret Merkezi, Kat 11
80700 Esentepe
Istanbul
TURKEY

U.K. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Woolgate House London
Coleman Street
London EC2P 2HD
UNITED KINGDOM

URUGUAY The First National Bank of Boston The First National Bank of Boston
Zabala 1463 Montevideo
Montevideo
URUGUAY

U.S.A. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza New York
New York
NY 10081
U.S.A.
</TABLE>

<PAGE> 19
9

<TABLE>
<S> <C> <C>
VENEZUELA Citibank N.A. Citibank N.A.
Carmelitas a Altagracia Caracas
Edificio Citibank
Caracas 1010
VENEZUELA

ZIMBABWE Barclays Bank of Zimbabwe Barclays Bank of Zimbabwe
Ground Floor Harare
Kurima House
42 George Silundika Avenue
Harare
Zimbabwe
</TABLE>

<PAGE> 20

CUSTODIAN FEE SCHEDULE
BETWEEN

THE CHASE MANHATTAN BANK, N.A.
GLOBAL INVESTOR SERVICES

AND

MERRILL LYNCH ASSET GROWTH FUND, INC.

U.S. DOMESTIC ASSETS

<TABLE>
<S> <C>
All Assets: First $1 Billion 0.5 basis points (.00005)
- ----------- Next $1 Billion 0.4 basis points (.00004)
Over $2 Billion 0.3 basis points (.00003)

</TABLE>

$ 7 book-entry transactions (DTC, FED, PTC, etc.)
$15 non-book-entry transactions

<TABLE>
<CAPTION>
ASSETS HELD OVERSEAS
==================================================================================
PRICING LOCATION
- ----------------------------------------------------------------------------------
<S> <C>
ASSETS: 4.0BP CEDEL
TRANSACTIONS: $0
- ----------------------------------------------------------------------------------
ASSETS: 5BP Canada
TRANSACTIONS:
$50 per BUY/SELL
- ----------------------------------------------------------------------------------
ASSETS: 6BP Australia/Germany/Japan/United Kingdom
TRANSACTIONS:
$50 per BUY/SELL
- ----------------------------------------------------------------------------------
ASSETS: 10BP Austria/Belgium/Denmark/Finland/France/
TRANSACTIONS: Hong Kong/Ireland/Italy/Luxembourg/
$50 per BUY/SELL Malaysia/Netherlands/New Zealand/Norway/
Singapore/South Africa/Sweden/Switzerland
- ----------------------------------------------------------------------------------
ASSETS: 15BP Mexico/Spain/Thailand
TRANSACTIONS:
$100 per BUY/SELL
- ----------------------------------------------------------------------------------
ASSETS: 35BP Argentina/Indonesia/Philippines/Portugal/
TRANSACTIONS: South Korea/Taiwan
$100 per BUY/SELL
- ----------------------------------------------------------------------------------
ASSETS: 40BP Bangladesh/Botswana/Brazil/Chile/China/
TRANSACTIONS: Colombia/Czech Republic/Egypt/Greece/
$100 per BUY/SELL Hungary/India/Israel/Jordan/Morocco/Pakistan/
Peru/Poland/Sri Lanka/Tunisia/Turkey/
Venezuela/Uruguay/Zimbabwe
==================================================================================
</TABLE>
<PAGE> 21
-2-

OTHER SERVICES

Futures $15 per futures transaction
$10 per mark-to-market wire

Options $25 per transaction

Transfers to successor custodian Transaction charges in
accordance with fee schedule.

OUT-OF-POCKET EXPENSES: (i.e., stamp taxes, registration costs, scrip fees,
special transportation costs, etc.): As incurred.

Fees are to be paid monthly and based on the month end market value, as
reported by MLAM.

Approved: /s/ GERALD RICHARD
-----------------------------------
Gerald Richard, Treasurer
Merrill Lynch Asset Growth Fund, Inc.

Approved: /s/ MICHAEL RAVENSBERGEN
-----------------------------------
Michael Ravensbergen, Vice President
Chase Manhattan Bank, N.A.

