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<SEC-DOCUMENT>0000905148-05-003825.txt : 20050721
<SEC-HEADER>0000905148-05-003825.hdr.sgml : 20050721
<ACCEPTANCE-DATETIME>20050721102321
ACCESSION NUMBER:		0000905148-05-003825
CONFORMED SUBMISSION TYPE:	N-2
PUBLIC DOCUMENT COUNT:		15
FILED AS OF DATE:		20050721
DATE AS OF CHANGE:		20050721

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MUNIYIELD QUALITY FUND INC
		CENTRAL INDEX KEY:			0000890196
		IRS NUMBER:				223170744
		STATE OF INCORPORATION:			NJ
		FISCAL YEAR END:			1031

	FILING VALUES:
		FORM TYPE:		N-2
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-126755
		FILM NUMBER:		05965188

	BUSINESS ADDRESS:	
		STREET 1:		800 SCUDDER MILL ROAD
		CITY:			PLAINSBORO
		STATE:			NJ
		ZIP:			08536
		BUSINESS PHONE:		6092822800

	MAIL ADDRESS:	
		STREET 1:		P O BOX 9011
		CITY:			PRINCETON
		STATE:			NJ
		ZIP:			08543-9011

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MUNIYIELD QUALITY FUND INC
		CENTRAL INDEX KEY:			0000890196
		IRS NUMBER:				223170744
		STATE OF INCORPORATION:			NJ
		FISCAL YEAR END:			1031

	FILING VALUES:
		FORM TYPE:		N-2
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-06660
		FILM NUMBER:		05965189

	BUSINESS ADDRESS:	
		STREET 1:		800 SCUDDER MILL ROAD
		CITY:			PLAINSBORO
		STATE:			NJ
		ZIP:			08536
		BUSINESS PHONE:		6092822800

	MAIL ADDRESS:	
		STREET 1:		P O BOX 9011
		CITY:			PRINCETON
		STATE:			NJ
		ZIP:			08543-9011
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2
<SEQUENCE>1
<FILENAME>efc5-1587_5732760formn2.txt
<TEXT>
     As filed with the Securities and Exchange Commission on July 21, 2005

                                               Securities Act File No. 333-
                                     Investment Company Act File No. 811-06660

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                             ---------------------
                                   FORM N-2
          [X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                        [ ] PRE-EFFECTIVE AMENDMENT NO.

                       [ ] POST-EFFECTIVE AMENDMENT NO.
                                    AND/OR
                     [X] REGISTRATION STATEMENT UNDER THE
                        INVESTMENT COMPANY ACT OF 1940

                              [X] AMENDMENT NO. 5
                       (Check appropriate box or boxes)
                             ---------------------
                         MUNIYIELD QUALITY FUND, INC.
              (Exact Name of Registrant as Specified in Charter)
                             ---------------------
                            800 Scudders Mill Road
                         Plainsboro, New Jersey 08536
                   (Address of Principal Executive Offices)
                             ---------------------
                                (609) 282-2800
             (Registrant's Telephone Number, Including Area Code)
                             ---------------------
                              Robert C. Doll, Jr.
                         MuniYield Quality Fund, Inc.
             800 Scudders Mill Road, Plainsboro, New Jersey 08536
       Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011
                    (Name and Address of Agent for Service)
                             ---------------------
                                  Copies to:

    Andrew J. Donohue, Esq.                            Frank P. Bruno, Esq.
  FUND ASSET MANAGEMENT, L.P.                     SIDLEY AUSTIN BROWN & WOOD LLP
         P.O. Box 9011                                  787 Seventh Avenue
Princeton, New Jersey 08543-9011                     New York, New York 10019
                             ---------------------
 Approximate date of proposed public offering: As soon as practicable after the
                effective date of this Registration Statement.
                             ---------------------
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [_]


<TABLE>
<CAPTION>
                             ---------------------

       CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                     Proposed Maximum       Proposed Maximum        Amount of
            Title of Securities                 Amount being        Offering Price Per     Aggregate Offering     Registration
             Being Registered                    Registered              Unit (1)               Price (1)            Fee(2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                       <C>                  <C>                   <C>
Auction Market Preferred Stock...........       2,000 shares              $25,000              $50,000,000           $5,885
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.
(2) Transmitted prior to the filing date to the designated lockbox of the
Securities and Exchange Commission at Mellon Bank in Pittsburgh, PA.

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


<PAGE>


                             Subject to Completion
                  Preliminary Prospectus dated July 21, 2005

PROSPECTUS
- ----------

                                  $50,000,000
                         MuniYield Quality Fund, Inc.
                    Auction Market Preferred Stock ("AMPS")

                            2,000 Shares, Series E

                   Liquidation Preference $25,000 per Share
                               ----------------

      MuniYield Quality Fund, Inc. is a non-diversified, closed-end management
investment company seeking to provide shareholders with as high a level of
current income exempt from Federal income taxes as is consistent with its
investment policies and prudent investment management. The Fund seeks to
achieve its investment objective by investing, as a fundamental policy, at
least 80% of an aggregate of the Fund's net assets (including proceeds from
the issuance of preferred stock), plus the amounts of any borrowings for
investment purposes, in a portfolio of municipal obligations the interest on
which, in the opinion of bond counsel to the issuer, is excludable from gross
income for Federal income tax purposes (except that the interest may be
includable in taxable income for purposes of the Federal alternative minimum
tax). The Fund invests in a portfolio of municipal obligations which are rated
high grade (A or better) or, if unrated, are considered by the Fund's
Investment Adviser to be of comparable quality. The Fund may invest in certain
tax exempt securities classified as "private activity bonds," as discussed
within, that may subject certain investors in the Fund to an alternative
minimum tax. There can be no assurance that the Fund's investment objective
will be realized. (continued on following page)

      Investing in the AMPS involves certain risks that are described in the
"Risk Factors and Special Considerations" section beginning on page [ ] of
this prospectus. The minimum purchase amount for the AMPS is $25,000.

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

                                                       Per Share        Total
                                                       ---------    ------------
Public offering price...............................     $25,000     $50,000,000
Underwriting discount...............................        $250        $500,000
Proceeds, before expenses, to the Fund(1)...........     $24,750     $49,500,000

(1)  The estimated offering expenses payable by the Fund are $[150,000].


      The public offering price per share will be increased by the amount of
accumulated dividends, if any, from the date the shares are first issued.

      Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

      One certificate for the AMPS will be ready for delivery to the nominee
of The Depository Trust Company on or about [ ], 2005.

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

                              Merrill Lynch & Co.
                               ----------------

                   The date of this prospectus is [], 2005.

<PAGE>

      (continued from previous page)

      This prospectus contains information you should know before investing,
including information about risks. Please read it before you invest and keep
it for future reference. The Fund's statement of additional information dated
[ ], 2005 contains further information about the Fund and is incorporated by
reference (legally considered to be part of this prospectus) and the table of
contents of the statement of additional information appears on page [ ] of
this prospectus. A copy of the statement of additional information and copies
of the Fund's semi-annual and annual reports may be obtained without charge by
writing to the Fund at its address at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536, or by calling the Fund at (800) 543-6217. In addition, you may
request other information about the Fund or make stockholder inquiries by
calling the Fund toll-free at (800) 543-6217. In addition, the Securities and
Exchange Commission maintains a Web site (http://sec.gov) that contains the
statement of additional information, material incorporated by reference and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. The Fund does not maintain a website.

      Certain capitalized terms used herein not otherwise defined in this
prospectus have the meaning provided in the Glossary at the back of this
prospectus.

<PAGE>

                               TABLE OF CONTENTS

Prospectus Summary.............................................................5
Risk Factors and Special Considerations.......................................11
Financial Highlights..........................................................15
The Fund......................................................................15
Use of Proceeds...............................................................17
Capitalization................................................................18
Portfolio Composition.........................................................18
Investment Objective and Policies.............................................19
Other Investment Policies.....................................................26
Description of AMPS...........................................................30
The Auction...................................................................35
Rating Agency Guidelines......................................................43
Investment Advisory and Management Arrangements...............................44
Taxes 45
Description of Capital Stock..................................................46
Custodian.....................................................................49
Underwriting..................................................................49
Transfer Agent, Dividend Disbursing Agent and Registrar.......................49
Accounting Services Provider..................................................50
Legal Opinions................................................................50
Independent Registered Public Accounting Firm and Experts.....................50
Additional Information........................................................50
Table of Contents of Statement of Additional Information......................51
Glossary......................................................................52

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

      Information about the Fund can be reviewed and copied at the Securities
and Exchange Commission's Public Reference Room in Washington, D.C. Call
1-202-942-8090 for information on the operation of the public reference room.
This information is also available on the Securities and Exchange Commission's
Internet site at http://www.sec.gov and copies may be obtained upon payment of
a duplicating fee by writing to the Public Reference Section of the Securities
and Exchange Commission, Washington, D.C. 20549-0102.

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

      You should rely only on the information contained in this prospectus. We
have not, and the underwriter has not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date
on the front cover of this prospectus. Our business, financial condition,
results of operations and prospects may have changed since that date.



                                      4
<PAGE>


                              PROSPECTUS SUMMARY

      This summary is qualified in its entirety by reference to the detailed
information included in this prospectus and the statement of additional
information.

<TABLE>
<CAPTION>
<S>                       <C>
The Fund                  MuniYield Quality Fund, Inc. is a non-diversified, closed-end management investment
                          company.

The Offering              The Fund is offering a total of 2,000 shares of Auction Market Preferred Stock,
                          Series E, at a purchase price of $25,000 per share plus accumulated dividends, if
                          any, from the date the shares are first issued. The shares of AMPS are being offered
                          by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), as
                          underwriter.

                          The Series E AMPS will be shares of preferred stock of the Fund that entitle their
                          holders to receive cash dividends at an annual rate that may vary for the successive
                          dividend periods. In general, except as described below, each dividend period
                          following the initial dividend period will be seven days. The applicable dividend
                          for a particular dividend period will be determined by an auction conducted on the
                          business day next preceding the start of that dividend period.

                          Investors and potential investors in shares of Series E AMPS may participate in
                          auctions for the AMPS through their broker-dealers.

                          Generally, AMPS investors will not receive certificates representing ownership of
                          their shares. Ownership of AMPS will be maintained in book-entry form by the
                          securities depository (The Depository Trust Company) or its nominee for the account
                          of the investor's agent member (generally the investor's broker-dealer). The
                          investor's agent member, in turn, will maintain records of such investor's
                          beneficial ownership of AMPS.

Investment Objective      The investment objective of the Fund is to provide shareholders with as high a level
and Policies              of current income exempt from Federal income taxes as is consistent with its
                          investment policies and prudent investment management. The Fund seeks to achieve its
                          investment objective by investing, as a fundamental policy, at least 80% of its net
                          assets (including proceeds from the issuance of preferred stock), and the proceeds
                          of any borrowings for investment purposes, in a portfolio of municipal obligations
                          issued by or on behalf of states, territories and possessions of the United States
                          and their political subdivisions, agencies or instrumentalities, each of which pays
                          interest that, in the opinion of bond counsel to the issuer, is excludable from
                          gross income for Federal income tax purposes ("Municipal Bonds"). In general, the
                          Fund does not intend for its investments to earn a large amount of interest income
                          that is not exempt from Federal income tax, except that the interest may be
                          includable in taxable income for purposes of the Federal alternative minimum tax.
                          There can be no assurance that the Fund's investment objective will be realized.

                          Maturity. The average maturity of the Fund's portfolio securities varies from time
                          to time based upon an assessment of economic and market conditions by Fund Asset
                          Management, L.P., the Fund's investment adviser (the "Investment Adviser"). The Fund
                          intends to invest primarily in long term Municipal Bonds (that is, Municipal Bonds
                          with maturities of more than ten years). However, the Fund also may invest in
                          intermediate term Municipal Bonds with remaining maturities of between three years
                          and ten years. The Fund also may invest from time to time in short term Municipal
                          Bonds with remaining maturities of less than three years.

                          High Grade Municipal Bonds. The Fund invests in a portfolio of Municipal Bonds that
                          are rated high grade by one or more nationally recognized statistical rating
                          organizations



                                                       5
<PAGE>

                          ("NRSROs") (A or higher by Moody's Investors Service, Inc. ("Moody's"), Standard &
                          Poor's ("S&P") or Fitch Ratings ("Fitch")), or in unrated bonds considered by the
                          Investment Adviser to be of comparable quality. In assessing the quality of
                          Municipal Bonds, the Investment Adviser takes into account any letters of credit or
                          similar credit enhancement to which particular Municipal Bonds are entitled and the
                          creditworthiness of the financial institution that provided such credit enhancement.

                          Indexed and Inverse Floating Rate Securities. The Fund may invest in securities
                          whose potential returns are directly related to changes in an underlying index or
                          interest rate, known as indexed securities. The return on indexed securities will
                          rise when the underlying index or interest rate rises and fall when the index or
                          interest rate falls. The Fund may also invest in securities whose return is
                          inversely related to changes in an interest rate (inverse floaters). In general,
                          income on inverse floaters will decrease when short term interest rates increase and
                          increase when short term interest rates decrease. Investments in inverse floaters
                          may subject the Fund to the risks of reduced or eliminated interest payments and
                          loss of principal. In addition, certain indexed securities and inverse floaters may
                          increase or decrease in value at a greater rate than the underlying interest rate,
                          which effectively leverages the Fund's investment. As a result, the market value of
                          such securities will generally be more volatile than that of fixed rate, tax exempt
                          securities. Both indexed securities and inverse floaters are derivative securities
                          and can be considered speculative.

                          Hedging Transactions. The Fund may seek to hedge its portfolio against changes in
                          interest rates using options and financial futures contracts or swap transactions.
                          The Fund's hedging transactions are designed to reduce volatility, but come at some
                          cost. For example, the Fund may try to limit its risk of loss from a decline in
                          price of a portfolio security by purchasing a put option. However, the Fund must pay
                          for the option, and the price of the security may not in fact drop. In large part,
                          the success of the Fund's hedging activities depends on its ability to forecast
                          movements in securities prices and interest rates. The Fund is not required to hedge
                          its portfolio and may choose not to do so. The Fund cannot guarantee that any
                          hedging strategies it uses will work.

                          Swap Agreements. The Fund is authorized to enter into swap agreements, which are
                          over-the-counter contracts in which one party agrees to make periodic payments based
                          on the change in the market value of a specific bond, basket of bonds or index in
                          return for periodic payments based on a fixed or variable interest rate or the
                          change in market value of a different bond, basket of bonds or index. Swap
                          agreements may be used to obtain exposure to a bond or market without owning or
                          taking physical custody of securities.

                          Tax Considerations. While exempt-interest dividends are excluded from gross income
                          for Federal income tax purposes, they may be subject to the Federal alternative
                          minimum tax in certain circumstances. Distributions of any capital gain or other
                          taxable income will be taxable to stockholders. The Fund may not be a suitable
                          investment for investors subject to the Federal alternative minimum tax or who would
                          become subject to such tax by investing in the Fund. See "Taxes."

Risk Factors              Set forth below is a summary of the main risks of investing in the Fund's Series E
                          AMPS. For a more detailed description of the main risks as well as certain other
                          risks associated with investing in the Fund's Series E AMPS, see "Risk Factors and
                          Special Considerations."

                          o   The credit ratings of the AMPS could be reduced or terminated while an investor
                              holds the AMPS, which could affect liquidity.

                          o   Neither broker-dealers nor the Fund are obligated to purchase shares of AMPS in
                              an



                                                       6
<PAGE>

                              auction or otherwise, nor is the Fund required to redeem shares of AMPS in the
                              event of a failed auction.

                          o   If sufficient bids do not exist in an auction, the applicable dividend rate will
                              be the maximum applicable dividend rate, and in such event, owners of AMPS
                              wishing to sell will not be able to sell all, and may not be able to sell any,
                              AMPS in the auction. As a result, investors may not have liquidity of
                              investment.

                          o   As a result of bidding by broker-dealers in an auction for their own account,
                              the dividend rate that would apply at the auction may be higher or lower than
                              the rate that would have prevailed had the broker-dealer not bid.

                          o   A broker-dealer may bid in an auction in order to prevent what would otherwise
                              be (i) a failed auction, (ii) an "all-hold" auction, or (iii) an applicable
                              dividend rate that the broker-dealer believes, in its sole discretion, does not
                              reflect the market for the AMPS at the time of the auction.

                          o   The relative buying and selling interest of market participants in AMPS and in
                              the auction rate securities market as a whole will vary over time, and such
                              variations may be affected by, among other things, news relating to the issuer,
                              the attractiveness of alternative investments, the perceived risk of owning the
                              security (whether related to credit, liquidity or any other risk), the tax
                              treatment accorded the instruments, the accounting treatment accorded auction
                              rate securities, including recent clarifications of U.S. generally accepted
                              principles relating to the treatment of auction rate securities, reactions to
                              regulatory actions or press reports, financial reporting cycles and market
                              sentiment generally. Shifts of demand in response to any one or simultaneous
                              particular events cannot be predicted and may be short-lived or exist for longer
                              periods.

                          o   Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") has advised
                              the Fund that it and various other broker-dealers and other firms that
                              participate in the auction rate securities market received letters from the
                              staff of the Securities and Exchange Commission last spring. The letters
                              requested that each of these firms voluntarily conduct an investigation
                              regarding its respective practices and procedures in that market. Pursuant to
                              this request, Merrill Lynch conducted its own voluntary review and reported its
                              findings to the Securities and Exchange Commission staff. At the Securities and
                              Exchange Commission staff's request, Merrill Lynch, together with certain other
                              broker-dealers and other firms that participate in the auction rate securities
                              market, is engaging in discussions with the Securities and Exchange Commission
                              staff concerning its inquiry. Neither Merrill Lynch nor the Fund can predict the
                              ultimate outcome of the inquiry or how that outcome will affect the market for
                              the AMPS or the auctions.

                          o   Broker-dealers have no obligation to maintain a secondary trading market in the
                              AMPS outside of auctions and there can be no assurance that a secondary market
                              for the AMPS will develop or, if it does develop, that it will provide holders
                              with a liquid trading market. An increase in the level of interest rates likely
                              will have an adverse effect on the secondary market price of the AMPS, and a
                              selling stockholder may have to sell AMPS between auctions at a price per share
                              of less than $25,000.

                          o   The Fund will issue the AMPS only if the AMPS have received a rating of Aaa from
                              Moody's and AAA from S&P. Under certain circumstances, the Fund may voluntarily
                              terminate compliance with Moody's or S&P guidelines, or both, in which case the
                              AMPS may no longer be rated by Moody's or S&P, as applicable, but will



                                                       7
<PAGE>

                              be rated by at least one rating agency.

                          o   The Fund issues shares of AMPS, which generally pay dividends based on short
                              term interest rates. The Fund generally will purchase Municipal Bonds that pay
                              interest at fixed or adjustable rates. If market interest rates rise, this could
                              negatively impact the value of the Fund's investment portfolio, reducing the
                              amount of assets serving as asset coverage for the AMPS. If the asset coverage
                              becomes too low, the Fund may be required to redeem some or all of the shares of
                              AMPS.

                          o   The Fund is registered as a "non-diversified" investment company, the Fund may
                              invest a greater percentage of its assets in a single issuer than a diversified
                              investment company. Since the Fund may invest a relatively high percentage of
                              its assets in a limited number of issuers, the Fund may be more exposed to any
                              single economic, political or regulatory occurrence than a more widely
                              diversified fund.

                          o   The amount of public information available about Municipal Bonds in the Fund's
                              portfolio is generally less than that for corporate equities or bonds, and the
                              investment performance of the Fund may, therefore, be more dependent on the
                              analytical abilities of the Investment Adviser than the performance of a stock
                              fund or taxable bond fund.

                          o   The Fund's investments in Municipal Bonds are subject to interest rate and
                              credit risk. Interest rate risk is the risk that prices of Municipal Bonds
                              generally increase when interest rates decline and decrease when interest rates
                              increase. Prices of the longer term securities in which the Fund primarily
                              invests generally change more in response to changes in interest rates than
                              prices of shorter term securities. Credit risk is the risk that the issuer will
                              be unable to pay the interest or principal when due. Changes in an issuer's
                              credit rating or the market's perception of an issuer's creditworthiness may
                              affect the value of the Fund's investment in that issuer.

Investment Adviser        The Investment Adviser provides investment advisory and administrative services to
                          the Fund. For its services, the Fund pays the Investment Adviser a monthly fee at
                          the annual rate of 0.50% of the Fund's average weekly net assets (including any
                          proceeds from the issuance of preferred stock).

Dividends                 Dividends on the Series E AMPS will be cumulative from the date the shares are first
and Dividend Periods      issued and payable at the annualized cash dividend rate for the initial dividend
                          period on the initial dividend payment date as follows:

                                                             Initial        Initial Dividend Period     Initial Dividend Payment
                                   AMPS Series            Dividend Rate              Ending                       Date
                          ---------------------------     -------------     -----------------------     ------------------------
                          Series E...................          [ ]%         [ ], 2005                   [ ], 2005

                          After the initial dividend period, each dividend period for the Series E AMPS will
                          generally consist of seven days; provided however, that before any auction, the Fund
                          may decide, subject to certain limitations and only if it gives notice to holders,
                          to declare a special dividend period of up to five years.

                          After the initial dividend period, in the case of dividend periods that are not
                          special dividend periods, dividends generally will be payable on each succeeding
                          Monday.

                          Dividends for the Series E AMPS will be paid through the securities depository (The



                                                       8
<PAGE>

                          Depository Trust Company) on each dividend payment date for the AMPS.

                          For each subsequent dividend period, the auction agent (The Bank of New York) will
                          hold an auction to determine the cash dividend rate on the shares of the Series E
                          AMPS.

Determination of          Generally, the applicable dividend rate for any dividend period for the Series E
Maximum Dividend          AMPS will not be more than the maximum applicable rate attributable to such shares.
Rates                     The maximum applicable rate for the Series E AMPS will be the higher of (A) the
                          applicable percentage of the reference rate on the auction date or (B) the
                          applicable spread plus the reference rate on the auction date. The reference rate is
                          (A) the higher of the applicable LIBOR Rate (as defined in the Glossary) and the
                          Taxable Equivalent of the Short-Term Municipal Bond Rate (as defined in the
                          Glossary) (for a dividend period or special dividend period of 364 or fewer days),
                          or (B) the applicable Treasury Index Rate (as defined in the Glossary)(for a special
                          dividend period of 365 days or more). The maximum applicable rate for the AMPS will
                          depend on the credit rating assigned to the shares, the length of the dividend
                          period and whether or not the Fund has given notification prior to the auction for
                          the dividend period that any taxable income will be included in the dividend on the
                          AMPS for that dividend period. The applicable percentage and applicable spread are
                          as follows:

                                                             Applicable      Applicable      Applicable     Applicable
                                   Credit Ratings            Percentage      Percentage     Spread Over    Spread Over
                          -------------------------------   of Reference    of Reference     Reference      Reference
                                                              Rate-No           Rate-         Rate-No         Rate-
                             Moody's             S&P        Notification    Notification    Notification   Notification
                          ------------       ------------   ------------    ------------    ------------   ------------
                              Aaa               AAA             110%            125%          1.10%          1.25%
                           Aa3 to Aa1        AA- to AA+         125%            150%          1.25%          1.50%
                            A3 to A1          A- to A+          150%            200%          1.50%          2.00%
                          Baa3 to Baa1      BBB- to BBB+        175%            250%          1.75%          2.50%
                           Below Baa3        Below BBB-         200%            300%          2.00%          3.00%

                          The applicable percentage and the applicable spread as so determined may be subject
                          to upward but not downward adjustment in the discretion of the Board of Directors of
                          the Fund after consultation with the broker-dealers participating in the auction for
                          the AMPS.

                          There is no minimum applicable dividend rate for any dividend period.

Other AMPS                The Fund has outstanding 8,000 shares of four other series of Auction Market
                          Preferred Stock, each with a liquidation preference of $25,000 per share, plus
                          accumulated but unpaid dividends, for an aggregate initial liquidation preference of
                          $200,000,000 (the "Other AMPS"). The Other AMPS are as follows: 2,000 shares of
                          Auction Market Preferred Stock, Series A; 2,000 shares of Auction Market Preferred
                          Stock, Series B; 2,000 shares of Auction Market Preferred Stock, Series C; and 2,000
                          shares of Auction Market Preferred Stock, Series D. The Series E AMPS offered hereby
                          rank on a parity with the Other AMPS with respect to dividends and liquidation
                          preference.

Asset Maintenance         Under the Fund's Articles Supplementary creating the Series E AMPS (the "Articles
                          Supplementary"), the Fund must maintain:

                          o   asset coverage of the AMPS and Other AMPS as required by the rating agencies
                              rating the AMPS, and

                          o   asset coverage of the AMPS and Other AMPS of at least 200% as required by the
                              Investment Company Act of 1940 (the "1940 Act").



                                      9
<PAGE>

                          The Fund estimates that, based on the composition of its portfolio at April 30,
                          2005, asset coverage of the AMPS and Other AMPS as required by the 1940 Act would be
                          approximately [287]% immediately after the Fund issues the shares of AMPS offered by
                          this prospectus representing approximately [35]% of the Fund's capital, or
                          approximately [53]% of the Fund's common stock equity, immediately after the
                          issuance of such AMPS.

Mandatory Redemption      If the required asset coverage is not maintained or, when necessary, restored, the
                          Fund must redeem shares of the Series E AMPS at the price of $25,000 per share plus
                          accumulated but unpaid dividends thereon (whether or not earned or declared). The
                          provisions of the 1940 Act may restrict the Fund's ability to make such a mandatory
                          redemption.

Optional Redemption       The Fund may, at its option, choose to redeem all or a portion of the shares of AMPS
                          on any dividend payment date at the price of $25,000 per share, plus accumulated but
                          unpaid dividends thereon (whether or not earned or declared) plus any applicable
                          premium.

Liquidation               The liquidation preference (that is, the amount the Fund must pay to holders of
Preference                AMPS if the Fund is liquidated) of each share of AMPS will be $25,000, plus an
                          amount equal to accumulated but unpaid dividends (whether or not earned or
                          declared).

Ratings                   The AMPS will be issued with a rating of Aaa from Moody's and AAA from S&P.

Voting Rights             The 1940 Act requires that the holders of AMPS and any other preferred stock,
                          including the Other AMPS, voting as a separate class, have the right to elect at least
                          two directors at all times and to elect a majority of the directors at any time when
                          dividends on the AMPS or any other preferred stock, including the Other AMPS, are
                          unpaid for two full years. The Fund's Charter, the 1940 Act and the General
                          Corporation Laws of the State of Maryland require holders of AMPS and any other
                          preferred stock, including the Other AMPS, to vote as a separate class on certain
                          other matters.
</TABLE>



                                      10
<PAGE>

                    RISK FACTORS AND SPECIAL CONSIDERATIONS

      An investment in the Fund's AMPS should not constitute a complete
investment program.

      Set forth below are the main risks of investing in the Fund's AMPS.

      Investment Considerations. Investors in AMPS should consider the
following factors:

o     The credit ratings of the AMPS could be reduced or terminated while an
      investor holds the AMPS, which could affect liquidity.

o     Neither broker-dealers nor the Fund are obligated to purchase shares of
      AMPS in an auction or otherwise, nor is the Fund required to redeem
      shares of AMPS in the event of a failed auction.

o     If sufficient bids do not exist in an auction, the applicable dividend
      rate will be the maximum applicable dividend rate, and in such event,
      owners of AMPS wishing to sell will not be able to sell all, and may not
      be able to sell any, AMPS in the auction. As a result, investors may not
      have liquidity of investment.

o     Broker-dealers may submit orders in auctions for the AMPS for their own
      account. If a broker-dealer submits an order for its own account in any
      auction, it may have knowledge of orders placed through it in that
      auction and therefore have an advantage over other bidders, but such
      broker-dealer would not have knowledge of orders submitted by other
      broker-dealers in that auction. As a result of bidding by a
      broker-dealer in an auction, the dividend rate that would apply at the
      auction may be higher or lower than the rate that would have prevailed
      had the broker-dealer not bid.

o     A broker-dealer may bid in an auction in order to prevent what would
      otherwise be (i) a failed auction, (ii) an "all-hold" auction, or (iii)
      an applicable dividend rate that the broker-dealer believes, in its sole
      discretion, does not reflect the market for the AMPS at the time of the
      auction. A broker-dealer may, but is not obligated to, advise owners of
      AMPS that the dividend rate that would apply in an "all-hold" auction
      may be lower than would apply if owners submit bids and such advice, if
      given, may facilitate the submission of bids by owners that would avoid
      the occurrence of an "all-hold" auction.

o     The relative buying and selling interest of market participants in AMPS
      and in the auction rate securities market as a whole will vary over
      time, and such variations may be affected by, among other things, news
      relating to the issuer, the attractiveness of alternative investments,
      the perceived risk of owning the security (whether related to credit,
      liquidity or any other risk), the tax treatment accorded the
      instruments, the accounting treatment accorded auction rate securities,
      including recent clarifications of U.S. generally accepted principles
      relating to the treatment of auction rate securities, reactions to
      regulatory actions or press reports, financial reporting cycles and
      market sentiment generally. Shifts of demand in response to any one or
      simultaneous particular events cannot be predicted and may be
      short-lived or exist for longer periods.

o     Merrill Lynch has advised the Fund that it and various other
      broker-dealers and other firms that participate in the auction rate
      securities market received letters from the staff of the Securities and
      Exchange Commission last spring. The letters requested that each of
      these firms voluntarily conduct an investigation regarding its
      respective practices and procedures in that market. Pursuant to this
      request, Merrill Lynch conducted its own voluntary review and reported
      its findings to the Securities and Exchange Commission staff. At the
      Securities and Exchange Commission staff's request, Merrill Lynch,
      together with certain other broker-dealers and other firms that
      participate in the auction rate securities market, is engaging in
      discussions with the Securities and Exchange Commission staff concerning
      its inquiry. Neither Merrill Lynch nor the Fund can predict the ultimate
      outcome of the inquiry or how that outcome will affect the market for
      the AMPS or the auctions.



                                      11
<PAGE>

      Secondary Market. Broker-dealers have no obligation to maintain a
secondary trading market in the AMPS outside of auctions and there can be no
assurance that a secondary market for the AMPS will develop or, if it does
develop, that it will provide holders with a liquid trading market. The AMPS
will not be registered on any stock exchange or on any automated quotation
system. An increase in the level of interest rates likely will have an adverse
effect on the secondary market price of the AMPS, and a selling stockholder
may have to sell AMPS between auctions at a price per share of less than
$25,000.

      Rating Agencies. The Fund will issue the AMPS only if the AMPS have
received a rating of Aaa from Moody's and AAA from S&P. As a result of such
ratings the Fund will be subject to guidelines of Moody's, S&P or another
substitute NRSRO that may issue ratings for its preferred stock. These
guidelines may impose asset coverage or portfolio composition requirements
that are more stringent than those imposed by the 1940 Act and may prohibit or
limit the use by the Fund of certain portfolio management techniques or
investments. The Fund does not expect these guidelines to prevent the
Investment Adviser from managing the Fund's portfolio in accordance with the
Fund's investment objective and policies. Also, under certain circumstances,
the Fund may voluntarily terminate compliance with Moody's or S&P's
guidelines, or both, in which case the AMPS may no longer be rated by Moody's
or S&P, as applicable, but will be rated by at least one rating agency.

      Non-Diversification. The Fund is registered as a "non-diversified"
investment company. This means that the Fund may invest a greater percentage
of its assets in a single issuer than a diversified investment company. Since
the Fund may invest a relatively high percentage of its assets in a limited
number of issuers, the Fund may be more exposed to any single economic,
political or regulatory occurrence than a more widely diversified fund. Even
as a non-diversified fund, the Fund must still meet the diversification
requirements applicable to regulated investment companies under the Federal
income tax laws.

      Interest Rate Risk and AMPS. The Fund issues shares of AMPS, which
generally pay dividends based on short-term interest rates. The Fund generally
will purchase Municipal Bonds that pay interest at fixed or adjustable rates.
If short-term interest rates rise, dividend rates on the shares of AMPS may
rise so that the amount of dividends paid to the holders of shares of AMPS
exceeds the income from the Fund's portfolio securities. Because income from
the Fund's entire investment portfolio (not just the portion of the portfolio
purchased with the proceeds of the AMPS offering) is available to pay
dividends on the shares of AMPS, dividend rates on the shares of AMPS would
need to greatly exceed the Fund's net portfolio income before the Fund's
ability to pay dividends on the shares of AMPS would be jeopardized. If market
interest rates rise, this could negatively impact the value of the Fund's
investment portfolio, reducing the amount of assets serving as asset coverage
for the AMPS. If the asset coverage becomes too low, the Fund may be required
to redeem some or all of the shares of AMPS.

      Market Risk and Selection Risk. Market risk is the risk that the bond
market will go down in value, including the possibility that the market will
go down sharply and unpredictably. Selection risk is the risk that the
securities that Fund management selects will underperform the bond market, the
market relevant indices, or other funds with similar investment objectives and
investment strategies.

      Tax Exempt Securities Market Risk. The amount of public information
available about Municipal Bonds in the Fund's portfolio is generally less than
that for corporate equities or bonds, and the investment performance of the
Fund may therefore be more dependent on the analytical abilities of the
Investment Adviser than that of a stock fund or taxable bond fund.

      Interest Rate and Credit Risk. The Fund invests in Municipal Bonds,
which are subject to interest rate and credit risk. Interest rate risk is the
risk that prices of Municipal Bonds generally increase when interest rates
decline and decrease when interest rates increase. Prices of longer term
securities generally change more in response to interest rate changes than
prices of shorter term securities. The Fund's use of leverage by the issuance
of preferred stock and its investment in inverse floating obligations, as
discussed below, may increase interest rate risk. Because market interest
rates are currently near their lowest levels in many years, there is a greater
risk that the Fund's portfolio will decline in value if interest rates
increase in the future. Changes in an issuer's credit rating or the market's
perception of an issuer's creditworthiness may affect the value of the Fund's
investment in that issuer. Credit risk is the risk that the issuer will be
unable to pay the interest or principal when due. The degree of credit



                                      12
<PAGE>

risk depends on both the financial condition of the issuer and the terms of
the obligation.

Set forth below are certain other risks associated with investing in the
Fund's AMPS.

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

      Reinvestment Risk. Reinvestment risk is the risk that income from the
Fund's Municipal Bond portfolio will decline if and when the Fund invests the
proceeds from matured, traded or called bonds at market interest rates that
are below the portfolio's current earnings rate. A decline in income could
negatively affect the Fund's yield, return or the market price of the common
stock.

      Private Activity Bonds. The Fund may invest in certain tax exempt
securities classified as "private activity bonds." These bonds may subject
certain investors in the Fund to the Federal alternative minimum tax.

      Liquidity of Investments. Certain Municipal Bonds in which the Fund
invests may lack an established secondary trading market or are otherwise
considered illiquid. Liquidity of a security relates to the ability to easily
dispose of the security and the price to be obtained and does not generally
relate to the credit risk or likelihood of receipt of cash at maturity.
Illiquid securities may trade at a discount from comparable, more liquid
investments.

      Portfolio Strategies. The Fund may engage in various portfolio
strategies both to seek to increase the return of the Fund and to seek to
hedge its portfolio against adverse effects from movements in interest rates
and in the securities markets. These portfolio strategies include the use of
derivatives, such as indexed securities, inverse securities, options, futures,
options on futures, interest rate swap transactions and credit default swaps.
Such strategies subject the Fund to the risk that, if the Investment Adviser
incorrectly forecasts market values, interest rates or other applicable
factors, the Fund's performance could suffer. Certain of these strategies such
as investments in inverse securities and credit default swaps may provide
investment leverage to the Fund's portfolio. The Fund is not required to use
derivatives or other portfolio strategies to seek to increase return or to
seek to hedge its portfolio and may choose not to do so. There can be no
assurance that the Fund's portfolio strategies will be effective. Some of the
derivative strategies that the Fund may use to seek to increase its return are
riskier than its hedging transactions and have speculative characteristics.
Such strategies do not attempt to limit the Fund's risk of loss.

      General Risks Related to Derivatives. Derivatives are financial
contracts or instruments whose value depends on, or is derived from, the value
of an underlying asset, reference rate or index (or relationship between two
indices). The Fund may invest in a variety of derivative instruments for
investment purposes, hedging purposes or to seek to increase its return, such
as options, futures contracts and swap agreements. The Fund may use
derivatives as a substitute for taking a position in an underlying security or
other asset and/or as part of a strategy designed to reduce exposure to other
risks, such as interest rate risk. The Fund also may use derivatives to add
leverage to the portfolio and/or to hedge against increases in the Fund's
costs associated with the dividend payments on the preferred stock, including
the AMPS. The Fund also may invest in certain derivative products that pay tax
exempt income interest via a trust or partnership through which the Fund holds
interests in one or more underlying long term municipal securities. The Fund's
use of derivative instruments involves risks different from, and possibly
greater than, the risks associated with investing directly in securities and
other traditional investments. Derivatives are subject to a number of risks
such as liquidity risk, interest rate risk, credit risk, leverage risk and
management risk. They also involve the risk of mispricing or improper
valuation and correlation risk (i.e., the risk that changes in the value of
the derivative may not correlate perfectly with the underlying asset, rate or
index). If the Fund invests in a derivative instrument it could lose more than
the principal amount invested. Moreover, derivatives raise certain tax, legal,
regulatory and accounting issues that may not be presented by investments in
Municipal Bonds, and there is some risk that certain issues could be resolved
in a manner that could adversely impact the performance of the Fund and/or the
tax exempt nature of the dividends paid by the Fund.

Also, suitable derivative transactions may not be available in all
circumstances and there can be no assurance that the Fund will engage in these
transactions to reduce exposure to other risks when that would be beneficial.



                                      13
<PAGE>

      Swaps. Swap agreements are types of derivatives. In order to seek to
hedge the value of the Fund's portfolio, to hedge against increases in the
Fund's cost associated with the dividend payments on preferred stock,
including the AMPS, or to seek to increase the Fund's return, the Fund may
enter into interest rate or credit default swap transactions. In interest rate
swap transactions, there is a risk that yields will move in the direction
opposite of the direction anticipated by the Fund, which would cause the Fund
to make payments to its counterparty in the transaction that could adversely
affect Fund performance. In addition to the risks applicable to swaps
generally, credit default swap transactions involve special risks because they
are difficult to value, are highly susceptible to liquidity and credit risk,
and generally pay a return to the party that has paid the premium only in the
event of an actual default by the issuer of the underlying obligation (as
opposed to a credit downgrade or other indication of financial difficulty).
The Fund is not required to enter into interest rate or credit default swap
transactions for hedging purposes or to enhance its return and may choose not
to do so.

      Taxability Risk. The Fund intends to minimize the payment of taxable
income to stockholders by investing in Municipal Bonds and other tax exempt
securities in reliance on an opinion of bond counsel to the issuer that the
interest paid on those securities will be excludable from gross income for
Federal income tax purposes. Such securities, however, may be determined for
Federal income tax purposes to pay, or to have paid, taxable income subsequent
to the Fund's acquisition of the securities. In that event, the Internal
Revenue Service may demand that the Fund pay taxes on the affected interest
income, and, if the Fund agrees to do so, the Fund's yield on its common stock
could be adversely affected. A determination that interest on a security held
by the Fund is includable in gross income for Federal income tax purposes
retroactively to its date of issue may, likewise, cause a portion of prior
distributions received by stockholders, including holders of AMPS, to be
taxable to those stockholders in the year of receipt. The Fund will not pay an
Additional Dividend (as defined herein) to a holder of AMPS under these
circumstances.

      Antitakeover Provisions. The Fund's Charter, By-laws and the General
Corporation Law of the State of Maryland include provisions that could limit
the ability of other entities or persons to acquire control of the Fund or to
change the composition of its Board of Directors. Such provisions could limit
the ability of stockholders to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
the Fund. See "Description of Capital Stock--Certain Provisions of the Charter
and By-laws."

      Market Disruption. The terrorist attacks in the United States on
September 11, 2001 had a disruptive effect on the securities markets, some of
which were closed for a four-day period. The continued threat of similar
attacks and related events, including U.S. military actions in Iraq and
continued unrest in the Middle East, have led to increased short term market
volatility and may have long term effects on U.S. and world economies and
markets. Similar disruptions of the financial markets could adversely affect
the market prices of the Fund's portfolio securities, interest rates,
auctions, secondary trading, ratings, credit risk, inflation and other factors
relating to the Fund's AMPS.



                                      14
<PAGE>

FINANCIAL HIGHLIGHTS

      The following Financial Highlights table is intended to help you
understand the Fund's financial performance for the periods shown. Certain
information reflects financial results for a single share of common stock or
preferred stock of the Fund. The total returns in the table represent the rate
an investor would have earned or lost on an investment in shares of common
stock of the Fund (assuming reinvestment of all dividends). The information
with respect to the fiscal years October 31, 1995 to October 31, 2004 has been
audited by ______________, whose report for the fiscal year ended October 31,
2004, along with the financial statements of the Fund, is included in the
Fund's 2004 Annual Report, which is incorporated by reference herein. The
information with respect to the six months ended April 30, 2005 is unaudited
and is included in the Fund's 2005 Semi-Annual Report, which is incorporated
by reference herein. You may obtain a copy of the Fund's 2004 Annual Report
and the 2005 Semi-Annual Report at no cost by calling (800) 543-6217 between
8:30 a.m. and 5:30 p.m. Eastern time on any business day.

The following per share data and ratios have been derived from information
provided in the financial statements.



                                      15
<PAGE>

<TABLE>
<CAPTION>
                                   For the
                                 Six Months
                                    Ended
                                  April 30,
                                             --------------------------------------------------------------------------------------
                                    2005
                                 (unaudited)  2004    2003    2002   2001##    2000##  1999##    1998##    1997    1996    1995
                                 --------------------------------------------------------------------------------------------------
<S>                              <C>         <C>     <C>     <C>     <C>       <C>     <C>       <C>       <C>     <C>     <C>
Per Share Operating Performance
   Net asset value, beginning of
   period                          $15.54    $15.36  $15.19  $15.27  $14.18    $13.54   $15.58   $15.17   $14.57  $14.58   $13.16
                                 --------------------------------------------------------------------------------------------------
   Investment income -- net           .50+     1.03+   1.07+   1.06    1.06      1.07     1.07     1.12     1.13    1.14     1.15
   Realized and unrealized gain
     (loss) -- net                   (.08)      .19     .13    (.13)   1.08       .66    (2.04)     .40      .59    (.01)    1.43
   Less dividends and
    distributions to Preferred
    Stock shareholders:
    Investment income -- net         (.06)     (.07)   (.07)   (.09)   (.21)     (.27)    (.21)    (.23)       --      --       --
                                 --------------------------------------------------------------------------------------------------
    Realized Gain                       --        --      --     --++     --        --       --       --       --      --       --
   Total from investment
   operations                         .36      1.15    1.13     .84    1.93      1.46    (1.18)    1.29     1.72    1.15     2.58
                                 --------------------------------------------------------------------------------------------------
   Less dividends and
    distributions to Common
    Stock shareholders:
    Investment income -- net         (.49)     (.97)   (.96)   (.91)   (.84)     (.82)    (.86)    (.88)    (.89)   (.90)    (.89)
    Realized gain -- net                --        --      --   (.01)      --        --       --       --       --      --    (.02)
    In excess of realized gain on
       investments -- net               --        --      --      --      --        --       --       --       --      --      --++
                                 --------------------------------------------------------------------------------------------------
   Total dividends and
    distributions to
    Common Stock shareholders        (.49)     (.97)   (.96)   (.92)   (.84)     (.82)    (.86)    (.88)    (.89)   (.90)    (.91)
                                 --------------------------------------------------------------------------------------------------
   Effect of Preferred Stock
    activity:
    Dividends and distributions
      to Preferred Stock
      shareholders:
    Investment income -- net            --        --      --      --      --        --       --       --    (.23)   (.24)    (.25)
                                 --------------------------------------------------------------------------------------------------
    Realized gain -- net                --        --      --      --      --        --       --       --       --      --+     --++
    In excess of realized gain --
       net                              --        --      --      --      --        --       --       --       --      --      --++
                                 --------------------------------------------------------------------------------------------------
   Total Effect of Preferred
    Stock activity                      --        --      --      --      --        --       --       --    (.23)   (.24)    (.25)
                                 --------------------------------------------------------------------------------------------------
   Net asset value, end of
    period                         $15.41    $15.54  $15.36  $15.19  $15.27    $14.18   $13.54   $15.58   $15.17  $14.57   $14.58
                                 ==================================================================================================
   Market price per share, end
    of period                      $14.54    $14.83  $14.35  $13.74  $14.24  $12.0625 $12.0625 $15.5625 $14.4375 $12.875  $12.625
                                 ==================================================================================================
Total Investment Return**
   Based on net asset value per
    share                           2.50%     8.26%   8.13%   6.12%  14.46%    12.09%   (7.62%)   8.93%   11.03%   6.93%   19.34%
                                 ==================================================================================================
   Based on market price per
    share                           1.34%    10.58%  11.68%   2.94%  25.47%    7.037%  (17.61%)  14.33%   19.58%   9.12%   23.63%
                                 ==================================================================================================
Ratios Based on Average Net
   Assets of Common Stock
   Total expenses, net of
    reimbursement***                 .94%*     .94%    .94%    .96%    .98%      .99%     .95%     .91%     .94%    .96%     .97%
                                 ==================================================================================================
   Total expenses***                 .94%*     .95%    .95%    .96%    .98%      .99%     .95%     .91%     .94%    .96%     .97%
                                 ==================================================================================================
   Total investment income --
    net***                          6.55%*    6.74%   6.89%   7.03%   7.18%     7.74%    7.17%    7.30%    7.69%   7.79%    8.28%
                                 ==================================================================================================
   Amount of dividends to
    Preferred Stock
    shareholders                     .77%*     .45%    .42%    .61%   1.45%     1.94%    1.41%    1.50%    1.56%   1.64%    1.78%
                                 ==================================================================================================
   Investment income -- net, to
    Common Stock shareholders       5.78%*    6.29%   6.47%   6.42%   5.73%     5.81%    5.76%    5.80%    6.13%   6.15%    6.50%
                                 ==================================================================================================
</TABLE>



                                                                 16
<PAGE>

(continued from prior page)

<TABLE>
<CAPTION>
                                   For the
                                 Six Months
                                    Ended
                                  April 30,
                                             --------------------------------------------------------------------------------------
                                    2005
                                 (unaudited)  2004    2003    2002   2001##    2000##  1999##    1998##    1997    1996    1995
                                 --------------------------------------------------------------------------------------------------

                                 ==================================================================================================
<S>                              <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Ratios Based on Average Net
   Assets of Preferred Stock
   Dividends to Preferred Stock
    shareholders                    1.81%*   1.04%     .99%    1.40%    3.27%    4.03%    3.21%    3.51%    3.51%    3.61%    3.78%
                                 ==================================================================================================
Supplemental Data
   Net assets applicable to
    Common Stock, end of period
    (in thousands)               $468,970 $472,848 $467,370 $462,156 $464,522 $431,471 $411,883 $473,898 $461,647 $443,154 $443,718
                                 ==================================================================================================
   Preferred Stock outstanding,
    end of period (in
    thousands)                   $200,000 $200,000 $200,000 $200,000 $200,000 $200,000 $200,000 $200,000 $200,000 $200,000 $200,000
                                 ==================================================================================================
   Portfolio turnover              14.76%   32.87%   33.92%   46.29%   89.58%   51.19%   91.78%   42.95%   36.87%   68.22%   57.56%
                                 ==================================================================================================
Leverage:
                                 ==================================================================================================
Asset coverage per $1,000          $3,345   $3,364   $3,337   $3,311   $3,323   $3,157   $3,059   $3,369   $3,308   $3,216   $3,219
                                 ==================================================================================================
Liquidation preference per share $25,000   $25,000  $25,000  $25,000  $25,000  $25,000  $25,000  $25,000  $25,000  $25,000  $25,000
                                 ==================================================================================================
Average market value per share#  $25,000   $25,000  $25,000  $25,000  $25,000  $25,000  $25,000  $25,000  $25,000  $25,000  $25,000
                                 ==================================================================================================
Dividends Per Share on Preferred
   Stock Outstanding
Series A - Investment income --
   net                               $213     $271     $273     $370     $852   $1,024     $824     $961     $864     $953     $961
                                 ==================================================================================================
Series B - Investment income --
   net                               $225     $255     $238     $337     $792   $1,015     $779     $879     $892     $880     $917
                                 ==================================================================================================
Series C - Investment income --
   net                               $243     $261     $253     $349     $832     $999     $809     $815     $884     $888     $977
                                 ==================================================================================================
Series D - Investment income --
   net                               $224     $251     $228     $339     $791   $1,002     $787     $856     $873     $885     $921
                                 ==================================================================================================
</TABLE>

*   Annualized.
**  Total investment returns based on market value, which can be significantly
    greater or less than the net asset value, may result in substantially
    different returns. Total investment returns exclude the effects of sales
    charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+   Based on average shares outstanding.
++  Amount is less than $(.01) per shares.
++  Aggregate total investment return.
#   Based on monthly market value per share
##  Certain prior year amounts have been reclassified to conform to current
    year presentation.

                                   THE FUND

      MuniYield Quality Fund, Inc. (the "Fund") is a non-diversified,
closed-end fund. The Fund was incorporated under the laws of the State of
Maryland on May 5, 1992, and has registered under the Investment Company Act
of 1940, as amended ("1940 Act"). The Fund's principal executive office is
located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and its
telephone number is (609) 282-2800.

      The Board of Directors of the Fund may at any time consider a merger,
consolidation or other form of reorganization of the Fund with one or more
other investment companies advised by Fund Asset Management, L.P. (the
"Investment Adviser") that have similar investment objectives and policies as
the Fund. Any such merger, consolidation or other form of reorganization would
require the prior approval of the Board of Directors and, if the Fund is the
acquired fund, the stockholders of the Fund. See "Description of Capital Stock
- -- Certain Provisions of the Charter and By-laws."

                                USE OF PROCEEDS

      The net proceeds of this offering will be approximately $[49,350,000]
after payment of offering expenses (estimated to be approximately $[150,000])
and the deduction of the underwriting discount.

      The net proceeds of the offering will be invested in accordance with the
Fund's investment objective and policies within approximately three months
after completion of this offering, depending on market conditions and the
availability of appropriate securities. Pending such investment, it is
anticipated that the proceeds will be invested in short term, tax exempt
securities. See "Investment Objective and Policies."



                                      17
<PAGE>

                                CAPITALIZATION

      The following table sets forth the unaudited capitalization of the Fund
as of April 30, 2005 and as adjusted to give effect to the issuance of the
shares of AMPS offered hereby.

<TABLE>
<CAPTION>
                                                                                    Actual            As Adjusted
                                                                               ------------------  ------------------
<S>                                                                            <C>                 <C>
Preferred Stock, par value $.05 per share (8,000 shares of Other AMPS
   authorized, issued and outstanding at $25,000 per share liquidation
   preference, plus accumulated but unpaid dividends; 10,000 shares of AMPS
   and Other AMPS authorized, issued and outstanding, as adjusted, at $25,000
   per share liquidation preference, plus accumulated but unpaid
   dividends).............................................................       $200,024,220          $250,024,220
                                                                               ==================  ==================

Common stock, par value $.10 per share (199,992,000 shares authorized,
   30,425,258 shares issued and outstanding; 199,990,000 shares authorized,
   30,425,258 shares issued and outstanding, as adjusted).................       $   3,042,526        $   3,042,526
   Paid-in capital in excess of par value.................................         423,867,385          423,217,385
   Undistributed investment income--net....................................          5,870,848            5,870,848
   Accumulated realized capital losses--net................................         (8,409,058)          (8,409,058)
   Unrealized appreciation--net............................................         44,598,613           44,598,613
                                                                               ------------------  ------------------

Net assets applicable to outstanding common stock.........................        $468,970,314         $468,320,314
                                                                               ==================  ==================
</TABLE>


                             PORTFOLIO COMPOSITION

      As of April 30, 2005, approximately [99.15]% of the market value of the
Fund's portfolio was invested in long term and intermediate term municipal
obligations and approximately [0.85]% of the market value of the Fund's
portfolio was invested in short term tax exempt securities. The following
table sets forth certain information with respect to the composition of the
Fund's long term and intermediate term municipal obligations investment
portfolio as of April 30, 2005.

<TABLE>
<CAPTION>
                                                                                    Value (in
         Moody's*                          S&P*              Number of Issues       thousands)           Percent
- ---------------------------------   --------------------    ------------------  ------------------  -----------------
<S>                                 <C>                     <C>                 <C>                 <C>
            Aaa                            AAA                      127               $534,519           87.95%
            Aa                              AA                        9                 26,051            3.92
             A                              A                        13                 44,791            6.74
            Baa                            BBB                        2                  2,422            0.36
           NR**                            NR**                       1                  6,821            1.03
                                                            ------------------  ------------------  -----------------
Total...................................................            152               $664,604          100.00%
                                                            ==================  ==================  =================
</TABLE>
- ------------

*    Ratings: Using the higher of Moody's or S&P ratings on the Fund's
     investments. Moody's rating categories may be modified further by a 1, 2
     or 3 in Aa, A, Baa, Ba, B and Caa ratings. S&P rating categories may be
     modified further by a plus (+) or minus (-) in AA, A, BBB, BB, B and CCC
     ratings.
**   Not Rated.



                                      18
<PAGE>

                       INVESTMENT OBJECTIVE AND POLICIES

      The Fund's investment objective is to provide shareholders with as high
a level of current income exempt from Federal income taxes as is consistent
with its investment policies and prudent investment management. The Fund seeks
to achieve its investment objective by investing, as a fundamental policy, at
least 80% of an aggregate of the Fund's net assets (including proceeds from
the issuance of preferred stock), and the proceeds of any borrowings for
investment purposes, in a portfolio of municipal obligations issued by or on
behalf of states, territories and possessions of the United States and their
political subdivisions, agencies or instrumentalities, each of which pays
interest that, in the opinion of bond counsel to the issuer, is excludable
from gross income for Federal income tax purposes (except that the interest
may be includable in taxable income for purposes of the Federal alternative
minimum tax) ("Municipal Bonds"). The Fund invests in Municipal Bonds which
are rated high grade (A or better) or, if unrated, are considered by the
Investment Adviser to be of comparable quality. The Fund's investment
objective and its policy of investing at least 80% of an aggregate of the
Fund's net assets (including proceeds from the issuance of preferred stock),
and the proceeds of any borrowings for investment purposes, in Municipal Bonds
are fundamental policies that may not be changed without a vote of a majority
of the outstanding voting securities of the Fund (as defined in the 1940 Act).
There can be no assurance that the Fund's investment objective will be
realized.

      The Fund may invest in certain tax exempt securities classified as
"private activity bonds" (or industrial development bonds, under pre-1986 law)
("PABs") (in general, bonds that benefit non-governmental entities) that may
subject certain investors in the Fund to an alternative minimum tax. See
"Taxes." The percentage of the Fund's total assets invested in PABs will vary
from time to time. The Fund will not invest more than 25% of its total assets
(taken at market value) in Municipal Bonds whose issuers are located in the
same state.

      The high grade Municipal Bonds in which the Fund invests are those
Municipal Bonds rated at the date of purchase in the three highest quality
ratings as determined by either Moody's Investors Service, Inc. ("Moody's")
(currently Aaa, Aa and A), Standard & Poor's ("S&P") (currently AAA, AA and A)
or Fitch Ratings ("Fitch") (currently AAA, AA and A). In the case of short
term notes, the high grade rating categories are SP-1+ through SP-2 for S&P,
MIG-1 through MIG-3 for Moody's and F-1+ through F-2 for Fitch. In the case of
tax exempt commercial paper, the high grade rating categories are A-1+ through
A-2 for S&P, Prime-1 through Prime-2 for Moody's and F-1+ through F-2 for
Fitch. There may be sub-categories or gradations indicating relative standing
within the rating categories set forth above. In assessing the quality of
Municipal Bonds with respect to the foregoing requirements, the Investment
Adviser takes into account the nature of any letters of credit or similar
credit enhancement to which particular Municipal Bonds are entitled and the
creditworthiness of the financial institution that provided such credit
enhancement. See Appendix A -- "Description of Municipal Bond Ratings" to the
statement of additional information. If unrated, such securities will possess
creditworthiness comparable, in the opinion of the Investment Adviser, to
other obligations in which the Fund may invest.

      All percentage and ratings limitations on securities in which the Fund
may invest apply at the time of making an investment and shall not be
considered violated if an investment rating is subsequently downgraded to a
rating that would have precluded the Fund's initial investment in such
security. In the event that the Fund disposes of a portfolio security
subsequent to its being downgraded, the Fund may experience a greater risk of
loss than if such security had been sold prior to such downgrade.

      The net asset value of the shares of common stock of a closed-end
investment company, such as the Fund, which invests primarily in fixed income
securities, changes as the general levels of interest rates fluctuate. When
interest rates decline, the value of a fixed income portfolio can be expected
to rise. Conversely, when interest rates rise, the value of a fixed income
portfolio can be expected to decline. Prices of longer term securities in
which the Fund primarily invests generally fluctuate more in response to
interest rate changes than do shorter term securities. These changes in net
asset value are likely to be greater in the case of a fund having a leveraged
capital structure, such as the Fund.

      The Fund intends to invest primarily in long term Municipal Bonds with
maturities of more than ten years. However, the Fund also may invest in
intermediate term Municipal Bonds with maturities of between three years and
ten years. The Fund also may invest from time to time in short term Municipal
Bonds with maturities of less than three years. The average maturity of the
Fund's portfolio securities will vary based upon the Investment



                                      19
<PAGE>

Adviser's assessment of economic and market conditions. As of May 31, 2005,
the weighted average maturity of the Fund's portfolio was approximately 19.97
years.

      For temporary periods or to provide liquidity, the Fund has the
authority to invest as much as 20% of its total assets in tax exempt and
taxable money market obligations with a maturity of one year or less (such
short term obligations being referred to herein as "Temporary Investments").
In addition, the Fund reserves the right as a defensive measure to invest
temporarily a greater portion of its assets in Temporary Investments, when, in
the opinion of the Investment Adviser, prevailing market or financial
conditions warrant. Taxable money market obligations will yield taxable
income. The Fund also may invest in variable rate demand obligations ("VRDOs")
and VRDOs in the form of participation interests ("Participating VRDOs") in
variable rate tax exempt obligations held by a financial institution. See
"Other Investment Policies--Temporary Investments." The Fund's hedging
strategies, which are described in more detail under "Hedging
Transactions--Financial Futures Transactions and Options," are not fundamental
policies and may be modified by the Board of Directors of the Fund without the
approval of the Fund's stockholders. The Fund is also authorized to invest in
indexed and inverse floating rate obligations for hedging purposes and to seek
to enhance return.

      The Fund may invest in securities not issued by or on behalf of a state
or territory or by an agency or instrumentality thereof, if the Fund receives
an opinion of counsel to the issuer that such securities pay interest that is
excludable from gross income for Federal income tax purposes ("Non-Municipal
Tax Exempt Securities"). Non-Municipal Tax Exempt Securities could include
trust certificates, partnership interests or other instruments evidencing
interest in one or more long term municipal securities. Non-Municipal Tax
Exempt Securities also may include securities issued by other investment
companies that invest in Municipal Bonds, to the extent such investments are
permitted by the Fund's investment restrictions and applicable law.
Non-Municipal Tax Exempt Securities are subject to the same risks associated
with an investment in Municipal Bonds as well as many of the risks associated
with investments in derivatives. While the Fund receives opinions of legal
counsel to the effect that the income from the Non-Municipal Tax Exempt
Securities in which the Fund invests is excludable from gross income for
Federal income tax purposes to the same extent as the underlying municipal
securities, the Internal Revenue Service ("IRS") has not issued a ruling on
this subject. Were the IRS to issue an adverse ruling or take an adverse
position with respect to the taxation of these types of securities, there is a
risk that the interest paid on such securities would be deemed taxable at the
Federal level.

      The Fund ordinarily does not intend to realize significant investment
income not exempt from Federal income tax. From time to time, the Fund may
realize taxable capital gains.

      Federal tax legislation has limited the types and volume of bonds the
interest on which qualifies for a Federal income tax exemption. As a result,
this legislation and legislation that may be enacted in the future may affect
the availability of Municipal Bonds for investment by the Fund.

Risk Factors and Special Considerations Relating to Municipal Bonds

      The risks and special considerations involved in investment in Municipal
Bonds vary with the types of instruments being acquired. Investments in
Non-Municipal Tax Exempt Securities may present similar risks, depending on
the particular product. Certain instruments in which the Fund may invest may
be characterized as derivative instruments. See "-- Description of Municipal
Bonds" and "-- Hedging Transactions -- Financial Futures Transactions and
Options."

      The value of Municipal Bonds generally may be affected by uncertainties
in the municipal markets as a result of legislation or litigation, including
legislation or litigation that changes the taxation of Municipal Bonds or the
rights of Municipal Bond holders in the event of a bankruptcy. Municipal
bankruptcies are rare, and certain provisions of the U.S. Bankruptcy Code
governing such bankruptcies are unclear. Further, the application of state law
to Municipal Bond issuers could produce varying results among the states or
among Municipal Bond issuers within a state. These uncertainties could have a
significant impact on the prices of the Municipal Bonds in which the Fund
invests.



                                      20
<PAGE>

Description of Municipal Bonds

      Set forth below is a detailed description of the Municipal Bonds and
Temporary Investments in which the Fund may invest. Information with respect
to ratings assigned to tax exempt obligations that the Fund may purchase is
set forth in Appendix A -- "Description of Municipal Bond Ratings" to the
statement of additional information. Obligations are included within the term
Municipal Bonds if the interest paid thereon is excluded from gross income for
Federal income tax purposes in the opinion of bond counsel to the issuer.

      Municipal Bonds include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, refunding of outstanding obligations and obtaining funds for
general operating expenses and loans to other public institutions and
facilities. In addition, certain types of bonds are issued by or on behalf of
public authorities to finance various privately owned or operated facilities,
including certain facilities for the local furnishing of electric energy or
gas, sewage facilities, solid waste disposal facilities and other specialized
facilities. Other types of industrial development bonds or private activity
bonds, the proceeds of which are used for the construction, equipment or
improvement of privately operated industrial or commercial facilities, may
constitute Municipal Bonds, although the current Federal tax laws place
substantial limitations on the size of such issues. The interest on Municipal
Bonds may bear a fixed rate or be payable at a variable or floating rate. The
two principal classifications of Municipal Bonds are "general obligation" and
"revenue" bonds, which latter category includes PABs.

      The Fund has not established any limit on the percentage of its
portfolio that may be invested in IDBs or PABs. The Fund may not be a suitable
investment for investors who are already subject to the Federal alternative
minimum tax or who would become subject to the Federal alternative minimum tax
as a result of an investment in the Fund's common stock. See "Taxes."

      General Obligation Bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. The taxing power of any governmental entity may be
limited, however, by provisions of its state constitution or laws, and an
entity's creditworthiness will depend on many factors, including potential
erosion of its tax base due to population declines, natural disasters,
declines in the state's industrial base or inability to attract new
industries, economic limits on the ability to tax without eroding the tax
base, state legislative proposals or voter initiatives to limit ad valorem
real property taxes and the extent to which the entity relies on Federal or
state aid, access to capital markets or other factors beyond the state's or
entity's control. Accordingly, the capacity of the issuer of a general
obligation bond as to the timely payment of interest and the repayment of
principal when due is affected by the issuer's maintenance of its tax base.

      Revenue Bonds. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue sources such as
payments from the user of the facility being financed. Accordingly, the timely
payment of interest and the repayment of principal in accordance with the
terms of the revenue or special obligation bond is a function of the economic
viability of such facility or such revenue source.

      PABs. The Fund may purchase PABs. PABs are, in most cases, tax exempt
securities issued by states, municipalities or public authorities to provide
funds, usually through a loan or lease arrangement, to a private entity for
the purpose of financing construction or improvement of a facility to be used
by the entity. Such bonds are secured primarily by revenues derived from loan
repayments or lease payments due from the entity which may or may not be
guaranteed by a parent company or otherwise secured. PABs generally are not
secured by a pledge of the taxing power of the issuer of such bonds.
Therefore, an investor should be aware that repayment of such bonds generally
depends on the revenues of a private entity and be aware of the risks that
such an investment may entail. Continued ability of an entity to generate
sufficient revenues for the payment of principal and interest on such bonds
will be affected by many factors including the size of the entity, capital
structure, demand for its products or services, competition, general economic
conditions, government regulation and the entity's dependence on revenues for
the operation of the particular facility being financed.

      Moral Obligation Bonds. The Fund also may invest in "moral obligation"
bonds, which are normally issued by special purpose public authorities. If an
issuer of moral obligation bonds is unable to meet its obligations, the



                                      21
<PAGE>

repayment of such bonds becomes a moral commitment but not a legal obligation
of the state or municipality in question.

      Municipal Lease Obligations. Also included within the general category
of Municipal Bonds are certificates of participation ("COPs") issued by
government authorities or entities to finance the acquisition or construction
of equipment, land and/or facilities. COPs represent participations in a
lease, an installment purchase contract or a conditional sales contract
(hereinafter collectively called "lease obligations") relating to such
equipment, land or facilities. Although lease obligations do not constitute
general obligations of the issuer for which the issuer's unlimited taxing
power is pledged, a lease obligation is frequently backed by the issuer's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the issuer has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event
of foreclosure might prove difficult and the value of the property may be
insufficient to issue lease obligations. Certain investments in lease
obligations may be illiquid.

      Indexed and Inverse Floating Rate Securities. The Fund may invest in
Municipal Bonds (and Non- Municipal Tax Exempt Securities) that yield a return
based on a particular index of value or interest rates. For example, the Fund
may invest in Municipal Bonds that pay interest based on an index of Municipal
Bond interest rates. The principal amount payable upon maturity of certain
Municipal Bonds also may be based on the value of the index. To the extent the
Fund invests in these types of Municipal Bonds, the Fund's return on such
Municipal Bonds will be subject to risk with respect to the value of the
particular index. Interest and principal payable on the Municipal Bonds may
also be based on relative changes among particular indices. Also, the Fund may
invest in so-called "inverse floating obligations" or "residual interest
bonds" on which the interest rates vary inversely with a short term floating
rate (which may be reset periodically by a dutch auction, a remarketing agent,
or by reference to a short term tax exempt interest rate index). The Fund may
purchase synthetically created inverse floating rate bonds evidenced by
custodial or trust receipts. Generally, income on inverse floating rate bonds
will decrease when short term interest rates increase, and will increase when
short term interest rates decrease. Such securities have the effect of
providing a degree of investment leverage, since they may increase or decrease
in value in response to changes, as an illustration, in market interest rates
at a rate which is a multiple (typically two) of the rate at which fixed rate
long term tax exempt securities increase or decrease in response to such
changes. As a result, the market values of such securities will generally be
more volatile than the market values of fixed rate tax exempt securities. To
seek to limit the volatility of these securities, the Fund may purchase
inverse floating obligations with shorter-term maturities or which contain
limitations on the extent to which the interest rate may vary. Certain
investments in such obligations may be illiquid.

      When Issued Securities, Delayed Delivery Securities and Forward
Commitments. The Fund may purchase or sell securities that it is entitled to
receive on a when issued basis. The Fund may also purchase or sell securities
on a delayed delivery basis. The Fund may also purchase or sell securities
through a forward commitment. These transactions involve the purchase or sale
of securities by the Fund at an established price with payment and delivery
taking place in the future. The purchase will be recorded on the date the Fund
enters into the commitment and the value of the securities will thereafter be
reflected in the Fund's net asset value. The Fund enters into these
transactions to obtain what is considered an advantageous price to the Fund at
the time of entering into the transaction. The Fund has not established any
limit on the percentage of its assets that may be committed in connection with
these transactions. When the Fund purchases securities in these transactions,
the Fund segregates liquid securities in an amount equal to the amount of its
purchase commitments.

      There can be no assurance that a security purchased on a when issued
basis will be issued or that a security purchased or sold through a forward
commitment will be delivered. A default by a counterparty may result in the
Fund missing the opportunity of obtaining a price considered to be
advantageous. The value of securities in these transactions on the delivery
date may be more or less than the Fund's purchase price. The Fund may bear the
risk of a decline in the value of the security in these transactions and may
not benefit from an appreciation in the value of the security during the
commitment period.

      Call Rights. The Fund may purchase a Municipal Bond issuer's right to
call all or a portion of such Municipal Bond for mandatory tender for purchase
(a "Call Right"). A holder of a Call Right may exercise such



                                      22
<PAGE>

right to require a mandatory tender for the purchase of related Municipal
Bonds, subject to certain conditions. A Call Right that is not exercised prior
to maturity of the related Municipal Bond will expire without value. The
economic effect of holding both the Call Right and the related Municipal Bond
is identical to holding a Municipal Bond as a non-callable security. Certain
investments in such obligations may be illiquid.

      Yields. Yields on Municipal Bonds are dependent on a variety of factors,
including the general condition of the money market and of the municipal bond
market, the size of a particular offering, the financial condition of the
issuer, the maturity of the obligation and the rating of the issue. The
ability of the Fund to achieve its investment objective is also dependent on
the continuing ability of the issuers of the securities in which the Fund
invests to meet their obligations for the payment of interest and principal
when due. There are variations in the risks involved in holding Municipal
Bonds, both within a particular classification and between classifications,
depending on numerous factors. Furthermore, the rights of owners of Municipal
Bonds and the obligations of the issuer of such Municipal Bonds may be subject
to applicable bankruptcy, insolvency and similar laws and court decisions
affecting the rights of creditors generally and to general equitable
principles, which may limit the enforcement of certain remedies.

Hedging Transactions

      The Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates through the use of options and certain
financial futures contracts and options thereon. While the Fund's use of
hedging strategies is intended to reduce the volatility of the net asset value
of the Fund's shares of common stock, the net asset value of the Fund's shares
of common stock will fluctuate. No assurance can be given that the Fund's
hedging transactions will be effective. The Fund only may engage in hedging
activities from time to time and may not necessarily be engaging in hedging
activities when movements in interest rates occur. The Fund has no obligation
to enter into hedging transactions and may choose not to do so. Furthermore,
for so long as the AMPS are rated by Moody's and S&P, the Fund's use of
options and certain financial futures and options thereon will be subject to
the limitations described under "Rating Agency Guidelines."

      Financial Futures Transactions and Options. The Fund is authorized to
purchase and sell certain exchange traded financial futures contracts
("financial futures contracts") in order to hedge its investments in Municipal
Bonds against declines in value, and to hedge against increases in the cost of
securities it intends to purchase or to seek to enhance the Fund's return.
However, any transactions involving financial futures or options (including
puts and calls associated therewith) will be in accordance with the Fund's
investment policies and limitations. A financial futures contract obligates
the seller of a contract to deliver and the purchaser of a contract to take
delivery of the type of financial instrument covered by the contract, or in
the case of index-based futures contracts to make and accept a cash
settlement, at a specific future time for a specified price. To hedge its
portfolio, the Fund may take an investment position in a futures contract
which will move in the opposite direction from the portfolio position being
hedged. A sale of financial futures contracts may provide a hedge against a
decline in the value of portfolio securities because such depreciation may be
offset, in whole or in part, by an increase in the value of the position in
the financial futures contracts. A purchase of financial futures contracts may
provide a hedge against an increase in the cost of securities intended to be
purchased because such appreciation may be offset, in whole or in part, by an
increase in the value of the position in the futures contracts.

      Distributions, if any, of net long term capital gains from certain
transactions in futures or options are taxable at long term capital gains
rates for Federal income tax purposes. See "Taxes."

      Futures Contracts. 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. Futures contracts have been designed by boards of trade which
have been designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC").

      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.



                                      23
<PAGE>

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

      The Fund deals in financial futures contracts based on a long term
municipal bond index developed by the Chicago Board of Trade ("CBT") and The
Bond Buyer (the "Municipal Bond Index"). The Municipal Bond Index is comprised
of 40 tax exempt municipal revenue and general obligation bonds. Each bond
included in the Municipal Bond Index must be rated A or higher by Moody's or
S&P and must have a remaining maturity of 19 years or more. Twice a month new
issues satisfying the eligibility requirements are added to, and an equal
number of old issues are deleted from, the Municipal Bond Index. The value of
the Municipal Bond Index is computed daily according to a formula based on the
price of each bond in the Municipal Bond Index, as evaluated by six
dealer-to-dealer brokers.

      The Municipal Bond Index futures contract is traded only on the CBT.
Like other contract markets, the CBT assures performance under futures
contracts through a clearing corporation, a nonprofit organization managed by
the exchange membership which is also responsible for handling daily
accounting of deposits or withdrawals of margin.

      The Fund may also purchase and sell financial futures contracts on U.S.
Government securities as a hedge against adverse changes in interest rates as
described below. With respect to U.S. Government securities, currently there
are financial futures contracts based on long term U.S. Treasury bonds, U.S.
Treasury notes, Government National Mortgage Association ("GNMA") Certificates
and three-month U.S. Treasury bills. The Fund may purchase and write call and
put options on futures contracts on U.S. Government securities and purchase
and sell Municipal Bond Index futures contracts in connection with its hedging
strategies.

      The Fund also may engage in other futures contracts transactions such as
futures contracts on other municipal bond indices that may become available if
the Investment Adviser should determine that there is normally a sufficient
correlation between the prices of such futures contracts and the Municipal
Bonds in which the Fund invests to make such hedging appropriate.

      Futures Strategies. The Fund may sell a financial futures contract
(i.e., assume a short position) in anticipation of a decline in the value of
its investments in Municipal Bonds resulting from an increase in interest
rates or otherwise. The risk of decline could be reduced without employing
futures as a hedge by selling such Municipal Bonds and either reinvesting the
proceeds in securities with shorter maturities or by holding assets in cash.
This strategy, however, entails increased transaction costs in the form of
dealer spreads and typically would reduce the average yield of the Fund's
portfolio securities as a result of the shortening of maturities. The sale of
futures contracts provides an alternative means of hedging against declines in
the value of its investments in Municipal Bonds. As such values decline, the
value of the Fund's positions in the futures contracts will tend to increase,
thus offsetting all or a portion of the depreciation in the market value of
the Fund's Municipal Bond investments that are being hedged. While the Fund
will incur commission expenses in selling and closing out futures positions,
commissions on futures transactions are lower than transaction costs incurred
in the purchase and sale of Municipal Bonds. In addition, the ability of the
Fund to trade in the standardized contracts available in the futures markets
may offer a more effective defensive position than a program to reduce the
average maturity of the portfolio securities due to the unique and varied
credit and technical characteristics of the municipal debt instruments
available to the Fund. Employing futures as a hedge also may permit the Fund
to assume a defensive posture without reducing the yield on its investments
beyond any amounts required to engage in futures trading.

      When the Fund intends to purchase Municipal Bonds, the Fund may purchase
futures contracts as a hedge against any increase in the cost of such
Municipal Bonds resulting from a decrease in interest rates or otherwise, that
may occur before such purchases can be effected. Subject to the degree of
correlation between the Municipal Bonds and the futures contracts, subsequent
increases in the cost of Municipal Bonds should be reflected in the value of
the futures held by the Fund. As such purchases are made, an equivalent amount
of futures contracts will be closed out.



                                      24
<PAGE>

Due to changing market conditions and interest rate forecasts, however, a
futures position may be terminated without a corresponding purchase of
portfolio securities.

      Call Options on Futures Contracts. The Fund may also purchase and sell
exchange traded call and put options on financial futures contracts. The
purchase of a call option on a futures contract is analogous to the purchase
of a call option on an individual security. Depending on the pricing of the
option compared to either the futures contract upon which it is based or the
price of the underlying debt securities, it may or may not be less risky than
ownership of the futures contract or underlying debt securities. Like the
purchase of a futures contract, the Fund will purchase a call option on a
futures contract to hedge against a market advance when the Fund is not fully
invested.

      The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration is below
the exercise price, the Fund will retain the full amount of the option premium
which provides a partial hedge against any decline that may have occurred in
the Fund's portfolio holdings.

      Put Options on Futures Contracts. The purchase of a put option on a
futures contract is analogous to the purchase of a protective put option on
portfolio securities. The Fund will purchase a put option on a futures
contract to hedge the Fund's portfolio against the risk of rising interest
rates.

      The writing of a put option on a futures contract constitutes a partial
hedge against increasing prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration is higher
than the exercise price, the Fund will retain the full amount of the option
premium which provides a partial hedge against any increase in the price of
Municipal Bonds which the Fund intends to purchase.

      The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option will be included in initial margin. The writing of an option on a
futures contract involves risks similar to those relating to futures
contracts.

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

      Under regulations of the CFTC, the futures trading activity described
herein will not result in the Fund being deemed a "commodity pool" and the
Fund need not be operated by a person registered with the CFTC as a "commodity
pool operator."

      When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash, cash equivalents (e.g.,
high grade commercial paper and daily tender adjustable notes) or liquid
securities will be segregated, 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 contracts, thereby ensuring that the
use of such futures contract is unleveraged. It is not anticipated that
transactions in futures contracts will have the effect of increasing portfolio
turnover.

      Risk Factors in Futures Transactions and Options. Investment in futures
contracts involves the risk of imperfect correlation between movements in the
price of the futures contract and the price of the security being hedged. The
hedge will not be fully effective when there is imperfect correlation between
the movements in the prices of two financial instruments. For example, if the
price of the futures contract moves more or less than the price of the hedged
security, the Fund will experience either a loss or gain on the futures
contract which is not completely offset by movements in the price of the
hedged securities. To compensate for imperfect correlations, the Fund may
purchase or sell 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 futures contracts. Conversely, the Fund may
purchase or sell fewer futures contracts if the volatility of the price of the
hedged securities is historically less than that of the futures contracts.



                                      25
<PAGE>

      The particular municipal bonds comprising the index underlying the
Municipal Bond Index financial futures contract may vary from the bonds held
by the Fund. As a result, the Fund's ability to hedge effectively all or a
portion of the value of its Municipal Bonds through the use of such financial
futures contracts will depend in part on the degree to which price movements
in the index underlying the financial futures contract correlate with the
price movements of the Municipal Bonds held by the Fund. The correlation may
be affected by disparities in the average maturity, ratings, geographical mix
or structure of the Fund's investments as compared to those comprising the
Municipal Bond Index and general economic or political factors. In addition,
the correlation between movements in the value of the Municipal Bond Index may
be subject to change over time as additions to and deletions from the
Municipal Bond Index alter its structure. The correlation between futures
contracts on U.S. Government securities and the Municipal Bonds held by the
Fund may be adversely affected by similar factors and the risk of imperfect
correlation between movements in the prices of such futures contracts and the
prices of Municipal Bonds held by the Fund may be greater. Municipal Bond
Index futures contracts were approved for trading in 1986. Trading in such
futures contracts may tend to be less liquid than trading in other futures
contracts. The trading of futures contracts also is subject to certain market
risks, such as inadequate trading activity, which could at times make it
difficult or impossible to liquidate existing positions.

      The Fund expects to liquidate a majority of the futures contracts it
enters into through offsetting transactions on the applicable contract market.
There can be no assurance, however, that a liquid secondary market will exist
for any particular futures contract at any specific time. Thus, it may not be
possible to close out a futures position. 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 be required to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. The inability
to close out futures positions also could have an adverse impact on the Fund's
ability to hedge effectively its investments in Municipal Bonds. The liquidity
of a secondary market in a futures contract may be adversely affected by
"daily price fluctuation limits" established by commodity exchanges which
limit the amount of fluctuation in a futures contract price during a single
trading day. Once the daily limit has been reached in the contract, no trades
may be entered into at a price beyond the limit, thus preventing the
liquidation of open futures positions. Prices have in the past moved beyond
the daily limit on a number of consecutive trading days. The Fund will enter
into a futures position only if, in the judgment of the Investment Adviser,
there appears to be an actively traded secondary market for such futures
contracts.

      The successful use of transactions in futures and related options also
depends on the ability of the Investment Adviser to forecast correctly the
direction and extent of interest rate movements within a given time frame. To
the extent interest rates remain stable during the period in which a futures
contract or option is held by the Fund or such rates move in a direction
opposite to that anticipated, the Fund may realize a loss on the hedging
transaction which is not fully or partially offset by an increase in the value
of portfolio securities. As a result, the Fund's total return for such period
may be less than if it had not engaged in the hedging transaction.

      Because of low initial margin deposits made upon the opening of a
futures position, futures transactions involve substantial leverage. As a
result, relatively small movements in the price of the futures contracts can
result in substantial unrealized gains or losses. 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 financial futures contract.
Because the Fund will engage in the purchase and sale of futures contracts for
hedging purposes or to seek to enhance the Fund's return, any losses incurred
in connection therewith should, if the hedging strategy is successful, be
offset in whole or in part by increases in the value of securities held by the
Fund or decreases in the price of securities the Fund intends to acquire.

      The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of
an option on a futures contract also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased.

                           OTHER INVESTMENT POLICIES

      The Fund has adopted certain other policies as set forth below.



                                      26
<PAGE>

Temporary Investments

      The Fund may invest in short term tax exempt and taxable securities
subject to the limitations set forth above. The tax exempt money market
securities may include municipal notes, municipal commercial paper, municipal
bonds with a remaining maturity of less than one year, variable rate demand
notes and participations therein. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes and grant
anticipation notes. Anticipation notes are sold as interim financing in
anticipation of tax collection, bond sales, government grants or revenue
receipts. Municipal commercial paper refers to short term unsecured promissory
notes generally issued to finance short term credit needs. The taxable money
market securities in which the Fund may invest as Temporary Investments
consist of U.S. Government securities, U.S. Government agency securities,
domestic bank or savings institution certificates of deposit and bankers'
acceptances, short term corporate debt securities such as commercial paper and
repurchase agreements. These Temporary Investments must have a stated maturity
not in excess of one year from the date of purchase. The Fund may not invest
in any security issued by a commercial bank or a savings institution unless
the bank or institution is organized and operating in the United States, has
total assets of at least one billion dollars and is a member of the Federal
Deposit Insurance Corporation ("FDIC"), except that up to 10% of total assets
may be invested in certificates of deposit of smaller institutions if such
certificates are fully insured by the FDIC.

Interest Rate Swap Transactions

      In order to seek to hedge the value of the Fund against interest rate
fluctuations, to hedge against increases in the Fund's costs associated with
the dividend payments on any preferred stock, including the AMPS, or to seek
to increase the Fund's return, the Fund may enter into interest rate swap
transactions such as Municipal Market Data AAA Cash Curve swaps ("MMD Swaps")
or Bond Market Association Municipal Swap Index swaps ("BMA Swaps"). To the
extent that the Fund enters into these transactions, the Fund expects to do so
primarily to preserve a return or spread on a particular investment or portion
of its portfolio as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund may enter into these transactions primarily as a hedge or for
duration or risk management rather than as a speculative investment. However,
the Fund also may invest in MMD Swaps and BMA Swaps to seek to enhance return
or gain or to increase the Fund's yield, for example, during periods of steep
interest rate yield curves (i.e., wide differences between short term and long
term interest rates).

      The Fund may purchase and sell BMA Swaps in the BMA swap market. In a
BMA Swap, the Fund exchanges with another party their respective commitments
to pay or receive interest (e.g., an exchange of fixed rate payments for
floating rate payments linked to the Bond Market Association Municipal Swap
Index). Because the underlying index is a tax exempt index, BMA Swaps may
reduce cross-market risks incurred by the Fund and increase the Fund's ability
to hedge effectively. BMA Swaps are typically quoted for the entire yield
curve, beginning with a seven day floating rate index out to 30 years. The
duration of a BMA Swap is approximately equal to the duration of a fixed rate
Municipal Bond with the same attributes as the swap (e.g., coupon, maturity,
call feature).

      The Fund also may purchase and sell MMD Swaps, also known as MMD rate
locks. An MMD Swap permits the Fund to lock in a specified municipal interest
rate for a portion of its portfolio to preserve a return on a particular
investment or a portion of its portfolio as a duration management technique or
to protect against any increase in the price of securities to be purchased at
a later date. By using an MMD Swap, the Fund can create a synthetic long or
short position, allowing the Fund to select the most attractive part of the
yield curve. An MMD Swap is a contract between the Fund and an MMD Swap
provider pursuant to which the parties agree to make payments to each other on
a notional amount, contingent upon whether the Municipal Market Data AAA
General Obligation Scale is above or below a specified level on the expiration
date of the contract. For example, if the Fund buys an MMD Swap and the
Municipal Market Data AAA General Obligation Scale is below the specified
level on the expiration date, the counterparty to the contract will make a
payment to the Fund equal to the specified level minus the actual level,
multiplied by the notional amount of the contract. If the Municipal Market
Data AAA General Obligation Scale is above the specified level on the
expiration date, the Fund will make a payment to the counterparty equal to the
actual level minus the specified level, multiplied by the notional amount of
the contract.



                                      27
<PAGE>

      In connection with investments in BMA and MMD Swaps, there is a risk
that municipal yields will move in the opposite direction than anticipated by
the Fund, which would cause the Fund to make payments to its counterparty in
the transaction that could adversely affect the Fund's performance.

      The Fund has no obligation to enter into BMA or MMD Swaps and may not do
so. The net amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each interest rate swap will be accrued on a
daily basis, and the Fund will segregate liquid securities having an aggregate
net asset value at least equal to the accrued excess.

Credit Default Swap Agreements

      The Fund may enter into credit default swap agreements for hedging
purposes or to seek to increase its return. The credit default swap agreement
may have as reference obligations one or more securities that are not
currently held by the Fund. The protection "buyer" in a credit default
contract may be obligated to pay the protection "seller" an upfront or a
periodic stream of payments over the term of the contract provided that no
credit event on a reference obligation has occurred. If a credit event occurs,
the seller generally must pay the buyer the "par value" (full notional value)
of the swap in exchange for an equal face amount of deliverable obligations of
the reference entity described in the swap, or the seller may be required to
deliver the related net cash amount, if the swap is cash settled. The Fund may
be either the buyer or seller in the transaction. If the Fund is a buyer and
no credit event occurs, the Fund may recover nothing if the swap is held
through its termination date. However, if a credit event occurs, the buyer
generally may elect to receive the full notional value of the swap in exchange
for an equal face amount of deliverable obligations of the reference entity
whose value may have significantly decreased. As a seller, the Fund generally
receives an upfront payment or a fixed rate of income throughout the term of
the swap, which typically is between six months and three years, provided that
there is no credit event. If a credit event occurs, generally the seller must
pay the buyer the full notional value of the swap in exchange for an equal
face amount of deliverable obligations of the reference entity whose value may
have significantly decreased. As the seller, the Fund would effectively add
leverage to its portfolio because, in addition to its total net assets, the
Fund would be subject to investment exposure on the notional amount of the
swap.

      Credit default swap agreements involve greater risks than if the Fund
had invested in the reference obligation directly since, in addition to
general market risks, credit default swaps are subject to illiquidity risk,
counterparty risk and credit risks. The Fund will enter into credit default
swap agreements only with counterparties who are rated investment grade
quality by at least one nationally recognized statistical rating organization
at the time of entering into such transaction or whose creditworthiness is
believed by the Investment Adviser to be equivalent to such rating. A buyer
generally also will lose its investment and recover nothing should no credit
event occur and the swap is held to its termination date. If a credit event
were to occur, the value of any deliverable obligation received by the seller,
coupled with the upfront or periodic payments previously received, may be less
than the full notional value it pays to the buyer, resulting in a loss of
value to the seller. The Fund's obligations under a credit default swap
agreement will be accrued daily (offset against any amounts owing to the
Fund). The Fund will at all times segregate with its custodian in connection
with each such transaction liquid securities or cash with a value at least
equal to the Fund's exposure (any accrued but unpaid net amounts owed by the
Fund to any counterparty), on a marked-to-market basis (as calculated pursuant
to requirements of the Securities and Exchange Commission). Such segregation
will ensure that the Fund has assets available to satisfy its obligations with
respect to the transaction and will avoid any potential leveraging of the
Fund's portfolio. Such segregation will not limit the Fund's exposure to loss.

VRDOs and Participating VRDOs

      VRDOs are tax exempt obligations that contain a floating or variable
interest rate adjustment formula and right of demand on the part of the holder
thereof to receive payment of the unpaid principal balance plus accrued
interest upon a short notice period not to exceed seven days. There is,
however, the possibility that because of default or insolvency the demand
feature of VRDOs and Participating VRDOs may not be honored. The interest
rates are adjustable at intervals (ranging from daily to up to one year) to
some prevailing market rate for similar investments, such adjustment formula
being calculated to maintain the market value of the VRDOs, at approximately
the par value of the VRDOs on the adjustment date. The adjustments typically
are based upon the Public Securities Association Index or some other
appropriate interest rate adjustment index. The Fund may invest



                                      28
<PAGE>

in all types of tax exempt instruments currently outstanding or to be issued
in the future which satisfy its short term maturity and quality standards.

      Participating VRDOs provide the Fund with a specified undivided interest
(up to 100%) of the underlying obligation and the right to demand payment of
the unpaid principal balance plus accrued interest on the Participating VRDOs
from the financial institution upon a specified number of days' notice, not to
exceed seven days. In addition, the Participating VRDO is backed by an
irrevocable letter of credit or guaranty of the financial institution. The
Fund would have an undivided interest in the underlying obligation and thus
participate on the same basis as the financial institution in such obligation
except that the financial institution typically retains fees out of the
interest paid on the obligation for servicing the obligation, providing the
letter of credit and issuing the repurchase commitment. The Fund has been
advised by its counsel that the Fund should be entitled to treat the income
received on Participating VRDOs as interest from tax exempt obligations as
long as the Fund does not invest more than 20% of its total assets in such
investments and certain other conditions are met. It is contemplated that the
Fund will not invest more than 20% of its assets in Participating VRDOs.

      VRDOs that contain an unconditional right of demand to receive payment
of the unpaid principal balance plus accrued interest on a notice period
exceeding seven days may be deemed to be illiquid securities. The Directors
may adopt guidelines and delegate to the Investment Adviser the daily function
of determining and monitoring liquidity of such VRDOs. The Directors, however,
will retain sufficient oversight and will be ultimately responsible for such
determinations.

      The Temporary Investments, VRDOs and Participating VRDOs in which the
Fund may invest will be in the following rating categories at the time of
purchase: MIG-1/VMIG-1 through MIG-3/VMIG-3 for notes and VRDOs and Prime-1
through Prime-3 for commercial paper (as determined by Moody's), SP-1 through
SP-2 for notes and A-1 through A-3 for VRDOs and commercial paper (as
determined by S&P), or F-1 through F-3 for notes, VRDOs and commercial paper
(as determined by Fitch). Temporary Investments, if not rated, must be of
comparable quality in the opinion of the Investment Adviser. In addition, the
Fund reserves the right to invest temporarily a greater portion of its assets
in Temporary Investments for defensive purposes, when, in the judgment of the
Investment Adviser, market conditions warrant.

Repurchase Agreements

      The Fund may invest in securities pursuant to repurchase agreements.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer or an affiliate thereof, in U.S.
Government securities. Under such agreements, the bank or primary dealer or an
affiliate thereof agrees, upon entering into the contract, to repurchase the
security at a mutually agreed upon time and price, 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. In repurchase
agreements, the prices at which the trades are conducted do not reflect
accrued interest on the underlying obligations. Such agreements usually cover
short periods, such as under one week. Repurchase agreements may be construed
to be collateralized loans by the purchaser to the seller secured by the
securities transferred to the purchaser. In a repurchase agreement, 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. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or possible losses in connection with the
disposition of the collateral. In the event of a default under such a
repurchase agreement, instead of the contractual fixed rate of return, the
rate of return to the Fund shall be dependent upon intervening fluctuations of
the market value of such security and the accrued interest on the security. 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.

      In general, for Federal income tax purposes, repurchase agreements are
treated as collateralized loans secured by the securities "sold." Therefore,
amounts earned under such agreements will not be considered tax exempt
interest. The treatment of purchase and sales contracts is less certain.



                                      29
<PAGE>

Borrowings

      The Fund is authorized to borrow money in amounts of up to 5% of the
value of its total assets at the time of such borrowings; provided, however,
that the Fund is authorized to borrow moneys in amounts of up to 33 ?% of the
value of its total assets at the time of such borrowings to finance the
repurchase of its own common stock pursuant to tender offers or otherwise to
redeem or repurchase shares of preferred stock. Borrowings by the Fund
(commonly known, as with the issuance of preferred stock, as "leveraging")
create an opportunity for greater total return since, for example, the Fund
will not be required to sell portfolio securities to repurchase or redeem
shares but, at the same time, increase exposure to capital risk. In addition,
borrowed funds are subject to interest costs that may offset or exceed the
return earned on the borrowed funds.

                              DESCRIPTION OF AMPS

      Certain of the capitalized terms used herein not otherwise defined in
this prospectus have the meaning provided in the Glossary at the back of this
prospectus.

General

      The Series E AMPS will be shares of preferred stock that entitle their
holders to receive dividends when, as and if declared by the Board of
Directors, out of funds legally available therefor, at a rate per annum that
may vary for the successive Dividend Periods. After the Initial Dividend
Period, each Subsequent Dividend Period for the Series E AMPS generally will
be a 7-Day Dividend Period; provided however, that prior to any Auction, the
Fund may elect, subject to certain limitations described herein, upon giving
notice to holders thereof, a special dividend period of up to five years (a
"Special Dividend Period"). The Applicable Rate for a particular Dividend
Period will be determined by an Auction conducted on the Business Day before
the start of such Dividend Period. Beneficial Owners and Potential Beneficial
Owners of shares of AMPS may participate in Auctions therefor, although,
except in the case of a Special Dividend Period of more than 28 days,
Beneficial Owners desiring to continue to hold all of their shares of AMPS
regardless of the Applicable Rate resulting from Auctions need not
participate. For an explanation of Auctions and the method of determining the
Applicable Rate, see "The Auction" herein and in the statement of additional
information.

      The Fund has outstanding 8,000 shares of four other series of Auction
Market Preferred Stock, each with a liquidation preference of $25,000 per
share, plus accumulated but unpaid dividends, for an aggregate initial
liquidation preference of $200,000,000 (the "Other AMPS"). The Other AMPS are
as follows: 2,000 shares of Auction Market Preferred Stock, Series A; 2,000
shares of Auction Market Preferred Stock, Series B; 2,000 shares of Auction
Market Preferred Stock, Series C; and 2,000 shares of Auction Market Preferred
Stock, Series D. The Series E AMPS offered hereby rank on a parity with the
Other AMPS with respect to dividends and liquidation preference. The terms of
the shares of Other AMPS are substantially the same as the terms of the shares
of AMPS described below.

      The following is a brief description of the terms of the shares of the
Series E AMPS. This description does not purport to be complete and is subject
to and qualified in its entirety by reference to the Fund's Charter and
Articles Supplementary, including the provisions thereof establishing the
Series E AMPS. The Fund's Charter and the form of Articles Supplementary
establishing the terms of the Series E AMPS have been filed as exhibits to the
Registration Statement of which this prospectus is a part.

Dividends

      General. The holders of shares of AMPS will be entitled to receive,
when, as and if declared by the Board of Directors of the Fund, out of funds
legally available therefor, cumulative cash dividends on their shares, at the
Applicable Rate determined as set forth below under "Determination of Dividend
Rate," payable on the respective dates set forth below. Dividends on the
shares of AMPS so declared and payable shall be paid (i) in preference to and
in priority over any dividends so declared and payable on the Fund's common
stock, and (ii) to the extent permitted under the Code, and to the extent
available, out of net tax exempt income earned on the Fund's investments.
Generally, dividends on shares of AMPS, to the extent that they are derived
from interest paid on



                                      30
<PAGE>

Municipal Bonds, will be exempt from Federal income taxes, subject to possible
application of the alternative minimum tax. See "Taxes."

      Dividends on the shares of AMPS will accumulate from the date on which
the Fund originally issues the shares of AMPS (the "Date of Original Issue")
and will be payable on the dates described below. Dividends on shares of AMPS
with respect to the Initial Dividend Period shall be payable on the Initial
Dividend Payment Date. Following the Initial Dividend Payment Date for AMPS,
dividends on AMPS will be payable, at the option of the Fund, either (i) with
respect to any 7-Day Dividend Period and any Short Term Dividend Period of 35
or fewer days, on the day next succeeding the last day thereof or (ii) with
respect to any Short Term Dividend Period of more than 35 days and with
respect to any Long Term Dividend Period, monthly on the first Business Day of
each calendar month during such Short Term Dividend Period or Long Term
Dividend Period and on the day next succeeding the last day thereof (each such
date referred to in clause (i) or (ii) being referred to herein as a "Normal
Dividend Payment Date"), except that if such Normal Dividend Payment Date is
not a Business Day, the Dividend Payment Date shall be the first Business Day
next succeeding such Normal Dividend Payment Date. Thus, following the Initial
Dividend Payment Date for AMPS, dividends generally will be payable (in the
case of Dividend Periods which are not Special Dividend Periods) on each
succeeding Monday in the case of the Series E AMPS. Although any particular
Dividend Payment Date may not occur on the originally scheduled date because
of the exceptions discussed above, the next succeeding Dividend Payment Date,
subject to such exceptions, will occur on the next following originally
scheduled date. If for any reason a Dividend Payment Date cannot be fixed as
described above, then the Board of Directors shall fix the Dividend Payment
Date. The Board of Directors by resolution prior to authorization of a
dividend by the Board of Directors may change a Dividend Payment Date if such
change does not adversely affect the contract rights of the holders of shares
of AMPS set forth in the Charter. The Initial Dividend Period, 7-Day Dividend
Periods and Special Dividend Periods are hereinafter sometimes referred to as
"Dividend Periods." Each dividend payment date determined as provided above is
hereinafter referred to as a "Dividend Payment Date."

      Prior to each Dividend Payment Date, the Fund is required to deposit
with the Auction Agent sufficient funds for the payment of declared dividends.
The Fund does not intend to establish any reserves for the payment of
dividends.

      Each dividend will be paid to the record holder of the AMPS, which
holder is expected to be the nominee of the Securities Depository. See "The
Auction -- Securities Depository." The Securities Depository will credit the
accounts of the Agent Members of the Existing Holders in accordance with the
Securities Depository's normal procedures which provide for payment in
same-day funds. The Agent Member of an Existing Holder will be responsible for
holding or disbursing such payments on the applicable Dividend Payment Date to
such Existing Holder in accordance with the instructions of such Existing
Holder. Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to
the nominee of the Securities Depository. Any dividend payment made on shares
of AMPS first shall be credited against the earliest declared but unpaid
dividends accumulated with respect to such shares.

      Holders of shares of AMPS will not be entitled to any dividends, whether
payable in cash, property or stock, in excess of full cumulative dividends
except as described below under "-- Additional Dividends" in this prospectus
and under "Description of AMPS -- Dividends -- Non-Payment Period; Late
Charge" in the statement of additional information. No interest will be
payable in respect of any dividend payment or payments on the shares of AMPS
that may be in arrears.

      The amount of cash dividends per share of the AMPS payable (if declared)
on the Initial Dividend Payment Date, and on each Dividend Payment Date of
each 7-Day Dividend Period and each Short Term Dividend Period shall be
computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and for which dividends
are payable on such Dividend Payment Date and the denominator of which will be
365, multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent. During any Long Term Dividend Period, the amount
of cash dividends per share of AMPS payable (if declared) on any Dividend
Payment Date shall be computed by multiplying the Applicable Rate for such
Dividend Period by a fraction, the numerator of which will be such number of
days in such part of such Dividend Period that such share was outstanding and
for



                                      31
<PAGE>

which dividends are payable on such Dividend Payment Date and the denominator
of which will be 360, multiplying the amount so obtained by $25,000, and
rounding the amount so obtained to the nearest cent.

      Notification of Dividend Period. With respect to each Dividend Period
that is a Special Dividend Period, the Fund, at its sole option and to the
extent permitted by law, by telephonic and written notice (a "Request for
Special Dividend Period") to the Auction Agent and to each Broker-Dealer, may
request that the next succeeding Dividend Period for the AMPS will be a number
of days (other than seven), evenly divisible by seven, and not fewer than
seven nor more than 364 in the case of a Short Term Dividend Period or one
whole year or more but not greater than five years in the case of a Long Term
Dividend Period, specified in such notice, provided that the Fund may not give
a Request for Special Dividend Period (and any such request shall be null and
void) unless, for any Auction occurring after the initial Auction, Sufficient
Clearing Bids were made in the last occurring Auction and unless full
cumulative dividends and any amounts due with respect to redemptions, and any
Additional Dividends payable prior to such date have been paid in full. Such
Request for Special Dividend Period, in the case of a Short Term Dividend
Period, shall be given on or prior to the second Business Day but not more
than seven Business Days prior to an Auction Date for the AMPS and, in the
case of a Long Term Dividend Period, shall be given on or prior to the second
Business Day but not more than 28 days prior to an Auction Date for the AMPS.
Upon receiving such Request for Special Dividend Period, the Broker-Dealers
jointly shall determine whether, given the factors set forth below, it is
advisable that the Fund issue a Notice of Special Dividend Period for the AMPS
as contemplated by such Request for Special Dividend Period and the Optional
Redemption Price of the AMPS during such Special Dividend Period and the
Specific Redemption Provisions and shall give the Fund written notice (a
"Response") of such determination by no later than the second Business Day
prior to such Auction Date. In the event the Response indicates that it is
advisable that the Fund give a notice of a Special Dividend Period for the
AMPS, the Fund, by no later than the second Business Day prior to such Auction
Date may give a notice (a "Notice of Special Dividend Period") to the Auction
Agent, the Securities Depository and each Broker-Dealer. See "Description of
AMPS -- Dividends -- Notification of Dividend Period" in the statement of
additional information for a detailed description of these procedures.

      Determination of Dividend Rate. The dividend rate on shares of the AMPS
during the period from and including the Date of Original Issue for the AMPS
to but excluding the Initial Dividend Payment Date (the "Initial Dividend
Period") with respect to the AMPS will be the rate per annum set forth above
under "Prospectus Summary -- Dividends and Dividend Periods." Commencing on
the Initial Dividend Payment Date for the AMPS, the Applicable Rate on the
AMPS for each Subsequent Dividend Period, which Subsequent Dividend Period
shall be a period commencing on and including a Dividend Payment Date and
ending on and including the calendar day prior to the next Dividend Payment
Date (or calendar day prior to the last Dividend Payment Date in a Dividend
Period if there is more than one Dividend Payment Date), shall be equal to the
rate per annum that results from the Auction with respect to such Subsequent
Dividend Period. The Initial Dividend Period and Subsequent Dividend Period
for AMPS is referred to herein as a "Dividend Period." Cash dividends shall be
calculated as set forth above under "Dividends -- General."

      Restrictions on Dividends and Other Payments. Under the 1940 Act, the
Fund may not declare dividends or make other distributions on shares of common
stock or purchase any such shares if, at the time of the declaration,
distribution or purchase, as applicable (and after giving effect thereto),
asset coverage (as defined in the 1940 Act) with respect to the outstanding
shares of AMPS (and Other AMPS) would be less than 200% (or such other
percentage as in the future may be required by law). The Fund estimates that,
based on the composition of its portfolio at April 30, 2005, asset coverage
with respect to shares of AMPS would be approximately [287]% representing
approximately [35]% of the Fund's capital and [53]% of the Fund's common stock
equity immediately after the issuance of the shares of AMPS offered hereby.
Under the Code, the Fund, among other things, must distribute at least 90% of
its investment company taxable income each year in order to maintain its
qualification for tax treatment as a regulated investment company. The
foregoing limitations on dividends, distributions and purchases under certain
circumstances may impair the Fund's ability to maintain such qualification.
See "Taxes" in the statement of additional information.

      Upon any failure to pay dividends on shares of AMPS for two years or
more, the holders of the shares of AMPS will acquire certain additional voting
rights. See "Voting Rights" below. Such rights shall be the exclusive remedy
of the holders of shares of AMPS upon any failure to pay dividends on shares
of the Fund.



                                      32
<PAGE>

      Additional Dividends. If the Fund retroactively allocates any net
capital gain or other income subject to regular Federal income taxes to shares
of AMPS without having given advance notice thereof to the Auction Agent as
described under "The Auction -- Auction Procedures -- Auction Date; Advance
Notice of Allocation of Taxable Income; Inclusion of Taxable Income in
Dividends" below, which may only happen when such allocation is made as a
result of the redemption of all or a portion of the outstanding shares of AMPS
or the liquidation of the Fund (the amount of such allocation referred to
herein as a "Retroactive Taxable Allocation"), the Fund, within 90 days (and
generally within 60 days) after the end of the Fund's fiscal year for which a
Retroactive Taxable Allocation is made, will provide notice thereof to the
Auction Agent and to each holder of shares (initially Cede as nominee of the
Securities Depository) during such fiscal year at such holder's address as the
same appears or last appeared on the stock books of the Fund. The Fund, within
30 days after such notice is given to the Auction Agent, will pay to the
Auction Agent (who then will distribute to such holders of shares of AMPS),
out of funds legally available therefor, an amount equal to the aggregate
Additional Dividend (as defined below) with respect to all Retroactive Taxable
Allocations made to such holders during the fiscal year in question.

      An "Additional Dividend" means payment to a present or former holder of
shares of AMPS of an amount which, when taken together with the aggregate
amount of Retroactive Taxable Allocations made to such holder with respect to
the fiscal year in question, would cause such holder's dividends in dollars
(after Federal income tax consequences) from the aggregate of both the
Retroactive Taxable Allocations and the Additional Dividend to be equal to the
dollar amount of the dividends which would have been received by such holder
if the amount of the aggregate Retroactive Taxable Allocations had been
excludable from the gross income of such holder. Such Additional Dividend
shall be calculated (i) without consideration being given to the time value of
money; (ii) assuming that no holder of shares of AMPS is subject to the
Federal alternative minimum tax with respect to dividends received from the
Fund; and (iii) assuming that each Retroactive Taxable Allocation would be
taxable in the hands of each holder of shares of AMPS at the greater of: (a)
the maximum marginal regular Federal individual income tax rate applicable to
ordinary income or capital gains depending on the taxable character of the
distribution (including any surtax); or (b) the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income or capital
gains depending on the taxable character of the distribution (disregarding in
both (a) and (b) the effect of any state or local taxes and the phase out of,
or provision limiting, personal exemptions, itemized deductions, or the
benefit of lower tax brackets). Although the Fund generally intends to
designate any Additional Dividend as an exempt-interest dividend to the extent
permitted by applicable law, it is possible that all or a portion of any
Additional Dividend will be taxable to the recipient thereof. See "Taxes" in
the statement of additional information. The Fund will not pay a further
Additional Dividend with respect to any taxable portion of an Additional
Dividend.

      If the Fund does not give advance notice of the amount of taxable income
to be included in a dividend on shares of AMPS in the related Auction, the
Fund may include such taxable income in a dividend on shares of AMPS if it
increases the dividend by an additional amount calculated as if such income
were a Retroactive Taxable Allocation and the additional amount were an
Additional Dividend and notifies the Auction Agent of such inclusion at least
five Business Days prior to the applicable Dividend Payment Date. See "The
Auction -- Auction Procedures -- Auction Date; Advance Notice of Allocation of
Taxable Income; Inclusion of Taxable Income in Dividends" below.

Asset Maintenance

      The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Articles Supplementary. These requirements
are summarized below.

      1940 Act AMPS Asset Coverage. The Fund will be required under the
Articles Supplementary to maintain, with respect to shares of AMPS, as of the
last Business Day of each month in which any shares of AMPS are outstanding,
asset coverage of at least 200% with respect to senior securities that are
stock, including the shares of AMPS and Other AMPS (or such other asset
coverage as in the future may be specified in or under the 1940 Act as the
minimum asset coverage for senior securities that are stock of a closed-end
investment company as a condition of paying dividends on its common stock)
("1940 Act AMPS Asset Coverage"). If the Fund fails to maintain 1940 Act AMPS
Asset Coverage and such failure is not cured as of the last Business Day of
the following month (the "1940 Act Cure Date"), the Fund will be required
under certain circumstances to redeem certain of the shares of AMPS. See
"Redemption" below.



                                      33
<PAGE>

      Based upon the composition of the Fund's portfolio on April 30, 2005,
the 1940 Act AMPS Asset Coverage immediately following the issuance of AMPS
offered hereby (after giving effect to the deduction of the underwriting
discount and offering expenses for the shares of AMPS) will be computed as
follows:

<TABLE>
<CAPTION>
<S>                                                                      <C>                           <C>
                     Value of Fund assets less

                    liabilities not constituting

                         senior securities                       =          $[     ]           =       [   ]%
         ---------------------------------------------------            ------------------
                   Senior securities representing                           $[     ]

                   indebtedness plus liquidation

                    value of the shares of AMPS
</TABLE>

      AMPS Basic Maintenance Amount. So long as shares of AMPS are
outstanding, the Fund will be required under the Articles Supplementary to
maintain as of the last Business Day of each week (a "Valuation Date") Moody's
Eligible Assets and S&P Eligible Assets each having in the aggregate a
Discounted Value at least equal to the AMPS Basic Maintenance Amount. The AMPS
Basic Maintenance Amount includes the sum of (i) the aggregate liquidation
value of AMPS and Other AMPS then outstanding and (ii) certain accrued and
projected payment obligations of the Fund. See "Description of AMPS -- Asset
Maintenance -- AMPS Basic Maintenance Amount" in the statement of additional
information. If the Fund fails to meet such requirement as of any Valuation
Date and such failure is not cured on or before the sixth Business Day after
such Valuation Date (the "AMPS Basic Maintenance Cure Date"), the Fund will be
required under certain circumstances to redeem certain of the shares of AMPS.
Upon any failure to maintain the required Discounted Value, the Fund will use
its best efforts to alter the composition of its portfolio to reattain a
Discounted Value at least equal to the AMPS Basic Maintenance Amount on or
prior to the AMPS Basic Maintenance Cure Date. See "Redemption" herein and in
the statement of additional information.

Redemption

      Optional Redemption. To the extent permitted under the 1940 Act and
under Maryland law, upon giving a Notice of Redemption, as provided in the
statement of additional information, the Fund, at its option, may redeem
shares of AMPS, in whole or in part, out of funds legally available therefor,
at the Optional Redemption Price per share on any Dividend Payment Date;
provided that no share of AMPS may be redeemed at the option of the Fund
during (a) the Initial Dividend Period with respect to such share or (b) a
Non-Call Period to which such share is subject. "Optional Redemption Price"
means $25,000 per share of AMPS plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) to the date fixed for redemption
plus any applicable redemption premium, if any, attributable to the
designation of a Premium Call Period. In addition, holders of AMPS may be
entitled to receive Additional Dividends in the event of redemption of such
AMPS to the extent provided herein. See "Dividends -- Additional Dividends."
The Fund has the authority to redeem the AMPS for any reason and may redeem
all or part of the outstanding shares of AMPS if it anticipates that the
Fund's leveraged capital structure will result in a lower rate of return to
holders of common stock for any significant period of time than that
obtainable if the common stock were unleveraged.

      Mandatory Redemption. The Fund will be required to redeem, out of funds
legally available therefor, at the Mandatory Redemption Price per share,
shares of AMPS to the extent permitted under the 1940 Act and Maryland law, on
a date fixed by the Board of Directors, if the Fund fails to maintain Moody's
Eligible Assets and S&P Eligible Assets each with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount or to satisfy
the 1940 Act AMPS Asset Coverage and such failure is not cured on or before
the AMPS Basic Maintenance Cure Date or the 1940 Act Cure Date (herein
collectively referred to as a "Cure Date"), as the case may be. "Mandatory
Redemption Price" means $25,000 per share of AMPS plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) to the
date fixed for redemption. In addition, holders of AMPS may be entitled to
receive Additional Dividends in the event of redemption of such AMPS to the
extent provided herein. See "Dividends -- Additional Dividends."



                                      34
<PAGE>

      For a discussion of the allocation procedures to be used if fewer than
all of the outstanding shares of AMPS are to be redeemed and for a discussion
of other redemption procedures, see "Description of AMPS -- Redemption" in the
statement of additional information.

Liquidation Rights

      Upon any liquidation, dissolution or winding up of the Fund, whether
voluntary or involuntary, the holders of shares of AMPS will be entitled to
receive, out of the assets of the Fund available for distribution to
stockholders, before any distribution or payment is made upon any shares of
common stock or any other capital stock of the Fund ranking junior in right of
payment upon liquidation of AMPS, $25,000 per share together with the amount
of any dividends accumulated but unpaid (whether or not earned or declared)
thereon to the date of distribution, and after such payment the holders of
AMPS will be entitled to no other payments except for Additional Dividends. If
such assets of the Fund shall be insufficient to make the full liquidation
payment on the outstanding shares of AMPS and liquidation payments on any
other outstanding class or series of preferred stock of the Fund ranking on a
parity with the AMPS as to payment upon liquidation, including the Other AMPS,
then such assets will be distributed among the holders of such shares of AMPS
and the holders of shares of such other class or series, including the Other
AMPS, ratably in proportion to the respective preferential amounts to which
they are entitled. After payment of the full amount of liquidation
distribution to which they are entitled, the holders of AMPS will not be
entitled to any further participation in any distribution of assets by the
Fund. A consolidation, merger or share exchange of the Fund with or into any
other entity or entities or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all or any part of the
assets of the Fund shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Fund.

Voting Rights

      Except as otherwise indicated in this prospectus and the statement of
additional information and except as otherwise required by applicable law,
holders of shares of AMPS will be entitled to one vote per share on each
matter submitted to a vote of stockholders of the Fund and will vote together
with holders of shares of common stock as a single class.

      The 1940 Act and the Articles Supplementary require that the holders of
preferred stock, including the AMPS and Other AMPS, voting as a separate
class, have the rights to elect two of the Fund's Directors at all times and
to elect a majority of the Directors at any time that two full years'
dividends on the AMPS (and Other AMPS) are unpaid. The holders of AMPS (and
Other AMPS) will vote as a separate class or classes on certain other matters
as required under the Articles Supplementary, the 1940 Act and Maryland law.
In addition, the Series E AMPS (and Other AMPS) may vote as a separate series
under certain circumstances. See "Description of AMPS -- Voting Rights" in the
statement of additional information.

                                  THE AUCTION

      Certain of the capitalized terms used herein not otherwise defined in
this prospectus have the meaning provided in the Glossary at the back of this
prospectus.

General

      Holders of the shares of the Series E AMPS will be entitled to receive
cumulative cash dividends on their shares when, as and if declared by the
Board of Directors of the Fund, out of funds legally available therefor, on
the Initial Dividend Payment Date with respect to the Initial Dividend Period
and, thereafter, on each Dividend Payment Date with respect to a Subsequent
Dividend Period (generally a period of seven days, subject to certain
exceptions set forth under "Description of AMPS -- Dividends -- General") at
the rate per annum equal to the Applicable Rate for each such Dividend Period.

      The provisions of the Articles Supplementary establishing the terms of
the shares of the Series E AMPS offered hereby will provide that the
Applicable Rate for the shares of AMPS for each Dividend Period after the
Initial Dividend Period therefor will be equal to the rate per annum that the
Auction Agent advises has resulted on



                                      35
<PAGE>

the Business Day preceding the first day of such Dividend Period due to
implementation of the auction procedures set forth in the Articles
Supplementary (the "Auction Procedures") in which persons determine to hold or
offer to purchase or sell shares of AMPS. The Auction Procedures are attached
as Appendix C to the statement of additional information.

      Each periodic operation of such procedures with respect to the shares of
AMPS is referred to hereinafter as an "Auction." If, however, the Fund should
fail to pay or duly provide for the full amount of any dividend on shares of
AMPS or the redemption price of shares of AMPS called for redemption, the
Applicable Rate for shares of AMPS will be determined as set forth under
"Description of AMPS -- Dividends -- Non-Payment Period; Late Charge" in the
statement of additional information.

      Auction Agent Agreement. The Fund has entered into an agreement with The
Bank of New York (together with any successor bank or trust company or other
entity entering into a similar agreement with this Fund, the "Auction Agent")
(the "Auction Agent Agreement"), which provides, among other things, that the
Auction Agent will follow the Auction Procedures for the purpose of
determining the Applicable Rate for the AMPS. The Fund will pay the Auction
Agent compensation for its services under the Auction Agent Agreement.

      Broker-Dealer Agreements. The Auction Agent has entered into agreements
with Merrill Lynch and more than 20 other broker-dealers and may enter into
similar agreements (collectively, the "Broker-Dealer Agreements") with one or
more other broker-dealers (collectively, the "Broker-Dealers") selected by the
Fund, which provide for the participation of such Broker-Dealers in Auctions.
Merrill Lynch is an affiliate of the Investment Adviser in that they share a
common parent, Merrill Lynch & Co., Inc.

      Securities Depository. The Depository Trust Company initially will act
as the Securities Depository for the Agent Members with respect to the shares
of Series E AMPS. One or more registered certificates for all of the shares of
the Series E AMPS initially will be registered in the name of Cede, as nominee
of the Securities Depository. The certificate will bear a legend to the effect
that such certificate is issued subject to the provisions restricting
transfers of shares of AMPS to which it relates contained in the Articles
Supplementary. Cede initially will be the holder of record of all shares of
AMPS, and Beneficial Owners will not be entitled to receive certificates
representing their ownership interest in such shares. The Securities
Depository will maintain lists of its participants and will maintain the
positions (ownership interests) of shares of AMPS held by each Agent Member,
whether as the Beneficial Owner thereof for its own account or as nominee for
the Beneficial Owner thereof. Payments made by the Fund to holders of AMPS
will be duly made by making payments to the nominee of the Securities
Depository.

Auction Procedures

      The following is a brief discussion of the procedures to be used in
conducting Auctions. This summary is qualified by reference to the Auction
Procedures set forth in Appendix C to the statement of additional information.
The Settlement Procedures to be used with respect to Auctions are set forth in
Appendix B to the statement of additional information.

      Auction Date; Advance Notice of Allocation of Taxable Income; Inclusion
of Taxable Income in Dividends. An Auction to determine the Applicable Rate
for the shares of the Series E AMPS offered hereby for each Dividend Period
(other than the Initial Dividend Period therefor) will be held on the first
Business Day (as hereinafter defined) preceding the first day of such Dividend
Period, which first day is also a Dividend Payment Date for the preceding
Dividend Period (the date of each Auction being referred to herein as an
"Auction Date"). "Business Day" means a day on which the New York Stock
Exchange (the "NYSE") is open for trading and which is not a Saturday, Sunday
or other day on which banks in the City of New York are authorized or
obligated by law to close. Auctions for shares of the Series E AMPS for
Dividend Periods after the Initial Dividend Period normally will be held every
Friday after the preceding Dividend Payment Date, and each subsequent Dividend
Period normally will begin on the following Monday (also a Dividend Payment
Date). The Auction Date and the first day of the related Dividend Period for
the Series E AMPS (both of which must be Business Days) need not be
consecutive calendar days. For example, in most cases, if the Friday that
normally would be an Auction Date for Series E AMPS is not a Business Day,
then such Auction Date will be the preceding Thursday and the first day of the
related Dividend Period will continue to be the following Monday. See
"Description of AMPS -- Dividends" for information concerning the



                                      36
<PAGE>

circumstances under which a Dividend Payment Date may fall on a date other
than the days specified above, which may affect the Auction Date.

      Except as noted below, whenever the Fund intends to include any net
capital gain or other income subject to regular Federal income taxes in any
dividend on shares of AMPS, the Fund will notify the Auction Agent of the
amount to be so included at least five Business Days prior to the Auction Date
on which the Applicable Rate for such dividend is to be established. Whenever
the Auction Agent receives such notice from the Fund, in turn it will notify
each Broker-Dealer, who, on or prior to such Auction Date, in accordance with
its Broker-Dealer Agreement, will notify its customers who are Beneficial
Owners and Potential Beneficial Owners believed to be interested in submitting
an Order in the Auction to be held on such Auction Date. The Fund also may
include such income in a dividend on shares of AMPS without giving advance
notice thereof if it increases the dividend by an additional amount calculated
as if such income were a Retroactive Taxable Allocation and the additional
amount were an Additional Dividend; provided that the Fund will notify the
Auction Agent of the additional amounts to be included in such dividend at
least five Business Days prior to the applicable Dividend Payment Date. See
"Description of AMPS -- Dividends -- Additional Dividends" above.

      Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders. On or prior to each Auction Date:

            (a) each Beneficial Owner may submit to its Broker-Dealer by
      telephone a:

                  (i) Hold Order -- indicating the number of outstanding
            shares, if any, of AMPS that such Beneficial Owner desires to
            continue to hold without regard to the Applicable Rate for the
            next Dividend Period for such shares;

                  (ii) Bid -- indicating the number of outstanding shares, if
            any, of AMPS that such Beneficial Owner desires to continue to
            hold, provided that the Applicable Rate for the next Dividend
            Period for such shares is not less than the rate per annum then
            specified by such Beneficial Owner; and/or

                  (iii) Sell Order -- indicating the number of outstanding
            shares, if any, of AMPS that such Beneficial Owner offers to sell
            without regard to the Applicable Rate for the next Dividend Period
            for such shares; and

            (b) Broker-Dealers will contact customers who are Potential
      Beneficial Owners of shares of AMPS to determine whether such Potential
      Beneficial Owners desire to submit Bids indicating the number of shares
      of AMPS which they offer to purchase provided that the Applicable Rate
      for the next Dividend Period for such shares is not less than the rates
      per annum specified in such Bids.

      The communication by a Beneficial Owner or Potential Beneficial Owner to
a Broker-Dealer and the communication by a Broker-Dealer, whether or not
acting for its own account, to the Auction Agent of the foregoing information
is hereinafter referred to as an "Order" and collectively as "Orders." A
Beneficial Owner or a Potential Beneficial Owner placing an Order, including a
Broker-Dealer acting in such capacity for its own account, is hereinafter
referred to as a "Bidder" and collectively as "Bidders." Any Order submitted
by a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or
by a Broker-Dealer to the Auction Agent, prior to the Submission Deadline on
any Auction Date shall be irrevocable.

      In an Auction, a Beneficial Owner may submit different types of Orders
with respect to shares of AMPS then held by such Beneficial Owner, as well as
Bids for additional shares of AMPS. For information concerning the priority
given to different types of Orders placed by Beneficial Owners, see
"Submission of Orders by Broker-Dealers to Auction Agent" below.

      The Maximum Applicable Rate for shares of AMPS will be the higher of (A)
the Applicable Percentage of the Reference Rate or (B) the Applicable Spread
plus the Reference Rate. The Auction Agent will round each applicable Maximum
Applicable Rate to the nearest one-thousandth (0.001) of one percent per
annum, with any



                                      37
<PAGE>

such number ending in five ten-thousandths of one percent being rounded
upwards to the nearest one-thousandth (0.001) of one percent. The Auction
Agent will not round the applicable Reference Rate as part of its calculation
of the Maximum Applicable Rate.

      The Maximum Applicable Rate for shares of AMPS will depend on the credit
rating or ratings assigned to such shares. The Applicable Percentage and the
Applicable Spread will be determined based on (i) the lower of the credit
rating or ratings assigned on such date to such shares by Moody's and S&P (or
if Moody's or S&P or both shall not make such rating available, the equivalent
of either or both of such ratings by a Substitute Rating Agency or two
Substitute Rating Agencies or, in the event that only one such rating shall be
available, such rating) and (ii) whether the Fund has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate for
any dividend that net capital gain or other taxable income will be included in
such dividend on shares of AMPS as follows:

<TABLE>
<CAPTION>
                                             Applicable
             Credit Ratings                 Percentage of       Applicable         Applicable         Applicable
- ----------------------------------------      Reference        Percentage of      Spread Over         Spread Over
                                               Rate--No           Reference       Reference Rate     Reference Rate
      Moody's                S&P            Notification     Rate--Notification  --No Notification    --Notification
- ---------------------  -----------------  ---------------  --------------------- -----------------  -----------------
<S>                    <C>                <C>              <C>                   <C>                <C>
        Aaa                  AAA                110%               125%               1.10%             1.25%
     Aa3 to Aa1           AA- to AA+            125%               150%               1.25%             1.50%
      A3 to A1             A- to A+             150%               200%               1.50%             2.00%
    Baa3 to Baa1         BBB- to BBB+           175%               250%               1.75%             2.50%
     Below Baa3           Below BBB-            200%               300%               2.00%             3.00%
</TABLE>


There is no minimum Applicable Rate in respect of any Dividend Period.

      The Applicable Percentage and the Applicable Spread as so determined may
be further subject to upward but not downward adjustment in the discretion of
the Board of Directors of the Fund after consultation with the Broker-Dealers,
provided that immediately following any such increase, the Fund would be in
compliance with the AMPS Basic Maintenance Amount. The Fund will take all
reasonable action necessary to enable either S&P or Moody's, or both to
provide a rating for the AMPS, subject to the Fund's ability to terminate
compliance with the rating agency guidelines as discussed under "Rating Agency
Guidelines." If either S&P or Moody's, or both, shall not make such a rating
available, and subject to the Fund's ability to terminate compliance with the
rating agency guidelines discussed under "Rating Agency Guidelines," Merrill
Lynch or its affiliates and successors, after obtaining the Fund's approval,
will select another NRSRO (a "Substitute Rating Agency") or two other NRSROs
("Substitute Rating Agencies") to act as a Substitute Rating Agency or
Substitute Rating Agencies, as the case may be.

      Any Bid by a Beneficial Owner specifying a rate per annum higher than
the Maximum Applicable Rate will be treated as a Sell Order, and any Bid by a
Potential Beneficial Owner specifying a rate per annum higher than the Maximum
Applicable Rate will not be considered. See "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and
Rejection of Submitted Bids and Submitted Sell Orders and Allocation of
Shares."

      Neither the Fund nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing.

      A Broker-Dealer also may hold AMPS in its own account as a Beneficial
Owner. A Broker-Dealer thus may submit Orders to the Auction Agent as a
Beneficial Owner or a Potential Beneficial Owner and therefore participate in
an Auction as an Existing Holder or Potential Holder on behalf of both itself
and its customers. Any Order placed with the Auction Agent by a Broker-Dealer
as or on behalf of a Beneficial Owner or a Potential



                                      38
<PAGE>

Beneficial Owner will be treated in the same manner as an Order placed with a
Broker-Dealer by a Beneficial Owner or a Potential Beneficial Owner.
Similarly, any failure by a Broker-Dealer to submit to the Auction Agent an
Order in respect of any AMPS held by it or its customers who are Beneficial
Owners will be treated in the same manner as a Beneficial Owner's failure to
submit to its Broker-Dealer an Order in respect of AMPS held by it, as
described in the next paragraph. Inasmuch as a Broker-Dealer participates in
an Auction as an Existing Holder or a Potential Holder only to represent the
interests of a Beneficial Owner or Potential Beneficial Owner, whether it be
its customers or itself, all discussion herein relating to the consequences of
an Auction for Existing Holders and Potential Holders also applies to the
underlying beneficial ownership interests represented thereby. For information
concerning the priority given to different types of Orders placed by Existing
Holders, see "Submission of Orders by Broker-Dealers to Auction Agent." Each
purchase or sale in an Auction will be settled on the Business Day next
succeeding the Auction Date at a price per share equal to $25,000. See
"Notification of Results; Settlement" below.

      If one or more Orders covering in the aggregate all of the outstanding
shares of AMPS held by a Beneficial Owner are not submitted to the Auction
Agent prior to the Submission Deadline, either because a Broker-Dealer failed
to contact such Beneficial Owner or otherwise, the Auction Agent shall deem a
Hold Order (in the case of an Auction relating to a Dividend Period which is
not a Special Dividend Period of more than 28 days) and a Sell Order (in the
case of an Auction relating to a Special Dividend Period of more than 28 days)
to have been submitted on behalf of such Beneficial Owner covering the number
of outstanding shares of AMPS held by such Beneficial Owner and not subject to
Orders submitted to the Auction Agent.

      If all of the outstanding shares of AMPS are subject to Submitted Hold
Orders, the Dividend Period next succeeding the Auction automatically shall be
the same length as the immediately preceding Dividend Period, and the
Applicable Rate for the next Dividend Period for all shares of AMPS will be
60% of the Reference Rate on the date of the applicable Auction (or 90% of
such rate if the Fund has provided notification to the Auction Agent prior to
the Auction establishing the Applicable Rate for any dividend that net capital
gain or other taxable income will be included in such dividend on shares of
AMPS).

      For the purposes of an Auction, shares of AMPS for which the Fund shall
have given notice of redemption and deposited moneys therefor with the Auction
Agent in trust or segregated in an account at the Fund's custodian bank for
the benefit of holders of AMPS to be redeemed and for payment to the Auction
Agent, as set forth under "Description of AMPS -- Redemption" in the statement
of additional information, will not be considered as outstanding and will not
be included in such Auction. Pursuant to the Articles Supplementary of the
Fund, the Fund will be prohibited from reissuing and its affiliates (other
than Merrill Lynch) will be prohibited from transferring (other than to the
Fund) any shares of AMPS they may acquire. Neither the Fund nor any affiliate
of the Fund may submit an Order in any Auction, except that an affiliate of
the Fund that is a Broker-Dealer (i.e., Merrill Lynch) may submit an Order.

      Submission of Orders by Broker-Dealers to Auction Agent. Prior to 1:00
p.m., Eastern time, on each Auction Date, or such other time on the Auction
Date as may be specified by the Auction Agent (the "Submission Deadline"),
each Broker-Dealer will submit to the Auction Agent in writing or through a
mutually acceptable electronic means all Orders obtained by it for the Auction
to be conducted on such Auction Date, designating itself (unless otherwise
permitted by the Fund) as the Existing Holder or Potential Holder in respect
of the shares of AMPS subject to such Orders. Any Order submitted by a
Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a
Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any
Auction Date, shall be irrevocable.

      If the rate per annum specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent will round such
rate per annum up to the next highest one-thousandth (.001) of 1%.

      If one or more Orders of an Existing Holder are submitted to the Auction
Agent and such Orders cover in the aggregate more than the number of
outstanding shares of AMPS held by such Existing Holder, such Orders will be
considered valid in the following order of priority:

            (a) any Hold Order will be considered valid up to and including
      the number of outstanding shares of AMPS held by such Existing Holder,
      provided that if more than one Hold Order is submitted by such Existing
      Holder and the number of shares of AMPS subject to such Hold Orders
      exceeds the number



                                      39
<PAGE>

      of outstanding shares of AMPS held by such Existing Holder, the number of
      shares of AMPS subject to each of such Hold Orders will be reduced pro
      rata so that such Hold Orders, in the aggregate, will cover exactly the
      number of outstanding shares of AMPS held by such Existing Holder;

            (b) any Bids will be considered valid, in the ascending order of
      their respective rates per annum if more than one Bid is submitted by
      such Existing Holder, up to and including the excess of the number of
      outstanding shares of AMPS held by such Existing Holder over the number
      of outstanding shares of AMPS subject to any Hold Order referred to in
      clause (a) above (and if more than one Bid submitted by such Existing
      Holder specifies the same rate per annum and together they cover more
      than the remaining number of shares that can be the subject of valid
      Bids after application of clause (a) above and of the foregoing portion
      of this clause (b) to any Bid or Bids specifying a lower rate or rates
      per annum, the number of shares subject to each of such Bids will be
      reduced pro rata so that such Bids, in the aggregate, cover exactly such
      remaining number of outstanding shares); and the number of outstanding
      shares, if any, subject to Bids not valid under this clause (b) shall be
      treated as the subject of a Bid by a Potential Holder; and

            (c) any Sell Order will be considered valid up to and including
      the excess of the number of outstanding shares of AMPS held by such
      Existing Holder over the sum of the number of shares of AMPS subject to
      Hold Orders referred to in clause (a) above and the number of shares of
      AMPS subject to valid Bids by such Existing Holder referred to in clause
      (b) above; provided that, if more than one Sell Order is submitted by
      any Existing Holder and the number of shares of AMPS subject to such
      Sell Orders is greater than such excess, the number of shares of AMPS
      subject to each of such Sell Orders will be reduced pro rata so that
      such Sell Orders, in the aggregate, will cover exactly the number of
      shares of AMPS equal to such excess.

      If more than one Bid of any Potential Holder is submitted in any
Auction, each Bid submitted in such Auction will be considered a separate Bid
with the rate per annum and number of shares of AMPS therein specified.

      Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate. Not earlier than the Submission Deadline for each Auction,
the Auction Agent will assemble all Orders submitted or deemed submitted to it
by the Broker-Dealers (each such "Hold Order," "Bid" or "Sell Order" as
submitted or deemed submitted by a Broker-Dealer hereinafter being referred to
as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as
the case may be, or as a "Submitted Order") and will determine the excess of
the number of outstanding shares of AMPS over the number of outstanding shares
of AMPS subject to Submitted Hold Orders (such excess being referred to as the
"Available AMPS") and whether Sufficient Clearing Bids have been made in such
Auction. Sufficient Clearing Bids will have been made if the number of
outstanding shares of AMPS that are the subject of Submitted Bids of Potential
Holders with rates per annum not higher than the Maximum Applicable Rate
equals or exceeds the number of outstanding shares that are the subject of
Submitted Sell Orders (including the number of shares subject to Bids of
Existing Holders specifying rates per annum higher than the Maximum Applicable
Rate).

      If Sufficient Clearing Bids have been made, the Auction Agent will
determine the lowest rate per annum specified in the Submitted Bids (the
"Winning Bid Rate") which would result in the number of shares subject to
Submitted Bids specifying such rate per annum or a lower rate per annum being
at least equal to the Available AMPS. If Sufficient Clearing Bids have been
made, the Winning Bid Rate will be the Applicable Rate for the next Dividend
Period for all shares of AMPS then outstanding.

      If Sufficient Clearing Bids have not been made (other than because all
outstanding shares of AMPS are the subject of Submitted Hold Orders), the
Dividend Period next following the Auction automatically will be a 7-Day
Dividend Period in the case of the Series E AMPS, and the Applicable Rate for
such Dividend Period will be equal to the Maximum Applicable Rate.

      If Sufficient Clearing Bids have not been made, Beneficial Owners that
have Submitted Sell Orders will not be able to sell in the Auction all, and
may not be able to sell any, shares of AMPS subject to such Submitted Sell
Orders. See "Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares." Thus, under some circumstances, Beneficial
Owners may not have liquidity of investment.



                                      40
<PAGE>

      Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Based on the determinations described under
"Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate" and subject to the discretion of the Auction Agent to round as described
below, Submitted Bids and Submitted Sell Orders will be accepted or rejected
in the order of priority set forth in the Auction Procedures with the result
that Existing Holders and Potential Holders of AMPS will sell, continue to
hold and/or purchase shares of AMPS as set forth below. Existing Holders that
submit or are deemed to have submitted Hold Orders will continue to hold the
shares of AMPS subject to such Hold Orders.

      If Sufficient Clearing Bids have been made:

            (a) each Existing Holder that placed a Submitted Bid specifying a
      rate per annum higher than the Winning Bid Rate or a Submitted Sell
      Order will sell the outstanding shares of AMPS subject to such Submitted
      Bid or Submitted Sell Order;

            (b) each Existing Holder that placed a Submitted Bid specifying a
      rate per annum lower than the Winning Bid Rate will continue to hold the
      outstanding shares of AMPS subject to such Submitted Bid;

            (c) each Potential Holder that placed a Submitted Bid specifying a
      rate per annum lower than the Winning Bid Rate will purchase the number
      of shares of AMPS subject to such Submitted Bid;

            (d) each Existing Holder that placed a Submitted Bid specifying a
      rate per annum equal to the Winning Bid Rate will continue to hold the
      outstanding shares of AMPS subject to such Submitted Bids, unless the
      number of outstanding shares of AMPS subject to all such Submitted Bids
      of Existing Holders is greater than the excess of the Available AMPS
      over the number of shares of AMPS accounted for in clauses (b) and (c)
      above, in which event each Existing Holder with such a Submitted Bid
      will sell a number of outstanding shares of AMPS determined on a pro
      rata basis based on the number of outstanding shares of AMPS subject to
      all such Submitted Bids of such Existing Holders; and

            (e) each Potential Holder that placed a Submitted Bid specifying a
      rate per annum equal to the Winning Bid Rate will purchase any Available
      AMPS not accounted for in clause (b), (c) or (d) above on a pro rata
      basis based on the shares of AMPS subject to all such Submitted Bids of
      Potential Holders.

      If Sufficient Clearing Bids have not been made (other than because all
outstanding shares of AMPS are the subject of Submitted Hold Orders):

            (a) each Existing Holder that placed a Submitted Bid specifying a
      rate per annum equal to or lower than the Maximum Applicable Rate will
      continue to hold the outstanding shares of AMPS subject to such
      Submitted Bid;

            (b) each Potential Holder that placed a Submitted Bid specifying a
      rate per annum equal to or lower than the Maximum Applicable Rate will
      purchase the number of shares of AMPS subject to such Submitted Bid; and

            (c) each Existing Holder that placed a Submitted Bid specifying a
      rate per annum higher than the Maximum Applicable Rate or a Submitted
      Sell Order will sell a number of outstanding shares of AMPS determined
      on a pro rata basis based on the outstanding shares of AMPS subject to
      all such Submitted Bids and Submitted Sell Orders.

      If as a result of the Auction Procedures described above any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of AMPS, the Auction
Agent, in such manner as, in its sole discretion, it shall determine, will
round up or down the number of shares of AMPS being sold or purchased on such
Auction Date so that each share sold or purchased by each Existing Holder or
Potential Holder will be a whole share of AMPS. If any Potential Holder would
be entitled or required to purchase less than a whole share of AMPS, the
Auction Agent, in such manner as, in its sole discretion, it shall determine,
will allocate shares of AMPS for purchase among Potential Holders so that only
whole shares of AMPS



                                      41
<PAGE>

are purchased by any such Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any shares of AMPS.

      Notification of Results; Settlement. The Auction Agent will advise each
Broker-Dealer who submitted a Bid or Sell Order in an Auction whether such Bid
or Sell Order was accepted or rejected in whole or in part and of the
Applicable Rate for the next Dividend Period for the related shares of AMPS by
telephone at approximately 3:00 p.m., Eastern time, on the Auction Date for
such Auction. Each such Broker-Dealer that submitted an Order for the account
of a customer then will advise such customer whether such Bid or Sell Order
was accepted or rejected, will confirm purchases and sales with each customer
purchasing or selling shares of AMPS as a result of the Auction and will
advise each customer purchasing or selling shares of AMPS to give instructions
to its Agent Member of the Securities Depository to pay the purchase price
against delivery of such shares or to deliver such shares against payment
therefor as appropriate. If a customer selling shares of AMPS as a result of
an Auction shall fail to instruct its Agent Member to deliver such shares, the
Broker-Dealer that submitted such customer's Bid or Sell Order will instruct
such Agent Member to deliver such shares against payment therefor. Each
Broker-Dealer that submitted a Hold Order in an Auction on behalf of a
customer also will advise such customer of the Applicable Rate for the next
Dividend Period for the AMPS. The Auction Agent will record each transfer of
shares of AMPS on the record book of Existing Holders to be maintained by the
Auction Agent. In accordance with the Securities Depository's normal
procedures, on the day after each Auction Date, the transactions described
above will be executed through the Securities Depository, and the accounts of
the respective Agent Members at the Securities Depository will be debited and
credited as necessary to effect the purchases and sales of shares of AMPS as
determined in such Auction. Purchasers will make payment through their Agent
Members in same-day funds to the Securities Depository against delivery
through their Agent Members; the Securities Depository will make payment in
accordance with its normal procedures, which now provide for payment in
same-day funds. If the procedures of the Securities Depository applicable to
AMPS shall be changed to provide for payment in next-day funds, then
purchasers may be required to make payment in next day funds. If any Existing
Holder selling shares of AMPS in an Auction fails to deliver such shares, the
Broker-Dealer of any person that was to have purchased shares of AMPS in such
Auction may deliver to such person a number of whole shares of AMPS that is
less than the number of shares that otherwise was to be purchased by such
person. In such event, the number of shares of AMPS to be so delivered will be
determined by such Broker- Dealer. Delivery of such lesser number of shares
will constitute good delivery. Each Broker-Dealer Agreement also will provide
that neither the Fund nor the Auction Agent will have responsibility or
liability with respect to the failure of a Potential Beneficial Owner,
Beneficial Owner or their respective Agent Members to deliver shares of AMPS
or to pay for shares of AMPS purchased or sold pursuant to an Auction or
otherwise.

Broker-Dealers

      General. The Broker-Dealer Agreements provide that a Broker-Dealer may
submit Orders in Auctions for its own account, unless the Fund notifies all
Broker-Dealers that they no longer may do so; provided that Broker-Dealers may
continue to submit Hold Orders and Sell Orders. If a Broker-Dealer submits an
Order for its own account in any Auction of the AMPS, it may have knowledge of
Orders placed through it in that Auction and therefore have an advantage over
other Bidders, but such Broker-Dealer would not have knowledge of Orders
submitted by other Broker-Dealers in that Auction. As a result of bidding by a
Broker-Dealer in an Auction, the Applicable Rate may be higher or lower than
the rate that would have prevailed had the Broker-Dealer not Bid.

      A Broker-Dealer may also Bid in an Auction in order to prevent what
would otherwise be (i) a failed Auction, (ii) an "all-hold" Auction, or (iii)
an Applicable Rate that the Broker-Dealer believes, in its sole discretion,
does not reflect the market for the AMPS at the time of the Auction. A
Broker-Dealer may, but is not obligated to, advise Beneficial Owners of AMPS
that the Applicable Rate that would apply in an "all-hold" Auction (i.e., all
of the outstanding AMPS are subject to Submitted Hold Orders) may be lower
than would apply if Beneficial Owners submit Bids and such advice, if given,
may facilitate the submission of Bids by Beneficial Owners that would avoid
the occurrence of an "all-hold" Auction.

      Commission Inquiries. Merrill Lynch has advised the Fund that it and
various other broker-dealers and other firms that participate in the auction
rate securities market received letters from the staff of the Securities and
Exchange Commission last spring. The letters requested that each of these
firms voluntarily conduct an investigation regarding its respective practices
and procedures in that market. Pursuant to this request, Merrill



                                      42
<PAGE>

Lynch conducted its own voluntary review and reported its findings to the
Commission staff. At the Commission staff's request, Merrill Lynch, together
with certain other broker-dealers and other firms that participate in the
auction rate securities market, is engaging in discussions with the Commission
staff concerning its inquiry. Neither Merrill Lynch nor the Fund can predict
the ultimate outcome of the inquiry or how that outcome will affect the market
for the AMPS or the auctions.

      Fees. The Auction Agent after each Auction will pay a service charge
from funds provided by the Fund to each Broker-Dealer on the basis of the
purchase price of shares of AMPS placed by such Broker-Dealer at such Auction.
The service charge (i) for any 7-Day Dividend Period shall be payable at the
annual rate of 0.25% of the purchase price of the shares of AMPS placed by
such Broker-Dealer in any such Auction and (ii) for any Special Dividend
Period shall be determined by mutual consent of the Fund and any such
Broker-Dealer or Broker-Dealers and shall be based upon a selling concession
that would be applicable to an underwriting of fixed or variable rate
preferred shares with a similar final maturity or variable rate dividend
period, respectively, at the commencement of the Dividend Period with respect
to such Auction. For the purposes of the preceding sentence, shares of AMPS
will be placed by a Broker-Dealer if such shares were (i) the subject of Hold
Orders deemed to have been made by Beneficial Owners that were acquired by
such Beneficial Owners through such Broker-Dealer or (ii) the subject of the
following Orders submitted by such Broker-Dealer: (A) a Submitted Bid of a
Beneficial Owner that resulted in such Beneficial Owner continuing to hold
such shares as a result of the Auction, (B) a Submitted Bid of a Potential
Beneficial Owner that resulted in such Potential Beneficial Owner purchasing
such shares as a result of the Auction or (C) a Submitted Hold Order. A
Broker-Dealer may share a portion of any such fees with non-participating
broker-dealers that submit Orders to the Broker-Dealer for an Auction that are
placed by that Broker-Dealer in such Auction.

      Secondary Trading Market. Broker-Dealers have no obligation to maintain
a secondary trading market in the AMPS outside of Auctions and there can be no
assurance that a secondary market for the AMPS will develop or, if it does
develop, that it will provide holders with a liquid trading market (i.e.,
trading will depend on the presence of willing buyers and sellers and the
trading price is subject to variables to be determined at the time of the
trade by the Broker-Dealers). The AMPS will not be registered on any stock
exchange or on any automated quotation system. An increase in the level of
interest rates, particularly during any Long-Term Dividend Period, likely will
have an adverse effect on the secondary market price of the AMPS, and a
selling stockholder may sell AMPS between Auctions at a price per share of
less than $25,000.

                           RATING AGENCY GUIDELINES

      Certain of the capitalized terms used herein not otherwise defined in
this prospectus have the meaning provided in the Glossary at the back of this
prospectus.

      The Fund currently intends that, so long as shares of AMPS are
outstanding and the AMPS are rated by Moody's and S&P, the composition of its
portfolio will reflect guidelines established by Moody's and S&P in connection
with the Fund's receipt of a rating for such shares on or prior to their Date
of Original Issue of at least Aaa from Moody's and AAA from S&P. Moody's and
S&P, which are NRSROs, issue ratings for various securities reflecting the
perceived creditworthiness of such securities. The Board of Directors of the
Fund, however, may determine that it is not in the best interest of the Fund
to continue to comply with the guidelines of Moody's or S&P (described below).
If the Fund voluntarily terminates compliance with Moody's or S&P guidelines,
the Fund will no longer be required to maintain a Moody's Discounted Value or
a S&P Discounted Value, as applicable, at least equal to the AMPS Basic
Maintenance Amount. If the Fund voluntarily terminates compliance with Moody's
or S&P guidelines, or both, at the time of termination, it must continue to be
rated by at least one NRSRO.

      The guidelines described below have been developed by Moody's and S&P in
connection with issuances of asset-backed and similar securities, including
debt obligations and variable rate preferred stock, generally on a
case-by-case basis through discussions with the issuers of these securities.
The guidelines are designed to ensure that assets underlying outstanding debt
or preferred stock will be varied sufficiently and will be of sufficient
quality and amount to justify investment-grade ratings. The guidelines do not
have the force of law but have been adopted by the Fund in order to satisfy
current requirements necessary for Moody's and S&P to issue the
above-described ratings for shares of AMPS, which ratings generally are relied
upon by institutional investors in purchasing such securities. The guidelines
provide a set of tests for portfolio composition and asset coverage that
supplement (and in



                                      43
<PAGE>

some cases are more restrictive than) the applicable requirements under the
1940 Act. See "Description of AMPS -- Asset Maintenance" herein and in the
statement of additional information.

      The Fund intends to maintain a Discounted Value for its portfolio at
least equal to the AMPS Basic Maintenance Amount. Moody's and S&P each has
established separate guidelines for determining Discounted Value. To the
extent any particular portfolio holding does not satisfy the applicable rating
agency's guidelines, all or a portion of such holding's value will not be
included in the calculation of Discounted Value (as defined by such rating
agency). The Moody's and S&P guidelines do not impose any limitations on the
percentage of Fund assets that may be invested in holdings not eligible for
inclusion in the calculation of the Discounted Value of the Fund's portfolio.

      Upon any failure to maintain the required Discounted Value, the Fund
will seek to alter the composition of its portfolio to reattain a Discounted
Value at least equal to the AMPS Basic Maintenance Amount on or prior to the
AMPS Basic Maintenance Cure Date, thereby incurring additional transaction
costs and possible losses and/or gains on dispositions of portfolio
securities. To the extent any such failure is not cured in a timely manner,
shares of AMPS will be subject to redemption. See "Description of AMPS --
Asset Maintenance" and "Description of AMPS -- Redemption" herein and in the
statement of additional information.

      The Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by Moody's or S&P. Failure to
adopt any such modifications, however, may result in a change in the ratings
described above or a withdrawal of ratings altogether. In addition, any rating
agency providing a rating for the shares of AMPS, at any time, may change or
withdraw any such rating. As set forth in the Articles Supplementary, the
Board of Directors, without stockholder approval, may modify certain
definitions or restrictions that have been adopted by the Fund pursuant to the
rating agency guidelines, provided the Board of Directors has obtained written
confirmation from Moody's and S&P that any such change would not impair the
ratings then assigned by Moody's and S&P to the AMPS.

      As described by Moody's and S&P, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The ratings on the AMPS are not recommendations to purchase, hold
or sell shares of AMPS, inasmuch as the ratings do not comment as to market
price or suitability for a particular investor, nor do the rating agency
guidelines described above address the likelihood that a holder of shares of
AMPS will be able to sell such shares in an Auction. The ratings are based on
current information furnished to Moody's and S&P by the Fund and the
Investment Adviser and information obtained from other sources. The ratings
may be changed, suspended or withdrawn as a result of changes in, or the
unavailability of, such information. The common stock has not been rated by a
nationally recognized statistical rating organization.

      For additional information concerning the Moody's and S&P ratings
guidelines, see "Rating Agency Guidelines" in the statement of additional
information.

                INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS

      The Investment Adviser, which is owned and controlled by Merrill Lynch &
Co. Inc. ("ML & Co."), a financial services holding company and the parent of
Merrill Lynch, provides the Fund with investment advisory and administrative
services. The Investment Adviser acts as the investment adviser to more than
50 registered investment companies and offers investment advisory services to
individuals and institutional accounts. As of [ ] 2005, the Investment Adviser
and its affiliates, including Merrill Lynch Investment Managers, L.P.
("MLIM"), had a total of approximately $[ ] billion in investment company and
other portfolio assets under management, including approximately $[ ] billion
in fixed income assets. This amount includes assets managed by certain
affiliates of the Investment Adviser. The Investment Adviser is a limited
partnership, the partners of which are ML & Co. and Princeton Services. The
principal business address of the Investment Adviser is 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.

      The Investment Advisory Agreement provides that, subject to the
direction of the Fund's Board of Directors, the Investment Adviser 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 Investment Adviser, subject to review by the Board of
Directors.



                                      44
<PAGE>

      The portfolio manager primarily responsible for the Fund's day-to-day
management is Michael A. Kalinoski. Mr. Kalinoski has been a Vice President
and portfolio manager of MLIM since 1999 and has 12 years of experience
investing in Municipal Bonds. The Fund's portfolio manager will consider
analyses from various sources, make the necessary investment decisions, and
place orders for transactions accordingly. The statement of additional
information provides additional information about the Fund's portfolio
manager's compensation, other accounts managed by the portfolio manager, and
the portfolio manager's ownership of securities of the Fund.

      For its services, the Fund pays the Investment Adviser a monthly fee at
the annual rate of 0.50% of the Fund's average weekly net assets ("average
weekly net assets" means the average weekly value of the total assets of the
Fund, including the amount obtained from leverage and any proceeds from the
issuance of preferred stock, minus the sum of (i) accrued liabilities of the
Fund, (ii) any accrued and unpaid interest on outstanding borrowings and (iii)
accumulated dividends on shares of preferred stock). For purposes of this
calculation, average weekly net assets is determined at the end of each month
on the basis of the average net assets of the Fund for each week during the
month. The assets for each weekly period are determined by averaging the net
assets at the last business day of a week with the net assets at the last
business day of the prior week. The liquidation preference of any outstanding
preferred stock (other than accumulated dividends) is not considered a
liability in determining the Fund's average weekly net assets.

      The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and
furnish office space for officers and employees of the Fund connected with
investment and economic research, trading and investment management of the
Fund, as well as the compensation of all Directors of the Fund who are
affiliated persons of the Investment Adviser or any of its affiliates. The
Fund pays all other expenses incurred in the operation of the Fund, including,
among other things, expenses for legal and auditing services, taxes, costs of
preparing, printing and mailing proxies, listing fees, stock certificates and
stockholder reports, charges of the custodian and the transfer agent, dividend
disbursing agent and registrar, Securities and Exchange Commission fees, fees
and expenses of non-interested Directors, accounting and pricing costs,
insurance, interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, mailing and other expenses properly payable by the
Fund. Certain accounting services are provided to the Fund by State Street
Bank and Trust Company ("State Street") pursuant to an agreement between State
Street and the Fund. The Fund will pay the costs of these services. In
addition, the Fund will reimburse the Investment Adviser for certain
additional accounting services.

                                     TAXES

      To the extent derived from Municipal Bond interest income, dividends on
the AMPS will be excludable from gross income for Federal income tax purposes
in the hands of holders of such AMPS, subject to the possible application of
the Federal alternative minimum tax and any state or local income taxes.
Interest income from other investments may produce taxable dividends. The Fund
is required to allocate net capital gain and other taxable income, if any,
proportionately among the common stock and the AMPS and Other AMPS in
accordance with the current position of the IRS described under the heading
"Taxes" in the statement of additional information. The Fund may notify the
Auction Agent of the amount of any net capital gain or other anticipated
taxable income to be included in any dividend on the AMPS prior to the Auction
establishing the Applicable Dividend Rate for such dividend. The Auction Agent
will in turn notify holders of the AMPS and prospective purchasers. The Fund
also may include such income in a dividend on shares of AMPS without giving
advance notice thereof if it increases the dividend by an additional amount
calculated as if such income were a Retroactive Taxable Allocation and the
additional amount were an Additional Dividend. See "The Auction -- Auction
Procedures --Auction Date; Advance Notice of Allocation of Taxable Income;
Inclusion of Taxable Income in Dividends." The amount of taxable income
allocable to the AMPS will depend upon the amount of such income realized by
the Fund and cannot be determined with certainty prior to the end of the
Fund's fiscal year, but it is not generally expected to be significant.

      If the Fund makes a Retroactive Taxable Allocation, it will pay
Additional Dividends to holders of AMPS who are subject to the Retroactive
Taxable Allocation. See "Description of AMPS -- Dividends -- Additional
Dividends." The Federal income tax consequences of Additional Dividends under
existing law are uncertain. The Fund intends to treat a holder as receiving a
dividend distribution in the amount of any Additional Dividend only as and
when such Additional Dividend is paid. An Additional Dividend generally will
be designated by the Fund as an



                                      45
<PAGE>

exempt-interest dividend except as otherwise required by applicable law.
However, the IRS may assert that all or part of an Additional Dividend is a
taxable dividend either in the taxable year for which the Retroactive Taxable
Allocation is made or in the taxable year in which the Additional Dividend is
paid.

      Generally within 60 days after the end of the Fund's taxable year, the
Fund will tell you the amount of exempt-interest dividends and capital gain
dividends you received during that year. Capital gain dividends are taxable as
long-term capital gains to you regardless of how long you have held your
shares.

      The Fund will only purchase a Municipal Bond or Non-Municipal Tax Exempt
Security if it is accompanied by an opinion of counsel to the issuer, which is
delivered on the date of issuance of the security, that the interest paid on
such security is excludable from gross income for Federal income tax purposes
(i.e., "tax exempt"). To the extent that the dividends distributed by the Fund
are from interest income that is excludable from gross income for Federal
income tax purposes, they are exempt from Federal income tax. There is a
possibility that events occurring after the date of issuance of a security, or
after a Fund's acquisition of a security, may result in a determination that
the interest on that security is, in fact, includable in gross income for
Federal income tax purposes retroactively to its date of issue. Such a
determination may cause a portion of prior distributions received by
stockholders, including holders of AMPS, to be taxable to those stockholders
in the year of receipt. The Fund will not pay an Additional Dividend to a
holder of AMPS under these circumstances.

      Because the Fund may from time to time invest a substantial portion of
its portfolio in Municipal Bonds bearing income that could increase an AMPS
holder's tax liability under the Federal alternative minimum tax, the Fund
would not ordinarily be a suitable investment for investors who are subject to
the alternative minimum tax.

      If at any time when AMPS are outstanding the Fund does not meet the
asset coverage requirements of the 1940 Act, the Fund will be required to
suspend distributions to holders of common stock until the asset coverage is
restored. See "Description of AMPS -- Dividends -- Restrictions on Dividends
and Other Payments" herein and in the statement of additional information.
This may prevent the Fund from meeting certain distribution requirements for
qualification as a RIC. Upon any failure to meet the asset coverage
requirements of the 1940 Act, the Fund, in its sole discretion, may, and under
certain circumstances will be required to, redeem AMPS in order to maintain or
restore the requisite asset coverage and avoid the adverse consequences to the
Fund and its stockholders of failing to qualify as a RIC. See "Description of
AMPS -- Redemption" herein and in the statement of additional information.
There can be no assurance, however, that any such action would achieve such
objectives.

      By law, your dividends and redemption proceeds will be subject to a
withholding tax if you have not provided a tax identification number or social
security number or if the number you have provided is incorrect.

      This section summarizes some of the consequences of an investment in the
Fund under current Federal income tax laws. It is not a substitute for
personal tax advice. Stockholders are urged to consult their tax advisers
regarding the applicability of any state or local taxes and with specific
questions regarding Federal taxes.

                         DESCRIPTION OF CAPITAL STOCK

      The Fund is authorized to issue 200,000,000 shares of capital stock, par
value $.10 per share, all of which shares initially were classified as common
stock. The Board of Directors is authorized, however, to classify and
reclassify any unissued 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 such classification or reclassification to increase or
decrease the number of authorized shares of any existing class or series. In
this regard, the Board of Directors previously reclassified 8,000 shares of
unissued common stock as Other AMPS and reclassified 2,000 shares of unissued
common stock as AMPS, which are being offered hereby. See "Description of
AMPS" herein and in the statement of additional information.



                                      46
<PAGE>

      The following table shows the amount of (i) capital stock authorized,
(ii) capital stock held by the Fund for its own account and (iii) capital
stock outstanding for each class of authorized securities of the Fund as of
April 30, 2005.

<TABLE>
<CAPTION>
                                                                                                          Amount
                                                                                                       Outstanding
                                                                                                      (Exclusive Of
                                                                                     Amount Held       Amount Held
                                                                                     By Fund For       By Fund For
                                                                    Amount             Its Own           Its Own
Title of Class                                                    Authorized          Account)           Account)
- -----------------------------------------------------------   ------------------   ---------------  -----------------
<S>                                                           <C>                  <C>              <C>
Common Stock............................................          199,992,000           - 0 -           30,425,258
Auction Market Preferred Stock
   Series A.............................................             2,000              - 0 -           - 2,000 -
   Series B.............................................             2,000              - 0 -           - 2,000 -
   Series C.............................................             2,000              - 0 -           - 2,000 -
   Series D.............................................             2,000              - 0 -           - 2,000 -
</TABLE>

      The Fund will send unaudited reports at least semi-annually and audited
annual financial statements to all of its stockholders.

Common Stock

      Holders of common stock are entitled to share equally in dividends
declared by the Board of Directors payable to holders of common stock and in
the net assets of the Fund available for distribution to holders of common
stock after payment of the preferential amounts payable to holders of any
outstanding preferred stock. Neither holders of common stock nor holders of
preferred stock have pre-emptive or conversion rights and shares of common
stock are not redeemable. The outstanding shares of common stock are fully
paid and non-assessable.

      Holders of common stock are entitled to one vote for each share held and
will vote with the holders of any outstanding shares of AMPS or other
preferred stock, including the Other AMPS on each matter submitted to a vote
of holders of common stock, except as described under "Description of AMPS --
Voting Rights" herein and in the statement of additional information.

      Stockholders are entitled to one vote for each share held. The shares of
common stock, AMPS, Other AMPS and any other preferred stock do not have
cumulative voting rights, which means that the holders of more than 50% of the
shares of common stock, AMPS, Other AMPS and any other preferred stock voting
for the election of Directors can elect all of the Directors standing for
election by such holders, and, in such event, the holders of the remaining
shares of common stock, AMPS, Other AMPS and any other preferred stock will
not be able to elect any of such Directors.

      So long as any shares of the Fund's preferred stock are outstanding,
including the AMPS and Other AMPS, holders of common stock will not be
entitled to receive any net income of or other distributions from the Fund
unless all accumulated dividends on preferred stock have been paid, and unless
asset coverage (as defined in the 1940 Act) with respect to preferred stock
would be at least 200% after giving effect to such distributions. See
"Description of AMPS -- Dividends -- Restrictions on Dividends and Other
Payments" herein and in the statement of additional information.

Preferred Stock

      The Fund has issued an aggregate of 8,000 shares of Other AMPS. Under
the Articles Supplementary for the AMPS, the Fund is authorized to issue an
aggregate of 2,000 shares of Series E AMPS. The terms of the shares of the
Other AMPS are substantially the same as the terms of the shares of the AMPS.
See "Description of AMPS." Under the 1940 Act, the Fund is permitted to have
outstanding more than one series of preferred stock as long as no single
series has priority over another series as to the distribution of assets of
the Fund or the payment of dividends. Neither holders of common stock nor
holders of preferred stock have pre-emptive rights to purchase any shares of



                                      47
<PAGE>

AMPS, Other AMPS or any other preferred stock that might be issued. It is
anticipated that the net asset value per share of the AMPS will equal its
original purchase price per share plus accumulated dividends per share.

Certain Provisions of the Charter and By-laws

      The Fund's Charter includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Fund or to change the composition of its Board of Directors and could have the
effect of depriving common stockholders of an opportunity to sell their shares
at a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund. A Director may be removed from office
with or without cause but only by vote of the holders of at least 66 ?% of the
shares entitled to vote in an election to fill that directorship. A director
elected by all of the holders of capital stock may be removed only by action
of such holders, and a director elected by the holders of AMPS and any other
preferred stock may be removed only by action of the holders of AMPS and any
other preferred stock.

      In addition, the Charter requires the favorable vote of the holders of
at least 66 ?% of the Fund's shares to approve, adopt or authorize the
following:

      o   a merger or consolidation or statutory share exchange of the Fund
          with any other corporation;

      o   a sale of all or substantially all of the Fund's assets (other than
          in the regular course of the Fund's investment activities); or

      o   a liquidation or dissolution of the Fund;

unless such action has been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of Directors fixed in
accordance with the By-laws, in which case the affirmative vote of a majority
of the Fund's shares of capital stock is required. The approval, adoption or
authorization of the foregoing also requires the favorable vote of a majority
of the Fund's outstanding shares (as defined in the 1940 Act) of preferred
stock, including the AMPS and the Other AMPS, then entitled to be voted,
voting as a separate class.

      In addition, conversion of the Fund to an open-end investment company
would require an amendment to the Fund's Charter. The amendment would have to
be declared advisable by the Board of Directors prior to its submission to
stockholders. Such an amendment would require the favorable vote of the
holders of at least 66 ?% of the Fund's outstanding shares of capital stock
(including the AMPS, the Other AMPS and any other preferred stock) entitled to
be voted on the matter, voting as a single class (or a majority of such shares
if the amendment was previously approved, adopted or authorized by at least
two-thirds of the total number of Directors fixed in accordance with the
By-laws), and the affirmative vote of a majority of outstanding shares (as
defined in the 1940 Act) of preferred stock of the Fund (including the AMPS
and the Other AMPS), voting as a separate class. Such a vote also would
satisfy a separate requirement in the 1940 Act that the change be approved by
the stockholders. Stockholders of an open-end investment company may require
the company to redeem their shares of common stock at any time (except in
certain circumstances as authorized by or under the 1940 Act) at their net
asset value, less such redemption charge, if any, as might be in effect at the
time of a redemption. If the Fund is converted to an open-end investment
company, it could be required to liquidate portfolio securities to meet
requests for redemption, and the common stock would no longer be listed on a
stock exchange. Conversion to an open-end investment company would also
require redemption of all outstanding shares of preferred stock (including the
AMPS and the Other AMPS) and would require changes in certain of the Fund's
investment policies and restrictions, such as those relating to the issuance
of senior securities, the borrowing of money and the purchase of illiquid
securities.

      The Charter and By-laws provide that the Board of Directors has the
power to make, amend, alter or repeal any of the By-laws (except for any
By-law specified not to be altered or repealed by the Board), subject to the
requirements of the 1940 Act. Neither this provision of the Charter, nor any
of the foregoing provisions of the Charter requiring the affirmative vote of
66 ?% of shares of capital stock of the Fund, can be amended or repealed
except by the vote of such required number of shares.



                                      48
<PAGE>

      The Board of Directors has determined that the 66 ?% voting requirements
described above, which are greater than the minimum requirements under
Maryland law or the 1940 Act, are in the best interests of stockholders
generally. Reference should be made to the Charter on file with the Securities
and Exchange Commission for the full text of these provisions.

                                   CUSTODIAN

      The Fund's securities and cash are held under a custodian agreement with
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts.

                                 UNDERWRITING

      Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter")
has agreed, subject to the terms and conditions contained in a purchase
agreement with the Fund and the Investment Adviser, to purchase from the Fund
all of the shares of AMPS offered hereby. The Underwriter has agreed to
purchase all such shares if any are purchased.

      The Fund and the Investment Adviser have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriter may be required to make in respect of those liabilities.

      The Underwriter is offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
its counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the Underwriter of
officer's certificates and legal opinions. The Underwriter reserves the right
to withdraw, cancel or modify offers to the public and to reject orders in
whole or in part.

Commissions and Discounts

      The Underwriter has advised the Fund that it proposes initially to offer
the shares of AMPS to the public at the initial public offering price on the
cover page of this prospectus and to dealers at that price less a concession
not in excess of $137.50 per share. There is a sales charge or underwriting
discount of $250 per share, which is equal to 1% of the initial public
offering price per share. After the initial public offering, the public
offering price and concession may be changed. Investors must pay for any AMPS
purchased in the offering on or before [ ], 2005.

      The expenses of the offering, excluding underwriting discount, are
estimated at $[150,000] and are payable by the Fund.

Other Relationships

      Merrill Lynch acts in Auctions as a Broker-Dealer as set forth under
"The Auction -- General -- Broker-Dealer Agreements" and will be entitled to
fees for services as a Broker-Dealer as set forth under "The Auction --
Broker-Dealers." Merrill Lynch also may provide information to be used in
ascertaining the Reference Rate.

      The Fund also anticipates that Merrill Lynch may from time to time act
as a broker in connection with the execution of its portfolio transactions.
Merrill Lynch is an affiliate of the Investment Adviser. See "Investment
Restrictions" and "Portfolio Transactions" in the statement of additional
information.

      The address of the Underwriter is 4 World Financial Center, New York,
New York 10080.

            TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

      The transfer agent, dividend disbursing agent and registrar for the
Fund's shares of AMPS and Other AMPS is The Bank of New York, 101 Barclay
Street, New York, New York 10286. The transfer agent, dividend



                                      49
<PAGE>

disbursing agent and registrar for the Fund's shares of common stock is
EquiServe Trust Company, N.A., 150 Royall Street, Canton, Massachusetts 02021

                         ACCOUNTING SERVICES PROVIDER

      State Street Bank and Trust Company, 500 College Road East, Princeton,
New Jersey 08540, provides certain accounting services for the Fund.

                                 LEGAL MATTERS

      Certain legal matters in connection with the AMPS offered hereby are
passed on for the Fund and the Underwriter by Sidley Austin Brown & Wood LLP,
New York, New York.

           INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND EXPERTS

      __________ is the Fund's independent registered public accounting firm.
The audited financial statements of the Fund and certain of the information
appearing under the caption "Financial Highlights" included in this prospectus
have been audited by _______, for the periods indicated in its report with
respect thereto, and are included in reliance upon such report and upon the
authority of such firm as experts in accounting and auditing. _______ has an
office at ____________.

                            ADDITIONAL INFORMATION

      The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith is required
to file reports, proxy statements and other information with the Securities
and Exchange Commission. Any such reports and other information, including the
Fund's Code of Ethics, can be inspected and copied at the public reference
facilities of the Commission at 100 F Street, N.E., Washington, D.C. 20549.
Information on the operation of such public reference facilities may be
obtained by calling the Commission at 1-202-942-8090. Copies of such materials
can be obtained from the public reference section of the Commission by writing
to 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates, or by
electronic request at publicinfo@sec.gov. The Commission maintains a Web site
at http://www.sec.gov containing reports and information statements and other
information regarding registrants, including the Fund, that file
electronically with the Commission. Reports, proxy statements and other
information concerning the Fund can also be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.

      Additional information regarding the Fund is contained in the
Registration Statement on Form N-2, including amendments, exhibits and
schedules thereto, relating to such shares filed by the Fund with the
Commission in Washington, D.C. This prospectus does not contain all of the
information set forth in the Registration Statement, including any amendments,
exhibits and schedules thereto. For further information with respect to the
Fund and the shares offered hereby, reference is made to the Registration
Statement. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement may be inspected without charge at the Commission's principal office
in Washington, D.C., and copies of all or any part thereof may be obtained
from the Commission upon the payment of certain fees prescribed by the
Commission.



                                      50
<PAGE>

           TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

                                                                          Page
Investment Objective and Policies............................................3
Investment Restrictions......................................................3
Description of AMPS..........................................................5
The Auction.................................................................12
Rating Agency Guidelines....................................................13
Directors and Officers......................................................21
Investment Advisory and Management Arrangements.............................28
Portfolio Transactions......................................................36
Taxes.......................................................................38
Conflicts of Interest.......................................................43
Net Asset Value.............................................................45
Financial Statements........................................................45
APPENDIX A  Ratings of Municipal Bonds.....................................A-1
APPENDIX B  Settlement Procedures..........................................B-1
APPENDIX C  Auction Procedures.............................................C-1



                                      51
<PAGE>

                                   GLOSSARY

      "Additional Dividend" has the meaning set forth on page [36] of this
prospectus.

      "Agent Member" means the member of the Securities Depository that will
act on behalf of a Beneficial Owner of one or more shares of AMPS or on behalf
of a Potential Beneficial Owner.

      "AMPS" means the Auction Market Preferred Stock, Series E with a par
value of $.10 per share and a liquidation preference of $25,000 per share plus
an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) of the Fund.

      "AMPS Basic Maintenance Amount" has the meaning set forth on page [37]
of this prospectus.

      "AMPS Basic Maintenance Cure Date" has the meaning set forth on page
[37] of this prospectus.

      "AMPS Basic Maintenance Report" has the meaning set forth on page [9] of
the statement of additional information.

      "Anticipation Notes" shall mean the following Municipal Bonds: revenue
anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.

      "Applicable Percentage" has the meaning set forth on page [41] of this
prospectus.

      "Applicable Rate" means the rate per annum at which cash dividends are
payable on shares of AMPS for any Dividend Period.

      "Applicable Spread" has the meaning set forth on page [41] of this
prospectus.

      "Articles Supplementary" means the Articles Supplementary of the Fund
specifying the powers, preferences and rights of the shares of the AMPS.

      "Auction" means a periodic operation of the Auction Procedures.

      "Auction Agent" means The Bank of New York unless and until another
commercial bank, trust company or other financial institution appointed by a
resolution of the Board of Directors of the Fund or a duly authorized
committee thereof enters into an agreement with the Fund to follow the Auction
Procedures for the purpose of determining the Applicable Rate and to act as
transfer agent, registrar, dividend disbursing agent and redemption agent for
the AMPS.

      "Auction Agent Agreement" means the agreement entered into between the
Fund and the Auction Agent which provides, among other things, that the
Auction Agent will follow the Auction Procedures for the purpose of
determining the Applicable Rate.

      "Auction Date" has the meaning set forth on page [40] of this
prospectus.

      "Auction Procedures" means the procedures for conducting Auctions set
forth in Appendix C to the statement of additional information.

      "Available AMPS" has the meaning set forth on page [43] of this
prospectus.

      "Beneficial Owner" means a customer of a Broker-Dealer who is listed on
the records of that Broker- Dealer (or if applicable, the Auction Agent) as a
holder of shares of AMPS or a Broker-Dealer that holds AMPS for its own
account.

      "Bid" has the meaning set forth on page [43] of this prospectus.



                                      52
<PAGE>

      "Bidder" has the meaning set forth on page [41] of this prospectus.

      "Board of Directors" or "Board" means the Board of Directors of the
Fund.

      "Broker-Dealer" means any broker-dealer, or other entity permitted by
law to perform the functions required of a Broker-Dealer in the Auction
Procedures, that has been selected by the Fund and has entered into a
Broker-Dealer Agreement with the Auction Agent that remains effective.

      "Broker-Dealer Agreement" means an agreement entered into between the
Auction Agent and a Broker- Dealer, including Merrill Lynch, Pierce, Fenner &
Smith Incorporated, pursuant to which such Broker-Dealer agrees to follow the
Auction Procedures.

      "Business Day" means a day on which the New York Stock Exchange is open
for trading and which is not a Saturday, Sunday or other day on which banks in
The City of New York are authorized or obligated by law to close.

      "Cede" means Cede & Co., the nominee of DTC, and in whose name the
shares of AMPS initially will be registered.

      "Charter" means the Articles of Incorporation, as amended and
supplemented (including the Articles Supplementary and the Other AMPS Articles
Supplementary), of the Fund.

      "Code" means the Internal Revenue Code of 1986, as amended.

      "Common stock" means the common stock, par value $.10 per share, of the
Fund.

      "Date of Original Issue" means, with respect to each share of AMPS, the
date on which such share first is issued by the Fund.

      "Deposit Securities" means cash and Municipal Bonds rated at least A2
(having a remaining maturity of 12 months or less), P-1, VMIG-1 or MIG-1 by
Moody's or A (having a remaining maturity of 12 months or less), A-1+ or SP-1+
by S&P or A (having a remaining maturity of 12 months or less) or F-1+ by
Fitch.

      "Discount Factor" means a Moody's Discount Factor or an S&P Discount
Factor, as the case may be.

      "Discounted Value" means (i) with respect to an S&P Eligible Asset, the
quotient of the fair market value thereof divided by the applicable S&P
Discount Factor and (ii) with respect to a Moody's Eligible Asset, the lower
of par and the quotient of the fair market value thereof divided by the
applicable Moody's Discount Factor.

      "Dividend Payment Date" has the meaning set forth on page [34] of this
prospectus.

      "Dividend Period" has the meaning set forth on page [35] of this
prospectus.

      "DTC" means The Depository Trust Company.

      "Eligible Assets" means Moody's Eligible Assets or S&P Eligible Assets,
as the case may be.

      "Existing Holder" means a Broker-Dealer or any such other person as may
be permitted by the Fund that is listed as the holder of record of shares of
AMPS in the records of the Auction Agent.

      "Fitch" means Fitch Ratings or its successors.

      "Forward Commitment" has the meaning set forth on page [20] of the
statement of additional information.

      "Fund" means MuniYield Quality Fund, Inc., a Maryland corporation that
is the issuer of the AMPS.



                                      53
<PAGE>

      "High Yield Municipal Bonds" means (a) with respect to Moody's (1)
Municipal Bonds rated Ba1 to B3 by Moody's, (2) Municipal Bonds not rated by
Moody's, but rated BB+ to B- by S&P or Fitch, and (3) Municipal Bonds not
explicitly rated by Moody's, S&P or Fitch, but rated at least the equivalent
of B3 internally by the Investment Adviser, provided that Moody's reviews and
achieves sufficient comfort with the Investment Adviser's internal credit
rating processes, and (b) with respect to S&P (1) Municipal Bonds not rated by
S&P but rated equivalent to BBB+ or lower by another NRSRO and (2) Municipal
Bonds rated BB+ or lower by S&P.

      "Hold Order" has the meaning set forth on page [40] of this prospectus.

      "Initial Dividend Payment Date" means the first Dividend Payment Date
for the Series E AMPS.

      "Initial Dividend Period" means the period from and including the Date
of Original Issue to but excluding the Initial Dividend Payment Date for the
Series E AMPS.

      "Initial Margin" means the amount of cash or securities deposited with a
broker as a margin payment at the time of purchase or sale of a financial
futures contract.

      "Inverse Floaters" means trust certificates or other instruments
evidencing interests in one or more Municipal Bonds that qualify as (i) S&P
Eligible Assets the interest rates on which are adjusted at short term
intervals on a basis that is inverse to the simultaneous readjustment of the
interest rates on corresponding floating rate trust certificates or other
instruments issued by the same issuer, provided that the ratio of the
aggregate dollar amount of floating rate instruments to inverse floating rate
instruments issued by the same issuer does not exceed one to one at their time
of original issuance unless the floating rate instrument has only one reset
remaining until maturity or (ii) Moody's Eligible Assets the interest rates on
which are adjusted at short term intervals on a basis that is inverse to the
simultaneous readjustment of the interest rates on corresponding floating rate
trust certificates or other instruments issued by the same issuer, provided
that (a) such Inverse Floaters are rated by Moody's with the Investment
Adviser having the capability to collapse (or relink) within seven days as a
liquidity enhancement measure, and (b) the issuer of such Inverse Floaters
employs a leverage factor (i.e., the ratio of underlying capital appreciation
bonds or other instruments to residual long-term derivative instruments) of
not more than 2:1.

      "Investment Adviser" means Fund Asset Management, L.P.

      "IRS" means the United States Internal Revenue Service.

      "LIBOR Dealer" means Merrill Lynch, Pierce, Fenner & Smith Incorporated
and such other dealer or dealers as the Fund from time to time may appoint or,
in lieu thereof, their respective affiliates and successors.

      "LIBOR Rate," on any Auction Date, means (i) the rate for deposits in
U.S. dollars for the designated Dividend Period, which appears on display page
3750 of Moneyline's Telerate Service ("Telerate Page 3750") (or such other
page as may replace that page on that service, or such other service as may be
selected by the LIBOR Dealer or its successors that are LIBOR Dealers) as of
11:00 a.m., London time, on the day that is the London Business Day preceding
the Auction Date (the "LIBOR Determination Date"), or (ii) if such rate does
not appear on Telerate Page 3750 or such other page as may replace such
Telerate Page 3750, (A) the LIBOR Dealer shall determine the arithmetic mean
of the offered quotations of the Reference Banks to leading banks in the
London interbank market for deposits in U.S. dollars for the designated
Dividend Period in an amount determined by such LIBOR Dealer by reference to
requests for quotations as of approximately 11:00 a.m. (London time) on such
date made by such LIBOR Dealer to the Reference Banks, (B) if at least two of
the Reference Banks provide such quotations, LIBOR Rate shall equal such
arithmetic mean of such quotations, (C) if only one or none of the Reference
Banks provide such quotations, LIBOR Rate shall be deemed to be the arithmetic
mean of the offered quotations that leading banks in The City of New York
selected by the LIBOR Dealer (after obtaining the Fund's approval) are quoting
on the relevant LIBOR Determination Date for deposits in U.S. dollars for the
designated Dividend Period in an amount determined by the LIBOR Dealer (after
obtaining the Fund's approval) that is representative of a single transaction
in such market at such time by reference to the principal London offices of
leading banks in the London interbank market; provided, however, that if one
of the LIBOR Dealers does not quote a rate required to determine the LIBOR
Rate, the LIBOR Rate will be determined on the basis of the quotation or



                                      54
<PAGE>

quotations furnished by any Substitute LIBOR Dealer or Substitute LIBOR
Dealers selected by the Fund to provide such rate or rates not being supplied
by the LIBOR Dealer; provided further, that if the LIBOR Dealer and Substitute
LIBOR Dealers are required but unable to determine a rate in accordance with
at least one of the procedures provided above, the LIBOR Rate shall be the
LIBOR Rate as determined on the previous Auction Date. If the number of
Dividend Period days shall be (i) 7 or more but fewer than 21 days, such rate
shall be the seven-day LIBOR rate; (ii) 21 or more but fewer than 49 days,
such rate shall be the one-month LIBOR rate; (iii) 49 or more but fewer than
77 days, such rate shall be the two-month LIBOR rate; (iv) 77 or more but
fewer than 112 days, such rate shall be the three-month LIBOR rate; (v) 112 or
more but fewer than 140 days, such rate shall be the four-month LIBOR rate;
(vi) 140 or more but fewer than 168 days, such rate shall be the five-month
LIBOR rate; (vii) 168 or more but fewer than 189 days, such rate shall be the
six-month LIBOR rate; (viii) 189 or more but fewer than 217 days, such rate
shall be the seven-month LIBOR rate; (ix) 217 or more but fewer than 252 days,
such rate shall be the eight-month LIBOR rate; (x) 252 or more but fewer than
287 days, such rate shall be the nine-month LIBOR rate; (xi) 287 or more but
fewer than 315 days, such rate shall be the ten-month LIBOR rate; (xii) 315 or
more but fewer than 343 days, such rate shall be the eleven-month LIBOR rate;
and (xiii) 343 or more but fewer than 365 days, such rate shall be the
twelve-month LIBOR rate.

      "London Business Day" means any day on which commercial banks are
generally open for business in London.

      "Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five
years.

      "Mandatory Redemption Price" has the meaning set forth on page [38] of
this prospectus.

      "Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum
marginal regular Federal corporate income tax rate, whichever is greater.

      "Maximum Applicable Rate" has the meaning set forth on page [41] of this
prospectus.

      "Moody's" means Moody's Investors Service, Inc. or its successors.

      "Moody's Discount Factor" has the meaning set forth on pages [16 to 17]
of the statement of additional information.

      "Moody's Eligible Assets" has the meaning set forth on pages [17 to 18]
of the statement of additional information.

      "Moody's Hedging Transactions" has the meaning set forth on page [18] of
the statement of additional information.

      "Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:

       % Change in                                    Moody's Volatility
       Marginal Tax Rate                                    Factor
       ---------------------------------------------  ------------------
       <5%.......................................            292%
       >5% but = 10%.............................            313%
       >10% but = 15%............................            338%
       >15% but = 20%............................            364%
       >20% but = 25%............................            396%
       >25% but = 30%............................            432%
       >30% but = 35%............................            472%
       >35% but = 40%............................            520%

      Notwithstanding the foregoing, the Moody's Volatility Factor may mean
such other potential dividend rate increase factor as Moody's advises the Fund
in writing is applicable.



                                      55
<PAGE>

      "Municipal Bonds" has the meaning set forth on page [19] of this
prospectus.

      "Municipal Index" has the meaning set forth on page [15] of the
statement of additional information.

      "1940 Act" means the Investment Company Act of 1940, as amended from
time to time.

      "1940 Act AMPS Asset Coverage" has the meaning set forth on page [37] of
this prospectus.

      "1940 Act Cure Date" has the meaning set forth on page [37] of this
prospectus.

      "Non-Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.

      "Non-Payment Period" has the meaning set forth on page [7] of the
statement of additional information.

      "Non-Payment Period Rate" has the meaning set forth on page [7] of the
statement of additional information.

      "Normal Dividend Payment Date" has the meaning set forth on page [34] of
this prospectus.

      "Notice of Revocation" has the meaning set forth on page [6] of the
statement of additional information.

      "Notice of Special Dividend Period" has the meaning set forth on page
[35] of this prospectus.

      "NRSRO" means any nationally recognized statistical rating organization,
as that term is used in Rule 15a3-1 under the Securities and Exchange Act of
1934, as amended, or any successor provisions.

      "Optional Redemption Price" has the meaning set forth on page [37] of
this prospectus.

      "Order" has the meaning set forth on page [41] of this prospectus.

      "Other AMPS" means the Auction Market Preferred Stock, Series A; the
Auction Market Preferred Stock, Series B; the Auction Market Preferred Stock,
Series C; and the Auction Market Preferred Stock, Series D, each with a
liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or declared)
of the Fund.

      "Other AMPS Articles Supplementary" means the Articles Supplementary, as
amended and supplemented, of the Fund specifying the powers, preferences and
rights of the shares of the Other AMPS.

      "Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of AMPS but that wishes
to purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of AMPS.

      "Potential Holder" means any Broker-Dealer or any such other person as
may be permitted by the Fund, including any Existing Holder, who may be
interested in acquiring shares of AMPS (or, in the case of an Existing Holder,
additional shares of AMPS).

      "Preferred stock" means preferred stock of the Fund and includes the
AMPS.

      "Premium Call Period" has the meaning set forth under "Specific
Redemption Provisions" below.

      "Receivables for Municipal Bonds Sold" for Moody's has the meaning set
forth under the definition of Moody's Discount Factor, and for S&P has the
meaning set forth under the definition of S&P Discount Factor.



                                      56
<PAGE>

      "Reference Banks" means four major banks in the London interbank market
selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated or its
affiliates or successors or such other party as the Fund may from time to time
appoint.

      "Reference Rate" means: (i) with respect to a Dividend Period having 364
or fewer days, the higher of the applicable LIBOR Rate and the Taxable
Equivalent of the Short-Term Municipal Bond Rate, or (ii) with respect to any
Dividend Period having 365 or more days, the applicable Treasury Index Rate.

      "Request for Special Dividend Period" has the meaning set forth on page
[35] of this prospectus.

      "Response" has the meaning set forth on page [35] of this prospectus.

      "Retroactive Taxable Allocation" has the meaning set forth on page [36]
of this prospectus.

      "Rule 2a-7 Money Market Funds" means investment companies registered
under the 1940 Act that comply with the requirements of Rule 2a-7 thereunder.

      "Series E AMPS" means the Auction Market Preferred Stock, Series E, with
a par value of $.05 per share and a liquidation preference of $25,000 per
share plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared), of the Fund.

      "S&P" means Standard & Poor's or its successors.

      "S&P Discount Factor" has the meaning set forth on pages [13 to 14] of
the statement of additional information.

      "S&P Eligible Assets" has the meaning set forth on pages [14 to 15] of
the statement of additional information.

      "S&P Hedging Transactions" has the meaning set forth on page [15] of the
statement of additional information.

      "S&P Volatility Factor" means 277% or such other potential dividend rate
increase factor as S&P advises the Fund in writing is applicable.

      "Securities Depository" means The Depository Trust Company and its
successors and assigns or any successor securities depository selected by the
Fund that agrees to follow the procedures required to be followed by such
securities depository in connection with shares of AMPS.

      "Sell Order" has the meaning specified in Subsection 10(b)(i) of the
Auction Procedures.

      "7-Day Dividend Period" means a Dividend Period consisting of seven
days.

      "Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than seven) evenly divisible by seven,
and not fewer than seven days nor more than 364 days.

      "Special Dividend Period" has the meaning set forth on page [33] of this
prospectus.