<PAGE> 1

TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT

THIS AGREEMENT made as of the 25th day of August, 1994,
by and between Merrill Lynch Asset Growth Fund, Inc., on behalf of itself (the
"Fund") and Financial Data Services, Inc. ("FDS"), a New Jersey corporation.

WITNESSETH:

WHEREAS, the Fund wishes to appoint FDS to be the Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent upon, and
subject to, the terms and provisions of this Agreement, and FDS is desirous of
accepting such appointment upon, and subject to, such terms and provisions:

NOW THEREFORE, in consideration of mutual covenants contained
in this Agreement, the Fund and FDS agree as follows:

I. APPOINTMENT OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING
AGENT AND SHAREHOLDER SERVICING AGENT.

A. The Fund hereby appoints FDS to act as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund upon,
and subject to, the terms and provisions of this Agreement.

B. FDS hereby accepts the appointment as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund, and agrees to
act as such upon, and subject to, the terms and provisions of this Agreement.

II. DEFINITIONS.

A. In this Agreement:

1. The term "Act" means the Investment Company Act of
1940 as amended from time to time and any rule or regulation thereunder;

2. The term "Account" means any account of a
Shareholder, or, if the shares are held in an account in the name of MLPF&S for
benefit of an identified customer, such account, including a Plan Account, any
account under a plan (by whatever name referred to in the Prospectus) pursuant
to the Self-Employed Individuals Retirement Act of 1962 ("Keogh Act Plan") and
any plan (by whatever name referred to in the Prospectus) in conjunction with
Section 401 of the Internal Revenue Code ("Corporation Master Plan");
<PAGE> 2
3. The term "application" means an application made by a
Shareholder or prospective Shareholder respecting the opening of an Account;

4. The term "MLFD" means Merrill Lynch Funds
Distributor, Inc., a Delaware corporation;

5. The term "MLPF&S" means Merrill Lynch Pierce, Fenner
& Smith, Incorporated, a Delaware corporation;

6. The term "Officer's Instruction" means an instruction
in writing given on behalf of the Fund to FDS, and signed on behalf of the Fund
by the President, any Vice President, the Secretary or the Treasurer of the
Fund;

7. The term "Prospectus" means the Prospectus and the
Statement of Additional Information of the Fund as from time to time in effect;

8. The term "Shares" means shares of stock or beneficial
interest, as the case may be, of the Fund, irrespective of class or series;

9. The term "Shareholder" means the holder of record of
Shares;

10. The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect to an open account, monthly
payment or withdrawal plan (in each case by whatever name referred to in the
Prospectus), and may also include an account relating to any other Plan if and
when provision is made for such plan in the Prospectus.

III. DUTIES OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.

A. Subject to the succeeding provisions of the
Agreement, FDS hereby agrees to perform the following functions as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund;

1. Issuing, transferring and redeeming Shares;

2. Opening, maintaining, servicing and closing Accounts;

3. Acting as agent for the Fund Shareholders and/or
customers of MLPF&S in connection with Plan Accounts, upon the terms and
subject to the conditions contained in the Prospectus and application relating
to the specific Plan Account;

4. Acting as agent of the Fund and/or MLPF&S,
maintaining such records as may permit the imposition of such contingent
deferred sales charges as may be described in the

2
<PAGE> 3
Prospectus, including such reports as may be reasonably requested by the Fund
with respect to such Shares as may be subject to a contingent deferred sales
charge;

5. Upon the redemption of Shares subject to such a
contingent deferred sales charge, calculating and deducting from the redemption
proceeds thereof the amount of such charge in the manner set forth in the
Prospectus. FDS shall pay, on behalf of MLFD, to MLPF&S such deducted
contingent deferred sales charges imposed upon all Shares maintained in the
name of MLPF&S, or maintained in the name of an account identified as a
customer account of MLPF&S. Sales charges imposed upon any other Shares shall
be paid by FDS to MLFD;

6. Exchanging the investment of an investor into, or
from the shares of other open-end investment companies or other series
portfolios of the Fund, if any, if and to the extent permitted by the
Prospectus at the direction of such investor;