      "Specific Redemption Provisions" means, with respect to a Special
Dividend Period, either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Directors of the Fund, after consultation
with the Auction Agent and the Broker-Dealers, during which the shares of AMPS
subject to such Dividend Period shall not be subject to redemption at the
option of the Fund and (ii) a period (a "Premium Call Period"), consisting of
a number of whole years and determined by the Board of Directors of the Fund,
after consultation with the Auction Agent and the Broker-Dealers, during each
year of which the shares of AMPS subject to such Dividend Period shall be
redeemable at the Fund's option at a price per share equal to $25,000 plus




                                      57
<PAGE>

accumulated but unpaid dividends plus a premium expressed as a percentage of
$25,000, as determined by the Board of Directors of the Fund after
consultation with the Auction Agent and the Broker-Dealers.

      "Submission Deadline" has the meaning set forth on page [42] of this
prospectus.

      "Submitted Bid" has the meaning set forth on page [43] of this
prospectus.

      "Submitted Hold Order" has the meaning set forth on page [43] of this
prospectus.

      "Submitted Order" has the meaning set forth on page [43] of this
prospectus.

      "Submitted Sell Order" has the meaning set forth on page [43] of this
prospectus.

      "Subsequent Dividend Period" means each Dividend Period after the
Initial Dividend Period.

      "Substitute Rating Agency" and "Substitute Rating Agencies" shall mean a
NRSRO or two NRSROs, respectively, selected by Merrill Lynch, Pierce, Fenner &
Smith Incorporated, or its respective affiliates and successors, after
obtaining the Fund's approval, to act as a substitute rating agency or
substitute rating agencies, as the case may be, to determine the credit
ratings of the AMPS.

      "Sufficient Clearing Bids" has the meaning set forth on page [43] of
this prospectus.

      "Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30-day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day
immediately preceding such date but in any event not later than 8:30 a.m.
Eastern time, on such date by Kenny Information Systems Inc. or any successor
thereto, based upon 30-day yield evaluations at par of bonds the interest on
which is excludable for regular Federal income tax purposes under the Code of
"high grade" component issuers selected by Kenny Information Systems Inc. or
any such successor from time to time in its discretion, which component
issuers shall include, without limitation, issuers of general obligation bonds
but shall exclude any bonds the interest on which constitutes an item of tax
preference under Section 57(a)(5) of the Code, or successor provisions, for
purposes of the "alternative minimum tax," divided by (B) 1.00 minus the
Marginal Tax Rate (expressed as a decimal); provided, however, that if the
Kenny Index is not made so available by 8:30 a.m. Eastern time, on such date
by Kenny Information Systems Inc. or any successor, the Taxable Equivalent of
the Short-Term Municipal Bond Rate shall mean the quotient of (A) the per
annum rate expressed on an interest equivalent basis equal to the most recent
Kenny Index so made available for any preceding Business Day, divided by (B)
1.00 minus the Marginal Tax Rate (expressed as a decimal). The Fund may not
utilize a successor index to the Kenny Index unless Moody's and S&P provide
the Fund with written confirmation that the use of such successor index will
not adversely affect the then-current respective Moody's and S&P ratings of
the AMPS.

      "Treasury Bonds" means U.S. Treasury Bonds or Notes.

      "Treasury Index Rate" means the average yield to maturity for actively
traded marketable fixed interest rate U.S. Treasury Securities having the same
number of 30-day periods to maturity as the length of the applicable Dividend
Period, determined, to the extent necessary, by linear interpolation based
upon the yield for such securities having the next shorter and next longer
number of 30-day periods to maturity treating all Dividend Periods with a
length greater than the longest maturity for such securities as having a
length equal to such longest maturity, in all cases based upon data set forth
in the most recent weekly statistical release published by the Board of
Governors of the Federal Reserve System (currently in H.15(519)); provided,
however, if the most recent such statistical release shall not have been
published during the 15 days preceding the date of computation, the foregoing
computations shall be based upon the average of comparable data as quoted to
the Fund by at least three recognized dealers in U.S. Government Securities
selected by the Fund.

      "U.S. Treasury Securities" means direct obligations of the United States
Treasury that are entitled to the full faith and credit of the United States
government.



                                      58
<PAGE>

      "Valuation Date" has the meaning set forth on page [37] of this
prospectus.

      "Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Fund, the amount of cash or securities paid to
or received from a broker (subsequent to the Initial Margin payment) from time
to time as the price of such futures contract fluctuates.

      "Winning Bid Rate" has the meaning set forth on page [44] of this
prospectus.



                                      59
<PAGE>

==============================================================================



                                  $50,000,000


                         MuniYield Quality Fund, Inc.


                    Auction Market Preferred Stock ("AMPS")
                            2,000 Shares, Series E
                   Liquidation Preference $25,000 Per Share








                           -------------------------
                                  PROSPECTUS
                          --------------------------







                              Merrill Lynch & Co.







                                   [ ], 2005
                                                                  CODE #[   ]

==============================================================================

<PAGE>


The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.


                             Subject to Completion
      Preliminary Statement of Additional Information dated July 21, 2005

STATEMENT OF ADDITIONAL INFORMATION

                                  $50,000,000

                         MuniYield Quality Fund, Inc.

                    Auction Market Preferred Stock ("AMPS")

                            2,000 Shares, Series E
                   Liquidation Preference $25,000 per Share

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

      MuniYield Quality Fund, Inc. is a non-diversified, closed-end management
investment company seeking to provide shareholders with as high a level of
current income exempt from Federal income taxes as is consistent with its
investment policies and prudent investment management. The Fund seeks to
achieve its investment objective by investing, as a fundamental policy, at
least 80% of an aggregate of the Fund's net assets (including proceeds from
the issuance of preferred stock), plus the amounts of any borrowings for
investment purposes, in a portfolio of municipal obligations the interest on
which, in the opinion of bond counsel to the issuer, is excludable from gross
income for Federal income tax purposes (except that the interest may be
includable in taxable income for purposes of the Federal alternative minimum
tax). The Fund invests in a portfolio of municipal obligations which are rated
high grade (A or better) or, if unrated, are considered by the Investment
Adviser to be of comparable quality. The Fund may invest in certain tax exempt
securities classified as "private activity bonds," as discussed within, that
may subject certain investors in the Fund to an alternative minimum tax. There
can be no assurance that the Fund's investment objective will be realized.

      Certain capitalized terms not otherwise defined in this statement of
additional information have the meaning provided in the Glossary included as
part of the prospectus.

      This statement of additional information is not a prospectus, but should
be read in conjunction with the prospectus of the Fund, which has been filed
with the Securities and Exchange Commission (the "Commission") and can be
obtained, without charge, by calling (800) 543-6217. The prospectus is
incorporated by reference into this statement of additional information, and
this statement of additional information is incorporated by reference into the
prospectus.

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

                              Merrill Lynch & Co.

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

    The date of this statement of additional information is [     ], 2005.

<PAGE>

           TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

Investment Objective and Policies.............................................3
Investment Restrictions.......................................................3
Description of AMPS...........................................................5
The Auction..................................................................12
Rating Agency Guidelines.....................................................13
Directors and Officers.......................................................21
Investment Advisory and Management Arrangements..............................28
Portfolio Transactions.......................................................36
Taxes........................................................................38
Conflicts of Interest........................................................43
Net Asset Value..............................................................45
Financial Statements.........................................................45
APPENDIX A  Ratings Of Municipal Bonds .....................................A-1
APPENDIX B  Settlement Procedures ..........................................B-1
APPENDIX C  Auction Procedures .............................................C-1



                                      2
<PAGE>

                       INVESTMENT OBJECTIVE AND POLICIES

      MuniYield Quality Fund, Inc. is a non-diversified, closed-end management
investment company seeking to provide shareholders with as high a level of
current income exempt from Federal income taxes as is consistent with its
investment policies and prudent investment management. The Fund seeks to
achieve its investment objective by investing, as a fundamental policy, at
least 80% of an aggregate of the Fund's net assets (including proceeds from
the issuance of preferred stock), and the proceeds of any borrowings for
investment purposes, in a portfolio of municipal obligations issued by or on
behalf of states, territories and possessions of the United States and their
political subdivisions, agencies or instrumentalities, each of which pays
interest that, in the opinion of bond counsel to the issuer, is excludable
from gross income for Federal income tax purposes (except that the interest
may be includable in taxable income for purposes of the Federal alternative
minimum tax) ("Municipal Bonds"). The Fund invests in Municipal Bonds which
are rated high grade (A or better) or, if unrated, are considered by the
Investment Adviser to be of comparable quality. The Fund may invest in certain
tax exempt securities classified as "private activity bonds," as discussed
within, that may subject certain investors in the Fund to an alternative
minimum tax. There can be no assurance that the Fund's investment objective
will be realized.

      Reference is made to "Investment Objective and Policies" and "Other
Investment Policies" in the prospectus for information regarding other types
of securities that the Fund may invest in to achieve its objective.

                            INVESTMENT RESTRICTIONS

      The following are fundamental investment restrictions of the Fund and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding shares of common stock and outstanding shares of AMPS,
Other AMPS and any other preferred stock, voting together as a single class,
and a majority of the outstanding shares of AMPS, Other AMPS and any other
preferred stock, voting as a separate class (which for this purpose and under
the 1940 Act means the lesser of (i) 67% of the shares of each class of
capital stock represented at a meeting at which more than 50% of the
outstanding shares of each class of capital stock are represented or (ii) more
than 50% of the outstanding shares of each class of capital stock). The Fund
may not:

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

            2. Purchase securities of other investment companies, except (i)
      in connection with a merger, consolidation, acquisition or
      reorganization, (ii) by purchase of shares of tax-exempt money market
      funds advised by the Investment Adviser or its affiliates (as defined in
      the 1940 Act) to the extent permitted by an exemptive order issued to
      the Fund by the Securities and Exchange Commission, or (iii) by purchase
      in the open market of securities of closed-end investment companies and
      only if immediately thereafter no more than 10% of the Fund's total
      assets would be invested in such securities.

            3. Purchase or sell real estate, real estate limited partnerships,
      commodities or commodity contracts; provided that the Fund may invest in
      securities secured by real estate or interests therein or issued by
      companies that invest in real estate or interests therein, and the Fund
      may purchase and sell financial futures contracts and options thereon.

            4. Issue senior securities other than preferred stock or borrow
      amounts in excess of 5% of its total assets taken at market value;
      provided, however, that the Fund is authorized to borrow money in excess
      of 5% of the value of its total assets for the purpose of repurchasing
      shares of common stock or redeeming shares of preferred stock.

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

            6. Make loans to other persons, except that the Fund may purchase
      Municipal Bonds and other debt securities in accordance with its
      investment objective, policies and limitations.



                                      3
<PAGE>

            7. Purchase any securities on margin, except that the Fund may
      obtain such short-term credit as may be necessary for the clearance of
      purchases and sales of portfolio securities (the deposit or payment by
      the Fund of initial or variation margin in connection with financial
      futures contracts and options thereon is not considered the purchase of
      a security on margin).

            8. Make short sales of securities or maintain a short position or
      invest in put, call, straddle or spread options, except that the Fund
      may write, purchase and sell options and futures on Municipal Bonds,
      U.S. Government obligations and related indices or otherwise in
      connection with bona fide hedging activities.

            9. Invest more than 25% of its total assets (taken at market value
      at the time of each investment) in the securities of issuers in a single
      industry; provided that, for purposes of this restriction, states,
      municipalities and their political subdivisions are not considered to be
      part of any industry.

      For purposes of investment restriction (4) above, the Fund may borrow
moneys in excess of 5% of the value of its total assets to the extent
permitted by Section 18 of the 1940 Act or otherwise as permitted by
applicable law for the purpose of repurchasing shares of common stock or
redeeming shares of preferred stock. For purposes of investment restriction
(9) above, the exception for states, municipalities and their political
subdivisions applies only to tax exempt securities issued by such entities.

      An additional investment restriction adopted by the Fund, which may be
changed by the Board of Directors without stockholder approval, provides that
the Fund may not mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund except as
may be necessary in connection with borrowings mentioned in investment
restriction (4) above or except as may be necessary in connection with
transactions in financial futures contracts and options thereon.

      If a percentage restriction on investment policies or the investment or
use of assets set forth above is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not
be considered a violation.

      The Fund is classified as non-diversified within the meaning of the 1940
Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in securities of a single issuer.
As a non-diversified fund, the Fund's investments are limited, however, in
order to allow the Fund to continue to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). See
"Taxes." To qualify, the Fund complies with certain requirements, including
limiting its investments so that at the close of each quarter of the taxable
year (i) not more than 25% of the market value of the Fund's total assets will
be invested in the securities of a single issuer or in qualified publicly
traded partnerships as defined in the Code 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. For purposes of this restriction, the Fund will regard each
state and each political subdivision, agency or instrumentality of such state
and each multi-state agency of which such state is a member and each public
authority which issues securities on behalf of a private entity as a separate
issuer, except that if the security is backed only by the assets and revenues
of a non-government entity then the entity with the ultimate responsibility
for the payment of interest and principal may be regarded as the sole issuer.
These tax-related limitations may be changed by the Board of Directors of the
Fund to the extent necessary to comply with changes in the Federal tax
requirements. A fund that elects to be classified as "diversified" under the
1940 Act must satisfy the foregoing 5% and 10% requirements with respect to
75% of its total assets.

      The Investment Adviser of the Fund and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") are owned and controlled by Merrill Lynch
& Co., Inc. ("ML & Co."). Because of the affiliation of Merrill Lynch with the
Investment Adviser, the Fund is prohibited from engaging in certain
transactions involving Merrill Lynch except pursuant to an exemptive order or
otherwise in compliance with the provisions of the 1940 Act and the rules and
regulations thereunder. Included among such restricted transactions will be
purchases from or sales to Merrill Lynch of securities in transactions in
which it acts as principal. See "Portfolio Transactions" in this statement of
additional information.



                                      4
<PAGE>

                              DESCRIPTION OF AMPS

      Certain of the capitalized terms used herein and not otherwise defined
in this statement of additional information have the meaning provided in the
Glossary at the back of the prospectus.

      The Series E AMPS will be shares of preferred stock that entitle their
holders to receive dividends when, as and if declared by the Board of
Directors, out of funds legally available therefor, at a rate per annum that
may vary for the successive Dividend Periods. After the Initial Dividend
Period, each Subsequent Dividend Period for the Series E AMPS generally will
be a 7-Day Dividend Period; provided however, that prior to any Auction, the
Fund may elect, subject to certain limitations described herein, upon giving
notice to holders thereof, a Special Dividend Period. The Applicable Rate for
a particular Dividend Period will be determined by an Auction conducted on the
Business Day before the start of such Dividend Period. Beneficial Owners and
Potential Beneficial Owners of shares of AMPS may participate in Auctions
therefor, although, except in the case of a Special Dividend Period of more
than 28 days, Beneficial Owners desiring to continue to hold all of their
shares of AMPS regardless of the Applicable Rate resulting from Auctions need
not participate. For an explanation of Auctions and the method of determining
the Applicable Rate, see Appendix C "Auction Procedures."

      Except as otherwise required by law or unless there is no Securities
Depository, all outstanding shares of the AMPS will be represented by one or
more certificates registered in the name of the nominee of the Securities
Depository (initially expected to be Cede), and no person acquiring shares of
AMPS will be entitled to receive a certificate representing such shares. See
Appendix C "Auction Procedures." As a result, the nominee of the Securities
Depository is expected to be the sole holder of record of the shares of AMPS.
Accordingly, each purchaser of AMPS must rely on (i) the procedures of the
Securities Depository and, if such purchaser is not a member of the Securities
Depository, such purchaser's Agent Member, to receive dividends, distributions
and notices and to exercise voting rights (if and when applicable) and (ii)
the records of the Securities Depository and, if such purchaser is not a
member of the Securities Depository, such purchaser's Agent Member, to
evidence its beneficial ownership of shares of AMPS.

      When issued and sold, the shares of AMPS will have a liquidation
preference of $25,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) and will be fully paid and
non-assessable. See "Description of AMPS -- Liquidation Rights" in the
prospectus. The shares of AMPS will not be convertible into shares of common
stock or other capital stock of the Fund, and the holders thereof will have no
preemptive rights. The AMPS will not be subject to any sinking fund but will
be subject to redemption at the option of the Fund at the Optional Redemption
Price on any Dividend Payment Date (except during the Initial Dividend Period
and during a Non-Call Period) and, under certain circumstances, will be
subject to mandatory redemption by the Fund at the Mandatory Redemption Price
stated in the prospectus. See "Description of AMPS -- Redemption" in the
prospectus.

      The Fund also has outstanding four series of shares of Other AMPS with
terms that are substantially the same as the terms of the shares of AMPS
described herein and in the prospectus. Cede, the nominee of the Securities
Depository, 55 Water Street, New York, New York 10041-0099, is the sole holder
of record of the shares of Other AMPS. The Series E AMPS offered hereby rank
on a parity with the Other AMPS with respect to dividends and liquidation
preference.

      In addition to serving as the Auction Agent in connection with the
Auction Procedures described in the prospectus, The Bank of New York will be
the transfer agent, registrar, dividend disbursing agent and redemption agent
for the shares of AMPS. The Auction Agent, however, will serve merely as the
agent of the Fund, acting in accordance with the Fund's instructions, and will
not be responsible for any evaluation or verification of any matters certified
to it.

      Except in an Auction, the Fund will have the right (to the extent
permitted by applicable law) to purchase or otherwise acquire any shares of
AMPS so long as the Fund is current in the payment of dividends on AMPS and on
any other capital stock of the Fund ranking on a parity with the AMPS,
including the Other AMPS, with respect to the payment of dividends or upon
liquidation. Any shares of AMPS redeemed, purchased or otherwise acquired by
the Fund may not be reissued.



                                      5
<PAGE>

      The following supplements the description of the terms of the shares of
AMPS set forth in the prospectus. This description does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Fund's Charter and Articles Supplementary, including the provisions thereof
establishing the AMPS. The Fund's Charter and the form of Articles
Supplementary establishing the terms of the AMPS have been filed as exhibits
to the Registration Statement of which this statement of additional
information is a part.

Dividends

      General. The holders of shares of the Series E AMPS will be entitled to
receive, when, as and if declared by the Board of Directors of the Fund, out
of funds legally available therefor, cumulative cash dividends on their
shares, at the Applicable Rate. Dividends on the shares of AMPS so declared
and payable shall be paid (i) in preference to and in priority over any
dividends so declared and payable on the common stock, and (ii) to the extent
permitted under the Code and to the extent available, out of net tax-exempt
income earned on the Fund's investments. Generally, dividends on shares of
AMPS, to the extent that they are derived from interest paid on Municipal
Bonds, will be exempt from Federal income taxes, subject to possible
application of the alternative minimum tax. See "Taxes."

      Notification of Dividend Period. In determining whether the Fund should
issue a Notice of Special Dividend for the AMPS, the Broker-Dealers will
consider (i) existing short-term and long-term market rates and indices of
such short-term and long-term rates, (ii) existing market supply and demand
for short-term and long-term securities, (iii) existing yield curves for
short-term and long-term securities comparable to the AMPS, (iv) industry and
financial conditions that may affect the AMPS, (v) the investment objective of
the Fund, and (vi) the Dividend Periods and dividend rates at which current
and potential beneficial holders of the AMPS would remain or become beneficial
holders. If the Broker-Dealers shall not give the Fund a Response by such
second Business Day or if the Response states that given the factors set forth
above it is not advisable that the Fund give a Notice of Special Dividend
Period for the AMPS, the Fund may not give a Notice of Special Dividend Period
in respect of such Request for Special Dividend Period. In the event the
Response indicates that it is advisable that the Fund give a Notice of Special
Dividend Period for the AMPS, the Fund, by no later than the second Business
Day prior to such Auction Date, may give a notice (a "Notice of Special
Dividend Period") to the Auction Agent, the Securities Depository and each
Broker-Dealer, which notice will specify (i) the duration of the Special
Dividend Period, (ii) the Optional Redemption Price as specified in the
related Response and (iii) the Specific Redemption Provisions, if any, as
specified in the related Response. The Fund also shall provide a copy of such
Notice of Special Dividend Period to Moody's and S&P. The Fund shall not give
a Notice of Special Dividend Period, and, if such Notice of Special Dividend
Period shall have been given already, shall give telephonic and written notice
of its revocation (a "Notice of Revocation") to the Auction Agent, each
Broker-Dealer, and the Securities Depository on or prior to the Business Day
prior to the relevant Auction Date if (x) either the 1940 Act AMPS Asset
Coverage is not satisfied or the Fund shall fail to maintain S&P Eligible
Assets and Moody's Eligible Assets each with an aggregate Discounted Value at
least equal to the AMPS Basic Maintenance Amount, in each case on the
Valuation Date immediately preceding the Business Day prior to the relevant
Auction Date on an actual basis and on a pro forma basis giving effect to the
proposed Special Dividend Period (using as a pro forma dividend rate with
respect to such Special Dividend Period the dividend rate which the
Broker-Dealers shall advise the Fund is an approximately equal rate for
securities similar to the AMPS with an equal dividend period), (y) sufficient
funds for the payment of dividends payable on the immediately succeeding
Dividend Payment Date have not been segregated in an account at the Fund's
custodian bank or on the books of the Fund by the close of business on the
third Business Day preceding the related Auction Date or (z) the
Broker-Dealers jointly advise the Fund that, after consideration of the
factors listed above, they have concluded that it is advisable to give a
Notice of Revocation. The Fund also shall provide a copy of such Notice of
Revocation to Moody's and S&P. If the Fund is prohibited from giving a Notice
of Special Dividend Period as a result of the factors enumerated in clause
(x), (y) or (z) above or if the Fund gives a Notice of Revocation with respect
to a Notice of Special Dividend Period, the next succeeding Dividend Period
will be a 7-Day Dividend Period. In addition, in the event Sufficient Clearing
Bids are not made in any Auction or an Auction is not held for any reason, the
next succeeding Dividend Period will be a 7-Day Dividend Period, and the Fund
may not again give a Notice of Special Dividend Period (and any such attempted
notice shall be null and void) until Sufficient Clearing Bids have been made
in an Auction with respect to a 7-Day Dividend Period.

      Non-Payment Period; Late Charge. A Non-Payment Period will commence if
the Fund fails to (i) declare, prior to the close of business on the second
Business Day preceding any Dividend Payment Date, for payment on or



                                      6
<PAGE>

(to the extent permitted as described below) within three Business Days after
such Dividend Payment Date to the persons who held such shares as of 12:00
noon, Eastern time, on the Business Day preceding such Dividend Payment Date,
the full amount of any dividend on shares of AMPS payable on such Dividend
Payment Date or (ii) deposit, irrevocably in trust, in same-day funds, with
the Auction Agent by 12:00 noon, Eastern time, (A) on such Dividend Payment
Date the full amount of any cash dividend on such shares (if declared) payable
on such Dividend Payment Date or (B) on any redemption date for shares of AMPS
called for redemption, the Mandatory Redemption Price per share of such AMPS
or, in the case of an optional redemption, the Optional Redemption Price per
share. Such Non-Payment Period will consist of the period commencing on and
including the aforementioned Dividend Payment Date or redemption date, as the
case may be, and ending on and including the Business Day on which, by 12:00
noon, Eastern time, all unpaid cash dividends and unpaid redemption prices
shall have been so deposited or otherwise shall have been made available to
the applicable holders in same-day funds, provided that a Non-Payment Period
for AMPS will not end unless the Fund shall have given at least five days' but
no more than 30 days' written notice of such deposit or availability to the
Auction Agent, the Securities Depository and all holders of shares of AMPS.
Notwithstanding the foregoing, the failure by the Fund to deposit funds as
provided for by clause (ii) (A) or (ii) (B) above within three Business Days
after any Dividend Payment Date or redemption date, as the case may be, in
each case to the extent contemplated below, shall not constitute a
"Non-Payment Period."

      The Applicable Rate for each Dividend Period for shares of AMPS,
commencing during a Non-Payment Period, will be equal to the Non-Payment
Period Rate; and each Dividend Period commencing after the first day of, and
during, a Non-Payment Period shall be a 7-Day Dividend Period. Any dividend on
shares of AMPS due on any Dividend Payment Date for such shares (if, prior to
the close of business on the second Business Day preceding such Dividend
Payment Date, the Fund has declared such dividend payable on such Dividend
Payment Date to the persons who held such shares as of 12:00 noon, Eastern
time, on the Business Day preceding such Dividend Payment Date) or redemption
price with respect to such shares not paid to such persons when due may be
paid to such persons in the same form of funds by 12:00 noon, Eastern time, on
any of the first three Business Days after such Dividend Payment Date or due
date, as the case may be, provided that such amount is accompanied by a late
charge calculated for such period of non-payment at the Non-Payment Period
Rate applied to the amount of such non-payment based on the actual number of
days comprising such period divided by 365. In the case of a willful failure
of the Fund to pay a dividend on a Dividend Payment Date or to redeem any
shares of AMPS on the date set for such redemption, the preceding sentence
shall not apply and the Applicable Rate for the Dividend Period commencing
during the Non-Payment Period resulting from such failure shall be the
Non-Payment Period Rate. For the purposes of the foregoing, payment to a
person in same-day funds on any Business Day at any time will be considered
equivalent to payment to that person in New York Clearing House (next-day)
funds at the same time on the preceding Business Day, and any payment made
after 12:00 noon, Eastern time, on any Business Day shall be considered to
have been made instead in the same form of funds and to the same person before
12:00 noon, Eastern time, on the next Business Day.

      The Non-Payment Period Rate initially will be 200% of the applicable
Reference Rate (or 300% of such rate if the Fund has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate for
any dividend that net capital gain or other taxable income will be included in
such dividend on shares of AMPS), provided that the Board of Directors of the
Fund shall have the authority to adjust, modify, alter or change from time to
time by resolution or otherwise the initial Non-Payment Period Rate if the
Board of Directors of the Fund determines and Moody's and S&P (and any
Substitute Rating Agency or Substitute Rating Agencies, as the case may be, in
lieu of Moody's or S&P, or both, in the event either or both of such parties
shall not rate the AMPS) advise the Fund in writing that such adjustment,
modification, alteration or change will not adversely affect their then
current ratings on the AMPS.

      Restrictions on Dividends and Other Payments. For so long as any shares
of AMPS are outstanding, the Fund will not declare, pay or set apart for
payment any dividend or other distribution (other than a dividend or
distribution paid in shares of, or options, warrants or rights to subscribe
for or purchase, common stock or other stock, if any, ranking junior to shares
of AMPS as to dividends or upon liquidation) in respect of common stock or any
other stock of the Fund ranking junior to or on a parity with shares of AMPS
as to dividends or upon liquidation, or call for redemption, redeem, purchase
or otherwise acquire for consideration any shares of common stock or any other
such junior stock (except by conversion into or exchange for stock of the Fund
ranking junior to AMPS as to dividends and upon liquidation) or any such
parity stock (except by conversion into or exchange for stock of the Fund
ranking junior to or on a parity with AMPS as to dividends and upon
liquidation), unless (A) immediately after



                                      7
<PAGE>

such transaction, the Fund would have S&P Eligible Assets and Moody's Eligible
Assets each with an aggregate Discounted Value equal to or greater than the
AMPS Basic Maintenance Amount, and the 1940 Act AMPS Asset Coverage (see
"Asset Maintenance" and "Redemption" below) would be satisfied, (B) full
cumulative dividends on shares of AMPS and shares of the Other AMPS due on or
prior to the date of the transaction have been declared and paid or shall have
been declared and sufficient funds for the payment thereof deposited with the
Auction Agent, (C) any Additional Dividend required to be paid on or before
the date of such declaration or payment has been paid, and (D) the Fund has
redeemed the full number of shares of AMPS required to be redeemed by any
provision for mandatory redemption contained in the Articles Supplementary.

Asset Maintenance

      1940 Act AMPS Asset Coverage. The Fund will be required under the
Articles Supplementary to maintain, with respect to shares of AMPS, as of the
last Business Day of each month in which any shares of AMPS are outstanding,
asset coverage of at least 200% with respect to senior securities that are
stock, including the shares of AMPS and Other AMPS (or such other asset
coverage as in the future may be specified in or under the 1940 Act as the
minimum asset coverage for senior securities that are stock of a closed-end
investment company as a condition of paying dividends on its common stock)
("1940 Act AMPS Asset Coverage"). If the Fund fails to maintain 1940 Act AMPS
Asset Coverage and such failure is not cured as of the last Business Day of
the following month (the "1940 Act Cure Date"), the Fund will be required
under certain circumstances to redeem certain of the shares of AMPS. See
"Description of AMPS -- Redemption" in the prospectus and "--Redemption"
below.

      AMPS Basic Maintenance Amount. So long as shares of AMPS are
outstanding, the Fund will be required under the Articles Supplementary as of
the last Business Day of each week (a "Valuation Date") to maintain S&P
Eligible Assets and Moody's Eligible Assets each having in the aggregate a
Discounted Value at least equal to the AMPS Basic Maintenance Amount. If the
Fund fails to meet such requirement as of any Valuation Date and such failure
is not cured on or before the sixth Business Day after such Valuation Date
(the "AMPS Basic Maintenance Cure Date"), the Fund will be required under
certain circumstances to redeem certain of the shares of AMPS. See
"Description of AMPS-- Redemption" in the prospectus and "--Redemption" below.
Upon any failure to maintain the required Discounted Value, the Fund will use
its best efforts to alter the composition of its portfolio to reattain a
Discounted Value at least equal to the AMPS Basic Maintenance Amount on or
prior to the AMPS Basic Maintenance Cure Date.

      The AMPS Basic Maintenance Amount as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares
of AMPS and Other AMPS outstanding on such Valuation Date multiplied by the
sum of $25,000 and any applicable redemption premium attributable to the
designation of a Premium Call Period; (B) the aggregate amount of cash
dividends (whether or not earned or declared) that will have accumulated for
the AMPS and Other AMPS outstanding to (but not including) the end of the
current Dividend Period for the AMPS that follows such Valuation Date in the
event the then current Dividend Period will end within 49 calendar days of
such Valuation Date or through the 49th day after such Valuation Date in the
event the then current Dividend Period will not end within 49 calendar days of
such Valuation Date; (C) in the event the then current Dividend Period will
end within 49 calendar days of such Valuation Date, the aggregate amount of
cash dividends that would accumulate at the Maximum Applicable Rate applicable
to a Dividend Period of 28 or fewer days on any shares of AMPS and Other AMPS
outstanding from the end of such Dividend Period through the 49th day after
such Valuation Date, multiplied by the larger of the Moody's Volatility Factor
and the S&P Volatility Factor, determined from time to time by Moody's and
S&P, respectively (except that if such Valuation Date occurs during a
Non-Payment Period, the cash dividend for purposes of calculation would
accumulate at the then current Non-Payment Period Rate); (D) the amount of
anticipated expenses of the Fund for the 90 days subsequent to such Valuation
Date; (E) the amount of current outstanding balances of any indebtedness that
is senior to the AMPS plus interest actually accrued together with 30 days
additional interest on the current outstanding balances calculated at the
current rate; (F) the amount of the Fund's maximum potential Additional
Dividend liability as of such Valuation Date; and (G) any current liabilities
as of such Valuation Date to the extent not reflected in any of (i)(A) through
(i)(F) (including, without limitation, and immediately upon determination, any
amounts due and payable by the Fund for portfolio securities purchased as of
such Valuation Date and any liabilities incurred for the purpose of clearing
securities transactions) less (ii) either (A) the Discounted Value of any of
the Fund's assets, or (B) the face value of any of the Fund's assets if such
assets mature prior to or on the date of redemption of AMPS or payment of a
liability and are either securities issued or guaranteed by the United States
Government or Deposit Securities, in



                                      8
<PAGE>

both cases irrevocably deposited by the Fund for the payment of the amount
needed to redeem shares of AMPS subject to redemption or to satisfy any of
(i)(B) through (i)(G).

      The Discount Factors and guidelines for determining the market value of
the Fund's portfolio holdings have been based on criteria established in
connection with rating the AMPS. These factors include, but are not limited
to, the sensitivity of the market value of the relevant asset to changes in
interest rates, the liquidity and depth of the market for the relevant asset,
the credit quality of the relevant asset (for example, the lower the rating of
a debt obligation, the higher the related discount factor) and the frequency
with which the relevant asset is marked to market. In no event shall the
Discounted Value of any asset of the Fund exceed its unpaid principal balance
or face amount as of the date of calculation. The Discount Factor relating to
any asset of the Fund and the AMPS Basic Maintenance Amount, the assets
eligible for inclusion in the calculation of the Discounted Value of the
Fund's portfolio and certain definitions and methods of calculation relating
thereto may be changed from time to time by the Fund, without stockholder
approval, but only in the event the Fund receives written confirmation from
S&P, Moody's and any Substitute Rating Agency that any such changes would not
impair the rating then assigned to the shares of AMPS by S&P or Moody's or any
Substitute Rating Agency.

      On or before the seventh Business Day in the case of Moody's and the
next Business Day in the case of S&P after a Valuation Date on which the Fund
fails to maintain S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount, the Fund is required to (i) deliver to Moody's a report with respect
to the calculation of the AMPS Basic Maintenance Amount, the value of its
portfolio holdings and the net asset value and market price of the Fund's
common stock as of the date of such failure (an "AMPS Basic Maintenance
Report") and (ii) send S&P an electronic notification of such failure. The
Fund also will deliver an AMPS Basic Maintenance Report as of the 21st day of
each month (or if such day is not a Business Day, as of the next succeeding
Business Day) or as of the last Business Day of the month in which the Fund's
fiscal year ends on or before the seventh Business Day after such day. Within
ten Business Days after delivery of such report relating to the month in which
the Fund's fiscal year ends, the Fund will deliver a letter prepared by the
Fund's independent accountants regarding the accuracy of the calculations made
by the Fund in such AMPS Basic Maintenance Report. If any such letter prepared
by the Fund's independent accountants shows that an error was made in the AMPS
Basic Maintenance Report, the calculation or determination made by the Fund's
independent accountants will be conclusive and binding on the Fund. The Fund
will also (i) provide Moody's with an AMPS Basic Maintenance Report and (ii)
send S&P an electronic notification, as of each Valuation Date on or before
the seventh Business Day in the case of Moody's and the next Business Day in
the case of S&P after such date when the Discounted Value of Moody's Eligible
Assets or S&P Eligible Assets, as the case may be, fails to exceed the AMPS
Basic Maintenance Amount by 10% or more. Also, on or before 5:00 p.m., Eastern
time, on the first Business Day after shares of common stock are repurchased
by the Fund, the Fund will complete and deliver to Moody's an AMPS Basic
Maintenance Report as of the close of business on such date that common stock
is repurchased.

Redemption

      Mandatory Redemption. The number of shares of AMPS to be redeemed will
be equal to the lesser of (a) the minimum number of shares of AMPS the
redemption of which, if deemed to have occurred immediately prior to the
opening of business on the Cure Date, together with all other shares of the
preferred stock subject to redemption or retirement, would result in the Fund
having S&P Eligible Assets and Moody's Eligible Assets each with an aggregate
Discounted Value equal to or greater than the AMPS Basic Maintenance Amount or
satisfaction of the 1940 Act AMPS Asset Coverage, as the case may be, on such
Cure Date (provided that, if there is no such minimum number of shares the
redemption of which would have such result, all shares of AMPS then
outstanding will be redeemed), and (b) the maximum number of shares of AMPS,
together with all other shares of preferred stock subject to redemption or
retirement, that can be redeemed out of funds expected to be legally available
therefor on such redemption date. In determining the number of shares of AMPS
required to be redeemed in accordance with the foregoing, the Fund shall
allocate the number required to be redeemed which would result in the Fund
having S&P Eligible Assets and Moody's Eligible Assets each with an aggregate
Discounted Value equal to or greater than the AMPS Basic Maintenance Amount or
satisfaction of the 1940 Act AMPS Asset Coverage, as the case may be, pro rata
among shares of AMPS, Other AMPS and other preferred stock subject to
redemption pursuant to provisions similar to those set forth below; provided
that, shares of AMPS which may not be redeemed at the option of the Fund due
to the designation of a Non-Call Period applicable to such shares (A) will be
subject to mandatory



                                      9
<PAGE>

redemption only to the extent that other shares are not available to satisfy
the number of shares required to be redeemed and (B) will be selected for
redemption in an ascending order of outstanding number of days in the Non-Call
Period (with shares with the lowest number of days to be redeemed first) and
by lot in the event of shares having an equal number of days in such Non-Call
Period. The Fund is required to effect such a mandatory redemption on a
Business Day which is not later than 30 days after such Cure Date, except that
if the Fund does not have funds legally available for the redemption of all of
the required number of shares of AMPS and shares of other preferred stock
which are subject to mandatory redemption or the Fund otherwise is unable to
effect such redemption on a Business Day which is on or prior to 30 days after
such Cure Date, the Fund will redeem those shares of AMPS that it was unable
to redeem on the earliest practicable date on which it is able to effect such
redemption out of funds legally available therefor.

      Notice of Redemption. If shares of AMPS are to be redeemed, a notice of
redemption will be mailed to each record holder of such shares of AMPS
(initially Cede as nominee of the Securities Depository) and to the Auction
Agent not less than 17 nor more than 60 days prior to the date fixed for the
redemption thereof. Each notice of redemption will include a statement setting
forth: (i) the redemption date, (ii) the redemption price, (iii) the aggregate
number of shares of AMPS to be redeemed, (iv) the place or places where shares
of AMPS are to be surrendered for payment of the redemption price, (v) a
statement that dividends on the shares to be redeemed will cease to accumulate
on such redemption date (except that holders may be entitled to Additional
Dividends) and (vi) the provision of the Articles Supplementary pursuant to
which such shares are being redeemed. The notice also will be published in the
eastern and national editions of The Wall Street Journal. No defect in the
notice of redemption or in the mailing or publication thereof will affect the
validity of the redemption proceedings, except as required by applicable law.

      In the event that less than all of the outstanding shares of AMPS are to
be redeemed, the shares to be redeemed will be selected by lot or such other
method as the Fund shall deem fair and equitable, and the results thereof will
be communicated to the Auction Agent. The Auction Agent will give notice to
the Securities Depository, whose nominee will be the record holder of all
shares of AMPS, and the Securities Depository will determine the number of
shares to be redeemed from the account of the Agent Member of each Existing
Holder. Each Agent Member will determine the number of shares to be redeemed
from the account of each Existing Holder for which it acts as agent. An Agent
Member may select for redemption shares from the accounts of some Existing
Holders without selecting for redemption any shares from the accounts of other
Existing Holders. Notwithstanding the foregoing, if neither the Securities
Depository nor its nominee is the record holder of all of the shares of AMPS,
the particular shares to be redeemed shall be selected by the Fund by lot or
by such other method as the Fund shall deem fair and equitable.

      If the Fund gives notice of redemption, and concurrently or thereafter
deposits in trust with the Auction Agent, or segregates in an account at the
Fund's custodian bank for the benefit of the holders of the AMPS to be
redeemed and for payment to the Auction Agent, Deposit Securities (with a
right of substitution) having an aggregate Discounted Value equal to the
redemption payment for the shares of AMPS as to which notice of redemption has
been given, with irrevocable instructions and authority to pay the redemption
price to the record holders thereof, then upon the date of such deposit or, if
no such deposit is made, upon such date fixed for redemption (unless the Fund
shall default in making payment of the redemption price), all rights of the
holders of such shares called for redemption will cease and terminate, except
the right of such holders to receive the redemption price in respect thereof
and any Additional Dividends, but without interest, and such shares no longer
will be deemed to be outstanding. The Fund will be entitled to receive, from
time to time, the interest, if any, earned on such Deposit Securities
deposited with the Auction Agent, and the holders of any shares so redeemed
will have no claim to any such interest. Any funds so deposited which are
unclaimed at the end of one year from such redemption date will be repaid,
upon demand, to the Fund, after which the holders of the shares of AMPS so
called for redemption may look only to the Fund for payment thereof.

      So long as any shares of AMPS are held of record by the nominee of the
Securities Depository (initially Cede), the redemption price for such shares
will be paid on the redemption date to the nominee of the Securities
Depository. The Securities Depository's normal procedures now provide for it
to distribute the amount of the redemption price to Agent Members who, in
turn, are expected to distribute such funds to the persons for whom they are
acting as agent. Notwithstanding the provisions for redemption described
above, no shares of AMPS shall be subject to optional redemption (i) unless
all dividends in arrears on the outstanding shares of AMPS, and all capital



                                      10
<PAGE>

stock of the Fund ranking on a parity with the AMPS with respect to the
payment of dividends or upon liquidation, including the Other AMPS, have been
or are being contemporaneously paid or declared and set aside for payment and
(ii) if redemption thereof would result in the Fund's failure to maintain
Moody's Eligible Assets or S&P Eligible Assets with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount.

Voting Rights

      In connection with the election of the Fund's directors, holders of
shares of AMPS, Other AMPS and any other preferred stock, voting separately as
a single class, shall be entitled at all times to elect two of the Fund's
directors, and the remaining directors will be elected by holders of shares of
common stock and shares of AMPS, Other AMPS and any other preferred stock,
voting together as a single class. In addition, if at any time dividends on
outstanding shares of AMPS shall be unpaid in an amount equal to at least two
full years' dividends thereon or if at any time holders of any shares of
preferred stock, including Other AMPS, are entitled, together with the holders
of AMPS, to elect a majority of the directors of the Fund under the 1940 Act,
then the number of directors constituting the Board of Directors automatically
shall be increased by the smallest number that, when added to the two
directors elected exclusively by the holders of shares of AMPS, Other AMPS and
any other preferred stock as described above, would constitute a majority of
the Board of Directors as so increased by such smallest number, and at a
special meeting of stockholders which will be called and held as soon as
practicable, and at all subsequent meetings at which directors are to be
elected, the holders of shares of AMPS, Other AMPS and any other preferred
stock, voting as a separate class, will be entitled to elect the smallest
number of additional directors that, together with the two directors that such
holders in any event will be entitled to elect, constitutes a majority of the
total number of directors of the Fund as so increased. The terms of office of
the persons who are directors at the time of that election will continue. If
the Fund thereafter shall pay, or declare and set apart for payment in full,
all dividends payable on all outstanding shares of AMPS and any other
preferred stock, including Other AMPS, for all past Dividend Periods, the
additional voting rights of the holders of shares of AMPS and any other
preferred stock, including Other AMPS, as described above shall cease, and the
terms of office of all of the additional directors elected by the holders of
shares of AMPS, Other AMPS and any other preferred stock (but not of the
directors with respect to whose election the holders of common stock were
entitled to vote or the two directors the holders of shares of AMPS, Other
AMPS and any other preferred stock have the right to elect in any event) will
terminate automatically.

      The affirmative vote of a majority of the votes entitled to be cast by
holders of outstanding shares of AMPS and any other preferred stock, including
Other AMPS, voting as a separate class, will be required to (i) authorize,
create or issue any class or series of stock ranking prior to the AMPS or any
other series of preferred stock with respect to the payment of dividends or
the distribution of assets on dissolution, liquidation or winding up the
affairs of the Fund, or (ii) amend, alter or repeal the provisions of the
Charter, whether by merger, consolidation or otherwise, so as to adversely
affect any of the contract rights expressly set forth in the Charter of
holders of shares of AMPS or any other preferred stock. To the extent
permitted under the 1940 Act, in the event shares of more than one series of
preferred stock are outstanding, the Fund shall not approve any of the actions
set forth in clause (i) or (ii) which adversely affects the contract rights
expressly set forth in the Charter of a holder of shares of AMPS differently
than those of a holder of shares of any other series of preferred stock
without the affirmative vote of at least a majority of votes entitled to be
cast by holders of the shares of AMPS adversely affected and outstanding at
such time (voting separately as a class). The Board of Directors, however,
without stockholder approval, may amend, alter or repeal any or all of the
various rating agency guidelines described herein in the event the Fund
receives confirmation from the rating agencies that any such amendment,
alteration or repeal would not impair the ratings then assigned to shares of
AMPS. Furthermore, the Board of Directors, without stockholder approval, may
terminate compliance with the Moody's or S&P guidelines as discussed under
"Rating Agency Guidelines" in the prospectus. Unless a higher percentage is
provided for under "Description of Capital Stock -- Certain Provisions of the
Charter and By-laws" in the prospectus, the affirmative vote of the holders of
a majority of the outstanding shares of preferred stock (as defined under
"Investment Restrictions"), including AMPS and Other AMPS, entitled to be
cast, voting as a separate class, will be required to approve any plan of
reorganization (including bankruptcy proceedings) adversely affecting such
shares or any action requiring a vote of security holders under Section 13(a)
of the 1940 Act including, among other things, changes in the Fund's
investment objective or changes in the investment policies and restrictions
described as fundamental policies in the prospectus and under "Investment
Restrictions." So long as any shares of AMPS are outstanding, the affirmative
vote of the holders of a majority of the outstanding shares of preferred stock
(as defined under "Investment Restrictions"), including AMPS and Other AMPS,
voting together as a single class, will be required to approve any voluntary
application by the Fund for relief



                                      11
<PAGE>

under Federal bankruptcy law or any similar application under state law for so
long as the Fund is solvent and does not foresee becoming insolvent. The class
vote of holders of shares of AMPS, Other AMPS and any other preferred stock
described above in each case will be in addition to a separate vote of the
requisite percentage of shares of common stock and shares of AMPS, Other AMPS
and any other preferred stock, voting together as a single class, necessary to
authorize the action in question. An increase in the number of authorized
shares of preferred stock pursuant to the Charter or the issuance of
additional shares of any series of preferred stock (including AMPS and Other
AMPS) pursuant to the Charter shall not in and of itself be considered to
adversely affect the contract rights of the holders of the AMPS.

      Notwithstanding the foregoing, and except as otherwise required by the
1940 Act, (i) holders of outstanding shares of the AMPS will be entitled as a
series, to the exclusion of the holders of all other securities, including
other preferred stock, common stock and other classes of capital stock of the
Fund, to vote on matters affecting the AMPS that do not materially adversely
affect any of the contract rights of holders of such other securities,
including other preferred stock, common stock and other classes of capital
stock, as expressly set forth in the Charter, and (ii) holders of outstanding
shares of AMPS will not be entitled to vote on matters affecting any other
preferred stock that do not materially adversely affect any of the contract
rights of holders of the AMPS, as expressly set forth in the Charter.

      The foregoing voting provisions will not apply to any shares of AMPS if,
at or prior to the time when the act with respect to which such vote otherwise
would be required shall be effected, such shares shall have been (i) redeemed
or (ii) called for redemption and sufficient funds shall have been deposited
in trust to effect such redemption.

                                  THE AUCTION

Auction Agent Agreement

      The Auction Agent will act as agent for the Fund in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered or omitted, or for any
error of judgment made, by it in the performance of its duties under the
Auction Agent Agreement, and will not be liable for any error of judgment made
in good faith unless the Auction Agent shall have been negligent in
ascertaining, or failing to ascertain, the pertinent facts. Pursuant to the
Auction Agent Agreement, the Fund is required to indemnify the Auction Agent
for certain losses and liabilities incurred by the Auction Agent without
negligence or bad faith on its part in connection with the performance of its
duties under such agreement.

      The Auction Agent may terminate the Auction Agent Agreement upon notice
to the Fund, which termination may be no earlier than 60 days following
delivery of such notice. If the Auction Agent resigns, the Fund will use its
best efforts to enter into an agreement with a successor Auction Agent
containing substantially the same terms and conditions as the Auction Agent
Agreement. The Fund may terminate the Auction Agent Agreement at any time,
provided that prior to such termination the Fund shall have entered into such
an agreement with respect thereto with a successor Auction Agent.

Broker-Dealer Agreements

      The Auctions require the participation of one or more broker-dealers. A
Broker-Dealer Agreement may be terminated by the Auction Agent or a
Broker-Dealer on five days' notice to the other party, provided that the
Broker-Dealer Agreement with Merrill Lynch may not be terminated without the
prior written consent of the Fund, which consent may not be unreasonably
withheld.

      For the six months ended April 30, 2005 and the fiscal years ended
October 31, 2004, 2003 and 2002, Merrill Lynch, an affiliate of the Investment
Adviser, earned $[112,045], $[233,047], $[190,653] and $[246,754],
respectively, pursuant to its Broker-Dealer Agreement with the Fund.



                                      12
<PAGE>

Auction Procedures

      The Auction Procedures are set forth in Appendix C to this statement of
additional information. The Settlement Procedures to be used with respect to
Auctions are set forth in Appendix B to this statement of additional
information.

                           RATING AGENCY GUIDELINES

S&P AAA Rating Guidelines

      The Discounted Value of the Fund's S&P Eligible Assets is calculated on
each Valuation Date. See "Description of AMPS--Asset Maintenance--AMPS Basic
Maintenance Amount." S&P Eligible Assets include cash, Receivables for
Municipal Bonds Sold (as defined below), Rule 2a-7 Money Market Funds and
Municipal Bonds eligible for consideration under S&P's current guidelines. For
purposes of calculating the Discounted Value of the Fund's portfolio under
current S&P guidelines, the fair market value of Municipal Bonds eligible for
consideration under such guidelines must be discounted by the applicable S&P
Discount Factor set forth in the table below. The Discounted Value of a
Municipal Bond eligible for consideration under S&P guidelines is the fair
market value thereof divided by the S&P Discount Factor. The S&P Discount
Factor used to discount a particular Municipal Bond will be determined by
reference to the rating by S&P, Moody's or Fitch on such Municipal Bond;
provided, however, for purposes of determining the S&P Discount Factor
applicable to Municipal Bonds not rated by S&P, the Municipal Bonds will carry
an S&P rating one full rating category lower than the S&P rating category that
is the equivalent of the rating category in which such Municipal Bond is
placed by a NRSRO, in accordance with the table set forth below:


                           S&P's Rating Category (1)
- -------------------------------------------------------------------------------
AAA*(2)       AA*       A*       BBB*       BB*       B*      CCC*       NR**
- --------   -------- --------- --------- --------- --------- --------  ---------
144.75%     147.75%  150.75%   153.75%   175.11%   195.11%   215.11%   220.00%

- ------------
*     S&P rating.

**    Not rated.

(1)   For Municipal Bonds of any one issuer rated at least BBB- by S&P, or if
      not rated by S&P, rated at least A- by another NRSRO, 2% is added to the
      applicable S&P Discount Factor for every 1% by which the fair market
      value of such Municipal Bonds exceeds 5% of the aggregate fair market
      value of the S&P Eligible Assets, but in no event greater than 10%; or
      for any percentage over 5% add 10 percentage points to the applicable
      S&P Discount Factor.

(2)   For zero coupon Municipal Bonds, the S&P Discount Factor is 441.80%.

      Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Municipal Bonds will be 115%, so long as such Municipal Bonds are
rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable in
30 days or less, or 120% so long as such Municipal Bonds are rated A-1 or SP-1
by S&P and mature or have a demand feature exercisable in 30 days or less, or
125% if such Municipal Bonds are not rated by S&P but are rated VMIG-1, P-1 or
MIG-1 by Moody's or F-1+ by Fitch; provided, however, such short-term
Municipal Bonds rated by Moody's or Fitch but not rated by S&P having a demand
feature exercisable in 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution
having a short-term rating of at least A-1+ from S&P; and further provided
that such short-term Municipal Bonds rated by Moody's or Fitch but not rated
by S&P may comprise no more than 50% of short-term Municipal Bonds that
qualify as S&P Eligible Assets, (ii) the S&P Discount Factor for Rule 2a-7
Money Market Funds will be 110%, (iii) the S&P Discount Factor for Receivables
for Municipal Bonds Sold that are due in more than five Business Days from
such Valuation Date will be the S&P Discount Factor applicable to the
Municipal Bonds sold and (iv) no S&P Discount Factor will



                                      13
<PAGE>

be applied to cash or to Receivables for Municipal Bonds Sold if such
receivables are due within five Business Days of such Valuation Date.
"Receivables for Municipal Bonds Sold," for purposes of calculating S&P
Eligible Assets as of any Valuation Date, means the book value of receivables
for Municipal Bonds sold as of or prior to such Valuation Date. For purposes
of the foregoing, Anticipation Notes rated SP-1 or, if not rated by S&P, rated
VMIG-1 by Moody's or F-1+ by Fitch, which do not mature or have a demand
feature exercisable in 30 days and which do not have a long-term rating, shall
be considered to be short-term Municipal Bonds.

      The S&P guidelines require certain minimum issue size and impose other
requirements for purposes of determining S&P Eligible Assets. In order to be
considered S&P Eligible Assets, Municipal Bonds must:

            (i) be issued by any of the 50 states of the United States, its
      territories and their subdivisions, counties, cities, towns, villages,
      and school districts, agencies, such as authorities and special
      districts created by the states, and certain federally sponsored
      agencies such as local housing authorities (payments made on these bonds
      are exempt from regular Federal income taxes and are generally exempt
      from state and local taxes in the state of issuance);

            (ii) except for zero coupon Municipal Bonds rated AAA by S&P that
      mature in 30 years or less, be interest bearing and pay interest at
      least semi-annually;

            (iii) be payable with respect to principal and interest in U.S.
      dollars;

            (iv) not be subject to a covered call or covered put option
      written by the Fund;

            (v) except for Inverse Floaters, not be part of a private
      placement; and

            (vi) except for Inverse Floaters and legally defeased bonds that
      are secured by securities issued or guaranteed by the United States
      Government, be part of an issue with an original issue size of at least
      $10 million or, if of an issue with an original issue size below $10
      million, is rated at least AA or higher by S&P.

      Notwithstanding the foregoing:

            (i) Municipal Bonds issued by issuers in any one state or
      territory will be considered S&P Eligible Assets only to the extent the
      fair market value of such Municipal Bonds does not exceed 25% of the
      aggregate fair market value of S&P Eligible Assets;

            (ii) Municipal Bonds which are escrow bonds or defeased bonds may
      compose up to 100% of the aggregate fair market value of S&P Eligible
      Assets if such Bonds initially are assigned a rating by S&P in
      accordance with S&P's legal defeasance criteria or rerated by S&P as
      economic defeased escrow bonds and assigned an AAA rating. Municipal
      Bonds may be rated as escrow bonds by another NRSRO or rerated as an
      escrow bond and assigned the equivalent of an S&P AAA rating, provided
      that such equivalent rated Bonds are limited to 50% of the aggregate
      fair market value of S&P Eligible Assets and are deemed to have an AA
      S&P rating for purposes of determining the S&P Discount Factor
      applicable to such Municipal Bonds. The limitations on Municipal Bonds
      in clause (i) above and clauses (iii) and (iv) below are not applicable
      to escrow bonds;

            (iii) Municipal Bonds which are not rated by any NRSRO may
      comprise no more than 10% of S&P Eligible Assets;

            (iv) Municipal Bonds rated at least BBB- by S&P, or if not rated
      by S&P, rated at least A- by another NRSRO, of any one issuer or
      guarantor (excluding bond insurers) will be considered S&P Eligible
      Assets only to the extent the fair market value of such Municipal Bonds
      does not exceed 10% of the aggregate fair market value of the S&P
      Eligible Assets, High Yield Municipal Bonds of any issuer may comprise
      no more than 5% of S&P Eligible Assets, and Municipal Bonds of any one
      issuer which are not rated by any NRSRO will be considered S&P Eligible
      Assets only to the extent the fair market value of



                                      14
<PAGE>

      such Municipal Bonds does not exceed 5% of the aggregate fair market
      value of the S&P Eligible Assets. In the aggregate, the maximum issuer
      exposure is limited to 10% of the S&P Eligible Assets; and

            (v) Municipal Bonds not rated by S&P but rated by another NRSRO
      will be included in S&P Eligible Assets only to the extent the fair
      market value of such Municipal Bonds does not exceed 50% of the
      aggregate fair market value of the S&P Eligible Assets.

      As discussed in the prospectus, the Fund may engage in options or
futures transactions. For so long as any shares of AMPS are rated by S&P, the
Fund will not purchase or sell financial futures contracts, write, purchase or
sell options on financial futures contracts or write put options (except
covered put options) or call options (except covered call options) on
portfolio securities unless it receives written confirmation from S&P that
engaging in such transactions will not impair the ratings then assigned to the
shares of AMPS by S&P, except that the Fund may purchase or sell financial
futures contracts based on the Bond Buyer Municipal Bond Index (the "Municipal
Index") or Treasury Bonds and write, purchase or sell put and call options on
such contracts (collectively, "S&P Hedging Transactions"), subject to the
following limitations:

            (i) the Fund will not engage in any S&P Hedging Transaction based
      on the Municipal Index (other than transactions that terminate a
      financial futures contract or option held by the Fund by the Fund's
      taking an opposite position thereto ("Closing Transactions")), that
      would cause the Fund at the time of such transaction to own or have sold
      the least of (A) more than 1,000 outstanding financial futures contracts
      based on the Municipal Index, (B) outstanding financial futures
      contracts based on the Municipal Index exceeding in number 25% of the
      quotient of the fair market value of the Fund's total assets divided by
      $1,000 or (C) outstanding financial futures contracts based on the
      Municipal Index exceeding in number 10% of the average number of daily
      traded financial futures contracts based on the Municipal Index in the
      30 days preceding the time of effecting such transaction as reported by
      The Wall Street Journal;

            (ii) the Fund will not engage in any S&P Hedging Transaction based
      on Treasury Bonds (other than Closing Transactions) that would cause the
      Fund at the time of such transaction to own or have sold the lesser of
      (A) outstanding financial futures contracts based on Treasury Bonds
      exceeding in number 50% of the quotient of the fair market value of the
      Fund's total assets divided by $100,000 ($200,000 in the case of the
      two-year United States Treasury Note) or (B) outstanding financial
      futures contracts based on Treasury Bonds exceeding in number 10% of the
      average number of daily traded financial futures contracts based on
      Treasury Bonds in the 30 days preceding the time of effecting such
      transaction as reported by The Wall Street Journal;

            (iii) the Fund will engage in Closing Transactions to close out
      any outstanding financial futures contract that the Fund owns or has
      sold or any outstanding option thereon owned by the Fund in the event
      (A) the Fund does not have S&P Eligible Assets with an aggregate
      Discounted Value equal to or greater than the AMPS Basic Maintenance
      Amount on two consecutive Valuation Dates and (B) the Fund is required
      to pay Variation Margin on the second such Valuation Date;

            (iv) the Fund will engage in a Closing Transaction to close out
      any outstanding financial futures contract or option thereon in the
      month prior to the delivery month under the terms of such financial
      futures contract or option thereon unless the Fund holds the securities
      deliverable under such terms; and

            (v) when the Fund writes a financial futures contract or an option
      thereon, it will either maintain an amount of cash, cash equivalents or
      liquid assets in a segregated account with the Fund's custodian, so that
      the amount so segregated plus the amount of Initial Margin and Variation
      Margin held in the account of or on behalf of the Fund's broker with
      respect to such financial futures contract or option equals the fair
      market value of the financial futures contract or option, or, in the
      event the Fund writes a financial futures contract or option thereon
      that requires delivery of an underlying security, it shall hold such
      underlying security in its portfolio.

      For purposes of determining whether the Fund has S&P Eligible Assets
with a Discounted Value that equals or exceeds the AMPS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be zero and the aggregate Discounted
Value of S&P Eligible



                                      15
<PAGE>

Assets shall be reduced by an amount equal to (i) 30% of the aggregate
settlement value, as marked to market, of any outstanding financial futures
contracts based on the Municipal Index that are owned by the Fund plus (ii)
25% of the aggregate settlement value, as marked to market, of any outstanding
financial futures contracts based on Treasury Bonds which contracts are owned
by the Fund.

Moody's Aaa Rating Guidelines

      The Discounted Value of the Fund's Moody's Eligible Assets is calculated
on each Valuation Date. See "Description of AMPS--Asset Maintenance--AMPS
Basic Maintenance Amount." Moody's Eligible Assets include cash, Receivables
for Municipal Bonds Sold (as defined below), Rule 2a-7 Money Market Funds and
Municipal Bonds eligible for consideration under Moody's guidelines. For
purposes of calculating the Discounted Value of the Fund's portfolio under
current Moody's guidelines, the fair market value of Municipal Bonds eligible
for consideration under such guidelines must be discounted by the applicable
Moody's Discount Factor set forth in the table below. The Discounted Value of
a Municipal Bond eligible for consideration under Moody's guidelines is the
lower of par and the quotient of the fair market value thereof divided by the
Moody's Discount Factor. The Moody's Discount Factor used to discount a
particular Municipal Bond will be determined by reference to the rating by
Moody's, S&P or Fitch on such Municipal Bond, in accordance with the tables
set forth below:

                          Moody's Rating Category (1)
- -------------------------------------------------------------------------------
     Aaa                Aa            A             Baa             Other (2)
- ----------------  -------------  ------------  ------------   -----------------
     151%              159%          160%           173%               225%

- -----------
(1)   Ratings assigned by S&P or Fitch are generally accepted by Moody's at
      face value. However, adjustments to face value may be made to particular
      categories of credits for which the S&P and/or Fitch rating does not
      seem to approximate a Moody's rating equivalent. Split rated securities
      assigned by S&P and Fitch will be accepted at the lower of the two
      ratings.

(2)   Municipal Bonds rated Ba1 to B3 by Moody's or, if not rated by Moody's,
      rated BB+ to B- by S&P or Fitch. In addition, Municipal Bonds not
      explicitly rated by Moody's, S&P or Fitch, but rated at least the
      equivalent of B3 internally by the Investment Adviser, provided that
      Moody's reviews and achieves sufficient comfort with the Investment
      Adviser's internal credit rating processes, will be included under
      "Other" in the table. Unless conclusions regarding liquidity risk as
      well as estimates of both the probability and severity of default for
      the Fund's assets can be derived from other sources as well as combined
      with a number of sources as presented by the Fund to Moody's, unrated
      Municipal Bonds which are rated at least the equivalent of B3 by the
      Investment Adviser internally are limited to 10% of Moody's Eligible
      Assets.

                            Moody's Rating Category
- ------------------------------------------------------------------------------
     MIG-1, VMIG-1, P-1 (1)                         MIG-1, VMIG-1, P-1 (2)
- ------------------------------------  ----------------------------------------
              100%                                             136%

- -----------
(1)      Moody's rated Municipal Bonds that have a maturity less than or equal
         to 49 days and Municipal Bonds not rated by Moody's but rated the
         equivalent to MIG-1, VMIG-1, or P-1 by S&P or Fitch that have a
         maturity less than or equal to 49 days.

(2)      Moody's rated Municipal Bonds that have a maturity greater than 49
         days and Municipal Bonds not rated by Moody's but rated the
         equivalent to MIG-1, VMIG-1, or P-1 by S&P or Fitch that have a
         maturity greater than 49 days.



                                      16
<PAGE>

      Notwithstanding the foregoing, no Moody's Discount Factor will be
applied to cash or to Receivables for Municipal Bonds Sold that are due within
five Business Days of such Valuation Date. The Moody's Discount Factor for
Receivables for Municipal Bonds Sold that are due within six and 30 Business
Days of such Valuation Date will be the Moody's Discount Factor applicable to
the Municipal Bonds sold. "Receivables for Municipal Bonds Sold," for purposes
of calculating Moody's Eligible Assets as of any Valuation Date, means the
book value of receivables for Municipal Bonds sold as of or prior to such
Valuation Date if such receivables are due within 30 Business Days of such
Valuation Date.

      The Moody's Discount Factor for Inverse Floaters shall be the product of
(x) the percentage determined by reference to the rating on the security
underlying such Inverse Floaters multiplied by (y) 1.25.

      The Moody's Discount Factor for Rule 2a-7 Money Market Funds shall be
110%.

      The Moody's guidelines impose certain requirements as to minimum issue
size, issuer diversification and geographical concentration, as well as other
requirements for purposes of determining whether Municipal Bonds constitute
Moody's Eligible Assets, as set forth in the table on the following page:

                    Minimum Issue Size   Maximum Underlying    Maximum State
       Rating          ($ Millions)        Obligor(%)(1)      Allowed(%)(1)(3)
- -----------------  -------------------- -------------------- -------------------
        Aaa                  *                   100                100
         Aa                 10                    20                 60
         A                  10                    10                 40
        Baa                 10                     6                 20
         Ba                 10                     4                 12
         B                  10                     3                 12
     Other (2)              10                     2                 12
- -----------
*     Not applicable.

(1)   The referenced percentages represent maximum cumulative totals for the
      related rating category and each lower rating category.

(2)   Municipal Bonds not rated by Moody's, S&P or Fitch, but rated at least
      the equivalent of B3 internally by the Investment Adviser.

(3)   Territorial bonds (other than those issued by Puerto Rico and counted
      collectively) are each limited to 10% of Moody's Eligible Assets. For
      diversification purposes, Puerto Rico will be treated as a state.

      For purposes of the maximum underlying obligor requirement described
above, any Municipal Bond backed by the guaranty, letter of credit or
insurance issued by a third party will be deemed to be issued by such third
party if the issuance of such third party credit is the sole determinant of
the rating on such Bond.

      Current Moody's guidelines also require that Municipal Bonds
constituting Moody's Eligible Assets pay interest in cash, are publicly rated
B3 or higher by Moody's or, if not rated by Moody's, but rated by S&P or
Fitch, are publicly rated at least B- by S&P or Fitch, or if not explicitly
rated by Moody's, S&P or Fitch, be rated at least the equivalent of B3
internally by the Investment Adviser, provided that Moody's reviews and
achieves sufficient comfort with the Investment Adviser's internal credit
rating processes, not have suspended ratings by Moody's, if an Inverse
Floater, be explicitly rated by Moody's, and be part of an issue of Municipal
Bonds of at least $10,000,000 (except for issues rated Aaa by Moody's, as
provided in the chart above).

      When the Fund sells a Municipal Bond and agrees to repurchase it at a
future date, the Discounted Value of such Municipal Bond will constitute a
Moody's Eligible Asset and the amount the Fund is required to pay upon



                                      17
<PAGE>

repurchase of such Bond will count as a liability for purposes of calculating
the AMPS Basic Maintenance Amount. For so long as the AMPS are rated by
Moody's, the Fund will not enter into any such reverse repurchase agreements
unless it has received written confirmation from Moody's that such
transactions would not impair the rating then assigned the AMPS by Moody's.
When the Fund purchases a Municipal Bond and agrees to sell it at a future
date to another party, cash receivable by the Fund thereby will constitute a
Moody's Eligible Asset if the long-term debt of such other party is rated at
least A2 by Moody's and such agreement has a term of 30 days or less;
otherwise the Discounted Value of such Bond will constitute a Moody's Eligible
Asset.

      High Yield Municipal Bonds may comprise no more than 20% of Moody's
Eligible Assets. Unless conclusions regarding liquidity risk as well as
estimates of both the probability and severity of default for the Fund's
assets can be derived from other sources as well as combined with a number of
sources as presented by the Fund to Moody's, unrated High Yield Municipal
Bonds which are rated at least the equivalent of B3 by the Investment Adviser
internally are limited to 10% of Moody's Eligible Assets.

      Inverse Floaters, including primary market and secondary market residual
interest bonds, may constitute no more than 10% of Moody's Eligible Assets.

      Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset if it is (i) held in a margin account, (ii) subject to any
material lien, mortgage, pledge, security interest or security agreement of
any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Fund for the payment of
dividends or redemption.

      For so long as shares of AMPS are rated by Moody's, in managing the
Fund's portfolio, the Investment Adviser will not alter the composition of the
Fund's portfolio if, in the reasonable belief of the Investment Adviser, the
effect of any such alteration would be to cause the Fund to have Moody's
Eligible Assets with an aggregate Discounted Value, as of the immediately
preceding Valuation Date, less than the AMPS Basic Maintenance Amount as of
such Valuation Date; provided, however, that in the event that, as of the
immediately preceding Valuation Date, the aggregate Discounted Value of
Moody's Eligible Assets exceeded the AMPS Basic Maintenance Amount by 5% or
less, the Investment Adviser will not alter the composition of the Fund's
portfolio in a manner reasonably expected to reduce the aggregate Discounted
Value of Moody's Eligible Assets unless the Fund shall have confirmed that,
after giving effect to such alteration, the aggregate Discounted Value of
Moody's Eligible Assets would exceed the AMPS Basic Maintenance Amount.

      For so long as any shares of AMPS are rated by Moody's, the Fund will
not engage in Bond Market Association Municipal Swap Index swap transactions
("BMA swap transactions"), buy or sell financial futures contracts, write,
purchase or sell call options on financial futures contracts or purchase put
options on financial futures contracts or write call options (except covered
call options) on portfolio securities unless it receives written confirmation
from Moody's that engaging in such transactions would not impair the ratings
then assigned to the shares of AMPS by Moody's, except that the Fund may
engage in BMA swap transactions, purchase or sell exchange-traded financial
futures contracts based on any index approved by Moody's or Treasury Bonds,
and purchase, write or sell exchange-traded put options on such financial
futures contracts, and purchase, write or sell exchange-traded call options on
such financial futures contracts (collectively, "Moody's Hedging
Transactions"), subject to the following limitations:

            (i) the Fund will not engage in any Moody's Hedging Transaction
      based on the Municipal Index (other than Closing Transactions) that
      would cause the Fund at the time of such transaction to own or have sold
      (A) outstanding financial futures contracts based on the Municipal Index
      exceeding in number 10% of the average number of daily traded financial
      futures contracts based on the Municipal Index in the 30 days preceding
      the time of effecting such transaction as reported by The Wall Street
      Journal or (B) outstanding financial futures contracts based on the
      Municipal Index having a fair market value exceeding 50% of the fair
      market value of all Municipal Bonds constituting Moody's Eligible Assets
      owned by the Fund (other than Moody's Eligible Assets already subject to
      a Moody's Hedging Transaction);

            (ii) the Fund will not engage in any Moody's Hedging Transaction
      based on Treasury Bonds (other than Closing Transactions) that would
      cause the Fund at the time of such transaction to own or have sold (A)
      outstanding financial futures contracts based on Treasury Bonds having
      an aggregate fair market



                                      18
<PAGE>

      value exceeding 40% of the aggregate fair market value of Moody's
      Eligible Assets owned by the Fund and rated Aa by Moody's (or, if not
      rated by Moody's but rated by S&P, rated AAA by S&P) or (B) outstanding
      financial futures contracts based on Treasury Bonds having an aggregate
      fair market value exceeding 80% of the aggregate fair market value of
      all Municipal Bonds constituting Moody's Eligible Assets owned by the
      Fund (other than Moody's Eligible Assets already subject to a Moody's
      Hedging Transaction) and rated Baa or A by Moody's (or, if not rated by
      Moody's but rated by S&P, rated A or AA by S&P) (for purposes of the
      foregoing clauses (i) and (ii), the Fund shall be deemed to own the
      number of financial futures contracts that underlie any outstanding
      options written by the Fund);

            (iii) the Fund will engage in Closing Transactions to close out
      any outstanding financial futures contract based on the Municipal Index
      if the amount of open interest in the Municipal Index as reported by The
      Wall Street Journal is less than 5,000;

            (iv) the Fund will engage in a Closing Transaction to close out
      any outstanding financial futures contract by no later than the fifth
      Business Day of the month in which such contract expires and will engage
      in a Closing Transaction to close out any outstanding option on a
      financial futures contract by no later than the first Business Day of
      the month in which such option expires;

            (v) the Fund will engage in Moody's Hedging Transactions only with
      respect to financial futures contracts or options thereon having the
      next settlement date or the settlement date immediately thereafter;

            (vi) the Fund (A) will not engage in options and futures
      transactions for leveraging or speculative purposes, except that the
      Fund may engage in an option or futures transaction so long as the
      combination of the Fund's non-derivative positions, together with the
      relevant option or futures transaction, produces a synthetic investment
      position, or the same economic result, that could be achieved by an
      investment, consistent with the Fund's investment objective and
      policies, in a security that is not an option or futures transaction,
      subject to the Investment Adviser periodically demonstrating to Moody's
      that said economic results are achieved, and (B) will not write any call
      options or sell any financial futures contracts for the purpose of
      hedging the anticipated purchase of an asset prior to completion of such
      purchase;

            (vii) the Fund will not enter into an option or futures
      transaction unless, after giving effect thereto, the Fund would continue
      to have Moody's Eligible Assets with an aggregate Discounted Value equal
      to or greater than the AMPS Basic Maintenance Amount; and

            (viii) the Fund will not engage in BMA swap transactions with
      respect to more than 20% of the Fund's net assets; provided that the
      Fund's use of futures will proportionately decrease as the Fund's use of
      BMA swap transactions increases, and vice-versa.

      For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of Moody's Eligible Assets that the
Fund is obligated to deliver or receive pursuant to an outstanding futures
contract or option shall be as follows: (i) assets subject to call options
written by the Fund that are either exchange-traded and "readily reversible"
or that expire within 49 days after the date as of which such valuation is
made shall be valued at the lesser of (A) Discounted Value and (B) the
exercise price of the call option written by the Fund; (ii) assets subject to
call options written by the Fund not meeting the requirements of clause (i) of
this sentence shall have no value; (iii) assets subject to put options written
by the Fund shall be valued at the lesser of (A) the exercise price and (B)
the Discounted Value of the subject security; (iv) futures contracts shall be
valued at the lesser of (A) settlement price and (B) the Discounted Value of
the subject security, provided that, if a contract matures within 49 days
after the date as of which such valuation is made, where the Fund is the
seller the contract may be valued at the settlement price and where the Fund
is the buyer the contract may be valued at the Discounted Value of the subject
securities; and (v) where delivery may be made to the Fund with any security
of a class of securities, the Fund shall assume that it will take delivery of
the security with the lowest Discounted Value.

      For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the following amounts shall be subtracted from



                                      19
<PAGE>

the aggregate Discounted Value of the Moody's Eligible Assets held by the
Fund: (i) 10% of the exercise price of a written call option; (ii) the
exercise price of any written put option; (iii) where the Fund is the seller
under a financial futures contract, 10% of the settlement price of the
financial futures contract; (iv) where the Fund is the purchaser under a
financial futures contract, the settlement price of assets purchased under
such financial futures contract; (v) the settlement price of the underlying
financial futures contract if the Fund writes put options on a financial
futures contract; and (vi) 105% of the fair market value of the underlying
financial futures contracts if the Fund writes call options on a financial
futures contract and does not own the underlying contract.

      For so long as any shares of AMPS are rated by Moody's, the Fund will
not enter into any contract to purchase securities for a fixed price at a
future date beyond customary settlement time (other than such contracts that
constitute Moody's Hedging Transactions), except that the Fund may enter into
such contracts to purchase newly-issued securities on the date such securities
are issued ("Forward Commitments"), subject to the following limitations:

            (i) the Fund will maintain in a segregated account with its
      custodian cash, cash equivalents or short-term, fixed-income securities
      rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior to the date of
      the Forward Commitment with a fair market value that equals or exceeds
      the amount of the Fund's obligations under any Forward Commitments to
      which it is from time to time a party or long-term, fixed income
      securities with a Discounted Value that equals or exceeds the amount of
      the Fund's obligations under any Forward Commitment to which it is from
      time to time a party, and

            (ii) the Fund will not enter into a Forward Commitment unless,
      after giving effect thereto, the Fund would continue to have Moody's
      Eligible Assets with an aggregate Discounted Value equal to or greater
      than the AMPS Basic Maintenance Amount.

      For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of all Forward Commitments to which
the Fund is a party and of all securities deliverable to the Fund pursuant to
such Forward Commitments shall be zero.

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

      For so long as shares of AMPS are rated by S&P or Moody's, the Fund,
unless it has received written confirmation from S&P and/or Moody's, as the
case may be, that such action would not impair the ratings then assigned to
the AMPS by S&P and/or Moody's, as the case may be, will not (i) borrow money
except for the purpose of clearing transactions in portfolio securities (which
borrowings under any circumstances shall be limited to the lesser of $10
million and an amount equal to 5% of the fair market value of the Fund's
assets at the time of such borrowings and which borrowings shall be repaid
within 60 days and not be extended or renewed and shall not cause the
aggregate Discounted Value of Moody's Eligible Assets and S&P Eligible Assets
to be less than the AMPS Basic Maintenance Amount), (ii) engage in short sales
of securities, (iii) lend any securities, (iv) issue any class or series of
stock ranking prior to or on a parity with the AMPS with respect to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the Fund, (v) reissue any AMPS previously
purchased or redeemed by the Fund, (vi) merge or consolidate into or with any
other corporation or entity, (vii) change the Fund's pricing service or (viii)
engage in reverse repurchase agreements.

      For as long as the AMPS are rated by S&P, the Fund will not, unless it
has received written confirmation from S&P that such action would not impair
the rating then assigned to the shares of AMPS by S&P, engage in interest rate
swaps, caps and floors, except that the Fund may, without obtaining the
written consent described above, engage in swaps, caps and floors if: (i) the
counterparty to the swap transaction has a short-term rating of A-1 or, if the
counterparty does not have a short-term rating, the counterparty's senior
unsecured long-term debt rating is A- or higher, (ii) the original aggregate
notional amount of the interest rate swap transaction or transactions is not
to be greater than the liquidation preference of the AMPS, (iii) the interest
rate swap transaction will be marked-to-market weekly by the swap
counterparty, (iv) if the Fund fails to maintain an aggregate discounted value
at least equal to the AMPS Basic Maintenance Amount on two consecutive
Valuation Dates then the agreement shall terminate immediately, (v) for the
purpose of calculating the Discounted Value of S&P Eligible Assets, 90% of any
positive mark-to-market valuation of the Fund's rights will be S&P Eligible
Assets, 100% of any negative mark-to-



                                      20
<PAGE>

market valuation of the Fund's rights will be included in the calculation of
the AMPS Basic Maintenance Amount, and (vi) the Fund must maintain liquid
assets with a value at least equal to the net amount of the excess, if any, of
the Fund's obligations over its entitlement with respect to each swap. For
caps/floors, the Fund must maintain liquid assets with a value at least equal
to the Fund's obligations with respect to such caps or floors.

                            DIRECTORS AND OFFICERS

      The Directors of the Fund consist of eight individuals, seven of whom
are not "interested persons" of the Fund as defined in the 1940 Act (the
"non-interested Directors" or "independent Directors"). The Directors are
responsible for the oversight of the operations of the Fund and perform the
various duties imposed on the directors of investment companies by the 1940
Act.

      Each non-interested Director is a member of the Fund's Audit Committee
(the "Audit Committee"). The principal responsibilities of the Audit Committee
are the appointment, compensation, retention and oversight of the Fund's
independent registered public accounting firm, including the resolution of
disagreements regarding financial reporting between Fund management and such
independent registered public accounting firm. The Audit Committee's
responsibilities include, without limitation, to (i) review with the
independent registered public accounting firm the arrangements for and scope
of annual and special audits and any other services provided by the
independent registered public accounting firm to the Fund; (ii) review with
the independent registered public accounting firm any audit problems or
difficulties encountered during or relating to the conduct of the audit; (iii)
ensure that the independent registered public accounting firm submits on a
periodic basis a formal written statement with respect to their independence,
discuss with the independent registered public accounting firm any
relationships or services that may impact the objectivity and independence of
the Fund's independent registered public accounting firm; and (iv) consider
information and comments of the independent registered public accounting firm
with respect to the Fund's accounting and financial reporting policies,
procedures and internal control over financial reporting and Fund management's
responses thereto. The Board of Directors of the Fund has adopted a written
charter for the Audit Committee. The Audit Committee has retained independent
legal counsel to assist it in connection with these duties. The Audit
Committee met four times during the Fund's fiscal year ended October 31, 2004.

      Ms Ramo and Messrs. London and Salomon are the members of the Fund's
Nominating Committee (the "Nominating Committee"). The principal
responsibilities of the Nominating Committee are to identify individuals
qualified to serve as non-interested Directors of the Fund and to recommend
its nominees for consideration by the full Board. While the Nominating
Committee is solely responsible for the selection and nomination of the Fund's
non-interested Directors, the Nominating Committee may consider nominations
for the office of the Director made by Fund stockholders in such manner as it
deems appropriate. Fund stockholders who wish to recommend a nominee should
send nominations to the Secretary of the Fund that include biographical
information and set forth the qualifications of the proposed nominee. The
Nominating Committee did not meet during the Fund's fiscal year ended October
31, 2004.

Biographical Information

      Certain biographical and other information relating to the
non-interested Directors of the Fund is set forth below, including their ages,
their principal occupations for at least the last five years, the length of
time served, the total number of portfolios overseen in the complex of funds
advised by the Investment Adviser, Merrill Lynch Investment Managers, L.P.
("MLIM") or their affiliates ("MLIM/FAM-advised funds") and other public
directorships.

<TABLE>
<CAPTION>
                                                                                     Number of
                                    Term of                                       MLIM/FAM-Advised
  Name, Address*    Position(s)   Office** and                                       Funds and
    and Age of       Held with     Length of     Principal Occupation(s) During     Portfolios             Public
     Director        the Fund     Time Served          the Past Five Years           Overseen          Directorships
- -----------------  ------------ --------------- -------------------------------- ------------------   ---------------
<S>                <C>          <C>             <C>                              <C>                  <C>
James H.             Director    Director        Director, The China Business     38 registered        None
Bodurtha                         since 1995      Group, Inc. since 1996 and       investment
(61) ***                         and             Executive Vice President         companies
                                 Co-



                                                                 21
<PAGE>

                                                                                     Number of
                                    Term of                                       MLIM/FAM-Advised
  Name, Address*    Position(s)   Office** and                                       Funds and
    and Age of       Held with     Length of     Principal Occupation(s) During     Portfolios             Public
     Director        the Fund     Time Served          the Past Five Years           Overseen          Directorships
- -----------------  ------------ --------------- -------------------------------- ------------------   ---------------
                                 Chairman        thereof from 1996 to 2003;       consisting of
                                 of the Board    Chairman of the Board,           55 portfolios
                                 since 2005      Berkshire Holding Corporation
                                                 since 1980; Partner, Squire,
                                                 Sanders & Dempsey from 1980 to
                                                 1993.

Kenneth A. Froot     Director    Director        Professor, Harvard University,   38 registered        [None]
(48)                             since 2005      since 1992.                      investment
                                                                                  companies
                                                                                  consisting of
                                                                                  55 portfolios

Joe Grills           Director    Director        Member of the Committee of       38 registered        Kimco Realty
(70) ***                         since 2002      Investment of Employee Benefit   investment           Corporation
                                 and             Assets of the Association of     companies
                                 Co-Chairman     Financial Professionals          consisting of
                                 of the Board    ("CIEBA") since 1986; Member     55 portfolios
                                 since 2005      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 IBM Retirement
                                                 Funds from 1986 to 1993;
                                                 Member of the Investment
                                                 Advisory Committee of the
                                                 State of New York Common
                                                 Retirement Fund since 1989;
                                                 Member of the Investment
                                                 Advisory Committee of the
                                                 Howard Hughes Medical
                                                 Institute from 1997 to 2000;
                                                 Director, Duke University
                                                 Management Company from 1992
                                                 to 2004, Vice Chairman thereof
                                                 from 1998 to 2004, and
                                                 Director Emeritus thereof
                                                 since 2004; Director, LaSalle
                                                 Street Fund from 1995 to 2001;
                                                 Director, Kimco Realty
                                                 Corporation  since 1997;
                                                 Member of the Investment
                                                 Advisory Committee of the
                                                 Virginia Retirement System
                                                 since 1998, Vice Chairman
                                                 thereof from 2002 to 2005, and
                                                 Chairman thereof since



                                                                 22
<PAGE>

                                                                                     Number of
                                    Term of                                       MLIM/FAM-Advised
  Name, Address*    Position(s)   Office** and                                       Funds and
    and Age of       Held with     Length of     Principal Occupation(s) During     Portfolios             Public
     Director        the Fund     Time Served          the Past Five Years           Overseen          Directorships
- -----------------  ------------ --------------- -------------------------------- ------------------   ---------------
                                                 2005; Director, Montpelier
                                                 Foundation since 1998 and its
                                                 Vice Chairman since 2000;
                                                 Member of the Investment
                                                 Committee of the Woodberry
                                                 Forest School since 2000;
                                                 Member of the Investment
                                                 Committee of the National
                                                 Trust for Historic
                                                 Preservation since 2000.

Herbert I. London    Director    Director        John M. Olin professor of        38 registered        None
(66)                             since 1992      Humanities, New York             investment
                                                 University since 1993 and        companies
                                                 Professor thereof since 1980;    consisting of
                                                 President, Hudson Institute      55 portfolios
                                                 since 1997 and Trustee thereof
                                                 since 1980; Dean, Gallatin
                                                 Division of New York
                                                 University from 1976 to 1993;
                                                 Distinguished Fellow, Herman
                                                 Kahn Chair, Hudson Institute
                                                 from 1984 to 1985; Director,
                                                 Damon Corp. from 1991 to 1995;
                                                 Overseer, Center for Naval
                                                 Analyses from 1983 to 1993;
                                                 Limited Partner, Hypertech LP
                                                 since 1996.

Roberta Cooper       Director    Director        Shareholder, Modrall,            38 registered        None
Ramo  (62) ****                  since 1999      Sperling, Roehl, Harris &        investment
                                                 Sisk, P.A. since 1993;           companies
                                                 President, American Bar          consisting of
                                                 Association from 1995 to 1996    55 portfolios
                                                 and Member of the Board of
                                                 Governors thereof from 1994 to
                                                 1997; Shareholder, Poole,
                                                 Kelly & Ramo, Attorneys at
                                                 Law, P.C. from 1977 to 1993;
                                                 Director, Coopers, Inc. since
                                                 1999; Director of ECMC Group
                                                 (service provider to students,
                                                 schools and lenders) since
                                                 2001; Director, United New
                                                 Mexico Bank (now Wells Fargo)
                                                 from 1983 to 1988; Director,
                                                 First National Bank of New
                                                 Mexico (now Wells Fargo) from
                                                 1975 to 1976.



                                                                 23
<PAGE>

                                                                                     Number of
                                    Term of                                       MLIM/FAM-Advised
  Name, Address*    Position(s)   Office** and                                       Funds and
    and Age of       Held with     Length of     Principal Occupation(s) During     Portfolios             Public
     Director        the Fund     Time Served          the Past Five Years           Overseen          Directorships
- -----------------  ------------ --------------- -------------------------------- ------------------   ---------------
Robert S.            Director    Director        Principal of STI Management      38 registered        None
Salomon, Jr. (68)                since 2002      (investment adviser) since       investment
                                                 1994; Chairman and CEO of        companies
                                                 Salomon Brothers Asset           consisting of
                                                 Management from 1992 until       55 portfolios
                                                 1995; Chairman of Salomon
                                                 Brothers equity mutual funds
                                                 from 1992 until 1995; regular
                                                 columnist with Forbes Magazine
                                                 from 1992 to 2002; Director of
                                                 Stock Research and U.S. Equity
                                                 Strategist at Salomon Brothers
                                                 from 1975 until 1991; Trustee,
                                                 Commonfund from 1980 to 2001.

Stephen B.           Director    Director        Chairman of  Fernwood            39 registered        None
Swensrud (71)                    since 2002      Associates (investment           investment
                                                 adviser) since 1996;             companies
                                                 Principal, Fernwood Associates   consisting of
                                                 (financial consultants) since    56 portfolios
                                                 1975; Chairman of  R.P.P.
                                                 Corporation (manufacturing
                                                 company) since 1978; Director
                                                 of International Mobile
                                                 Communications, Incorporated
                                                 (telecommunications company),
                                                 since 1998.
</TABLE>
- -------------------
*    The address of each non-interested Director is P.O. Box 9095, Princeton,
     New Jersey 08543-9095.
**   Each Director serves until his or her successor is elected and qualified,
     until December 31 of the year in which he or she turns 72, or until his
     or her death, resignation, or removal as provided in the Fund's By- Laws
     or Charter.
***  Co-Chair of the Audit Committee.
**** Chair of the Nominating Committee.

      Certain biographical and other information relating to the Director who
is an "interested person" of the Fund as defined in the 1940 Act (the
"interested Director") and the other officers of the Fund is set forth below,
including their ages, their principal occupations for at least the last five
years, the length of time served, the total number of portfolios overseen in
MLIM/FAM-advised funds and public directorships held.



                                      24
<PAGE>

<TABLE>
<CAPTION>
                                                                                           Number of
                                     Term of                                            MLIM/FAM-Advised
                   Position(s)     Office** and                                            Funds and
 Name, Address*     Held with     Length of Time   Principal Occupation(s) During the     Portfolios              Public
    and Age         the Fund          Served                 Past Five Years               Overseen           Directorships
- ---------------   ------------   ---------------   ----------------------------------   ----------------      -------------
<S>               <C>            <C>               <C>                                  <C>                   <C>
Robert C. Doll,   President      President and     President of MLIM/FAM advised        125 registered        None
Jr. (50)***       and Director   Director****      funds since 2005; President of       investment
                                 since 2005        MLIM and FAM since 2001; Co-Head     companies
                                                   (Americas Region) FAM and MLIM       consisting of
                                                   from 2000 to 2001 and Senior Vice    164 portfolio
                                                   President thereof from 1999 to
                                                   2001; Director of Princeton
                                                   Services, Inc. ("Princeton
                                                   Services") since 2001; President
                                                   of Princeton Administrators, L.P.
                                                   since 2001; Chief Investment
                                                   Officer of OppenheimerFunds, Inc.
                                                   in 1999 and Executive Vice
                                                   President thereof from 1991 to
                                                   1999.

Kenneth A.        Senior Vice    Senior Vice       Managing Director of MLIM since      38 registered         None
Jacob (53)        President      President since   2000; First Vice President of MLIM   investment
                                 2002              from 1997 to 2000; Vice President    companies
                                                   of MLIM from 1984 to 1997.           consisting of
                                                                                        50 portfolios

John M.           Senior Vice    Senior Vice       Managing Director of MLIM since      39 registered         None
Loffredo (41)     President      President since   2000; First Vice President of MLIM   investment
                                 2001              from 1997 to 2000; Vice President    companies
                                                   of MLIM from 1991 to 1997;           consisting of
                                                   Portfolio Manager with MLIM and      51 portfolios
                                                   FAM since 1997.

Michael           Vice           Vice President    Vice President of MLIM since 1999    4 registered          None
Kalinoski (34)    President      since 2000                                             investment
                                                                                        companies
                                                                                        consisting of
                                                                                        4 portfolios

Donald C. Burke   Vice           Vice President    First Vice President of FAM and      127 registered        None
(45)              President      since 1994 and    MLIM since 1997 and Treasurer        investment
                  and Treasurer  Treasurer since   thereof since 1999; Senior Vice      companies
                                 1999              President and Treasurer of           consisting of
                                                   Princeton Services since 1999 and    166 portfolios
                                                   Director since 2004; Vice
                                                   President of FAM Distributors,
                                                   Inc. ("FAMD") since 1999; Vice
                                                   President of MLIM and FAM from
                                                   1990 to 1997; Director of Taxation
                                                   of MLIM from 1990 to 2001.



                                                                 25
<PAGE>

                                                                                           Number of
                                     Term of                                            MLIM/FAM-Advised
                   Position(s)     Office** and                                            Funds and
 Name, Address*     Held with     Length of Time   Principal Occupation(s) During the     Portfolios              Public
    and Age         the Fund          Served                 Past Five Years               Overseen           Directorships
- ---------------   ------------   ---------------   ----------------------------------   ----------------      -------------
Jeffrey Hiller    Chief          Chief             Chief Compliance Officer of the      128 registered        None
(53)              Compliance     Compliance        MLIM/FAM-advised funds since 2004;   investment
                  Officer        Officer since     First Vice President and Chief       companies
                                 2004              Compliance Officer of MLIM since     consisting of
                                                   2004; Chief Compliance Officer of    167 portfolios
                                                   the IQ Funds since 2004; Global
                                                   Director of Compliance at Morgan
                                                   Stanley Investment Management from
                                                   2002 to 2004; Managing Director
                                                   and Global Director of Compliance
                                                   at Citigroup Asset Management from
                                                   2000 to 2002; Chief Compliance
                                                   Officer at Soros Fund Management
                                                   in 2000; and Chief Compliance
                                                   Officer at Prudential Financial
                                                   from 1995 to 2000; Senior Counsel
                                                   in the Securities and Exchange
                                                   Commission's Division of
                                                   Enforcement in Washington, D.C.
                                                   from 1990 to 1995.

Alice A.          Secretary      Secretary since   Director (Legal Advisory) of MLIM    125 registered        None
Pellegrino (45)                  2004              since 2002; Vice President of MLIM   investment
                                                   from 1999 to 2002; Attorney          companies
                                                   associated with MLIM since           consisting of
                                                   1997; Secretary of FAM, MLIM,        164 portfolios
                                                   FAMD and Princeton Services since
                                                   2004.
</TABLE>

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

*    The address of Mr. Doll and each officer listed is P.O. Box 9011,
     Princeton, New Jersey 08543-9011.
**   Elected by and serves at the pleasure of the Board of Directors of the
     Fund.
***  Mr. Doll is an "interested person," as defined in the 1940 Act, of the
     Fund based on his positions with MLIM, FAM, Princeton Services, and
     Princeton Administrators, L.P.
**** As a Director, Mr. Doll serves until his successor is elected and
     qualified or until December 31 of the year in which he turns 72, or until
     his death, resignation, or removal as provided in the Fund's By-Laws or
     Charter.

      In connection with the election of the Fund's Directors, holders of
shares of AMPS, Other AMPS and other preferred stock, voting as a separate
class, are entitled to elect two of the Fund's Directors, and the remaining
Directors are elected by all holders of capital stock, voting as a single
class. Mr. Bodurtha and Mr. London are the Directors elected by holders of
preferred stock. See "Description of AMPS--Voting Rights."

Share Ownership

      Information relating to each Director's share ownership in the Fund and
in all registered funds in the Merrill Lynch family of funds that are overseen
by the respective Director ("Supervised Merrill Lynch Funds") as of December
31, 2004 is set forth in the chart below.




                                      26
<PAGE>

<TABLE>
<CAPTION>
                                          Aggregate Dollar Range of Equity in    Aggregate Dollar Range of Securities
                 Name                                  the Fund                    in Supervised Merrill Lynch Funds
- ---------------------------------------  -------------------------------------- ---------------------------------------
<S>                                      <C>                                    <C>
Interested Director:
      Robert C. Doll, Jr.                                None                               Over $100,000

Non-interested Directors:
      James H. Bodurtha                                  None                               Over $100,000
      Kenneth A. Froot**                                 None                                   None
      Joe Grills                                         None                               Over $100,000
      Herbert I. London                                  None                               Over $100,000
      Roberta Cooper Ramo                                None                               Over $100,000
      Robert S. Salomon, Jr.                             None                               Over $100,000
      Stephen B. Swensrud                                None                             $50,001-$100,000
</TABLE>

*     For the number of MLIM/FAM-advised funds from which each Director
      receives compensation, see the table above under "Directors and Officers
      -- Biographical Information."

**    Mr. Froot was not a Director of the Fund at December 31, 2004.

      As of the date of this statement of additional information none of the
Directors and officers of the Fund owned any outstanding shares of common
stock or Other AMPS of the Fund. As of the date of this statement of
additional information, none of the non-interested Directors of the Fund or
their immediate family members owned beneficially or of record any securities
in ML & Co.

Compensation of Directors

      Pursuant to its investment advisory agreement with the Fund (the
"Investment Advisory Agreement"), the Investment Adviser pays all compensation
of officers and employees of the Fund as well as the fees of all Directors of
the Fund who are affiliated persons of ML & Co. or its subsidiaries as well as
such Directors' actual out-of-pocket expenses relating to attendance at
meetings.

      The Fund pays fees to each non-interested Director for service to the
Fund. Each non-interested Director receives an aggregate annual retainer of
$125,000 for his or her services to MLIM/FAM-advised funds, including the
Fund. The portion of the annual retainer allocated to each MLIM/FAM-advised
fund is determined quarterly based on the relative net assets of each fund. In
addition, each non-interested Director receives a fee per in-person Board
meeting attended and per in-person Audit Committee meeting attended. The
annual per meeting fees paid to each non-interested Director aggregate
$100,000 for all MLIM/FAM-advised funds for which that Director serves and are
allocated equally among those funds. Each Co-Chairman of the Audit Committee
receives an additional annual retainer in the amount of $50,000, which is paid
quarterly and allocated to each MLIM/FAM-advised fund for which such
Co-Chairman provides services based on the relative net assets of each such
fund.

      The following table sets forth the compensation paid by the Fund to the
non-interested Directors for the Fund's fiscal year ended October 31, 2004,
and the aggregate compensation paid to them from all registered
MLIM/FAM-advised funds for the calendar year ended December 31, 2004.

<TABLE>
<CAPTION>
                                                                                                      Aggregate
                                                                              Pension or          Compensation From
                                                                          Retirement Benefits      Fund and other
                                                    Compensation From     Accrued as Part of      MLIM/FAM- Advised
                Name of Director                           Fund              Fund Expense             Funds***
- --------------------------------------------       --------------------  ---------------------  ---------------------
<S>                                                <C>                   <C>                    <C>
James H. Bodurtha*                                        $3,650                 None                   $250,000
Kenneth A. Froot**                                            -0-                None                         -0-
Joe Grills*                                               $3,650                 None                   $250,000
Herbert I. London                                         $3,337                 None                   $225,000



                                                                    27
<PAGE>

Roberta Cooper Ramo                                       $3,337                 None                   $225,000
Robert S. Salomon, Jr.                                    $3,337                 None                   $225,000
Stephen B. Swensrud                                        $3,337                 None                   $231,000
</TABLE>

- --------------------------
*   Co-Chairman of the Audit Committee.
**  Mr. Froot was elected as a Director of the Fund and certain other
    MLIM/FAM-advised funds effective on June 3, 2005.
*** For the number of MLIM/FAM-advised funds from which each Director received
    compensation see table above under "--Biographical Information."

                INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS

      The Investment Adviser, which is owned and controlled by ML & Co., a
financial services holding company and the parent of Merrill Lynch, provides
the Fund with investment advisory and administrative services. The Investment
Adviser acts as the investment adviser to more than 50 registered investment
companies and offers investment advisory services to individuals and
institutional accounts. As of [ ], the Investment Adviser and its affiliates,
including MLIM, had a total of approximately $[ ] billion in investment
company and other portfolio assets under management, including approximately
$[ ] billion in fixed income assets. This amount includes assets managed by
certain affiliates of the Investment Adviser. The Investment Adviser is a
limited partnership, the partners of which are ML & Co. and Princeton
Services. The principal business address of the Investment Adviser is 800
Scudders Mill Road, Plainsboro, New Jersey 08536.

      The Investment Advisory Agreement provides that, subject to the
oversight of the Fund's Board of Directors, the Investment Adviser 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 Investment Adviser, subject to oversight by the Board of
Directors.

      The portfolio manager primarily responsible for the Fund's day-to-day
management is Michael A. Kalinoski. Mr. Kalinoski has been a portfolio manager
and Vice President of MLIM since 1999 and has 12 years of experience investing
in Municipal Bonds. The Fund's portfolio manager will consider analyses from
various sources, make the necessary investment decisions, and place orders for
transactions accordingly.

      For its services, the Fund pays the Investment Adviser a monthly fee at
the annual rate of 0.50% of the Fund's average weekly net assets ("average
weekly net assets" means the average weekly value of the total assets of the
Fund, including the amount obtained from leverage and any proceeds from the
issuance of preferred stock, minus the sum of (i) accrued liabilities of the
Fund, (ii) any accrued and unpaid interest on outstanding borrowings and (iii)
accumulated dividends on shares of preferred stock). For purposes of this
calculation, average weekly net assets is determined at the end of each month
on the basis of the average net assets of the Fund for each week during the
month. The assets for each weekly period are determined by averaging the net
assets at the last business day of a week with the net assets at the last
business day of the prior week. It is understood that the liquidation
preference of any outstanding preferred stock (other than accumulated
dividends) is not considered a liability in determining the Fund's average
weekly net assets.

      For the six months ended April 30, 2005 and the fiscal years ended
October 31, 2004, 2003, and 2002, the fees paid by the Fund to the Investment
Adviser pursuant to the Investment Advisory Agreement were $1,667,534,
$[3,325,764], $[3,361,696] and $[3,286,243], respectively.

      For the six months ended April 30, 2005 and the fiscal years ended
October 31, 2004, 2003 and 2002, the Investment Adviser reimbursed the Fund
$3,488, $[17,365], $[11,698] and $[3,065], respectively.

      The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and
furnish office space for officers and employees of the Fund connected with
investment and economic research, trading and investment management of the
Fund, as well as the compensation of all Directors of the Fund who are
affiliated persons of the Investment Adviser or any of its affiliates. The
Fund pays all other expenses incurred in the operation of the Fund, including,
among other things,



                                      28
<PAGE>

expenses for legal and auditing services, taxes, costs of preparing, printing
and mailing proxies, listing fees, stock certificates and stockholder reports,
charges of the custodian and the transfer agent, dividend disbursing agent and
registrar, Commission fees, fees and expenses of non-interested Directors,
accounting and pricing costs, insurance, interest, brokerage costs, litigation
and other extraordinary or non-recurring expenses, mailing and other expenses
properly payable by the Fund. Certain accounting services are provided to the
Fund by State Street Bank and Trust Company ("State Street") pursuant to an
agreement between State Street and the Fund. The Fund will pay the costs of
these services. In addition, the Fund will reimburse the Investment Adviser
for certain additional accounting services.

      The table below shows the amounts paid by the Fund to State Street and
to the Investment Adviser for accounting services for the periods indicated:

<TABLE>
<CAPTION>
                                                                                 Paid by the Fund to
                                                        Paid by the Fund to        the Investment
Period:                                                     State Street               Adviser
- -------                                                 --------------------     --------------------
<S>                                                     <C>                       <C>
Six months ended April 30, 2005                                   $99,921                    $6,997
Fiscal year ended October 31, 2004                               $195,747                   $13,351
Fiscal year ended October 31, 2003                               $194,303                   $15,771
Fiscal year ended October 31, 2002                               $193,134                   $23,178
</TABLE>


      Unless earlier terminated as described below, the Investment Advisory
Agreement will remain in effect from year to year if approved annually (a) by
the Board of Directors of the Fund or by a majority of the outstanding shares
of the Fund and (b) by a majority of the Directors who are not parties to such
contract or interested persons (as defined in the 1940 Act) of any such party.
Such contract is not assignable and may be terminated without penalty on 60
days' written notice at the option of either party thereto or by the vote of
the stockholders of the Fund. The Board of Directors most recently approved
the Investment Advisory Agreement at its meeting on August 12, 2004.

Activities of and Composition of the Board of Directors

      All but one member of the Board of Directors is an independent Director
whose only affiliation with the Investment Adviser or other Merrill Lynch
affiliates is as a Director of the Fund and certain other funds advised by the
Investment Adviser or its affiliates. The Co-Chairmen of the Board are also
independent Directors. New Director nominees are chosen as nominees by a
Nominating Committee of independent Directors. All independent Directors also
are members of the Board's Audit Committee and the independent Directors meet
in executive session at each in-person Board meeting. The Board and the Audit
Committee meet in person for at least two days each quarter and conduct other
in-person and telephone meetings throughout the year, some of which are formal
Board meetings, and some of which are informational meetings. The independent
counsel to the independent Directors attend all in-person Board and Audit
Committee meetings and other meetings at the independent Directors' request.

Investment Advisory Agreement - Matters Considered by the Board

      Every year, the Board of Directors considers approval of the Fund's
Investment Advisory Agreement and throughout each year, reviews and evaluates
the performance of and services provided by the Investment Adviser. The Board
assesses the nature, scope and quality of the services provided to the Fund by
the personnel of the Investment Adviser and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory
requirements. The Board also receives and assesses information regarding the
services provided to the Fund by certain unaffiliated service providers.

      At various times throughout the year, the Board also considers a range
of information in connection with its oversight of the services provided by
the Investment Adviser and its affiliates. Among the matters considered are:
(a) fees (in addition to management fees) paid to the Investment Adviser and
its affiliates by the Fund, including fees associated with the Fund's auction
market preferred stock; (b) Fund operating expenses paid to third parties; (c)



                                      29
<PAGE>

the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and the Investment Adviser's compliance policies and
procedures; and (d) the nature, cost and character of non-investment
management services provided by the Investment Adviser and its affiliates.

      The Board believes that the Investment Adviser is one of the most
experienced global asset management firms and considers the overall quality of
services provided by the Investment Adviser to be generally of high quality.
The Board also believes that the Investment Adviser is financially sound and
well managed, and notes that the Investment Adviser is affiliated with one of
America's largest financial firms. The Board believes that, for many of the
Fund's shareholders, the investment involved the selection of the Investment
Adviser as the investment adviser to the Fund. The Board works closely with
the Investment Adviser in overseeing the Investment Adviser's efforts to
achieve good performance. As part of this effort, the Board discusses
portfolio manager effectiveness and, when performance is not satisfactory,
discusses with the Investment Adviser taking steps such as changing investment
personnel.

Annual Consideration of Approval by the Board of Directors

      In the period prior to the Board meeting to consider renewal of the
Investment Advisory Agreement, the Board requests and receives materials
specifically relating to the Fund's Investment Advisory Agreement. These
materials include (a) information compiled by Lipper Inc. ("Lipper") on the
fees and expenses and the investment performance of the Fund as compared to a
comparable group of funds as classified by Lipper; (b) information comparing
the Fund's market price with its net asset value per share; (c) a discussion
by the Fund's portfolio management team of investment strategies used by the
Fund during its most recent fiscal year; and (d) information on the
profitability to the Investment Adviser and its affiliates of the Investment
Advisory Agreement and other relationships with the Fund. The Board also
considers other matters it deems important to the approval process such as
services related to the valuation and pricing of Fund portfolio holdings,
information relating to the status of the Fund's managed dividend program, the
Fund's portfolio turnover statistics, and direct and indirect benefits to the
Investment Adviser and its affiliates from their relationship with the Fund.

Certain Specific Renewal Data

      In connection with the most recent renewal of the Fund's Investment
Advisory Agreement, the independent Directors' and Board's review included the
following:

      The Investment Adviser's Services and Fund Performance. The Board
reviewed the nature, extent and quality of services provided by the Investment
Adviser, including the investment advisory services and the resulting
performance of the Fund. The Board focused primarily on the Investment
Adviser's investment advisory services and the Fund's investment performance,
having concluded that the other services provided to the Fund by the
Investment Adviser were satisfactory. The Board compared Fund performance -
both including and excluding the effects of the Fund's fees and expenses - to
the performance of a comparable group of funds, and the performance of a
relevant index or combination of indexes. While the Board reviews performance
data at least quarterly, consistent with the Investment Adviser's investment
goals, the Board attaches primary importance to performance over relatively
long periods of time, typically three to five years. The Board noted that the
Fund's performance within the group after fees and expenses ranked in the
first quartile for the one year period and the second quartile for the three
and five year periods ended October 31, 2003. The Board concluded that the
Fund's performance supported the continuation of the management fee rate at
the present level and the renewal of the Investment Advisory Agreement.

      The Investment Adviser's Personnel and Investment Process. The Board
reviews at least annually the Fund's investment objectives and strategies. The
Board discusses with senior management of the Investment Adviser responsible
for investment operations and the senior management of the Investment
Adviser's tax-exempt fixed income investing group the strategies being used to
achieve the stated objectives. Among other things, the Board considers the
size, background and experience of the Investment Adviser's investment staff,
its use of technology, and the Investment Adviser's approach to training and
retaining portfolio managers and other research, advisory and management
personnel. The Board also reviews the Investment Adviser's compensation
policies and practices with respect to the Fund's portfolio manager. The Board
also considered the experience of the Fund's portfolio manager and noted that
Mr. Kalinoski, the Fund's portfolio manager, has 12 years' experience
investing in



                                      30
<PAGE>

Municipal Bonds. The Board concluded that the Investment Adviser and its
investment staff and the Fund's portfolio manager have extensive experience in
analyzing and managing the types of investments used by the Fund and that the
Fund benefits from that expertise.

      Management Fees and Other Expenses. The Board reviews the Fund's
contractual management fee rate and actual management fee rate (including
applicable fee waivers) as a percentage of total assets at common asset levels
- - the actual rate includes advisory and administrative service fees and the
effects of any fee waivers - compared to the other funds in its Lipper
category. The Board considers information regarding fee waivers provided by such
other funds. It also compares the Fund's total expenses to those of other,
comparable funds. The Board did not consider the services provided to and the
fees charged by the Investment Adviser to other types of clients with similar
investment mandates, because the Investment Adviser advised the Board that it
had no comparable investment mandates from its institutional clients. The
Board noted that the Fund's contractual management fee rate was below, and the
Fund's actual management fee rate and its overall operating expenses were
slightly above the median of its comparable funds classified by Lipper. The
Board has concluded that the Fund's management fee and fee rate and overall
expense ratio are reasonable compared to those of other, comparable funds.

      Profitability. The Board of Directors considers the cost of the services
provided to the Fund by the Investment Adviser and the Investment Adviser's
and its affiliates' profits relating to the management of the Fund and the
MLIM/FAM-advised funds. As part of its analysis, the Board reviewed the
Investment Adviser's methodology in allocating its costs to the management of
the Fund and concluded that there was a reasonable basis for the allocation.
The Board believes the Investment Adviser's profits are reasonable in relation
to the nature and quality of services provided.

      Economies of Scale. The Board considered whether there have been
economies of scale in respect of the management of the MLIM/FAM-advised funds,
whether the MLIM/FAM-advised funds (including the Fund) have appropriately
benefited from any economies of scale, and whether there is potential for
realization of any further economies of scale. The Board considered economies
of scale to the extent applicable to the Fund's closed end structure and
determined that no changes were currently necessary.

Conclusion

      After the independent Directors deliberated in executive session, the
entire Board including all of the independent Directors, approved the renewal
of the existing Investment Advisory Agreement, concluding that the advisory
fee rate was reasonable in relation to the services provided and that a
contract renewal was in the best interests of the shareholders.

Portfolio Manager Information

      The Fund is managed by Michael A. Kalinoski.

Other Funds and Accounts Managed by Portfolio Manager as of October 31, 2004

<TABLE>
<CAPTION>
                                      Number of Other Accounts Managed          Number of Accounts and Assets for Which
                                         and Assets by Account Type                Advisory Fee is Performance-Based
                                  ----------------------------------------      ----------------------------------------
                                                   Other                                         Other
                                   Registered      Pooled                        Registered      Pooled
 Name of Investment Adviser and    Investment    Investment      Other           Investment    Investment      Other
       Portfolio Manager           Companies      Vehicles      accounts         Companies      Vehicles      accounts
- -------------------------------   ------------   ----------    -----------      -------------  -----------   -----------
<S>                               <C>            <C>           <C>              <C>            <C>           <C>
Fund Asset Management L.P.
- --------------------------
Michael A. Kalinoski
</TABLE>



                                      31
<PAGE>

      Fund Ownership

      The following table sets forth the dollar range of equity securities of
the Fund beneficially owned by the portfolio manager(s) as of the date of this
prospectus.

                Portfolio Manager                     Dollar Range
                ---------------------------     ----------------------------
                Michael A. Kalinoski


Portfolio Manager Compensation

      Portfolio Manager Compensation

      The Portfolio Manager Compensation Program of MLIM and its affiliates,
including the Investment Adviser, is critical to MLIM's ability to attract and
retain the most talented asset management professionals. This program ensures
that compensation is aligned with maximizing investment returns and it
provides a competitive pay opportunity for competitive performance.

      Compensation Program

      The elements of total compensation for MLIM and its affiliates portfolio
managers are base salary, annual performance-based cash and stock compensation
(cash and stock bonus) and other benefits. MLIM has balanced these components
of pay to provide portfolio managers with a powerful incentive to achieve
consistently superior investment performance. By design, portfolio manager
compensation levels fluctuate -- both up and down -- with the relative
investment performance of the portfolios that they manage.

      Base Salary

      Under the MLIM approach, like that of many asset management firms, base
salaries represent a relatively small portion of a portfolio manager's total
compensation. This approach serves to enhance the motivational value of the
performance-based (and therefore variable) compensation elements of the
compensation program.

      Performance-Based Compensation

      MLIM believes that the best interests of investors are served by
recruiting and retaining exceptional asset management talent and managing
their compensation within a consistent and disciplined framework that
emphasizes pay for performance in the context of an intensely competitive
market for talent. To that end, MLIM and its affiliates portfolio manager
incentive compensation is based on a formulaic compensation program. MLIM's
formulaic portfolio manager compensation program includes: investment
performance relative to a subset of general closed-end, leveraged, municipal
debt funds over 1-, 3- and 5-year performance periods and a measure of
operational efficiency. If a portfolio manager's tenure is less than 5 years,
performance periods will reflect time in position. Portfolio managers are
compensated based on products they manage. A discretionary element of
portfolio manager compensation may include consideration of: financial
results, expense control, profit margins, strategic planning and
implementation, quality of client service, market share, corporate reputation,
capital allocation, compliance and risk control, leadership, workforce
diversity, supervision, technology and innovation. MLIM and its affiliates
also consider the extent to which individuals exemplify and foster ML & Co.'s
principles of client focus, respect for the individual, teamwork, responsible
citizenship and integrity. All factors are considered collectively by MLIM
management.

      Cash Bonus

      Performance-based compensation is distributed to portfolio managers in a
combination of cash and stock. Typically, the cash bonus, when combined with
base salary, represents more than 60% of total compensation for portfolio
managers.



                                      32
<PAGE>

      Stock Bonus

      A portion of the dollar value of the total annual performance-based
bonus is paid in restricted shares of ML & Co. stock. Paying a portion of
annual bonuses in stock puts compensation earned by a portfolio manager for a
given year "at risk" based on the company's ability to sustain and improve its
performance over future periods. The ultimate value of stock bonuses is
dependent on future ML & Co. stock price performance. As such, the stock bonus
aligns each portfolio manager's financial interests with those of the ML & Co.
shareholders and encourages a balance between short-term goals and long-term
strategic objectives. Management strongly believes that providing a
significant portion of competitive performance-based compensation in stock is
in the best interests of investors and shareholders. This approach ensures
that portfolio managers participate as shareholders in both the "downside
risk" and "upside opportunity" of the company's performance. Portfolio
managers therefore have a direct incentive to protect ML & Co.'s reputation
for integrity.

      Portfolio managers who meet relative investment performance and
financial management objectives during a performance year are eligible to
participate in a deferred cash program. Awards under this program are in the
form of deferred cash that may be benchmarked to a menu of MLIM mutual funds
(including their own fund) during a five-year vesting period. The deferred
cash program aligns the interests of participating portfolio managers with the
investment results of MLIM products and promotes continuity of successful
portfolio management teams.

      Other Benefits

      Portfolio managers are also eligible to participate in broad-based plans
offered generally to employees of ML & Co. and its affiliates, including
broad-based retirement, 401(k), health, and other employee benefit plans.

Potential Material Conflicts of Interest

      Real, potential or apparent conflicts of interest may arise when a
portfolio manager has day-to-day portfolio management responsibilities with
respect to more than one fund or account, including the following:

      Certain investments may be appropriate for the Fund and also for other
clients advised by the Investment. Adviser and its affiliates, including other
client accounts managed by the Fund's portfolio management team. Investment
decisions for the Fund and other clients are made with a view to achieving
their respective investment objectives and after consideration of such factors
as their current holdings, availability of cash for investment and the size of
their investments generally. Frequently, a particular security may be bought
or sold for only one client or in different amounts and at different times for
more than one but less than all clients. Likewise, because clients of the
Investment Adviser and its affiliates may have differing investment
strategies, a particular security may be bought for one or more clients when
one or more other clients are selling the security. The investment results for
the Fund may differ from the results achieved by other clients of the
Investment Adviser and its affiliates and results among clients may differ. In
addition, purchases or sales of the same security may be made for two or more
clients on the same day. In such event, such transactions will be allocated
among the clients in a manner believed by the Investment Adviser and its
affiliates to be equitable to each. The Investment Adviser will not determine
allocations based on whether it receives a performance based fee from the
client. In some cases, the allocation procedure could have an adverse effect
on the price or amount of the securities purchased or sold by the Fund.
Purchase and sale orders for the Fund may be combined with those of other
clients of the Investment Adviser and its affiliates in the interest of
achieving the most favorable net results to the Fund.

      To the extent that the Fund's portfolio management team has
responsibilities for managing accounts in addition to the Fund, a portfolio
manager will need to divide his time and attention among relevant accounts.

      In some cases, a real, potential or apparent conflict may also arise
where (i) the Investment Adviser may have an incentive, such as a performance
based fee, in managing one account and not with respect to other accounts it
manages or (ii) where a member of the Fund's portfolio management team owns an
interest in one fund or account he or she manages and not another.



                                      33
<PAGE>

Code of Ethics

      The Fund's Board of Directors approved a Code of Ethics under Rule 17j-1
of the 1940 Act that covers the Fund and the Investment Adviser. The Code of
Ethics establishes procedures for personal investing and restricts certain
transactions. Employees subject to the Code of Ethics may invest in securities
for their personal investment accounts, including securities that may be
purchased or held by the Fund.

Proxy Voting Policies and Procedures

      The Fund's Board of Directors has delegated to the Investment Adviser
authority to vote all proxies relating to the Fund's portfolio securities. The
Investment Adviser has adopted policies and procedures ("Proxy Voting
Procedures") with respect to the voting of proxies related to the portfolio
securities held in the account of one or more of its clients, including the
Fund. Pursuant to these Proxy Voting Procedures, the Investment Adviser's
primary objective when voting proxies is to make proxy voting decisions solely
in the best interests of the Fund and its stockholders, and to act in a manner
that the Investment Adviser believes is most likely to enhance the economic
value of the securities held by the Fund. The Proxy Voting Procedures are
designed to ensure that the Investment Adviser considers the interests of its
clients, including the Fund, and not the interests of the Investment Adviser,
when voting proxies and that real (or perceived) material conflicts that may
arise between the Investment Adviser's interest and those of the Investment
Adviser's clients are properly addressed and resolved.

      In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Proxy Committee"). The Proxy
Committee is comprised of the Investment Adviser's Chief Investment Officer
(the "CIO"), one or more other senior investment professionals appointed by
the CIO, portfolio managers and investment analysts appointed by the CIO and
any other personnel the CIO deems appropriate. The Proxy Committee will also
include two non-voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel. The Proxy
Committee's membership shall be limited to full-time employees of the
Investment Adviser. No person with any investment banking, trading, retail
brokerage or research responsibilities for the Investment Adviser's affiliates
may serve as a member of the Proxy Committee or participate in its decision
making (except to the extent such person is asked by the Proxy Committee to
present information to the Proxy Committee, on the same basis as other
interested knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Proxy Committee determines how to vote the
proxies of all clients, including the Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes are
consistent with the best interests of those clients and are free from
unwarranted and inappropriate influences. The Proxy Committee establishes
general proxy voting policies for the Investment Adviser and is responsible
for determining how those policies are applied to specific proxy votes, in
light of each issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated consequences of
alternate actions. In so doing, the Proxy Committee may determine to vote a
particular proxy in a manner contrary to its generally stated policies. In
addition, the Proxy Committee will be responsible for ensuring that all
reporting and recordkeeping requirements related to proxy voting are
fulfilled.

      The Proxy Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Proxy Committee may elect not
to adopt a specific voting policy applicable to that issue. The Investment
Adviser believes that certain proxy voting issues require investment analysis
- - such as approval of mergers and other significant corporate transactions -
akin to investment decisions, and are, therefore, not suitable for general
guidelines. The Proxy Committee may elect to adopt a common position for the
Investment Adviser on certain proxy votes that are akin to investment
decisions, or determine to permit the portfolio manager to make individual
decisions on how best to maximize economic value for the Fund (similar to
normal buy/sell investment decisions made by such portfolio managers). While
it is expected that the Investment Adviser will generally seek to vote proxies
over which the Investment Adviser exercises voting authority in a uniform
manner for all the Investment Adviser's clients, the Proxy Committee, in
conjunction with the Fund's portfolio manager, may determine that the Fund's
specific circumstances require that its proxies be voted differently.

      To assist the Investment Adviser in voting proxies, the Proxy Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an independent
adviser that specializes in providing a variety of fiduciary-level
proxy-related services to institutional investment managers, plan sponsors,
custodians, consultants, and other



                                      34
<PAGE>

institutional investors. The services provided to the Investment Adviser by
ISS include in-depth research, voting recommendations (although the Investment
Adviser is not obligated to follow such recommendations), vote execution, and
recordkeeping. ISS will also assist the Fund in fulfilling its reporting and
recordkeeping obligations under the 1940 Act.

      The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For instance,
under the Proxy Voting Procedures, the Investment Adviser generally will not
seek to vote proxies related to portfolio securities that are on loan,
although it may do so under certain circumstances. In addition, the Investment
Adviser will vote proxies related to securities of foreign issuers only on a
best efforts basis and may elect not to vote at all in certain countries where
the Proxy Committee determines that the costs associated with voting generally
outweigh the benefits. The Proxy Committee may at any time override these
general policies if it determines that such action is in the best interests of
the Fund.

      From time to time, the Investment Adviser may be required to vote
proxies in respect of an issuer where an affiliate of the Investment Adviser
(each, an "Affiliate"), or a money management or other client of the
Investment Adviser, including investment companies for which the Investment
Adviser provides investment advisory, administrative and/or other services
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Proxy Committee intends to strictly adhere to the Proxy
Voting Procedures in all proxy matters, including matters involving Affiliates
and Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Proxy Committee does not reasonably believe it is able to follow its
guidelines (or if the particular proxy matter is not addressed by the
guidelines) and vote impartially, the Proxy Committee may, in its discretion
for the purposes of ensuring that an independent determination is reached,
retain an independent fiduciary to advise the Proxy Committee on how to vote
or to cast votes on behalf of the Investment Adviser's clients.

      In the event that the Proxy Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an independent
fiduciary, the Proxy Committee may pass the voting power to a subcommittee
appointed by the CIO (with advice from the Secretary of the Proxy Committee),
consisting solely of Proxy Committee members selected by the CIO. The CIO
shall appoint to the subcommittee, where appropriate, only persons whose job
responsibilities do not include contact with the Client and whose job
evaluations would not be affected by the Investment Adviser's relationship
with the Client (or failure to retain such relationship). The subcommittee
shall determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their judgment,
akin to an investment decision, to defer to the applicable portfolio managers,
provided that, if the subcommittee determines to alter the Investment
Adviser's normal voting guidelines or, on matters where the Investment
Adviser's policy is case-by-case, does not follow the voting recommendation of
any proxy voting service or other independent fiduciary that may be retained
to provide research or advice to the Investment Adviser on that matter, no
proxies relating to the Client may be voted unless the Secretary, or in the
Secretary's absence, the Assistant Secretary of the Proxy Committee concurs
that the subcommittee's determination is consistent with the Investment
Adviser's fiduciary duties.

      In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring proxy
issues that are not expected to involve unusual circumstances. These policies
are guidelines only, and the Investment Adviser may elect to vote differently
from the recommendation set forth in a voting guideline if the Proxy Committee
determines that it is in the Fund's best interest to do so. In addition, the
guidelines may be reviewed at any time upon the request of a Proxy Committee
member and may be amended or deleted upon the vote of a majority of Proxy
Committee members present at a Proxy Committee meeting at which there is a
quorum.

      The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:

      o   Proposals related to the composition of the board of directors of
          issuers other than investment companies. As a general matter, the
          Proxy Committee believes that a company's board of directors (rather
          than stockholders) is most likely to have access to important,
          nonpublic information regarding a company's business and prospects,
          and is therefore best-positioned to set corporate policy and oversee
          management. The Proxy Committee, therefore, believes that the
          foundation of good corporate governance is the election of
          qualified, independent corporate directors who are likely to
          diligently



                                      35
<PAGE>

          represent the interests of stockholders and oversee management of the
          corporation in a manner that will seek to maximize stockholder value
          over time. In individual cases, the Proxy Committee may look at a
          nominee's number of other directorships, history of representing
          stockholder interests as a director of other companies or other
          factors, to the extent the Proxy Committee deems relevant.

      o   Proposals related to the selection of an issuer's independent
          auditors. As a general matter, the Proxy Committee believes that
          corporate auditors have a responsibility to represent the interests
          of stockholders and provide an independent view on the propriety of
          financial reporting decisions of corporate management. While the
          Proxy Committee will generally defer to a corporation's choice of
          auditor, in individual cases, the Proxy Committee may look at an
          auditors' history of representing stockholder interests as auditor
          of other companies, to the extent the Proxy Committee deems
          relevant.

      o   Proposals related to management compensation and employee benefits.
          As a general matter, the Proxy Committee favors disclosure of an
          issuer's compensation and benefit policies and opposes excessive
          compensation, but believes that compensation matters are normally
          best determined by an issuer's board of directors, rather than
          stockholders. Proposals to "micro-manage" an issuer's compensation
          practices or to set arbitrary restrictions on compensation or
          benefits will, therefore, generally not be supported.

      o   Proposals related to requests, principally from management, for
          approval of amendments that would alter an issuer's capital
          structure. As a general matter, the Proxy Committee will support
          requests that enhance the rights of common stockholders and oppose
          requests that appear to be unreasonably dilutive.

      o   Proposals related to requests for approval of amendments to an
          issuer's charter or by-laws. As a general matter, the Proxy
          Committee opposes poison pill provisions.

      o   Routine proposals related to requests regarding the formalities of
          corporate meetings.

      o   Proposals related to proxy issues associated solely with holdings of
          investment company shares. As with other types of companies, the
          Proxy Committee believes that a fund's board of directors (rather
          than its stockholders) is best-positioned to set fund policy and
          oversee management. However, the Proxy Committee opposes granting
          boards of directors authority over certain matters, such as changes
          to a fund's investment objective, that the Investment Company Act
          envisions will be approved directly by stockholders.

      o   Proposals related to limiting corporate conduct in some manner that
          relates to the stockholder's environmental or social concerns. The
          Proxy Committee generally believes that annual stockholder meetings
          are inappropriate forums for discussion of larger social issues, and
          opposes stockholder resolutions "micro-managing" corporate conduct
          or requesting release of information that would not help a
          stockholder evaluate an investment in the corporation as an economic
          matter. While the Proxy Committee is generally supportive of
          proposals to require corporate disclosure of matters that seem
          relevant and material to the economic interests of stockholders, the
          Proxy Committee is generally not supportive of proposals to require
          disclosure of corporate matters for other purposes.

      Information about how the Fund voted proxies relating to securities held
by the Fund's portfolio during the most recent 12 month period ended June 30
is available without charge (i) at www.mutualfunds.ml.com, and (ii) the
Commission's website at www.sec.gov.

                            PORTFOLIO TRANSACTIONS

      Subject to policies established by the Board of Directors, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions and the allocation of brokerage. The Fund has no
obligation to deal with any dealer or group of dealers in the execution of
transactions in portfolio securities of the Fund. Where possible, the Fund
deals directly with the dealers who make a market in the securities involved
except in those



                                      36
<PAGE>

circumstances where better prices and execution are available elsewhere. It is
the policy of the Fund to obtain the best results in conducting portfolio
transactions for the Fund, taking into account such factors as price
(including the applicable dealer spread or commission), the size, type and
difficulty of the transaction involved, the firm's general execution and
operations facilities and the firm's risk in positioning the securities
involved. The cost of portfolio securities transactions of the Fund primarily
consists of dealer or underwriter spreads and brokerage commissions. While
reasonable competitive spreads or commissions are sought, the Fund will not
necessarily be paying the lowest spread or commission available on any
particular transaction.

      Subject to obtaining the best net results, dealers who provide
supplemental investment research (such as quantitative and modeling
information assessments and statistical data and provide other similar
services) to the Investment Adviser may receive orders for transactions by the
Fund. Information so received will be in addition to and not in lieu of the
services required to be performed by the Investment Adviser under the
Investment Advisory Agreement and the expense of the Investment Adviser will
not necessarily be reduced as a result of the receipt of such supplemental
information. Supplemental investment research obtained from such dealers might
be used by the Investment Adviser in servicing all of its accounts and such
research might not be used by the Investment Adviser in connection with the
Fund.

      The Fund invests in securities traded in the over-the-counter markets,
and the Fund intends to deal directly with dealers who make markets in the
securities involved, except in those circumstances where better execution is
available elsewhere. Under the 1940 Act, except as permitted by exemptive
order, persons affiliated with the Fund, including Merrill Lynch, are
prohibited from dealing with the Fund as principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principals for their own accounts, the
Fund does not deal with Merrill Lynch and its affiliates in connection with
such principal transactions except that, pursuant to exemptive orders obtained
by the Investment Adviser, the Fund may engage in principal transactions with
Merrill Lynch in high quality, short term, tax exempt securities. See
"Investment Restrictions." However, affiliated persons of the Fund, including
Merrill Lynch, may serve as its brokers in certain over-the-counter
transactions conducted on an agency basis. In addition, the Fund has received
an exemptive order, under which it may purchase investment grade Municipal
Bonds through group orders from an underwriting syndicate of which Merrill
Lynch is a member subject to conditions set forth in such order (the "Group
Order Exemptive Order"). A group order is an order for securities held in an
underwriting syndicate for the account of all members of the syndicate, and in
proportion to their respective participation in the syndicate.

      The Fund also may purchase tax exempt debt instruments in individually
negotiated transactions with the issuers. Because an active trading market may
not exist for such securities, the prices that the Fund may pay for these
securities or receive on their resale may be lower than that for similar
securities with a more liquid market.

      Certain court decisions have raised questions as to the extent to which
investment companies should seek exemptions under the 1940 Act in order to
seek to recapture underwriting and dealer spreads from affiliated entities.
The Fund's Board of Directors has considered all factors deemed relevant and
has made a determination not to seek such recapture at this time. The Fund's
Board of Directors will reconsider this matter from time to time.

      Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Investment Adviser or its affiliates act as an adviser. Because of different
investment objectives or other factors, a particular security may be bought
for an advisory client when other clients are selling the same security. If
purchases or sales of securities by the Investment Adviser for the Fund or
other funds for which it acts as investment adviser or for 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. Transactions effected by the
Investment Adviser (or its affiliates) on behalf of more than one of its
clients during the same period may increase the demand for securities being
purchased or the supply of securities being sold, causing an adverse effect on
price.

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



                                      37
<PAGE>

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.

Portfolio Turnover

      Generally, the Fund does not purchase securities for short term trading
profits. However, the Fund may dispose of securities without regard to the
time they have been held when such actions, for defensive or other reasons,
appear advisable to the Investment Adviser. While it is not possible to
predict turnover rates with any certainty, at present it is anticipated that
the Fund's annual portfolio turnover rate, under normal circumstances, should
be less than 100%. (The portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by the monthly average of the value of the portfolio securities owned by
the Fund during the particular fiscal year. For purposes of determining this
rate, all securities whose maturities at the time of acquisition are one year
or less are excluded.) A high portfolio turnover rate results in greater
transaction costs, which are borne directly by the Fund and may have certain
tax consequences for stockholders.

      For the six months ended April 30, 2005 and the fiscal years ended
October 31, 2004 and 2003, the Fund's portfolio turnover rates were 14.76%,
32.87% and 33.92%, respectively.

                                     TAXES

      The Fund has elected to qualify for the special tax treatment afforded
regulated investment companies ("RICs") under the Internal Revenue Code of
1986, as amended (the "Code"). As long as it so qualifies, in any taxable year
in which it distributes at least 90% of its taxable net income and 90% of its
tax exempt net income (see below), the Fund (but not its stockholders) will
not be subject to Federal income tax to the extent that it distributes its net
investment income and net realized capital gains. The Fund intends to
distribute substantially all of such income. If, in any taxable year, the Fund
fails to qualify as a RIC under the Code, it would be taxed in the same manner
as an ordinary corporation and all distributions from earnings and profits (as
determined under U.S. Federal income tax principles) to its stockholders would
be taxable as ordinary dividend income eligible for the maximum 15% tax rate
for non-corporate shareholders and the dividends-received deduction for
corporate shareholders. However, the Fund's distributions derived from income
on tax exempt obligations, as defined herein, would no longer qualify for
treatment as exempt interest.

      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. The required distributions,
however, are based only on the taxable income of a RIC. The excise tax,
therefore, generally will not apply to the tax exempt income of a RIC, such as
the Fund, that pays exempt-interest dividends.

      The Internal Revenue Service (the "IRS"), in a revenue ruling, held that
certain auction rate preferred stock would be treated as stock for Federal
income tax purposes. The terms of the AMPS are substantially similar, but not
identical, to the auction rate preferred stock discussed in the revenue
ruling, and in the opinion of Sidley Austin Brown & Wood LLP, counsel to the
Fund, the shares of AMPS will constitute stock of the Fund and distributions
with respect to shares of AMPS (other than distributions in redemption of
shares of AMPS subject to Section 302(b) of the Code) will constitute
dividends to the extent of the Fund's current and accumulated earnings and
profits as calculated for Federal income tax purposes. Nevertheless, it is
possible that the IRS might take a contrary position, asserting, for example,
that the shares of AMPS constitute debt of the Fund. If this position were
upheld, the discussion of the treatment of distributions below would not
apply. Instead, distributions by the Fund to holders of shares of AMPS would
constitute taxable interest income, whether or not they exceeded the earnings
and profits of the Fund, would be included in full in the income of the
recipient and would be taxed as ordinary income. Counsel believes that such a
position, if asserted by the IRS, would be unlikely to prevail.

      The Fund will only purchase a Municipal Bond or Non-Municipal Tax-Exempt
Security if it is accompanied by an opinion of counsel to the issuer, which is
delivered on the date of issuance of the security, that the interest paid on
such security is excludable from gross income for Federal income tax purposes
(i.e., "tax-



                                      38
<PAGE>

exempt"). The Fund intends to qualify to pay "exempt-interest dividends" as
defined in Section 852(b)(5) of the Code. Under such section if, at the close
of each quarter of its taxable year, at least 50% of the value of its total
assets consists of obligations that pay interest which is excludable from
gross income for Federal income tax purposes ("tax exempt obligations") under
Section 103(a) of the Code (relating generally to obligations of a state or
local governmental unit), the Fund shall be qualified to pay exempt-interest
dividends to its stockholders. Exempt-interest dividends are dividends or any
part thereof paid by the Fund that are attributable to interest on tax exempt
obligations and designated by the Fund as exempt-interest dividends in a
written notice mailed to the Fund's stockholders within 60 days after the
close of its taxable year. To the extent that the dividends distributed to the
Fund's stockholders are derived from interest income exempt from tax under
Code Section 103(a) and are properly designated as exempt-interest dividends,
they will be excludable from a stockholder's gross income for Federal tax
purposes. Exempt-interest dividends are included, however, in determining the
portion, if any, of a person's social security and railroad retirement
benefits subject to Federal income taxes. Each stockholder is advised to
consult a tax adviser with respect to whether exempt-interest dividends retain
the exclusion under Code Section 103(a) if such stockholder would be treated
as a "substantial user" or "related person" under Code Section 147(a) with
respect to property financed with the proceeds of an issue of PABs, if any,
held by the Fund.

      To the extent that the Fund's distributions are derived from interest on
its taxable investments or from an excess of net short-term capital gains over
net long-term capital losses ("ordinary income dividends"), such distributions
generally are considered ordinary income for Federal income tax purposes.
Distributions by the Fund, whether from exempt-interest income, ordinary
income or capital gains, are not eligible for the dividends received deduction
allowed to corporations under the Code or the reduced tax rates available to
non-corporate shareholders. Distributions, if any, from an excess of net
long-term capital gains over net short-term capital losses derived from the
sale of securities or from certain transactions in futures, or options and
swaps ("capital gain dividends") are taxable as long-term capital gains for
Federal income tax purposes, regardless of the length of time the stockholder
has owned Fund shares. Generally not later than 60 days after the close of its
taxable year, the Fund will provide its stockholders with a written notice
designating the amounts of any exempt-interest dividends and capital gain
dividends. If the Fund pays a dividend in January which was declared in the
previous October, November or December to stockholders 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 stockholders on
December 31 of the year in which such dividend was declared.

      All or a portion of the Fund's gain from the sale or redemption of tax
exempt obligations purchased at a market discount will be treated for Federal
income tax purposes as ordinary income rather than capital gain. This rule may
increase the amount of ordinary income dividends received by stockholders.
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). The sale or exchange of AMPS could result
in capital gain or loss to holders of AMPS who hold their shares as capital
assets. Generally, a stockholder's gain or loss will be long-term capital gain
or loss if the shares have been held for more than one year. Any loss upon the
sale or exchange of Fund shares held for six months or less will be disallowed
to the extent of any exempt-interest dividends received by the stockholder. In
addition, any such loss that is not disallowed under the rule stated above
will be treated as long-term capital loss to the extent of any capital gain
dividends received by the stockholder.

      If you borrow money to buy the Fund's AMPS, you may not be permitted to
deduct the interest on that loan. Under Federal income tax rules, the Fund's
AMPS may be treated as having been bought with borrowed money even if the
purchase cannot be traced directly to borrowed money. Stockholders should
consult their own tax advisers regarding the impact of an investment in AMPS
upon the deductibility of interest payable by the stockholder.

      The IRS has taken the position in a revenue ruling that if a RIC has two
or more classes of shares, it may designate distributions made to each class
in any year as consisting of no more than such class's proportionate share of
particular types of income, including exempt-interest income and net long-term
capital gains. A class's proportionate share of a particular type of income is
determined according to the percentage of total dividends paid by the RIC
during such year that was paid to such class. Thus, the Fund is required to
allocate a portion of its net capital gain and other taxable income to the
shares of AMPS and Other AMPS of each series. Accordingly, the Fund intends to
designate dividends paid to the Series E AMPS and Other AMPS as tax exempt
interest, capital



                                      39
<PAGE>

gains or other taxable income, as applicable, in proportion to each series'
share of total dividends paid during the year. The Fund may notify the Auction
Agent of the amount of any net capital gain and other taxable income to be
included in any dividend on shares of AMPS prior to the Auction establishing
the Applicable Rate for such dividend. The Fund also may include such income
in a dividend on shares of AMPS without giving advance notice thereof if it
increases the dividend by an additional amount calculated as if such income
were a Retroactive Taxable Allocation and the additional amount were an
Additional Dividend, provided that the Fund will notify the Auction Agent of
the additional amounts to be included in such dividend prior to the applicable
Dividend Payment Date. See "The Auction--Auction Procedures--Auction Date;
Advance Notice of Allocation of Taxable Income; Inclusion of Taxable Income in
Dividends" in the prospectus. Except for the portion of any dividend that it
informs the Auction Agent will be treated as capital gains or other taxable
income, the Fund anticipates that the dividends paid on the shares of AMPS
will constitute exempt-interest dividends. The amount of net capital gain and
ordinary income allocable to shares of AMPS (the "taxable distribution") will
depend upon the amount of such gains and income realized by the Fund and the
total dividends paid by the Fund on shares of common stock and shares of the
series of AMPS during a taxable year, but the taxable distribution generally
is not expected to be significant.

      If the Fund makes a Retroactive Taxable Allocation, it will pay
Additional Dividends to holders of AMPS who are subject to the Retroactive
Taxable Allocation. See "Description of AMPS--Dividends-- Additional
Dividends" in the prospectus. The Federal income tax consequences of
Additional Dividends under existing law are uncertain. The Fund intends to
treat a holder as receiving a dividend distribution in the amount of any
Additional Dividend only as and when such Additional Dividend is paid. An
Additional Dividend generally will be designated by the Fund as an
exempt-interest dividend except as otherwise required by applicable law.
However, the IRS may assert that all or part of an Additional Dividend is a
taxable dividend either in the taxable year for which the Retroactive Taxable
Allocation is made or in the taxable year in which the Additional Dividend is
paid.

      In the opinion of Sidley Austin Brown & Wood LLP, counsel to the Fund,
under current law the manner in which the Fund intends to allocate items of
tax exempt income, net capital gain and other taxable income among shares of
common stock and shares of AMPS will be respected for Federal income tax
purposes. However, the tax treatment of Additional Dividends may affect the
Fund's calculation of each class's allocable share of capital gains and other
taxable income. In addition, there is currently no direct guidance from the
IRS or other sources specifically addressing whether the Fund's method for
allocating tax exempt income, net capital gain and other taxable income, if
any, among shares of common stock and shares of the AMPS will be respected for
Federal income tax purposes, and it is possible that the IRS could disagree
with counsel's opinion and attempt to reallocate the Fund's net capital gain
or other taxable income. In the event of a reallocation, some of the dividends
identified by the Fund as exempt-interest dividends to holders of shares of
AMPS may be recharacterized as additional capital gains or other taxable
income. In the event of such recharacterization, the Fund would not be
required to make payments to such stockholders to offset the tax effect of
such reallocation. In addition, a reallocation may cause the Fund to be liable
for income tax and excise tax on any reallocated taxable income. Sidley Austin
Brown & Wood LLP has advised the Fund that, in its opinion, if the IRS were to
challenge in court the Fund's allocations of income and gain, the IRS would be
unlikely to prevail. A holder should be aware, however, that the opinion of
Sidley Austin Brown & Wood LLP represents only its best legal judgment and is
not binding on the IRS or the courts.

      The Code subjects interest received on certain otherwise tax exempt
securities to a Federal alternative minimum tax. The Federal alternative
minimum tax applies to interest received on PABs issued after August 7, 1986.
PABs are bonds that, although tax exempt, are used for purposes other than
those performed by governmental units and that benefit non-governmental
entities (e.g., bonds used for industrial development or housing purposes).
Income received on such bonds is classified as an item of "tax preference,"
which could subject certain investors in such bonds, including stockholders of
the Fund, to an increased Federal alternative minimum tax. The Fund intends to
purchase such PABs and will report to stockholders at the close of the
calendar year-end the portion of its dividends declared during the year which
constitutes an item of tax preference for Federal alternative minimum tax
purposes. The Code further provides that corporations are subject to a Federal
alternative minimum tax based, in part, on certain differences between taxable
income as adjusted for other tax preferences and the corporation's "adjusted
current earnings," which more closely reflect a corporation's economic income.
Because an exempt-interest dividend paid by the Fund will be included in
adjusted current earnings, a corporate stockholder may be required to pay a
Federal alternative minimum tax on exempt-interest dividends paid by the Fund.



                                      40
<PAGE>

      The Fund may invest in instruments the return on which includes
nontraditional features such as indexed principal or interest payments
("nontraditional instruments"). These instruments may be subject to special
tax rules under which the Fund may be required to accrue and distribute income
before amounts due under the obligations are paid. In addition, it is possible
that all or a portion of the interest payments on such nontraditional
instruments could be recharacterized as taxable ordinary income.

      The Fund may engage in interest rate and credit default swaps. The
Federal income tax rules governing the taxation of swaps are not entirely
clear and may require the Fund to treat payments received under such
arrangements as ordinary income and to amortize payments under certain
circumstances. Because payments received by the Fund in connection with swap
transactions will be taxable rather than tax exempt, they may result in
increased taxable distributions to stockholders.

      Certain transactions entered into by the Fund are subject to complex
Federal income tax provisions that may, among other things, (a) affect the
character of gains and losses realized, (b) disallow, suspend or otherwise
limit the allowance of certain losses or deductions, and (c) accelerate the
recognition of income. Operation of these tax rules could, therefore, affect
the character, amount and timing of distributions and result in increased
taxable distributions to stockholders. Special tax rules also will require the
Fund to mark-to-market certain types of positions in its portfolio (i.e.,
treat them as sold on the last day of the taxable year), and may result in the
recognition of income without a corresponding receipt of cash. The Fund
intends to monitor its transactions, make appropriate tax elections and make
appropriate entries in its books and records to lessen the effect of these tax
rules and avoid any possible disqualification for the special treatment
afforded RICs under the Code.

      The Fund's ability to distribute dividends exempt from Federal income
tax depends on the exclusion from gross income of the interest income that it
receives on the securities in which it invests. The Fund will only purchase
Municipal Bonds and Non-Municipal Tax Exempt Securities if they are
accompanied by an opinion of counsel to the issuer, which is delivered on the
date of issuance of that security, that interest on such securities is
excludable from gross income for Federal income tax purposes (the "tax
exemption opinion").

      Events occurring after the date of issuance of the Municipal Bonds and
Non-Municipal Tax Exempt Securities in which the Fund invests, however, may
cause the interest on such securities to be includable in gross income for
Federal income tax purposes. For example, the Code establishes certain
requirements, such as restrictions as to the investment of the proceeds of the
issue, limitations as to the use of proceeds of such issue and the property
financed by such proceeds, and the payment of certain excess earnings to the
Federal government, that must be met after the issuance of securities for
interest on such securities to remain excludable from gross income for Federal
income tax purposes. The issuers and the conduit borrowers of the Municipal
Bonds or Non-Municipal Tax Exempt Securities generally covenant to comply with
such requirements, and the tax exemption opinion generally assumes continuing
compliance with such requirements. Failure to comply with these continuing
requirements, however, may cause the interest on such securities to be
includable in gross income for Federal income tax purposes retroactive to
their date of issue.

      In addition, the IRS has an ongoing enforcement program that involves
the audit of tax exempt bonds to determine whether an issue of bonds satisfies
all of the requirements that must be met for interest on such bonds to be
excludable from gross income for Federal income tax purposes. From time to
time, some of the securities held by the Fund may be the subject of such an
audit by the IRS, and the IRS may determine that the interest on such
securities is includable in gross income for Federal income tax purposes,
either because the IRS has taken a legal position adverse to the conclusion
reached by counsel to the issuer in the tax exemption opinion or as a result
of an action taken or not taken after the date of issue of such obligation. If
a Municipal Bond or Non- Municipal Tax Exempt Security in which the Fund
invests is determined to pay taxable interest subsequent to the Fund's
acquisition of such security, the IRS may demand that the Fund pay taxes on
the affected interest income. If the Fund agrees to do so, the Fund's yield on
its common stock could be adversely affected. A determination that interest on
a security held by the Fund is includable in gross income for Federal income
tax purposes retroactively to its date of issue may, likewise, cause a portion
of prior distributions received by stockholders, including holders of AMPS, to
be taxable to those stockholders in the year of receipt. The Fund will not pay
an Additional Dividend to a holder of AMPS under these circumstances.



                                      41
<PAGE>

      If at any time when shares of AMPS are outstanding the Fund does not
meet the asset coverage requirements of the 1940 Act, the Fund will be
required to suspend distributions to holders of common stock until the asset
coverage is restored. See "Description of AMPS--Dividends--Restrictions on
Dividends and Other Payments" and in the prospectus. This may prevent the Fund
from distributing at least 90% of its net income, and may, therefore,
jeopardize the Fund's qualification for taxation as a RIC. If the Fund were to
fail to qualify as a RIC, some or all of the distributions paid by the Fund
would be fully taxable for Federal income tax purposes. Upon any failure to
meet the asset coverage requirements of the 1940 Act, the Fund, in its sole
discretion, may, and under certain circumstances will be required to, redeem
shares of AMPS in order to maintain or restore the requisite asset coverage
and avoid the adverse consequences to the Fund and its stockholders of failing
to qualify as a RIC. See "Description of AMPS--Redemption" herein and in the
prospectus. There can be no assurance, however, that any such action would
achieve such objectives.

      As noted above, the Fund must distribute annually at least 90% of its
net taxable and tax exempt interest income. A distribution will only be
counted for this purpose if it qualifies for the dividends paid deduction
under the Code. Additional preferred stock that the Fund has authority to
issue may raise an issue as to whether distributions on such preferred stock
are "preferential" under the Code and therefore not eligible for the dividends
paid deduction. The Fund intends to issue preferred stock that counsel advises
will not result in the payment of a preferential dividend. If the Fund
ultimately relies on a legal opinion with regard to such preferred stock,
there is no assurance that the IRS would agree that dividends on the preferred
stock are not preferential. If the IRS successfully disallowed the dividends
paid deduction for dividends on the preferred stock, the Fund could lose the
benefit of the special treatment afforded RICs under the Code. In this case,
dividends paid by the Fund would not be exempt from Federal income taxes.
Additionally, the Fund would be subject to Federal income tax, including the
alternative minimum tax.

      Under certain Code provisions, some stockholders may be subject to a
withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Backup withholding may also be
required on distributions paid by the Fund, unless it reasonably estimates
that at least 95% of its distributions during the taxable year are comprised
of exempt-interest dividends. Generally, stockholders 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. Backup withholding is not an
additional tax. Any amount withheld generally may be allowed as a refund or a
credit against a stockholder's Federal income tax liability, provided that the
required information is timely forwarded to the IRS.

      The Fund is generally not an appropriate investment for retirement
plans, other entities that are not subject to tax and foreign stockholders.

State and Local Taxes

      The exemption from Federal income tax for exempt-interest dividends does
not necessarily result in an exemption for such dividends under the income or
other tax laws of any state or local taxing authority. Stockholders are
advised to consult their own tax advisers concerning state and local matters.

      In some states, the portion of any exempt-interest dividend that is
derived from interest received by a RIC on its holdings of that state's
securities and its political subdivisions and instrumentalities is exempt from
that state's income tax. Therefore, the Fund will report annually to its
stockholders the percentage of interest income earned by the Fund during the
preceding year on tax exempt obligations indicating, on a state-by-state
basis, the source of such income.

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



                                      42
<PAGE>

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

                             CONFLICTS OF INTEREST

      The investment activities of the Investment Adviser, Merrill Lynch and
other affiliates of Merrill Lynch for their own accounts and other accounts
they manage may give rise to conflicts of interest that could disadvantage the
Fund and its stockholders. The Investment Adviser has adopted written policies
and procedures that, collectively, address investment activities of, and other
arrangements involving, the Investment Adviser that may give rise to such
conflicts of interest.

      Merrill Lynch, as a diversified global financial services firm, is
involved with a broad spectrum of financial services and asset management
activities. Certain of Merrill Lynch's affiliates that are not service
providers to the Fund engage in a broad range of activities over which the
Investment Adviser has no control or ability to exercise oversight. Although
there are no formal written policies and procedures that cover all potential
or actual conflicts of interest, Merrill Lynch has established a number of
committees and related policies and procedures that are designed to identify,
analyze and/or resolve such conflicts of interest. No assurance can be given
that Merrill Lynch will be able to identify each conflict of interest or that
each identified conflict of interest will be resolved in favor of the Fund.

      Merrill Lynch and its affiliates, including, without limitation, the
Investment Adviser and its advisory affiliates may have proprietary interests
in, and may manage or advise with respect to, accounts or funds (including
separate accounts and other funds and collective investment vehicles) that
have investment objectives similar to those of the Fund and/or that engage in
transactions in the same types of securities and instruments as the Fund.
Merrill Lynch and its affiliates are also major participants in, among others,
the options, swaps, and equities markets, in each case both on a proprietary
basis and for the accounts of customers. As such, Merrill Lynch and its
affiliates are actively engaged in transactions in the same securities and
instruments in which the Fund invests. Such activities could affect the prices
and availability of the securities and instruments in which the Fund invests,
which could have an adverse impact on the Fund's performance. Such
transactions, particularly in respect of most proprietary accounts or customer
accounts, will be executed independently of the Fund's transactions and thus
at prices or rates that may be more or less favorable than those obtained by
the Fund.

      The results of the Fund's investment activities may differ significantly
from the results achieved by the Investment Adviser and its affiliates for its
proprietary accounts or other accounts (including investment companies or
collective investment vehicles) managed or advised by the Investment Adviser.
It is possible that the Investment Adviser and its affiliates and such other
accounts will achieve investment results that are substantially more or less
favorable than the results achieved by the Fund. Moreover, it is possible that
the Fund will sustain losses during periods in which the Investment Adviser
and its affiliates achieve significant profits on their trading for
proprietary or other accounts. The opposite result is also possible.

      From time to time, the Fund's activities may also be restricted because
of regulatory restrictions applicable to Merrill Lynch and its affiliates,
and/or their internal policies designed to comply with such restrictions. As a
result, there may be periods, for example, when the Investment Adviser, and/or
its affiliates, will not initiate or recommend certain types of transactions
in certain securities or instruments with respect to which the Investment
Adviser and/or its affiliates are performing services or when position limits
have been reached.

      In connection with its management of the Fund, the Investment Adviser
may have access to certain fundamental analysis and proprietary technical
models developed by Merrill Lynch. The Investment Adviser will not be under
any obligation, however, to effect transactions on behalf of the Fund in
accordance with such analysis and models. In addition, neither Merrill Lynch
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Fund and it is not anticipated that the
Investment Adviser will have access to such information for the purpose of
managing the Fund. The proprietary activities or portfolio strategies of
Merrill Lynch and its affiliates or the activities or strategies used for
accounts managed by them or other customer accounts could conflict with the
transactions and strategies employed by the Investment Adviser in managing the
Fund.



                                      43
<PAGE>

      In addition, certain principals and certain employees of the Investment
Adviser are also principals or employees of Merrill Lynch or its affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Fund should be aware.

      The Investment Adviser may enter into transactions and invest in
securities and instruments on behalf of the Fund in which customers of Merrill
Lynch (or, to the extent permitted by the SEC, Merrill Lynch) serve as the
counterparty, principal or issuer. In such cases, such party's interests in
the transaction will be adverse to the interests of the Fund, and such party
may have no incentive to assure that the Fund obtains the best possible prices
or terms in connection with the transactions. In addition, the purchase,
holding and sale of such investments by the Fund may enhance the profitability
of Merrill Lynch. Merrill Lynch and its affiliates may also create, write or
issue derivative instruments for customers of Merrill Lynch or its affiliates,
the underlying securities or instruments of which may be those in which the
Fund invests or which may be based on the performance of the Fund. The Fund
may, subject to applicable law, purchase investments that are the subject of
an underwriting or other distribution by Merrill Lynch or its affiliates and
may also enter into transactions with other clients of Merrill Lynch or its
affiliates where such other clients have interests adverse to those of the
Fund. At times, these activities may cause departments of Merrill Lynch or its
affiliates to give advice to clients that may cause these clients to take
actions adverse to the interests of the Fund. To the extent affiliated
transactions are permitted, the Fund will deal with Merrill Lynch and its
affiliates on an arms-length basis.

      The Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Merrill Lynch
nor its affiliates will have any obligation to allow their credit to be used
in connection with the Fund's establishment of its business relationships, nor
is it expected that the Fund's counterparties will rely on the credit of
Merrill Lynch or any of its affiliates in evaluating the Fund's
creditworthiness.

      It is also possible that, from time to time, Merrill Lynch or any of its
affiliates, may, although they are not required to, purchase, hold or sell
shares of the Fund.

      It is possible that the Fund may invest in securities of companies with
which Merrill Lynch has or is trying to develop investment banking
relationships as well as securities of entities in which Merrill Lynch makes a
market. The Fund also may invest in securities of companies that Merrill Lynch
provides or may someday provide research coverage. Such investments could
cause conflicts between the interests of the Fund and the interests of other
Merrill Lynch clients. In providing services to the Fund, the Investment
Adviser is not permitted to obtain or use material non-public information
acquired by any division, department or affiliate of Merrill Lynch in the
course of these activities. In addition, from time to time, Merrill Lynch's
activities may limit the Fund's flexibility in purchases and sales of
securities. When Merrill Lynch is engaged in an underwriting or other
distribution of securities of an entity, the Investment Adviser may be
prohibited from purchasing or recommending the purchase of certain securities
of that entity for the Fund.

      The Investment Adviser, its affiliates, and its directors, officers and
employees, may buy and sell securities or other investments for their own
accounts, and may have conflicts of interest with respect to investments made
on behalf of the Fund. As a result of differing trading and investment
strategies or constraints, positions may be taken by directors, officers and
employees and affiliates of the Investment Adviser that are the same,
different from or made at different times than positions taken for the Fund.
To lessen the possibility that the Fund will be adversely affected by this
personal trading, each of the Fund and the Investment Adviser has adopted a
Code of Ethics in compliance with Section 17(j) of the 1940 Act that restricts
securities trading in the personal accounts of investment professionals and
others who normally come into possession of information regarding the Fund's
portfolio transactions.

      The Investment Adviser and its affiliates will not purchase securities
or other property from, or sell securities or other property to, the Fund,
except that the Fund may, in accordance with rules adopted under the 1940 Act,
engage in transactions with accounts that are affiliated with the Fund as a
result of common officers, directors, or investment advisers. These
transactions would be effected in circumstances in which the Investment
Adviser determined that it would be appropriate for the Fund to purchase and
another client to sell, or the Fund to sell and another client to purchase,
the same security or instrument on the same day.



                                      44
<PAGE>

      Present and future activities of Merrill Lynch and its affiliates,
including of the Investment Adviser, in addition to those described in this
section, may give rise to additional conflicts of interest.

                                NET ASSET VALUE

      Net asset value per share of common stock is determined Monday through
Friday as of the close of business on the NYSE (generally, the NYSE closes at
4:00 p.m., Eastern time), on each business day during which the NYSE is open
for trading. For purposes of determining the net asset value of a share of
common stock, the value of the securities held by the Fund plus any cash or
other assets (including interest accrued but not yet received) minus all
liabilities (including accrued expenses) and the aggregate liquidation value
of any outstanding shares of preferred stock is divided by the total number of
shares of common stock outstanding at such time. Expenses, including the fees
payable to the Investment Adviser, are accrued daily.

      The Municipal Bonds and other portfolio securities in which the Fund
invests are traded primarily in over-the-counter ("OTC") municipal bond and
money markets and are valued at the last available bid price for long
positions and at the last available ask price for short positions in the OTC
market or on the basis of yield equivalents as obtained from one or more
dealers or pricing services approved by the Directors. One bond is the "yield
equivalent" of another bond when, taking into account market price, maturity,
coupon rate, credit rating and ultimate return of principal, both bonds will
theoretically produce an equivalent return to the bondholder. Financial
futures contracts and options thereon, which are traded on exchanges, are
valued at their settlement prices as of the close of such exchanges.
Short-term investments with a remaining maturity of 60 days or less are valued
on an amortized cost basis, which approximates market value, unless the
Investment Adviser believes that this method no longer produces fair
valuations. Repurchase agreements will be valued at cost plus accrued
interest. The value of swaps, including interest rate swaps, caps and floors,
will be determined by obtaining dealer quotations. Repurchase agreements will
be valued at cost plus accrued interest. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Directors, including
valuations furnished by a pricing service retained by the Fund, which may use
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 Directors.

      The Fund makes available for publication the net asset value of its
shares of common stock determined as of the last business day each week.
Currently, the net asset values of shares of publicly traded closed-end
investment companies investing in debt securities are published in Barron's,
the Monday edition of The Wall Street Journal and the Monday and Saturday
editions of The New York Times.

                             FINANCIAL STATEMENTS

      The Fund's audited financial statements for the fiscal year ended
October 31, 2004, together with the report of _________ thereon, are
incorporated in this statement of additional information by reference to its
2004 Annual Report. The Fund's unaudited financial statements for the six
months ended April 30, 2005 are incorporated in this statement of additional
information by reference to its 2005 Semi-Annual Report. You may request a
copy of the Annual Report and the Semi-Annual Report at no charge by calling
(800) 543-6217 between 8:30 a.m. and 5:30 p.m. Eastern time on any business
day.




                                      45
<PAGE>

                                  APPENDIX A

                          RATINGS OF MUNICIPAL BONDS

                     DESCRIPTION OF MUNICIPAL BOND RATINGS

Description of Moody's Municipal Bond Ratings

Aaa            Issuers or issues rated Aaa demonstrate the strongest
               creditworthiness relative to other US municipal or tax-exempt
               issuers or issues.

Aa             Issuers or issues rated Aa demonstrate very strong
               creditworthiness relative to other US municipal or tax-exempt
               issuers or issues.

A              Issuers or issues rated A present above-average
               creditworthiness relative to other US municipal or tax-exempt
               issuers or issues.

Baa            Issuers or issues rated Baa represent average creditworthiness
               relative to other US municipal or tax- exempt issuers or
               issues.

Ba             Issuers or issues rated Ba demonstrate below-average
               creditworthiness relative to other US municipal or tax-exempt
               issuers or issues.

B              Issuers or issues rated B demonstrate weak creditworthiness
               relative to other US municipal or tax- exempt issuers or
               issues.

Caa            Issuers or issues rated Caa demonstrate very weak
               creditworthiness relative to other US municipal or tax-exempt
               issuers or issues.

Ca             Issuers or issues rated Ca demonstrate extremely weak
               creditworthiness relative to other US municipal or tax-exempt
               issuers or issues.

C              Issuers or issues rated C demonstrate the weakest
               creditworthiness relative to other US municipal or tax-exempt
               issuers or issues.

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

Description of Moody's Municipal Short-Term Debt Ratings

MIG 1          This designation denotes superior credit quality. Excellent
               protection is afforded by established cash flows, highly
               reliable liquidity support, or demonstrated broad-based access
               to the market for refinancing.

MIG 2          This designation denotes strong credit quality. Margins of
               protection are ample, although not as large as in the preceding
               group.

MIG 3          This designation denotes acceptable credit quality. Liquidity
               and cash-flow protection may be narrow, and market access for
               refinancing is likely to be less well-established.

SG             This designation denotes speculative-grade credit quality. Debt
               instruments in this category may lack sufficient margins of
               protection.



                                      A-1
<PAGE>

Description of Moody's U.S. Municipal Demand Obligation Ratings

      In the case of variable rate demand obligations (VRDOs), a two-component
rating is assigned; a long or short-term debt rating and a demand obligation
rating. The first element represents Moody's evaluation of the degree of risk
associated with scheduled principal and interest payments. The second element
represents Moody's evaluation of the degree of risk associated with the
ability to receive purchase price upon demand ("demand feature"), using a
variation of the MIG rating scale, the Variable Municipal Investment Grade or
VMIG rating.

      When either the long- or short-term aspect of a VRDO is not rated, that
piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.

      VMIG rating expirations are a function of each issue's specific
structural or credit features.

VMIG 1         This designation denotes superior credit quality. Excellent
               protection is afforded by the superior short-term credit
               strength of the liquidity provider and structural and legal
               protections that ensure the timely payment of purchase price
               upon demand.

VMIG 2         This designation denotes strong credit quality. Good protection
               is afforded by the strong short-term credit strength of the
               liquidity provider and structural and legal protections that
               ensure the timely payment of purchase price upon demand.

VMIG 3         This designation denotes acceptable credit quality. Adequate
               protection is afforded by the satisfactory short-term credit
               strength of the liquidity provider and structural and legal
               protections that ensure the timely payment of purchase price
               upon demand.

SG             This designation denotes speculative-grade credit quality.
               Demand features rated in this category may be supported by a
               liquidity provider that does not have an investment grade
               short-term rating or may lack the structural and/or legal
               protections necessary to ensure the timely payment of purchase
               price upon demand.


Description of Moody's Short-Term Ratings

      Moody's Commercial Paper ratings are opinions of the ability of issuers
to honor short-term financial obligations not having an original maturity in
excess of thirteen months. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:

P-1            Issuers (or supporting institutions) rated Prime-1 have a
               superior ability to repay short-term debt obligations.

P-2            Issuers (or supporting institutions) rated Prime-2 have a
               strong ability to repay short-term debt obligations.

P-3            Issuers (or supporting institutions) rated Prime-3 have an
               acceptable ability to repay short-term obligations.

NP             Issuers (or supporting institutions) rated Not Prime do not
               fall within any of the Prime rating categories.


Description of Standard & Poor's, a Division of The McGraw-Hill Companies,
Inc. ("Standard & Poor's"), Debt Ratings

      A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations or a specific program.
It takes into consideration the creditworthiness of guarantors, insurers, or
other forms of credit enhancement on the obligation.



                                     A-2
<PAGE>

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

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

      The issue credit ratings are based, in varying degrees, on the following
considerations:

      I.    Likelihood of payment--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;

      II.   Nature of and provisions of the obligation;

      III.  Protection afforded to, 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.

Long Term Issue Credit Ratings

AAA            An obligation rated "AAA" has the highest rating assigned by
               Standard & Poor's. Capacity to meet its financial commitment on
               the obligation is extremely strong.

AA             An obligation rated "AA" differs from the highest rated issues
               only in small degree. The Obligor's capacity to meet its
               financial commitment on the obligation is very strong.

A              An obligation rated "A" is somewhat more susceptible to the
               adverse effects of changes in circumstances and economic
               conditions than debt in higher-rated categories. However, the
               obligor's capacity to meet its financial commitment on the
               obligation is still strong.

BBB            An obligation rated "BBB" exhibits adequate protection
               parameters. However, adverse economic conditions or changing
               circumstances are more likely to lead to a weakened capacity of
               the obligor to meet its financial commitment on the obligation.

BB             An obligation rated "BB," "B," "CCC," "CC" and "C" are regarded
B              as having significant speculative characteristics. "BB" indicates
CCC            the least degree of speculation and "C" the highest degree of
CC             speculation. While such debt will likely have some quality and
C              protective characteristics, these may be outweighed by large
               uncertainties or major risk exposures to adverse conditions.

D              An obligation rated "D" is in payment default. The "D" rating
               category is used when payments on an obligation 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 or the taking
               of similar action if payments on an obligation are jeopardized.

c              The `c' subscript is used to provide additional information to
               investors that the bank may terminate its obligation to
               purchase tendered bonds if the long term credit rating of the
               issuer is below an investment-grade level and/or the issuer's
               bonds are deemed taxable.

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



                                     A-3
<PAGE>

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

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

r              This symbol is attached to the ratings of instruments with
               significant noncredit risks. It highlights risks to principal
               or volatility of expected returns which are not addressed in
               the credit rating.

N.R.           This 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 obligation as a
               matter of policy.

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

Description of Standard & Poor's Short-Term Issue Credit Ratings

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

A-1            A short-term obligation rated "A-1" is rated in the highest
               category by Standard & Poor's. The obligor's capacity to meet
               its financial commitment on the obligation is strong. Within
               this category, certain obligations are designated with a plus
               sign (+). This indicates that the obligor's capacity to meet
               its financial commitment on these obligations is extremely
               strong.

A-2            A short-term obligation rated "A-2" is somewhat more
               susceptible to the adverse effects of changes in circumstances
               and economic conditions than obligations in higher rating
               categories. However, the obligor's capacity to meet its
               financial commitment on the obligation is satisfactory.

A-3            A short-term obligation rated "A-3" exhibits adequate
               protection parameters. However, adverse economic conditions or
               changing circumstances are more likely to lead to a weakened
               capacity of the obligor to meet its financial commitment on the
               obligation.

B              A short-term obligation rated "B" is regarded as having
               significant speculative characteristics. The obligor currently
               has the capacity to meet its financial commitment on the
               obligation; however, it faces major ongoing uncertainties which
               could lead to the obligor's inadequate capacity to meet its
               financial commitment on the obligation.

C              A short-term obligation rated "C" is currently vulnerable to
               nonpayment and is dependent upon favorable business, financial
               and economic conditions for the obligor to meet its financial
               commitment on the obligation.

D              A short-term obligation 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 will also be used upon the filing of a bankruptcy
               petition or the taking of a similar action if payments on an
               obligation are jeopardized.

c              The "c" subscript is used to provide additional information to
               investors that the bank may terminate its obligation to
               purchase tendered bonds if the long term credit rating of the
               issuer is below an investment-grade level and/or the issuer's
               bonds are deemed taxable.



                                     A-4
<PAGE>

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

*              Continuance of the ratings is contingent upon Standard & Poor's
               receipt of an executed copy of the escrow agreement or closing.

r              The "r" highlights derivative, hybrid, and certain other
               obligations that Standard & Poor's believes may experience high
               volatility or high variability in expected returns as a result
               of noncredit risks. Examples of such obligations are securities
               with principal or interest return indexed to equities,
               commodities, or currencies; certain swaps and options, and
               interest-only and principal-only mortgage securities. The
               absence of an "r" symbol should not be taken as an indication
               that an obligation will exhibit no volatility or variability in
               total return.

      A short-term issue credit 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 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.

      A Standard & Poor's note rating reflects the liquidity factors and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most
likely receive a long term debt rating. The following criteria will be used in
making that assessment.

      --Amortization schedule--the larger the final maturity relative to other
maturities, the more likely it will be treated as a note.

      --Source of payment--the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.

         Note rating symbols are as follows:

SP-1           Strong capacity to pay principal and interest. An issue
               determined to possess a very strong capacity to pay debt
               service is given a plus (+) designation.

SP-2           Satisfactory capacity to pay principal and interest with some
               vulnerability to adverse financial and economic changes over
               the term of the notes.

SP-3           Speculative capacity to pay principal and interest.

Description of Fitch Ratings' ("Fitch") Investment Grade Bond Ratings

      Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations
of a specific debt issue or class of debt in a timely manner.

      The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.



                                     A-5
<PAGE>

      Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guarantees unless otherwise indicated.

      Bonds carrying the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect
small differences in the degrees of credit risk.

      Fitch ratings are not recommendations to buy, sell, or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax exempt
nature or taxability of payments made in respect of any security.

      Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

AAA            Bonds considered to be investment grade and of the highest
               credit quality. The obligor has an exceptionally strong ability
               to pay interest and repay principal, which is unlikely to be
               affected by reasonably foreseeable events.

AA             Bonds considered to be investment grade and of very high credit
               quality. The obligor's ability to pay interest and repay
               principal is very strong, although not quite as strong as bonds
               rated "AAA." Because bonds rated in the "AAA" and "AA"
               categories are not significantly vulnerable to foreseeable
               future developments, short term debt of these issuers is
               generally rated "F-1+."

A              Bonds considered to be investment grade and of high credit
               quality. The obligor's ability to pay interest and repay
               principal is considered to be strong, but may be more
               vulnerable to adverse changes in economic conditions and
               circumstances than bonds with higher ratings.

BBB            Bonds considered to be investment grade and of
               satisfactory-credit quality. The obligor's ability to pay
               interest and repay principal is considered to be adequate.
               Adverse changes in economic conditions and circumstances,
               however, are more likely to have adverse impact on these bonds,
               and therefore impair timely payment. The likelihood that the
               ratings of these bonds will fall below investment grade is
               higher than for bonds with higher ratings.

Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.

Description of Fitch's Speculative Grade Bond Ratings

      Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or
liquidation. The rating takes into consideration special features of the
issue, its relationship to other obligations of the issuer, the current and
prospective financial condition and operating performance of the issuer and
any guarantor, as well as the economic and political environment that might
affect the issuer's future financial strength.

      Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.

BB             Bonds are considered speculative. The obligor's ability to pay
               interest and repay principal may be affected over time by
               adverse economic changes. However, business and financial
               alternatives can be identified which could assist the obligor
               in satisfying its debt service requirements.



                                     A-6
<PAGE>

B              Bonds are considered highly speculative. While bonds in this
               class are currently meeting debt service requirements, the
               probability of continued timely payment of principal and
               interest reflects the obligor's limited margin of safety and
               the need for reasonable business and economic activity
               throughout the life of the issue.

CCC            Bonds have certain identifiable characteristics which, if not
               remedied, may lead to default. The ability to meet obligations
               requires an advantageous business and economic environment.

CC             Bonds are minimally protected. Default in payment of interest
               and/or principal seems probable over time.

C              Bonds are in imminent default in payment of interest or
               principal.

D              Bonds are in default on interest and/or principal payments.
DD             Such bonds are extremely speculative and should be valued on
DDD            the basis of their ultimate recovery value in liquidation or
              reorganization of the obligor. "DDD" represents the highest
               potential for recovery on these bonds, and "D" represents the
               lowest potential for recovery.

Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.

Description of Fitch's Short Term Ratings

      Fitch's short term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and investment notes.

      The short term rating places greater emphasis than a long term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.

      Fitch short term ratings are as follows:

F-1+           Exceptionally Strong Credit Quality. Issues assigned this
               rating are regarded as having the strongest degree of assurance
               for timely payment.

F-1            Very Strong Credit Quality. Issues assigned this rating reflect
               an assurance of timely payment only slightly less in degree
               than issues rated "F-1+."

F-2            Good Credit Quality. Issues assigned this rating have a
               satisfactory degree of assurance for timely payment, but the
               margin of safety is not as great as for issues assigned "F-1+"
               and "F-1" ratings.

F-3            Fair Credit Quality. Issues assigned this rating have
               characteristics suggesting that the degree of assurance for
               timely payment is adequate; however, near-term adverse changes
               could cause these securities to be rated below investment
               grade.

F-S            Weak Credit Quality. Issues assigned this rating have
               characteristics suggesting a minimal degree of assurance for
               timely payment and are vulnerable to near-term adverse changes
               in financial and economic conditions.

D              Default. Issues assigned this rating are in actual or imminent
               payment default.

LOC            The symbol "LOC" indicates that the rating is based on a letter
               of credit issued by a commercial bank.

NR             Indicates that Fitch does not rate the specific issue.



                                     A-7
<PAGE>

Conditional A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.

Suspended      A rating is suspended when Fitch deems the amount of
               information available from the issuer to be inadequate for
               rating purposes.

Withdrawn      A rating will be withdrawn when an issue matures or is called
               or refinanced and, at Fitch's discretion, when an issuer fails
               to furnish proper and timely information.

FitchAlert     Ratings are placed on FitchAlert to notify investors of an
               occurrence that is likely to result in a rating change and the
               likely direction of such change. These are designated as
               "Positive," indicating a potential upgrade, "Negative," for
               potential downgrade, or "Evolving," where ratings may be raised
               or lowered. FitchAlert is relatively short term, and should be
               resolved within 12 months.

Ratings Outlook: An outlook is used to describe the most likely direction of
any rating change over the intermediate term. It is described as "Positive" or
"Negative." The absence of a designation indicates a stable outlook.



                                     A-8
<PAGE>

                                  APPENDIX B

                             SETTLEMENT PROCEDURES

      The following summary of Settlement Procedures sets forth the procedures
expected to be followed in connection with the settlement of each Auction and
will be incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. Nothing contained in this Appendix B constitutes a
representation by the Fund that in each Auction each party referred to herein
actually will perform the procedures described herein to be performed by such
party. Capitalized terms used herein shall have the respective meanings
specified in the Glossary in the prospectus or this Appendix B hereto, as the
case may be.

      (a) On each Auction Date, the Auction Agent shall notify by telephone or
through the Auction Agent's Processing System the Broker-Dealers that
participated in the Auction held on such Auction Date and submitted an Order
on behalf of any Beneficial Owner or Potential Beneficial Owner of:

            (i) the Applicable Rate fixed for the next succeeding Dividend
      Period;

            (ii) whether Sufficient Clearing Bids existed for the
      determination of the Applicable Rate;

            (iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted
      a Bid or a Sell Order on behalf of a Beneficial Owner, the number of
      shares, if any, of AMPS to be sold by such Beneficial Owner;

            (iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a
      Bid on behalf of a Potential Beneficial Owner, the number of shares, if
      any, of AMPS to be purchased by such Potential Beneficial Owner;

            (v) if the aggregate number of shares of AMPS to be sold by all
      Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid or
      a Sell Order exceeds the aggregate number of shares of AMPS to be
      purchased by all Potential Beneficial Owners on whose behalf such
      Broker-Dealer submitted a Bid, the name or names of one or more Buyer's
      Broker-Dealers (and the name of the Agent Member, if any, of each such
      Buyer's Broker-Dealer) acting for one or more purchasers of such excess
      number of shares of AMPS and the number of such shares to be purchased
      from one or more Beneficial Owners on whose behalf such Broker-Dealer
      acted by one or more Potential Beneficial Owners on whose behalf each of
      such Buyer's Broker-Dealers acted;

            (vi) if the aggregate number of shares of AMPS to be purchased by
      all Potential Beneficial Owners on whose behalf such Broker-Dealer
      submitted a Bid exceeds the aggregate number of shares of AMPS to be
      sold by all Beneficial Owners on whose behalf such Broker-Dealer
      submitted a Bid or a Sell Order, the name or names of one or more
      Seller's Broker-Dealers (and the name of the Agent Member, if any, of
      each such Seller's Broker-Dealer) acting for one or more sellers of such
      excess number of shares of AMPS and the number of such shares to be sold
      to one or more Potential Beneficial Owners on whose behalf such
      Broker-Dealer acted by one or more Beneficial Owners on whose behalf
      each of such Seller's Broker-Dealers acted; and

            (vii) the Auction Date of the next succeeding Auction with respect
      to the AMPS.

      (b) On each Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner shall:

            (i) in the case of a Broker-Dealer that is a Buyer's
      Broker-Dealer, instruct each Potential Beneficial Owner on whose behalf
      such Broker-Dealer submitted a Bid that was accepted, in whole or in
      part, to instruct such Potential Beneficial Owner's Agent Member to pay
      to such Broker-Dealer (or its Agent Member) through the Securities
      Depository the amount necessary to purchase the number of shares



                                     B-1
<PAGE>

      of AMPS to be purchased pursuant to such Bid against receipt of such
      shares and advise such Potential Beneficial Owner of the Applicable Rate
      for the next succeeding Dividend Period;

            (ii) in the case of a Broker-Dealer that is a Seller's
      Broker-Dealer, instruct each Beneficial Owner on whose behalf such
      Broker-Dealer submitted a Sell Order that was accepted, in whole or in
      part, or a Bid that was accepted, in whole or in part, to instruct such
      Beneficial Owner's Agent Member to deliver to such Broker-Dealer (or its
      Agent Member) through the Securities Depository the number of shares of
      AMPS to be sold pursuant to such Order against payment therefor and
      advise any such Beneficial Owner that will continue to hold shares of
      AMPS of the Applicable Rate for the next succeeding Dividend Period;

            (iii) advise each Beneficial Owner on whose behalf such
      Broker-Dealer submitted a Hold Order of the Applicable Rate for the next
      succeeding Dividend Period;

            (iv) advise each Beneficial Owner on whose behalf such
      Broker-Dealer submitted an Order of the Auction Date for the next
      succeeding Auction; and

            (v) advise each Potential Beneficial Owner on whose behalf such
      Broker-Dealer submitted a Bid that was accepted, in whole or in part, of
      the Auction Date for the next succeeding Auction.

      (c) On the basis of the information provided to it pursuant to (a)
above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a
Potential Beneficial Owner or a Beneficial Owner shall, in such manner and at
such time or times as in its sole discretion it may determine, allocate any
funds received by it pursuant to (b)(i) above and any shares of AMPS received
by it pursuant to (b)(ii) above among the Potential Beneficial Owners, if any,
on whose behalf such Broker-Dealer submitted Bids, the Beneficial Owners, if
any, on whose behalf such Broker-Dealer submitted Bids that were accepted or
Sell Orders, and any Broker-Dealer or Broker-Dealers identified to it by the
Auction Agent pursuant to (a)(v) or (a)(vi) above.

      (d) On each Auction Date:

            (i) each Potential Beneficial Owner and Beneficial Owner shall
      instruct its Agent Member as provided in (b)(i) or (ii) above, as the
      case may be;

            (ii) each Seller's Broker-Dealer which is not an Agent Member of
      the Securities Depository shall instruct its Agent Member to (A) pay
      through the Securities Depository to the Agent Member of the Beneficial
      Owner delivering shares to such Broker-Dealer pursuant to (b)(ii) above
      the amount necessary to purchase such shares against receipt of such
      shares, and (B) deliver such shares through the Securities Depository to
      a Buyer's Broker-Dealer (or its Agent Member) identified to such
      Seller's Broker-Dealer pursuant to (a)(v) above against payment
      therefor; and

            (iii) each Buyer's Broker-Dealer which is not an Agent Member of
      the Securities Depository shall instruct its Agent Member to (A) pay
      through the Securities Depository to a Seller's Broker-Dealer (or its
      Agent Member) identified pursuant to (a)(vi) above the amount necessary
      to purchase the shares to be purchased pursuant to (b)(i) above against
      receipt of such shares, and (B) deliver such shares through the
      Securities Depository to the Agent Member of the purchaser thereof
      against payment therefor.

      (e) On the day after the Auction Date:

            (i) each Bidder's Agent Member referred to in (d)(i) above shall
      instruct the Securities Depository to execute the transactions described
      in (b)(i) or (ii) above, and the Securities Depository shall execute
      such transactions;

            (ii) each Seller's Broker-Dealer or its Agent Member shall
      instruct the Securities Depository to execute the transactions described
      in (d)(ii) above, and the Securities Depository shall execute such
      transactions; and



                                     B-2
<PAGE>

            (iii) each Buyer's Broker-Dealer or its Agent Member shall
      instruct the Securities Depository to execute the transactions described
      in (d)(iii) above, and the Securities Depository shall execute such
      transactions.

      (f) If a Beneficial Owner selling shares of AMPS in an Auction fails to
deliver such shares (by authorized book-entry), a Broker-Dealer may deliver to
the Potential Beneficial Owner on behalf of which it submitted a Bid that was
accepted a number of whole shares of AMPS that is less than the number of
shares that otherwise was to be purchased by such Potential Beneficial Owner.
In such event, the number of shares of AMPS to be so delivered shall be
determined solely by such Broker-Dealer. Delivery of such lesser number of
shares shall constitute good delivery. Notwithstanding the foregoing terms of
this paragraph (f), any delivery or non-delivery of shares which shall
represent any departure from the results of an Auction, as determined by the
Auction Agent, shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or non-delivery in accordance with the
provisions of the Auction Agent Agreement and the Broker-Dealer Agreements.



                                     B-3
<PAGE>

                                  APPENDIX C

                              AUCTION PROCEDURES

      The following procedures will be set forth in provisions of the Articles
Supplementary relating to the AMPS, and will be incorporated by reference in
the Auction Agent Agreement and each Broker-Dealer Agreement. The terms not
defined below are defined in the prospectus or in the Glossary in the
prospectus. Nothing contained in this Appendix C constitutes a representation
by the Fund that in each Auction each party referred to herein actually will
perform the procedures described herein to be performed by such party.

      Paragraph 10(a) Certain Definitions.

      As used in this Paragraph 10, the following terms shall have the
following meanings, unless the context otherwise requires:

            (i) "AMPS" shall mean the shares of AMPS being auctioned pursuant
      to this Paragraph 10.

            (ii) "Auction Date" shall mean the first Business Day preceding
      the first day of a Dividend Period.

            (iii) "Available AMPS" shall have the meaning specified in
      Paragraph 10(d)(i) below.

            (iv) "Bid" shall have the meaning specified in Paragraph 10(b)(i)
      below.

            (v) "Bidder" shall have the meaning specified in Paragraph
      10(b)(i) below.

            (vi) "Hold Order" shall have the meaning specified in Paragraph
      10(b)(i) below.

            (vii) "Maximum Applicable Rate" for any Dividend Period will be
      the higher of the Applicable Percentage of the Reference Rate or the
      Applicable Spread plus the Reference Rate. The Applicable Percentage and
      the Applicable Spread will be determined based on (i) the lower of the
      credit rating or ratings assigned on such date to such shares by Moody's
      and S&P (or if Moody's or S&P or both shall not make such rating
      available, the equivalent of either or both of such ratings by a
      Substitute Rating Agency or two Substitute Rating Agencies or, in the
      event that only one such rating shall be available, such rating) and
      (ii) whether the Fund has provided notification to the Auction Agent
      prior to the Auction establishing the Applicable Rate for any dividend
      that net capital gains or other taxable income will be included in such
      dividend on shares of AMPS as follows:

<TABLE>
<CAPTION>
            Credit Ratings
- -------------------------------------
                                             Applicable           Applicable      Applicable Spread     Applicable
                                            Percentage of       Percentage of       Over Reference      Spread Over
                                          Reference Rate -     Reference Rate -       Rate - No       Reference Rate
      Moody's                S&P            Notification         Notification        Notification     - Notification
- ---------------------  ---------------  --------------------  ------------------  ------------------ ----------------
<S>                    <C>              <C>                   <C>                 <C>                <C>
        Aaa                  AAA                110%                 125%               1.10%              1.25%
     Aa3 to Aa1          AA- to AA+             125%                 150%               1.25%              1.50%
      A3 to A1            A- to A+              150%                 200%               1.50%              2.00%
    Baa3 to Baa1        BBB- to BBB+            175%                 250%               1.75%              2.50%
     Below Baa3          Below BBB-             200%                 300%               2.00%              3.00%
</TABLE>



                                     C-1
<PAGE>

      The Applicable Percentage and the Applicable Spread as so determined may
be further subject to upward but not downward adjustment in the discretion of
the Board of Directors of the Fund after consultation with the Broker-Dealers,
provided that immediately following any such increase the Fund would be in
compliance with the AMPS Basic Maintenance Amount. Subject to the provisions
of paragraph 12 of the Articles Supplementary entitled "Termination of Rating
Agency Provisions," the Fund shall take all reasonable action necessary to
enable S&P and Moody's to provide a rating for the AMPS. If either S&P or
Moody's shall not make such a rating available or if neither S&P nor Moody's
shall make such a rating available, subject to the provisions of paragraph 12
of the Articles Supplementary entitled "Termination of Rating Agency
Provisions," Merrill Lynch, Pierce, Fenner & Smith Incorporated or its
affiliates and successors, after obtaining the Fund's approval, shall select a
NRSRO or two NRSROs to act as a Substitute Rating Agency or Substitute Rating
Agencies, as the case may be.

            (viii) "Order" shall have the meaning specified in Paragraph
      10(b)(i) below.

            (ix) "Sell Order" shall have the meaning specified in Paragraph
      10(b)(i) below.

            (x) "Submission Deadline" shall mean 1:00 p.m., Eastern time, on
      any Auction Date or such other time on any Auction Date as may be
      specified by the Auction Agent from time to time as the time by which
      each Broker-Dealer must submit to the Auction Agent in writing all
      Orders obtained by it for the Auction to be conducted on such Auction
      Date.

            (xi) "Submitted Bid" shall have the meaning specified in Paragraph
      10(d)(i) below.

            (xii) "Submitted Hold Order" shall have the meaning specified in
      Paragraph 10(d)(i) below.

            (xiii) "Submitted Order" shall have the meaning specified in
      Paragraph 10(d)(i) below.

            (xiv) "Submitted Sell Order" shall have the meaning specified in
      Paragraph 10(d)(i) below.

            (xv) "Sufficient Clearing Bids" shall have the meaning specified
      in Paragraph 10(d)(i) below.

            (xvi) "Winning Bid Rate" shall have the meaning specified in
      Paragraph 10(d)(i) below.

Paragraph 10(b) Orders by Beneficial Owners, Potential Beneficial Owners,
Existing Holders And Potential Holders.