7. Processing redemptions;

8. Examining and approving legal transfers;

9. Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to, procedures and
conditions adopted by the Fund;

10. Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;

11. Acting as agent for the Fund and/or MLPF&S,
furnishing such appropriate periodic statements relating to Accounts, together
with additional enclosures, including appropriate income tax information and
income tax forms duly completed, as required by applicable law;

12. Acting as agent for the Fund and/or MLPF&S, mailing
annual, semi-annual and quarterly reports prepared by or on behalf of the Fund,
and mailing new Prospectuses upon their issue to Shareholders as required by
applicable law;

13. Furnishing such periodic statements of transactions
effected by FDS, reconciliations, balances and summaries as the Fund may
reasonably request;

14. Maintaining such books and records relating to
transactions effected by FDS as are required by the Act, or by any other
applicable provision of law, rule or regulation, to be maintained by the Fund
or its transfer agent with respect to such transactions, and preserving, or
causing to be preserved any such books and records for such periods as may be
required by any such law, rule or regulation and as may be agreed upon from
time to time between FDS and the Fund. In addition, FDS agrees to maintain and
preserve master files and historical computer tapes on a daily

3
<PAGE> 4
basis in multiple separate locations a sufficient distance apart to insure
preservation of at least one copy of such information;

15. Withholding taxes on non-resident alien Accounts,
preparing and filing U.S. Treasury Department Form 1099 and other appropriate
forms as required by applicable law with respect to dividends and
distributions; and

16. Reinvesting dividends for full and fractional shares
and disbursing cash dividends, as applicable.

B. FDS agrees to act as proxy agent in connection with
the holding of annual, if any, and special meetings of Shareholders, mailing
such notices, proxies and proxy statements in connection with the holding of
such meetings as may be required by applicable law, receiving and tabulating
votes cast by proxy and communicating to the Fund the results of such
tabulation accompanied by appropriate certifications, and preparing and
furnishing to the Fund certified lists of Shareholders as of such date, in such
form and containing such information as may be required by the Fund.

C. FDS agrees to deal with, and answer in a timely
manner, all correspondence and inquiries relating to the functions of FDS under
this Agreement with respect to Accounts.

D. FDS agrees to furnish to the Fund such information
and at such intervals as is necessary for the Fund to comply with the
registration and/or the reporting requirements (including applicable escheat
laws) of the Securities and Exchange Commission, Blue Sky authorities or other
governmental authorities.

E. FDS agrees to provide to the Fund such information as
may reasonably be required to enable the Fund to reconcile the number of
outstanding Shares between FDS's records and the account books of the Fund.

F. Notwithstanding anything in the foregoing provisions
of this paragraph, FDS agrees to perform its functions thereunder subject to
such modification (whether in respect of particular cases or in any particular
class of cases) as may from time to time be contained in an Officer's
Instruction.

IV. COMPENSATION.

The charges for services described in this Agreement,
including "out-of-pocket" expenses, will be set forth in the Schedule of Fees
attached hereto.

V. RIGHT OF INSPECTION.

FDS agrees that it will in a timely manner make available to,
and permit, any officer, accountant, attorney or authorized agent of the Fund
to examine and make transcripts and copies

4
<PAGE> 5
(including photocopies and computer or other electronical information storage
media and print-outs) of any and all of its books and records which relate to
any transaction or function performed by FDS under or pursuant to this
Agreement.

VI. CONFIDENTIAL RELATIONSHIP.

FDS agrees that it will, on behalf of itself and its officers
and employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Fund, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Fund by way of
an Officer's Instruction.

VII. INDEMNIFICATION.

The Fund shall indemnify and hold FDS harmless from any loss,
costs, damage and reasonable expenses, including reasonable attorney's fees
(provided that such attorney is appointed with the Fund's consent, which
consent shall not be unreasonably withheld), incurred by it resulting from any
claim, demand, action, or suit in connection with the performance of its duties
hereunder, provided that this indemnification shall not apply to actions or
omissions of FDS in cases of willful misconduct, failure to act in good faith
or negligence by FDS, its officers, employees or agents, and further provided,
that prior to confessing any claim against it which may be subject to this
indemnification, FDS shall give the Fund reasonable opportunity to defend
against said claim in its own name or in the name of FDS. An action taken by
FDS upon any Officer's Instruction reasonably believed by it to have been
properly executed shall not constitute willful misconduct, failure to act in
good faith or negligence under this Agreement.