      (i) Unless otherwise permitted by the Fund, Beneficial Owners and
Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners
and as Potential Holders in respect of shares subject to Orders submitted to
them by Potential Beneficial Owners. A Broker-Dealer may also hold shares of
AMPS in its own account as a Beneficial Owner. A Broker-Dealer may thus submit
Orders to the Auction Agent as a Beneficial Owner or a Potential Beneficial
Owner and therefore participate in an Auction as an Existing Holder or
Potential Holder on behalf of both itself and its customers. On or prior to
the Submission Deadline on each Auction Date:

            (A) each Beneficial Owner may submit to its Broker-Dealer
      information as to:

                  (1) the number of outstanding shares, if any, of AMPS held
            by such Beneficial Owner which such Beneficial Owner desires to
            continue to hold without regard to the Applicable Rate for the
            next succeeding Dividend Period;

                  (2) the number of outstanding shares, if any, of AMPS held
            by such Beneficial Owner which such Beneficial Owner desires to
            continue to hold, provided that the Applicable



                                     C-2
<PAGE>

            Rate for the next succeeding Dividend Period shall not be less than
            the rate per annum specified by such Beneficial Owner; and/or

                  (3) the number of outstanding shares, if any, of AMPS held
            by such Beneficial Owner which such Beneficial Owner offers to
            sell without regard to the Applicable Rate for the next succeeding
            Dividend Period; and

            (B) each Broker-Dealer, using a list of Potential Beneficial
      Owners that shall be maintained in good faith for the purpose of
      conducting a competitive Auction, shall contact Potential Beneficial
      Owners, including Persons that are not Beneficial Owners, on such list
      to determine the number of outstanding shares, if any, of AMPS which
      each such Potential Beneficial Owner offers to purchase, provided that
      the Applicable Rate for the next succeeding Dividend Period shall not be
      less than the rate per annum specified by such Potential Beneficial
      Owner.

      For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this Paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an
Order containing the information referred to in clause (A)(1) of this
Paragraph 10(b)(i) is hereinafter referred to as a "Hold Order"; an Order
containing the information referred to in clause (A)(2) or (B) of this
Paragraph 10(b)(i) is hereinafter referred to as a "Bid"; and an Order
containing the information referred to in clause (A)(3) of this Paragraph
10(b)(i) is hereinafter referred to as a "Sell Order." Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.

            (ii) (A) A Bid by an Existing Holder shall constitute an
      irrevocable offer to sell:

                  (1) the number of outstanding shares of AMPS specified in
            such Bid if the Applicable Rate determined on such Auction Date
            shall be less than the rate per annum specified in such Bid; or

                  (2) such number or a lesser number of outstanding shares of
            AMPS to be determined as set forth in Paragraph 10(e)(i)(D) if the
            Applicable Rate determined on such Auction Date shall be equal to
            the rate per annum specified therein; or

                  (3) a lesser number of outstanding shares of AMPS to be
            determined as set forth in Paragraph 10(e)(ii)(C) if such
            specified rate per annum shall be higher than the Maximum
            Applicable Rate and Sufficient Clearing Bids do not exist.

            (B) A Sell Order by an Existing Holder shall constitute an
      irrevocable offer to sell:

                  (1) the number of outstanding shares of AMPS specified in
            such Sell Order, or

                  (2) such number or a lesser number of outstanding shares of
            AMPS to be determined as set forth in Paragraph 10(e)(ii)(C) if
            Sufficient Clearing Bids do not exist.

            (C) A Bid by a Potential Holder shall constitute an irrevocable
      offer to purchase:

                  (1) the number of outstanding shares of AMPS specified in
            such Bid if the Applicable Rate determined on such Auction Date
            shall be higher than the rate per annum specified in such Bid; or



                                     C-3
<PAGE>

                  (2) such number or a lesser number of outstanding shares of
            AMPS to be determined as set forth in Paragraph 10(e)(i)(E) if the
            Applicable Rate determined on such Auction Date shall be equal to
            the rate per annum specified therein.

      Paragraph 10(c) Submission of Orders by Broker-Dealers to Auction Agent.

      (i) Each Broker-Dealer shall submit in writing or through a mutually
acceptable electronic means to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Fund) as an Existing
Holder in respect of shares subject to Orders submitted or deemed submitted to
it by Beneficial Owners and as a Potential Holder in respect of shares subject
to Orders submitted to it by Potential Beneficial Owners, and specifying with
respect to each Order:

            (A) the name of the Bidder placing such Order (which shall be the
      Broker-Dealer unless otherwise permitted by the Fund);

            (B) the aggregate number of outstanding shares of AMPS that are
      the subject of such Order;

            (C) to the extent that such Bidder is an Existing Holder

                  (1) the number of outstanding shares, if any, of AMPS
            subject to any Hold Order placed by such Existing Holder;

                  (2) the number of outstanding shares, if any, of AMPS
            subject to any Bid placed by such Existing Holder and the rate per
            annum specified in such Bid; and

                  (3) the number of outstanding shares, if any, of AMPS
            subject to any Sell Order placed by such Existing Holder; and

            (D) to the extent such Bidder is a Potential Holder, the rate per
      annum specified in such Potential Holder's Bid.

      (ii) If any rate per annum specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one-thousandth (.001) of 1%.

      (iii) If an Order or Orders covering all of the outstanding shares of
AMPS held by an Existing Holder are not submitted to the Auction Agent prior
to the Submission Deadline, the Auction Agent shall deem a Hold Order (in the
case of an Auction relating to a Dividend Period which is not a Special
Dividend Period of more than 28 days) and a Sell Order (in the case of an
Auction relating to a Special Dividend Period of more than 28 days) to have
been submitted on behalf of such Existing Holder covering the number of
outstanding shares of AMPS held by such Existing Holder and not subject to
Orders submitted to the Auction Agent.

      (iv) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of outstanding shares of AMPS held by such
Existing Holder are submitted to the Auction Agent, such Orders shall be
considered valid as follows and in the following order of priority:

            (A) any Hold Order submitted on behalf of such Existing Holder
      shall be considered valid up to and including the number of outstanding
      shares of AMPS held by such Existing Holder; provided that if more than
      one Hold Order is submitted on behalf of such Existing Holder and the
      number of shares of AMPS subject to such Hold Orders exceeds the number
      of outstanding shares of AMPS held by such Existing Holder, the number
      of shares of AMPS subject to each of such Hold Orders shall be reduced
      pro rata so that such Hold Orders, in the aggregate, cover exactly the
      number of outstanding shares of AMPS held by such Existing Holder;

            (B) any Bids submitted on behalf of such Existing Holder shall be
      considered valid, in the ascending order of their respective rates per
      annum if more than one Bid is submitted on behalf of such



                                     C-4
<PAGE>

      Existing Holder, up to and including the excess of the number of
      outstanding shares of AMPS held by such Existing Holder over the number
      of shares of AMPS subject to any Hold Order referred to in Paragraph
      10(c)(iv)(A) above (and if more than one Bid submitted on behalf of such
      Existing Holder specifies the same rate per annum and together they
      cover more than the remaining number of shares that can be the subject
      of valid Bids after application of Paragraph 10(c)(iv)(A) above and of
      the foregoing portion of this Paragraph 10(c)(iv)(B) to any Bid or Bids
      specifying a lower rate or rates per annum, the number of shares subject
      to each of such Bids shall be reduced pro rata so that such Bids, in the
      aggregate, cover exactly such remaining number of shares); and the
      number of shares, if any, subject to Bids not valid under this Paragraph
      10(c)(iv)(B) shall be treated as the subject of a Bid by a Potential
      Holder; and

            (C) any Sell Order shall be considered valid up to and including
      the excess of the number of outstanding shares of AMPS held by such
      Existing Holder over the number of shares of AMPS subject to Hold Orders
      referred to in Paragraph 10(c)(iv)(A) and Bids referred to in Paragraph
      10(c)(iv)(B); provided that if more than one Sell Order is submitted on
      behalf of any Existing Holder and the number of shares of AMPS subject
      to such Sell Orders is greater than such excess, the number of shares of
      AMPS subject to each of such Sell Orders shall be reduced pro rata so
      that such Sell Orders, in the aggregate, cover exactly the number of
      shares of AMPS equal to such excess.

      (v) If more than one Bid is submitted on behalf of any Potential Holder,
each Bid submitted shall be a separate Bid with the rate per annum and number
of shares of AMPS therein specified.

      (vi) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior
to the Submission Deadline on any Auction Date shall be irrevocable.

      Paragraph 10(d) Determination of Sufficient Clearing Bids, Winning Bid
Rate and Applicable Rate.

      (i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or
as a "Submitted Order") and shall determine:

            (A) the excess of the total number of outstanding shares of AMPS
      over the number of outstanding shares of AMPS that are the subject of
      Submitted Hold Orders (such excess being hereinafter referred to as the
      "Available AMPS");

            (B) from the Submitted Orders whether the number of outstanding
      shares of AMPS that are the subject of Submitted Bids by Potential
      Holders specifying one or more rates per annum equal to or lower than
      the Maximum Applicable Rate exceeds or is equal to the sum of:

                  (1) the number of outstanding shares of AMPS that are the
            subject of Submitted Bids by Existing Holders specifying one or
            more rates per annum higher than the Maximum Applicable Rate, and

                  (2) the number of outstanding shares of AMPS that are
            subject to Submitted Sell Orders (if such excess or such equality
            exists (other than because the number of outstanding shares of
            AMPS in clauses (1) and (2) above are each zero because all of the
            outstanding shares of AMPS are the subject of Submitted Hold
            Orders), such Submitted Bids by Potential Holders hereinafter
            being referred to collectively as "Sufficient Clearing Bids"); and

            (C) if Sufficient Clearing Bids exist, the lowest rate per annum
      specified in the Submitted Bids (the "Winning Bid Rate") that if:

                  (1) each Submitted Bid from Existing Holders specifying the
            Winning Bid Rate and all other submitted Bids from Existing
            Holders specifying lower rates per annum were rejected,



                                     C-5
<PAGE>

            thus entitling such Existing Holders to continue to hold the shares
            of AMPS that are the subject of such Submitted Bids, and

                  (2) each Submitted Bid from Potential Holders specifying the
            Winning Bid Rate and all other Submitted Bids from Potential
            Holders specifying lower rates per annum were accepted, thus
            entitling the Potential Holders to purchase the shares of AMPS
            that are the subject of such Submitted Bids, would result in the
            number of shares subject to all Submitted Bids specifying the
            Winning Bid Rate or a lower rate per annum being at least equal to
            the Available AMPS.

      (ii) Promptly after the Auction Agent has made the determinations
pursuant to Paragraph 10(d)(i), the Auction Agent shall advise the Fund of the
Maximum Applicable Rate and, based on such determinations, the Applicable Rate
for the next succeeding Dividend Period as follows:

            (A) if Sufficient Clearing Bids exist, that the Applicable Rate
      for the next succeeding Dividend Period shall be equal to the Winning
      Bid Rate;

            (B) if Sufficient Clearing Bids do not exist (other than because
      all of the outstanding shares of AMPS are the subject of Submitted Hold
      Orders), that the Applicable Rate for the next succeeding Dividend
      Period shall be equal to the Maximum Applicable Rate; or

            (C) if all of the outstanding shares of AMPS are the subject of
      Submitted Hold Orders, the Dividend Period next succeeding the Auction
      automatically shall be the same length as the immediately preceding
      Dividend Period and the Applicable Rate for the next succeeding Dividend
      Period shall be equal to 60% of the Reference Rate (or 90% of such rate
      if the Fund has provided notification to the Auction Agent prior to
      establishing the Applicable Rate for any dividend that net capital gain
      or other taxable income will be included in such dividend on shares of
      AMPS) on the date of the Auction.

      Paragraph 10(e) Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares.

      Based on the determinations made pursuant to Paragraph 10(d)(i), the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the
Auction Agent shall take such other action as set forth below:

      (i) If Sufficient Clearing Bids have been made, subject to the
provisions of Paragraph 10(e)(iii) and Paragraph 10(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:

            (A) the Submitted Sell Orders of Existing Holders shall be
      accepted and the Submitted Bid of each of the Existing Holders
      specifying any rate per annum that is higher than the Winning Bid Rate
      shall be accepted, thus requiring each such Existing Holder to sell the
      outstanding shares of AMPS that are the subject of such Submitted Sell
      Order or Submitted Bid;

            (B) the Submitted Bid of each of the Existing Holders specifying
      any rate per annum that is lower than the Winning Bid Rate shall be
      rejected, thus entitling each such Existing Holder to continue to hold
      the outstanding shares of AMPS that are the subject of such Submitted
      Bid;

            (C) the Submitted Bid of each of the Potential Holders specifying
      any rate per annum that is lower than the Winning Bid Rate shall be
      accepted;

            (D) the Submitted Bid of each of the Existing Holders specifying a
      rate per annum that is equal to the Winning Bid Rate shall be rejected,
      thus entitling each such Existing Holder to continue to hold the
      outstanding shares of AMPS that are the subject of such Submitted Bid,
      unless the number of outstanding shares of AMPS subject to all such
      Submitted Bids shall be greater than the number of outstanding shares of
      AMPS ("Remaining Shares") equal to the excess of the Available AMPS over
      the



                                     C-6
<PAGE>

      number of outstanding shares of AMPS subject to Submitted Bids described
      in Paragraph 10(e)(i)(B) and Paragraph 10(e)(i)(C), in which event the
      Submitted Bids of each such Existing Holder shall be accepted, and each
      such Existing Holder shall be required to sell outstanding shares of
      AMPS, but only in an amount equal to the difference between (1) the
      number of outstanding shares of AMPS then held by such Existing Holder
      subject to such Submitted Bid and (2) the number of shares of AMPS
      obtained by multiplying (x) the number of Remaining Shares by (y) a
      fraction the numerator of which shall be the number of outstanding
      shares of AMPS held by such Existing Holder subject to such Submitted
      Bid and the denominator of which shall be the sum of the numbers of
      outstanding shares of AMPS subject to such Submitted Bids made by all
      such Existing Holders that specified a rate per annum equal to the
      Winning Bid Rate; and

            (E) the Submitted Bid of each of the Potential Holders specifying
      a rate per annum that is equal to the Winning Bid Rate shall be accepted
      but only in an amount equal to the number of outstanding shares of AMPS
      obtained by multiplying (x) the difference between the Available AMPS
      and the number of outstanding shares of AMPS subject to Submitted Bids
      described in Paragraph 10(e)(i)(B), Paragraph 10(e)(i)(C) and Paragraph
      10(e)(i)(D) by (y) a fraction the numerator of which shall be the number
      of outstanding shares of AMPS subject to such Submitted Bid and the
      denominator of which shall be the sum of the number of outstanding
      shares of AMPS subject to such Submitted Bids made by all such Potential
      Holders that specified rates per annum equal to the Winning Bid Rate.

      (ii) If Sufficient Clearing Bids have not been made (other than because
all of the outstanding shares of AMPS are subject to Submitted Hold Orders),
subject to the provisions of Paragraph 10(e)(iii), Submitted Orders shall be
accepted or rejected as follows in the following order of priority and all
other Submitted Bids shall be rejected:

            (A) the Submitted Bid of each Existing Holder specifying any rate
      per annum that is equal to or lower than the Maximum Applicable Rate
      shall be rejected, thus entitling such Existing Holder to continue to
      hold the outstanding shares of AMPS that are the subject of such
      Submitted Bid;

            (B) the Submitted Bid of each Potential Holder specifying any rate
      per annum that is equal to or lower than the Maximum Applicable Rate
      shall be accepted, thus requiring such Potential Holder to purchase the
      outstanding shares of AMPS that are the subject of such Submitted Bid;
      and

            (C) the Submitted Bids of each Existing Holder specifying any rate
      per annum that is higher than the Maximum Applicable Rate shall be
      accepted and the Submitted Sell Orders of each Existing Holder shall be
      accepted, in both cases only in an amount equal to the difference
      between (1) the number of outstanding shares of AMPS then held by such
      Existing Holder subject to such Submitted Bid or Submitted Sell Order
      and (2) the number of shares of AMPS obtained by multiplying (x) the
      difference between the Available AMPS and the aggregate number of
      outstanding shares of AMPS subject to Submitted Bids described in
      Paragraph 10(e)(ii)(A) and Paragraph 10(e)(ii)(B) by (y) a fraction the
      numerator of which shall be the number of outstanding shares of AMPS
      held by such Existing Holder subject to such Submitted Bid or Submitted
      Sell Order and the denominator of which shall be the number of
      outstanding shares of AMPS subject to all such Submitted Bids and
      Submitted Sell Orders.

      (iii) If, as a result of the procedures described in Paragraph 10(e)(i)
or Paragraph 10(e)(ii), any Existing Holder would be entitled or required to
sell, or any Potential Holder would be entitled or required to purchase, a
fraction of a share of AMPS on any Auction Date, the Auction Agent shall, in
such manner as in its sole discretion it shall determine, round up or down the
number of shares of AMPS to be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date so that each outstanding share of AMPS
purchased or sold by each Existing Holder or Potential Holder on such Auction
Date shall be a whole share of AMPS.

      (iv) If, as a result of the procedures described in Paragraph 10(e)(i),
any Potential Holder would be entitled or required to purchase less than a
whole share of AMPS on any Auction Date, the Auction Agent, in such manner as
in its sole discretion it shall determine, shall allocate shares of AMPS for
purchase among Potential Holders so that only whole shares of AMPS are
purchased on such Auction Date by any Potential Holder, even if



                                     C-7
<PAGE>

such allocation results in one or more of such Potential Holders not
purchasing any shares of AMPS on such Auction Date.

      (v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate
number of the outstanding shares of AMPS to be purchased and the aggregate
number of outstanding shares of AMPS to be sold by such Potential Holders and
Existing Holders and, to the extent that such aggregate number of outstanding
shares to be purchased and such aggregate number of outstanding shares to be
sold differ, the Auction Agent shall determine to which other Broker-Dealer or
Broker-Dealers acting for one or more purchasers such Broker-Dealer shall
deliver, or from which other Broker-Dealer or Broker-Dealers acting for one or
more sellers such Broker-Dealer shall receive, as the case may be, outstanding
shares of AMPS.

Paragraph 10(f) Miscellaneous.

      The Fund may interpret the provisions of this Paragraph 10 to resolve
any inconsistency or ambiguity, remedy any formal defect or make any other
change or modification that does not substantially adversely affect the rights
of Beneficial Owners of AMPS. A Beneficial Owner or an Existing Holder (A) may
sell, transfer or otherwise dispose of shares of AMPS only pursuant to a Bid
or Sell Order in accordance with the procedures described in this Paragraph 10
or to or through a Broker-Dealer, provided that in the case of all transfers
other than pursuant to Auctions such Beneficial Owner or Existing Holder, its
Broker-Dealer, if applicable, or its Agent Member advises the Auction Agent of
such transfer and (B) except as otherwise required by law, shall have the
ownership of the shares of AMPS held by it maintained in book entry form by
the Securities Depository in the account of its Agent Member, which in turn
will maintain records of such Beneficial Owner's beneficial ownership. Neither
the Fund nor any affiliate (other than Merrill Lynch, Pierce, Fenner & Smith
Incorporated) shall submit an Order in any Auction. Any Beneficial Owner that
is an affiliate (other than Merrill Lynch, Pierce, Fenner & Smith
Incorporated) shall not sell, transfer or otherwise dispose of shares of AMPS
to any person other than the Fund. All of the outstanding shares of AMPS of a
series shall be represented by a single certificate registered in the name of
the nominee of the Securities Depository unless otherwise required by law or
unless there is no Securities Depository. If there is no Securities
Depository, at the Fund's option and upon its receipt of such documents as it
deems appropriate, any shares of AMPS may be registered in the Stock Register
in the name of the Beneficial Owner thereof and such Beneficial Owner
thereupon will be entitled to receive certificates therefor and required to
deliver certificates thereof or upon transfer or exchange thereof.



                                     C-8
<PAGE>

                           PART C. OTHER INFORMATION

Item 25.  Financial Statements And Exhibits.

  (1)        Financial Statements

  Part A:    Financial Highlights for each of the fiscal years in the
             ten-year period ended October 31, 2004 and the six months ended
             April 30, 2005.

  Part B:    Schedule of Investments of the Fund as of October 31, 2004.*

             Statement of Net Assets of the Fund as of October 31, 2004.*

             Statement of Operations of the Fund for the fiscal year ended
             October 31, 2004.*

             Statements of Changes in Net Assets of the Fund for the fiscal
             years ended October 31, 2003 and October 31, 2004.*

             Financial Highlights for each of the fiscal years in the five-year
             period ended October 31, 2004.*

             Report of Independent Registered Public Accounting Firm.*

             Statement of Investments of the Fund as of April 30, 2005**

             Statement of Net Assets of the Fund as of April 30, 2005**

             Statement of Operations of the Fund for the six months ended
             April 30, 2005**

             Statement of Changes in Net Assets of the Fund for the six months
             ended April 30, 2005**

             Financial Highlights of the Fund for the six months ended April
             30, 2005 and each of the fiscal years in the five-year period
             ended October 31, 2005**

 ----------
* Incorporated by reference to the Registrant's Annual Report to Shareholders
for the fiscal year ended October 31, 2004 filed with the Securities and
Exchange Commission ("Commission") on December 28, 2004 pursuant to Rule
30b2-1 under the Investment Company Act of 1940, as amended ("1940 Act").
** Incorporated by reference to the Registrant's Semi-Annual Report to
Stockholders for the six month period ended April 30, 2005 filed with the
Commission on June 30, 2005 pursuant to Rule 30b2-1 under the 1940 Act.


Exhibits       Description
- --------       -----------
  (a)(1)       Articles of Incorporation of the Registrant.
  (a)(2)       Articles Supplementary creating Series A, Series B, Series C and
               Series D Auction Market Preferred Stock (the "Other AMPS").
  (a)(3)       Articles Supplementary creating additional shares of the Other
               AMPS.
  (a)(4)       Articles of Amendment to Articles Supplementary creating the
               Other AMPS.
  (a)(5)       Articles of Amendment to Articles Supplementary creating the
               Other AMPS.
  (a)(6)       Form of Articles Supplementary creating Series E Auction Market
               Preferred Stock (the "AMPS").
  (b)          By-laws of the Registrant.
  (c)          Not applicable.
  (d)(1)       Portions of the Articles of Incorporation, By-laws and Articles
               Supplementary of the Registrant



                                     C-1
<PAGE>

               defining the rights of holders of shares of the Registrant. (a)
  (d)(2)       Form of specimen certificate for the AMPS of the Registrant. (e)
               Form of Automatic Dividend Reinvestment Plan.
  (f)          Not applicable.
  (g)(1)       Investment Advisory Agreement between the Registrant and Fund
               Asset Management, L.P. ("FAM" or the "Investment Adviser").
  (h)(1)       Form of Purchase Agreement between the Registrant and Merrill
               Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch")
               relating to the AMPS.
  (h)(2)       Form of Merrill Lynch Standard Dealer Agreement.(b)
  (i)          Not applicable.
  (j)          Form of Custodian Agreement between the Registrant and The Bank
               of New York ("BONY"). (c)
  (k)(l)       Form of Transfer Agency and Service Agreement between the
               Registrant and EquiServe Trust Company, N.A., and EquiServe
               Limited Partnership. (d)
  (k)(2)       Form of Administrative Services Agreement between the Registrant
               and State Street Bank & Trust Company. (e)
  (k)(3)       Form of Auction Agent Agreement between the Registrant and The
               Bank of New York.
  (k)(4)       Form of Broker-Dealer Agreement.
  (k)(5)       Form of Letter of Representations.
  (l)          Opinion and Consent of Sidley Austin Brown & Wood LLP.*
  (m)          Not applicable.
  (n)          Consent of ______________, independent auditors for the
               Registrant.*
  (o)          Not applicable.
  (p)          Not applicable.
  (q)          Not applicable.
  (r)          Code of Ethics.(f)
   -----------
  (a)          Reference is made to Article IV (sections 2, 3, 4, 5, 6, 7 and
               8), Article V (sections 3, 6 and 7), Article VI, Article VIII,
               Article IX, Article X, and Article XII of the Registrant's
               Articles of Incorporation, filed as Exhibit (a) to this
               Registration Statement; to Article II, Article III (sections
               3.01, 3.03, 3.05 and 3.17), Article VI (section 6.2), Article
               VII, Article XII, Article XIII and Article XIV of the
               Registrant's By- laws, filed as Exhibit (b) to this
               Registration Statement; and to the Forms of Articles
               Supplementary and the Forms of Articles of Amendment filed as
               Exhibits (a)(2), (a)(3), (a)(4) and (a)(5) to this Registration
               Statement.
  (b)          Incorporated by reference to Exhibit (h)(2) to Pre-Effective
               Amendment No. 3 to the Registration Statement on Form N-2 of
               Preferred Income Strategies Fund, Inc. (File No. 333-102712),
               filed on March 25, 2003.
  (c)          Incorporated by reference to Exhibit 7 to Post-Effective
               Amendment No. 13 to the Registration Statement on Form N-1A of
               The Asset Program, Inc. (File No. 33-53887), filed on March 21,
               2002.
  (d)          Incorporated by reference to Exhibit 13 to Pre-Effective
               Amendment No. 2 to the Registration Statement on Form N-14 of
               Corporate High Yield Fund, Inc. (File No. 333-10193) filed on
               December 31, 2002.
  (e)          Incorporated by reference to Exhibit 8(d) to Post-Effective
               Amendment No. 1 to the Registration Statement on Form N-1A of
               Merrill Lynch Focus Twenty Fund, Inc. (File No. 333-89775)
               filed on March 20, 2001.
  (f)          Incorporated by reference to Exhibit 15 to Pre-Effective
               Amendment No. 1 to the Registration Statement on Form N-1A of
               Merrill Lynch Inflation Protected Fund (File No. 333-110936),
               filed on January 22, 2004.
  *            To be provided by amendment.


Item 26.  Marketing Arrangements.

      See Exhibits (h)(1) and (2).



                                     C-2
<PAGE>

Item 27.  Other Expenses of Issuance and Distribution.

      The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:

Registration fees                                           $5,885
Printing (other than stock certificates)                   *17,000
Accounting Fees and Expenses                                13,390
Legal fees and expenses                                    *85,000
Rating Agency Fees                                         *25,000
Miscellaneous                                               *3,725
                                                         -------------------
         Total                                           $*150,000
                                                         ===================
- ------------------
*   To be provided by amendment.

Item 28.  Persons Controlled by or Under Common Control with Registrant.

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

Item 29.  Number of Holders of Securities.

                                                              Number of
                                                            Record Holders
                                                                  At
                     Title of Class                                 , 2005
- -------------------------------------------------------  --------------------

Common Stock, $.10 par value
Preferred Stock                                                   1



Item 30.  Indemnification.

      Reference is made to Section 2-418 of the General Corporation Law of the
State of Maryland, Article V of the Registrant's Articles of Incorporation,
Article VI of the Registrant's By-laws and Section 6 of the Purchase
Agreement, which provide for indemnification.

      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 Maryland General Corporation Law, 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 or her 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
or her office, the decision by the Registrant to indemnify such person must be
based upon the reasonable determination of independent legal counsel or the
vote of a majority of a quorum of 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 or her office.

      Each officer and director of the Registrant claiming indemnification
within the scope of Article VI of the By-laws shall be entitled to advances
from the Registrant for payment of the reasonable expenses incurred by him or
her in connection with proceedings to which he or she is a party in the manner
and to the full extent permitted under the Maryland General Corporation Law;
provided, however, that the person seeking indemnification shall provide to
the Registrant a written affirmation of his or her good faith belief that the
standard of conduct necessary for indemnification by the Registrant has been
met and a written undertaking to repay any such advance, if it ultimately



                                     C-3
<PAGE>

should 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: (i) the person seeking indemnification shall provide a security in form
and amount acceptable to the Registrant for his or her undertaking; (ii) the
Registrant is insured against losses arising by reason of the advance; or
(iii) a majority of a quorum of non-party independent directors, or
independent legal counsel in a written opinion shall determine, based on a
review of facts readily available to the Registrant 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 Registrant may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the
Maryland General Corporation Law from liability arising from his or her
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
or her office.

      In Section 7 of the Purchase Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify Merrill Lynch and each
person, if any, who controls Merrill Lynch within the meaning of the
Securities Act of 1933 (the "1933 Act") against certain types of civil
liabilities arising in connection with the Registration Statement or
Prospectus and Statement of Additional Information.

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

Item 31.  Business And Other Connections Of The Investment Adviser.

      FAM (the "Investment Adviser"), acts as the investment adviser for a
number of affiliated open-end and closed-end registered investment companies.

      Merrill Lynch Investment Managers, L.P. ("MLIM"), acts as the investment
adviser for a number of affiliated open-end and closed-end registered
investment companies, and also acts as sub-adviser to certain other
portfolios.

      The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill
Lynch Funds for Institutions Series is One Financial Center, 23rd Floor,
Boston, Massachusetts 02111-2665.

      The address of the Investment Adviser, MLIM, Princeton Services, Inc.
("Princeton Services") and Princeton Administrators, L.P. ("Princeton
Administrators") is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The
address of FAM Distributors, Inc. ("FAMD") is P.O. Box 9081, Princeton, New
Jersey 08543-9081. The address of Merrill Lynch and Merrill Lynch & Co., Inc.
("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10080.

      Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or
employment of a substantial nature in which each such person or entity has
been engaged for the past two years for his, her or its own account or in the
capacity of director, officer, employee, partner or Director. Mr. Burke is
Vice President and Treasurer of all or substantially all of the investment
companies advised by FAM or its affiliates, and Mr. Doll is an officer of one
or more of such companies.



                                     C-4
<PAGE>

<TABLE>
<CAPTION>
                                        Position(s) with                     Other Substantial Business,
             Name                      Investment Adviser                 Profession, Vocation Or Employment
- -----------------------------   ----------------------------    -------------------------------------------------------
<S>                             <C>                             <C>
ML & Co.                         Limited Partner                 Financial Services Holding Company; Limited Partner
                                    of MLIM

Princeton Services               General Partner                 General Partner of MLIM

Robert C. Doll, Jr.              President                       President of MLIM; Co-Head (Americas Region) of
                                                                 MLIM from 2000 to 2004; Senior Vice President of
                                                                 MLIM from 1999 to 2000; Director of Princeton
                                                                 Services; Chief Investment Officer of
                                                                 OppenheimerFunds, Inc. in 1999 and Executive Vice
                                                                 President thereof from 1991 to 1999

Donald C. Burke                  First Vice President and        First Vice President and Treasurer of MLIM; Senior
                                 Treasurer                       Vice President, Treasurer and Director of Princeton
                                                                 Services; Vice President of FAMD
                                                                 Chief Compliance Officer of the MLIM/FAM-advised

Andrew J. Donohue                General Counsel                 First Vice President and General Counsel of MLIM;
                                                                 Senior Vice President and Director of Princeton
                                                                 Services; President and Director of FAMD

Alice A. Pellegrino              Secretary                       Secretary of MLIM, Princeton Services and FAMD
</TABLE>


Item 32.  Location of Account and Records.

      All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act, and the Rules promulgated thereunder are
maintained at the offices of the Registrant (800 Scudders Mill Road,
Plainsboro, New Jersey 08536), its Investment Adviser (800 Scudders Mill Road,
Plainsboro, New Jersey 08536), its custodian, The Bank of New York (100 Church
Street, New York, New York 10286), and its transfer agent, The Bank of New
York (101 Barclay Street, New York, New York 10286).

Item 33.  Management Services.

      Not applicable.

Item 34.  Undertakings.

      (1) The Registrant undertakes to suspend the offering of the shares of
preferred stock covered hereby until it amends its prospectus contained herein
if (1) subsequent to the effective date of this Registration Statement, its
net asset value per share of preferred stock declines more than 10% from its
net asset value per share of preferred stock as of the effective date of this
Registration Statement, or (2) its net asset value per share of preferred
stock increases to an amount greater than its net proceeds as stated in the
prospectus contained herein.

      (2) Not applicable.

      (3) Not applicable.

      (4) Not applicable

      (5) The Registrant undertakes that:



                                     C-5
<PAGE>

            (a) For purposes of determining any liability under the 1933 Act,
      the information omitted from the form of prospectus filed as part of
      this Registration Statement in reliance upon Rule 430A and contained in
      the form of prospectus filed by the registrant pursuant to Rule 497(h)
      under the 1933 Act shall be deemed to be part of this Registration
      Statement as of the time it was declared effective.

            (b) For the purpose of determining any liability under the 1933
      Act, each post-effective amendment that contains a form of prospectus
      shall be deemed to be a new registration statement relating to the
      securities offered therein, and the offering of such securities at that
      time shall be deemed to be the initial bona fide offering thereof.

      (6) The Registrant undertakes to send by first-class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any statement of additional information.



                                     C-6
<PAGE>

                                  SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Plainsboro, State of New Jersey,
on the 20th day of July, 2005.

                                          MUNIYIELD QUALITY FUND, INC.
                                          (Registrant)


                                          By:  /s/ Donald C. Burke
                                               ------------------------------
                                                   Donald C. Burke
                                                   Vice President and Treasurer

      Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signatures                                      Title                                   Date
- -----------------------------------     ----------------------------------------------      ------------------------
<S>                                      <C>                                                <C>
ROBERT C. DOLL, JR.*                     President (Principal Executive Officer) and
- --------------------                     Director
(Robert C. Doll, Jr.)


DONALD C. BURKE*                         Vice President and Treasurer  (Principal
- ----------------                         Financial and Accounting Officer)
(Donald C. Burke)


JAMES H. BODURTHA*                       Director
- ------------------
(James H. Bodurtha)

_______________________                  Director
(Kenneth A. Froot)

JOE GRILLS*                              Director
- -----------
(Joe Grills)



HERBERT I. LONDON*                       Director
- ------------------
(Herbert I. London)



ROBERTA COOPER RAMO*                     Director
- --------------------
(Roberta Cooper Ramo)



STEPHEN B. SWENSRUD*                     Director
- --------------------
(Stephen B. Swensrud)



ROBERT S. SALOMON, JR.*                  Director
- -----------------------
(Robert S. Salomon, Jr.)



*By /s/ Donald C. Burke                                                                     July 20, 2005
    --------------------
(Donald C. Burke, Attorney-in-Fact)
</TABLE>



                                     C-7
<PAGE>


                               POWER OF ATTORNEY

      The undersigned, Robert C. Doll, Jr., Donald C. Burke, James H.
Bodurtha, Joe Grills, Herbert I. London, Roberta Cooper Ramo, Robert S.
Salomon, Jr. and Stephen B. Swensrud, the Directors/Trustees and/or the
Officers of each of the registered investment companies listed below, hereby
authorize Robert C. Doll, Jr., Andrew J. Donohue, Donald C. Burke, Michael G.
Clark and Alice A. Pellegrino or any of them, as attorney-in-fact, to sign on
his or her behalf in the capacities indicated any Registration Statement or
amendment thereto (including post-effective amendments) for or on behalf of
each of the following registered investment companies and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission: Apex
Municipal Fund, Inc.; Corporate High Yield Fund, Inc.; Corporate High Yield
Fund III, Inc.; Corporate High Yield Fund V, Inc.; Corporate High Yield Fund
VI, Inc.; Fund Asset Management Master Trust; Master Focus Twenty Trust;
Master Large Cap Series Trust; Mercury Funds II; Merrill Lynch California
Municipal Series Trust; Merrill Lynch Focus Value Fund, Inc.; Merrill Lynch
Fundamental Growth Fund, Inc.; Merrill Lynch Investment Managers Funds, Inc.;
Merrill Lynch Large Cap Series Funds, Inc.; Merrill Lynch Multi-State
Municipal Series Trust; Merrill Lynch Retirement Reserves Money Fund of
Merrill Lynch Retirement Series Trust; Merrill Lynch Short Term U.S.
Government Fund, Inc.; Merrill Lynch U.S. Government Mortgage Fund; Merrill
Lynch Variable Series Funds, Inc.; Merrill Lynch World Income Fund, Inc.;
MuniAssets Fund, Inc.; MuniHoldings California Insured Fund, Inc.;
MuniHoldings Insured Fund II, Inc.; MuniInsured Fund, Inc.; MuniYield Arizona
Fund, Inc.; MuniYield California Fund, Inc.; MuniYield California Insured
Fund, Inc.; MuniYield Florida Fund; MuniYield Fund, Inc.; MuniYield Insured
Fund, Inc.; MuniYield Michigan Insured Fund II, Inc.; MuniYield New Jersey
Fund, Inc.; MuniYield New York Insured Fund, Inc.; MuniYield Quality Fund,
Inc.; MuniYield Quality Fund II, Inc.; Summit Cash Reserves Fund of Financial
Institutions Series Trust; and The Asset Program, Inc.

Dated:  February 23, 2005

<TABLE>
<CAPTION>
<S>                                                             <C>
          /s/ Robert C. Doll, Jr.                                          /s/ Donald C. Burke
- ---------------------------------------------                   -------------------------------------------
            Robert C. Doll, Jr.                                              Donald C. Burke
       (President/Principal Executive                              (Vice President/Treasurer/Principal
         Officer/Director/Trustee)                                   Financial and Account Officer)


           /s/ James H. Bodurtha                                              /s/ Joe Grills
- ---------------------------------------------                   -------------------------------------------
             James H. Bodurtha                                                  Joe Grills
             (Director/Trustee)                                             (Director/Trustee)


           /s/ Herbert I. London                                          /s/ Robert Cooper Ramo
- ---------------------------------------------                   -------------------------------------------
             Herbert I. London                                              Robert Cooper Ramo
             (Director/Trustee)                                             (Director/Trustee)


         /s/ Robert S. Salomon, Jr.                                      /s/ Stephen B. Swensrud
- ---------------------------------------------                   -------------------------------------------
           Robert S. Salomon, Jr.                                          Stephen B. Swensrud
             (Director/Trustee)                                             (Director/Trustee)
</TABLE>



                                     C-8

<PAGE>

                                 EXHIBIT INDEX

Exhibits      Description
- --------      -----------
  (a)(1)      Articles of Incorporation of the Registrant.
  (a)(2)      Articles Supplementary creating Series A, Series B, Series C and
              Series D Auction Market Preferred Stock (the "Other AMPS").
  (a)(3)      Articles Supplementary creating additional shares of the Other
              AMPS.
  (a)(4)      Articles of Amendment to Articles Supplementary creating the
              Other AMPS.
  (a)(5)      Articles of Amendment to Articles Supplementary creating the
              Other AMPS.
  (a)(6)      Form of Articles Supplementary creating Series E Auction Market
              Preferred Stock (the "AMPS").
  (b)         By-laws of the Registrant.
  (d)(2)      Form of specimen certificate for the AMPS of the Registrant.
  (e)         Form of Automatic Dividend Reinvestment Plan.
  (g)(1)      Form of Investment Advisory Agreement between the Registrant and
              Fund Asset Management, L.P. ("FAM" or the "Investment Adviser").
  (h)(1)      Form of Purchase Agreement between the Registrant and Merrill
              Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch")
              relating to the AMPS.
  (k)(3)      Form of Auction Agent Agreement between the Registrant and The
              Bank of New York.
  (k)(4)      Form of Broker-Dealer Agreement.
  (k)(5)      Form of Letter of Representations.



                                     C-9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2A1
<SEQUENCE>2
<FILENAME>efc5-1587_5735303ex992a1.txt
<TEXT>
                                                                Exhibit (a)(1)


                           ARTICLES OF INCORPORATION

                                      OF

                         MUNIYIELD QUALITY FUND, INC.

                                  ARTICLE I

         THE UNDERSIGNED, LAURIN BLUMENTHAL KLEIMAN, whose post-office address
is One World Trade Center, New York, New York 10048-0557, being at least
eighteen (18) 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.

                                  ARTICLE II

                                     NAME
                                     ----

         The name of the corporation is MUNIYIELD QUALITY FUND, INC. (the
"Corporation").

                                 ARTICLE III

                              PURPOSE AND POWERS
                              ------------------

         The purpose or purposes for which the Corporation is formed is to act
as a closed-end, management investment company under the federal Investment
Company Act of 1940, as amended, and 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.

                                  ARTICLE IV

                      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

<PAGE>

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 The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202.

                                  ARTICLE V

                                 CAPITAL STOCK
                                 -------------

         (1) The total number of shares of capital stock which the Corporation
shall have the authority to issue is Two Hundred Million (200,000,000) shares,
all of one class called Common Stock, of the par value of Ten Cents ($0.10)
per share and of the aggregate par value of Twenty Million Dollars
($20,000,000).

         (2) The Board of Directors may classify and reclassify any unissued
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 such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series.

         (3) 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.

         (4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, on each matter



                                      2
<PAGE>

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 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.

         (5) 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 aggregate number of shares of
capital stock of the Corporation entitled to vote thereon (or a majority of
the aggregate number of shares of a class or series entitled to vote thereon
as a separate class or series).

         (6) 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 all
classes and 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, to share ratably in the remaining net assets of the
Corporation.



                                      3
<PAGE>

         (7) 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.

         (8) 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.

                                  ARTICLE VI

                     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 (3),
which number may be changed pursuant to the By-Laws of the Corporation but
shall never be less than three (3). The names of the directors who shall act
until the first annual meeting or until their successors are duly elected and
qualify are:

                                  Jerry Weiss
                             Robert E. Putney, III
                                Susan B. Baker

         (2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, 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.



                                      4
<PAGE>

         (3) 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.

         (4) 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.

         (5) The Board of Directors of the Corporation may 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.

         (6) A director elected by the holders of capital stock may be removed
(with or without cause), but only by action taken by the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the shares of capital stock then
entitled to vote in an election to fill that directorship.

                                 ARTICLE VII

                          DENIAL OF PREEMPTIVE RIGHTS
                          ---------------------------

         No shareholder of the Corporation shall by reason of his holding
shares of capital stock have any preemptive or preferential right to purchase
or subscribe to any shares of capital stock



                                      5
<PAGE>

of the Corporation, now or hereafter to be authorized, or any notes,
debentures, bonds or other securities convertible into shares of capital
stock, now or hereafter to be authorized, whether or not the issuance of any
such shares, or notes, debentures, bonds or other securities would adversely
affect the dividend or voting rights of such shareholder; and the Board of
Directors may issue shares of any class of the Corporation, or any notes,
debentures, bonds, other securities convertible into shares of any class,
either whole or in part, to the existing shareholders.

                                 ARTICLE VIII

                             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 of 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 conclusive, and



                                      6
<PAGE>

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 IX

                              PERPETUAL EXISTENCE
                              -------------------

         The duties of the Corporation shall be perpetual.

                                  ARTICLE X

                       PRIVATE PROPERTY OF STOCKHOLDERS
                       --------------------------------

         The private property of shareholders shall not be subject to the
payment of corporate debts to any extent whatsoever.

                                  ARTICLE XI

                        CONVERSION TO OPEN-END COMPANY
                        ------------------------------

         Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, a favorable vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of capital stock of the Corporation entitled to be voted on
the matter shall be required to approve, adopt or authorize an amendment to
these Articles of



                                      7
<PAGE>

Incorporation of the Corporation that makes the Common Stock a "redeemable
security" (as that term is defined in section 2(a)(32) of the Investment
Company Act of 1940, as amended) unless such action has previously been
approved, adopted or authorized by the affirmative vote of at least two-thirds
of the total number of directors fixed in accordance with the By-Laws of the
Corporation, in which case the affirmative vote of the holders of a majority
of the outstanding shares of capital stock of the Corporation entitled to vote
thereon shall be required.

                                 ARTICLE XII

                      MERGER, SALE OF ASSETS, LIQUIDATION
                      -----------------------------------

         Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, a favorable vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of capital stock of the Corporation entitled to be voted on
the matter shall be required to approve, adopt or authorize (i) a merger or
consolidation or statutory share exchange of the Corporation with any other
Corporation, (ii) a sale of all or substantially all of the assets of the
Corporation (other than in the regular course of its investment activities),
or (iii) a liquidation or dissolution of the Corporation, unless such action
has previously been approved, adopted or authorized by the affirmative vote of
at least two-thirds of the total number of directors fixed in accordance with
the By-Laws of the Corporation, in which case the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote thereon shall be required.

                                 ARTICLE XIII

                                   AMENDMENT
                                   ---------

         The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in the manner now
or hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the



                                      8
<PAGE>

charter, of any outstanding stock and substantially adversely affects the
stockholders' rights and all rights conferred upon stockholders herein are
granted subject to this reservation. Notwithstanding any other provisions of
these Articles of Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law,
these Articles of Incorporation or the By-Laws of the Corporation) the
amendment or repeal of Section (5) of Article V, Section (1), Section (3),
Section (4), Section (5) and Section (6) of Article VI, Article IX, Article X,
Article XI, Article XII, or this Article XIII, of these Articles of
Incorporation shall require the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of
capital stock of the Corporation entitled to be voted on the matter.

         IN WITNESS WHEREOF, the undersigned incorporator of MuniYield Quality
Fund, Inc. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be her act and further acknowledges that, to the best
of her knowledge, the matters and facts set forth therein are true in all
material respects under the penalties of perjury.

Dated the 4th day
of May 1992.


                                ---------------------------------------
                                        Laurin Blumenthal Kleiman



                                      9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2A2
<SEQUENCE>3
<FILENAME>efc5-1587_5735568ex992a2.txt
<TEXT>
                                                                Exhibit (a)(2)

                         MUNIYIELD QUALITY FUND, INC.

                  Articles Supplementary creating four series

                      Auction Market Preferred Stock(R)

         MuniYield Quality Fund, Inc., a Maryland corporation having its
principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland
that:

         FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by article fifth of its Charter, the Board of
Directors has reclassified 4,000 authorized and unissued shares of common
stock of the Corporation as preferred stock of the Corporation and has
authorized the issuance of four series of preferred stock, par value $.10 per
share, liquidation preference $50,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon,
to be designated respectively: Auction Market Preferred Stock, Series A;
Auction Market Preferred Stock, Series B; Auction Market Preferred Stock,
Series C; and Auction Market Preferred Stock, Series D.

         SECOND: The preferences, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption, of the
shares of each such series of preferred stock are as follows:

                                  DESIGNATION

         SERIES A: A series of 1,000 shares of preferred stock, par value $.10
per share, liquidation preference $50,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon,
is hereby designated "Auction Market Preferred Stock, Series A." Each shares
of Auction Market Preferred Stock, Series A (sometimes referred to herein as
"Series A AMPS") shall be issued on September 16, 1992; have an Initial

- -------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.

<PAGE>

Dividend Rate equal to 3.10% per annum; have Initial Dividend Payment Dates as
set forth herein; and have such other preferences, voting powers, limitations
as to dividends, qualifications and terms and conditions of redemption as are
set forth in these Articles Supplementary. The Auction Market Preferred Stock,
Series A shall constitute a separate series of preferred stock of the
Corporation, and each share of Auction Market Preferred Stock, Series A shall
be identical.

         SERIES B: A series of 1,000 shares of preferred stock, par value $.10
per share, liquidation preference $50,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon,
is hereby designated "Auction Market Preferred Stock, Series B." Each share of
Auction Market Preferred Stock, Series B (sometimes referred to herein as
"Series B AMPS") shall be issued on September 16, 1992; have an Initial
Dividend Rate equal to 3.20% per annum; have Initial Dividend Payment Dates as
set forth herein; and have such other preferences, voting powers, limitations
as to dividends, qualifications and terms and conditions of redemption as are
set forth in these Articles Supplementary. The Auction Market Preferred Stock,
Series B shall constitute a separate series of preferred stock of the
Corporation, and each share of Auction Market Preferred Stock, Series B shall
be identical.

         SERIES C: A series of 1,000 shares of preferred stock, par value $.10
per share, liquidation preference $50,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon,
is hereby designated "Auction Market Preferred Stock, Series C." Each share of
Auction Market Preferred Stock, Series C (sometimes referred to herein as
"Series C AMPS") shall be issued on September 16, 1992; have an Initial
Dividend Rate equal to 3.30% per annum; have Initial Dividend Payment Dates as
set forth



                                      2
<PAGE>

herein; and have such other preferences, voting powers, limitations as to
dividends, qualifications and terms and conditions of redemption as are set
forth in these Articles Supplementary. The Auction Market Preferred Stock,
Series C shall constitute a separate series of preferred stock of the
Corporation, and each share of Auction Market Preferred Stock, Series C shall
be identical.

         SERIES D: A series of 1,000 shares of preferred stock, par value $.l0
per share, liquidation preference $50,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon,
is hereby designated "Auction Market Preferred Stock, Series D." Each share of
Auction Market Preferred Stock, Series D (sometimes referred to herein as
"Series D AMPS") shall be issued September l6, 1992; have an Initial Dividend
Rate equal to 3.40% per annum; have Initial Dividend Payment Dates as set
forth herein; and have such other preferences, voting powers, limitations as
to dividends, qualifications and terms and conditions of redemption as are set
forth in these Articles Supplementary. The Auction Market Preferred Stock,
Series D shall constitute a separate series of preferred stock of the
Corporation, and each share of Auction Market Preferred Stock, Series D shall
be identical.

         1. Definitions. (a) Unless the context or use indicates another or
different meaning or intent, in these Articles Supplementary the following
terms have the following meanings, whether used in the singular or plural:

         "`AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by
Moody's or the equivalent of such rating by another nationally recognized
rating agency, as such rate is made available on a discount basis or



                                      3
<PAGE>

otherwise by the Federal Reserve Bank of New York for the Business Day
immediately preceding such date, or (ii) in the event that the Federal Reserve
Bank of New York does not make available such a rate, then the arithmetic
average of the Interest Equivalent of the rate on commercial paper placed on
behalf of such issuers, as quoted on a discount basis or otherwise by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its successors that are
Commercial Paper Dealers, to the Auction Agent for the close of business on
the Business Day immediately preceding such date. If one of the Commercial
Paper Dealers does not quote a rate required to determine the "AA" Composite
Commercial Paper Rate, the "AA" Composite Commercial Paper Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Corporation to provide such rate or rates not being supplied
by the Commercial Paper Dealer. If the number of Dividend Period Days shall be
(i) 7 or more but fewer than 49 days, such rate shall be the Interest
Equivalent of the 30-day rate on such commercial paper; (ii) 49 or more but
fewer than 70 days, such rate shall be the Interest Equivalent of the 60-day
rate on such commercial paper; (iii) 70 or more days but fewer than 85 days,
such rate shall be the arithmetic average of the Interest Equivalent on the
60-day and 90-day rates on such commercial paper; (iv) 85 or more days but
fewer than 99 days, such rate shall be the Interest Equivalent of the 90-day
rate on such commercial paper; (v) 99 or more days but fewer than 120 days,
such rate shall be the arithmetic average of the Interest Equivalent of the
90-day and 120-day rates on such commercial paper; (vi) 120 or more days but
fewer than 141 days, such rate shall be the Interest Equivalent of the 120-day
rate on such commercial paper; (vii) 141 or more days but fewer than 162 days,
such rate shall be the arithmetic average of the Interest Equivalent of the
120-day and



                                      4
<PAGE>

180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate
on such commercial paper.

         "Accountant's Confirmation" has the meaning set forth in paragraph
7(c) of these Articles Supplementary.

         "Additional Dividend" has the meaning set forth in paragraph 2(e) of
these Articles Supplementary.

         "Adviser" means the Corporation's investment adviser which initially
shall be Fund Asset Management, Inc.

         "Affiliate" means any Person, other than Merrill Lynch, Pierce,
Fenner & Smith Incorporated or its successors, known to the Auction Agent to
be controlled by, in control of, or under common control with, the
Corporation.

         "Agent Member" means a member of the Securities Depository that will
act on behalf of an Existing Holder of one or more shares of AMPS or a
Potential Holder that is identified as such in such holder's Purchaser's
Letter.

         "AMPS" means, as the case may be, the Auction Market Preferred Stock,
Series A; Auction Market Preferred Stock, Series B; Auction Market Preferred
Stock, Series C; or Auction Market Preferred Stock, Series D.

         "AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares
of AMPS of each series and Other AMPS Outstanding on such Valuation Date
multiplied by the sum of (a) $50,000 and (b) any applicable redemption premium
attributable to the designation of a Premium Call Period; (B) the aggregate
amount of cash dividends (whether or not earned or declared) that will have
accumulated for each share of AMPS and Other AMPS Outstanding, in each case,
to (but not



                                      5
<PAGE>

including) the end of the current Dividend Period for each series of AMPS that
follows such Valuation Date; (C) the aggregate amount of cash dividends that
would accumulate at the then current Maximum Applicable Rate on any shares of
AMPS and Other AMPS Outstanding from the end of such Dividend Period through
the 49th day after such Valuation Date, multiplied by the larger of the
Moody's Volatility Factor and the S&P Volatility Factor, determined from time
to time by Moody's and S&P, respectively (except that if such Valuation Date
occurs during a Non-Payment Period, the cash dividend for purposes of
calculation would accumulate at the then current Non-Payment Period Rate); (D)
the amount of anticipated expenses of the Corporation for the 90 days
subsequent to such Valuation Date; (E) the amount of the Corporation's Maximum
Potential Additional Dividend Liability as of such Valuation Date; and (F) any
current liabilities as of such Valuation Date to the extent not reflected in
any of (i)(A) through (i)(E) (including, without limitation, and immediately
upon determination, any amounts due and payable by the Corporation pursuant to
repurchase agreements and any payables for Municipal Bonds purchased as of
such Valuation Date) less (ii) either (A) the Discounted Value of any of the
Corporation's assets, or (B) the face value of any of the Corporation's assets
if such assets mature prior to or on the date of redemption of AMPS or payment
of a liability and are either securities issued or guaranteed by the United
States Government or have a rating assigned by Moody's of at least Aaa, P-1,
VMIG-1 or MIG-1 and, with respect to S&P, at least AAA, SP-1+ or A-1+, in both
cases irrevocably deposited by the Corporation for the payment of the amount
needed to redeem shares of AMPS subject to redemption or any of (i)(B) through
(i)(F).

         "AMPS Basic Maintenance Cure Date," with respect to the failure by
the Corporation to satisfy the AMPS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles



                                      6
<PAGE>

Supplementary) as of a given Valuation Date, means the sixth Business Day
following such Valuation Date.

         "AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Corporation which sets forth, as of the related Valuation Date, the assets of
the Corporation, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), and the AMPS Basic Maintenance Amount.

         "Anticipation Notes" shall mean the following Municipal Bonds:
revenue anticipation notes, tax anticipation notes, tax and revenue
anticipation notes, grant anticipation notes and bond anticipation notes.

         "Applicable Percentage" has the meaning set forth in paragraph
11(a)(vii) of these Articles Supplementary.

         "Applicable Rate" means the rate per annum at which cash dividends
are payable on the AMPS or Other AMPS, as the case may be, for any Dividend
Period.

         "Auction" means a periodic operation of the Auction Procedures.

         "Auction Agent" means IBJ Schroder Bank & Trust Company unless and
until another commercial bank, trust company or other financial institution
appointed by a resolution of the Board of Directors of the Corporation or a
duly authorized committee thereof enters into an agreement with the
Corporation to follow the Auction Procedures for the purpose of determining
the Applicable Rate and to act as transfer agent, registrar, dividend
disbursing agent and redemption agent for the AMPS and Other AMPS.

         "Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 11 of these Articles Supplementary.



                                      7
<PAGE>

         "Broker-Dealer" means any broker-dealer, or other entity permitted by
law to perform the functions required of a Broker-Dealer in paragraph 11 of
these Articles Supplementary, that has been selected by the Corporation and
has entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.

         "Broker-Dealer Agreement" means an agreement between the Auction
Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to
follow the procedures specified in paragraph 11 of these Articles
Supplementary.

         "Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading and which is not a Saturday, Sunday or other day on which
banks in The City of New York are authorized or obligated by law to close.

         "Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the Corporation on
file in the State Department of Assessments and Taxation of Maryland.

         "Code" means the Internal Revenue Code of 1986, as amended.

         "Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner &
Smith Incorporated and such other commercial paper dealer or dealers as the
Corporation may from tine to time appoint, or, in lieu of any thereof, their
respective affiliates or successors.

         "Common Stock" means the common stock, par value $.10 per share, of
the Corporation.

         "Corporation" means MuniYield Quality Fund, Inc., a Maryland
corporation.

         "Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the Corporation originally issues such share.

         "Deposit Securities" means cash and Municipal Bonds rated at least
AAA, A-1+ or SP-1+ by S&P.



                                      8
<PAGE>

         "Discounted Value" means (i) with respect to an S&P Eligible Asset,
the quotient of the Market Value thereof divided by the applicable S&P
Discount Factor and (ii) with respect to a Moody's Eligible Asset, the lower
of par and the quotient of the Market Value thereof divided by the applicable
Moody's Discount Factor.

         "Dividend Coverage Amount," as of any Valuation Date, means (A)(i)
the aggregate amount of cash dividends that will accumulate on all shares of
Outstanding AMPS and Other AMPS, in each case to (but not including) the next
Dividend Payment Date therefor for each series of AMPS that follows such
Valuation Date plus (ii) the aggregate amount of all liabilities existing on
such Valuation Date which are payable on or prior to such next Dividend
Payment Date less (B)(i) the combined Market Value of Deposit Securities
irrevocably deposited with the Auction Agent for the payment of cash dividends
on all shares of AMPS and Other AMPS, (ii) the book value of receivables for
Municipal Bonds sold as of or prior to such Valuation Date, if such
receivables are due within Five Business Days of such Valuation Date and in
any event on or prior to such next Dividend Payment Date, and (iii) interest
on Municipal Bonds which is scheduled to be paid on or prior to the next
Dividend Payment Date.

         "Dividend Coverage Assets," as of any Valuation Date, means, in the
case of shares of AMPS and Other AMPS, Deposit Securities with maturity or
tender payment dates not later in each case than the Dividend Payment Date
therefor that follows such Valuation Date.

         "Dividend Payment Date," with respect to AMPS, has the meaning set
forth in paragraph 2(b)(i) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.

         "Dividend Period" means the Initial Dividend Period, any 7-day
Dividend Period, any 28-day Dividend Period and any Special Dividend Period.



                                      9
<PAGE>

         "Existing Holder" means a Person who has signed a Purchaser's Letter
and is listed as the holder of record of shares of AMPS in the Stock Books.

         "First Initial Dividend Payment Date" means October 1, 1992 in the
case of Series A AMPS, October 1, 1992 in the case of Series B AMPS, October
1, 1992 in the case of Series C AMPS and October 1, 1992 in the case of Series
D AMPS.

         "Forward Commitment" has the meaning set forth in paragraph 9(c) of
these Articles Supplementary.

         "Holder" means a Person identified as a holder of record of shares of
AMPS in the Stock Register.

         "Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Corporation, an independent
public accountant or firm of independent public accountants under the
Securities Act of 1933, as amended.

         "Initial Dividend Payment Date" means, with respect to each series of
AMPS, each of the First Initial Dividend Payment Date, the Last Initial
Dividend Payment Date and the first day of each calendar month during the
Initial Dividend Period.

         "Initial Dividend Period," with respect to each series of AMPS, has
the meaning set forth in paragraph 2(c)(i) of these Articles Supplementary
and, with respect to Other AMPS, has the equivalent meaning.

         "Initial Dividend Rate," with respect to each series of AMPS, means
the rate per annum specified herein applicable to the Initial Dividend Period
for such series of AMPS and, with respect to Other AMPS, has the equivalent
meaning.

         "Initial Margin" means the amount of cash or securities deposited
with a broker as a margin payment at the time of purchase or sale of a futures
contract.



                                      10
<PAGE>

         "Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.

         "Last Initial Dividend Payment Date" means January 12, 1993 in the
case of Series A AMPS, March 9,1993 in the case of Series B AMPS, June 11,
1993 in the case of Series C AMPS and September 10, 1993 in the case of Series
D AMPS.

         "Long Term Dividend Period" means a Special Dividend Period
consisting of a specified period of one whole year or more but not greater
than five years.

         "Mandatory Redemption Price" means $50,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.

         "Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum
marginal regular Federal corporate income tax rate, whichever is greater.

         "Market Value" of any asset of the Corporation shall be the market
value thereof determined by the Pricing Service. Market Value of any asset
shall include any interest accrued thereon. The Pricing Service shall value
portfolio securities at the quoted bid prices or the mean between the quoted
bid and asked price or the yield equivalent when quotations are not readily
available. Securities for which quotations are not readily available shall be
valued at fair value as determined by the Pricing Service using methods which
include consideration of: yields or prices of municipal bonds of comparable
quality, type of issue, coupon, maturity and rating; indications as to value
from dealers; and general market conditions. The Pricing Service may employ
electronic data processing techniques and/or a matrix system to determine
valuations. In the event the Pricing Service is unable to value a security,
the security shall be valued at the



                                      11
<PAGE>

lower of two dealer bids obtained by the Corporation from dealers who are
members of the National Association of Securities Dealers, Inc. and who make a
market in the security, at least one of which shall be in writing. Futures
contracts and options are valued at closing prices for such instruments
established by the exchange or board of trade on which they are traded, or if
market quotations are not readily available, are valued at fair value on a
consistent basis using methods determined in good faith by the Board of
Directors.

         "Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 11(a)(vii) of these Articles Supplementary and, with
respect to Other AMPS, has the equivalent meaning.

         "Maximum Potential Additional Dividend Liability," as of any
Valuation Date, means the aggregate amount of Additional Dividends that would
be due if the Corporation were to make Retroactive Taxable Allocations, with
respect to any fiscal year, estimated based upon dividends paid and the amount
of undistributed realized net capital gains and other taxable income earned by
the Corporation, as of the end of the calendar month immediately preceding
such Valuation Date and assuming such Additional Dividends are fully taxable.

         "Minimum Liquidity Level" means, as of any Valuation Date, an
aggregate Market Value of the Corporation's Dividend Coverage Assets not less
than the Dividend Coverage Amount.

         "Moody's" means Moody's Investors Service, Inc. or its successors.

         "Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Municipal Bond which constitutes a Moody's Eligible
Asset, the percentage determined by reference to (a) the rating by Moody's or
S&P on such Bond and (b) the Moody's Exposure Period, in accordance with the
table set forth below:



                                      12
<PAGE>

<TABLE>
<CAPTION>
                                                                    Rating Category
                                ------------------------------------------------------------------------------------
Moody's Exposure Period           Aaa*         Aa*       A*       Baa*       Other**      VMIG-1***       SP-1+***
- ----------------------------    -------     -------   -------   -------     ---------   ------------    ------------
<S>                              <C>         <C>       <C>       <C>         <C>         <C>               <C>
7 weeks or less.............      151%        159%      168%      202%        229%        136%              148%
8 weeks or less but
greater than seven weeks....      154         164       173       205         235         137               149
9 weeks or less but
greater than eight weeks....      158         169       179       209         242         138               150
</TABLE>

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

*      Moody's rating.

**     Municipal Bonds not rated by Moody's but rated BBB-, BBB or BBB+ by S&P.

***    Municipal Bonds rated MIG-1 or VMIG-1 or, if not rated by Moody's,
       rated SP-1+ by S&P which do not mature or have a demand feature at
       par exercisable within the Moody's Exposure Period and which do not
       have a long-term rating. For the purposes of the definition of
       Moody's Eligible Assets, these securities will have an assumed rating
       of "A" by Moody's.


         Notwithstanding the foregoing, (i) no Moody's Discount Factor will be
applied to short-term Municipal Bonds so long as such Municipal Bonds are
rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand
feature at par exercisable within the Moody's Exposure Period, and the Moody's
Discount Factor for such Bonds will be 125% if such Bonds are not rated by
Moody's but are rated A-1+ or SP-1+ or AA by S&P and mature or have a demand
feature at par exercisable within the Moody's Exposure Period, and (ii) no
Moody's Discount Factor will be applied to cash or to Receivables for
Municipal Bonds Sold. "Receivables for Municipal Bonds Sold," for purposes of
calculating Moody's Eligible Assets as of any Valuation Date, means no more
than the aggregate of the following: (i) the book value of receivables for
Municipal Bonds sold as of or prior to such Valuation Date if such receivables
are due within five Business Days of such Valuation Date, and if the trades
which generated such receivables are (x) settled through clearing house firms
with respect to which the Corporation has received prior written authorization
from Moody's or (y) with counterparties having a Moody's long-term debt rating
of at least Baa3; and (ii) the Moody's Discounted Value of Municipal



                                      13
<PAGE>

Bonds sold as of or prior to such Valuation Date which generated receivables,
if such receivables are due within five Business Days of such Valuation Date
but do not comply with either of conditions (x) or (y) of the preceding clause
(i).

         "Moody's Eligible Asset" means cash, Receivables for Municipal Bonds
Sold or a Municipal Bond that (i) pays interest in cash, (ii) is publicly
rated Baa or higher by Moody's or, if not rated by Moody's but rated by S&P,
is rated at least BBB- by S&P (provided that, for purposes of determining the
Moody's Discount Factor applicable to any such S&P-rated Municipal Bond, such
Municipal Bond (excluding any short-term Municipal Bond) will be deemed to
have a Moody's rating which is one full rating category lower than its S&P
rating), (iii) does not have its Moody's rating suspended by Moody's; and (iv)
is part of an issue of Municipal Bonds of at least $10,000,000. In addition,
Municipal Bonds in the Corporation's portfolio must be within the following
diversification requirements in order to be included within Moody's Eligible
Assets:

<TABLE>
<CAPTION>
                                                Minimum                Maximum               Maximum State
                                               Issue Size             Underlying              or Territory
        Rating                               ($ Millions)            Obligor (%)(1)        Concentration (%)(1)
        ------                               ------------            --------------        --------------------
<S>     <C>                                    <C>                      <C>                   <C>
        Aaa......................                 10                      100                    100
        Aa.......................                 10                       20                     60
        A........................                 10                       10                     40
        Baa......................                 10                        6                     20
        Other(2).................                 10                        4                     12
</TABLE>

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

(1)      The referenced percentages represent maximum cumulative totals for
         the related rating category and each lower rating category.
(2)      Municipal Bonds not rated by Moody's but rated BBB-, BBB or BBB+ by
         S&P.

For purposes of the maximum underlying obligor requirement described above,
any Municipal Bond backed by the guaranty, letter of credit or insurance
issued by a third party will be deemed



                                      14
<PAGE>

to be issued by such third party if the issuance of such third party credit is
the sole determinant of the rating on such Bond.

         When the Corporation sells a Municipal Bond and agrees to repurchase
it at a future date, the Discounted Value of such Bond will constitute a
Moody's Eligible Asset and the amount the Corporation is required to pay upon
repurchase of such Bond will count as a liability for purposes of calculating
the AMPS Basic Maintenance Amount. When the Corporation purchases a Municipal
Bond and agrees to sell it at a future date to another party, cash receivable
by the Corporation thereby will constitute a Moody's Eligible Asset if the
long-term debt of such other party is rated at least A2 by Moody's and such
agreement has a term of 30 days or less; otherwise the Discounted Value of
such Bond will constitute a Moody's Eligible Asset.

         Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to
any material lien, mortgage, pledge, security interest or security agreement
of any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Corporation for the payment of
dividends or redemption.

         "Moody's Exposure Period" means a period that is the same length or
longer than the number of days used in calculating the cash dividend component
of the AMPS Basic Maintenance Amount and shall initially be the period
commencing on and including a given Valuation Date and ending 48 days
thereafter.

         "Moody's Hedging Transaction" has the meaning set forth in paragraph
9(b) of these Articles Supplementary.

         "Moody's Volatility Factor" means during the Initial Dividend Period
for each series of AMPS until 49 days prior to the last day of such Dividend
Period 220% in the case of Series A



                                      15
<PAGE>

AMPS, 203% in the case of Series B AMPS, 203% in the case of Series C AMPS and
177% in the case of Series D AMPS. Thereafter, for each series of AMPS,
"Moody's Volatility Factor" means 272% as long as there has been no increase
enacted to the Marginal Tax Rate. If such an increase is enacted but not yet
implemented, the Moody's Volatility Factor shall be as follows:


                % Change in             Moody's Volatility
             Marginal Tax Rate<               Factor
                              -
            ----------------------    ---------------------
                     <5%                       292%
                     -
                >5% but <10%                   313%
                        -
               >10% but <15%                   338%
                        -
               >15% but <20%                   364%
                        -
               >20% but <25%                   396%
                        -
               >25% but <30%                   432%
                        -
               >30% but <35%                   472%
                        -
               >35% but <40%                   520%
                        -


Notwithstanding the foregoing, the Moody's Volatility Factor may mean such
other potential dividend rate increase factor as Moody's advises the
Corporation in writing is applicable.

         "Municipal Bonds" means "Municipal Bonds" as defined in the
Corporation's Registration Statement on Form N-2 (File No. 33-50306) on file
with the Securities and Exchange Commission, as such Registration Statement
may be amended from time to time, as well as short-term municipal obligations.

         "Municipal Index" has the meaning set forth in paragraph 9(a) of
these Articles Supplementary.

         "1940 Act" means the Investment Company Act of 1940, as amended from
time to time.

         "1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all
outstanding senior securities of the Corporation which are stock, including
all outstanding shares of AMPS and Other AMPS (or such other asset coverage as
may in the future be specified in or under the 1940 Act as the minimum asset



                                      16
<PAGE>

coverage for senior securities which are stock of a closed-end investment
company as a condition of paying dividends on its common stock).

         "1940 Act Cure Date," with respect to the failure by the Corporation
to maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of
these Articles Supplementary) as of the last Business Day of each month, means
the last Business Day of the following month.

         "Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".

         "Non-Payment Period" means, with respect to each series of AMPS, any
period commencing on and including the day on which the Corporation shall fail
to (i) declare, prior to the close of business on the second Business Day
preceding any Dividend Payment Date, for payment on or (to the extent
permitted by paragraph 2(c)(i) of these Articles Supplementary) within three
Business Days after such Dividend Payment Date to the Holders as of 12:00
noon, New York City time, on the Business Day preceding such Dividend Payment
Date, the full amount of any dividend on shares of AMPS payable on such
Dividend Payment Date or (ii) deposit, irrevocably in trust, in same-day
funds, with the Auction Agent by 12:00 noon, New York City time, (A) on such
Dividend Payment Date the full amount of any cash dividend on such shares
payable (if declared) on such Dividend Payment Date or (B) on any redemption
date for any shares of AMPS called for redemption, the Mandatory Redemption
Price per share of such AMPS or, in the case of an Optional redemption, the
optional Redemption Price per share, and ending on and including the Business
Day on which, by 12:00 noon, New York City time, all unpaid cash dividends and
unpaid redemption prices shall have been so deposited or shall have otherwise
been made available to Holders in same-day funds; provided that, a Non-Payment
Period shall not end unless the Corporation shall have given at least five
days' but no more than



                                      17
<PAGE>

30 days' written notice of such deposit or availability to the Auction Agent,
all Existing Holders (at their addresses appearing in the Stock Books) and the
Securities Depository. Notwithstanding the foregoing, the failure by the
Corporation to deposit funds as provided for by clauses (ii)(A) or (ii)(B)
above within three Business Days after any Dividend Payment Date or redemption
date, as the case may be, in each case to the extent contemplated by paragraph
2(c)(i) of these Articles Supplementary, shall not constitute a "Non-Payment
Period."

         "Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of AMPS), provided that the Board of Directors of the Corporation shall
have the authority to adjust, modify, alter or change from time to time the
initial Non-Payment Period Rate if the Board of Directors of the Corporation
determines and Moody's and S&P (and any Substitute Rating Agency in lieu of
Moody's or S&P in the event either of such parties shall not rate the AMPS)
advise the Corporation in writing that such adjustment, modification,
alteration or change will not adversely affect their then-current ratings on
the AMPS.

         "Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(1) of these Articles Supplementary.

         "Notice of Redemption" means any notice with respect to the
redemption of shares of AMPS pursuant to paragraph 4 of these Articles
Supplementary.

         "Notice of Revocation" has the meaning set forth in paragraph
2(c)(iii) of these Articles Supplementary.



                                      18
<PAGE>

         "Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.

         "Optional Redemption Price" means $50,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared)
to the date fixed for redemption and excluding Additional Dividends plus any
applicable redemption premium attributable to the designation of a Premium
Call Period.

         "Other AMPS" means the auction rate preferred stock of the
Corporation, other than the AMPS.

         "Outstanding" means, as of any date (i) with respect to AMPS, shares
of AMPS theretofore issued by the Corporation except, without duplication, (A)
any shares of AMPS theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and moneys shall have been deposited in trust
by the Corporation pursuant to paragraph 4(c) and (B) any shares of AMPS as to
which the Corporation or any Affiliate thereof shall be an Existing Holder,
provided that shares of AMPS held by an Affiliate shall be deemed outstanding
for purposes of calculating the AMPS Basic Maintenance Amount and (ii) with
respect to shares of other Preferred Stock, has the equivalent meaning.

         "Parity Stock" means the AMPS and each other outstanding series of
Preferred Stock the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to
the full respective preferential amounts to which they are entitled, without
preference or priority one over the other.



                                      19
<PAGE>

         "Person" means and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.

         "Potential Holder" means any Person including any Existing Holder,
(A) who shall have executed a Purchaser's Letter and (B) who may be interested
in acquiring shares of AMPS (or, in the case of an Existing Holder, additional
shares of AMPS).

         "Preferred Stock" means the preferred stock, par value $.l0 per
share, of the Corporation, and includes AMPS and Other AMPS.

         "Premium Call Period" has the meaning set forth under the definition
of "Specific Redemption Provisions".

         "Pricing Service" means J.J. Kenny or any pricing service designated
by the Board of Directors of the Corporation provided the Corporation obtain
written assurance from S&P and Moody's that such designation will not impair
the rating then assigned by S&P and Moody's to the AMPS.

         "Purchaser's Letter" means a letter addressed to the Corporation, the
Auction Agent and a Broker-Dealer in which a Person agrees, among other
things, to offer to purchase, purchase, offer to sell and/or sell shares of
AMPS as set forth in paragraph 11 of these Articles Supplementary.

         "Quarterly Valuation Date" means the twenty-first day of the last
month of each fiscal quarter of the Corporation (or, if such day is not a
Business Day, the next succeeding Business Day) in each fiscal year of the
Corporation, commencing October 21, 1992.



                                      20
<PAGE>

         "Receivables for Municipal Bonds Sold" for Moody's has the meaning
set forth under the definition of Moody's Discount Factor, and for S&P has the
meaning set forth under the definition of S&P Discount Factor.

         "Reference Rate" means: (i) with respect to a Dividend Period or a
Short Term Dividend Period having 28 or fewer days, the higher of the
applicable "AA" Composite Commercial Paper Rate and the Taxable Equivalent of
the Short-Term Municipal Bond Rate, (ii) with respect to any Short Term
Dividend Period having more than 28 but fewer than 183 days, the applicable
"AA" Composite Commercial Paper Rate, (iii) with respect to any Short Term
Dividend Period having 183 or more but fewer than 364 days, the applicable
U.S. Treasury Bill Rate and (iv) with respect to any Long Term Dividend
Period, the applicable U.S. Treasury Note Rate.

         "Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.

         "Response" has the meaning set forth in paragraph 2(c)(iii) of these
Articles Supplementary.

         "Retroactive Taxable Allocation" has the meaning set forth in
paragraph 2(e) of these Articles Supplementary.

         "Right," with respect to each series of AMPS, has the meaning set
forth in paragraph 2(e) of these Articles Supplementary and, with the respect
to other AMPS, has the equivalent meaning.

         "S&P" means Standard & Poor's Corporation or its successors.

         "S&P Discount Factor" means, for purposes of determining the
Discounted Value of any Municipal Bond which constitutes an S&P Eligible
Asset, the percentage determined by



                                      21
<PAGE>

reference to (a) the rating by S&P or Moody's on such Bond and (b) the S&P
Exposure Period, in accordance with the tables set forth below:



                                         Rating Cartegory
                                         ----------------
S & P Exposure Period        Aaa*          AA*            A*         BBB*
- -----------------------     ------        ------        ------      ------
40 Business Days             190%          195%          210%        250%
22 Business Days             170           175           190         230
10 Business Days             155           160           175         215
7   Business Days            150           155           170         210
3   Business Days            130           135           150         190

- ----------------
* S&P rating

         Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Municipal Bonds will be 115%, so long as such Municipal Bonds are
rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable in
30 days or less, or 125% if such Municipal Bonds are not rated by S&P but are
rated VMIG-1, P-1 or MIG-1 by Moody's, provided, however, such short-term
Municipal Bonds rated by Moody's but not rated by S&P having a demand feature
exercisable in 30 days or less must be backed by a letter of credit, liquidity
facility or guarantee from a bank or other financial institution having a
short-term rating of at least A-l+ from S&P; and further provided that such
short-term Municipal Bonds rated by Moody's but not rated by S&P may comprise
no more than 50% of short-term Municipal Bonds that qualify as S&P Eligible
Assets and (ii) no S&P Discount Factor will be applied to cash or to
Receivables for Municipal Bonds Sold. "Receivables for Municipal Bonds Sold,"
for purposes of calculating S&P's Eligible Assets as of any Valuation Date,
means the book value of receivables for Municipal Bonds sold as of or prior to
such Valuation Date if such receivables are due within five Business Days of
such Valuation Date. For purposes of the foregoing, Anticipation Notes rated
SP-1+ or, if not rated by S&P, rated VMIG-1 by Moody's, which need



                                      22
<PAGE>

not mature or have a demand feature exercisable in 30 days and which do not
have a long-term rating, shall be considered to be short-term Municipal Bonds.

         "S&P Eligible Asset" means cash, Receivables for Municipal Bonds Sold
or a Municipal Bond that (i) is issued by any of the 50 states, the
territories and their subdivisions, counties, cities, towns, villages, and
school districts, agencies, such as authorities and special districts created
by the states, and certain federally sponsored agencies such as local housing
authorities (payments made on these bonds are exempt from regular federal
income taxes and are generally exempt from state and local taxes in this state
of issuance), (ii) is interest bearing and pays interest at least
semi-annually; (iii) is payable with respect to principal and interest in
United States Dollars; (iv) is publicly rated BBB or higher by S&P or, except
in the case of Anticipation Notes that are grant anticipation notes or bond
anticipation notes which must be rated by S&P to be included in S&P Eligible
Assets, if not rated by S&P but rated by Moody's, is rated at least A by
Moody's (provided that such Moody's-rated Municipal Bonds will be included in
S&P Eligible Assets only to the extent the Market Value of such Municipal
Bonds does not exceed 50% of the aggregate Market Value of the S&P Eligible
Assets; and further provided that, for purposes of determining the S&P
Discount Factor applicable to any such Moody's-rated Municipal Bond, such
Municipal Bond will be deemed to have an S&P rating which is one full rating
category lower than its Moody's rating); (v) is not subject to a covered call
or covered put option written by the Corporation; (vi) is not part of a
private placement of Municipal Bonds; and (vii) is part of an issue of
Municipal Bonds with an original issue size of at least $20 million or, if of
an issue with an original issue size below $20 million (but in no event below
$10 million), is issued by an issuer with a total of at least $50 million of
securities outstanding. Notwithstanding the foregoing:



                                      23
<PAGE>

               (1) Municipal Bonds of any one issuer or guarantor (excluding
         bond insurers) will be considered S&P Eligible Assets only to the
         extent the Market Value of such Municipal Bonds does not exceed 10%
         of the aggregate Market Value of the S&P Eligible Assets, provided
         that 2% is added to the applicable S&P Discount Factor for every 1%
         by which the Market Value of such Municipal Bonds exceeds 5% of the
         aggregate Market Value of the S&P Eligible Assets;

               (2) Municipal Bonds guaranteed or insured by any one bond
         insurer will be considered S&P Eligible Assets only to the extent
         the Market Value of such Municipal Bonds does not exceed 25% of the
         aggregate Market Value of the S&P Eligible Assets; and

               (3) Municipal Bonds issued by issuers in any one state or
         territory will be considered S&P Eligible Assets only to the extent
         the Market Value of such Municipal Bonds does not exceed 20% of the
         aggregate Market Value of S&P Eligible Assets.

         "S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance
Cure Date, that the Corporation has under these Articles Supplementary to cure
any failure to maintain, as of such Valuation Date, the Discounted Value for
its portfolio at least equal to the AMPS Basic Maintenance Amount (as
described in paragraph 7(a) of these Articles Supplementary).

         "S&P Hedging Transactions" has the meaning set forth in paragraph
9(a) of these Articles Supplementary.

         "S&P Volatility Factor" means during the Initial Dividend Period for
each series of AMPS 222% in the case of Series A AMPS, 217% in the case of
Series B AMPS, 217% in the



                                      24
<PAGE>

case of Series C AMPS and 198% in the case of Series D AMPS. Thereafter, for
each series of AMPS, "S&P Volatility Factor" means 304% or such other
potential dividend rate increase factor as S&P advises the Corporation in
writing is applicable.

         "Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Corporation as securities
depository for the shares of AMPS that agrees to follow the procedures
required to be followed by such securities depository in connection with the
shares of AMPS.

         "Service" means the United States Internal Revenue Service.

         "7-Day Dividend Period" means, with respect to Series B AMPS and
Series D AMPS, a Dividend Period consisting of seven days.

         "Short Term Dividend Period" means a Special Dividend Period
consisting of a specified number of days (other than 28 in the case of Series
A AMPS and Series C AMPS and other than seven in the case of Series A AMPS and
Series D AMPS), evenly divisible by seven and not fewer than seven or more
than 364.

         "Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than 28 in the case of Series A AMPS and
Series C AMPS and other than seven in the case of series B AMPS and Series D
AMPS), evenly divisible by seven, and not fewer than seven nor more than 364
or (ii) a specified period of one whole year or more but not greater than five
years (in each case subject to adjustment as provided in paragraph 2(b)(i))

         "Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Directors of the Corporation, after
consultation with the Auction Agent and the Broker-Dealers, during which the
shares of AMPS subject to such Dividend Period shall not be subject to



                                      25
<PAGE>

redemption at the option of the Corporation and (ii) a period (a "Premium Call
Period"), consisting of a number of whole years and determined by the Board of
Directors of the Corporation, after consultation with the Auction Agent and
the Broker-Dealers, during each year of which the shares of AMPS subject to
such Dividend Period shall be redeemable at the Corporation's option at a
price per share equal to $50,000 plus accumulated but unpaid dividends plus a
premium expressed as a percentage of $50,000, as determined by the Board of
Directors of the Corporation after consultation with the Auction Agent and the
Broker-Dealers.

         "Stock Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the AMPS.

         "Stock Register" means the register of Holders maintained on behalf
of the Corporation by the Auction Agent in its capacity as transfer agent and
registrar for the AMPS.

         "Subsequent Dividend Period," with respect to AMPS, has the meaning
set forth in paragraph 2(c)(i) of these Articles Supplementary and, with
respect to Other AMPS, has the equivalent meaning.

         "Substitute Commercial Paper Dealers" means such Substitute
Commercial Paper Dealer or Dealers as the Corporation may from time to time
appoint or, in lieu of any thereof, their respective affiliates or successors.

         "Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Corporation, to act as the substitute rating
agency or substitute rating agencies, as the case may be, to determine the
credit ratings of the shares of AMPs.



                                      26
<PAGE>

         "Taxable Equivalent of the Short-Term Municipal Bond Rate" on any
date means 90% of the quotient of (A) the per annum rate expressed on an
interest equivalent basis equal to the Kenny S&P 30 day High Grade Index" or
any successor index (the "Kenny Index"), made available for the Business Day
immediately preceding such date but in any event not later than 8:30 A.M., New
York City time, on such date by Kenny Information Systems Inc. or any
successor thereto, based upon 30-day yield evaluations at par of bonds the
interest on which is excludable for regular Federal income tax purposes under
the Code of "high grade" component issuers selected by Kenny Information
Systems Inc. or any such successor from time to time in its discretion, which
component issuers shall include, without limitation, issuers of general
obligation bonds but shall exclude any bonds the interest on which constitutes
an item of tax preference under section 57(a)(5) of the Code, or successor
provisions, for purposes of the "alternative minimum tax," divided by (B) 1.00
minus the Marginal Tax. Rate (expressed as a decimal); provided, however, that
if the Kenny Index is not made so available by 8:30 A.M., New York City time,
on such date by Kenny Information Systems Inc. or any successor, the Taxable
Equivalent of the Short-Term Municipal Bond Rate shall mean the quotient of
(A) the per annum rate expressed on an interest equivalent basis equal to the
most recent Kenny Index so made available for any preceding Business Day,
divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal).

         "Treasury Bonds" has the meaning set forth in paragraph 9(a) of these
Articles Supplementary.

         "28-day Dividend Period" means with respect to Series A AMPS and
Series C AMPS a Dividend Period consisting of 28 days.



                                      27
<PAGE>

         "U.S. Treasury Bill Rate" on any date means (i) the Interest
Equivalent of the rate on the actively traded Treasury Bill with a maturity
most nearly comparable to the length of the related Dividend Period, as such
rate is made available on a discount basis or otherwise by the Federal Reserve
Bank of New York in its Composite 3:30 P.M. Quotations for U.S. Government
Securities report for such Business Day, or (ii) if such yield as so
calculated is not available, the Alternate Treasury Bill Rate on such date.
"Alternate Treasury Bill Rate" on any date means the Interest Equivalent of
the yield as calculated by reference to the arithmetic average of the bid
price quotations of the actively traded Treasury Bill with a maturity most
nearly comparable to the length of the related Dividend Period, as determined
by bid price quotations as of any time on the Business Day immediately
preceding such date, obtained from at least three recognized primary U.S.
Government securities dealers selected by the Auction Agent.

         "U.S. Treasury Note Rate" on any date means (i) the yield as
calculated by reference to the bid price quotation of the actively traded,
current coupon Treasury Note with a maturity most nearly comparable to the
length of the related Dividend Period, as such bid price quotation is
published on the Business Day immediately preceding such date by the Federal
Reserve Bank of New York in its Composite 3:30 P.M. Quotations for U.S.
Government Securities report for such Business Day, or (ii) if such yield as
so calculated is not available, the Alternate Treasury Note Rate on such date.
"Alternate Treasury Note Rate" on any date means the yield as calculated by
reference to the arithmetic average of the bid price quotations of the
actively traded, current coupon Treasury Note with a maturity most nearly
comparable to the length of the related Dividend Period, as determined by the
bid price quotations as of any time on the Business Day immediately preceding
such date, obtained from at least three recognized primary U.S. Government
securities dealers selected by the Auction Agent.



                                      28
<PAGE>

         "Valuation Date" means, for purposes of determining whether the
Corporation is maintaining the AMPS Basic Maintenance Amount and the Minimum
Liquidity Level, each Business Day commencing with the Date of Original Issue.

         "Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Corporation, the amount of cash or securities
paid to or received from a broker (subsequent to the Initial Margin payment)
from time to time as the price of such futures contract fluctuates.

         (b) The foregoing definitions of Accountant's Confirmation, AMPS
Basic Maintenance Amount, AMPS Basic Maintenance Cure Date, Amps Basic
Maintenance Report, Deposit Securities, Discounted Value, Dividend Coverage
Amount, Dividend Coverage Assets, Independent Accountants, Initial Margin,
Market Value, Minimum Liquidity Level, Moody's Discount Factor, Moody's
Eligible Asset, Moody's Exposure Period, Moody's Hedging Transactions, Moody's
Volatility Factor, S&P Discount Factor, S&P Eligible Asset, S&P Exposure
Period, S&P Hedging Transactions, S&P Volatility Factor, Valuation Date and
Variation Margin have been determined by the Board of Directors of the
Corporation in order to obtain a "aaa" rating from Moody's and a AAA rating
from S&P on the AMPS on their Date of Original Issue; and the Board of
Directors of the Corporation shall have the authority to adjust, modify, alter
or change from time to time the foregoing definitions and the restrictions and
guidelines set forth thereunder if Moody's and S&P or any Substitute Rating
Agency advises the Corporation in writing that such adjustment, modification,
alteration or change will not adversely affect their then-current ratings on
the AMPS.

         2. Dividends. (a) The Holders shall be entitled to receive, when, as
and if declared by the Board of Directors of the Corporation, out of funds
legally available therefore, cumulative



                                      29
<PAGE>

dividends each consisting of (i) cash at the Applicable Rate, (ii) a Right to
receive cash as set forth in paragraph 2(a) below, and (iii) any additional
amounts as set forth in paragraph 2(f) below, and no more, payable on the
respective dates set forth below. Dividends on the shares of AMPS so declared
and payable shall be paid (i) in preference to and in priority over any
dividends declared and payable on the Common Stock, and (ii) to the extent
permitted under the Code and to the extent available, out of net tax exempt
income earned on this Corporation's investments. To the extent permitted under
the Code, dividends on shares of AMPS will be designated as exempt-interest
dividends. For the purposes of this section. the term "net tax-exempt income"
shall exclude capital gains of the Corporation.

         (b) (i) Cash dividends on shares of AMPS shall accumulate from the
Date of Original Issue and shall be payable, when, as and if declared by the
Board of Directors, out of funds legally available therefore, commencing on
the First Initial Dividend Payment Date with respect to each series of AMPS.
Dividends on the AMPS during the Initial Dividend Period shall be payable on
each Initial Dividend Payment Date, except that if any Initial Dividend
Payment Date is not a Business Day, then the Dividend Payment Date shall be
the first Business Day next preceding such Initial Dividend Payment Date. If,
however, the Securities Depository shall make available to its participants
and members in funds immediately available in New York City on Initial
Dividend Payment Dates the amount due on dividends an such initial Dividend
Payment Dates (and the Securities Depository shall have so advised the
Corporation), and if the day that otherwise would be the Initial Dividend
Payment Date is not a Business Day, then the Dividend Payment Date shall be
the next succeeding Business Day. Following the Last Initial Dividend Payment
Date for each series of AMPS, dividends on such series of AMPS will be
payable, at the option of the Corporation, either (i) with respect to any
7-Day Dividend Period, any 28-day



                                      30
<PAGE>

Dividend Period and any Short Term Dividend Period of 35 or fewer days on the
day next succeeding the last day thereof, (ii) with respect to any Short Term
Dividend Period of more than 35 days and with respect to any Long Tom Dividend
Period, monthly on the first day of each calendar month during such Short Term
Dividend Period or Long Term Dividend Period and on the day next succeeding
the last day thereof (each such date referred to in clause (i) or (ii) being
herein referred to as a "Normal Dividend Payment Date"), except that if such
Normal Dividend Payment Date is not a Business Day, then the Dividend Payment
Date shall be the first Business Day next preceding such Normal Dividend
Payment Date. If, however, the Securities Depository shall make available to
its participants and members in funds immediately available in New York City
on Dividend Payment Dates the amount due as dividends on such Dividend Payment
Dates (and the Securities Depository shall have so advised the Corporation),
and if the Normal Dividend Payment Date is not a Business Day, then the
Dividend Payment Date shall be the next succeeding Business Day. Although any
particular Dividend Payment Date may not occur on the originally scheduled
date because of the exceptions discussed above, the next succeeding Dividend
Payment Date, subject to such exceptions, will occur on the next following
originally scheduled date. If for any reason a Dividend Payment Date cannot be
fixed as described above, then the Board of Directors shall fix the Dividend
Payment Date. The Initial Dividend Period, 7-day Dividend Periods, 28-day
Dividend Periods and Special Dividend Periods are hereinafter sometimes
referred to as Dividend Periods. Each dividend payment date determined as
provided above is hereinafter referred to as a "Dividend Payment Date."

               (ii) Each dividend shall be paid to the Holders as they appear
         in the Stock Register as of 12:00 noon, Now York City time, on the
         Business Day preceding the Dividend Payment Date. Dividends in
         arrears for any past Dividend Period may be



                                      31
<PAGE>

         declared and paid at any time, without reference to any regular
         Dividend Payment Date, to the Holders as they appear on the Stock
         Register on a date, not exceeding 15 days prior to the payment date
         therefore, as may be fixed by the Board of Directors of the
         Corporation.

         (c) (i) During the period from and including the Date of Original
Issue to but excluding the Last Initial Dividend Payment Date (the "Initial
Dividend Period"), the Applicable Rates shall be the Initial Dividend Rate.
Commencing on the Last Initial Dividend Payment Date, the Applicable Rate for
each subsequent dividend period (hereinafter referred to as a "Subsequent
Dividend Period"), which Subsequent Dividend Period shall commence on and
include a Dividend Payment Date and shall end on and include the calendar day
prior to the next Dividend Payment Date (or last Dividend Payment Date in a
Dividend Period if there is more than one Dividend Payment Date), shall be
equal to the rate per annum that results from implementation of the Auction
Procedures.

         The Applicable Dividend Rate for each Dividend Period commencing
during a Non-Payment Period shall be equal to the Non-Payment Period Rate; and
each Dividend Period, commencing after the first day of, and during, a
Non-Payment Period shall be a 28-day Dividend Period in the case of Series A
AMPS and Series C AMPS and a 7-Day Dividend Period in the case of Series B
AMPS and Series D AMPS, provided that if the preceding Dividend Period for
Series A AMPS and Series C AMPS is a Special Dividend Period of less than 28
days, the Dividend Period commencing during a Non-Payment Period will be the
same length as such preceding Dividend Period. Except in the case of the
willful failure of the Corporation to pay a dividend on a Dividend Payment
Date or to redeem any shares of AMPS on the date set for such redemption, any
amount of any dividend due on any Dividend Payment Date (if, prior to the



                                      32
<PAGE>

close of business on the second Business Day preceding such Dividend Payment
Date, the Corporation has declared such dividend payable on such Dividend
Payment Date to the Holders of such shares of AMPS as of 12:00 noon, New York
City time, on the Business Day preceding such Dividend Payment Date) or
redemption price with respect to any shares of AMPS not paid to such Holders
when due may be paid to such Holders in the same form of funds by 12:00 noon,
New York City time, on any of the first three Business Days after such
Dividend Payment Date or due date, as the case may be, provided that, such
amount is accompanied by a late charge calculated for such period of
non-payment at the Non-Payment Period Rate applied to the amount of such
non-payment based on the actual number of days comprising such period divided
by 365. In the case of a willful failure of the Corporation to pay a dividend
on a Dividend Payment Date or to redeem any Shares of AMPS on the date set for
such redemption, the preceding sentence shall not apply and the Applicable
Dividend Rate for the Dividend Period commencing during the Non-Payment Period
resulting from such failure shall be the Non-Payment Period Rate. For the
purposes of the foregoing, payment to a person in same-day funds on any
Business Day at any time shall be considered equivalent to payment to such
person in New York Clearing House (next-day) funds at the same time on the
preceding Business Day, and any payment made after 12:00 noon, New York City
time, on any Business Day shall be considered to have been made instead in the
same form of funds and to the same person before 12:00 noon, New York City
time, on the next Business Day.

               (ii) The amount of cash dividends per share of AMPS payable (if
         declared) on each Dividend Payment Date of the Initial Dividend
         Period, each 7-Day Dividend Period, each 28-day Dividend Period and
         each Short Term Dividend Period shall be computed by multiplying the
         Applicable Rate for such Dividend Period by a fraction, the
         numerator of



                                      33
<PAGE>

         which will be the number of days in such Dividend Period such share
         was outstanding and the denominator of which will be 365,
         multiplying the amount so obtained by $50,000, and rounding the
         amount so obtained to the nearest cent. During any Long Term
         Dividend Period, the amount of dividends per share payable on any
         Dividend Payment Date shall be computed on the basis of a year
         consisting of twelve 30-day months.

               (iii) With respect to each Dividend period that is a Special
         Dividend Period, the Corporation may, at its sole option and to the
         extent permitted by law, by telephonic and written notice (a
         "Request for Special Dividend Period") to the Auction Agent and to
         each Broker-Dealer, request that the next succeeding Dividend Period
         for a series of AMPS be a number of days (other than 28 in the case
         of Series A AMPS and Series C AMPS and other than seven in the case
         of Series B AMPS and Series D AMPS), evenly divisible by seven, and
         not fewer than seven or more than 364 in the case of a Short Term
         Dividend Period or one whole year or more but not greater than five
         years in the case of a Long Term Dividend Period, specified in such
         notice, provided that for any Auction occurring after the initial
         Auction, the Corporation may not give a Request for Special Dividend
         Period of greater than 28 days (and any such request shall be null
         and void) unless the Corporation has received written confirmation
         from Moody's and S&P that such action would not impair the ratings
         then assigned to the AMPS by Moody's and S&P and unless Sufficient
         Clearing Bids were made in the last occurring Auction and unless
         full cumulative dividends, any amounts due with respect to
         redemptions, and any Additional Dividends payable prior to such date
         have been paid in full. Such Request for Special Dividend Period, in
         the case of a Short Term Dividend Period, shall be given on



                                      34
<PAGE>

         or prior to the fourth Business Day but not more than seven Business
         Days prior to an Auction Date for a series of AMPS and, in the case
         of a Long Term Dividend Period, shall be given on or prior to the
         14th day but not more than 28 days prior to an Auction Date for the
         AMPS. Upon receiving such Request for Special Dividend Period, the
         Broker-Dealer(s) shall jointly determine whether, given the factors
         set forth below, it is advisable that the Corporation issue a Notice
         of Special Dividend Period for the series of AMPS as contemplated by
         such Request for Special Dividend Period and the Optional Redemption
         Price of the AMPS during such Special Dividend Period and the
         Specific Redemption Provisions and shall give the Corporation and
         the Auction Agent written notice (a "Response") of such
         determination by no later than the third Business Day prior to such
         Auction Date. In making such determination the Broker-Dealer(s) will
         consider (1) existing short-term and long-term market rates and
         indices of such short-term and long-term rates, (2) existing market
         supply and demand for short-term and long-term securities, (3)
         existing yield curves for short-term and long-term securities
         comparable to the AMPS, (4) industry and financial conditions which
         may affect the AMPS, (5) the investment objective of the
         Corporation, and (6) the Dividend Periods and dividend rates at
         which current and potential beneficial holders of the AMPS would
         remain or become beneficial holders. If the Broker-Dealer(s) shall
         not give the Corporation and the Auction Agent a Response by such
         third Business Day or if the Response states that given the factors
         set forth above it is not advisable that the Corporation give a
         Notice of Special Dividend Period for the series of AMPS, the
         Corporation may not give a Notice of Special Dividend Period in
         respect of such Request for Special Dividend Period. In the event
         the Response indicates that it is advisable that the Corporation
         give a Notice of



                                      35
<PAGE>

         Special Dividend Period for the series of AMPS, the Corporation may
         by no later than the second Business Day prior to such Auction Date
         give a notice (a "Notice of Special Dividend Period") to the Auction
         Agent, the Securities Depository and each Broker-Dealer which notice
         will specify (i) the duration of the Special Dividend Period, (ii)
         the Optional Redemption Price as specified in the related Response
         and (iii) the Specific Redemption Provisions, if any, as specified
         in the related Response. The Corporation shall not give a Notice of
         Special Dividend Period and, if the Corporation has given a Notice
         of Special Dividend Period, the Corporation is required to give
         telephonic and written notice of its revocation (a "Notice of
         Revocation") to the Auction Agent, each Broker-Dealer, and the
         Securities Depository on or prior to the Business Day prior to the
         relevant Auction Date if (x) either the 1940 Act AMPS Asset Coverage
         is not satisfied or the Corporation shall fail to maintain S&P
         Eligible Assets and Moody's Eligible Assets each with an aggregate
         Discounted Value at least equal to the AMPS Basic Maintenance
         Amount, in each case on each of the two Valuation Dates immediately
         preceding the Business Day prior to the relevant Auction Date on an
         actual basis and on a pro forma basis giving effect to the proposed
         Special Dividend Period (using as a pro forma dividend rate with
         respect to such Special Dividend Period the dividend rate which the
         Broker-Dealers shall advise the Corporation is an approximately
         equal rate for securities similar to the AMPS with an equal dividend
         period), provided that, in calculating the aggregate Discounted
         Value of Moody's Eligible Assets for this purpose, the Moody's
         Collateral Period shall be deemed to be one week longer, (y)
         sufficient funds for the payment of dividends payable on the
         immediately succeeding Dividend Payment Date have not been
         irrevocably deposited with the Auction Agent by the close of
         business on



                                      36
<PAGE>

         the third Business Day preceding the related Auction Date or (z) the
         Broker-Dealer(s) jointly advise the Corporation that after
         consideration of the factors listed above they have concluded that
         it is advisable to give a Notice of Revocation. If the Corporation
         is prohibited from giving a Notice of Special Dividend Period as a
         result of any of the factors enumerated in clause (x), (y) or (z) of
         the prior sentence or if the Corporation gives a Notice of
         Revocation with respect to a Notice of Special Dividend Period for
         any series of AMPS, the next succeeding Dividend Period for that
         series will be a 28-day Dividend Period in the case of Series A AMPS
         and Series C AMPS and a 7-Day Dividend Period in the case of Series
         B AMPS and Series D AMPS, provided that if the then-current Dividend
         Period for Series A AMPS or Series C AMPS is a Special Dividend
         Period of less than 28 days, the next succeeding Dividend Period for
         such series of AMPS will be the same length as such current Dividend
         Period. In addition, in the event Sufficient Clearing Bids are not
         made in the applicable Auction or such Auction is not held for any
         reason, such next succeeding Dividend Period will be a 28-day
         Dividend Period (in the case of Series A AMPS and Series C AMPS) or
         a 7-Day Dividend Period (in the case of Series B AMPS and Series D
         AMPS) and the Corporation may not again give a Notice of Special
         Dividend Period for the AMPS (and any such attempted notice shall be
         null and void) until Sufficient Clearing Bids have been made in an
         Auction with respect to a 28-day Dividend Period (in the case of
         Series A Amps and Series C AMPS) or a 7-Day Dividend Period (in the
         case of Series B AMPS and Series D AMPS).

         (d) (i) Holders shall not be entitled to any dividends, whether
payable in cash, property or stock, in excess of full cumulative dividends and
applicable late charge, as herein provided, on the shares of AMPS (except for
Additional Dividends as provided in paragraph 2(e)



                                      37
<PAGE>

hereof and additional payments as provided in paragraph 2(f) hereof). Except
for the late charge payable pursuant to paragraph 2(c)(i) hereof, no interest,
or sum of money in lieu of interest, shall be payable in respect of any
dividend payment on the shares of AMPS that may be in arrears.

               (ii) For so long as any share of AMPS is Outstanding, the
         Corporation shall not declare, pay or set apart for payment any
         dividend or other distribution (other than a dividend or
         distribution paid in shares of, or options, warrants or rights to
         subscribe for or purchase, Common Stock or other stock, if any,
         ranking junior to the shares of AMPS as to dividends or upon
         liquidation) in respect of the Common Stock or any other stock of
         the Corporation ranking junior to or on a parity with the shares of
         AMPS as to dividends or upon liquidation, or call for redemption,
         redeem, purchase or otherwise acquire for consideration any shares
         of the Common Stock or any other such junior stock (except by
         conversion into or exchange for stock of the Corporation ranking
         junior to the shares of AMPS as to dividends and upon liquidation)
         or any other such Parity Stock (except by conversion into or
         exchange for stock of the Corporation ranking junior to or on a
         parity with the shares of AMPS as to dividends and upon
         liquidation), unless (A) immediately after such transaction, the
         Corporation shall have S&P Eligible Assets and Moody's Eligible
         Assets each with an aggregate Discounted Value equal to or greater
         than the AMPS Basic Maintenance Amount and the Corporation shall
         maintain the 1940 Act AMPS Asset Coverage, (a) full cumulative
         dividends on shares of AMPS and shares of other AMPS due on or prior
         to the date of the transaction have been declared and paid or shall
         have been declared and sufficient funds for the payment thereof
         deposited with the Auction Agent, (C) any additional Dividend
         required to be paid under paragraph 2(e)



                                      38
<PAGE>

         below on or before the date of such declaration or payment has been
         paid and (D) the Corporation has redeemed the full number of shares
         of AMPS required to be redeemed by any provision for mandatory
         redemption contained herein.

         (e) Each dividend shall consist of (i) cash at the Applicable
Dividend Rate, (ii) an uncertificated right (a "Right") to receive an
Additional Dividend (as defined below), and (iii) any additional amounts as
set forth in paragraph 2(f) below.

         Each Right shall thereafter be independent of the Share or Shares of
AMPS on which the dividend was paid. The Corporation shall cause to be
maintained a record of each Right received by the respective Holders. A Right
may not be transferred other than by operation of law. If the Corporation
retroactively allocates any net capital gains or other taxable income to
shares of AMPS without having given advance notice thereof to the Auction
Agent as described in paragraph 2(f) hereof solely by reason of the fact that
such allocation is made as a result of the redemption of all or a portion of
the outstanding shares of AMPS or the liquidation of the Corporation (the
amount of such allocation referred to herein as a "Retroactive Taxable
Allocation"), the Corporation will, within 90 days (and generally within 60
days) after the end of the Corporation's fiscal year for which a Retroactive
Taxable Allocation is made, provide notice thereof to the Auction Agent and to
each holder of a Right applicable to such shares of AMPS (initially Cede & Co.
as nominee of The Depository Trust Company)'during such fiscal year at such
holder's address as the same appears or last appeared on the stock books of
the Corporation. The Corporation will, within 30 days after such notice is
given to the Auction Agent, pay to the Auction Agent (who will then distribute
to such holders of Rights), out of funds legally available therefore, an
amount equal to the aggregate Additional Dividend with respect to all
Retroactive Taxable Allocations made to such holders during the fiscal year in
question.



                                      39
<PAGE>

         An "Additional Dividends" means payment to a present or former holder
of shares of AMPS of an amount which, when taken together with the aggregate
amount of Retroactive Taxable Allocations made to such holder with respect to
the fiscal year in question, would cause such holder's dividends in dollars
from the aggregate of both the Retroactive Taxable Allocations and the
Additional Dividend to be equal to the dollar amount of the dividends which
would have been received by such holder if the amount of the aggregate
Retroactive Taxable Allocations would have been excludable from the gross
income of such holder. Such Additional Dividend shall be calculated (i)
without consideration being given to the time value of money; (ii) assuming
that no holder of shares of AMPS is subject to the Federal alternative minimum
tax with respect to dividends received from the corporation; and (iii)
assuming that each Retroactive Taxable Allocation would be taxable in the
hands of each holder of shares of AMPS at the Marginal Tax Rate in effect
during the fiscal year in question.

         (f) Except as provided below, whenever the Corporation intends to
include any net capital gains or other taxable income in any dividend on
shares of AMPS, the Corporation will notify the Auction Agent of the amount to
be so included at least five Business Days prior to the Auction Date on which
the Applicable Rate for such dividend is to be established. The Corporation
may also include such income in a dividend on shares of a series of AMPS
without giving advance notice thereof if it increases the dividend by an
additional amount calculated as if such income was a Retroactive Taxable
Allocation and the additional amount was an Additional Dividend.

         (g) No fractional shares of AMPS shall be issued.

         3. Liquidation Rights. Upon any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the Holders shall be
entitled to receive, out of the



                                      40
<PAGE>

assets of the Corporation available for distribution to shareholders, before
any distribution or payment is made upon any Common Stock or any other capital
stock ranking junior in right of payment upon liquidation to the AMPS, the sum
of $50,000 per share plus accumulated but unpaid dividends (whether or not
earned or declared) thereon to date of distribution, and after such payment
the holders of AMPS will be entitled to no other payments other than
Additional Dividends as provided in paragraph 2(e) hereof. If upon any
liquidation, dissolution or winding up of the Corporation, the amounts payable
with respect to the AMPS and any other Outstanding class or series of
Preferred Stock of the Corporation ranking on a parity with the AMPS as to
payment upon liquidation are not paid in full, the Holders and the holders of
such other class or series will share ratably in any such distribution of
assets in proportion to the respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the Holders will not be entitled to any further
participation in any distribution of assets by the Corporation except for any
Additional Dividends. A consolidation, merger or statutory share exchange of
the Corporation with or into any other corporation or entity or a sale,
whether for cash, shares of stock, securities or properties, of all or
substantially all or any part of the Assets of the Corporation shall not be
detailed or construed to be a liquidation, dissolution or winding up of the
Corporation.

         4. Redemption. (a) Shares of AMPS shall be redeemable by the
Corporation as provided below:

               (i) To the extent permitted under the 1940 Act and Maryland
         law, upon giving a Notice of Redemption, the Corporation at its
         option may redeem shares of AMPS, in whole or in part, out of funds
         legally available therefore, at the Optional Redemption Price per
         share, on any Dividend Payment Date; provided that no share of AMPS
         may be



                                      41
<PAGE>

         redeemed at the option of the Corporation during a Non-Call
         Period to which such share is subject. In addition, holders of AMPS
         which are redeemed shall be entitled to receive Additional Dividends
         to the extent provided herein. The Corporation may not give a Notice
         of Redemption relating to an optional redemption as described in
         this paragraph 4(a)(i) unless, at the time of giving such Notice of
         Redemption, the Corporation has available Deposit Securities with
         maturity or tender dates not later than the day preceding the
         applicable redemption date and having a value not less than the
         amount due to Holders by reason of the redemption of their shares of
         AMPS on such redemption date.

               (ii) The Corporation shall redeem, out of funds legally
         available therefore, at the Mandatory Redemption Price per share,
         shares of AMPS to the extent permitted under the 1940 Act and
         Maryland law, on a date fixed by the Board of Directors, if the
         Corporation fails to maintain S&P Eligible Assets and Moody's
         Eligible Assets each with an aggregate Discounted Value equal to or
         greater than the AMPS Basic Maintenance Amount as provided in
         paragraph 7(a) or to satisfy the 1940 Act AMPS Asset Coverage as
         provided in paragraph 6 and such failure is not cured on or before
         the AMPS Basic Maintenance Cure Date or the 1940 Act Cure Date
         (herein respectively referred to as a "Cure Date"), as the case may
         be. In addition, holders of AMPS so redeemed shall be entitled to
         receive Additional Dividends to the extent provided herein. The
         number of shares of AMPS to be redeemed shall be equal to the lesser
         of (i) the minimum number of shares of AMPS the redemption of which,
         if deemed to have occurred immediately prior to the opening of
         business on the Cure Date, together with all shares of other
         Preferred Stock subject to redemption or retirement, would result in
         the Corporation having S&P Eligible Assets and Moody's Eligible
         Assets each with an aggregate Discounted Value



                                      42
<PAGE>

         equal to or greater than the AMPS Basic Maintenance Amount or
         satisfaction of the 1940 Act AMPS Asset Coverage, as the case may
         be, on such Cure Date (provided that, if there is no such minimum
         number of shares of AMPS and shares of other Preferred Stock the
         redemption of which would have such result, all shares of AMPS and
         shares of other Preferred Stock then Outstanding shall be redeemed),
         and (ii) the maximum number of shares of AMPS, together with all
         shares of other Preferred Stock subject to redemption or retirement,
         that can be redeemed out of funds expected to be legally available
         therefore on such redemption date. In determining the number of
         shares of AMPS required to be redeemed in accordance with the
         foregoing, the Corporation shall allocate the number required to be
         redeemed which would result in the corporation having S&P Eligible
         Assets and Moody's Eligible Assets each with an aggregate Discounted
         Value equal to or greater than the AMPS Basic Maintenance Amount or
         satisfaction of the 1940 Act AMPS Asset coverage, as the case may
         be, pro rata among shares of AMPS of all series, Other AMPS and
         other Preferred Stock subject to redemption pursuant to provisions
         similar to those contained in this paragraph 4(a)(ii); provided
         that, shares of AMPS which may not be redeemed at the option of the
         Corporation due to the designation of a Non-Call Period applicable
         to such shares (A) will be subject to mandatory redemption only to
         the extent that other shares are not available to satisfy the number
         of shares required to be redeemed and (B) will be selected for
         redemption in an ascending order of outstanding number of days in
         the Non-Call Period (with shares with the lowest number of days to
         be redeemed first) and by lot in the event of shares having an equal
         number of days in such Non-Call Period. The Corporation shall effect
         such redemption on a Business Day which is not later than 35 days
         after such Cure Date, except that if the Corporation does not have



                                      43
<PAGE>

         funds legally available for the redemption of all of the required
         number of shares of AMPS and shares of other Preferred Stock which
         are subject to mandatory redemption or the Corporation otherwise is
         unable to effect such redemption on or prior to 35 days after such
         Cure Date, the Corporation shall redeem those shares of AMPS which
         it is unable to redeem on the earliest practicable date on which it
         is able to effect such redemption out of funds legally available
         therefore.

         (b) Notwithstanding any other provision of this paragraph 4, no
shares of AMPS may be redeemed pursuant to paragraph 4(a)(i) of those Articles
Supplementary (i) unless all dividends in arrears on all remaining outstanding
shares of Parity Stock shall have been or are being contemporaneously paid or
declared and set apart for payment and (ii) if redemption thereof would result
in the Corporation's failure to maintain Moody's Eligible Assets with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount. In the event that less than all the outstanding shares of a series of
AMPS are to be redeemed and there is more than one Holder, the shares of that
series of AMPS to be redeemed shall be selected by lot or such other method as
the corporation shall deem fair and equitable.

         (c) Whenever shares of AMPS are to be redeemed, the Corporation, not
less than 20 nor more than 30-days prior to the date fixed for redemption,
shall mail a notice ("Notice of Redemption") by first-class mail, postage
prepaid, to each Holder of shares of AMPS to be redeemed and to the Auction
Agent. The Corporation shall cause the Notice of Redemption to also be
published in the eastern and national editions of The Wall Street Journal. The
Notice of Redemption shall set forth (i) the redemption date, (ii) the amount
of the redemption price, (iii) the aggregate number of shares of AMPS of such
series to be redeemed, (iv) the place or places where shares of AMPS of such
series are to by surrendered for payment of the redemption price,



                                      44
<PAGE>

(v) a statement that dividends on the shares to the redeemed shall cease to
accumulate on such redemption date (except that holders may be entitled to
Additional Dividends) and (vi) the provision of these Articles Supplementary
pursuant to which such shares are being redeemed. No defect in the Notice of
Redemption or in the mailing or publication thereof shall affect the validity
of the redemption proceedings, except as required by applicable law.

         If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Corporation shall have deposited in trust with
the Auction Agent a cash amount equal to the redemption payment for the shares
of AMPS as to which such Notice of Redemption has been given with irrevocable
instructions and authority to pay the redemption price to the Holders of such
shares, then upon the date of such deposit or, if no such deposit is made,
then upon such date fixed for redemption (unless the Corporation shall default
in making the redemption payment), all rights of the Holders of such shares as
shareholders of the Corporation by reason of the ownership of such shares will
cease and terminate (except their right to receive the redemption price in
respect thereof and any Additional Dividends, but without interest), and such
shares shall no longer be deemed outstanding. The Corporation shall be
entitled to receive, from time to time, from the Auction Agent the interest,
if any, on such moneys deposited with it and the Holders of any shares so
redeemed shall have no claim to any of such interest. In case the Holder of
any shares so called for redemption shall not claim the redemption payment for
his shares within one year after the date of redemption, the Auction Agent
shall, upon demand, pay over to the Corporation such amount remaining on
deposit and the Auction Agent shall thereupon be relieved of all
responsibility to the Holder of such shares called for redemption and such
Holder thereafter shall look only to the Corporation for the redemption
payment.



                                      45
<PAGE>

         5. Voting Rights. (a) General. Except as otherwise provided in the
charter or By-Laws, each Holder of shares of AMPS shall be entitled to one
vote for each share held in each matter submitted to a vote of shareholders of
the Corporation, and the holders of outstanding shares of Preferred Stock,
including AMPS, and of shares of Common Stock shall vote together as a single
class; provided that, at any meeting of the shareholders of the Corporation
held for the election of directors, the holders of outstanding shares of
Preferred Stock, including AMPS, shall be entitled, as a class, to the
exclusion of the holders of all other securities and classes of capital stock
of the Corporation, to elect two directors of the Corporation. Subject to
paragraph 5(b) hereof, the holders of outstanding shares of capital stock of
the Corporation, including the holders of outstanding shares of Preferred
Stock, including AMPS, voting as a single class, shall elect the balance of
the directors.

         (b) Right to elect Majority of Board of Directors. During any period
in which any one or more of the conditions described below shall exist (such
period being referred to herein as a "Voting Period"), the number of directors
constituting the Board of Directors shall be automatically increased by the
smallest number that, when added to the two directors elected exclusively by
the holders of shares of Preferred Stock, would constitute a majority of the
Board of Directors as so increased by such smallest number; and the holders of
shares of Preferred Stock shall be entitled, voting separately as one class
(to the exclusion of the holders of all other securities and classes of
capital stock of the Corporation), to elect such smallest number of additional
directors, together with the two directors that such holders are in any event
entitled to elect. A Voting Period shall commence:

               (i) if at any time accumulated dividends (whether or not earned
         or declared, and whether or not funds are then legally available in
         an amount sufficient therefore) on the



                                      46
<PAGE>

         outstanding shares of AMPS equal to at least two full year's
         dividends shall be due and unpaid and sufficient cash or specified
         securities shall not have been deposited with the Auction Agent for
         the payment of such accumulated dividends;

               or

               (ii) if at any time holders of any other shares of Preferred
          Stock are entitled to elect a majority of the directors of the
          Corporation under the 1940 Act.

         Upon the termination of a voting period, the voting rights described
in this paragraph 5(b) shall cease, subject always, however, to the reverting
of such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).

         (c) Right to Vote with Respect to Certain Other Matters. So long as
any shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of Preferred Stock
Outstanding at the time, voting separately as one class: (i) authorize, create
or issue, or increase the authorized or issued amount of, any class or series
of stock ranking prior to or on a parity with any series of Preferred Stock
with respect to payment of dividends or the distribution of assets on
liquidation, or increase the authorized amount of AMPS or any other Preferred
Stock, or (ii) amend, alter or repeal the provisions of the Charter, whether
by merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the charter of holders of shares of
AMPS or any other Preferred Stock. To the extent permitted under the 1940 Act,
in the event shares of more than one series of AMPS are outstanding, the
Corporation shall not approve any of the actions set forth in clause (i) or
(ii) which adversely affects the contract rights expressly set forth in the
Charter of a Holder of shares of a series of AMPS differently than those of a
Holder of shares of any other series of AMPS without the affirmative vote of
the holders of at least a majority of the shares of AMPS of each series
adversely affected and outstanding at such time (each such adversely affected
series voting



                                      47
<PAGE>

separately as a class). The Corporation shall notify Moody's and S&P ten
Business Days prior to any such vote described in clause (i) or (ii). Unless a
higher percentage is provided for under the charter, the affirmative vote of
the holders of a majority of the outstanding shares of Preferred Stock,
including AMPS, voting together as a single class, will be required to approve
any plan of reorganization (including bankruptcy proceedings) adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act. The class vote of holders of shares of
Preferred Stock, including AMPS, described above will in each case be in
addition to a separate vote of the requisite percentage of shares of Common
Stock and shares of Preferred Stock, including AMPS, voting together as a
single class necessary to authorize the action in question.

         (d) Voting Procedures.

               (i) As soon as practicable after the accrual of any right of
         the holders of shares of Preferred Stock to elect additional
         directors as described in paragraph 5(b) above, the Corporation
         shall call a special meeting of such holders and instruct the
         Auction Agent to mail a notice of such special meeting to such
         holders, such meeting to be held not less than 10 nor more than 20
         days after the date of mailing of such notice. If the Corporation
         fails to send such notice to the Auction Agent or if the Corporation
         does not call such a special meeting, it may be called by any such
         holder on like notice. The record date for determining the holders
         entitled to notice of and to vote at such special meeting shall be
         the close of business on the fifth Business Day preceding the day on
         which such notice is mailed. At any such special meeting and at each
         meeting held during a Voting Period, such Holders, voting together
         as a class (to the exclusion of the holders of all other securities
         and classes of capital stock of the Corporation), shall be entitled
         to elect the



                                      48
<PAGE>

         number of directors prescribed in paragraph 5(b) above.  At any such
         meeting or adjournment thereof in the absence of a quorum, a majority
         of such holders present in person or by proxy shall have the power
         to adjourn the meeting without notice, other than by an announcement
         at the meeting, to a date not more than 120 days after the original
         record date.

               (ii) For purposes of determining any rights of the Holders to
         vote on any matter or the number of shares required to constitute a
         quorum, whether such right is created by these Articles
         Supplementary, by the other provisions of the Charter, by statute or
         otherwise, a share of AMPS which is not Outstanding shall not be
         counted.

               (iii) The terms of office of all persons who are directors of
         the Corporation at the time of a special meeting of Holders and
         holders of other Preferred Stock to elect directors shall continue,
         notwithstanding the election at such meeting by the Holders and such
         other holders of the number of directors that they are entitled to
         elect, and the persons so elected by the Holders and such other
         holders, together with the two incumbent directors elected by the
         Holders and such other holders of Preferred Stock and the remaining
         incumbent directors elected by the holders of the Common Stock and
         Preferred Stock, shall constitute the duly elected directors of the
         Corporation.

               (iv) simultaneously with the expiration of a Voting Period, the
         terms of office of the additional directors elected by the Holders
         and holders of other Preferred Stock pursuant to paragraph 5(b)
         above shall terminate, the remaining directors shall constitute the
         directors of the corporation and the voting rights of the Holders
         and such other holders to elect additional directors pursuant to
         paragraph 5(b) above shall cease, subject to the provisions of the
         last sentence of paragraph 5(b)(ii).



                                      49
<PAGE>

               (e) Exclusive Remedy. Unless otherwise required by law, the
         Holders of shares of AMPS shall not have any rights or preferences
         other than those specifically set forth herein. The Holders of
         shares of AMPS shall have no preemptive rights or rights to
         cumulative voting. In the event that the Corporation fails to pay
         any dividends on the shares of AMPS, the exclusive remedy of the
         Holders shall be the right to vote for directors pursuant to the
         provisions of this paragraph 5.

               (f) Notification to S&P and Moody's. In the event a vote of
         Holders of AMPS is required pursuant to the provisions of Section
         13(a) of the 1940 Act, the Corporation shall, not later than ten
         Business Days prior to the date on which such vote is to be taken,
         notify S&P and Moody's that such vote is to be taken and the nature
         of the action with respect to which such vote is to be taken and,
         not later than ten Business Days after the date on which such vote
         is taken, notify S&P and Moody's of the result of such vote.

         6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as
of the last Business Day of each month in which any share of AMPS is
outstanding, the 1940 Act AMPS Asset Coverage.

         7. AMPS Basic Maintenance Amount. (a) The Corporation shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date, (i) S&P Eligible Assets having an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount and (ii) Moody's Eligible Assets having an aggregate Discounted Value
equal to or greater than the AMPS Basic Maintenance Amount. Upon any failure
to maintain the required Discounted Value, the Corporation will use its best
efforts to alter the composition of its portfolio to retain the AMPS Basic
Maintenance Amount on or prior to the AMPS Basic Maintenance Cure Date.



                                      50
<PAGE>

         (b) on or before 5:00 p.m., New York city time, on the third Business
Day after a Valuation Date on which the Corporation fails to satisfy the AMPS
Basic Maintenance Amount, the Corporation shall complete and deliver to the
Auction Agent, and Moody's and S&P, as the case may be, a complete AMPS Basic
Maintenance Report as of the date of such failure, which will be deemed to
have been delivered to the Auction Agent if the Auction Agent receives a copy
or telecopy, telex or other electronic transcription thereof and on the same
day the Corporation mails to the Auction Agent for delivery on the next
Business Day the complete AMPS Basic Maintenance Report. The Corporation will
deliver an AMPS Basic Maintenance Report to the Auction Agent and Moody's and
S&P, as the case may be, on or before 5:00 p.m., New York City time, on the
third Business Day after a Valuation Date on which the Corporation cures its
failure to maintain Moody's Eligible Assets or S&P Eligible Assets, as the
case may be, with an aggregate Discounted Value equal to or greater than the
AMPS Basic Maintenance Amounts or on which the Corporation fails to maintain
Moody's Eligible Assets or S&P Eligible Assets, as the case may be, with an
aggregate Discounted Value which exceeds the AMPS Basic Maintenance Amount by
5% or more. The Corporation will also deliver an AMPS Basic Maintenance Report
to the Auction Agent, Moody's and S&P as of each Quarterly Valuation Date on
or before the third Business Day after such date. Whenever the Corporation
delivers an AMPS Basic Maintenance Report to S&P pursuant to this paragraph
7(b), it shall also deliver a Certificate of Minimum Liquidity to S&P and the
Auction Agent. The Corporation shall also provide Moody's and S&P with an AMPS
Basic Maintenance Report when specifically requested by either Moody's or S&P.
A failure by the Corporation to deliver an AMPS Basic Maintenance Report under
this paragraph 7(b) shall be deemed to be delivery of an AMPS Basic
Maintenance Report indicating the Discounted Value for S&P Eligible Assets and
Moody's



                                      51
<PAGE>

Eligible Assets of the Corporation is less than the AMPS Basic Maintenance
Amount, as of the relevant Valuation Date.

         (c) Within ten Business Days after the date of delivery of an AMPS
Basic Maintenance Report and a Certificate of Minimum Liquidity in accordance
with paragraph 7(b) above relating to a Quarterly Valuation Date, the
Independent Accountant will confirm in writing to the Auction Agent, S&P and
Moody's (i) the mathematical accuracy of the calculations reflected in such
Report (and in any other AMPS Basic Maintenance Report, randomly selected by
the Independent Accountant, that was delivered by the Corporation during the
quarter ending on such Quarterly Valuation Date) and (with respect to S&P only
while S&P is rating the AMPS) Certificate, (ii) that, in such Report (and in
such randomly selected Report), the Corporation correctly determined the
assets of the Corporation which constitute S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, at such Quarterly Valuation Date in
accordance with these Articles Supplementary, (iii) that, in such Report (and
in such randomly selected Report), the Corporation determined whether the
Corporation had, at such Quarterly Valuation Date (and at the Valuation Date
addressed in such randomly-selected Report) in accordance with these Articles
Supplementary, S&P Eligible Assets of an aggregate Discounted Value at least
equal to the AMPS Basic Maintenance amount and Moody's Eligible Assets of an
aggregate Discounted Value at least equal to the AMPS Basic Maintenance
Amount, (iv) that (with respect to S&P only) in such Certificate, the
Corporation determined the Minimum Liquidity Level and the Corporation's
Deposit Securities in accordance with these Articles Supplementary, including
maturity or tender date, (v) with respect to the S&P rating on Municipal
Bonds, the issuer name, issue size and coupon rate listed in such Report and
(with respect to S&P only) such Certificate, that the Independent Accountant
has requested that S&P verify such information and the



                                      52
<PAGE>

Independent Accountant shall provide a listing in its letter of any
differences, (vi) with respect to the Moody's ratings on Municipal Bonds, the
issuer name, issue size and coupon rate listed in such Report and (with
respect to S&P only) such Certificate, that such information has been verified
by Moody's (in the event such information is not verified by Moody's the
Independent Accountant will inquire of Moody's what such information is, and
provide a listing in its letter of any differences), (vii) with respect to the
bid or mean price (or such alternative permissible factor used in calculating
the Market Value) provided by the custodian of the Corporation's assets to the
Corporation for purposes of valuing securities in the Corporation's portfolio,
the Independent Accountant has traced the price used in such Report and (with
respect to S&P only) such Certificate to the bid or mean price listed in such
Report and (with respect to S&P only) such Certificate as provided to the
Corporation and verified that such information agrees (in the event such
information does not agree, the Independent Accountant will provide a listing
in its letter of such differences) and (viii) with respect to such
confirmation to Moody's, that the Corporation has satisfied the requirements
of Paragraph 9(b) of these Articles Supplementary (such confirmation is herein
called the "Accountant's Confirmation").

         (d) Within ten Business Days after the date of delivery to the
Auction Agent, S&P and Moody's of an AMPS Basic Maintenance Report in
accordance with paragraph 7(b) above relating to any Valuation Date on which
the Corporation failed to maintain S&P Eligible Assets with an aggregate
Discounted Value and Moody's Eligible Assets with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount, and relating
to the AMPS Basic Maintenance Cure Date with respect to such failure, the
Independent Accountant will provide to the Auction Agent, S&P and Moody's an
Accountant's Confirmation as to such AMPS Basic Maintenance Report.



                                      53
<PAGE>

         (e) If any Accountant's Confirmation delivered pursuant to
subparagraph (c) or (d) of this paragraph 7 shows that an error was made in
the AMPS Basic Maintenance Report for a particular Valuation Date for which
such Accountant's Confirmation as required to be delivered, or shows that a
lower aggregate Discounted Value for the aggregate of all S&P Eligible Assets
or Moody's Eligible Assets, as the case may be, of the Corporation was
determined by the Independent Accountant, the calculation or determination
made by such Independent Accountant shall be final and conclusive and shall be
binding on the Corporation, and the Corporation shall accordingly amend and
deliver the AMPS Basic Maintenance Report to the Auction Agent, S&P and
Moody's promptly following receipt by the Corporation of such Accountant's
Confirmation.

         (f) On or before 5:00 p.m., Now York City time, on the first Business
Day after the Date of Original Issue of the shares of AMPS, the Corporation
will complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report
as of the close of business on such Date of Original Issue. Within five
Business Days of such Date of Original Issue, the Independent Accountant will
confirm in writing to S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report and (ii) that the aggregate Discounted
Value of S&P Eligible Assets and the aggregate Discounted Value of Moody's
Eligible Assets reflected thereon equals or exceeds the AMPS Basic Maintenance
Amount reflected thereon. Also, on or before 5:00 p.m., Near York City time,
on the first Business Day after shares of Common Stock are repurchased by the
Corporation, the Corporation will complete and deliver to S&P and Moody's an
AMPS Basic Maintenance Report as of the close of business on such date that
Common Stock is repurchased.

         (g) For so long as shares of AMPS are rated by Moody's, in managing
the Corporation's portfolio, the adviser will not alter the composition of the
Corporation's portfolio if, in the



                                      54
<PAGE>

reasonable belief of the adviser, the effect of any such alteration would be
to cause the Corporation to have Moody's Eligible Assets with an aggregate
Discounted Value, as of the immediately preceding Valuation Date, less than
the AMPS Basic Maintenance Amount as of such Valuation Date; provided,
however, that in the event that, as of the immediately Preceding Valuation
Date, the aggregate Discounted Value of Moody's Eligible Assets exceeded the
AMPS Basic Maintenance Amount by five percent or less, the adviser will not
alter the composition of the Corporation's portfolio in a manner reasonably
expected to reduce the aggregate Discounted Value of Moody's Eligible Assets
unless the Corporation shall have confirmed that, after giving effect to such
alteration, the aggregate Discounted Value of Moody's Eligible Assets would
exceed the AMPS Basic Maintenance Amount.

         8. Minimum Liquidity Level. (a) For so long as any shares of AMPS are
rated by S&P, the Corporation shall be required to have, as of each Valuation
Date, Dividend Coverage Assets having in the aggregate a Market Value not less
than the Dividend Coverage Amount.

         (b) As of each Valuation Date as long as any shares of AMPS are rated
by S&P, the Corporation shall determine (i) the Market Value of the Dividend
Coverage Assets owned by the Corporation as of that Valuation Date, (ii) the
Dividend Coverage Amount on that Valuation Date, and (iii) whether the Minimum
Liquidity Level is met as of that Valuation Date. The calculations of the
Dividend Coverage Assets, the Dividend Coverage Amount and whether the Minimum
Liquidity Level is met shall be set forth in a certificate (a "Certificate of
Minimum Liquidity") dated as of the Valuation Date. The AMPS Basic Maintenance
Report and the Certificate of Minimum Liquidity may be combined in one
certificate. The Corporation shall cause the Certificate of Minimum Liquidity
to be delivered to S&P not later than the close of



                                      55
<PAGE>

business on the third Business Day after the Valuation Date applicable to such
Certificate pursuant to paragraph 7(b). The Minimum Liquidity Level shall be
deemed to be met as of any date of determination if the Corporation has timely
delivered a Certificate of Minimum Liquidity relating to such date which
states that the same has been met and which is not manifestly inaccurate. In
the event that a certificate of Minimum Liquidity is not delivered to S&P when
required, the Minimum Liquidity Level shall be deemed met to have been not as
of the applicable date.

         (c) if the Minimum Liquidity Level is met as of any Valuation Date,
then the Corporation shall purchase or otherwise acquire Dividend Coverage
Assets to the extent necessary so that the Minimum Liquidity Level is met as
of the fifth Business Day following such Valuation Date. The Corporation
shall, by such fifth Business Day, provide to S&P a Certificate of Minimum
Liquidity setting forth the calculations of the Dividend Coverage Assets and
the Dividend Coverage Amount and showing that the Minimum Liquidity Level is
met as of such fifth Business Day together with a report of the custodian of
the Corporation's assets confirming the amount of the Corporation's Dividend
Coverage Assets as of such fifth Business Day.

         9. Certain Other Restrictions.

         (a) For so long as any shares of AMPS are rated by S&P, the
Corporation will not purchase or sell futures contracts, write, purchase or
sell options on futures contracts or write put options (except covered put
options) or call options (except covered call options) on portfolio securities
unless it receives written confirmation from S&P that engaging in such
transactions will not impair the ratings then assigned to the shares of AMPS
by S&P, except that the Corporation may purchase or sell futures contracts
based on the Bond Buyer Municipal Bond



                                      56
<PAGE>

Index (the "Municipal Index") or United States Treasury Bonds with remaining
maturities of ten years of more ("Treasury Bonds") and write, purchase or sell
put and call options on such contracts (collectively, "S&P Hedging
Transactions"), subject to the following limitations:

               (i) the corporation will not engage in any S&P Hedging
         Transaction based on the Municipal Index (other than transactions
         which terminate a futures contract or option held by the Corporation
         by the Corporation's taking an opposite position thereto ("Closing
         Transactions")), which would cause the Corporation at the time of
         such transaction to own or have sold the least of (A) more than
         1,000 outstanding futures contracts based on the Municipal Index,
         (B) outstanding futures contracts based on the Municipal Index
         exceeding in number 25% of the quotient of the Market Value of the
         Corporation's total assets divided by $100,000 or (C) outstanding
         futures contracts based on the Municipal Index exceeding in number
         10% of the average number of daily traded futures contracts based on
         the Municipal Index in the 30 days preceding the time of effecting
         such transaction as reported by The Wall Street Journal;

               (ii) the corporation will not engage in any S&P Hedging
         Transaction based on Treasury Bonds (other than Closing
         Transactions) which would cause the Corporation at the time of such
         transaction to own or have sold the lesser of (A) outstanding
         futures contracts based on Treasury Bonds and on the Municipal Index
         exceeding in number 25% of the quotient of the Market Value of the
         Corporation's total assets divided by $100,000 or (B) outstanding
         futures contracts based on Treasury Bonds exceeding in number 10% of
         the average number of daily traded futures contracts based on
         Treasury Bonds in the 30 days preceding the time of effecting such
         transaction as reported by The Wall Street Journal;



                                      57
<PAGE>

               (iii) the Corporation will engage in Closing Transactions to
         close out any outstanding futures contract which the Corporation
         owns or has sold or any outstanding option thereon owned by the
         Corporation in the event (A) the Corporation does not have S&P
         Eligible Assets with an aggregate Discounted Value equal to or
         greater than the AMPS Basic Maintenance Amount on two consecutive
         Valuation Dates and (B) the Corporation is required to pay Variation
         Margin on the second such Valuation Date;

               (iv) the Corporation will engage in a Closing Transaction to
         close out any outstanding futures contract or option thereon in the
         month prior to the delivery month under the terms of such futures
         contract or option thereon unless the Corporation holds the
         securities deliverable under such terms; and

               (v) when the corporation writes a futures contract or option
         thereon, it will either maintain an amount of cash, cash equivalents
         or short-term, fixed-income securities in a segregated account with
         the Corporation's custodian, so that the amount so segregated plus
         the amount of Initial Margin and Variation Margin held in the
         account of or on behalf of the Corporation's broker with respect to
         such futures contract or option equals the Market Value of the
         futures contract or option, or, in the event the Corporation writes
         a futures contract or option thereon which requires delivery of an
         underlying security, it shall hold such underlying security in its
         portfolio.

         For purposes of determining whether the Corporation has S&P Eligible
Assets with a Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of cash or securities held for the
payment of Initial Margin or Variation Margin shall be zero and the aggregate
Discounted Value of S&P Eligible Assets shall be reduced by an amount equal to
(i) 30% of the aggregate settlement value, as marked to market, of any
outstanding



                                      58
<PAGE>

futures contracts based on the Municipal Index which are owned by the
Corporation plus (ii) 25% of the aggregate settlement value, as marked to
market, of any outstanding futures contracts based on Treasury Bonds which
contracts are owned by the Corporation.

         (b) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not buy or sell futures contracts, write, purchase or sell
call options on futures contracts or purchase put options on futures contracts
or write call options (except covered call options) on portfolio securities
unless it receives written confirmation from Moody's that engaging in such
transactions would not impair the ratings then assigned to the shares of AMPS
by Moody's, except that the Corporation may purchase or sell exchange-traded
futures contracts based on the Municipal Index or Treasury Bonds and purchase,
write or sell exchange-traded put options on such futures contracts and
purchase, write or sell exchange-traded call options on such futures contracts
(collectively, "Moody's Hedging Transactions"), subject to the following
limitations:

               (i) the Corporation will not engage in any Moody's Hedging
         Transaction based on the Municipal Index (other than Closing
         Transactions) which would cause the Corporation at the time of such
         transaction to own or have sold (A) outstanding futures contracts
         based on the Municipal Index exceeding in number 10% of the average
         number of daily traded futures contracts based on the Municipal
         Index in the 30 days preceding the time of effecting such
         transaction as reported by The Wall Street Journal or (B)
         outstanding futures contracts based on the Municipal Index having a
         Market Value exceeding the Market Value of all Moody's Eligible
         Assets owned by the Corporation (other than Moody's Eligible Assets
         already subject to a Moody's Hedging Transaction);

               (ii) the Corporation will not engage in any Moody's Hedging
         Transaction based on Treasury Bonds (other than Closing
         Transactions) which would cause the Corporation



                                      59
<PAGE>

         at the time of such transaction to own or have sold (A) outstanding
         futures contracts based on Treasury Bonds having an aggregate Market
         Value exceeding 40% of the aggregate Market Value of Moody's
         Eligible Assets owned by the Corporation and rated Aa by Moody's
         (or, if not rated by Moody's but rated by S&P, rated AAA by S&P) or
         (B) outstanding futures contracts based on Treasury Bonds having an
         aggregate Market Value exceeding 80% of the aggregate Market Value
         of all Moody's Eligible Assets owned by the Corporation (other than
         Moody's Eligible assets already subject to a Moody's Hedging
         Transaction) and rated Baa or A by Moody's (or, if not rated by
         Moody's but rated by S&P, rated A or AA by S&P) (for purposes of the
         foregoing clauses (i) and (ii), the Corporation shall be deemed to
         own the number of futures contracts that underlie any outstanding
         options written by the Corporation);

               (iii) the Corporation will engage in Closing Transactions to
         close out any outstanding futures contract based on the Municipal
         Index if the amount of open interest in the Municipal Index as
         reported by The Wall Street Journal is less than 5,000;

               (iv) the Corporation will engage in a Closing Transaction to
         close out any outstanding futures contract by no later than the
         fifth Business Day of the month in which such contract expires and
         will engage in a Closing Transaction to close out any outstanding
         option on a futures contract by no later than the first Business Day
         of the month in which such option expires;

               (v) the Corporation will engage in Moody's Hedging Transactions
         only with respect to futures contracts or options thereon having the
         next settlement date or the settlement date immediately thereafter;



                                      60
<PAGE>

               (vi) in the event the Corporation writes a futures contract or
         option' thereon which requires delivery of an underlying security,
         it shall hold such underlying security in its portfolio;

               (vii) the Corporation will not engage in options and futures
         transactions for leveraging or speculative purposes and will not
         write any call options or sell any futures contracts for the purpose
         of hedging the anticipated purchase of an asset prior to completion
         of such purchase; and

               (viii) the Corporation will not enter into an option or futures
         transaction unless, after giving effect thereto, the Corporation
         would continue to have Moody's Eligible Assets with an aggregate
         Discounted value equal to or greater than the AMPS Basic Maintenance
         Amount.

         For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Corporation is obligated to deliver or receive pursuant to an
outstanding futures contract or option shall be as follows: (i) assets subject
to call options written by the Corporation which are either exchange-traded
and "readily reversible" or which expire within 49 days after the date as of
which such valuation is made shall be valued at the lesser of (a) Discounted
Value and (b) the exercise price of the call option written by the
Corporation; (ii) assets subject to call options written by the Corporation
not meeting the requirements of clause (i) of this sentence shall have no
value; (iii) assets subject to put options written by the Corporation shall be
valued at the lesser of (A) the exercise price and (B) the Discounted Value of
the subject security; (iv) futures contracts shall be valued at the lesser of
(A) settlement price and (B) the Discounted Value of the subject security,
provided that,



                                      61
<PAGE>

if a contract matures within 49 days after the date as of which such valuation
is made, where the Corporation is the seller the contract may be valued at the
settlement price and where the Corporation is the buyer the contract may be
valued at the Discounted Value of the subject securities and (v) where
delivery may be made to the Corporation with any security of a class of
securities, the Corporation shall assume that it will take delivery of the
security with the lowest Discounted Value.

         For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the following amounts shall be subtracted from
the aggregate Discounted Value of the Moody's Eligible Assets held by the
Corporation: (i) 10% of the exercise price of a written call option; (ii) the
exercise price of any written put option; (iii) where the Corporation is the
seller under a futures contract, 10% of the settlement price of the futures
contract; (iv) where the Corporation is the purchaser under a futures
contract, the settlement price of assets purchased under such futures
contract; (v) the settlement price of the underlying futures contract if the
Corporation writes put options on a futures contract; and (vi) 105% of the
Market Value of the underlying futures contracts if the Corporation writes
call options on a futures contract and does not own the underlying contract.

         (c) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not enter into any contract to purchase securities for a
fixed price at a future date beyond customary settlement time (other than such
contracts that constitute Moody's Hedging Transactions that are permitted
under paragraph 9(b) of these Articles Supplementary), except that the
Corporation may enter into such contracts to purchase newly issued securities
on the date such securities are issued ("Forward Commitments"), subject to the
following limitations:



                                      62
<PAGE>

               (i) the Corporation will maintain in a segregated account with
         its custodian cash, cash equivalents or short-term, fixed-income
         securities rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior
         to the date of the Forward Commitment with a Market Value that
         equals or exceeds the amount of the Corporation's obligations under
         any Forward Commitments to which it is from time to time a party or
         long-term fixed income securities with a Discounted Value that
         equals or exceeds the amount of the Corporation's obligations under
         any Forward Commitment to which it is from time to time a party; and

               (ii) the Corporation will not enter into a Forward Commitment
         unless, after giving effect thereto the Corporation would continue
         to have Moody's Eligible Assets with an aggregate Discounted Value
         equal to or greater than the AMPS Basic Maintenance Account.

         For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of all Forward Commitments
to which the Corporation is a party and of all securities deliverable to the
Corporation pursuant to such Forward Commitments shall be zero.

         (d) For so long as shares of AMPS are rated by S&P of Moody's, the
Corporation will not, unless it has received written confirmation from S&P
and/or Moody's, as the case may be, that such action would not impair the
ratings then assigned to shares of AMPS by S&P and/or Moody's, as the case may
be, (i) borrow money except for the purpose of clearing transactions in
portfolio securities (which borrowings shall under any circumstances be
limited to the lesser of $10 million and an amount equal to 5% of the Market
Value of the Corporation's assets at the time of such borrowings and which
borrowings shall be repaid within 60 days and not be



                                      63
<PAGE>

extended or renewed), (ii) engage in short sales of securities, (iii) lend any
securities, (iv) issue any class or series of stock ranking prior to or on a
parity with the AMPS with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the
Corporation, (v) reissue any AMPS previously purchased or redeemed by the
Corporation, (vi) merge or consolidate into or with any other corporation or
entity, (vii) change the Pricing Service or (viii) engage in reverse
repurchase agreements.

         10. Notice. All notices or communications, unless otherwise specified
in the By-Laws of the Corporation or these Articles Supplementary, shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid. Notice shall be deemed given on the earlier
of the date received or the date seven days after which such notice is mailed.

         11. Auction Procedures. (a) Certain definitions. As used in this
paragraph 11, the following terms shall have the following meanings, unless
the context otherwise requires:

               (i) "AMPS" means the shares of AMPS being auctioned pursuant to
         this paragraph 11.

               (ii) "Auction Date" means the first Business Day preceding the
         first day of a Dividend Period.

               (iii) "Available AMPS" has the meaning specified in paragraph
         11(d)(i) below.

               (iv) "Bid" has the meaning specified in paragraph 11(b)( i)
         below.

               (v) "Bidder" has the meaning specified in paragraph 11(b)( i)
         below.

               (vi) "Hold order" has the meaning specified in paragraph
         11(b)(i) below.

               (vii) "Maximum Applicable Rate" for any Dividend Period will be
         the Applicable Percentage of the Reference Rate. The Applicable
         Percentage will be determined based on (i) the lower of the credit
         rating or ratings assigned on such date to



                                      64
<PAGE>

         such shares by Moody's and S&P (or if Moody's or S&P or both shall
         not make such rating available, the equivalent of either or both of
         such ratings by a substitute Rating Agency or two Substitute Rating
         Agencies or, in the event that only one Such rating shall be
         available, such rating) and (ii) whether the Corporation has
         provided notification to the Auction Agent prior to the Auction
         establishing the Applicable Rate for any dividend pursuant to
         paragraph 2(f) hereof that net capital gains or other taxable income
         will be included in such dividend on shares of AMPS as follows:

<TABLE>
<CAPTION>
                                                                 Applicable                Applicable
                                                                 Percentage of             Percentage of
                    Credit Ratings                               Reference                 Reference
- ------------------------------------------------------           Rate -                    Rate -
       Moody's                           S&P                  No Notification           No Notification
- -----------------------      -------------------------        ---------------           ---------------
<S>                           <C>                              <C>                        <C>
"aa3" or higher                     AA- or higher                   110%                       150%
"a3" to "a1"                        A- to A+                        150%                       250%
"baa3" to "baa1"                    BBB- to BBB+                    150%                       250%
Below  "baa3"                       Below BBB-                      200%                       275%
</TABLE>

         The Corporation shall take all reasonable action necessary to enable
S&P and Moody's to provide a rating for each series of AMPS. If either S&P or
Moody's shall not make such a rating available, or neither S&P nor Moody's
shall make such a rating available, Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its affiliates and successors, after consultation with the
Corporation, shall select a nationally recognized statistical rating
organization or two nationally recognized statistical rating organizations to
act as a Substitute Rating Agency or Substitute Rating Agencies, as the case
may be.

               (viii) "Order" has the meaning specified in paragraph 11(b)(i)
         below.

               (ix) "Sell Order" has the meaning specified in paragraph
         11(b)(i). below.

               (x) "Submission Deadline" means 1:00 P.M., New York City time,
         on any Auction Date or such other time on any Auction Date as may be
         specified by the Auction



                                      65
<PAGE>

         Agent from time to time as the time by which each Broker-Dealer must
         submit to the Auction Agent in writing all orders obtained by it for
         the Auction to be conducted on such Auction Date.

               (xi) "Submitted Bid" has the meaning specified in paragraph
         11(d)(i) below.

               (xii) "Submitted Hold Order" has the meaning specified in
         paragraph 11(d)(i) below.

               (xiii) "Submitted Order" has the meaning specified in paragraph
         11(d)(i) below.

               (xiv) "Submitted Sell Order" has the meaning specified in
         paragraph 11(d)(i) below.

               (xv) `"Sufficient Clearing Bids" has the meaning specified in
         paragraph 11(d)(i) below.

               (xvi) "Winning Bid Rate" has the meaning specified in paragraph
         11(d)(i) below.

         (b) Orders by Existing Holders and Potential Holders.

               (i) On or prior to the Submission Deadline on each Auction
         Date:

         (A) each Existing Holder may submit to a Broker-Dealer information as
to:

               (1) the number of Outstanding shares, if any, of AMPS held by
         such Existing Holder which such Existing Holder desires to continue
         to hold without regard to the Applicable Rate for the next
         succeeding Dividend Period;

               (2) the number of Outstanding shares, if any, of AMPS held by
         such Existing Holder which such Existing Holder desires to continue
         to hold, provided that the Applicable Rate for the next succeeding
         Dividend Period shall not be less than the rate per annum specified
         by such Existing Holder; and/or



                                      66
<PAGE>

               (3) the number of Outstanding shares, if any, of AMPS held by
         such Existing Holder which such Existing Holder offers to sell
         without regard to the Applicable Rate for the next succeeding
         Dividend Period; and

         (B) each Broker-Dealer, using a list of Potential Holders that shall
be maintained in good faith for the purpose of conducting a competitive
Auction, shall contact potential Holders, including persons that are not
Existing Holders, on such list to determine the number of Outstanding shares,
if any, of AMPS which each such Potential Holder offers to purchase, provided
that the Applicable Rate for the next succeeding Dividend Period shall not be
less than the rate per annum specified by such Potential Holder.

         For the purposes hereof, the communication to a Broker-Dealer of
information referred to in clause (A) or (B) of this paragraph 11(b)(i) is
hereinafter referred to as an "order" and each Existing Holder and each
Potential Holder placing an order is hereinafter referred to as a "Bidder"; an
Order containing the information referred to in clause (A) (1) of this
paragraph 11(b)(i) is hereinafter referred to as a "Hold Order"; an Order
containing the information referred to in clause (A)(2) or (B) of this
paragraph 11(b)(i) is hereinafter referred to as a "Bid"; and an Order
containing the information referred to in clause (A)(3) if this paragraph
11(b)(i) is hereinafter referred to as a "Sell Order".

               (ii) (A) A Bid by an Existing Holder shall constitute an
         irrevocable offer to sell:

               (1) the number of Outstanding shares of AMPS specified in such
         Bid if the Applicable Rate determined on such Auction Date shall be
         less than the rate per annum specified in such Bid; or



                                      67
<PAGE>

               (2) such number or a lesser number of Outstanding shares of
         AMPS to be determined as set forth in paragraph 11(e)(i)(D) if the
         Applicable Rate determined on such Auction Date shall be equal to
         the rate per annum specified therein; or

               (3) a lesser number of Outstanding shares of AMPS to be
         determined as set forth in paragraph 11(e)(ii)(C) if such specified
         rate per annum shall be higher than the Maximum Applicable Rate and
         Sufficient Clearing Bids do not exist.

         (B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:

               (1) the number of Outstanding shares of AMPS specified in such
         sell order; or

               (2) such number or a lesser number of Outstanding shares of
         AMPS to be determined as set forth in paragraph 11(e)(ii)(C) if
         Sufficient Clearing Bids do not exist.

         (C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:

               (1) the number of Outstanding shares of AMPS specified in such
         Bid if the Applicable Rate determined on such Auction Date shall be
         higher than the rate per annum specified in such Bid; or

               (2) such number or a lesser number of Outstanding shares of
         AMPS to be determined as set forth in paragraph 11(a)(i)(E) if the
         Applicable Rate determined on such Auction Date shall be equal to
         the rate per annum specified therein.

         (c) Submission of Order by Broker-Dealers to Auction Agent.

               (i) Each Broker-Dealer shall submit in writing or through the
         Auction Agent's Auction Processing System to the Auction Agent prior
         to the Submission Deadline on



                                      68
<PAGE>

         each Auction Date all Orders obtained by such Broker-Dealer and
         specifying with respect to each order:

         (A) the name of the Bidder placing such order;

         (B) the aggregate number of Outstanding shares of AMPS that are the
subject of such order;

         (C) to the extent that such Bidder is an Existing Holder:

               (1) the number of Outstanding shares, if any, of AMPS subject
         to any Hold Order placed by such Existing Holder;

               (2) the number of Outstanding shares, if any, of AMPS subject
         to any Bid placed by such Existing Holder and the rate per annum
         specified in such Bid; and

               (3) the number of Outstanding shares, if any, of AMPS subject
         to any Sell order placed by such Existing Holder; and

         (D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holders Bid.

               (ii) If any rate per annum specified in any Bid contains more
         than three figures to the right of the decimal point, the Auction
         Agent shall round such rate up to the next highest one-thousandth
         (.001) of 1%.

               (iii) If an Order or Orders covering all of the outstanding
         shares of AMPS held by an Existing Holder are not submitted to the
         Auction Agent prior to the Submission Deadline, the Auction Agent
         shall clean a Hold Order (in the case of an Auction relating to a
         Dividend Period which is not a Special Dividend Period) and a Sell
         Order (in the case of an Auction relating to a Special Dividend
         Period) to have been submitted on



                                      69
<PAGE>

         behalf of such Existing Holder covering the number of Outstanding
         shares of AMPS held by such Existing Holder and not subject to
         Orders submitted to the Auction Agent.

               (iv) If one or more Orders on behalf of an Existing Holder
         covering in the aggregate more than the number of Outstanding shares
         of AMPS held by such Existing Holder are submitted to the Auction
         Agent, such Order shall be considered valid as follows and in the
         following order of priority:

         (A) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of Outstanding shares of
AMPS held by such Existing Holder; provided that if more than one Hold Order
is submitted on behalf of such Existing Holder and the number of shares of
AMPS subject to such Hold Orders exceeds the number of Outstanding shares of
AMPS held by such Existing Holder, the number of shares of AMPS subject to
each of such Hold Orders shall be reduced pro rata so that such Hold Orders,
in the aggregate, will cover exactly the number of outstanding shares of AMPS
hold by such Existing Holder;

         (B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per annum,
if more than one aid is submitted on behalf of such Existing Holder, up to and
including the excess of the number of Outstanding shares of AMPS held by such
Existing Holder over the number of shares of AMPS subject to any Hold Order
referred to in paragraph 11(c)(iv)(A) above (and if more than one Bid
submitted on behalf of such Existing Holder specifies the same rate per annum
and together they cover more than the remaining number of shares that can be
the subject of valid Bids after application of paragraph 11(c)(iv)(A) above
and of the foregoing portion of this paragraph 11(c)(iv)(B) to any Bid or Bids
specifying a lower rate or rates per annum, the number of shares subject to
each of



                                      70
<PAGE>

such Bids shall be reduced pro rata so that such Bids, in the aggregate, cover
exactly such remaining number of shares); and the number of shares, if any,
subject to bids not valid under this paragraph 11(c)(iv)(B) shall be treated
as the subject of a Bid by a Potential Holder; and

         (C) any Sell Order shall be considered valid up to and including the
excess of the number of Outstanding shares of AMPS held by such Existing
Holder over the number of shares of AMPS subject to Hold Orders referred to in
paragraph 11(e)(iv)(A) and Bids referred to in paragraph 11(c)(iv)(B);
provided that if more than one Sell Order is submitted on behalf of any
Existing Holder and the number of shares of AMPS subject to such Sell Orders
is greater than such excess, the number of shares of AMPS subject to each of
such Sell Orders shall be reduced pro rata so that such Sell Orders, in the
aggregate, cover exactly the number of shares of AMPS equal to such excess.

               (v) if more than one Bid is submitted on behalf of any
         Potential Holder, each Bid-submitted shall be a separate Bid with
         the rate per annum and number of shares of AMPS specified.

         (d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.

               (i) Not earlier than the Submission Deadline on each Auction
         Date, the Auction Agent shall assemble all Orders submitted or
         deemed submitted to it by the Broker-Dealers (each such Order as
         submitted or deemed submitted by a Broker-Dealer being hereinafter
         referred to individually as a "Submitted Hold Order", a "Submitted
         Deed" or a "Submitted Sell Order", as the case may be, or as a
         "Submitted Order") and shall determine:



                                      71
<PAGE>

         (A) the excess of the total number of outstanding shares of AMPS over
the number of Outstanding shares of AMPS that are the subject of submitted
Hold Orders (such excess being hereinafter referred to as the "Available
AMPS");

         (B) from the Submitted Orders whether the number of Outstanding
shares of AMPS that are the subject of Submitted Bids by Potential Holders
specifying one or more rates per annum, equal to or lower than the Maximum
Applicable Rate exceeds or is equal to the sum of:

               (1) the number of outstanding shares of AMPS that are the
         subject of Submitted Bids by Existing Holders specifying one or more
         rates per annum higher than the Maximum Applicable Rate, and

               (2) the number of Outstanding shares of AMPS that are subject
         to Submitted Sell Orders (if such excess or such equality exists
         (other than because the number of Outstanding shares of AMPS in
         clauses (1) and (2) above are each zero because all of the
         Outstanding shares of AMPS are the subject of Submitted Hold
         Orders), such Submitted Bids by Potential Holders being hereinafter
         referred to collectively as "Sufficient Clearing Bids"); and

         (C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:

               (1) each Submitted Bid from Existing Holders specifying the
         Winning Bid Rate and all other Submitted Bids from Existing Holders
         specifying lower rates per annum were accepted, thus entitling such
         Existing Holders to continue to hold the shares of AMPS that are the
         subject of such Submitted Bids, and



                                      72
<PAGE>

               (2) each Submitted Bid from Potential Holders specifying the
         winning Bid Rate and all other Submitted Bids from Potential Holders
         specifying lower rates per annun were accepted, thus entitling the
         Potential Holders to purchase the shares of AMPS that are the
         subject of such Submitted Bids,

would result in the number of shares subject to all Submitted Bids specifying
the Winning Bid Rate or a lower rate per annum being at least equal to the
Available AMPS.

               (ii) Promptly after the Auction Agent has made the
         determinations pursuant to paragraph 11(d)(i), the Auction Agent
         shall advise the Corporation of the Maximum Applicable Rate and,
         based on such determinations, the Applicable Rate for the next
         succeeding Dividend Period as follows:

         (A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning Bid Rate;

         (B) if Sufficient Clearing Bids do not exist (other than because all
of the Outstanding shares of AMPS are the subject of Submitted Hold Orders),
that the Applicable Rate for the next succeeding Dividend Period shall be
equal to the Maximum Applicable Rate; or

         (C) if all of the outstanding shares of AMPS are the subject of
Submitted Hold Orders, that the Dividend Period next succeeding the Auction
shall automatically be the sage length as the immediately preceding Dividend
Period and the Applicable Rate for the next succeeding Dividend Period shall
be equal to 59% of the Reference Rate (or 90% of such rate if the Corporation
has provided notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend pursuant to paragraph 2(f)
hereof that net capital gains or other taxable income will be included in such
dividend on shares of AMPS) on the date of the Auction.



                                      73
<PAGE>

         (e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Based on the determinations made pursuant to
paragraph 11(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as set
forth below:

               (i) If Sufficient Clearing Bids have been made, subject to the
         provisions of paragraph 11(e)(iii) and paragraph 11(e)(iv),
         Submitted Bide and Submitted Sell Orders shall be accepted or
         rejected in the following order of priority and all other Submitted
         Bids shall be rejected:

         (A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each of the Existing Holders specifying any rate per
annum that is higher than the Winning Bid Rate shall be accepted, thus
requiring each such Existing Holder to sell the outstanding shares of AMPS
that are the subject of such Submitted Sell Order or Submitted Bid;

         (B) the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the Outstanding shares
of AMPS that are the subject of such Submitted Bid;

         (C) the Submitted Bid of each of the Potential Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be accepted;

         (D) the Submitted Bid of each of the Existing Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the Outstanding shares
of AMPS that are the subject of such Submitted Bid, unless the number of
Outstanding shares of AMPS subject to all such Submitted Bids shall be greater
than the number of Outstanding shares of AMPS ("Remaining Shares") equal to
the



                                      74
<PAGE>

excess of the Available AMPS over the number of Outstanding shares of AMPS
subject to Submitted Bids described in paragraph 11(e)(i)(B) and paragraph
11(a)(i)(C), in which event the Submitted Bids of each such Existing Holder
shall be accepted, and each such Existing Holder shall be required to sell,
Outstanding shares of AMPS, but only in an amount equal to the difference
between (1) the number of Outstanding shares of AMPS then held by such
Existing Holder subject to such Submitted Bid and (2) the number of shares of
AMPS obtained by multiplying (x) the number of Remaining Shares by (y) a
fraction the numerator of which shall be the number of Outstanding shares of
AMPS held by such Existing Holder subject to such Submitted Bid and the
denominator of which shall be the sum of the numbers of Outstanding shares of
AMPS subject to such Submitted Bids made by all such Existing Holders that
specified a rate per annum equal to the Winning Bid Rate; and

         (E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be accepted but
only in an amount equal to the number of Outstanding shares of AMPS obtained
by multiplying (x) the difference between the Available AMPS and the number of
Outstanding shares of AMPS subject to Submitted Bids described in paragraph
11(e)(i)(B), paragraph 11(e)(f)(C) and paragraph 11(e)(i)(D) by (y) a fraction
the numerator of which shall be the number of Outstanding shares of AMPS
subject to such Submitted Bid and the denominator of which shall be the sum of
the number of Outstanding shares of AIMS subject to such Submitted Bids made
by all such Potential Holders that specified rates per annum equal to the
Winning Did Rate.

               (ii) If Sufficient Clearing Bids have not been made (other than
         because all of the Outstanding shares of AMPS are subject to
         Submitted Hold Orders), subject to the



                                      75
<PAGE>

         provisions of paragraph 11(e)(iii), Submitted Orders shall be
         accepted or rejected as follows in the following order of priority
         and all other Submitted Bids shall be rejected:

         (A) the Submitted Bid of each Existing Holder specifying any rate per
annum that is equal to or lower than the Maximum Applicable Rate shall be
rejected, thus entitling such Existing Holder to continue to hold the
Outstanding shares of AMPS that are the subject of such Submitted Bid;

         (B) the Submitted Bid of each Potential Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate shall be
accepted, thus requiring such Potential Holder to purchase the Outstanding
shares of AMPS that are the subject of such Submitted Bid; and

         (C) the Submitted Bids of each Existing Holder specifying any rate
per annum that is higher than the Maximum Applicable Rate shall be accepted
and the Submitted Sell Orders of each Existing Holder shall be accepted, in
both cases only in an amount equal to the difference between (1) the number of
Outstanding shares of AMPS then held by such Existing Holder subject to such
Submitted Bid or submitted Sell Order and (2) the number of shares of AMPS
obtained by multiplying (x) the difference between the Available AMPS and the
aggregate number of Outstanding shares of AMPS subject to Submitted Bids
described in paragraph 11(e)(ii)(A) and paragraph 11(e)(ii)(B) by (y) a
fraction the numerator of which shall be the number of Outstanding shares of
AMPS held by such Existing Holder subject to such Submitted Aid or Submitted
Sell Order and the denominator of which shall be the number of Outstanding
shares of AMPS subject to all such Submitted Bids and Submitted Sell Orders.

               (iii) If, as a result of the procedures described in paragraph
         11(e)(i) or paragraph 11(e)(ii), any Existing Holder would be
         entitled or required to sell, or any potential



                                      76
<PAGE>

         Holder would be entitled or required to purchase, a fraction of a
         share of AMPS on any Auction Date, the Auction Agent shall, in such
         manner as in its sole discretion it shall determine, round up or
         down the number of shares of AMPS to be purchased or sold by any
         Exiting Holder or Potential Holder on such Auction Date so that each
         outstanding share of AMPS purchased or sold by each Existing Holder
         or Potential Holder on such Auction Date shall be a whole share of
         AMPS.

               (iv) If, as a result of the procedures described in paragraph
         11(e)(i), any Potential Holder would be entitled or required to
         purchase less than a whole share of AMPS on any Auction Date, the
         Auction Agent shall, in such manner as in its sole discretion it
         shall determine, allocate shares of AMPS for purchase among
         Potential Holders so that only whole shares of AMPS are purchased on
         such Auction Date by any Potential Holder, even if such allocation
         results in one or more of such Potential Holders not purchasing any
         shares of AMPS on such Auction Date.

               (v) Based on the results of each Auction, the Auction Agent
         shall determine, with respect to each Broker-Dealer that submitted
         Bids or Sell Orders on behalf of Existing Holders or Potential
         Holders, the aggregate number of Outstanding shares of AMPS to be
         purchased and the aggregate number of the Outstanding shares of AMPS
         to be sold by such Potential Holders and Existing Holders and, to
         the extent that such aggregate number of Outstanding shares to be
         purchased and such aggregate number of Outstanding shares to be sold
         differ, the Auction Agent shall determine to which other
         Broker-Dealer or Broker-Dealers acting for one or more purchasers
         such Broker-Dealer shall deliver, or from which other broker-Dealer
         or Broker-Dealers acting for one or more sellers such Broker-Dealer
         shall receive, as the case may be, Outstanding shares of AMPS.



                                      77
<PAGE>

         (f) Miscellaneous. The Corporation may interpret the provisions of
this paragraph 11 to resolve any inconsistency or ambiguity, remedy any formal
defect or make any other change or modification that does not substantially
adversely affect the rights of Existing Holders of AMPS. An Existing Holder
(A) may sell, transfer or otherwise dispose of shares of AMPS only pursuant to
a Bid or Sell Order in accordance with the procedures described in this
paragraph 11 or to or through a Broker-Dealer or to a Person that has
delivered a signed copy of a Purchase's Letter to the Auction Agent, provided
that in the case of all transfers other than pursuant to Auctions such
Existing-Holder, its Broker-Dealer or its Agent Member advises the Auction
Agent of such transfer and (B) except as otherwise required by law, shall have
the ownership of the shares of AMPS held by it maintained in book-entry form
by the Securities Depository in the account of its Agent Member, which in turn
will maintain records of such Existing Holder's beneficial ownership. Neither
the Corporation nor any affiliate shall summit an Order in any Auction. Any
Existing Holder that is an Affiliate shall not sell, transfer or otherwise
dispose of shares of AMPS to any Person other than the Corporation. All of the
Outstanding shares of AMPS shall be represented by a single certificate
registered in the name of the nominee of the Securities Depository unless
otherwise required by law or unless there is no Securities Depository. If
there is no Securities Depository, at the Corporation's option and upon its
receipt of such documents as it deems appropriate, any shares of AMPS may be
registered in the Stock Register in the name of the Existing Holder thereof
and such Existing Holder thereupon will be entitled to receive certificates
therefor and required to deliver certificates therefor upon transfer or
exchange thereof.

         12. Securities Depository; Stock Certificates. (a) If there is a
Securities Depository, one certificate for all of the shares of Series A AMPS,
one certificate for all of the



                                      78
<PAGE>

shares of Series B AMPS, one certificate for all of the shares of Series C
AMPS, one certificate. for all of the shares of Series D AMPS and one
certificate for all of the shares of Series E AMPS shall be issued to the
Securities Depository and registered in the name of the Securities Depository
or its nominee. Additional certificates may be issued as necessary to
represent shares of AMPS. All such certificates shall bear a legend to the
effect that such certificates are issued subject to the provisions restricting
the transfer of shares of AMPS contained in these Articles Supplementary and
each Purchaser's Letter. Unless the Corporation shall have elected, during a
Non-Payment Period, to waive this requirement, the Corporation will also issue
stop-transfer instructions to the Auction Agent for the shares of AMPS. Except
as provided in paragraph (b) below, the Securities Depository or its nominee
will be the Holder, and no Existing Holder shall receive certificates
representing its ownership interest in such shares.

         (b) if the Applicable Rate applicable to all shares of AMPS of a
series shall be the Non-Payment Period Rate or there is no Securities
Depository, the Corporation may at its option issue one or more new
certificates with respect to such shares (without the legend referred to in
paragraph 12(a)) registered in the names of the Existing Holders or their
nominees and rescind the stop-transfer instructions referred to in paragraph
12(a) with respect to such shares.



                                      79
<PAGE>

         IN WITNESS WHEREOF, MUNIYIELD QUALITY FUND, INC. has caused these
presents to be signed in its name an on its behalf by a duly authorised
officer, and its corporate seal to be hereunto affixed and attested by its
Secretary, and the said officers of the Corporation further acknowledge said
instrument to be the corporate act of the Corporation, and state under the
penalties of perjury that to the best of their knowledge, information and
belief the matters and feats herein set forth with respect to approval are
true in all material respects, all on September 11, 1992.



                                       MUNIYIELD QUALITY FUND, INC.


                                       By
                                          ------------------------------------
                                          Name:  Kenneth A. Jacob
                                          Title:  Vice President



Attest:


- ------------------------------
       Mark Goldfus
        Secretary
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2A3
<SEQUENCE>4
<FILENAME>efc5-1587_5735300ex992a3.txt
<TEXT>
                                                                Exhibit (a)(3)

                         MUNIYIELD QUALITY FUND, INC.

                Articles Supplementary creating four series of

Auction Market Preferred Stock(R)


         MUNIYIELD QUALITY FUND, INC., a Maryland corporation having its
principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the Maryland State Department of Assessments and Taxation that:

         FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article FIFTH of its Charter, the Board of
Directors has reclassified 4,000 authorized and unissued shares of common
stock of the Corporation as additional preferred stock of the Corporation and
has authorized the issuance of preferred stock, par value $.10 per share,
liquidation preference $50,000 per share plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared) thereon, to be
designated Auction Market Preferred Stock.

         SECOND: The preferences, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption, of the
shares of such preferred stock shall be identical to the 4,000 shares of
Auction Market Preferred Stock previously reclassified and authorized by the
Board of Directors pursuant to Articles Supplementary dated September 11, 1992
and filed on September 15, 1992 with the Maryland State Department of
Assessments and Taxation. Accordingly, these Articles Supplementary hereby
incorporate by reference such previously filed Articles Supplementary
beginning with the section entitled "DESIGNATION" and continuing until the end
of the final section entitled "Securities Depository; Stock Certificates,"
with the following exception:

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

(R) Registered trademark of Merrill Lynch & Co., Inc.

<PAGE>

         At page 2, in the section entitled "DESIGNATION," strike out the date
"September 16, 1992" and insert in lieu thereof the date "December 1, 1994";

         IN WITNESS WHEREOF, MUNIYIELD QUALITY FUND, INC. has caused these
presents to be signed in its name and on its behalf by a duly authorized
officer, and attested by its Secretary, and the said officers of the
Corporation further acknowledge said instrument to be the corporate act of the
Corporation, and state under the penalties of perjury that to the best of
their knowledge, information and belief the matters and facts herein set forth
with respect to approval are true in all material respects, all on November
30, 1994.

                                 MUNIYIELD QUALITY FUND, INC.



                                 By
                                   -------------------------------------------
                                 Name:   Vincent R. Giordano
                                 Title:  Senior Vice President


Attest:



By
  -------------------------------
Name:  Mark B. Goldfus
Its:     Secretary



                                      2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2A4
<SEQUENCE>5
<FILENAME>efc5-1587_5735309ex992a4.txt
<TEXT>
                                                                Exhibit (a)(4)



                         MUNIYIELD QUALITY FUND, INC.

           Articles of Amendment to Articles Supplementary creating
                four series of Auction Market Preferred Stock*


         MUNIYIELD QUALITY FUND, INC., a Maryland corporation having its
principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the Maryland State Department of Assessments and Taxation that:

         FIRST: The Articles Supplementary, filed on September 15, 1992, and
the Articles Supplementary, filed on December 1, 1994, each creating 4,000
shares of Auction Market Preferred Stock of the Corporation (collectively, the
"Articles Supplementary"), are hereby amended by these Articles of Amendment
as follows;

         In each instance in which "$.10" appears, delete "$.10" and
substitute "$.05" therefor;

         In each instance in which "$50,000" appears, delete "$50,000" and
substitute "$25,000" therefor;

         SECOND: The foregoing amendment to the Articles Supplementary has
been effected in the manner and by the vote required by the Corporation's
Charter and the laws of Maryland. Pursuant to Section 2-603 of the Code, the
amendment of the Articles Supplementary as hereinabove set forth has been duly
advised, approved and adopted by a majority of the entire Board of Directors
of the Corporation, there being no stock entitled to be voted on the Charter
Amendment outstanding or subscribed for at the time of approval.

         THIRD: Except as amended hereby, the Charter shall remain in full
force and effect.

         FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.


- ------------------------
(R)  Registered trademark of Merrill Lynch & Co., Inc.

<PAGE>

         FIFTH: These Articles of Amendment shall be effective
contemporaneously with the acceptance for recording or filing by the Maryland
State Department of Assessments and Taxation of the Corporation's Articles
Supplementary dated November 30, 1994.

         The Senior Vice President acknowledges these Articles of Amendment to
be the corporate act of the Corporation and states that to the best of his
knowledge, information and belief the matters and facts set forth in these
Articles with respect to the authorization and approval of the amendment of
the Corporation's Articles Supplementary are true in all material respects,
and that this statement is made under the penalties of perjury.



                                      2
<PAGE>

         IN WITNESS WHEREOF, MUNIYIELD QUALITY FUND, INC. has caused these
Articles to be signed in its name and on its behalf by its Senior Vice
President, a duly authorized officer of the Corporation, and attested by its
Secretary as of November 30, 1994.


                                      MUNIYIELD QUALITY FUND, INC.




                                      By
                                         ------------------------------------
                                         Name:   Vincent R. Giordano
                                         Title:  Senior Vice President



Attest:



- -------------------------------
Name:  Mark B. Goldfus
Its:   Secretary



                                      3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2A5
<SEQUENCE>6
<FILENAME>efc5-1587_5732365ex992a5.txt
<TEXT>
                                                                EXHIBIT (a)(5)



                         MUNIYIELD QUALITY FUND, INC.

                         ARTICLES OF AMENDMENT TO THE
                  ARTICLES SUPPLEMENTARY CREATING FOUR SERIES
                       OF AUCTION MARKET PREFERRED STOCK


         MUNIYIELD QUALITY FUND, INC., a Maryland corporation, having its
principal office in Baltimore, Maryland (the "Corporation"), does hereby
certify to the State Department of Assessments and Taxation of Maryland that:

         FIRST:    Section 5(c) of the Articles Supplementary of the Corporation
creating four series of Auction Market Preferred Stock ("AMPS") designated as
Series A, Series B, Series C and Series D, filed on September 15, 1992, and
Section 5(c) of the Articles Supplementary, filed on December 1, 1994, each as
amended by the Articles of Amendment to the Articles Supplementary, filed on
December 1, 1994, are hereby amended in their entirety to read as follows:

         "Right to Vote with Respect to Certain Other Matters. So long as any
shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of the Preferred
Stock Outstanding at the time, voting separately as one class: (i) authorize,
create or issue any class or series of stock ranking prior to the AMPS or any
other series of Preferred Stock with respect to payment of dividends or the
distribution of assets on liquidation or (ii) amend, alter or repeal the
provisions of the Charter, whether by merger, consolidation or otherwise, so
as to adversely affect any of the contract rights expressly set forth in the
Charter of holders of shares of AMPS or any other Preferred Stock. To the
extent permitted under the 1940 Act, in the event shares of more than one
series of AMPS are outstanding, the Corporation shall not approve any of the
actions set forth in clause (i) or (ii) which adversely affects the contract
rights expressly set forth in the Charter of a Holder of shares of a series of
AMPS differently than those of a Holder of shares of any other series of AMPS
without the affirmative vote of the holders of at least a majority of the
shares of AMPS of each series adversely affected and outstanding at such time
(each such adversely affected series voting separately as a class). The
Corporation shall notify Moody's and S&P 10 Business Days prior to any such
vote described in clause (i) or (ii). Unless a higher percentage is provided
for under the Charter, the affirmative vote of the holders of a majority of
the outstanding shares of Preferred Stock, including AMPS, voting together as
a single class, will be required to approve any plan of reorganization
(including bankruptcy proceedings) adversely affecting such shares or any
action requiring a vote of security holders under Section 13(a) of the 1940
Act. The class vote of holders of shares of Preferred Stock, including AMPS,
described above will in each case be in addition to a separate vote of the
requisite percentage of shares of Common Stock and shares of Preferred Stock,
including AMPS, voting together as a single class necessary to authorize the
action in question."


<PAGE>


         SECOND:   These Articles of Amendment were approved by the entire Board
of Directors of the Corporation and by a majority of the outstanding Shares of
Common Stock and AMPS, voting together as a single class, and a majority of
the outstanding AMPS, voting separately as a class.

         THIRD:    The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.

         FOURTH:   No other change is intended or effected.

         IN WITNESS WHEREOF, MUNIYIELD QUALITY FUND, INC. has caused these
Articles of Amendment to be signed in its name and on its behalf by its Vice
President and attested by its Assistant Secretary on the 13th day of July, 2005.

                         MUNIYIELD QUALITY FUND, INC.


                         By:_________________________________
                            Donald C. Burke, Vice President


Attest:

_____________________________________
Brian D. Stewart, Assistant Secretary


         THE UNDERSIGNED, Vice President of MUNIYIELD QUALITY FUND, INC. who
executed on behalf of said Corporation the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles of Amendment to be the
corporate act of said Corporation and further 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, and that this statement is made under penalties for
perjury.


                        _____________________________________
                        Donald C. Burke, Vice President



                                      2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2A6
<SEQUENCE>7
<FILENAME>efc5-1587_ex992a6.txt
<TEXT>
                                                                  Exhibit (a)(6)

                         MUNIYIELD QUALITY FUND, INC.

                 Articles Supplementary creating one series of

                        Auction Market Preferred Stock



     MUNIYIELD QUALITY FUND, INC., a Maryland corporation having its principal
Maryland office in the City of Baltimore (the "Corporation"), certifies to the
State Department of Assessments and Taxation of Maryland that:

     FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by article fifth of its Charter, the Board of Directors has
reclassified 2,000 authorized and unissued shares of common stock of the
Corporation as preferred stock of the Corporation and has authorized the
issuance of one series of preferred stock, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared) thereon, to be
designated: Auction Market Preferred Stock, Series E.

     SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the
shares of such series of preferred stock are as follows:

                                  DESIGNATION

     Series E: A series of 2,000 shares of preferred stock, par value $.10 per
share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon,
is hereby designated "Auction Market Preferred Stock, Series E." Each share of
Auction Market Preferred Stock, Series E (sometimes referred to herein as
"Series E AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an

<PAGE>

Initial Dividend Payment Date as shall be determined in advance of the
issuance thereof by the Board of Directors of the Corporation or pursuant to
their delegated authority; and have such other preferences, voting powers,
limitations as to dividends, qualifications and terms and conditions of
redemption as are set forth in these Articles Supplementary. The Auction
Market Preferred Stock, Series E shall constitute a separate series of
preferred stock of the Corporation, and each share of Auction Market Preferred
Stock, Series E shall be identical.

     1. Definitions.

     (a) Unless the context or use indicates another or different meaning or
intent, in these Articles Supplementary the following terms have the following
meanings, whether used in the singular or plural:

     "Additional Dividend" has the meaning set forth in paragraph 2(e) of
these Articles Supplementary.

     "Adviser" means the Corporation's investment adviser which initially
shall be Fund Asset Management, L.P.

     "Affiliate" means any Person, other than Merrill Lynch, Pierce, Fenner &
Smith Incorporated or its successors, known to the Auction Agent to be
controlled by, in control of, or under common control with, the Corporation.

     "Agent Member" means a member of the Securities Depository that will act
on behalf of a Beneficial Owner of one or more shares of AMPS or a Potential
Beneficial Owner.

     "AMPS" means the Auction Market Preferred Stock, Series E.

     "AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares
of AMPS and Other AMPS Outstanding on such Valuation Date multiplied by the
sum of (a) $25,000 and (b) any applicable


                                      2
<PAGE>

redemption premium attributable to the designation of a Premium Call Period;
(B) the aggregate amount of cash dividends (whether or not earned or declared)
that will have accumulated for each share of AMPS and Other AMPS Outstanding,
in each case, to (but not including) the end of the current Dividend Period
that follows such Valuation Date in the event the then current Dividend Period
will end within 49 calendar days of such Valuation Date or through the 49th
day after such Valuation Date in the event the then current Dividend Period
will not end within 49 calendar days of such Valuation Date; (C) in the event
the then current Dividend Period will end within 49 calendar days of such
Valuation Date, the aggregate amount of cash dividends that would accumulate
at the Maximum Applicable Rate applicable to a Dividend Period of 7 or fewer
days on any shares of AMPS and Other AMPS Outstanding from the end of such
Dividend Period through the 49th day after such Valuation Date, multiplied by
the larger of the Moody's Volatility Factor and the S&P Volatility Factor,
determined from time to time by Moody's and S&P, respectively (except that if
such Valuation Date occurs during a Non-Payment Period, the cash dividend for
purposes of calculation would accumulate at the then current Non-Payment
Period Rate); (D) the amount of anticipated expenses of the Corporation for
the 90 days subsequent to such Valuation Date; (E) the amount of current
outstanding balances of any indebtedness which is senior to the AMPS plus
interest actually accrued together with 30 days additional interest on the
current outstanding balances calculated at the current rate; (F) the amount of
the Corporation's Maximum Potential Additional Dividend Liability as of such
Valuation Date; and (G) any current liabilities as of such Valuation Date to
the extent not reflected in any of (i)(A) through (i)(F) (including, without
limitation, and immediately upon determination, any amounts due and payable by
the Corporation for portfolio securities purchased as of such Valuation Date
and any liabilities incurred for the purpose of clearing


                                      3
<PAGE>

securities transactions) less (ii) either (A) the Discounted Value of any of
the Corporation's assets, or (B) the face value of any of the Corporation's
assets if such assets mature prior to or on the date of redemption of AMPS or
payment of a liability and are either securities issued or guaranteed by the
United States Government or Deposit Securities, in both cases irrevocably
deposited by the Corporation for the payment of the amount needed to redeem
shares of AMPS subject to redemption or to satisfy any of (i)(B) through
(i)(G).

     "AMPS Basic Maintenance Cure Date," with respect to the failure by the
Corporation to satisfy the AMPS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles Supplementary) as of a given Valuation Date,
means the sixth Business Day following such Valuation Date.

     "AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Corporation which sets forth, as of the related Valuation Date, the assets of
the Corporation, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), the AMPS Basic Maintenance Amount and the net asset value
and market trading price per share of Common Stock.

     "Anticipation Notes" shall mean the following Municipal Bonds: revenue
anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.

     "Applicable Percentage" has the meaning set forth in paragraph 10(a)(vii)
of these Articles Supplementary.

     "Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend
Period.



                                      4
<PAGE>

     "Applicable Spread" has the meaning set forth in paragraph 10(a)(vii) of
these Articles Supplementary.

     "Auction" means a periodic operation of the Auction Procedures.

     "Auction Agent" means The Bank of New York unless and until another
commercial bank, trust company or other financial institution appointed by a
resolution of the Board of Directors of the Corporation or a duly authorized
committee thereof enters into an agreement with the Corporation to follow the
Auction Procedures for the purpose of determining the Applicable Rate and to
act as transfer agent, registrar, dividend disbursing agent and redemption
agent for the AMPS and Other AMPS.

     "Auction Date" has the meaning set forth in paragraph 10(a)(ii) of these
Articles Supplementary.

     "Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of these Articles Supplementary.

     "Auditors' Confirmation" has the meaning set forth in paragraph 7(c) of
these Articles Supplementary.

     "Beneficial Owner" means a customer of a Broker-Dealer who is listed on
the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of AMPS or a Broker-Dealer that holds AMPS for its own
account.

     "Broker-Dealer" means any broker-dealer, or other entity permitted by law
to perform the functions required of a Broker-Dealer in paragraph 10 of these
Articles Supplementary, that has been selected by the Corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.



                                      5
<PAGE>

     "Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of these Articles Supplementary.

     "Business Day" means a day on which the New York Stock Exchange, Inc. is
open for trading and which is not a Saturday, Sunday or other day on which
banks in The City of New York are authorized or obligated by law to close.

     "Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the Corporation on
file in the State Department of Assessments and Taxation of Maryland.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Common Stock" means the common stock, par value $.10 per share, of the
Corporation.

     "Corporation" means MuniYield Quality Fund, Inc., a Maryland corporation.

     "Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the Corporation originally issues such share.

     "Deposit Securities" means cash and Municipal Bonds rated at least A2
(having a remaining maturity of 12 months or less), P-1, VMIG-1 or MIG-1 by
Moody's or A (having a remaining maturity of 12 months or less), A-1+ or SP-1+
by S&P or A (having a remaining maturity of 12 months or less) or F-1+ by
Fitch.

     "Discounted Value" means (i) with respect to an S&P Eligible Asset, the
quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.



                                      6
<PAGE>

     "Dividend Payment Date," with respect to AMPS, has the meaning set forth
in paragraph 2(b)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.

     "Dividend Period" means the Initial Dividend Period, any 7-Day Dividend
Period and any Special Dividend Period.

     "Existing Holder" means a Broker-Dealer or any such other Person as may
be permitted by the Corporation that is listed as the holder of record of
shares of AMPS in the Stock Books.

     "Fitch" means Fitch Ratings or its successors.

     "Forward Commitment" has the meaning set forth in paragraph 8(c) of these
Articles Supplementary.

     "High Yield Municipal Bonds" means (a) with respect to Moody's (1)
Municipal Bonds rated Ba1 to B3 by Moody's, (2) Municipal Bonds not rated by
Moody's, but rated BB+ to B- by S&P or Fitch, and (3) Municipal Bonds not
explicitly rated by Moody's, S&P or Fitch, but rated at least the equivalent
of B3 internally by the Adviser, provided that Moody's reviews and achieves
sufficient comfort with the Adviser's internal credit rating processes, and
(b) with respect to S&P (1) Municipal Bonds not rated by S&P but rated
equivalent to BBB+ or lower by another NRSRO and (2) Municipal Bonds rated BB+
or lower by S&P.

     "Holder" means a Person identified as a holder of record of shares of
AMPS in the Stock Register.

     "Independent Auditors" means a nationally recognized accountant, or firm
of accountants, that is, with respect to the Corporation, an independent
public accountant or firm of independent public accountants under the
Securities Act of 1933, as amended.



                                      7
<PAGE>

     "Initial Dividend Payment Date" means the Initial Dividend Payment Date
as determined by the Board of Directors of the Corporation with respect to the
AMPS or Other AMPS, as the case may be.

     "Initial Dividend Period," with respect to the AMPS, has the meaning set
forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.

     "Initial Dividend Rate," with respect to the AMPS, means the rate per
annum applicable to the Initial Dividend Period for the AMPS and, with respect
to Other AMPS, has the equivalent meaning.

     "Initial Margin" means the amount of cash or securities deposited with a
broker as a margin payment at the time of purchase or sale of a futures
contract.