VIII. REGARDING FDS.

A. FDS hereby agrees to hire, purchase, develop and
maintain such dedicated personnel, facilities, equipment, software, resources
and capabilities as may be reasonably determined by the Fund to be necessary
for the satisfactory performance of the duties and responsibilities of FDS.
FDS warrants and represents that its officers and supervisory personnel charged
with carrying out its functions as Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent for the Fund possess the special skill and
technical knowledge appropriate for that purpose. FDS shall at all times
exercise due care and diligence in the performance of its functions as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund.
FDS agrees that, in determining whether it has exercised due care and
diligence, its conduct shall be measured by the standard applicable to persons
possessing such special skill and technical knowledge.

5
<PAGE> 6
B. FDS warrants and represents that it is duly
authorized and permitted to act as Transfer Agent, Dividend Disbursing Agent,
and Shareholder Servicing Agent under all applicable laws and that it will
immediately notify the Fund of any revocation of such authority or permission
or of the commencement of any proceeding or other action which may lead to such
revocation.

IX. TERMINATION.

A. This Agreement shall become effective as of the date
first above written and shall thereafter continue from year to year. This
Agreement may be terminated by the Fund or FDS (without penalty to the Fund or
FDS) provided that the terminating party gives the other party written notice
of such termination at least sixty (60) days in advance, except that the Fund
may terminate this Agreement immediately upon written notice to FDS if the
authority or permission of FDS to act as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent has been revoked or if any proceeding or
other action which the Fund reasonably believes will lead to such revocation
has been commenced.

B. Upon termination of this Agreement, FDS shall deliver
all unissued and canceled stock certificates representing Shares remaining in
its possession, and all Shareholder records, books, stock ledgers, instruments
and other documents (including computerized or other electronically stored
information) made or accumulated in the performance of its duties as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund
along with a certified locator document clearly indicating the complete
contents therein, to such successor as may be specified in a notice of
termination or Officer's Instruction; and the Fund assumes all responsibility
for failure thereafter to produce any paper, record or documents so delivered
and identified in the locator document, if and when required to be produced.

X. AMENDMENT.

Except to the extent that the performance by FDS or its
functions under this Agreement may from time to time be modified by an
Officer's Instruction, this Agreement may be amended or modified only by
further written Agreement between the parties.

XI. GOVERNING LAW.

This Agreement shall be governed by the laws of the State of
New Jersey.

6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective duly authorized officers and their
respective corporate seals hereunto duly affixed and attested, as of the day
and year above written.

MERRILL LYNCH ASSET GROWTH FUND, INC.

By:______________________________________________________________

Title:___________________________________________________________

FINANCIAL DATA SERVICES, INC.

By:_____________________________________

Title:__________________________________

<PAGE> 1
LICENSE AGREEMENT RELATING TO USE OF NAME

AGREEMENT made as of the 25th day of August, 1994,
between MERRILL LYNCH & CO., INC., a Delaware corporation ("ML&Co.") and
MERRILL LYNCH ASSET GROWTH FUND, a Maryland Corporation (the "Fund");

W I T N E S S E T H:

WHEREAS, ML&Co. was incorporated under the laws of the State
of Delaware on March 27, 1973 under the corporate name "Merrill Lynch & Co.,
Inc." and has used such name at all times thereafter;

WHEREAS, ML&Co. was duly qualified as a foreign corporation
under the laws of the State of New York on April 25, 1973 and has remained so
qualified at all times thereafter;

WHEREAS, the Fund filed Articles of Incorporation under the
laws of the State of Maryland on June 6, 1994; and

WHEREAS, the Fund desires to qualify as a foreign corporation
under the laws of the State of New York and has requested that ML&Co. give its
consent to the use of the name "Merrill Lynch" in the Fund's name(, and in the
name of any series established and designated as series of the Fund (the
"Funds").)