     "Inverse Floaters" means trust certificates or other instruments
evidencing interests in one or more Municipal Bonds that qualify as (i) S&P
Eligible Assets the interest rates on which are adjusted at short term
intervals on a basis that is inverse to the simultaneous readjustment of the
interest rates on corresponding floating rate trust certificates or other
instruments issued by the same issuer, provided that the ratio of the
aggregate dollar amount of floating rate instruments to inverse floating rate
instruments issued by the same issuer does not exceed one to one at their time
of original issuance unless the floating rate instrument has only one reset
remaining until maturity or (ii) Moody's Eligible Assets the interest rates on
which are adjusted at short term intervals on a basis that is inverse to the
simultaneous readjustment of the interest rates on corresponding floating rate
trust certificates or other instruments issued by the same issuer, provided
that (a) such Inverse Floaters are rated by Moody's with the Adviser having
the capability to collapse (or relink) within seven (7) days as a liquidity
enhancement measure, and


                                      8
<PAGE>

(b) the issuer of such Inverse Floaters employs a leverage factor (i.e., the
ratio of underlying capital appreciation bonds or other instruments to
residual long-term derivative instruments) of not more than 2:1.

     "LIBOR Dealer" means Merrill Lynch, Pierce, Fenner & Smith Incorporated
and such other dealer or dealers as the Corporation from time to time may
appoint or, in lieu thereof, their respective affiliates and successors.

     "LIBOR Rate," on any Auction Date, means (i) the rate for deposits in
U.S. dollars for the designated Dividend Period, which appears on display page
3750 of Moneyline's Telerate Service ("Telerate Page 3750") (or such other
page as may replace that page on that service, or such other service as may be
selected by the LIBOR Dealer or its successors that are LIBOR Dealers) as of
11:00 a.m., London time, on the day that is the London Business Day preceding
the Auction Date (the "LIBOR Determination Date"), or (ii) if such rate does
not appear on Telerate Page 3750 or such other page as may replace such
Telerate Page 3750, (A) the LIBOR Dealer shall determine the arithmetic mean
of the offered quotations of the Reference Banks to leading banks in the
London interbank market for deposits in U.S. dollars for the designated
Dividend Period in an amount determined by such LIBOR Dealer by reference to
requests for quotations as of approximately 11:00 a.m. (London time) on such
date made by such LIBOR Dealer to the Reference Banks, (B) if at least two of
the Reference Banks provide such quotations, LIBOR Rate shall equal such
arithmetic mean of such quotations, (C) if only one or none of the Reference
Banks provide such quotations, LIBOR Rate shall be deemed to be the arithmetic
mean of the offered quotations that leading banks in The City of New York
selected by the LIBOR Dealer (after obtaining the Corporation's approval) are
quoting on the relevant LIBOR Determination Date for deposits in U.S. dollars
for the designated Dividend Period in an


                                      9
<PAGE>

amount determined by the LIBOR Dealer (after obtaining the Corporation's
approval) that is representative of a single transaction in such market at
such time by reference to the principal London offices of leading banks in the
London interbank market; provided, however, that if one of the LIBOR Dealers
does not quote a rate required to determine the LIBOR Rate, the LIBOR Rate
will be determined on the basis of the quotation or quotations furnished by
any Substitute LIBOR Dealer or Substitute LIBOR Dealers selected by the
Corporation to provide such rate or rates not being supplied by the LIBOR
Dealer; provided further, that if the LIBOR Dealer and Substitute LIBOR
Dealers are required but unable to determine a rate in accordance with at
least one of the procedures provided above, the LIBOR Rate shall be the LIBOR
Rate as determined on the previous Auction Date. If the number of Dividend
Period days shall be (i) 7 or more but fewer than 21 days, such rate shall be
the seven-day LIBOR rate; (ii) 21 or more but fewer than 49 days, such rate
shall be the one-month LIBOR rate; (iii) 49 or more but fewer than 77 days,
such rate shall be the two-month LIBOR rate; (iv) 77 or more but fewer than
112 days, such rate shall be the three-month LIBOR rate; (v) 112 or more but
fewer than 140 days, such rate shall be the four-month LIBOR rate; (vi) 140 or
more but fewer than 168 days, such rate shall be the five-month LIBOR rate;
(vii) 168 or more but fewer than 189 days, such rate shall be the six-month
LIBOR rate; (viii) 189 or more but fewer than 217 days, such rate shall be the
seven-month LIBOR rate; (ix) 217 or more but fewer than 252 days, such rate
shall be the eight-month LIBOR rate; (x) 252 or more but fewer than 287 days,
such rate shall be the nine-month LIBOR rate; (xi) 287 or more but fewer than
315 days, such rate shall be the ten-month LIBOR rate; (xii) 315 or more but
fewer than 343 days, such rate shall be the eleven-month LIBOR rate; and
(xiii) 343 or more but fewer than 365 days, such rate shall be the
twelve-month LIBOR rate.



                                      10
<PAGE>

     "London Business Day" means any day on which commercial banks are
generally open for business in London.

     "Long Term Dividend Period" means a Special Dividend Period consisting of
a specified period of one whole year or more but not greater than five years.

     "Mandatory Redemption Price" means $25,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.

     "Marginal Tax Rate" means the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate, whichever is greater.

     "Market Value" of any asset of the Corporation shall be the market value
thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value
portfolio securities at the quoted bid prices or the mean between the quoted
bid and asked price or the yield equivalent when quotations are not readily
available. Securities for which quotations are not readily available shall be
valued at fair value as determined by the Pricing Service using methods which
include consideration of: yields or prices of municipal bonds of comparable
quality, type of issue, coupon, maturity and rating; indications as to value
from dealers; and general market conditions. The Pricing Service may employ
electronic data processing techniques and/or a matrix system to determine
valuations. In the event the Pricing Service is unable to value a security,
the security shall be valued at the lower of two dealer bids obtained by the
Corporation from dealers who are members of the National Association of
Securities Dealers, Inc. and who make a market in the security, at least one
of which shall be in writing. Futures contracts and options are valued at


                                      11
<PAGE>

closing prices for such instruments established by the exchange or board of
trade on which they are traded, or if market quotations are not readily
available, are valued at fair value on a consistent basis using methods
determined in good faith by the Board of Directors.

     "Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 10(a)(vii) of these Articles Supplementary and, with
respect to Other AMPS, has the equivalent meaning.

     "Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Corporation were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by
the Corporation, as of the end of the calendar month immediately preceding
such Valuation Date and assuming such Additional Dividends are fully taxable.

     "Moody's" means Moody's Investors Service, Inc. or its successors.

     "Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Municipal Bond which constitutes a Moody's Eligible
Asset, the percentage determined by reference to the rating by Moody's, S&P or
Fitch on such Municipal Bond, in accordance with the tables (for the
applicable Moody's Exposure Period) set forth below:

           --------------------------------------------------------
                         Moody's Rating Category (1)
           --------------------------------------------------------
              Aaa         Aa         A        Baa      Other (2)
           ----------- ---------- --------- --------- -------------
              151%       159%       160%      173%        225%
           --------------------------------------------------------

Footnotes:
(1)  Ratings assigned by S&P or Fitch are generally accepted by Moody's at
     face value. However, adjustments to face value may be made to particular
     categories of credits for which the S&P and/or Fitch rating does not seem
     to approximate a Moody's rating equivalent. Split rated securities
     assigned by S&P and Fitch will be accepted at the lower of the two
     ratings.
(2)  Municipal Bonds rated Ba1 to B3 by Moody's or, if not rated by Moody's,
     rated BB+ to B- by S&P or Fitch. In addition, Municipal Bonds not
     explicitly rated by Moody's, S&P or Fitch, but rated at least the
     equivalent of B3 internally by the Adviser, provided that Moody's reviews
     and achieves sufficient comfort with the Adviser's internal credit rating
     processes, will be included under "Other" in the table. Unless
     conclusions regarding liquidity risk as well as estimates of both the
     probability and severity of default for the Corporation's assets can be
     derived from other sources as well as combined with a number of sources
     as presented by the Corporation to Moody's, unrated Municipal Bonds which
     are rated at least the equivalent of B3 by the Adviser internally are
     limited to 10% of Moody's Eligible Assets.



                                      12
<PAGE>

             ----------------------------------------------------
                           Moody's Rating Category
             ----------------------------------------------------
               MIG-1, VMIG-1, P-1 (1)    MIG-1, VMIG-1, P-1 (2)
             --------------------------- ------------------------
                        100%                      136%
             ----------------------------------------------------

Footnotes:
(1)  Moody's rated Municipal Bonds that have a maturity less than or equal to
     49 days and Municipal Bonds not rated by Moody's but rated the equivalent
     to MIG-1, VMIG-1, or P-1 by S&P or Fitch that have a maturity less than
     or equal to 49 days.
(2)  Moody's rated Municipal Bonds that have a maturity greater than 49 days
     and Municipal Bonds not rated by Moody's but rated the equivalent to
     MIG-1, VMIG-1, or P-1 by S&P or Fitch that have a maturity greater than
     49 days.

     Notwithstanding the foregoing, no Moody's Discount Factor will be applied
to cash or to Receivables for Municipal Bonds Sold that are due within five
Business Days of such Valuation Date. The Moody's Discount Factor for
Receivables for Municipal Bonds Sold that are due within six and 30 Business
Days of such Valuation Date will be the Moody's Discount Factor applicable to
the Municipal Bonds sold. "Receivables for Municipal Bonds Sold," for purposes
of calculating Moody's Eligible Assets as of any Valuation Date, means the
book value of receivables for Municipal Bonds sold as of or prior to such
Valuation Date if such receivables are due within 30 Business Days of such
Valuation Date.

     The Moody's Discount Factor for Inverse Floaters shall be the product of
(x) the percentage determined by reference to the rating on the security
underlying such Inverse Floaters multiplied by (y) 1.25.

     The Moody's Discount Factor for Rule 2a-7 Money Market Funds shall be
110%.

     "Moody's Eligible Asset" means cash, Receivables for Municipal Bonds
Sold, Rule 2a-7 Money Market Funds or a Municipal Bond that (i) pays interest
in cash, (ii) is publicly rated B3 or higher by Moody's or, if not rated by
Moody's, but rated by S&P or Fitch, is publicly rated at least B- by S&P or
Fitch, or if not explicitly rated by Moody's, S&P or Fitch, be rated at least
the equivalent of B3 internally by the Adviser, provided that Moody's reviews
and achieves


                                      13
<PAGE>

sufficient comfort with the Adviser's internal credit rating processes, (iii)
does not have its Moody's rating suspended by Moody's, (iv) if an Inverse
Floater, is explicitly rated by Moody's, and (v) is part of an issue of
Municipal Bonds of at least $10,000,000 (except for issues rated Aaa by
Moody's, as provided in the chart below). In addition, Municipal Bonds in the
Corporation's portfolio must be within the following diversification
requirements in order to be included within Moody's Eligible Assets:

<TABLE>
<CAPTION>
                                                   Minimum                Maximum                 Maximum State
                                                 Issue Size              Underlying                  Allowed
Rating                                          ($ Millions)          Obligor (%) (1)              (%) (1)(3)
- ------------------------------------------     ----------------    -----------------------    ----------------------
<S>                                            <C>                 <C>                        <C>
Aaa...............................                    *                     100                        100
Aa................................                   10                      20                        60
A.................................                   10                      10                        40
Baa...............................                   10                      6                         20
Ba................................                   10                      4                         12
B ................................                   10                      3                         12
Other (2).........................                   10                      2                         12
</TABLE>

_____________________
(1)  The referenced percentages represent maximum cumulative totals for the
     related rating category and each lower rating category.
(2)  Municipal Bonds not rated by Moody's, S&P or Fitch, but rated at least
     the equivalent of B3 internally by the Adviser.
(3)  Territorial bonds (other than those issued by Puerto Rico and counted
     collectively) are each limited to 10% of Moody's Eligible Assets. For
     diversification purposes, Puerto Rico will be treated as a state.
N/A  Not applicable.

For purposes of the maximum underlying obligor requirement described above,
any Municipal Bond backed by the guaranty, letter of credit or insurance
issued by a third party will be deemed to be issued by such third party if the
issuance of such third party credit is the sole determinant of the rating on
such Bond.

     When the Corporation sells a Municipal Bond and agrees to repurchase it
at a future date, the Discounted Value of such Bond will constitute a Moody's
Eligible Asset and the amount the Corporation is required to pay upon
repurchase of such Bond will count as a liability for purposes of calculating
the AMPS Basic Maintenance Amount. For so long as the AMPS are rated by
Moody's, the Corporation will not enter into any such reverse repurchase
agreements


                                      14
<PAGE>

unless it has received written confirmation from Moody's that such
transactions would not impair the rating then assigned the AMPS by Moody's.
When the Corporation purchases a Municipal Bond and agrees to sell it at a
future date to another party, cash receivable by the Corporation thereby will
constitute a Moody's Eligible Asset if the long-term debt of such other party
is rated at least A2 by Moody's and such agreement has a term of 30 days or
less; otherwise the Discounted Value of such Bond will constitute a Moody's
Eligible Asset.

     High Yield Municipal Bonds may comprise no more than 20% of Moody's
Eligible Assets. Unless conclusions regarding liquidity risk as well as
estimates of both the probability and severity of default for the
Corporation's assets can be derived from other sources as well as combined
with a number of sources as presented by the Corporation to Moody's, unrated
High Yield Municipal Bonds which are rated at least the equivalent of B3 by
the Adviser internally are limited to 10% of Moody's Eligible Assets.

     Inverse Floaters, including primary market and secondary market residual
interest bonds, may constitute no more than 10% of Moody's Eligible Assets.

     Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset if it is (i) held in a margin account, (ii) subject to any
material lien, mortgage, pledge, security interest or security agreement of
any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Corporation for the payment of
dividends or redemption.

     "Moody's Exposure Period" means the period commencing on a given
Valuation Date and ending 49 days thereafter.

     "Moody's Hedging Transactions" has the meaning set forth in paragraph
8(b) of these Articles Supplementary.



                                      15
<PAGE>

     "Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:

                      % Change in                 Moody's Volatility
                   Marginal Tax Rate                   Factor
                   -----------------              ------------------
                         <=5%                            292%
                     >5% but <=10%                       313%
                    >10% but <=15%                       338%
                    >15% but <=20%                       364%
                    >20% but <=25%                       396%
                    >25% but <=30%                       432%
                    >30% but <=35%                       472%
                    >35% but <=40%                       520%

     Notwithstanding the foregoing, the Moody's Volatility Factor may mean
such other potential dividend rate increase factor as Moody's advises the
Corporation in writing is applicable.

     "Municipal Bonds" means "Municipal Bonds" as defined in the Corporation's
Registration Statement on Form N-2 (File No. 333-[________]) relating to the
AMPS on file with the Securities and Exchange Commission, as such Registration
Statement may be amended from time to time, as well as short-term municipal
obligations, High Yield Municipal Bonds and Inverse Floaters.

     "Municipal Index" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.

     "1940 Act" means the Investment Company Act of 1940, as amended from time
to time.

     "1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all
outstanding senior securities of the Corporation which are stock, including
all outstanding shares of AMPS and Other AMPS (or such other asset


                                      16
<PAGE>

coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are stock of a closed-end
investment company as a condition of paying dividends on its common stock).

     "1940 Act Cure Date," with respect to the failure by the Corporation to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of these
Articles Supplementary) as of the last Business Day of each month, means the
last Business Day of the following month.

     "Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".

     "Non-Payment Period" means, with respect to the AMPS, any period
commencing on and including the day on which the Corporation shall fail to (i)
declare, prior to the close of business on the second Business Day preceding
any Dividend Payment Date, for payment on or (to the extent permitted by
paragraph 2(c)(i) of these Articles Supplementary) within three Business Days
after such Dividend Payment Date to the Holders as of 12:00 noon, Eastern
time, on the Business Day preceding such Dividend Payment Date, the full
amount of any dividend on shares of AMPS payable on such Dividend Payment Date
or (ii) deposit, irrevocably in trust, in same-day funds, with the Auction
Agent by 12:00 noon, Eastern time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any shares of AMPS
called for redemption, the Mandatory Redemption Price per share of such AMPS
or, in the case of an optional redemption, the Optional Redemption Price per
share, and ending on and including the Business Day on which, by 12:00 noon,
Eastern time, all unpaid cash dividends and unpaid redemption prices shall
have been so deposited or shall have otherwise been made available to Holders
in same-day funds; provided that, a Non-Payment Period shall not end unless
the


                                      17
<PAGE>

Corporation shall have given at least five days' but no more than 30 days'
written notice of such deposit or availability to the Auction Agent, all
Existing Holders (at their addresses appearing in the Stock Books) and the
Securities Depository. Notwithstanding the foregoing, the failure by the
Corporation to deposit funds as provided for by clauses (ii)(A) or (ii)(B)
above within three Business Days after any Dividend Payment Date or redemption
date, as the case may be, in each case to the extent contemplated by paragraph
2(c)(i) of these Articles Supplementary, shall not constitute a "Non-Payment
Period."

     "Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 300% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of AMPS), provided that the Board of Directors of the Corporation shall
have the authority to adjust, modify, alter or change from time to time the
initial Non-Payment Period Rate if the Board of Directors of the Corporation
determines and Moody's and S&P (and any Substitute Rating Agency or Substitute
Rating Agencies, as the case may be, in lieu of Moody's or S&P, or both, in
the event either or both of such parties shall not rate the AMPS) advise the
Corporation in writing that such adjustment, modification, alteration or
change will not adversely affect their then current ratings on the AMPS.

     "Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of these Articles Supplementary.

     "Notice of Redemption" means any notice with respect to the redemption of
shares of AMPS pursuant to paragraph 4 of these Articles Supplementary.



                                      18
<PAGE>

     "Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii)
of these Articles Supplementary.

     "Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.

     "NRSRO" means any nationally recognized statistical rating organization,
as that term is used in Rule 15a3-1 under the Securities Exchange Act of 1934,
as amended, or any successor provisions.

     "Optional Redemption Price" means $25,000 per share plus an amount equal
to accumulated but unpaid dividends (whether or not earned or declared) to the
date fixed for redemption and excluding Additional Dividends plus any
applicable redemption premium attributable to the designation of a Premium
Call Period.

     "Other AMPS" means the auction rate preferred stock of the Corporation,
other than the AMPS.

     "Outstanding" means, as of any date (i) with respect to AMPS, shares of
AMPS theretofore issued by the Corporation except, without duplication, (A)
any shares of AMPS theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and Deposit Securities shall have been
deposited in trust or segregated by the Corporation pursuant to paragraph 4(c)
and (B) any shares of AMPS as to which the Corporation or any Affiliate
thereof shall be a Beneficial Owner, provided that shares of AMPS held by an
Affiliate shall be deemed outstanding for purposes of calculating the AMPS
Basic Maintenance Amount and (ii) with respect to shares of other Preferred
Stock, has the equivalent meaning.



                                      19
<PAGE>

     "Parity Stock" means the AMPS and each other outstanding series of
Preferred Stock the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to
the full respective preferential amounts to which they are entitled, without
preference or priority one over the other.

     "Person" means and includes an individual, a partnership, a corporation,
a trust, an unincorporated association, a joint venture or other entity or a
government or any agency or political subdivision thereof.

     "Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of AMPS but that wishes
to purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of AMPS.

     "Potential Holder" means any Broker-Dealer or any such other Person as
may be permitted by the Corporation, including any Existing Holder, who may be
interested in acquiring shares of AMPS (or, in the case of an Existing Holder,
additional shares of AMPS).

     "Preferred Stock" means the preferred stock of the Corporation, and
includes AMPS and Other AMPS.

     "Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."

     "Pricing Service" means J.J. Kenny or any pricing service designated by
the Board of Directors of the Corporation provided the Corporation obtains
written assurance from S&P and Moody's that such designation will not impair
the rating then assigned by S&P and Moody's to the AMPS.



                                      20
<PAGE>

     "Receivables for Municipal Bonds Sold" for Moody's has the meaning set
forth under the definition of Moody's Discount Factor, and for S&P has the
meaning set forth under the definition of S&P Discount Factor.

     "Reference Banks" means four major banks in the London interbank market
selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated or its
affiliates or successors or such other party as the Corporation may from time
to time appoint.

     "Reference Rate" means: (i) with respect to a Dividend Period having 364
or fewer days, the higher of the applicable LIBOR Rate and the Taxable
Equivalent of the Short-Term Municipal Bond Rate, or (ii) with respect to any
Dividend Period having 365 or more days, the applicable Treasury Index Rate.

     "Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.

     "Response" has the meaning set forth in paragraph 2(c)(iii) of these
Articles Supplementary.

     "Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of these Articles Supplementary.

     "Right" with respect to the AMPS, has the meaning set forth in paragraph
2(e) of these Articles Supplementary and, with respect to Other AMPS, has the
equivalent meaning.

     "Rule 2a-7 Money Market Funds" means investment companies registered
under the 1940 Act that comply with the requirements of Rule 2a-7 thereunder.

     "S&P" means Standard & Poor's or its successors.

     "S&P Discount Factor" means, for purposes of determining the Discounted
Value of any Municipal Bond which constitutes an S&P Eligible Asset, the
percentage determined by


                                      21
<PAGE>

reference to the rating by S&P, Moody's or Fitch on such Municipal Bond;
provided, however, for purposes of determining the S&P Discount Factor
applicable to Municipal Bonds not rated by S&P, the Municipal Bonds will carry
an S&P rating one full rating category lower than the S&P rating category that
is the equivalent of the rating category in which such Municipal Bond is
placed by a NRSRO, in accordance with the table (for the applicable S&P
Exposure Period) set forth below:

<TABLE>
<CAPTION>
  -------------------------------------------------------------------------------------------------------------------
                                               S&P's Rating Category (1)
  -------------------------------------------------------------------------------------------------------------------
      AAA* (2)          AA*           A*            BBB*           BB*           B*           CCC*           NR
  ----------------- ------------ ------------- --------------- ------------- ------------ -------------- ------------
<S>                 <C>          <C>           <C>             <C>           <C>          <C>            <C>
      144.75%         147.75%      150.75%        153.75%        175.11%       195.11%       215.11%       220.00%
  ----------------- ------------ ------------- --------------- ------------- ------------ -------------- ------------
</TABLE>

__________________
*    S&P rating.
(1)  For Municipal Bonds of any one issuer rated at least BBB- by S&P, or if
     not rated by S&P, rated at least A- by another NRSRO, 2% is added to the
     applicable S&P Discount Factor for every 1% by which the Market Value of
     such Municipal Bonds exceeds 5% of the aggregate Market Value of the S&P
     Eligible Assets, but in no event greater than 10%; or for any percentage
     over 5% add 10 percentage points to the applicable S&P Discount Factor.
(2)  For zero coupon Municipal Bonds, the S&P Discount Factor is 441.80%.

     Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Bonds will be 115%, so long as such Municipal Bonds are rated A-1+
or SP-1+ by S&P and mature or have a demand feature exercisable in 30 days or
less, or 120% so long as such Municipal Bonds are rated A-1 or SP-1 by S&P and
mature or have a demand feature exercisable in 30 days or less, or 125% if
such Municipal Bonds are not rated by S&P but are rated VMIG-1, P-1 or MIG-1
by Moody's or F-1+ by Fitch; provided, however, such short-term Municipal
Bonds rated by Moody's or Fitch but not rated by S&P having a demand feature
exercisable in 30 days or less must be backed by a letter of credit, liquidity
facility or guarantee from a bank or other financial institution having a
short-term rating of at least A-1+ from S&P; and further provided that such
short-term Municipal Bonds rated by Moody's or Fitch but not rated by S&P may
comprise no more than 50% of short-term Municipal Bonds that qualify as S&P
Eligible Assets, (ii) the S&P Discount Factor for Rule 2a-7 Money Market Funds
will be 110%, (iii) the S&P Discount Factor for Receivables for Municipal
Bonds Sold that are due in more than five


                                      22
<PAGE>

Business Days from such Valuation Date will be the S&P Discount Factor
applicable to the Municipal Bonds sold, and (iv) no S&P Discount Factor will
be applied to cash or to Receivables for Municipal Bonds Sold if such
receivables are due within five Business Days of such Valuation Date.
"Receivables for Municipal Bonds Sold," for purposes of calculating S&P
Eligible Assets as of any Valuation Date, means the book value of receivables
for Municipal Bonds sold as of or prior to such Valuation Date. For purposes
of the foregoing, Anticipation Notes rated SP-1 or, if not rated by S&P, rated
VMIG-1 by Moody's or F-1+ by Fitch, which do not mature or have a demand
feature exercisable in 30 days and which do not have a long-term rating, shall
be considered to be short-term Municipal Bonds.

     "S&P Eligible Asset" means cash, Receivables for Municipal Bonds Sold,
Rule 2a-7 Money Market Funds or a Municipal Bond that (i) is issued by any of
the 50 states of the United States, its territories and their subdivisions,
counties, cities, towns, villages, and school districts, agencies, such as
authorities and special districts created by the states, and certain federally
sponsored agencies such as local housing authorities (payments made on these
bonds are exempt from regular federal income taxes and are generally exempt
from state and local taxes in the state of issuance), (ii) except for zero
coupon Municipal Bonds rated AAA by S&P that mature in 30 years or less, is
interest bearing and pays interest at least semi-annually; (iii) is payable
with respect to principal and interest in United States Dollars; (iv) is not
subject to a covered call or covered put option written by the Corporation;
(v) except for Inverse Floaters, is not part of a private placement; and (vi)
except for Inverse Floaters and legally defeased bonds that are secured by
securities issued or guaranteed by the United States Government, is part of an
issue of Municipal Bonds with an original issue size of at least $10 million
or, if of an issue with an


                                      23
<PAGE>

original issue size below $10 million, is rated at least AA or higher by S&P.
Notwithstanding the foregoing:

          (1) Municipal Bonds issued by issuers in any one state or territory
     will be considered S&P Eligible Assets only to the extent the Market
     Value of such Municipal Bonds does not exceed 25% of the aggregate Market
     Value of S&P Eligible Assets;

          (2) Municipal Bonds which are escrow bonds or defeased bonds may
     compose up to 100% of the aggregate Market Value of S&P Eligible Assets
     if such Bonds initially are assigned a rating by S&P in accordance with
     S&P's legal defeasance criteria or rerated by S&P as economic defeased
     escrow bonds and assigned an AAA rating. Municipal Bonds may be rated as
     escrow bonds by another NRSRO or rerated as an escrow bond and assigned
     the equivalent of an S&P AAA rating, provided that such equivalent rated
     Bonds are limited to 50% of the aggregate Market Value of S&P Eligible
     Assets and are deemed to have an AA S&P rating for purposes of
     determining the S&P Discount Factor applicable to such Municipal Bonds.
     The limitations on Municipal Bonds in clause (1) above and clauses (3)
     and (4) below are not applicable to escrow bonds;

          (3) Municipal Bonds which are not rated by any NRSRO may comprise no
     more than 10% of S&P Eligible Assets;

          (4) Municipal Bonds rated at least BBB- by S&P, or if not rated by
     S&P, rated at least A- by another NRSRO, of any one issuer or guarantor
     (excluding bond insurers) will be considered S&P Eligible Assets only to
     the extent the Market Value of such Municipal Bonds does not exceed 10%
     of the aggregate Market Value of the S&P Eligible Assets, High Yield
     Municipal Bonds of any issuer may comprise no more than


                                      24
<PAGE>

     5% of S&P Eligible Assets, and Municipal Bonds of any one issuer which
     are not rated by any NRSRO will be considered S&P Eligible Assets only to
     the extent the Market Value of such Municipal Bonds does not exceed 5% of
     the aggregate Market Value of the S&P Eligible Assets. In the aggregate,
     the maximum issuer exposure is limited to 10% of the S&P Eligible Assets;
     and

          (5) Municipal Bonds not rated by S&P but rated by another NRSRO will
     be included in S&P Eligible Assets only to the extent the Market Value of
     such Municipal Bonds does not exceed 50% of the aggregate Market Value of
     the S&P Eligible Assets.

     "S&P Exposure Period" means the sum of (i) that number of days from the
last Valuation Date on which the Corporation's Discounted Value of S&P
Eligible Assets were greater than the AMPS Basic Maintenance Amount to the
Valuation Date on which the Corporation's Discounted Value of S&P Eligible
Assets failed to exceed the AMPS Basic Maintenance Amount, (ii) the maximum
number of days following a Valuation Date that the Corporation has under these
Articles Supplementary to cure any failure to maintain a Discounted Value of
S&P Eligible Assets at least equal to the AMPS Basic Maintenance Amount, and
(iii) the maximum number of days the Corporation has to effect a mandatory
redemption under Section 4(a)(ii) of these Articles Supplementary.

     "S&P Hedging Transactions" has the meaning set forth in paragraph 8(a) of
these Articles Supplementary.

     "S&P Volatility Factor" means 277% or such other potential dividend rate
increase factor as S&P advises the Corporation in writing is applicable.

     "Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Corporation as securities
depository for the shares of


                                      25
<PAGE>

AMPS that agrees to follow the procedures required to be followed by such
securities depository in connection with the shares of AMPS.

     "Service" means the United States Internal Revenue Service.

     "7-Day Dividend Period" means a Dividend Period consisting of seven days.

     "Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than 7), evenly divisible by seven, and
not fewer than seven nor more than 364.

     "Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than 7), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole
year or more but not greater than five years (in each case subject to
adjustment as provided in paragraph 2(b)(i)).

     "Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Directors of the Corporation, after
consultation with the Auction Agent and the Broker-Dealers, during which the
shares of AMPS subject to such Dividend Period shall not be subject to
redemption at the option of the Corporation and (ii) a period (a "Premium Call
Period"), consisting of a number of whole years and determined by the Board of
Directors of the Corporation, after consultation with the Auction Agent and
the Broker-Dealers, during each year of which the shares of AMPS subject to
such Dividend Period shall be redeemable at the Corporation's option at a
price per share equal to $25,000 plus accumulated but unpaid dividends plus a
premium expressed as a percentage of $25,000, as determined by the Board of
Directors of the Corporation after consultation with the Auction Agent and the
Broker-Dealers.



                                      26
<PAGE>

     "Stock Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the AMPS.

     "Stock Register" means the register of Holders maintained on behalf of
the Corporation by the Auction Agent in its capacity as transfer agent and
registrar for the AMPS.

     "Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.

     "Substitute LIBOR Dealers" means such Substitute LIBOR Dealer or Dealers
as the Corporation may from time to time appoint or, in lieu of any thereof,
their respective affiliates or successors.

     "Substitute Rating Agency" and "Substitute Rating Agencies" mean a NRSRO
or two NRSROs, respectively, selected by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its affiliates and successors, after obtaining the
Corporation's approval, to act as the substitute rating agency or substitute
rating agencies, as the case may be, to determine the credit ratings of the
shares of AMPS.

     "Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30 day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day
immediately preceding such date but in any event not later than 8:30 A.M.,
Eastern time, on such date by Kenny Information Systems Inc. or any successor
thereto, based upon 30-day yield evaluations at par of bonds the interest on
which is excludable for regular Federal income tax purposes under the Code of
"high grade" component issuers selected by Kenny Information Systems Inc. or
any such successor from time to time in its


                                      27
<PAGE>

discretion, which component issuers shall include, without limitation, issuers
of general obligation bonds but shall exclude any bonds the interest on which
constitutes an item of tax preference under Section 57(a)(5) of the Code, or
successor provisions, for purposes of the "alternative minimum tax," divided
by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal); provided,
however, that if the Kenny Index is not made so available by 8:30 A.M.,
Eastern time, on such date by Kenny Information Systems Inc. or any successor,
the Taxable Equivalent of the Short-Term Municipal Bond Rate shall mean the
quotient of (A) the per annum rate expressed on an interest equivalent basis
equal to the most recent Kenny Index so made available for any preceding
Business Day, divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a
decimal). The Corporation may not utilize a successor index to the Kenny Index
unless Moody's and S&P provide the Corporation with written confirmation that
the use of such successor index will not adversely affect the then-current
respective Moody's and S&P ratings of the AMPS.

     "Treasury Bonds" means U.S. Treasury Bonds or Notes.

     "Treasury Index Rate" means the average yield to maturity for actively
traded marketable fixed interest rate U.S. Treasury Securities having the same
number of 30-day periods to maturity as the length of the applicable Dividend
Period, determined, to the extent necessary, by linear interpolation based
upon the yield for such securities having the next shorter and next longer
number of 30-day periods to maturity treating all Dividend Periods with a
length greater than the longest maturity for such securities as having a
length equal to such longest maturity, in all cases based upon data set forth
in the most recent weekly statistical release published by the Board of
Governors of the Federal Reserve System (currently in H.15(519)); provided,
however, if the most recent such statistical release shall not have been
published during the 15 days


                                      28
<PAGE>

preceding the date of computation, the foregoing computations shall be based
upon the average of comparable data as quoted to the Corporation by at least
three recognized dealers in U.S. Government Securities selected by the
Corporation.

     "U.S. Treasury Securities" means direct obligations of the United States
Treasury that are entitled to the full faith and credit of the United States
government.

     "Valuation Date" means, for purposes of determining whether the
Corporation is maintaining the AMPS Basic Maintenance Amount, the last
Business Day of each week commencing with the Date of Original Issue;
provided, however, that the first Valuation Date may occur on any date
established by the Corporation; provided, however, that such date shall not be
more than one week from the Date of Original Issue.

     "Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Corporation, the amount of cash or securities
paid to or received from a broker (subsequent to the Initial Margin payment)
from time to time as the price of such futures contract fluctuates.

     (b) The foregoing definitions of AMPS Basic Maintenance Amount, AMPS
Basic Maintenance Cure Date, AMPS Basic Maintenance Report, Auditors'
Confirmation, Deposit Securities, Discounted Value, High Yield Municipal
Bonds, Independent Auditors, Initial Margin, Inverse Floaters, Market Value,
Maximum Potential Additional Dividend Liability, Moody's Discount Factor,
Moody's Eligible Asset, Moody's Exposure Period, Moody's Hedging Transactions,
Moody's Volatility Factor, S&P Discount Factor, S&P Eligible Asset, S&P
Exposure Period, S&P Hedging Transactions, S&P Volatility Factor, Valuation
Date and Variation Margin have been determined by the Board of Directors of
the Corporation in order to obtain a Aaa rating from Moody's and a AAA rating
from S&P on the AMPS on their Date of


                                      29
<PAGE>

Original Issue; and the Board of Directors of the Corporation shall have the
authority, without shareholder approval, to amend, alter or repeal from time
to time by resolution or otherwise the foregoing definitions and the
restrictions and guidelines if Moody's and S&P or any Substitute Rating Agency
advises the Corporation in writing that such amendment, alteration or repeal
will not materially affect the then current rating of the AMPS. Furthermore,
if the Board of Directors determines as provided in paragraph 12 hereto not to
continue to comply with the provisions of paragraphs 7 and 8 hereof with
respect to Moody's, and any other provisions hereof with respect to obtaining
and maintaining a rating on the AMPS from Moody's, and/or paragraphs 7 and 8
hereof with respect to S&P, and any other provisions hereof with respect to
obtaining and maintaining a rating on the AMPS from S&P, then such definitions
listed in this paragraph, unless the context requires otherwise, shall have no
meaning in these Articles Supplementary for the AMPS.

     2. Dividends.

     (a) The Holders shall be entitled to receive, when, as and if declared by
the Board of Directors of the Corporation, out of funds legally available
therefor, cumulative dividends each consisting of (i) cash at the Applicable
Rate, (ii) a Right to receive cash as set forth in paragraph 2(e) below, and
(iii) any additional amounts as set forth in paragraph 2(f) below, and no
more, payable on the Dividend Payment Date set forth below. Dividends on the
shares of AMPS so declared and payable shall be paid (i) in preference to and
in priority over any dividends declared and payable on the Common Stock, and
(ii) to the extent permitted under the Code and to the extent available, out
of net tax-exempt income earned on the Corporation's investments. To the
extent permitted under the Code, dividends on shares of AMPS will be
designated as exempt-


                                      30
<PAGE>

interest dividends. For the purposes of this section, the term "net tax-exempt
income" shall exclude capital gains of the Corporation.

     (b) (i) Cash dividends on shares of AMPS shall accumulate from the Date
of Original Issue and shall be payable, when, as and if declared by the Board
of Directors, out of funds legally available therefor, commencing on the
Initial Dividend Payment Date with respect to the AMPS. Following the Initial
Dividend Payment Date for the AMPS, dividends on the AMPS will be payable, at
the option of the Corporation, either (i) with respect to any 7-Day Dividend
Period and any Short Term Dividend Period of 35 or fewer days, on the day next
succeeding the last day thereof, or (ii) with respect to any Short Term
Dividend Period of more than 35 days and with respect to any Long Term
Dividend Period, monthly on the first Business Day of each calendar month
during such Short Term Dividend Period or Long Term Dividend Period and on the
day next succeeding the last day thereof (each such date referred to in clause
(i) or (ii) being herein referred to as a "Normal Dividend Payment Date"),
except that if such Normal Dividend Payment Date is not a Business Day, then
the Dividend Payment Date shall be the first Business Day next succeeding such
Normal Dividend Payment Date. Although any particular Dividend Payment Date
may not occur on the originally scheduled date because of the exception
discussed above, the next succeeding Dividend Payment Date, subject to such
exception, will occur on the next following originally scheduled date. If for
any reason a Dividend Payment Date cannot be fixed as described above, then
the Board of Directors shall fix the Dividend Payment Date. The Board of
Directors by resolution prior to authorization of a dividend by the Board of
Directors may change a Dividend Payment Date if such change does not adversely
affect the contract rights of the Holders of shares of AMPS set forth in the
Charter. The Initial Dividend Period, 7-Day Dividend Periods and Special
Dividend Periods are


                                      31
<PAGE>

hereinafter sometimes referred to as Dividend Periods. Each dividend payment
date determined as provided above is hereinafter referred to as a "Dividend
Payment Date."

          (ii) Each dividend shall be paid to the Holders as they appear in
     the Stock Register as of 12:00 noon, Eastern time, on the Business Day
     preceding the Dividend Payment Date. Dividends in arrears for any past
     Dividend Period may be declared and paid at any time, without reference
     to any regular Dividend Payment Date, to the Holders as they appear on
     the Stock Register on a date, not exceeding 15 days prior to the payment
     date therefor, as may be fixed by the Board of Directors of the
     Corporation.

     (c) (i) During the period from and including the Date of Original Issue
to but excluding the Initial Dividend Payment Date (the "Initial Dividend
Period"), the Applicable Rate shall be the Initial Dividend Rate. Commencing
on the Initial Dividend Payment Date, the Applicable Rate for each subsequent
dividend period (hereinafter referred to as a "Subsequent Dividend Period"),
which Subsequent Dividend Period shall commence on and include a Dividend
Payment Date and shall end on and include the calendar day prior to the next
Dividend Payment Date (or last Dividend Payment Date in a Dividend Period if
there is more than one Dividend Payment Date), shall be equal to the rate per
annum that results from implementation of the Auction Procedures.

     The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period. Except in the case of the willful
failure of the Corporation to pay a dividend on a Dividend Payment Date or to
redeem any shares of AMPS on the date set for such redemption, any amount of
any dividend due on any Dividend Payment Date (if, prior to the close of
business on the


                                      32
<PAGE>

second Business Day preceding such Dividend Payment Date, the Corporation has
declared such dividend payable on such Dividend Payment Date to the Holders of
such shares of AMPS as of 12:00 noon, Eastern time, on the Business Day
preceding such Dividend Payment Date) or redemption price with respect to any
shares of AMPS not paid to such Holders when due may be paid to such Holders
in the same form of funds by 12:00 noon, Eastern time, on any of the first
three Business Days after such Dividend Payment Date or due date, as the case
may be, provided that, such amount is accompanied by a late charge calculated
for such period of non-payment at the Non-Payment Period Rate applied to the
amount of such non-payment based on the actual number of days comprising such
period divided by 365. In the case of a willful failure of the Corporation to
pay a dividend on a Dividend Payment Date or to redeem any shares of AMPS on
the date set for such redemption, the preceding sentence shall not apply and
the Applicable Rate for the Dividend Period commencing during the Non-Payment
Period resulting from such failure shall be the Non-Payment Period Rate. For
the purposes of the foregoing, payment to a person in same-day funds on any
Business Day at any time shall be considered equivalent to payment to such
person in New York Clearing House (next day) funds at the same time on the
preceding Business Day, and any payment made after 12:00 noon, Eastern time,
on any Business Day shall be considered to have been made instead in the same
form of funds and to the same person before 12:00 noon, Eastern time, on the
next Business Day.

          (ii) The amount of cash dividends per share of the AMPS payable (if
     declared) on the Initial Dividend Payment Date and on each Dividend
     Payment Date of each 7-Day Dividend Period and each Short Term Dividend
     Period shall be computed by multiplying the Applicable Rate for such
     Dividend Period by a fraction, the numerator of which will be the number
     of days in such Dividend Period or part thereof that such share was


                                      33
<PAGE>

     outstanding and the denominator of which will be 365, multiplying the
     amount so obtained by $25,000, and rounding the amount so obtained to the
     nearest cent. During any Long Term Dividend Period, the amount of cash
     dividends per share of AMPS payable (if declared) on any Dividend Payment
     Date shall be computed by multiplying the Applicable Rate for such
     Dividend Period by a fraction, the numerator of which will be such number
     of days in such part of such Dividend Period that such share was
     outstanding and for which dividends are payable on such Dividend Payment
     Dates and the denominator of which will be 360, multiplying the amount so
     obtained by $25,000, and rounding the amount so obtained to the nearest
     cent.

          (iii) With respect to each Dividend Period that is a Special
     Dividend Period, the Corporation may, at its sole option and to the
     extent permitted by law, by telephonic and written notice (a "Request for
     Special Dividend Period") to the Auction Agent and to each Broker-Dealer,
     request that the next succeeding Dividend Period for the AMPS be a number
     of days (other than seven), evenly divisible by seven and not fewer than
     seven nor more than 364 in the case of a Short Term Dividend Period or
     one whole year or more but not greater than five years in the case of a
     Long Term Dividend Period, specified in such notice, provided that the
     Corporation may not give a Request for Special Dividend Period (and any
     such request shall be null and void) unless, for any Auction occurring
     after the initial Auction, Sufficient Clearing Bids were made in the last
     occurring Auction and unless full cumulative dividends, any amounts due
     with respect to redemptions, and any Additional Dividends payable prior
     to such date have been paid in full. Such Request for Special Dividend
     Period, in the case of a Short Term Dividend Period, shall be given on or
     prior to the second Business Day but not more than seven



                                      34
<PAGE>

     Business Days prior to an Auction Date for the AMPS and, in the case of a
     Long Term Dividend Period, shall be given on or prior to the second
     Business Day but not more than 28 days prior to an Auction Date for the
     AMPS. Upon receiving such Request for Special Dividend Period, the
     Broker-Dealer(s) shall jointly determine whether, given the factors set
     forth below, it is advisable that the Corporation issue a Notice of
     Special Dividend Period for the AMPS as contemplated by such Request for
     Special Dividend Period and the Optional Redemption Price of the AMPS
     during such Special Dividend Period and the Specific Redemption
     Provisions and shall give the Corporation written notice (a "Response")
     of such determination by no later than the second Business Day prior to
     such Auction Date. In making such determination the Broker-Dealer(s) will
     consider (1) existing short-term and long-term market rates and indices
     of such short-term and long-term rates, (2) existing market supply and
     demand for short-term and long-term securities, (3) existing yield curves
     for short-term and long-term securities comparable to the AMPS, (4)
     industry and financial conditions which may affect the AMPS, (5) the
     investment objective of the Corporation, and (6) the Dividend Periods and
     dividend rates at which current and potential beneficial holders of the
     AMPS would remain or become beneficial holders. If the Broker-Dealer(s)
     shall not give the Corporation a Response by such second Business Day or
     if the Response states that given the factors set forth above it is not
     advisable that the Corporation give a Notice of Special Dividend Period
     for the AMPS, the Corporation may not give a Notice of Special Dividend
     Period in respect of such Request for Special Dividend Period. In the
     event the Response indicates that it is advisable that the Corporation
     give a Notice of Special Dividend Period for the AMPS, the Corporation
     may by no later than the second


                                      35
<PAGE>

     Business Day prior to such Auction Date give a notice (a "Notice of
     Special Dividend Period") to the Auction Agent, the Securities Depository
     and each Broker-Dealer which notice will specify (i) the duration of the
     Special Dividend Period, (ii) the Optional Redemption Price as specified
     in the related Response and (iii) the Specific Redemption Provisions, if
     any, as specified in the related Response. The Corporation also shall
     provide a copy of such Notice of Special Dividend Period to Moody's and
     S&P. The Corporation shall not give a Notice of Special Dividend Period
     and, if the Corporation has given a Notice of Special Dividend Period,
     the Corporation is required to give telephonic and written notice of its
     revocation (a "Notice of Revocation") to the Auction Agent, each
     Broker-Dealer, and the Securities Depository on or prior to the Business
     Day prior to the relevant Auction Date if (x) either the 1940 Act AMPS
     Asset Coverage is not satisfied or the Corporation shall fail to maintain
     S&P Eligible Assets and Moody's Eligible Assets each with an aggregate
     Discounted Value at least equal to the AMPS Basic Maintenance Amount, in
     each case on the Valuation Date immediately preceding the Business Day
     prior to the relevant Auction Date on an actual basis and on a pro forma
     basis giving effect to the proposed Special Dividend Period (using as a
     pro forma dividend rate with respect to such Special Dividend Period the
     dividend rate which the Broker-Dealers shall advise the Corporation is an
     approximately equal rate for securities similar to the AMPS with an equal
     dividend period), provided that, in calculating the aggregate Discounted
     Value of Moody's Eligible Assets for this purpose, the Moody's Exposure
     Period shall be deemed to be one week longer, (y) sufficient funds for
     the payment of dividends payable on the immediately succeeding Dividend
     Payment Date have not been segregated in an account at the Corporation's
     custodian bank or on the


                                      36
<PAGE>

     books of the Corporation by the close of business on the third Business
     Day preceding the related Auction Date or (z) the Broker-Dealer(s)
     jointly advise the Corporation that after consideration of the factors
     listed above they have concluded that it is advisable to give a Notice of
     Revocation. The Corporation also shall provide a copy of such Notice of
     Revocation to Moody's and S&P. If the Corporation is prohibited from
     giving a Notice of Special Dividend Period as a result of any of the
     factors enumerated in clause (x), (y) or (z) above or if the Corporation
     gives a Notice of Revocation with respect to a Notice of Special Dividend
     Period for the AMPS, the next succeeding Dividend Period will be a 7-Day
     Dividend Period. In addition, in the event Sufficient Clearing Bids are
     not made in the applicable Auction or such Auction is not held for any
     reason, such next succeeding Dividend Period will be a 7-Day Dividend
     Period and the Corporation may not again give a Notice of Special
     Dividend Period for the AMPS (and any such attempted notice shall be null
     and void) until Sufficient Clearing Bids have been made in an Auction
     with respect to a 7-Day Dividend Period.

     (d) (i) Holders shall not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the shares of AMPS (except for
Additional Dividends as provided in paragraph 2(e) hereof and additional
payments as provided in paragraph 2(f) hereof). Except for the late charge
payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment on the
shares of AMPS that may be in arrears.

          (ii) For so long as any share of AMPS is Outstanding, the
     Corporation shall not declare, pay or set apart for payment any dividend
     or other distribution (other than a


                                      37
<PAGE>

     dividend or distribution paid in shares of, or options, warrants or
     rights to subscribe for or purchase, Common Stock or other stock, if any,
     ranking junior to the shares of AMPS as to dividends or upon liquidation)
     in respect of the Common Stock or any other stock of the Corporation
     ranking junior to or on a parity with the shares of AMPS as to dividends
     or upon liquidation, or call for redemption, redeem, purchase or
     otherwise acquire for consideration any shares of the Common Stock or any
     other such junior stock (except by conversion into or exchange for stock
     of the Corporation ranking junior to the shares of AMPS as to dividends
     and upon liquidation) or any other such Parity Stock (except by
     conversion into or exchange for stock of the Corporation ranking junior
     to or on a parity with the shares of AMPS as to dividends and upon
     liquidation), unless (A) immediately after such transaction, the
     Corporation shall have S&P Eligible Assets and Moody's Eligible Assets
     each with an aggregate Discounted Value equal to or greater than the AMPS
     Basic Maintenance Amount and the Corporation shall maintain the 1940 Act
     AMPS Asset Coverage, (B) full cumulative dividends on shares of AMPS and
     shares of Other AMPS due on or prior to the date of the transaction have
     been declared and paid or shall have been declared and sufficient funds
     for the payment thereof deposited with the Auction Agent, (C) any
     Additional Dividend required to be paid under paragraph 2(e) below on or
     before the date of such declaration or payment has been paid and (D) the
     Corporation has redeemed the full number of shares of AMPS required to be
     redeemed by any provision for mandatory redemption contained in Section
     4(a)(ii).

     (e) Each dividend shall consist of (i) cash at the Applicable Rate, (ii)
an uncertificated right (a "Right") to receive an Additional Dividend (as
defined below), and (iii) any additional amounts as set forth in paragraph
2(f) below. Each Right shall thereafter be


                                      38
<PAGE>

independent of the share or shares of AMPS on which the dividend was paid. The
Corporation shall cause to be maintained a record of each Right received by
the respective Holders. A Right may not be transferred other than by operation
of law. If the Corporation retroactively allocates any net capital gains or
other income subject to regular Federal income taxes to shares of AMPS without
having given advance notice thereof to the Auction Agent as described in
paragraph 2(f) hereof solely by reason of the fact that such allocation is
made as a result of the redemption of all or some of the outstanding shares of
AMPS or the liquidation of the Corporation (the amount of such allocation
referred to herein as a "Retroactive Taxable Allocation"), the Corporation
will, within 90 days (and generally within 60 days) after the end of the
Corporation's fiscal year for which a Retroactive Taxable Allocation is made,
provide notice thereof to the Auction Agent and to each holder of a Right
applicable to such shares of AMPS (initially Cede & Co. as nominee of The
Depository Trust Company) during such fiscal year at such holder's address as
the same appears or last appeared on the Stock Books of the Corporation. The
Corporation will, within 30 days after such notice is given to the Auction
Agent, pay to the Auction Agent (who will then distribute to such holders of
Rights), out of funds legally available therefor, an amount equal to the
aggregate Additional Dividend with respect to all Retroactive Taxable
Allocations made to such holders during the fiscal year in question.

     An "Additional Dividend" means payment to a present or former holder of
shares of AMPS of an amount which, when taken together with the aggregate
amount of Retroactive Taxable Allocations made to such holder with respect to
the fiscal year in question, would cause such holder's dividends in dollars
(after Federal income tax consequences) from the aggregate of both the
Retroactive Taxable Allocations and the Additional Dividend to be equal to the
dollar amount of the dividends which would have been received by such holder
if the amount of the


                                      39
<PAGE>

aggregate Retroactive Taxable Allocations had been excludable from the gross
income of such holder. Such Additional Dividend shall be calculated (i)
without consideration being given to the time value of money; (ii) assuming
that no holder of shares of AMPS is subject to the Federal alternative minimum
tax with respect to dividends received from the Corporation; and (iii)
assuming that each Retroactive Taxable Allocation would be taxable in the
hands of each holder of shares of AMPS at the greater of: (x) the maximum
marginal regular Federal individual income tax rate applicable to ordinary
income or capital gains depending on the taxable character of the distribution
(including any surtax); or (y) the maximum marginal regular Federal corporate
income tax rate applicable to ordinary income or capital gains depending on
the taxable character of the distribution (disregarding in both (x) and (y)
the effect of any state or local taxes and the phase out of, or provision
limiting, personal exemptions, itemized deductions, or the benefit of lower
tax brackets).

     (f) Except as provided below, whenever the Corporation intends to include
any net capital gains or other income subject to regular Federal income taxes
in any dividend on shares of AMPS, the Corporation will notify the Auction
Agent of the amount to be so included at least five Business Days prior to the
Auction Date on which the Applicable Rate for such dividend is to be
established. The Corporation may also include such income in a dividend on
shares of the AMPS without giving advance notice thereof if it increases the
dividend by an additional amount calculated as if such income was a
Retroactive Taxable Allocation and the additional amount was an Additional
Dividend, provided that the Corporation will notify the Auction Agent of the
additional amounts to be included in such dividend at least five Business Days
prior to the applicable Dividend Payment Date.

     (g) No fractional shares of AMPS shall be issued.



                                      40
<PAGE>

     3. Liquidation Rights. Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the Holders shall be
entitled to receive, out of the assets of the Corporation available for
distribution to shareholders, before any distribution or payment is made upon
any Common Stock or any other capital stock ranking junior in right of payment
upon liquidation to the AMPS, the sum of $25,000 per share plus accumulated
but unpaid dividends (whether or not earned or declared) thereon to the date
of distribution, and after such payment the Holders will be entitled to no
other payments other than Additional Dividends as provided in paragraph 2(e)
hereof. If upon any liquidation, dissolution or winding up of the Corporation,
the amounts payable with respect to the AMPS and any other Outstanding class
or series of Preferred Stock of the Corporation ranking on a parity with the
AMPS as to payment upon liquidation are not paid in full, the Holders and the
holders of such other class or series will share ratably in any such
distribution of assets in proportion to the respective preferential amounts to
which they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the Holders will not be entitled to
any further participation in any distribution of assets by the Corporation
except for any Additional Dividends. A consolidation, merger or statutory
share exchange of the Corporation with or into any other corporation or entity
or a sale, whether for cash, shares of stock, securities or properties, of all
or substantially all or any part of the assets of the Corporation shall not be
deemed or construed to be a liquidation, dissolution or winding up of the
Corporation.

     4. Redemption.

     (a) Shares of AMPS shall be redeemable by the Corporation as provided
below:

          (i) Optional Redemption. To the extent permitted under the 1940 Act
     and Maryland law, upon giving a Notice of Redemption, the Corporation at
     its option may


                                      41
<PAGE>

     redeem shares of AMPS, in whole or in part, out of funds legally
     available therefor, at the Optional Redemption Price per share, on any
     Dividend Payment Date; provided that no share of AMPS may be redeemed at
     the option of the Corporation during (A) the Initial Dividend Period with
     respect to such share or (B) a Non-Call Period to which such share is
     subject. In addition, holders of AMPS which are redeemed shall be
     entitled to receive Additional Dividends to the extent provided herein.
     The Corporation may not give a Notice of Redemption relating to an
     optional redemption as described in this paragraph 4(a)(i) unless, at the
     time of giving such Notice of Redemption, the Corporation has available
     Deposit Securities with maturity or tender dates not later than the day
     preceding the applicable redemption date and having a value not less than
     the amount due to Holders by reason of the redemption of their shares of
     AMPS on such redemption date.

          (ii) Mandatory Redemption. The Corporation shall redeem, out of
     funds legally available therefor, at the Mandatory Redemption Price per
     share, shares of AMPS to the extent permitted under the 1940 Act and
     Maryland law, on a date fixed by the Board of Directors, if the
     Corporation fails to maintain S&P Eligible Assets and Moody's Eligible
     Assets each with an aggregate Discounted Value equal to or greater than
     the AMPS Basic Maintenance Amount as provided in paragraph 7(a) or to
     satisfy the 1940 Act AMPS Asset Coverage as provided in paragraph 6 and
     such failure is not cured on or before the AMPS Basic Maintenance Cure
     Date or the 1940 Act Cure Date (herein collectively referred to as a
     "Cure Date"), as the case may be. In addition, holders of AMPS so
     redeemed shall be entitled to receive Additional Dividends to the extent
     provided herein. The number of shares of AMPS to be redeemed shall be
     equal to the lesser of (i) the minimum number of shares of AMPS the
     redemption of which, if deemed to have


                                      42
<PAGE>

     occurred immediately prior to the opening of business on the Cure Date,
     together with all shares of other Preferred Stock subject to redemption
     or retirement, would result in the Corporation having S&P Eligible Assets
     and Moody's Eligible Assets each with an aggregate Discounted Value equal
     to or greater than the AMPS Basic Maintenance Amount or satisfaction of
     the 1940 Act AMPS Asset Coverage, as the case may be, on such Cure Date
     (provided that, if there is no such minimum number of shares of AMPS and
     shares of other Preferred Stock the redemption of which would have such
     result, all shares of AMPS and shares of other Preferred Stock then
     Outstanding shall be redeemed), and (ii) the maximum number of shares of
     AMPS, together with all shares of other Preferred Stock subject to
     redemption or retirement, that can be redeemed out of funds expected to
     be legally available therefor on such redemption date. In determining the
     number of shares of AMPS required to be redeemed in accordance with the
     foregoing, the Corporation shall allocate the number required to be
     redeemed which would result in the Corporation having S&P Eligible Assets
     and Moody's Eligible Assets each with an aggregate Discounted Value equal
     to or greater than the AMPS Basic Maintenance Amount or satisfaction of
     the 1940 Act AMPS Asset Coverage, as the case may be, pro rata among
     shares of AMPS of all series, Other AMPS and other Preferred Stock
     subject to redemption pursuant to provisions similar to those contained
     in this paragraph 4(a)(ii); provided that, shares of AMPS which may not
     be redeemed at the option of the Corporation due to the designation of a
     Non-Call Period applicable to such shares (A) will be subject to
     mandatory redemption only to the extent that other shares are not
     available to satisfy the number of shares required to be redeemed and (B)
     will be selected for redemption in an ascending order of outstanding
     number of days in the Non-


                                      43
<PAGE>

     Call Period (with shares with the lowest number of days to be redeemed
     first) and by lot in the event of shares having an equal number of days
     in such Non-Call Period. The Corporation shall effect such redemption on
     a Business Day which is not later than 30 days after such Cure Date,
     except that if the Corporation does not have funds legally available for
     the redemption of all of the required number of shares of AMPS and shares
     of other Preferred Stock which are subject to mandatory redemption or the
     Corporation otherwise is unable to effect such redemption on or prior to
     30 days after such Cure Date, the Corporation shall redeem those shares
     of AMPS which it is unable to redeem on the earliest practicable date on
     which it is able to effect such redemption out of funds legally available
     therefor.

     (b) No Redemption Under Certain Circumstances. Notwithstanding any other
provision of this paragraph 4, no shares of AMPS may be redeemed pursuant to
paragraph 4(a)(i) of these Articles Supplementary (i) unless all dividends in
arrears on all remaining outstanding shares of Parity Stock shall have been or
are being contemporaneously paid or declared and set apart for payment and
(ii) if redemption thereof would result in the Corporation's failure to
maintain Moody's Eligible Assets or S&P Eligible Assets with an aggregate
Discounted Value equal to or greater than the AMPS Basic Maintenance Amount.
In the event that less than all the outstanding shares of AMPS are to be
redeemed and there is more than one Holder, the shares of AMPS to be redeemed
shall be selected by lot or such other method as the Corporation shall deem
fair and equitable.

     (c) Notice of Redemption. Whenever shares of AMPS are to be redeemed, the
Corporation, not less than 17 nor more than 60 days prior to the date fixed
for redemption, shall mail a notice ("Notice of Redemption") by first-class
mail, postage prepaid, to each Holder


                                      44
<PAGE>

of shares of AMPS to be redeemed and to the Auction Agent. The Corporation
shall cause the Notice of Redemption to also be published in the eastern and
national editions of The Wall Street Journal. The Notice of Redemption shall
set forth (i) the redemption date, (ii) the amount of the redemption price,
(iii) the aggregate number of shares of AMPS to be redeemed, (iv) the place or
places where shares of AMPS are to be surrendered for payment of the
redemption price, (v) a statement that dividends on the shares to be redeemed
shall cease to accumulate on such redemption date (except that holders may be
entitled to Additional Dividends) and (vi) the provision of these Articles
Supplementary pursuant to which such shares are being redeemed. No defect in
the Notice of Redemption or in the mailing or publication thereof shall affect
the validity of the redemption proceedings, except as required by applicable
law.

     If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Corporation shall have deposited in trust with
the Auction Agent, or segregated in an account at the Corporation's custodian
bank for the benefit of the Holders of the AMPS to be redeemed and for payment
to the Auction Agent, Deposit Securities (with a right of substitution) having
an aggregate Discounted Value equal to the redemption payment for the shares
of AMPS as to which such Notice of Redemption has been given with irrevocable
instructions and authority to pay the redemption price to the Holders of such
shares, then upon the date of such deposit or, if no such deposit is made,
then upon such date fixed for redemption (unless the Corporation shall default
in making the redemption payment), all rights of the Holders of such shares as
shareholders of the Corporation by reason of the ownership of such shares will
cease and terminate (except their right to receive the redemption price in
respect thereof and any Additional Dividends, but without interest), and such
shares shall no longer be deemed outstanding. The Corporation shall be
entitled to receive, from time to time, from the Auction


                                      45
<PAGE>

Agent the interest, if any, on such Deposit Securities deposited with it and
the Holders of any shares so redeemed shall have no claim to any of such
interest. In case the Holder of any shares so called for redemption shall not
claim the redemption payment for his shares within one year after the date of
redemption, the Auction Agent shall, upon demand, pay over to the Corporation
such amount remaining on deposit and the Auction Agent shall thereupon be
relieved of all responsibility to the Holder of such shares called for
redemption and such Holder thereafter shall look only to the Corporation for
the redemption payment.

     5. Voting Rights.

     (a) General. Except as otherwise provided in the Charter or By-laws, each
Holder of shares of AMPS shall be entitled to one vote for each share held on
each matter submitted to a vote of shareholders of the Corporation, and the
holders of outstanding shares of Preferred Stock, including AMPS, and of
shares of Common Stock shall vote together as a single class; provided that,
at any meeting of the shareholders of the Corporation held for the election of
directors, the holders of outstanding shares of Preferred Stock, including
AMPS, shall be entitled, as a class, to the exclusion of the holders of all
other securities and classes of capital stock of the Corporation, to elect two
directors of the Corporation. Subject to paragraph 5(b) hereof, the holders of
outstanding shares of capital stock of the Corporation, including the holders
of outstanding shares of Preferred Stock, including AMPS, voting as a single
class, shall elect the balance of the directors.

     (b) Right to Elect Majority of Board of Directors. During any period in
which any one or more of the conditions described below shall exist (such
period being referred to herein as a "Voting Period"), the number of directors
constituting the Board of Directors shall be automatically increased by the
smallest number that, when added to the two directors elected


                                      46
<PAGE>

exclusively by the holders of shares of Preferred Stock, would constitute a
majority of the Board of Directors as so increased by such smallest number;
and the holders of shares of Preferred Stock shall be entitled, voting
separately as one class (to the exclusion of the holders of all other
securities and classes of capital stock of the Corporation), to elect such
smallest number of additional directors, together with the two directors that
such holders are in any event entitled to elect. A Voting Period shall
commence:

          (i) if at any time accumulated dividends (whether or not earned or
     declared, and whether or not funds are then legally available in an
     amount sufficient therefor) on the outstanding shares of AMPS equal to at
     least two full years' dividends shall be due and unpaid and sufficient
     cash or specified securities shall not have been deposited with the
     Auction Agent for the payment of such accumulated dividends; or

          (ii) if at any time holders of any other shares of Preferred Stock
     are entitled to elect a majority of the directors of the Corporation
     under the 1940 Act.

     Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).

     (c) Right to Vote with Respect to Certain Other Matters. So long as any
shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of Preferred Stock
Outstanding at the time, voting separately as one class: (i) authorize, create
or issue any class or series of stock ranking prior to the AMPS or any other
series of Preferred Stock with respect to payment of dividends or the
distribution of assets on dissolution, liquidation or winding up the affairs
of the Corporation, or (ii) amend, alter or repeal the provisions of the
Charter, whether by merger, consolidation or otherwise, so as to adversely


                                      47
<PAGE>

affect any of the contract rights expressly set forth in the Charter of
holders of shares of AMPS or any other Preferred Stock. To the extent
permitted under the 1940 Act, in the event shares of more than one series of
Preferred Stock are outstanding, the Corporation shall not approve any of the
actions set forth in clause (i) or (ii) which adversely affects the contract
rights expressly set forth in the Charter of a Holder of shares of AMPS
differently than those of a Holder of shares of any other series of Preferred
Stock without the affirmative vote of the holders of at least a majority of
the shares of AMPS adversely affected and outstanding at such time (voting
separately as a class). The Corporation shall notify Moody's and S&P ten
Business Days prior to any such vote described in clause (i) or (ii). Unless a
higher percentage is provided for under the Charter, the affirmative vote of
the holders of a majority of the outstanding shares of Preferred Stock,
including AMPS, voting together as a single class, will be required to approve
any plan of reorganization (including bankruptcy proceedings) adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act. So long as any shares of the AMPS are
outstanding, the affirmative vote of the holders of a majority of the
outstanding shares of Preferred Stock, including AMPS, voting together as a
single class, will be required to approve any voluntary application by the
Corporation for relief under Federal bankruptcy law or any similar application
under state law for so long as the Corporation is solvent and does not foresee
becoming insolvent. For purposes of the two preceding sentences, the phrase
"vote of the holders of a majority of the outstanding shares of Preferred
Stock" shall have the meaning set forth in the 1940 Act. The class vote of
holders of shares of Preferred Stock, including AMPS, described above will in
each case be in addition to a separate vote of the requisite percentage of
shares of Common Stock and shares of Preferred Stock, including AMPS, voting
together as a single class necessary to authorize the action in question. An
increase in the


                                      48
<PAGE>

number of authorized shares of Preferred Stock pursuant to the Charter or the
issuance of additional shares of any series of Preferred Stock (including AMPS
and Other AMPS) pursuant to the Charter shall not in and of itself be
considered to adversely affect the contract rights of the holders of the AMPS.

     Notwithstanding the foregoing, and except as otherwise required by the
1940 Act, (i) holders of outstanding shares of the AMPS will be entitled as a
series, to the exclusion of the holders of all other securities, including
other Preferred Stock, Common Stock and other classes of capital stock of the
Corporation, to vote on matters affecting the AMPS that do not materially
adversely affect any of the contract rights of holders of such other
securities, including other Preferred Stock, Common Stock and other classes of
capital stock, as expressly set forth in the Charter, and (ii) holders of
outstanding shares of AMPS will not be entitled to vote on matters affecting
any other Preferred Stock that do not materially adversely affect any of the
contract rights of holders of the AMPS, as expressly set forth in the Charter.

     (d) Voting Procedures.

          (i) As soon as practicable after the accrual of any right of the
     holders of shares of Preferred Stock to elect additional directors as
     described in paragraph 5(b) above, the Corporation shall call a special
     meeting of such holders and instruct the Auction Agent to mail a notice
     of such special meeting to such holders, such meeting to be held not less
     than 10 nor more than 20 days after the date of mailing of such notice.
     If the Corporation fails to send such notice to the Auction Agent or if
     the Corporation does not call such a special meeting, it may be called by
     any such holder on like notice. The record date for determining the
     holders entitled to notice of and to vote at such special meeting shall
     be the close of business on the fifth Business Day preceding the day on


                                      49
<PAGE>

     which such notice is mailed. At any such special meeting and at each
     meeting held during a Voting Period, such Holders, voting together as a
     class (to the exclusion of the holders of all other securities and
     classes of capital stock of the Corporation), shall be entitled to elect
     the number of directors prescribed in paragraph 5(b) above. At any such
     meeting or adjournment thereof in the absence of a quorum, a majority of
     such holders present in person or by proxy shall have the power to
     adjourn the meeting without notice, other than by an announcement at the
     meeting, to a date not more than 120 days after the original record date.

          (ii) For purposes of determining any rights of the Holders to vote
     on any matter or the number of shares required to constitute a quorum,
     whether such right is created by these Articles Supplementary, by the
     other provisions of the Charter, by statute or otherwise, a share of AMPS
     which is not Outstanding shall not be counted.

          (iii) The terms of office of all persons who are directors of the
     Corporation at the time of a special meeting of Holders and holders of
     other Preferred Stock to elect directors shall continue, notwithstanding
     the election at such meeting by the Holders and such other holders of the
     number of directors that they are entitled to elect, and the persons so
     elected by the Holders and such other holders, together with the two
     incumbent directors elected by the Holders and such other holders of
     Preferred Stock and the remaining incumbent directors elected by the
     holders of the Common Stock and Preferred Stock, shall constitute the
     duly elected directors of the Corporation.

          (iv) Simultaneously with the expiration of a Voting Period, the
     terms of office of the additional directors elected by the Holders and
     holders of other Preferred Stock pursuant to paragraph 5(b) above shall
     terminate, the remaining directors shall constitute


                                      50
<PAGE>

     the directors of the Corporation and the voting rights of the Holders and
     such other holders to elect additional directors pursuant to paragraph
     5(b) above shall cease, subject to the provisions of the last sentence of
     paragraph 5(b).

     (e) Exclusive Remedy. Unless otherwise required by law, the Holders of
shares of AMPS shall not have any rights or preferences other than those
specifically set forth herein. The Holders of shares of AMPS shall have no
preemptive rights or rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the shares of AMPS, the exclusive
remedy of the Holders shall be the right to vote for directors pursuant to the
provisions of this paragraph 5.

     (f) Notification to S&P and Moody's. In the event a vote of Holders of
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Corporation shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify S&P and Moody's that such vote is to be
taken and the nature of the action with respect to which such vote is to be
taken and, not later than ten Business Days after the date on which such vote
is taken, notify S&P and Moody's of the result of such vote.

     6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as of
the last Business Day of each month in which any share of AMPS is outstanding,
the 1940 Act AMPS Asset Coverage.

     7. AMPS Basic Maintenance Amount.

     (a) The Corporation shall maintain, on each Valuation Date, and shall
verify to its satisfaction that it is maintaining on such Valuation Date, (i)
S&P Eligible Assets having an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount and (ii) Moody's Eligible Assets having
an aggregate Discounted Value equal to or greater than the


                                      51
<PAGE>

AMPS Basic Maintenance Amount. Upon any failure to maintain the required
Discounted Value, the Corporation will use its best efforts to alter the
composition of its portfolio to reattain a Discounted Value at least equal to
the AMPS Basic Maintenance Amount on or prior to the AMPS Basic Maintenance
Cure Date.

     (b) On or before 5:00 p.m., Eastern time, on the seventh Business Day in
the case of Moody's and on the next Business Day in the case of S&P, after a
Valuation Date on which the Corporation fails to satisfy the AMPS Basic
Maintenance Amount, the Corporation shall (i) complete and deliver to Moody's
a complete AMPS Basic Maintenance Report as of the date of such failure and
(ii) send S&P an electronic notification of such failure. The Corporation will
(i) deliver an AMPS Basic Maintenance Report to Moody's and (ii) send S&P an
electronic notification on or before 5:00 p.m., Eastern time, on the seventh
Business Day in the case of Moody's and on the next Business Day in the case
of S&P, after a Valuation Date on which the Corporation cures its failure to
maintain Moody's Eligible Assets or S&P Eligible Assets, as the case may be,
with an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount and on which the Corporation fails to maintain Moody's
Eligible Assets or S&P Eligible Assets, as the case may be, with an aggregate
Discounted Value which exceeds the AMPS Basic Maintenance Amount by 10% or
more. The Corporation will also deliver an AMPS Basic Maintenance Report to
Moody's and S&P as of the 21st day of each month (or if such day is not a
Business Day, as of the next succeeding Business Day) or as the last Business
Day of the month in which the Corporation's fiscal year ends on or before the
seventh Business Day after such date. The Corporation shall also provide
Moody's and S&P with an AMPS Basic Maintenance Report when specifically
requested by either Moody's or S&P. A failure by the Corporation to deliver an
AMPS Basic Maintenance Report under this paragraph 7(b) shall be


                                      52
<PAGE>

deemed to be delivery of an AMPS Basic Maintenance Report indicating the
Discounted Value for S&P Eligible Assets and Moody's Eligible Assets of the
Corporation is less than the AMPS Basic Maintenance Amount, as of the relevant
Valuation Date.

     (c) Within ten Business Days after the date of delivery of an AMPS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to the
month in which the Corporation's fiscal year ends, the Independent Auditors
will confirm in writing to S&P and Moody's (i) the mathematical accuracy of
the calculations reflected in such Report, (ii) that, in such Report, the
Corporation correctly determined the assets of the Corporation which
constitute S&P Eligible Assets or Moody's Eligible Assets, as the case may be,
at its fiscal year end in accordance with these Articles Supplementary, and
(iii) that, in such Report, the Corporation determined whether the Corporation
had, at its fiscal year end in accordance with these Articles Supplementary,
S&P Eligible Assets of an aggregate Discounted Value at least equal to the
AMPS Basic Maintenance Amount and Moody's Eligible Assets of an aggregate
Discounted Value at least equal to the AMPS Basic Maintenance Amount (such
confirmation is herein called the "Auditors' Confirmation").

     (d) Within ten Business Days after the date of delivery to Moody's of an
AMPS Basic Maintenance Report in accordance with paragraph 7(b) above relating
to any Valuation Date on which the Corporation failed to maintain S&P Eligible
Assets with an aggregate Discounted Value and Moody's Eligible Assets with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount, and relating to the AMPS Basic Maintenance Cure Date with respect to
such failure, the Independent Auditors will provide to S&P and Moody's an
Auditors' Confirmation as to such AMPS Basic Maintenance Report.



                                      53
<PAGE>

     (e) If any Auditors' Confirmation delivered pursuant to subparagraph (c)
or (d) of this paragraph 7 shows that an error was made in the AMPS Basic
Maintenance Report for a particular date for which such Auditors' Confirmation
as required to be delivered, or shows that a lower aggregate Discounted Value
for the aggregate of all S&P Eligible Assets or Moody's Eligible Assets, as
the case may be, of the Corporation was determined by the Independent
Auditors, the calculation or determination made by such Independent Auditors
shall be final and conclusive and shall be binding on the Corporation, and the
Corporation shall accordingly amend and deliver the AMPS Basic Maintenance
Report to S&P and Moody's promptly following receipt by the Corporation of
such Auditors' Confirmation.

     (f) On or before 5:00 p.m., Eastern time, on the first Business Day after
the Date of Original Issue of the shares of AMPS, the Corporation will
complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of
the close of business on such Date of Original Issue. Within five Business
Days of such Date of Original Issue, the Independent Auditors will confirm in
writing to S&P and Moody's (i) the mathematical accuracy of the calculations
reflected in such Report and (ii) that the aggregate Discounted Value of S&P
Eligible Assets and the aggregate Discounted Value of Moody's Eligible Assets
reflected thereon equals or exceeds the AMPS Basic Maintenance Amount
reflected thereon. Also, on or before 5:00 p.m., Eastern time, on the first
Business Day after shares of Common Stock are repurchased by the Corporation,
the Corporation will complete and deliver to S&P and Moody's an AMPS Basic
Maintenance Report as of the close of business on such date that Common Stock
is repurchased.

     (g) For so long as shares of AMPS are rated by Moody's, in managing the
Corporation's portfolio, the Adviser will not alter the composition of the
Corporation's portfolio


                                      54
<PAGE>

if, in the reasonable belief of the Adviser, the effect of any such alteration
would be to cause the Corporation to have Moody's Eligible Assets with an
aggregate Discounted Value, as of the immediately preceding Valuation Date,
less than the AMPS Basic Maintenance Amount as of such Valuation Date;
provided, however, that in the event that, as of the immediately preceding
Valuation Date, the aggregate Discounted Value of Moody's Eligible Assets
exceeded the AMPS Basic Maintenance Amount by five percent or less, the
Adviser will not alter the composition of the Corporation's portfolio in a
manner reasonably expected to reduce the aggregate Discounted Value of Moody's
Eligible Assets unless the Corporation shall have confirmed that, after giving
effect to such alteration, the aggregate Discounted Value of Moody's Eligible
Assets would exceed the AMPS Basic Maintenance Amount.

     8. Certain Other Restrictions and Requirements.

     (a) For so long as any shares of AMPS are rated by S&P, the Corporation
will not purchase or sell futures contracts, write, purchase or sell options
on futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it
receives written confirmation from S&P that engaging in such transactions will
not impair the ratings then assigned to the shares of AMPS by S&P, except that
the Corporation may purchase or sell futures contracts based on the Bond Buyer
Municipal Bond Index (the "Municipal Index") or Treasury Bonds and write,
purchase or sell put and call options on such contracts (collectively, "S&P
Hedging Transactions"), subject to the following limitations:

          (i) the Corporation will not engage in any S&P Hedging Transaction
     based on the Municipal Index (other than transactions which terminate a
     futures contract or option held by the Corporation by the Corporation's
     taking an opposite position thereto


                                      55
<PAGE>

     ("Closing Transactions")), which would cause the Corporation at the time
     of such transaction to own or have sold the least of (A) more than 1,000
     outstanding futures contracts based on the Municipal Index, (B)
     outstanding futures contracts based on the Municipal Index exceeding in
     number 25% of the quotient of the Market Value of the Corporation's total
     assets divided by $1,000 or (C) outstanding futures contracts based on
     the Municipal Index exceeding in number 10% of the average number of
     daily traded futures contracts based on the Municipal Index in the 30
     days preceding the time of effecting such transaction as reported by The
     Wall Street Journal;

          (ii) the Corporation will not engage in any S&P Hedging Transaction
     based on Treasury Bonds (other than Closing Transactions) which would
     cause the Corporation at the time of such transaction to own or have sold
     the lesser of (A) outstanding futures contracts based on Treasury Bonds
     exceeding in number 50% of the quotient of the Market Value of the
     Corporation's total assets divided by $100,000 ($200,000 in the case of
     the two-year United States Treasury Note) or (B) outstanding futures
     contracts based on Treasury Bonds exceeding in number 10% of the average
     number of daily traded futures contracts based on Treasury Bonds in the
     30 days preceding the time of effecting such transaction as reported by
     The Wall Street Journal;

          (iii) the Corporation will engage in Closing Transactions to close
     out any outstanding futures contract which the Corporation owns or has
     sold or any outstanding option thereon owned by the Corporation in the
     event (A) the Corporation does not have S&P Eligible Assets with an
     aggregate Discounted Value equal to or greater than the AMPS Basic
     Maintenance Amount on two consecutive Valuation Dates and (B) the
     Corporation is required to pay Variation Margin on the second such
     Valuation Date;



                                      56
<PAGE>

          (iv) the Corporation will engage in a Closing Transaction to close
     out any outstanding futures contract or option thereon in the month prior
     to the delivery month under the terms of such futures contract or option
     thereon unless the Corporation holds the securities deliverable under
     such terms; and

          (v) when the Corporation writes a futures contract or option
     thereon, it will either maintain an amount of cash, cash equivalents or
     liquid assets in a segregated account with the Corporation's custodian,
     so that the amount so segregated plus the amount of Initial Margin and
     Variation Margin held in the account of or on behalf of the Corporation's
     broker with respect to such futures contract or option equals the Market
     Value of the futures contract or option, or, in the event the Corporation
     writes a futures contract or option thereon which requires delivery of an
     underlying security, it shall hold such underlying security in its
     portfolio.

     For purposes of determining whether the Corporation has S&P Eligible
Assets with a Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of cash or securities held for the
payment of Initial Margin or Variation Margin shall be zero and the aggregate
Discounted Value of S&P Eligible Assets shall be reduced by an amount equal to
(i) 30% of the aggregate settlement value, as marked to market, of any
outstanding futures contracts based on the Municipal Index which are owned by
the Corporation plus (ii) 25% of the aggregate settlement value, as marked to
market, of any outstanding futures contracts based on Treasury Bonds which
contracts are owned by the Corporation.

     (b) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not engage in Bond Market Association Municipal Swap Index
swap transactions ("BMA swap transactions"), buy or sell futures contracts,
write, purchase or sell call options on futures


                                      57
<PAGE>

contracts or purchase put options on futures contracts or write call options
(except covered call options) on portfolio securities unless it receives
written confirmation from Moody's that engaging in such transactions would not
impair the ratings then assigned to the shares of AMPS by Moody's, except that
the Corporation may engage in BMA swap transactions, purchase or sell
exchange-traded futures contracts based on any index approved by Moody's or
Treasury Bonds and purchase, write or sell exchange-traded put options on such
futures contracts (collectively, "Moody's Hedging Transactions"), subject to
the following limitations:

          (i) the Corporation will not engage in any Moody's Hedging
     Transaction based on the Municipal Index (other than Closing
     Transactions) which would cause the Corporation at the time of such
     transaction to own or have sold (A) outstanding futures contracts based
     on the Municipal Index exceeding in number 10% of the average number of
     daily traded futures contracts based on the Municipal Index in the 30
     days preceding the time of effecting such transaction as reported by The
     Wall Street Journal or (B) outstanding futures contracts based on the
     Municipal Index having a Market Value exceeding 50% of the Market Value
     of all Municipal Bonds constituting Moody's Eligible Assets owned by the
     Corporation (other than Moody's Eligible Assets already subject to a
     Moody's Hedging Transaction);

          (ii) the Corporation will not engage in any Moody's Hedging
     Transaction based on Treasury Bonds (other than Closing Transactions)
     which would cause the Corporation at the time of such transaction to own
     or have sold (A) outstanding futures contracts based on Treasury Bonds
     having an aggregate Market Value exceeding 40% of the aggregate Market
     Value of Moody's Eligible Assets owned by the Corporation and rated Aa by
     Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by S&P)


                                      58
<PAGE>

     or (B) outstanding futures contracts based on Treasury Bonds having an
     aggregate Market Value exceeding 80% of the aggregate Market Value of all
     Municipal Bonds constituting Moody's Eligible Assets owned by the
     Corporation (other than Moody's Eligible Assets already subject to a
     Moody's Hedging Transaction) and rated Baa or A by Moody's (or, if not
     rated by Moody's but rated by S&P, rated A or AA by S&P)
     (for purposes of the foregoing clauses (i) and (ii), the Corporation
     shall be deemed to own the number of futures contracts that underlie any
     outstanding options written by the Corporation);

          (iii) the Corporation will engage in Closing Transactions to close
     out any outstanding futures contract based on the Municipal Index if the
     amount of open interest in the Municipal Index as reported by The Wall
     Street Journal is less than 5,000;

          (iv) the Corporation will engage in a Closing Transaction to close
     out any outstanding futures contract by no later than the fifth Business
     Day of the month in which such contract expires and will engage in a
     Closing Transaction to close out any outstanding option on a futures
     contract by no later than the first Business Day of the month in which
     such option expires;

          (v) the Corporation will engage in Moody's Hedging Transactions only
     with respect to futures contracts or options thereon having the next
     settlement date or the settlement date immediately thereafter;

          (vi) the Corporation (A) will not engage in options and futures
     transactions for leveraging or speculative purposes, except that the
     Corporation may engage in an option or futures transaction so long as the
     combination of the Corporation's non-derivative positions, together with
     the relevant option or futures transaction, produces a synthetic


                                      59
<PAGE>

     investment position, or the same economic result, that could be achieved
     by an investment, consistent with the Corporation's investment objective
     and policies, in a security that is not an option or futures transaction,
     subject to the Adviser periodically demonstrating to Moody's that said
     economic results are achieved, and (B) will not write any call options or
     sell any futures contracts for the purpose of hedging the anticipated
     purchase of an asset prior to completion of such purchase;

          (vii) the Corporation will not enter into an option or futures
     transaction unless, after giving effect thereto, the Corporation would
     continue to have Moody's Eligible Assets with an aggregate Discounted
     Value equal to or greater than the AMPS Basic Maintenance Amount; and

          (viii) the Corporation will not engage in BMA swap transactions with
     respect to more than 20% of the Corporation's net assets; provided that
     the Corporation's use of futures will proportionately decrease as the
     Corporation's use of BMA swap transactions increases, and vice-versa.

     For purposes of determining whether the Corporation has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the AMPS
Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Corporation is obligated to deliver or receive pursuant to an
outstanding futures contract or option shall be as follows: (i) assets subject
to call options written by the Corporation which are either exchange-traded
and "readily reversible" or which expire within 49 days after the date as of
which such valuation is made shall be valued at the lesser of (a) Discounted
Value and (b) the exercise price of the call option written by the
Corporation; (ii) assets subject to call options written by the Corporation
not meeting the requirements of clause (i) of this sentence shall have no
value; (iii) assets subject to


                                      60
<PAGE>

put options written by the Corporation shall be valued at the lesser of (A)
the exercise price and (B) the Discounted Value of the subject security; (iv)
futures contracts shall be valued at the lesser of (A) settlement price and
(B) the Discounted Value of the subject security, provided that, if a contract
matures within 49 days after the date as of which such valuation is made,
where the Corporation is the seller the contract may be valued at the
settlement price and where the Corporation is the buyer the contract may be
valued at the Discounted Value of the subject securities; and (v) where
delivery may be made to the Corporation with any security of a class of
securities, the Corporation shall assume that it will take delivery of the
security with the lowest Discounted Value.

     For purposes of determining whether the Corporation has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the AMPS
Basic Maintenance Amount, the following amounts shall be subtracted from the
aggregate Discounted Value of the Moody's Eligible Assets held by the
Corporation: (i) 10% of the exercise price of a written call option; (ii) the
exercise price of any written put option; (iii) where the Corporation is the
seller under a futures contract, 10% of the settlement price of the futures
contract; (iv) where the Corporation is the purchaser under a futures
contract, the settlement price of assets purchased under such futures
contract; (v) the settlement price of the underlying futures contract if the
Corporation writes put options on a futures contract; and (vi) 105% of the
Market Value of the underlying futures contracts if the Corporation writes
call options on a futures contract and does not own the underlying contract.

     (c) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not enter into any contract to purchase securities for a
fixed price at a future date beyond customary settlement time (other than such
contracts that constitute Moody's Hedging


                                      61
<PAGE>

Transactions that are permitted under paragraph 8(b) of these Articles
Supplementary), except that the Corporation may enter into such contracts to
purchase newly-issued securities on the date such securities are issued
("Forward Commitments"), subject to the following limitations:

          (i) the Corporation will maintain in a segregated account with its
     custodian cash, cash equivalents or short-term, fixed-income securities
     rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior to the date of
     the Forward Commitment with a Market Value that equals or exceeds the
     amount of the Corporation's obligations under any Forward Commitments to
     which it is from time to time a party or long-term, fixed-income
     securities with a Discounted Value that equals or exceeds the amount of
     the Corporation's obligations under any Forward Commitment to which it is
     from time to time a party; and

          (ii) the Corporation will not enter into a Forward Commitment
     unless, after giving effect thereto, the Corporation would continue to
     have Moody's Eligible Assets with an aggregate Discounted Value equal to
     or greater than the AMPS Basic Maintenance Amount.

     (d) For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of all Forward Commitments
to which the Corporation is a party and of all securities deliverable to the
Corporation pursuant to such Forward Commitments shall be zero.

     (e) For so long as shares of AMPS are rated by S&P or Moody's, the
Corporation will not, unless it has received written confirmation from S&P
and/or Moody's, as the case may be, that such action would not impair the
ratings then assigned to shares of AMPS by S&P and/or


                                      62
<PAGE>

Moody's, as the case may be, (i) borrow money except for the purpose of
clearing transactions in portfolio securities (which borrowings shall under
any circumstances be limited to the lesser of $10 million and an amount equal
to 5% of the Market Value of the Corporation's assets at the time of such
borrowings and which borrowings shall be repaid within 60 days and not be
extended or renewed and shall not cause the aggregate Discounted Value of
Moody's Eligible Assets and S&P Eligible Assets to be less than the AMPS Basic
Maintenance Amount), (ii) engage in short sales of securities, (iii) lend any
securities, (iv) issue any class or series of stock ranking prior to or on a
parity with the AMPS with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the
Corporation, (v) reissue any AMPS previously purchased or redeemed by the
Corporation, (vi) merge or consolidate into or with any other corporation or
entity, (vii) change the Pricing Service or (viii) engage in reverse
repurchase agreements.

     (f) For as long as the AMPS are rated by S&P, the Corporation will not,
unless it has received written confirmation from S&P that such action would
not impair the rating then assigned to the shares of AMPS by S&P, engage in
interest rate swaps, caps and floors, except that the Corporation may, without
obtaining the written consent described above, engage in swaps, caps and
floors if: (i) the counterparty to the swap transaction has a short-term
rating of A-1 or, if the counterparty does not have a short-term rating, the
counterparty's senior unsecured long-term debt rating is A- or higher, (ii)
the original aggregate notional amount of the interest rate swap transaction
or transactions is not to be greater than the liquidation preference of the
AMPS, (iii) the interest rate swap transaction will be marked-to-market weekly
by the swap counterparty, (iv) if the Corporation fails to maintain an
aggregate discounted value at least equal to the AMPS Basic Maintenance Amount
on two consecutive Valuation Dates then the


                                      63
<PAGE>

agreement shall terminate immediately, (v) for the purpose of calculating the
Discounted Value of S&P Eligible Assets, 90% of any positive mark-to-market
valuation of the Corporation's rights will be S&P Eligible Assets, 100% of any
negative mark-to-market valuation of the Corporation's rights will be included
in the calculation of the AMPS Basic Maintenance Amount, and (vi) the
Corporation must maintain liquid assets with a value at least equal to the net
amount of the excess, if any, of the Corporation's obligations over its
entitlement with respect to each swap. For caps/floors, the Corporation must
maintain liquid assets with a value at least equal to the Corporation's
obligations with respect to such caps or floors.

     (g) For so long as shares of AMPS are rated by S&P or Moody's, as the
case may be, the Corporation agrees to provide S&P and/or Moody's with the
following, unless the Corporation has received written confirmation from S&P
and/or Moody's, as the case may be, that the provision of such information is
no longer required and that the current rating then assigned to the shares of
AMPS by S&P and/or Moody's, as the case may be, would not be impaired: a
notification letter at least 30 days prior to any material change in the
Charter; a copy of the AMPS Basic Maintenance Report prepared by the
Corporation in accordance with these Articles Supplementary; and a notice upon
the occurrence of any of the following events: (i) any failure by the
Corporation to declare or pay any dividends on the AMPS or successfully
remarket the AMPS; (ii) any mandatory or optional redemption of the AMPS
effected by the Corporation; (iii) any assumption of control of the Board of
Directors of the Corporation by the holders of the AMPS; (iv) a general
unavailability of dealer quotes on the assets of the Corporation; (v) any
material auditor discrepancies on valuations; (vi) the occurrence of any
Special Dividend Period; (vii) any change in the Maximum Applicable Rate or
the Reference Rate; (viii) the acquisition by any person of beneficial
ownership of more than 5% of the Corporation's voting stock (inclusive


                                      64
<PAGE>

of Common Stock and Preferred Stock); (ix) the occurrence of any change in
Internal Revenue Service rules with respect to the payment of Additional
Dividends; (x) any change in the Pricing Service employed by the Corporation;
(xi) any change in the Adviser; (xii) any increase of greater than 40% to the
maximum marginal Federal income tax rate applicable to individuals or
corporations; and (xiii) the maximum marginal Federal income tax rate
applicable to individuals or corporations is increased to a rate in excess of
50%.

     (h) For so long as shares of AMPS are rated by S&P or Moody's, the
Corporation shall provide S&P and/or Moody's with a copy of the Corporation's
annual audited financial statements as soon as practicable (not later than 60
days) after such annual audited financial statements have been made available
to the Corporation's stockholders.

     9. Notice. All notices or communications, unless otherwise specified in
the By-laws of the Corporation or these Articles Supplementary, shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid. Notice shall be deemed given on the earlier
of the date received or the date seven days after which such notice is mailed.

     10. Auction Procedures.

     (a) Certain definitions. As used in this paragraph 10, the following
terms shall have the following meanings, unless the context otherwise
requires:

          (i) "AMPS" means the shares of AMPS being auctioned pursuant to this
     paragraph 10.

          (ii) "Auction Date" means the first Business Day preceding the first
     day of a Dividend Period.

          (iii) "Available AMPS" has the meaning specified in paragraph
     10(d)(i) below.

          (iv) "Bid" has the meaning specified in paragraph 10(b)(i) below.



                                      65
<PAGE>

          (v) "Bidder" has the meaning specified in paragraph 10(b)(i) below.

          (vi) "Hold Order" has the meaning specified in paragraph 10(b)(i)
     below.