NOW, THEREFORE, in consideration of the premises and of the
covenants hereinafter contained, ML&Co. and the Fund hereby agree as follows:

1. ML&Co. hereby grants the Fund a non-exclusive license
to use the words "Merrill Lynch" in its name and in the names of the Funds.
<PAGE> 2
2. ML&Co. hereby consents to the qualification of the
Fund and the Fund as a foreign association under the laws of the State of New
York with the words "Merrill Lynch" in its name and agrees to execute such
formal consents as may be necessary in connection with such filing.

3. The non-exclusive license hereinabove referred to has
been given and is given by ML&Co. on the condition that it may at any time, in
its sole and absolute discretion, withdraw the non exclusive license to the use
of the words "Merrill Lynch" in the name of the Fund; and, as soon as
practicable after receipt by the Fund of written notice of the withdrawal of
such non-exclusive license, and in no event later than ninety days thereafter,
the Fund will change its name so that such name will not thereafter include the
words "Merrill Lynch" or any variation thereof.

4. ML&Co. reserves and shall have the right to grant to
any other company, including without limitation, any other investment company,
the right to use the words "Merrill Lynch" or variations thereof in its name
and no consent or permission of the Fund shall be necessary; but, if required
by an applicable law of any state, the Fund will forthwith grant all requisite
consents.

5. The Fund will not grant to any other company the
right to use a name similar to that of the Fund, or ML&Co. without the written
consent of ML&Co.

6. Regardless of whether the Fund should hereafter
change its name and eliminate the words "Merrill Lynch" or any variation
thereof from such name, the Fund hereby grants to ML&Co. the right to cause the
incorporation of other corporations or the

2
<PAGE> 3
organization of voluntary associations which may have names similar to that of
the Fund or to that to which the Fund may change its name and to own all or any
portion of the shares of such other corporations or associations and to enter
into contractual relationships with such other corporations or associations,
subject to any requisite approval of a majority of the Fund's shareholders and
the Securities and Exchange Commission and subject to the payment of a
reasonable amount to be determined at the time of use, and the Fund agrees to
give and execute any such formal consents or agreements as may be necessary in
connection therewith.

7. This Agreement may be amended at any time by a
writing signed by the parties hereto.

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

MERRILL LYNCH & CO., INC.

By: ________________________________
Executive Vice President

MERRILL LYNCH ASSET GROWTH
FUND, INC.

By: ________________________________
Executive Vice President

<PAGE> 1
August 23, 1994

Merrill Lynch Asset Growth
Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536

Gentlemen:

We have acted as counsel for Merrill Lynch Asset Growth Fund,
Inc., a corporation organized under the laws of the State of Maryland (the
"Fund"), in connection with the organization of the Fund, its registration as
an open-end investment company under the Investment Company Act of 1940, as
amended, and the registration of an indefinite number of its shares of Common
Stock, par value $.10 per share (the "Shares"), under the Securities Act of
1933, as amended, pursuant to a registration statement on Form N-1A (File No.
33-54005 and 811-7183) (as amended, the "Registration Statement").

As counsel for the Fund, we are familiar with the proceedings
taken by it in connection with the authorization, issuance and sale of the
Shares. In addition, we have examined and are familiar with the Articles of
Incorporation of the Fund, the By-Laws of the Fund and such other documents as
we have deemed relevant to the matters referred to in this opinion. As to
matters governed by the laws of Maryland, we have relied upon an opinion of
Galland, Kharasch, Morse & Garfinkle, P.C., dated August 22, 1994.

Based upon the foregoing, we are of the opinion that the
Shares, upon issuance and sale in the manner referred to in the Registration
Statement for consideration not less than the par value thereof, will be
legally issued, fully paid and non- assessable shares of Common Stock of the
Fund.
<PAGE> 2

Merrill Lynch Asset Growth 2 August 23, 1994
Fund, Inc.

We consent to the filing of this opinion with the Securities
and Exchange Commission as an Exhibit to the Registration Statement and to the
reference to this firm under the heading "Counsel" in the form of prospectus
contained therein. In giving this consent, we do not admit that we are within
the category of persons whose consent is required under Section 7 of the 1933
Act or the rules and regulations of the Securities and Exchange Commission
therunder.

Very truly yours,

<PAGE> 1

August 23, 1994

Rogers & Wells
200 Park Avenue
New York, NY 10166

Re: Issuance of Common Stock by
Merrill Lynch Asset Growth Fund, Inc.

Ladies and Gentlemen:

We have acted as special Maryland counsel to Merrill Lynch Asset Growth
Fund, Inc., a Maryland corporation (the "Fund"), in connection with the
organization of the Fund, its registration as an open-end investment
company under the Investment Company Act of 1940, as amended, and the
registration of an indefinite number of its Class A and Class B Common Stock,
par value $.10 per share (the "Shares"), pursuant to the Fund's Registration
Statement filed on Form N-1A with the Securities and Exchange Commission,
including all amendments or supplements thereto filed to date, relating to the
offering and sale of the Shares (File No. 33-54005 and 811-7183) (the
"Registration Statement"). Capitalized terms used in this letter, unless
otherwise defined, have the meanings specified in the Registration Statement.

We have examined the Fund's Articles of Incorporation and By-Laws, the
Fund's Registration Statement, including the Prospectus and Statement
of Additional Information included therein, the Distribution Agreements, the
Management Agreement, the Global Custody Agreement, the Transfer Agency,
Dividend Disbursing Agency and Shareholder Servicing Agency Agreement, and a
specimen certificate for the Shares. We also have examined and relied on a
recently dated certificate of good standing issued by the Maryland State
Department of Assessments and Taxation, and a certificate of the Secretary of
the Fund with respect to the Fund's Articles of Incorporation, By-Laws, certain
factual matters and certain actions taken by its Board of Directors (the
"Secretary's Certificate"). As to various questions of material fact with
respect to the opinion expressed below, we have relied on the Secretary's
Certificate.

In basing the opinion and other matters set forth herein on "our
knowledge," the words "our knowledge" signify that, in the course of our
representation of the Fund in matters with respect to which we have been engaged
by the Fund as special Maryland counsel, no facts have come to our attention
that would give us actual knowledge or actual notice that any such opinions or
other matters are not accurate or that any of the foregoing documents,
certificates,
<PAGE> 2

Rogers & Wells
August 22, 1994
Page 2

and information on which we have relied are not accurate and complete. Except to
the extent otherwise expressly set forth in this letter, we have not undertaken
any independent investigation to determine the existence or absence of such
facts, and no inference as to our knowledge of the existence or absence of such
facts should be drawn from our representation of the Fund.

We have assumed, without independent verification, the genuineness of
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with originals of all documents submitted to us as copies.

The opinion set forth herein is in all respects subject to the following
limitations:

(a) The enforceability of any agreements are subject to general principles
of equity, regardless of whether such enforcement is considered in a proceeding
in equity or at law.

(b) The enforceability of any agreements may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws generally affecting the
rights of creditors or debtors.

(c) This opinion is strictly limited to the general corporation laws of the
State of Maryland, and we express no opinion as to the tax, securities or "blue
sky" laws of Maryland, to federal securities laws or to any other laws of any
other jurisdiction or compliance therewith by any party.

(d) The Articles of Incorporation and By-Laws of the Fund require
compliance with various provisions of the Investment Company Act of 1940, as
amended. We express no opinion with respect to such compliance.

(e) No opinion is expressed as to the decision of a court as to the laws of
which jurisdiction would control the rights and remedies of any of the parties
concerning any agreement.

Based on the foregoing and subject to the qualifications set forth herein,
it is our opinion that the Shares, upon issuance and sale in the manner referred
to in the Registration Statement for consideration not less than the par value
thereof, will be legally issued, fully paid and non-assessable shares of Common
Stock of the Fund.

This opinion is delivered to you and is for your sole and exclusive use.
Except that you may rely on the foregoing opinion in rendering your opinion to
the Fund in connection with the registration of the Shares, this opinion may not
be reproduced, duplicated, quoted or excerpted
<PAGE> 3

Rogers & Wells
August 22, 1994
Page 3

from or referred to, shown, disseminated or delivered to, or relied on by, any
other party (including governmental agencies) for any reason without the written
consent of the undersigned.

Very truly yours,

GALLAND, KHARASCH,
MORSE & GARFINKLE, P.C.

/s/ GALLAND, KHARASCH, MORSE & GARFINKLE, P.C.
----------------------------------------------

<PAGE> 1

INDEPENDENT AUDITORS' CONSENT

Merrill Lynch Asset Growth Fund, Inc.

We consent to the use in Pre-Effective Amendment No. 2 to Registration
Statement No. 33-54005 of our report dated July 26, 1994 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
August 23, 1994

<PAGE> 1

July 22, 1994

Merrill Lynch Asset Allocation Growth
Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536

Ladies and Gentlemen:

Merrill Lynch Asset Management, L.P. ("MLAM") agrees to purchase
10,000 shares of Common Stock, par value $.10 per share (the "Shares"), of
Merrill Lynch Asset Allocation Growth Fund, Inc. (the "Fund") at a price of
$10.00 per share. MLAM shall tender to the Fund the amount of $100,000 in full
payment for the Shares.

MLAM represents and warrants to the Fund that the Shares are being
acquired for investment and not with a view to distribution thereof, and that
MLAM has no present intention to redeem or dispose of any of the shares.

Very truly yours,

MERRILL LYNCH ASSET
MANAGEMENT, L.P.

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

<PAGE> 1

CLASS B SHARES DISTRIBUTION PLAN
OF
MERRILL LYNCH ASSET GROWTH FUND, INC.

PURSUANT TO RULE 12b-1

DISTRIBUTION plan made as of the 25th day of August, 1994, by and
between Merrill Lynch Asset Growth Fund, Inc., a Maryland corporation (the
"Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware corporation
("MLFD").

W I T N E S S E T H:

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

WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers;

WHEREAS, the Fund proposes to enter into a Class B Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act the exclusive distributor
and representative of the Fund in the offer and sale of the shares of Class B
Common Stock, per value $0.10 per share (the "Class B shares") of the Fund to
the public;

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

WHEREAS, the Board of Directors of the Fund has determined that there
is a reasonable likelihood that adoption of this Class B Shares Distribution
Plan will benefit the Fund and its shareholders.

NOW, THEREFORE, the Fund hereby adopts, and the Distributor hereby
agrees to the terms of, this Class B Shares Distribution Plan (the "Plan") in
accordance with Rule 12b-1, under the Investment Company Act on the following
terms and conditions:

1. The Fund shall pay MLFD an account maintenance fee under the
Plan at the end of each month at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class B shares to compensate MLFD and securities
firms with which MLFD enters into related agreements ("Sub-Agreements")
pursuant to Paragraph 3 hereof for account maintenance activities with respect
to Class B shareholders of the Fund.
<PAGE> 2
2. The Fund shall pay MLFD a distribution fee under the Plan at
the end of each month at the annual rate of .75% of the average daily net
assets of the Fund relating to Class B shares to compensate MLFD and securities
firms with which MLFD enters into related agreements ("Sub-Agreements")
pursuant to Paragraph 3 hereof for providing sales and promotional activities
and services. Such activities and services will relate to the sale, promotion
and marketing of the Class B shares of the Fund. Such expenditures may consist
of sales commissions to financial consultants for selling Class B shares of the
Fund, compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and promotional
activities including advertising expenditures related to the Fund and the costs
of preparing and distributing promotional materials.

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

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

5. This Plan shall not take effect until it has been approved by
a vote of at least a majority, as defined in the Investment Company Act, of the
outstanding Class B voting securities of the Fund.

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

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

2
<PAGE> 3
8. This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class
B voting securities of the Fund.

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

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

11. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of this Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.

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

MERRILL LYNCH ASSET GROWTH FUND INC.

By_____________________________________

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By_____________________________________