          (vii) "Maximum Applicable Rate" for any Dividend Period will be the
     higher of the Applicable Percentage of the Reference Rate or the
     Applicable Spread plus the Reference Rate. The Applicable Percentage and
     Applicable Spread will be determined based on (i) the lower of the credit
     rating or ratings assigned on such date to such shares by Moody's and S&P
     (or if Moody's or S&P or both shall not make such rating available, the
     equivalent of either or both of such ratings by a Substitute Rating
     Agency or two Substitute Rating Agencies or, in the event that only one
     such rating shall be available, such rating) and (ii) whether the
     Corporation has provided notification to the Auction Agent prior to the
     Auction establishing the Applicable Rate for any dividend pursuant to
     paragraph 2(f) hereof that net capital gains or other taxable income will
     be included in such dividend on shares of AMPS as follows:

<TABLE>
<CAPTION>
                                                 Applicable      Applicable       Applicable      Applicable
                                                 Percentage of   Percentage of    Spread over     Spread over
                    Credit Ratings               Reference       Reference        Reference       Reference
         ------------------------------------    Rate - No       Rate - No        Rate - No       Rate -
             Moody's                 S&P         Notification    Notification     Notification    Notification
         -------------         --------------    -------------   ------------     ------------    ------------
<S>      <C>                   <C>               <C>             <C>              <C>             <C>
              Aaa                    AAA              110%            125%            1.10%           1.25%
           Aa3 to Aa1            AA- to AA+           125%            150%            1.25%           1.50%
            A3 to A1              A- to A+            150%            200%            1.50%           2.00%
          Baa3 to Baa1          BBB- to BBB+          175%            250%            1.75%           2.50%
           Below Baa3            Below BBB-           200%            300%            2.00%           3.00%

</TABLE>

     The Applicable Percentage and the Applicable Spread as so determined may
be further subject to upward but not downward adjustment in the discretion of
the Board of Directors of the Corporation after consultation with the
Broker-Dealers, provided that immediately following any such increase the
Corporation would be in compliance with the AMPS Basic Maintenance Amount.
Subject to the provisions of paragraph 12, the Corporation shall take all
reasonable


                                      66
<PAGE>

action necessary to enable S&P and Moody's to provide a rating for the AMPS.
If either S&P or Moody's shall not make such a rating available, or neither
S&P nor Moody's shall make such a rating available, subject to the provisions
of paragraph 12, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its
affiliates and successors, after obtaining the Corporation's approval, shall
select a NRSRO or two NRSROs to act as a Substitute Rating Agency or
Substitute Rating Agencies, as the case may be.

          (viii) "Order" has the meaning specified in paragraph 10(b)(i)
     below.

          (ix) "Sell Order" has the meaning specified in paragraph 10(b)(i)
     below.

          (x) "Submission Deadline" means 1:00 P.M., Eastern time, on any
     Auction Date or such other time on any Auction Date as may be specified
     by the Auction Agent from time to time as the time by which each
     Broker-Dealer must submit to the Auction Agent in writing all Orders
     obtained by it for the Auction to be conducted on such Auction Date.

          (xi) "Submitted Bid" has the meaning specified in paragraph 10(d)(i)
     below.

          (xii) "Submitted Hold Order" has the meaning specified in paragraph
     10(d)(i) below.

          (xiii) "Submitted Order" has the meaning specified in paragraph
     10(d)(i) below.

          (xiv) "Submitted Sell Order" has the meaning specified in paragraph
     10(d)(i) below.

          (xv) "Sufficient Clearing Bids" has the meaning specified in
     paragraph 10(d)(i) below.

          (xvi) "Winning Bid Rate" has the meaning specified in paragraph
     10(d)(i) below.



                                      67
<PAGE>

     (b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders. (i) Unless otherwise permitted by the
Corporation, Beneficial Owners and Potential Beneficial Owners may only
participate in Auctions through their Broker-Dealers. Broker-Dealers will
submit the Orders of their respective customers who are Beneficial Owners and
Potential Beneficial Owners to the Auction Agent, designating themselves as
Existing Holders in respect of shares subject to Orders submitted or deemed
submitted to them by Beneficial Owners and as Potential Holders in respect of
shares subject to Orders submitted to them by Potential Beneficial Owners. A
Broker-Dealer may also hold shares of AMPS in its own account as a Beneficial
Owner. A Broker-Dealer may thus submit Orders to the Auction Agent as a
Beneficial Owner or a Potential Beneficial Owner and therefore participate in
an Auction as an Existing Holder or Potential Holder on behalf of both itself
and its customers. On or prior to the Submission Deadline on each Auction
Date:

               (A) each Beneficial Owner may submit to its Broker-Dealer
          information as to:

                    (1) the number of Outstanding shares, if any, of AMPS held
               by such Beneficial Owner which such Beneficial Owner desires to
               continue to hold without regard to the Applicable Rate for the
               next succeeding Dividend Period;

                    (2) the number of Outstanding shares, if any, of AMPS held
               by such Beneficial Owner which such Beneficial Owner desires to
               continue to hold, provided that the Applicable Rate for the
               next succeeding Dividend Period shall not be less than the rate
               per annum specified by such Beneficial Owner; and/or



                                      68
<PAGE>

                    (3) the number of Outstanding shares, if any, of AMPS held
               by such Beneficial Owner which such Beneficial Owner offers to
               sell without regard to the Applicable Rate for the next
               succeeding Dividend Period; and

               (B) each Broker-Dealer, using a list of Potential Beneficial
          Owners that shall be maintained in good faith for the purpose of
          conducting a competitive Auction, shall contact Potential Beneficial
          Owners, including Persons that are not Beneficial Owners, on such
          list to determine the number of Outstanding shares, if any, of AMPS
          which each such Potential Beneficial Owner offers to purchase,
          provided that the Applicable Rate for the next succeeding Dividend
          Period shall not be less than the rate per annum specified by such
          Potential Beneficial Owner.

     For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an
Order containing the information referred to in clause (A)(1) of this
paragraph 10(b)(i) is hereinafter referred to as a "Hold Order"; an Order
containing the information referred to in clause (A)(2) or (B) of this
paragraph 10(b)(i) is hereinafter referred to as a "Bid"; and an Order
containing the information referred to in clause (A)(3) of this paragraph
10(b)(i) is hereinafter referred to as a "Sell Order". Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its


                                      69
<PAGE>

customers or itself, all discussion herein relating to the consequences of an
Auction for Existing Holders and Potential Holders also applies to the
underlying beneficial ownership interests represented.

          (ii) A Bid by an Existing Holder shall constitute an irrevocable
     offer to sell:

                    (1) the number of Outstanding shares of AMPS specified in
               such Bid if the Applicable Rate determined on such Auction Date
               shall be less than the rate per annum specified in such Bid; or

                    (2) such number or a lesser number of Outstanding shares
               of AMPS to be determined as set forth in paragraph 10(e)(i)(D)
               if the Applicable Rate determined on such Auction Date shall be
               equal to the rate per annum specified therein; or

                    (3) a lesser number of Outstanding shares of AMPS to be
               determined as set forth in paragraph 10(e)(ii)(C) if such
               specified rate per annum shall be higher than the Maximum
               Applicable Rate and Sufficient Clearing Bids do not exist.

               (B) A Sell Order by an Existing Holder shall constitute an
          irrevocable offer to sell:

                    (1) the number of Outstanding shares of AMPS specified in
               such Sell Order; or

                    (2) such number or a lesser number of Outstanding shares
               of AMPS to be determined as set forth in paragraph 10(e)(ii)(C)
               if Sufficient Clearing Bids do not exist.



                                      70
<PAGE>

               (C) A Bid by a Potential Holder shall constitute an irrevocable
          offer to purchase:

                    (1) the number of Outstanding shares of AMPS specified in
               such Bid if the Applicable Rate determined on such Auction Date
               shall be higher than the rate per annum specified in such Bid;
               or

                    (2) such number or a lesser number of Outstanding shares
               of AMPS to be determined as set forth in paragraph 10(e)(i)(E)
               if the Applicable Rate determined on such Auction Date shall be
               equal to the rate per annum specified therein.

     (c) Submission of Orders by Broker-Dealers to Auction Agent.

          (i) Each Broker-Dealer shall submit in writing or through mutually
     acceptable electronic means to the Auction Agent prior to the Submission
     Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
     designating itself (unless otherwise permitted by the Corporation) as an
     Existing Holder in respect of shares subject to Orders submitted or
     deemed submitted to it by Beneficial Owners and as a Potential Holder in
     respect of shares subject to Orders submitted to it by Potential
     Beneficial Owners, and specifying with respect to each Order:

               (A) the name of the Bidder placing such Order (which shall be
          the Broker-Dealer unless otherwise permitted by the Corporation);

               (B) the aggregate number of Outstanding shares of AMPS that are
          the subject of such Order;

               (C) to the extent that such Bidder is an Existing Holder:



                                      71
<PAGE>

                    (1) the number of Outstanding shares, if any, of AMPS
               subject to any Hold Order placed by such Existing Holder;

                    (2) the number of Outstanding shares, if any, of AMPS
               subject to any Bid placed by such Existing Holder and the rate
               per annum specified in such Bid; and

                    (3) the number of Outstanding shares, if any, of AMPS
               subject to any Sell Order placed by such Existing Holder; and

               (D) to the extent such Bidder is a Potential Holder, the rate
          per annum specified in such Potential Holder's Bid.

          (ii) If any rate per annum specified in any Bid contains more than
     three figures to the right of the decimal point, the Auction Agent shall
     round such rate up to the next highest one-thousandth (.001) of 1%.

          (iii) If an Order or Orders covering all of the Outstanding shares
     of AMPS held by an Existing Holder are not submitted to the Auction Agent
     prior to the Submission Deadline, the Auction Agent shall deem a Hold
     Order (in the case of an Auction relating to a Dividend Period which is
     not a Special Dividend Period of more than 7 days) and a Sell Order (in
     the case of an Auction relating to a Special Dividend Period of more than
     7 days) to have been submitted on behalf of such Existing Holder covering
     the number of Outstanding shares of AMPS held by such Existing Holder and
     not subject to Orders submitted to the Auction Agent.

          (iv) If one or more Orders on behalf of an Existing Holder covering
     in the aggregate more than the number of Outstanding shares of AMPS held
     by such Existing


                                      72
<PAGE>

     Holder are submitted to the Auction Agent, such Order shall be considered
     valid as follows and in the following order of priority:

               (A) any Hold Order submitted on behalf of such Existing Holder
          shall be considered valid up to and including the number of
          Outstanding shares of AMPS held by such Existing Holder; provided
          that if more than one Hold Order is submitted on behalf of such
          Existing Holder and the number of shares of AMPS subject to such
          Hold Orders exceeds the number of Outstanding shares of AMPS held by
          such Existing Holder, the number of shares of AMPS subject to each
          of such Hold Orders shall be reduced pro rata so that such Hold
          Orders, in the aggregate, will cover exactly the number of
          Outstanding shares of AMPS held by such Existing Holder;

               (B) any Bids submitted on behalf of such Existing Holder shall
          be considered valid, in the ascending order of their respective
          rates per annum if more than one Bid is submitted on behalf of such
          Existing Holder, up to and including the excess of the number of
          Outstanding shares of AMPS held by such Existing Holder over the
          number of shares of AMPS subject to any Hold Order referred to in
          paragraph 10(c)(iv)(A) above (and if more than one Bid submitted on
          behalf of such Existing Holder specifies the same rate per annum and
          together they cover more than the remaining number of shares that
          can be the subject of valid Bids after application of paragraph
          10(c)(iv)(A) above and of the foregoing portion of this paragraph
          10(c)(iv)(B) to any Bid or Bids specifying a lower rate or rates per
          annum, the number of shares subject to each of such Bids shall be
          reduced pro rata so that such Bids, in the aggregate, cover exactly
          such remaining


                                      73
<PAGE>

          number of shares); and the number of shares, if any, subject to Bids
          not valid under this paragraph 10(c)(iv)(B) shall be treated as the
          subject of a Bid by a Potential Holder; and

               (C) any Sell Order shall be considered valid up to and
          including the excess of the number of Outstanding shares of AMPS
          held by such Existing Holder over the number of shares of AMPS
          subject to Hold Orders referred to in paragraph 10(c)(iv)(A) and
          Bids referred to in paragraph 10(c)(iv)(B); provided that if more
          than one Sell Order is submitted on behalf of any Existing Holder
          and the number of shares of AMPS subject to such Sell Orders is
          greater than such excess, the number of shares of AMPS subject to
          each of such Sell Orders shall be reduced pro rata so that such Sell
          Orders, in the aggregate, cover exactly the number of shares of AMPS
          equal to such excess.

          (v) If more than one Bid is submitted on behalf of any Potential
     Holder, each Bid submitted shall be a separate Bid with the rate per
     annum and number of shares of AMPS therein specified.

          (vi) Any Order submitted by a Beneficial Owner as a Potential
     Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the
     Auction Agent, prior to the Submission Deadline on any Auction Date shall
     be irrevocable.

     (d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate. (i) Not earlier than the Submission Deadline on each Auction
Date, the Auction Agent shall assemble all Orders submitted or deemed
submitted to it by the Broker-Dealers (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to


                                      74
<PAGE>

individually as a "Submitted Hold Order", a "Submitted Bid" or a "Submitted
Sell Order", as the case may be, or as a "Submitted Order") and shall
determine:

               (A) the excess of the total number of Outstanding shares of
          AMPS over the number of Outstanding shares of AMPS that are the
          subject of Submitted Hold Orders (such excess being hereinafter
          referred to as the "Available AMPS");

               (B) from the Submitted Orders whether the number of Outstanding
          shares of AMPS that are the subject of Submitted Bids by Potential
          Holders specifying one or more rates per annum equal to or lower
          than the Maximum Applicable Rate exceeds or is equal to the sum of:

                    (1) the number of Outstanding shares of AMPS that are the
               subject of Submitted Bids by Existing Holders specifying one or
               more rates per annum higher than the Maximum Applicable Rate,
               and

                    (2) the number of Outstanding shares of AMPS that are
               subject to Submitted Sell Orders (if such excess or such
               equality exists (other than because the number of Outstanding
               shares of AMPS in clause (1) above and this clause (2) are each
               zero because all of the Outstanding shares of AMPS are the
               subject of Submitted Hold Orders), such Submitted Bids by
               Potential Holders being hereinafter referred to collectively as
               "Sufficient Clearing Bids"); and

               (C) if Sufficient Clearing Bids exist, the lowest rate per
          annum specified in the Submitted Bids (the "Winning Bid Rate") that
          if:

                    (1) each Submitted Bid from Existing Holders specifying
               the Winning Bid Rate and all other Submitted Bids from Existing
               Holders


                                      75
<PAGE>

               specifying lower rates per annum were rejected, thus entitling
               such Existing Holders to continue to hold the shares of AMPS
               that are the subject of such Submitted Bids, and

                    (2) each Submitted Bid from Potential Holders specifying
               the Winning Bid Rate and all other Submitted Bids from
               Potential Holders specifying lower rates per annum were
               accepted, thus entitling the Potential Holders to purchase the
               shares of AMPS that are the subject of such Submitted Bids,

     would result in the number of shares subject to all Submitted Bids
specifying the Winning Bid Rate or a lower rate per annum being at least equal
to the Available AMPS.

          (ii) Promptly after the Auction Agent has made the determinations
     pursuant to paragraph 10(d)(i), the Auction Agent shall advise the
     Corporation of the Maximum Applicable Rate and, based on such
     determinations, the Applicable Rate for the next succeeding Dividend
     Period as follows:

               (A) if Sufficient Clearing Bids exist, that the Applicable Rate
          for the next succeeding Dividend Period shall be equal to the
          Winning Bid Rate;

               (B) if Sufficient Clearing Bids do not exist (other than
          because all of the Outstanding shares of AMPS are the subject of
          Submitted Hold Orders), that the Applicable Rate for the next
          succeeding Dividend Period shall be equal to the Maximum Applicable
          Rate; or

               (C) if all of the Outstanding shares of AMPS are the subject of
          Submitted Hold Orders, the Dividend Period next succeeding the
          Auction shall automatically be the same length as the immediately
          preceding Dividend Period


                                      76
<PAGE>

          and the Applicable Rate for the next succeeding Dividend Period
          shall be equal to 60% of the Reference Rate (or 90% of such rate if
          the Corporation has provided notification to the Auction Agent prior
          to the Auction establishing the Applicable Rate for any dividend
          pursuant to paragraph 2(f) hereof that net capital gains or other
          taxable income will be included in such dividend on shares of AMPS)
          on the date of the Auction.

     (e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares.

     Based on the determinations made pursuant to paragraph 10(d)(i), the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the
Auction Agent shall take such other action as set forth below:

          (i) If Sufficient Clearing Bids have been made, subject to the
     provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted
     Bids and Submitted Sell Orders shall be accepted or rejected in the
     following order of priority and all other Submitted Bids shall be
     rejected:

               (A) the Submitted Sell Orders of Existing Holders shall be
          accepted and the Submitted Bid of each of the Existing Holders
          specifying any rate per annum that is higher than the Winning Bid
          Rate shall be accepted, thus requiring each such Existing Holder to
          sell the Outstanding shares of AMPS that are the subject of such
          Submitted Sell Order or Submitted Bid;

               (B) the Submitted Bid of each of the Existing Holders
          specifying any rate per annum that is lower than the Winning Bid
          Rate shall be rejected, thus


                                      77
<PAGE>

          entitling each such Existing Holder to continue to hold the
          Outstanding shares of AMPS that are the subject of such Submitted
          Bid;

               (C) the Submitted Bid of each of the Potential Holders
          specifying any rate per annum that is lower than the Winning Bid
          Rate shall be accepted;

               (D) the Submitted Bid of each of the Existing Holders
          specifying a rate per annum that is equal to the Winning Bid Rate
          shall be rejected, thus entitling each such Existing Holder to
          continue to hold the Outstanding shares of AMPS that are the subject
          of such Submitted Bid, unless the number of Outstanding shares of
          AMPS subject to all such Submitted Bids shall be greater than the
          number of Outstanding shares of AMPS ("Remaining Shares") equal to
          the excess of the Available AMPS over the number of Outstanding
          shares of AMPS subject to Submitted Bids described in paragraph
          10(e)(i)(B) and paragraph 10(e)(i)(C), in which event the Submitted
          Bids of each such Existing Holder shall be accepted, and each such
          Existing Holder shall be required to sell Outstanding shares of
          AMPS, but only in an amount equal to the difference between (1) the
          number of Outstanding shares of AMPS then held by such Existing
          Holder subject to such Submitted Bid and (2) the number of shares of
          AMPS obtained by multiplying (x) the number of Remaining Shares by
          (y) a fraction the numerator of which shall be the number of
          Outstanding shares of AMPS held by such Existing Holder subject to
          such Submitted Bid and the denominator of which shall be the sum of
          the number of Outstanding shares of AMPS subject to such Submitted
          Bids made by all such Existing Holders that specified a rate per
          annum equal to the Winning Bid Rate; and



                                      78
<PAGE>

               (E) the Submitted Bid of each of the Potential Holders
          specifying a rate per annum that is equal to the Winning Bid Rate
          shall be accepted but only in an amount equal to the number of
          Outstanding shares of AMPS obtained by multiplying (x) the
          difference between the Available AMPS and the number of Outstanding
          shares of AMPS subject to Submitted Bids described in paragraph
          10(e)(i)(B), paragraph 10(e)(i)(C) and paragraph 10(e)(i)(D) by (y)
          a fraction the numerator of which shall be the number of Outstanding
          shares of AMPS subject to such Submitted Bid and the denominator of
          which shall be the sum of the number of Outstanding shares of AMPS
          subject to such Submitted Bids made by all such Potential Holders
          that specified rates per annum equal to the Winning Bid Rate.

          (ii) If Sufficient Clearing Bids have not been made (other than
     because all of the Outstanding shares of AMPS are subject to Submitted
     Hold Orders), subject to the provisions of paragraph 10(e)(iii),
     Submitted Orders shall be accepted or rejected as follows in the
     following order of priority and all other Submitted Bids shall be
     rejected:

               (A) the Submitted Bid of each Existing Holder specifying any
          rate per annum that is equal to or lower than the Maximum Applicable
          Rate shall be rejected, thus entitling such Existing Holder to
          continue to hold the Outstanding shares of AMPS that are the subject
          of such Submitted Bid;

               (B) the Submitted Bid of each Potential Holder specifying any
          rate per annum that is equal to or lower than the Maximum Applicable
          Rate shall be accepted, thus requiring such Potential Holder to
          purchase the Outstanding shares of AMPS that are the subject of such
          Submitted Bid; and



                                      79
<PAGE>

               (C) the Submitted Bids of each Existing Holder specifying any
          rate per annum that is higher than the Maximum Applicable Rate shall
          be accepted and the Submitted Sell Orders of each Existing Holder
          shall be accepted, in both cases only in an amount equal to the
          difference between (1) the number of Outstanding shares of AMPS then
          held by such Existing Holder subject to such Submitted Bid or
          Submitted Sell Order and (2) the number of shares of AMPS obtained
          by multiplying (x) the difference between the Available AMPS and the
          aggregate number of Outstanding shares of AMPS subject to Submitted
          Bids described in paragraph 10(e)(ii)(A) and paragraph 10(e)(ii)(B)
          by (y) a fraction the numerator of which shall be the number of
          Outstanding shares of AMPS held by such Existing Holder subject to
          such Submitted Bid or Submitted Sell Order and the denominator of
          which shall be the number of Outstanding shares of AMPS subject to
          all such Submitted Bids and Submitted Sell Orders.

          (iii) If, as a result of the procedures described in paragraph
     10(e)(i) or paragraph 10(e)(ii), any Existing Holder would be entitled or
     required to sell, or any Potential Holder would be entitled or required
     to purchase, a fraction of a share of AMPS on any Auction Date, the
     Auction Agent shall, in such manner as in its sole discretion it shall
     determine, round up or down the number of shares of AMPS to be purchased
     or sold by any Existing Holder or Potential Holder on such Auction Date
     so that each Outstanding share of AMPS purchased or sold by each Existing
     Holder or Potential Holder on such Auction Date shall be a whole share of
     AMPS.

          (iv) If, as a result of the procedures described in paragraph
     10(e)(i), any Potential Holder would be entitled or required to purchase
     less than a whole share of


                                      80
<PAGE>

     AMPS on any Auction Date, the Auction Agent shall, in such manner as in
     its sole discretion it shall determine, allocate shares of AMPS for
     purchase among Potential Holders so that only whole shares of AMPS are
     purchased on such Auction Date by any Potential Holder, even if such
     allocation results in one or more of such Potential Holders not
     purchasing any shares of AMPS on such Auction Date.

          (v) Based on the results of each Auction, the Auction Agent shall
     determine, with respect to each Broker-Dealer that submitted Bids or Sell
     Orders on behalf of Existing Holders or Potential Holders, the aggregate
     number of Outstanding shares of AMPS to be purchased and the aggregate
     number of the Outstanding shares of AMPS to be sold by such Potential
     Holders and Existing Holders and, to the extent that such aggregate
     number of Outstanding shares to be purchased and such aggregate number of
     Outstanding shares to be sold differ, the Auction Agent shall determine
     to which other Broker-Dealer or Broker-Dealers acting for one or more
     purchasers such Broker-Dealer shall deliver, or from which other
     Broker-Dealer or Broker-Dealers acting for one or more sellers such
     Broker-Dealer shall receive, as the case may be, Outstanding shares of
     AMPS.

     (f) Miscellaneous. The Corporation may interpret the provisions of this
paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal
defect or make any other change or modification that does not substantially
adversely affect the rights of Beneficial Owners of AMPS. A Beneficial Owner
or an Existing Holder (A) may sell, transfer or otherwise dispose of shares of
AMPS only pursuant to a Bid or Sell Order in accordance with the procedures
described in this paragraph 10 or to or through a Broker-Dealer, provided that
in the case of all transfers other than pursuant to Auctions such Beneficial
Owner or Existing Holder, its Broker-


                                      81
<PAGE>

Dealer, if applicable, or its Agent Member advises the Auction Agent of such
transfer and (B) except as otherwise required by law, shall have the ownership
of the shares of AMPS held by it maintained in book entry form by the
Securities Depository in the account of its Agent Member, which in turn will
maintain records of such Beneficial Owner's beneficial ownership. Neither the
Corporation nor any Affiliate, other than an Affiliate that is a
Broker-Dealer, shall submit an Order in any Auction. Any Beneficial Owner that
is an Affiliate shall not sell, transfer or otherwise dispose of shares of
AMPS to any Person other than the Corporation. All of the Outstanding shares
of AMPS shall be represented by a single certificate registered in the name of
the nominee of the Securities Depository unless otherwise required by law or
unless there is no Securities Depository. If there is no Securities
Depository, at the Corporation's option and upon its receipt of such documents
as it deems appropriate, any shares of AMPS may be registered in the Stock
Register in the name of the Beneficial Owner thereof and such Beneficial Owner
thereupon will be entitled to receive certificates therefor and required to
deliver certificates therefor upon transfer or exchange thereof.

     11. Securities Depository; Stock Certificates.

     (a) If there is a Securities Depository, one certificate for all of the
shares of AMPS shall be issued to the Securities Depository and registered in
the name of the Securities Depository or its nominee. Additional certificates
may be issued as necessary to represent shares of AMPS. All such certificates
shall bear a legend to the effect that such certificates are issued subject to
the provisions restricting the transfer of shares of AMPS contained in these
Articles Supplementary. Unless the Corporation shall have elected, during a
Non-Payment Period, to waive this requirement, the Corporation will also issue
stop-transfer instructions to the Auction Agent for the shares of AMPS. Except
as provided in paragraph (b) below, the Securities


                                      82
<PAGE>

Depository or its nominee will be the Holder, and no Beneficial Owner shall
receive certificates representing its ownership interest in such shares.

     (b) If the Applicable Rate applicable to all shares of AMPS of a series
shall be the Non-Payment Period Rate or there is no Securities Depository, the
Corporation may at its option issue one or more new certificates with respect
to such shares (without the legend referred to in paragraph 11(a)) registered
in the names of the Beneficial Owners or their nominees and rescind the
stop-transfer instructions referred to in paragraph 11(a) with respect to such
shares.

     12. Termination of Rating Agency Provisions.

     (a) The Board of Directors may determine that it is not in the best
interests of the Corporation to continue to comply with the provisions of
paragraphs 7 and 8 hereof with respect to Moody's, and any other provisions
hereof with respect to obtaining and maintaining a rating on the AMPS from
Moody's (together, the "Moody's Provisions"), and paragraphs 7 and 8 hereof
with respect to S&P, and any other provisions hereof with respect to obtaining
and maintaining a rating on the AMPS from S&P (together, the "S&P
Provisions"), in which case the Corporation will no longer be required to
comply with any of the Moody's Provisions or the S&P Provisions, as the case
may be, provided that (i) the Corporation has given the Auction Agent, the
Broker-Dealers, Moody's or S&P and Holders of the AMPS at least 45 calendar
days written notice of such termination of compliance, (ii) the Corporation is
in compliance with the Moody's Provisions and the S&P Provisions, as the case
may be, at the time the notice required in clause (i) hereof is given and at
the time of the termination of compliance with the Moody's Provisions or the
S&P Provisions, and (iii) the AMPS continue to be rated by at least one NRSRO
at the time of the termination of compliance with the Moody's Provisions or
the S&P Provisions, as the case may be.



                                      83
<PAGE>

     (b) On the date that the notice is given in paragraph 12(a) above and on
the date that compliance with the Moody's Provisions and/or the S&P
Provisions, as the case may be, is terminated, the Corporation shall provide
the Auction Agent and Moody's or S&P, as applicable, with an officers'
certificate as to the compliance with the provisions of paragraph 12(a)
hereof, and the Moody's Provisions and/or the S&P Provisions, as applicable,
on such later date and thereafter shall have no force or effect.



                                      84
<PAGE>


     IN WITNESS WHEREOF, MUNIYIELD QUALITY FUND, INC. has caused these
Articles Supplementary to be signed in its name and on its behalf by its Vice
President, and attested by its Secretary, on the      day of            , 2005.

                                       MUNIYIELD QUALITY FUND, INC.


                                       By:______________________________________
                                         Name: Donald C. Burke
                                         Title:   Vice President


Attest:


_____________________________________
Name:   Alice A. Pellegrino
Title:  Secretary


     THE UNDERSIGNED, Vice President of MUNIYIELD QUALITY FUND, INC. (the
"Corporation"), who executed on behalf of the Corporation the foregoing
Articles Supplementary, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of the Corporation, the foregoing
Articles Supplementary to be the corporate act of the Corporation and, as to
all matters and facts required to be verified under oath, further certifies
that, to the best of his knowledge, information and belief, these matters and
facts contained herein are true in all material respects and that this
statement is made under the penalties for perjury.




                                       By:______________________________________
                                         Name: Donald C. Burke
                                         Title:   Vice President



                                      85
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2B
<SEQUENCE>8
<FILENAME>efc5-1587_ex992b.txt
<TEXT>
                                                                     Exhibit (b)


                                    BY-LAWS

                                      OF

                         MUNIYIELD QUALITY FUND, INC.


                                  ARTICLE I

                                    Offices


     Section 1. Principal Office. The principal office of 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 annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such
other business as may properly be brought before the meeting shall be held on
such day in May of each year as shall be designated annually by the Board of
Directors.

     Section 2. Special Meetings. Special meetings of the stockholders, unless
otherwise provided by law or by the Charter, may be called for any purpose or
purposes by a majority or the Board of Directors, the President, or on the
written request of the holders of the outstanding shares of capital stock of
the Corporation entitled to vote at such meeting to the extent permitted by
Maryland law.


<PAGE>

     Section 3. Place of Meetings. The annual meeting and any special meeting
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 annual and special meeting of the
stockholders and the purpose or purposes of each special meeting shall be
given personally or by mail, not less than ten nor more than ninety days
before the date of such meeting, to each stockholder entitled to vote at such
meeting and to each other stockholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the stockholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid.

     Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall
fix a new record date for an adjourned meeting, or the adjournment is for more
than one hundred and twenty days after the original record date, notice of
such adjourned meeting need not be given if the time and place to which the
meeting shall be adjourned were announced at the meeting at which the
adjournment is taken.

     Section 5. Quorum. At all meetings of the stockholders, the holders of a
majority of the shares of stock of the Corporation entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as otherwise provided by statute or by the
Charter. 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


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<PAGE>

vote may adjourn the meeting from time to time, without notice other than
announcement thereat except as otherwise required by these By-Laws, until the
holders of the requisite amount of shares of stock shall be so present. At any
such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally
called. The absence from any meeting, in person or by proxy, of holders of the
number of shares of stock of the corporation in excess of a majority thereof
which may be required by the laws of the State of Maryland, the Investment
Company Act of 1940, as amended, or other applicable statute, the Charter, 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
Charter, 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


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<PAGE>

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

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

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

     Section 9. Fixing of Record Date. The Board of Directors may set a record
date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than
ninety nor less than ten days before the date of the meeting of the


                                      4
<PAGE>

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, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall 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 shall determine the number of shares outstanding and the voting
powers of each, the number of shares represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising
in connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote thereat, the inspectors
shall make a report in writing of any challenge, request or matter determined
by them and shall execute a certificate of any fact found by them. No director
or candidate for the office of director shall act as inspector of an election
of directors. Inspectors need not be stockholders.

     Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Charter, any action required to be taken
at any annual or special meeting of stockholders, or any action which may be
taken at any annual or special 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


                                      5
<PAGE>

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 Charter,
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 Charter or these By-Laws.

     Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; 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. As long as any preferred stock of the Corporation is
outstanding, the number of Directors shall be not less than five.

     Section 3. Election and Term of Directors. Directors shall be elected
annually, by written ballot at the annual meeting of stockholders, or a
special meeting held for that purpose. The term of office of each director
shall be from the time of his election and qualification until the annual
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


                                      6
<PAGE>

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 Charter.

     Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman
of the Board or the President or the Secretary. Any such resignation shall
take effect at the time specified therein, or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.

     Section 5. Removal of Directors. Any director of the Corporation may be
removed (with or without cause) by the stockholders by a vote of sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of capital stock then
entitled to vote in the election of such director.

     Section 6. Vacancies. Subject to the provisions of the Investment Company
Act of 1940, as amended, any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any
other cause, shall be filled by a vote of the Board of Directors in accordance
with the Charter.

     Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting. Section 8. Regular Meeting. 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.



                                      7
<PAGE>

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

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

     Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the
meeting, sign a written waiver of notice which is filed with the records of
the meeting or who shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver or notice of any meeting need
not state the purposes of such meeting.

     Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Charter,
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


                                      8
<PAGE>

meeting of the Board, a majority of the directors present thereat may adjourn
such meeting to another time and place until a quorum shall be present
thereat. Notice of the time and place of any such adjourned meeting shall be
given to the directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other directors. At any adjourned meeting at
which a quorum is present, any business may be transacted which might have
been transacted at the meeting as originally called.

     Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat.
The secretary (or, in his absence or inability to act, any person appointed by
the Chairman) shall act as secretary of the meeting and keep the minutes
thereof.

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




                                      9
<PAGE>

     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 relating to the initial public offering of its capital stock,
as filed with the Securities and Exchange Commission (or as such investment
policies and restrictions may be modified by the Board of Directors, or, if
required, by majority vote of the stockholders of the Corporation in
accordance with the Investment Company Act of 1940, as amended) 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 Charter;



                                      10
<PAGE>

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

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

     (d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required to
be taken by the Board of Directors by the Investment Company Act of 1940, as
amended;

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

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

     (g) the declaration of dividends and the issuance of capital stock of the
Corporation; and

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

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

     Section 2. Other Committees of the Board. The Board of Directors may from
time to time, by resolution adopted by a majority of the whole Board,
designate one or more other


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<PAGE>

committees of the Board, each such committee to consist of two or more
directors and to have such powers and duties as the Board of Directors may, by
resolution, prescribe.

     Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The
Board may designate a chairman of any committee and such chairman or any two
members of any committee may fix the time and place of its meetings unless the
Board shall otherwise provide. In the absence or disqualification of any
member of any committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member. The
Board shall have the power at any time to change the membership of any
committee, to fill all vacancies,. to designate alternate members to replace
any absent or disqualified member, or to dissolve any such committee. Nothing
herein shall be deemed to prevent the Board from appointing one or more
committees consisting in whole or in part of persons who are not directors of
the Corporation; provided, however, that no such committee shall have or may
exercise any authority or power of the Board in the management of the business
or affairs of the Corporation.


                                  ARTICLE V

                        Officers, Agents and Employees

     Section 1. Number of Qualifications. The officers of the Corporation
shall be a President, 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


                                      12
<PAGE>

deem necessary or proper. Any two or more offices may be held by the same
person, except the offices of President and Vice President, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity.
Such officers shall be elected by the Board of Directors each year at its
first meeting held after the annual meeting of stockholders, each to hold
office until the next meeting of the stockholders 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 be
necessary to make it effective.

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


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<PAGE>

contract rights, if any, but the appointment of any person as an officer,
agent or employee of the Corporation shall not of itself create contract
rights.

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

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

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

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

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

     Section 9. Treasurer. The Treasurer shall:

     (a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation, except those which the Corporation has placed
in the custody of a bank or trust


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<PAGE>

company or member of a national securities exchange (as that term is defined
in the Securities Exchange Act of 1934, as amended) pursuant to a written
agreement designating such bank or trust company or member of a national
securities exchange as custodian of the property of the Corporation;

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

     (c) cause all moneys and other valuables to be deposited to the credit of
the Corporation;

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

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

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

     Section 10. Secretary. The Secretary shall:

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

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



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<PAGE>

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

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

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

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


                                 ARTICLE VI

                                Indemnification

     Each officer and director of the Corporation shall be indemnified by the
Corporation to the full extent permitted under the 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


                                      16
<PAGE>

by the Corporation to indemnify such person must be based upon the reasonable
determination of independent legal counsel or the vote of a majority of a
quorum of the directors who are neither "interested persons," as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor
parties to the proceeding ("non-party independent directors"), after review of
the facts, that such officer or director is not guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.

     Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in
connection with proceedings to which he is a party in the manner and to the
full extent permitted under the General Laws of the State of Maryland;
provided, however, that the person seeking indemnification shall provide to
the Corporation a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Corporation has been
met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form
and amount acceptable to the Corporation for his undertaking; (b) the
Corporation is insured against losses arising by reason of the advance; (c) a
majority of a quorum of non-party independent directors, or independent legal
counsel in a written opinion, shall determine, based on a review of facts
readily available to the Corporation at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.

     The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from


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<PAGE>

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

     The Corporation may indemnify 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 President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were
still in office at the date of issue.



                                      18
<PAGE>

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

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

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



                                      19
<PAGE>

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

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

     Section 7. Information to Stockholders and Others. Any stockholder of the
Corporation or his agent may inspect and copy during usual business hours the
Corporation's


                                      20
<PAGE>

By-Laws, minutes of the proceedings of its stockholders, annual statements of
its affairs, and voting trust agreements on file at its principal office.

                                 ARTICLE VIII

                                     Seal

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

                                  ARTICLE IX

                                  Fiscal Year

     Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the _____ day of ____________.

                                  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 safekeeping 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 safekeeping 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.



                                      21
<PAGE>

                                  ARTICLE XI

                           Execution of Instruments

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

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

                                 ARTICLE XII

                        Independent Public Accountants

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

                                 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

                                      22
<PAGE>

as may be directed by the Board. A report to the stockholders based upon each
such examination shall be mailed to each stockholder of record of the
Corporation on such date with respect to each report as may be determined by
the Board, at his address as the same appears on the books of the Corporation.
Such annual statement shall also be available at the annual meeting of
stockholders and be placed on file at the Corporation's principal office in
the State of Maryland. 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 at any
regular meeting of the stockholders or at any special meeting of the
stockholders by a favorable vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of capital stock of the
Corporation entitled to be voted on the matter, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors, 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.



                                      23
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2D2
<SEQUENCE>9
<FILENAME>efc5-1587_5734589ex992d2.txt
<TEXT>
                                                                Exhibit (d)(2)




                   Auction Market Preferred Stock, Series E

NUMBER 1                                                          2,000 SHARES

                         MUNIYIELD QUALITY FUND, INC.

INCORPORATED UNDER THE LAWS                                SEE REVERSE FOR
OF THE STATE OF MARYLAND                                   CERTAIN DEFINITIONS

THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NY           CUSIP #  [___]

THIS CERTIFIES THAT
                                  CEDE & CO.
IS THE OWNER OF TWO THOUSAND

FULLY PAID AND NON-ASSESSABLE SHARES OF AUCTION MARKET PREFERRED STOCK, PAR
VALUE $.10 PER SHARE, LIQUIDATION PREFERENCE $25,000 PER SHARE PLUS AN AMOUNT
EQUAL TO ACCUMULATED BUT UNPAID DIVIDENDS THEREON (WHETHER OR NOT EARNED OR
DECLARED) OF

                         MUNIYIELD QUALITY FUND, INC.

TRANSFERABLE ON THE BOOKS OF SAID CORPORATION IN PERSON OR BY DULY AUTHORIZED
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.

THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT AND
REGISTERED BY THE REGISTRAR.

IN WITNESS WHEREOF, MUNIYIELD QUALITY FUND, INC. HAS CAUSED ITS CORPORATE SEAL
TO BE HERETO AFFIXED AND THIS CERTIFICATE TO BE EXECUTED IN ITS NAME AND
BEHALF BY ITS DULY AUTHORIZED OFFICERS.

Dated:    [___]

Countersigned and Registered:

THE BANK OF NEW YORK                            -------------------------(seal)
(New York) Transfer Agent                       Vice President


By:
   ------------------------------               -------------------------(seal)
       Authorized Signature                     Secretary

<PAGE>

THE TRANSFER OF THE SHARES OF AUCTION MARKET PREFERRED STOCK REPRESENTED
HEREBY IS SUBJECT TO THE RESTRICTIONS CONTAINED IN THE CORPORATION'S CHARTER.
THE CORPORATION WILL FURNISH INFORMATION ABOUT SUCH RESTRICTIONS TO ANY
STOCKHOLDER, WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE CORPORATION.

                         MUNIYIELD QUALITY FUND, INC.

A full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
class and series of stock which the Corporation is authorized to issue and the
differences in the relative rights and preferences between the shares of each
class and series to the extent that they have been set, and the authority of
the Board of Directors to set the relative rights and preferences of
subsequent classes and series, will be furnished by the Corporation to any
stockholder, without charge, upon request to the Secretary of the Corporation
at its principal office.

         The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:

<TABLE>
<CAPTION>
<S>     <C>                                        <C>
TEN COM--as tenants in common                         UNIF GIFT MIN ACT--             Custodian
                                                                          -----------
                                                                               (Cust)        (Minor)
TEN ENT--as tenants by the entireties
JT TEN--  as joint tenants with right                 under Uniform Gifts to Minors Act
          of survivorship and not as tenants                                                  (State)
          in common
</TABLE>


         Additional abbreviations also may be used though not in the above
list.

For value received, ____________________ hereby sell, assign and transfer unto

______________________________________________________________________________

Please insert social securities or other identifying number of assignee

______________________________________________________________________________

______________________________________________________________________________

(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

shares of the capital stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint _____________ Attorney to transfer
the said stock on the books of the within named Corporation with full power of
substitution in the premises.

Dated: _________________________


                             _________________________________________________
                  NOTICE:    The Signature to this assignment must correspond
                             with the name as written upon the face of the
                             Certificate in every particular, without
                             alteration or enlargement or any change
                             whatsoever.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2E
<SEQUENCE>10
<FILENAME>efc5-1587_ex992e.txt
<TEXT>
                                                                     Exhibit (e)

                         MUNIYIELD QUALITY FUND, INC.

                            TERMS AND CONDITIONS OF
                     AUTOMATIC DIVIDEND REINVESTMENT PLAN

     1. Appointment of Agent. You, State Street Bank and Trust Company, will
act as Agent for me, and will open an account for me under the Dividend
Reinvestment Plan (the "Plan") in the same name as my present shares of common
stock, par value $.10 per share ("Common Stock"), of MuniYield Quality Fund,
Inc. (the "Fund") are registered, and will automatically put into effect for
me the dividend reinvestment option of the Plan as of the first record date
for a dividend or capital gains distribution (collectively referred to herein
as a "dividend"), payable at the election of shareholders in cash or shares of
Common Stock.

     2. Dividends Payable in Common Stock. My participation in the Plan
constitutes an election by me to receive dividends in shares of Common Stock
whenever the Fund declares a dividend. In such event, the dividend amount
shall automatically be made payable to me entirely in shares of Common Stock
which shall be acquired by the Agent for my account, depending upon the
circumstances described in paragraph 3, either (i) through receipt of
additional shares of unissued but authorized shares of Common Stock from the
Fund ("newly issued shares") as described in paragraph 6 or (ii) by purchase
of outstanding shares of Common Stock on the open market ("open-market
purchases") as described in paragraph 7.

     3. Determination of Whether Newly-Issued Shares or Open Market Purchases.
If on the payment date for the dividend (the "valuation date"), the net asset
value per share of the Common Stock, as defined in paragraph 8, is equal to or
less than the market price per share of the Common Stock, as defined in
paragraph 8, plus estimated brokerage commissions (such condition being
referred to herein as "market premium"), the Agent shall invest the dividend
amount in newly issued shares on my behalf as described in paragraph 6. If on
the valuation date, the net asset value per share is greater than the market
value (such condition being referred to herein as "market discount"), the
Agent shall invest the dividend amount in shares acquired on my behalf in
open-market purchases as described in paragraph 7.

     4. Purchase Period for Open-Market Purchases. In the event of a market
discount on the valuation date, the Agent shall have until the last business
day before the next ex-dividend date with respect to the shares of Common
Stock or in no event more than 30 days after the valuation date (the "last
purchase date") to invest the dividend amount in shares acquired in
open-market purchases except where temporary curtailment or suspension of
purchases is necessary to comply with applicable provisions of federal
securities laws.

     5. Failure to Complete Open-Market Purchases During Purchase Period. If
the Agent is unable to invest the full dividend amount in open-market
purchases during the purchase period because the market discount has shifted
to a market premium or otherwise, the Agent will invest the uninvested portion
of the dividend amount in newly issued shares at the close of business on the
last purchase date as described in paragraph 4; except that the Agent may not
acquire newly issued shares after the valuation date under the foregoing
circumstances unless it has received a legal opinion that registration of such
shares is not required under the Securities Act of 1933, as amended, or unless
the shares to be issued are registered under such Act.


<PAGE>

     6. Acquisition of Newly-Issued Shares. In the event that all or part of
the dividend amount is to be invested in newly issued shares, you shall
automatically receive such newly-issued shares of Common Stock, including
fractions, for my account, and the number of additional newly-issued shares of
Common Stock to be credited to my account shall be determined by dividing the
dollar amount of the dividend on my shares to be invested in newly-issued
shares by the net asset value per share of Common Stock on the date the shares
are issued (the valuation date in the case of an initial market premium or the
last purchase date in case the Agent is unable to complete open-market
purchases during the purchase period); provided, that the maximum discount
from the then current market price per share on the date of issuance shall not
exceed 5%.

     7. Manner of Making Open-Market Purchases. In the event that the dividend
amount is to be invested in shares of Common Stock acquired in open-market
purchases, you shall apply the amount of such dividend on my shares (less my
pro rata share of brokerage commissions incurred with respect to your
open-market purchases) to the purchase on the open-market of shares of the
Common Stock for my account. Open-market purchases may be made on any
securities exchange where the Common Stock is traded, in the over-the-counter
market or in negotiated transactions and may be on such terms as to price,
delivery and otherwise as you shall determine. My funds held by you uninvested
will not bear interest, and it is understood that, in any event, you shall
have no liability in connection with any inability to purchase shares within
30 days after the initial date of such purchase as herein provided, or with
the timing of any purchases affected. You shall have no responsibility as to
the value of the Common Stock acquired for my account. For the purposes of
cash investments you may commingle my funds with those of other shareholders
of the Fund for whom you similarly act as Agent, and the average price
(including brokerage commissions) of all shares purchased by our as Agent in
the open market shall be the price per share allocable to me in connection
with open-market purchases.

     8. Meaning of Market Price and Net Asset Value. For all purposes of the
Plan: (a) the market price of the Common Stock on a particular date shall be
the last sales price on the New York Stock Exchange (the "Exchange") on that
date, or, if there is no sale on the Exchange on that date, then the mean
between the closing bid and asked quotations for such stock on the Exchange on
such date and (b) net asset value per share of the Common Stock on a
particular date shall be as determined by or on behalf of the Fund.

     9. Registration of Shares Acquired Pursuant to the Plan. You may hold my
shares of Common Stock acquired pursuant to the Plan, together with the shares
of other shareholders of the Fund acquired pursuant to the Plan, in
noncertificated form in your name or that of your nominee. You will forward to
me any proxy solicitation material and will vote any shares so held for me
only in accordance with the proxy returned by me to the Fund. Upon my written
request, you will deliver to me, without charge, a certificate or certificates
for the full shares held by you for my account.

     10. Confirmations. You will confirm to me each acquisition made for my
account as soon as practicable but not later than 60 days after the date
thereof.



                                      2
<PAGE>

     11. Fractional Interests. Although I may from time to time have an
undivided fractional interest (computed to three decimal places) in a share of
the Fund, no certificates for a fractional share will be issued. However,
dividends and distributions on fractional shares will be credited to my
account. In the event of termination of my account under the Plan, you will
adjust for any such undivided fractional interest in cash at the market value
of the Fund's shares at the time of termination less the pro rata expense of
any sale required to make such an adjustment.

     12. Stock Dividends or Share Purchase Rights. Any stock dividends or
split shares distributed by the Fund on shares held by you for me will be
credited to my account. In the event that the Fund makes available to its
shareholders rights to purchase additional shares or other securities, the
shares held for me under the Plan will be added to other shares held by me in
calculating the number of rights to be issued to me.

     13. Service Fee. Your service fee for handling capital gains
distributions or income dividends will be paid by the Fund. I will be charged
for my pro rata share of brokerage commissions on all open market purchases.

     14. Termination of Account. I may terminate my account under the Plan by
notifying you in writing. Such termination will be effective immediately if my
notice is received by you not less than ten days prior to any dividend or
distribution record date; otherwise such termination will be effective on the
first trading day after the payment date for such dividend or distribution
with respect to any subsequent dividend or distribution. The Plan may be
terminated by you or the Fund upon notice in writing mailed to me at least 90
days prior to any record date for the payment of any dividend or distribution
by the Fund. Upon any termination you will cause a certificate or certificates
for the full shares held for me under the Plan and cash adjustment for any
fraction to be delivered to me without charge. If I elect by notice to you in
writing in advance of such termination to have you sell part or all of my
shares and remit the proceeds to me, you are authorized to deduct brokerage
commissions for this transaction from the proceeds.

     15. Amendment of Plan. These terms and conditions may be amended or
supplemented by you or the Fund at any time or times but, except when
necessary or appropriate to comply with applicable law or the rules or
policies of the Securities and Exchange Commission or any other regulatory
authority, only by mailing to me appropriate written notice at least 90 days
prior to the effective date thereof. The amendment or supplement shall be
deemed to be accepted by me unless, prior to the effective date, thereof, you
receive written notice of the termination of my account under the Plan. Any
such amendment may include an appointment by you in your place and stead of a
successor Agent under these terms and conditions, with full power and
authority to perform all or any of the acts to be performed by the Agent under
these terms and conditions. Upon any such appointment of an Agent for the
purpose of receiving dividends and distributions, the Fund will be authorized
to pay to such successor Agent, for my account, all dividends and
distributions payable on Common Stock of the Fund held in my name or under the
Plan for retention or application by such successor Agent as provided in these
terms and conditions.

     16. Extent of Responsibility of Agent. You shall at all times act in good
faith and agree to use your best efforts within reasonable limits to insure
the accuracy of all services


                                      3
<PAGE>

performed under this Agreement and to comply with applicable law, but assume
no responsibility and shall not be liable for loss or damage due to errors
unless such error is caused by your negligence, bad faith, or willful
misconduct or that of your employees.

     17. Governing Law. These terms and conditions shall be governed by the
laws of the State of New York without regard to its conflicts of laws
provisions.


                                      4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2G1
<SEQUENCE>11
<FILENAME>efc5-1587_ex992g1.txt
<TEXT>
                                                                  Exhibit (g)(1)


                         INVESTMENT ADVISORY AGREEMENT

     AGREEMENT made this 12th day of June 1992, by and between MUNIYIELD
QUALITY FUND, INC., a Maryland corporation (hereinafter referred to as the
"Fund"), and FUND ASSET MANAGEMENT, INC., a Delaware corporation (hereinafter
referred to as the "Investment Adviser").


                             W I T N E S S E T H:

     WHEREAS, the Fund is engaged in business as a closed-end management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and

     WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Adviser's Act of 1940, as amended; and

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

     WHEREAS, the Investment Adviser 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 Investment Adviser hereby agree as
follows:

<PAGE>

                                  ARTICLE I

                       Duties of the Investment Adviser

     The Fund hereby employs the Investment Adviser 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 Investment Adviser 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 Investment Adviser and its
affiliates shall for all purposes herein be deemed to be independent
contractors and shall, unless otherwise expressly 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) Investment Advisory Services. The Investment Adviser shall perform
(or arrange for the performance by affiliates of) the management and
administrative services necessary for the operation of the Fund including
administering shareholder accounts and handling shareholder relations. The
Investment Adviser shall provide the Fund with office space, facilities,
equipment and necessary personnel and such other services as the Investment
Adviser, 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 Investment Adviser shall also, on behalf of the Fund, conduct
relations with custodians, depositories, transfer agents, pricing agents,
dividend disbursing agents, other shareholder servicing agents, accountants,
attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers,
banks and such other persons in any such other capacity deemed to be necessary
or desirable. The Investment Adviser shall generally



                                      2
<PAGE>

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
Investment Adviser 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 Investment Adviser 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 objective, investment
policies and investment restrictions as the same are set forth in filings made
by the Fund under the Federal securities laws. The Investment Adviser 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
Investment Adviser 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 Investment Adviser thereof in writing, the
Investment Adviser shall be bound by such determination for the period, if
any,



                                      3
<PAGE>

specified in such notice or until similarly notified that such determination
has been revoked. The Investment Adviser 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 Investment Adviser 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 Investment
Adviser 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
Investment Adviser may select brokers or dealers with which it or the Fund is
affiliated.


                                  ARTICLE II

                      Allocation of Charges and Expenses

     (a) The Investment Adviser. The Investment Adviser 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 office space,
facilities, equipment and necessary personnel which it is obligated to provide
under Article I hereof, and shall pay all compensation of officers of the Fund
and all Directors of the Fund who are affiliated persons of the Investment
Adviser.

     (b) The Fund. The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund including, without limitation: taxes, expenses for
legal and auditing services, costs of



                                      4
<PAGE>

printing proxies, stock certificates, shareholder reports, prospectuses,
charges of the custodian, any sub-custodian and transfer agent, expenses of
portfolio transactions, Securities and Exchange Commission fees, expenses of
registering the shares under Federal, state and foreign laws, fees and actual
out-of-pocket expenses of Directors who are not affiliated persons of the
Investment Adviser, accounting and pricing costs (including the daily
calculation of the net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other
expenses properly payable by the Fund. It is also understood that the Fund
will reimburse the Investment Adviser for its costs in providing accounting
services to the Fund.


                                 ARTICLE III

                    Compensation of the Investment Adviser

     (a) Investment Advisory Fee. For the services rendered, the facilities
furnished and expenses assumed by the Investment Adviser, the Fund shall pay
to the Investment Adviser at the end of each calendar month a fee based upon
the average weekly value of the net assets of the Fund at the annual rate of
0.50 of 1.0% (0.50%) of the average weekly net assets of the Fund (i.e., the
average weekly value of the total assets of the Fund, minus the sum of accrued
liabilities of the Fund and accumulated dividends on shares of outstanding
preferred stock), commencing on the day following effectiveness hereof. For
purposes of this calculation, average weekly net assets is determined at the
end of each month on the basis of the average net assets of the Fund for each
week during the month. The assets for each weekly period are determined by
averaging the net assets at the last business day of a week with the net
assets at the last business day of the prior week. It is understood that the
liquidation preference of any outstanding preferred stock (other than
accumulated dividends) is not considered a liability in determining the Fund's
average weekly net assets. If this Agreement becomes effective subsequent to
the first day of a



                                      5
<PAGE>

month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fee as set forth above. Subject to the
provisions of subsection (b) hereof, payment of the Investment Adviser's
compensation for the preceding month shall be made as promptly as possible
after completion of the computations contemplated by subsection (b) hereof.
During any period when the determination of net asset value is suspended by
the Board of Directors, the average net asset value of a share for the last
week prior to such suspension shall for this purpose be deemed to be the net
asset value at the close of each succeeding week until it is again determined.

     (b) Expense Limitations. In the event the operating expenses of the Fund,
including amounts payable to the Investment Adviser 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
applicable state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, the Investment Adviser
shall reduce its management and 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 fees and 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 a pro rata portion of the
applicable annual expense limitations, the estimated amount of reimbursement
under such limitations shall be applicable as an offset against the monthly
payment of the fee due to the Investment Adviser should two or more such
expense limitations be applicable as at the



                                      6
<PAGE>

end of the last business day of the month, that expense limitation which
results in the largest reduction in the Investment Adviser's fee shall be
applicable.


                                  ARTICLE IV

               Limitation of Liability of the Investment Adviser

     The Investment Adviser 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 IV, the term "Investment Adviser" shall include any affiliates of the
Investment Adviser performing services for the Fund contemplated hereby and
directors, officers and employees of the Investment Adviser and such
affiliates.


                                  ARTICLE V

                     Activities of the Investment Adviser

     The services of the Investment Adviser to the Fund are not to be deemed
to be exclusive: the Investment Adviser and any person controlled by or under
common control with the Investment Adviser (for purposes of this Article V
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 Investment Adviser and its affiliates, as
directors, officers, employees, partners and shareholders or otherwise, and
that directors, officers, employees, partners and shareholders of the
Investment Adviser and its affiliates are or may become similarly interested
in the Fund, and that the Investment Adviser and directors, officers,
employees, partners and shareholders of its affiliates may become interested
in the Fund as shareholder or otherwise.



                                      7
<PAGE>

                                  ARTICLE VI

                  Duration and Termination of this Agreement

     This Agreement shall become effective as of the date first above written
and shall remain in force until May 31, 1994 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 voting securities 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 or by vote of a majority of the outstanding
voting securities of the Fund, or by the Investment Adviser, on sixty days'
written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment.


                                 ARTICLE VII

                          Amendment of this Agreement

     This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities 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.


                                 ARTICLE VIII

                         Definitions of Certain Terms

     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



                                      8
<PAGE>

respective meanings specified in the Investment Company Act and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.


                                  ARTICLE IX

                                 Governing Law

     This Agreement shall be construed in accordance with laws of the State of
New York 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 and delivered this
Agreement as of the date first above written.


                                          MUNIYIELD QUALITY FUND, INC.


                                          By______________________________
                                                (Authorized Signatory)



                                          FUND ASSET MANAGEMENT, INC.


                                          By______________________________
                                                (Authorized Signatory)



                                      9
<PAGE>

                  SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
                                     WITH
                             FUND ASSET MANAGEMENT

As of January 1, 1994 Fund Asset Management was reorganized as a limited
partnership, formally known as Fund Asset Management, L.P. ("FAM"). The
general partner of FAM is Princeton Services, Inc. and the limited partners
are Fund Asset Management, Inc. and Merrill Lynch & Co. Inc. Pursuant to Rule
202(a)(l)-1 under the Investment Advisers Act of 1940 and Rule 2a-6 under the
Investment Company Act of 1940 such reorganization did not constitute an
assignment of this investment advisory agreement since it did not involve a
change of control or management of the investment adviser. Pursuant to the
requirements of Section 205 of the Investment Advisers Act of 1940, however,
Fund Asset Management hereby supplements this investment advisory agreement by
undertaking to advise you of any change in the membership of the partnership
within a reasonable time after any such change occurs.


                                      By________________________________


Dated:  January 3, 1994
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.H1
<SEQUENCE>12
<FILENAME>efc5-1587_ex992h1.txt
<TEXT>
                                                                  Exhibit (h)(1)








================================================================================



                         MUNIYIELD QUALITY FUND, INC.


                           (a Maryland corporation)


                                  $50,000,000
                        Auction Market Preferred Stock


                            2,000 Shares, Series E

                  (Liquidation Preference $25,000 Per Share)


                              PURCHASE AGREEMENT



                              Dated: [___], 2005



================================================================================

<PAGE>


                               TABLE OF CONTENTS

                                                                            Page

SECTION 1.  Representations and Warranties....................................3

   (a)  Representations and Warranties by the Fund and
   the Investment Adviser.....................................................3

   (b)  Additional Representations of the Investment Adviser..................9

   (c)  Officers' Certificates...............................................10

SECTION 2.  Sale and Delivery to the Underwriter; Closing....................11

   (a)  Purchase Price.......................................................11

   (b)  Payment..............................................................11

   (c)  Denominations; Registration..........................................11

SECTION 3.  Covenants of the Fund............................................11

   (a)  Compliance with Securities Regulations and Commission Requests.......11

   (b)  Filing of Amendments.................................................12

   (c)  Delivery of Registration Statements..................................12

   (d)  Delivery of Prospectus...............................................12

   (e)  Continued Compliance with Securities Laws............................12

   (f)  Blue Sky Qualifications..............................................13

   (g)  Rule 158.............................................................13

   (h)  Use of Proceeds......................................................13

   (i)  Subchapter M.........................................................13

   (j)  Restrictions on Sale of Shares.......................................13

   (k)  Reporting Requirements...............................................14

   (l)  Rule 462(b) Registration Statement...................................14

   (m) No Manipulation of Market for the Shares..............................14

SECTION 4.  Covenants of the Underwriter.....................................14

SECTION 5.  Payment of Expenses..............................................14

   (a)  Expenses.............................................................14

   (b)  Termination of Agreement.............................................15

SECTION 6.  Conditions of Underwriter's Obligations..........................15

   (a)  Effectiveness of Registration Statement..............................15

   (b)  Opinion of Counsel for the Fund and the Underwriter..................15
                                      i

<PAGE>

                               Table of Contents
                               -----------------
                                  (continued)

                                                                            Page
                                                                            ----

   (c)  Opinion of Senior Attorney of the Investment Adviser.................15

   (d)  Officers' Certificates...............................................15

   (e)  Accountant's Comfort Letter..........................................16

   (f)  Bring-down Comfort Letter............................................16

   (g)  Ratings Letters......................................................16

   (h) Asset Coverage........................................................16

   (i)  Additional Documents.................................................16

   (j)  Termination of Agreement.............................................17

SECTION 7.  Indemnification..................................................17

   (a)  Indemnification of the Underwriter...................................17

   (b) Indemnification of Fund, Investment Adviser, General Partner,
   and Directors and Officers................................................18

   (c)  Actions against Parties, Notification................................18

   (d)  Settlement without Consent if Failure to Reimburse...................19

SECTION 8.  Contribution.....................................................19

SECTION 9.  Representations, Warranties and Agreements to Survive Delivery...20

SECTION 10.  Termination of Agreement........................................20

   (a)  Termination; General.................................................20

   (b)  Liabilities..........................................................21

SECTION 11.  Notices 21

SECTION 12.  Parties 21

SECTION 13.  Governing Law and Time..........................................21

SECTION 14.  No Fiduciary Relationship.......................................22

SECTION 15.  Effect of Headings..............................................22




                                      ii

<PAGE>


EXHIBITS
Exhibit A  -  Form of Opinion of Fund's Counsel
Exhibit B  -  Form of Opinion of Senior Attorney of the Investment Adviser
Exhibit C  -  Form of Accountant's Comfort Letter


                                     iii

<PAGE>

                         MUNIYIELD QUALITY FUND, INC.
                           (a Maryland corporation)

                                  $50,000,000
                        Auction Market Preferred Stock


                            2,000 Shares, Series E



                  (Liquidation Preference $25,000 Per Share)

                              PURCHASE AGREEMENT

                                                                   [___], 2005

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
            Incorporated
4 World Financial Center
New York, New York  10080

Ladies and Gentlemen:

     MuniYield Quality Fund, Inc., a Maryland corporation (the "Fund"), and
Fund Asset Management, L.P., a Delaware limited partnership (the "Investment
Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter" or "Merrill
Lynch"), with respect to the issue and sale by the Fund and the purchase by
the Underwriter of 2,000 shares of Auction Market Preferred Stock, Series E
("Series E AMPS"), with a par value of $.10 per share and a liquidation
preference of $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared), of the Fund (the
"Shares").

     The Fund understands that the Underwriter proposes to make a public
offering of the Shares as soon as the Underwriter deems advisable after this
Agreement has been executed and delivered.

     The Fund has filed with the Securities and Exchange Commission (the
"Commission") a notification on Form N-8A of registration of the Fund as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and a registration statement on Form N-2 (Nos.
333-[ ], 811-06660), including the related preliminary prospectus and
preliminary statement of additional information, for the registration of the
Shares under the Securities Act of 1933, as amended (the "1933 Act"), the
Investment Company Act, and the rules and regulations of the Commission under
the 1933 Act and the Investment Company Act (together, the "Rules and
Regulations"), and has filed such amendments to such registration statement on
Form N-2, if any, and such amended preliminary prospectuses and preliminary
statements of additional information as may have been required to

<PAGE>

the date hereof. Promptly after execution and delivery of this Agreement, the
Fund will either (i) prepare and file a prospectus and statement of additional
information in accordance with the provisions of paragraph (c) of Rule 497
("Rule 497(c)") of the rules and regulations of the Commission under the 1933
Act (the "1933 Act Regulations") or a certificate in accordance with the
provisions of paragraph (j) of Rule 497 ("Rule 497(j)") of the 1933 Act
Regulations, (ii) prepare and file a prospectus and statement of additional
information in accordance with the provisions of Rule 430A ("Rule 430A") of
the 1933 Act Regulations and paragraph (h) of Rule 497 ("Rule 497(h)") of the
1933 Act Regulations, or (iii) if the Fund has elected to rely upon Rule 434
("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 497(h).
The information included in any such prospectus and statement of additional
information or in any such Term Sheet, as the case may be, that was omitted
from such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to
as "Rule 434 Information." Each prospectus and statement of additional
information used before such registration statement became effective, and any
prospectus and statement of additional information that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was
used after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus/statement." Such
registration statement, including the exhibits thereto and schedules thereto,
if any, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus and final statement of additional information in the form first
furnished to the Underwriter for use in connection with the offering of the
Shares is herein called the "Prospectus." If Rule 434 is relied on, the term
"Prospectus" shall refer to the preliminary prospectus/statement dated [ ],
2005, together with the applicable Term Sheet and all references in this
Agreement to the date of such Prospectus shall mean the date of the applicable
Term Sheet. For purposes of this Agreement, all references to the Registration
Statement, any preliminary prospectus/statement, the Prospectus, or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed
to include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").

     All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus/statement, or the
Prospectus (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information
which is incorporated by reference in the Registration Statement, any
preliminary prospectus or the Prospectus as the case may be; and all
references in this Agreement to amendments or supplements to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to
mean and include the filing of any document under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), which is incorporated by reference in
the Registration Statement, such preliminary prospectus/statement, or the
Prospectus, as the case may be.



                                      2
<PAGE>

     SECTION 1. Representations and Warranties.

     (a) Representations and Warranties by the Fund and the Investment
Adviser. The Fund and the Investment Adviser each severally represents and
warrants to the Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof and as of the Date of Delivery (if any)
referred to in Section 2(b) hereof, and agrees with the Underwriter, as
follows:

          (i) Compliance with Registration Requirements. The Fund meets the
     requirements for use of Form N-2 under the 1933 Act. Each of the
     Registration Statement and any Rule 462(b) Registration Statement has
     become effective under the 1933 Act and no stop order suspending the
     effectiveness of the Registration Statement or any Rule 462(b)
     Registration Statement has been issued under the 1933 Act and no
     proceedings for that purpose have been instituted or are pending or, to
     the knowledge of the Fund or the Investment Adviser, are contemplated by
     the Commission, and any request on the part of the Commission for
     additional information has been complied with. If required, the Fund has
     received any orders exempting the Fund from any provisions of the
     Investment Company Act.

          At the respective times the Registration Statement, any Rule 462(b)
     Registration Statement and any post-effective amendments thereto became
     effective and at the Closing Time the Registration Statement, the Rule
     462(b) Registration Statement and any amendments or supplements thereto
     complied and will comply in all material respects with the requirements
     of the 1933 Act, the Investment Company Act and the Rules and Regulations
     and did not and will not contain an untrue statement of a material fact
     or omit to state a material fact required to be stated therein or
     necessary to make the statements therein not misleading. Neither the
     Prospectus, nor any amendments or supplements thereto, at the time the
     Prospectus or any amendments or supplements thereto were issued and at
     the Closing Time included or will include an untrue statement of a
     material fact or omitted or will omit to state a material fact necessary
     in order to make the statements therein, in the light of the
     circumstances under which they were made, not misleading. The
     representations and warranties in this subsection shall not apply to
     statements in or omissions from the Registration Statement or the
     Prospectus made in reliance upon and in conformity with information
     furnished to the Fund in writing by the Underwriter expressly for use in
     the Registration Statement or in the Prospectus. If Rule 434 is used, the
     Fund will comply with the requirements of Rule 434 and the Prospectus
     shall not be "materially different," as such term is used in Rule 434,
     from the prospectus included in the Registration Statement at the time it
     became effective.

          Each preliminary prospectus/statement and the prospectus and
     statement of additional information filed as part of the Registration
     Statement as originally filed or as part of any amendment thereto, or
     filed pursuant to Rule 497(c) or Rule 497(h) under the 1933 Act, complied
     when so filed in all material respects with the Rules and Regulations and
     each preliminary prospectus/statement and the Prospectus delivered to the
     Underwriter for use in connection with this offering was identical to the
     electronically transmitted copies thereof filed with the Commission
     pursuant to EDGAR, except to the extent permitted by Regulation S-T.



                                      3
<PAGE>

          If a Rule 462(b) Registration Statement is required in connection
     with the offering and sale of the Shares, the Fund has complied or will
     comply with the requirements of Rule 111, under the 1933 Act Regulations
     relating to the payment of filing fees thereof.

          (ii) Independent Registered Public Accounting Firm. The accountants
     who certified the financial statements and supporting schedules, if any,
     included or incorporated by reference in the Registration Statement are
     from an independent registered public accounting firm as required by the
     1933 Act and the Rules and Regulations.

          (iii) Financial Statements. The financial statements, included or
     incorporated by reference in the Registration Statement and Prospectus,
     together with the related schedules and notes, present fairly the
     financial position of the Fund at the date indicated and said statements
     have been prepared in conformity with generally accepted accounting
     principles ("GAAP") applied on a consistent basis throughout the period
     involved. The supporting schedules, if any, included or incorporated by
     reference in the Registration Statement present fairly, in accordance
     with GAAP, the information required to be stated therein. The information
     in the Prospectus under the headings "Financial Highlights,"
     "Capitalization," "Portfolio Composition" and "Description of Capital
     Stock" has been fairly presented.

          (iv) No Material Adverse Change in Business. Since the respective
     dates as of which information is given in the Registration Statement and
     in the Prospectus, except as otherwise stated therein, (A) there has been
     no material adverse change in the condition, financial or otherwise, or
     in the earnings, business affairs or business prospects of the Fund,
     whether or not arising in the ordinary course of business (a "Material
     Adverse Effect"), (B) there have been no transactions entered into by the
     Fund, other than those in the ordinary course of business, which are
     material with respect to the Fund and (C) except for regular monthly
     dividends on the outstanding shares of common stock, par value $.10 per
     share (the "Common Stock"), of the Fund and periodic distributions on the
     outstanding shares of Auction Market Preferred Stock, with a liquidation
     preference of $25,000 per share (the "Outstanding AMPS"), of the Fund
     pursuant to the terms of the Outstanding AMPS, and special year end
     distributions on the Common Stock and Outstanding AMPS related to the
     Fund's qualification as a regulated investment company under Subchapter M
     of the Internal Revenue Code of 1986, as amended ("Subchapter M of the
     Code"), there has been no dividend or distribution of any kind declared,
     paid or made by the Fund on any class of its capital stock.

          (v) Good Standing of the Fund. The Fund has been duly organized and
     is validly existing as a corporation in good standing under the laws of
     the State of Maryland and has corporate power and authority to own, lease
     and operate its properties and to conduct its business as described in
     the Prospectus and to enter into and perform its obligations under this
     Agreement; and the Fund is duly qualified as a foreign corporation to
     transact business and is in good standing in each jurisdiction in which
     such qualification is required, whether by reason of the ownership or
     leasing of property or the conduct of business, except where the failure
     so to qualify or to be in good standing would not result in a Material
     Adverse Effect.



                                      4
<PAGE>

          (vi) Subsidiaries. The Fund has no subsidiaries.

          (vii) Officers and Directors. No person is serving or acting as an
     officer, director or investment adviser of the Fund except in accordance
     with the provisions of the Investment Company Act and the Rules and
     Regulations and the Investment Advisers Act of 1940, as amended (the
     "Advisers Act"), and the rules and regulations of the Commission
     promulgated under the Advisers Act (the "Advisers Act Rules and
     Regulations"). Except as disclosed in the Registration Statement and the
     Prospectus (or any amendment or supplement to either of them), no
     director of the Fund is an "interested person" (as defined in the
     Investment Company Act) of the Fund or an "affiliated person" (as defined
     in the Investment Company Act) of the Underwriter.

          (viii) Capitalization. The authorized, issued and outstanding
     capital stock of the Fund is as set forth in the Prospectus under the
     caption "Description of Capital Stock." All issued and outstanding shares
     of Common Stock and Outstanding AMPS have been duly authorized and
     validly issued and are fully paid and non-assessable, except as provided
     for in the Fund's charter, and have been offered and sold or exchanged by
     the Fund in compliance with all applicable laws (including without
     limitation, federal and state securities laws); none of the outstanding
     shares of Common Stock or Outstanding AMPS of the Fund was issued in
     violation of the preemptive or other similar rights of any securityholder
     of the Fund.

          (ix) Investment Company Act. The Fund is registered with the
     Commission under the Investment Company Act as a closed-end,
     non-diversified, management investment company, and no order of
     suspension or revocation of such registration has been issued or
     proceedings therefor initiated, to the knowledge of the Fund and the
     Investment Adviser, or threatened by the Commission.

          (x) Authorization of Agreement. This Agreement has been duly
     authorized, executed and delivered by the Fund.

          (xi) Authorization and Description of Shares. The Shares to be
     purchased by the Underwriter from the Fund have been duly authorized for
     issuance and sale to the Underwriter pursuant to this Agreement, and,
     when issued and delivered by the Fund pursuant to this Agreement against
     payment of the consideration set forth in this Agreement will be validly
     issued, fully paid and non-assessable; the Shares conform to all
     statements relating thereto contained in the Prospectus and such
     description conforms to the rights set forth in the instruments defining
     the same; no holder of the Shares will be subject to personal liability
     by reason of being such a holder; and the issuance of the Shares is not
     subject to the preemptive or other similar rights of any securityholder
     of the Fund.

          (xii) Absence of Defaults and Conflicts. The Fund is not in
     violation of its charter or by-laws or in default in the performance or
     observance of any obligation, agreement, covenant or condition contained
     in any material contract, indenture, mortgage, deed of trust, loan or
     credit agreement, note, lease or other agreement or instrument to which
     the Fund is a party or by which it or its properties may be bound, or


                                      5
<PAGE>

     to which any of the property or assets of the Fund is subject
     (collectively, "Agreements and Instruments"), except for such defaults
     that would not result in a Material Adverse Effect; and the execution,
     delivery and performance of this Agreement, the Investment Advisory
     Agreement, the Custody Agreement, the Auction Agent Agreement and the
     Letter of Representations referred to in the Registration Statement (as
     used herein, the "Advisory Agreement", the "Custody Agreement," the
     "Auction Agreement" and the "Letter of Representations," respectively)
     and the consummation of the transactions contemplated in this Agreement
     and in the Registration Statement (including the issuance and sale of the
     Shares and the use of the proceeds from the sale of the Shares as
     described in the Prospectus under the caption "Use of Proceeds") and
     compliance by the Fund with its obligations under this Agreement have
     been duly authorized by all necessary corporate action and do not and
     will not, whether with or without the giving of notice or passage of time
     or both, conflict with or constitute a breach of, or a default or
     Repayment Event (as defined below) under, or result in the creation or
     imposition of any lien, charge or encumbrance upon any property or assets
     of the Fund pursuant to the Agreements and Instruments (except for such
     conflicts, breaches or defaults or liens, charges or encumbrances that
     would not result in a Material Adverse Effect), nor will such action
     result in any violation of the provisions of the charter or the by-laws
     of the Fund, or any applicable law, statute, rule, regulation, judgment,
     order, writ or decree of any government, government instrumentality or
     court, domestic or foreign, having jurisdiction over the Fund or any of
     its assets, properties or operations. As used herein, a "Repayment Event"
     means any event or condition which gives the holder of any note,
     debenture or other evidence of indebtedness (or any person acting on such
     holder's behalf) the right to require the repurchase, redemption or
     repayment of all or a portion of such indebtedness by the Fund.

          (xiii) Authorization of Agreements. Each of this Agreement, the
     Advisory Agreement and the Custody Agreement has been duly authorized,
     executed and delivered by the Fund, and each complies with all applicable
     provisions of the Investment Company Act. Each of the Auction Agreement
     and the Letter of Representations has been duly authorized for execution
     and delivery by the Fund and, when executed and delivered by the Fund,
     will constitute a valid and binding obligation of the Fund, enforceable
     in accordance with its terms, subject, as to enforcement, to bankruptcy,
     insolvency, reorganization or other laws relating to or affecting
     creditors' rights and to general equitable principles.

          (xiv) Absence of Proceedings. There is no action, suit, proceeding,
     inquiry or investigation before or brought by any court or governmental
     agency or body, domestic or foreign, now pending, or, to the knowledge of
     the Fund or the Investment Adviser, threatened against or affecting the
     Fund, which is required to be disclosed in the Registration Statement
     (other than as disclosed therein), or which might reasonably be expected
     to result in a Material Adverse Effect, or which might reasonably be
     expected to materially and adversely affect the properties or assets of
     the Fund or the consummation of the transactions contemplated in this
     Agreement or the performance by the Fund of its obligations hereunder;
     the aggregate of all pending legal or governmental proceedings to which
     the Fund is a party or of which any of its respective property or assets
     is the subject which are not described in the Registration Statement,
     including ordinary routine


                                      6
<PAGE>

     litigation incidental to the business, could not reasonably be expected
     to result in a Material Adverse Effect.

          (xv) Subchapter M Compliance. The Fund intends to, and will, direct
     the investment of the proceeds of the offering described in the
     Registration Statement in such a manner as to comply with the
     requirements of Subchapter M of the Code, and the Fund qualifies and
     intends to continue to qualify as a regulated investment company under
     Subchapter M of the Code.

          (xvi) Distribution of Offering Materials. The Fund has not
     distributed and, prior to the later to occur of (A) the Closing Time and
     (B) completion of the distribution of the Shares, will not distribute any
     offering material in connection with the offering and sale of the Shares
     other than the Registration Statement, a preliminary prospectus, the
     Prospectus or other materials, if any, permitted by the 1933 Act or the
     Investment Company Act or the Rules and Regulations.

          (xvii) Accounting Controls. The Fund maintains a system of internal
     accounting controls sufficient to provide reasonable assurances that (A)
     transactions are executed in accordance with management's general or
     specific authorization and with the applicable requirements of the
     Investment Company Act, the Rules and Regulations and the Code; (B)
     transactions are recorded as necessary to permit preparation of financial
     statements in conformity with generally accepted accounting principles
     and to maintain accountability for assets and to maintain compliance with
     the books and records requirements under the Investment Company Act and
     the Rules and Regulations; (C) access to assets is permitted only in
     accordance with the management's general or specific authorization; and
     (D) the recorded accountability for assets is compared with existing
     assets at reasonable intervals and appropriate action is taken with
     respect to any differences.

          (xviii) Absence of Undisclosed Payments. To the Fund's knowledge,
     neither the Fund nor any employee or agent of the Fund has made any
     payment of funds of the Fund or received or retained any funds, which
     payment, receipt or retention of funds is of a character required to be
     disclosed in the Prospectus.

          (xix) Material Agreements. This Agreement, the Advisory Agreement,
     the Custody Agreement and the Auction Agent Agreement have each been duly
     authorized by all requisite action on the part of the Fund and executed
     and delivered by the Fund, as of the dates noted therein, and each
     complies with all applicable provisions of the Investment Company Act in
     all material respects. Assuming due authorization, execution and delivery
     by the other parties thereto with respect to the Advisory Agreement, the
     Custody Agreement and the Auction Agent Agreement, each of the Advisory
     Agreement, the Custody Agreement and the Auction Agent Agreement
     constitutes a valid and binding agreement of the Fund, enforceable in
     accordance with its terms, except as affected by bankruptcy, insolvency,
     fraudulent conveyance, reorganization, moratorium and other similar laws
     relating to or affecting creditors' rights generally, general equitable
     principles (whether considered in a proceeding in equity or at law) and
     an implied covenant of good faith and fair dealing and except as rights
     to indemnification or contribution thereunder may be limited by federal
     or state laws.



                                      7
<PAGE>

          (xx) Registration Rights. There are no persons with registration
     rights or other similar rights to have any securities registered pursuant
     to the Registration Statement or otherwise registered by the Fund under
     the 1933 Act.

          (xxi) Accuracy of Exhibits. There are no contracts or documents
     which are required to be described in the Registration Statement or the
     Prospectus or to be filed as exhibits thereto by the 1933 Act, the
     Investment Company Act or the Rules and Regulations which have not been
     so described and filed as required.

          (xxii) Possession of Intellectual Property. The Fund owns or
     possesses, has the right to use or can acquire on reasonable terms,
     adequate patents, patent rights, licenses, inventions, copyrights,
     know-how (including trade secrets and other unpatented and/or
     unpatentable proprietary or confidential information, systems or
     procedures), trademarks, service marks, trade names or other intellectual
     property (collectively, "Intellectual Property") necessary to carry on
     the business now operated by the Fund, and the Fund has not received any
     notice or is not otherwise aware of any infringement of or conflict with
     asserted rights of others with respect to any Intellectual Property or of
     any facts or circumstances which would render any Intellectual Property
     invalid or inadequate to protect the interest of the Fund therein, and
     which infringement or conflict (if the subject of any unfavorable
     decision, ruling or finding) or invalidity or inadequacy, singly or in
     the aggregate, would result in a Material Adverse Effect.

          (xxiii) Absence of Further Requirements. No filing with, or
     authorization, approval, consent, license, order, registration,
     qualification or decree of, any court or governmental authority or agency
     is necessary or required for the performance by the Fund of its
     obligations hereunder, in connection with the offering, issuance or sale
     of the Shares under this Agreement or the consummation of the
     transactions contemplated by this Agreement, except such as have been
     already obtained or as may be required under the 1933 Act, the 1934 Act
     or the Investment Company Act or the Rules and Regulations and foreign or
     state securities laws or under the rules of the NASD (formerly, the
     National Association of Securities Dealers, Inc.).

          (xxiv) Possession of Licenses and Permits. The Fund possesses such
     permits, licenses, approvals, consents and other authorizations
     (collectively, "Governmental Licenses") issued by the appropriate
     federal, state, local or foreign regulatory agencies or bodies necessary
     to conduct the business now operated by it; the Fund is in compliance
     with the terms and conditions of all such Governmental Licenses, except
     where the failure so to comply would not, singly or in the aggregate,
     have a Material Adverse Effect; all of the Governmental Licenses are
     valid and in full force and effect, except when the invalidity of such
     Governmental Licenses or the failure of such Governmental Licenses to be
     in full force and effect would not have a Material Adverse Effect; and
     the Fund has not received any notice of proceedings relating to the
     revocation or modification of any such Governmental Licenses which,
     singly or in the aggregate, if the subject of an unfavorable decision,
     ruling or finding, would result in a Material Adverse Effect.



                                      8
<PAGE>

          (xxv) NYSE Listing. The Fund's shares of Common Stock are duly
     listed on the New York Stock Exchange ("NYSE").

          (xxvi) Ratings. The Shares have been, or prior to the Closing Date
     will be, assigned a rating of Aaa by Moody's Investors Service, Inc.
     ("Moody's") and AAA by Standard & Poor's ("S&P").

          (xxvii) Leverage. The Fund has no liability for borrowed money,
     including under any reverse repurchase agreement.

     (b) Additional Representations of the Investment Adviser. The Investment
Adviser represents and warrants to the Underwriter as of the date hereof and
as of the Representation Date as follows:

          (i) Organization and Authority of Investment Adviser. The Investment
     Adviser has been duly organized as a limited partnership under the laws
     of the State of Delaware, with power and authority to conduct its
     business as described in the Registration Statement and the Prospectus.

          (ii) Investment Advisers Act. The Investment Adviser is duly
     registered as an investment adviser under the Investment Advisers Act of
     1940, as amended (the "Investment Advisers Act"), and is not prohibited
     by the Investment Advisers Act or the Investment Company Act, or the
     rules and regulations under such acts, from acting under the Advisory
     Agreement for the Fund as contemplated by the Registration Statement and
     the Prospectus.

          (iii) Description of Investment Adviser. The description of the
     Investment Adviser in the Registration Statement and the Prospectus (and
     any amendment or supplement to either of them) complied and complies in
     all material respects with the provisions of the 1933 Act, the Investment
     Company Act, the Advisers Act, the Rules and Regulations and the Advisers
     Act Rules and Regulations and is true and correct and does not contain
     any untrue statement of a material fact or omit to state any material
     fact required to be stated therein or necessary in order to make the
     statements therein, in light of the circumstances under which they were
     made, not misleading.

          (iv) Capitalization. The Investment Adviser has the financial
     resources available to it necessary for the performance of its services
     and obligations as contemplated in the Registration Statement, the
     Prospectus, this Agreement and under the Advisory Agreement.

          (v) Authorization of Agreements. This Agreement has been duly
     authorized, executed and delivered by the Investment Adviser; the
     Advisory Agreement has been duly authorized, executed and delivered by
     the Investment Adviser, and constitutes a valid and binding obligation of
     the Investment Adviser, enforceable in accordance with its terms,
     subject, as to enforcement, to bankruptcy, insolvency, reorganization or
     other laws relating to or affecting creditors' rights and to general
     equitable principles; and neither the execution and delivery of this
     Agreement or the Advisory Agreement, nor the performance by the
     Investment Adviser of its obligations hereunder or thereunder will


                                      9
<PAGE>

     conflict with, or result in a breach of any of the terms and provisions
     of, or constitute, with or without the giving of notice or the lapse of
     time or both, a default under, any agreement or instrument to which the
     Investment Adviser is a party or by which it is bound, the certificate of
     formation, the operating agreement, or other organizational documents of
     the Investment Adviser, or the Investment Adviser's knowledge by any law,
     order, decree, rule or regulation applicable to it of any jurisdiction,
     court, federal or state regulatory body, administrative agency or other
     governmental body, stock exchange or securities association having
     jurisdiction over the Investment Adviser or its respective properties or
     operations; and no consent, approval, authorization or order of any court
     or governmental authority or agency is required for the consummation by
     the Investment Adviser of the transactions contemplated by this Agreement
     and the Advisory Agreement, except as have been obtained or may be
     required under the 1933 Act, the Investment Company Act, the 1934 Act or
     state securities laws.

          (vi) No Material Adverse Change. Since the respective dates as of
     which information is given in the Registration Statement and the
     Prospectus, except as otherwise stated therein, there has not occurred
     any event which should reasonably be expected to have a material adverse
     effect on the ability of the Investment Adviser to perform its respective
     obligations under this Agreement and the Advisory Agreement.

          (vii) Absence of Proceedings. There is no action, suit, proceeding,
     inquiry or investigation before or brought by any court or governmental
     agency or body, domestic or foreign, now pending, or, to the knowledge of
     the Investment Adviser, threatened against or affecting the Investment
     Adviser or any "affiliated person" of the Investment Adviser (as such
     term is defined in the Investment Company Act) or any partners, trustees,
     officers or employees of the foregoing, whether or not arising in the
     ordinary course of business, which might reasonably be expected to result
     in any material adverse change in the condition, financial or otherwise,
     or earnings, business affairs or business prospects of the Investment
     Adviser, materially and adversely affect the properties or assets of the
     Investment Adviser or materially impair or adversely affect the ability
     of the Investment Adviser to function as an investment adviser or perform
     its obligations under the Advisory Agreement, or which is required to be
     disclosed in the Registration Statement and the Prospectus.

          (viii) Absence of Violation or Default. The Investment Adviser is
     not in violation of its certificate of formation, its operating agreement
     or other organizational documents or in default under any agreement,
     indenture or instrument, where such violation or default would reasonably
     be expected to have a Material Adverse Effect on the Investment Adviser's
     ability to function as an investment adviser or perform its obligations
     under the Advisory Agreement.

     (c) Officers' Certificates. Any certificate signed by any officer of the
Fund or any officer of the Investment Adviser delivered to the Underwriter or
to counsel for the Fund and the Underwriter shall be deemed a representation
and warranty by the Fund or the Investment Adviser, as the case may be, to the
Underwriter as to the matters covered thereby.



                                      10
<PAGE>

     SECTION 2. Sale and Delivery to the Underwriter; Closing.

     (a) Purchase Price. On the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein set forth,
the Fund agrees to sell to the Underwriter and the Underwriter agrees to
purchase from the Fund the Shares at the price per share set forth in Schedule
A.

     (b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the offices of Sidley Austin
Brown & Wood llp, 787 Seventh Avenue, New York, New York 10019, or at such
other place as shall be agreed upon by the Underwriter and the Fund, at 9:00
A.M. (Eastern time) on the second (third, if the pricing occurs after 4:30
P.M. (Eastern time) on any given day) business day following the date hereof,
or such other time not later than ten business days after such date as shall
be agreed upon by the Underwriter and the Fund (such time and date of payment
and delivery herein being referred to as "Closing Time").

     Payment shall be made to the Fund by wire transfer of immediately
available funds to a bank account designated by the Fund, against delivery to
the Underwriter of certificates for the Shares to be purchased by it.

     (c) Denominations; Registration. The Shares shall be represented by
certificates registered in the name of Cede & Co., as nominee for The
Depository Trust Company. The certificates for the Shares will be made
available for examination by the Underwriter not later than 10:00 A.M. on the
last business day prior to Closing Time.

     SECTION 3. Covenants of the Fund. The Fund covenants with the Underwriter
as follows:

     (a) Compliance with Securities Regulations and Commission Requests. The
Fund, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Underwriter immediately, and
confirm the notice in writing, (i) if any post-effective amendment to the
Registration Statement shall have become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus/statement, or of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, or of
the initiation or threatening of any proceedings for any of such purposes, and
(v) of the issuance by the Commission of an order of suspension or revocation
of the notification on Form N-8A of registration of the Fund as an investment
company under the Investment Company Act or the initiation of any proceeding
for that purpose. The Fund will make every reasonable effort to prevent the
issuance of any stop order described in subsection (iv) hereunder or any order
of suspension or revocation described in subsection (v) hereunder and, if any
such stop order or order of suspension or revocation is issued, to obtain the
lifting thereof at the earliest possible moment. The Fund will promptly effect
the filings necessary pursuant to Rule 497(c), Rule 497(j) or Rule 497(h) and
will take such steps as it


                                      11
<PAGE>

deems necessary to ascertain promptly whether the certificate transmitted for
filing under Rule 497(j) or the form of prospectus and statement of additional
information transmitted for filing under Rule 497(c) or Rule 497(h) was
received for filing by the Commission and, in the event that it was not, it
will promptly file such certificate or prospectus and statement of additional
information.

     (b) Filing of Amendments. The Fund will give the Underwriter notice of
its intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment or filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus or
statement of additional information included in the Registration Statement at
the time it became effective or to the Prospectus, whether pursuant to the
Investment Company Act, the 1933 Act, or otherwise, and will furnish the
Underwriter with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file or
use any such document to which the Underwriter or counsel to the Underwriter
and the Fund shall object.

     (c) Delivery of Registration Statements. The Fund has furnished or will
deliver to the Underwriter and counsel to the Underwriter and the Fund,
without charge, signed copies of the notification of registration on Form N-8A
and Registration Statement as originally filed and of each amendment thereto,
(including exhibits filed therewith, or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will also
deliver to the Underwriter a conformed copy, without charge, of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) for the Underwriter. The copies of the Registration
Statement and each amendment thereto furnished to the Underwriter will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T.

     (d) Delivery of Prospectus. The Fund has delivered to the Underwriter,
without charge, as many copies of each preliminary prospectus/statement as the
Underwriter reasonably requested, and the Fund hereby consents to the use of
such copies for purposes permitted by the 1933 Act. The Fund will furnish to
the Underwriter, without charge, during the period when the Prospectus is
required to be delivered under the 1933 Act, such number of copies of the
Prospectus (as amended or supplemented) as the Underwriter may reasonably
request. The Prospectus and any amendments or supplements thereto furnished to
the Underwriter will be identical to the electronically transmitted copies
thereof field with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.

     (e) Continued Compliance with Securities Laws. The Fund will comply with
the 1933 Act, the Investment Company Act and the Rules and Regulations so as
to permit the completion of the distribution of the Shares as contemplated in
this Agreement and in the Prospectus. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Shares, any event shall occur or condition shall exist as a result of which it
is necessary, in the opinion of counsel to the Underwriter and the Fund, to
amend the Registration Statement or amend or supplement any Prospectus in
order that the Prospectus will not include any untrue statements of material
fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if it shall be necessary, in
the opinion of such counsel,


                                      12
<PAGE>

at any such time to amend the Registration Statement or amend or supplement
any Prospectus in order to comply with the requirements of the 1933 Act or the
1933 Act Regulations, the Fund will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Fund will
furnish to the Underwriter such number of copies of such amendment or
supplement as the Underwriter may reasonably request.

     (f) Blue Sky Qualifications. The Fund will use its best efforts, in
cooperation with the Underwriter, to qualify the Shares for offering and sale
under the applicable securities laws of such states and other jurisdictions as
the Underwriter may designate and to maintain such qualifications in effect
for a period of not less than one year from the later of the effective date of
the Registration Statement and any Rule 462(b) Registration Statement;
provided, however, that the Fund shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject. In each jurisdiction in which the Shares
have been so qualified, the Fund will file such statements and reports as may
be required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.

     (g) Rule 158. The Fund will timely file such reports pursuant to the 1933
Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.

     (h) Use of Proceeds. The Fund will use the net proceeds received by it
from the sale of the Shares in the manner specified in the Prospectus under
"Use of Proceeds."

     (i) Subchapter M. The Fund will use its best efforts to maintain its
qualification as a regulated investment company under Subchapter M of the
Code.

     (j) Restrictions on Sale of Shares. During a period of 180 days from the
date of the Prospectus, the Fund will not, without the prior written consent
of Merrill Lynch, (i) directly or indirectly offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer
or dispose of any senior security of the Fund, as defined in Section 18 of the
Investment Company Act, or file any registration statement under the 1933 Act
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of senior securities,
whether any such swap or transaction described in clause (i) or (ii) above is
to be settled by delivery of senior securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder or
(B) transactions as contemplated in the Registration Statement where the Fund
has segregated cash, cash equivalents or liquid securities at the Fund's
custodian having a market value at all times at least equal to the amount of
such senior securities.



                                      13
<PAGE>

     (k) Reporting Requirements. The Fund, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to
the Investment Company Act and the 1934 Act within the time periods required
by the Investment Company Act and the Rules and Regulations and the 1934 Act
and the rules and regulations of the Commission thereunder, respectively.

     (l) Rule 462(b) Registration Statement. If the Fund elects to rely upon
Rule 462(b), the Fund shall file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C.
time, on the date of this Agreement, and the Fund shall at the time of filing
either pay to the Commission the filing fee for the Rule 462(b) Registration
Statement or give irrevocable instructions for the payment of such fee
pursuant to Rule 111(b) under the 1933 Act.

     (m) No Manipulation of Market for the Shares. The Fund will not (a) take,
directly or indirectly, any action designed to cause or to result in, or that
might reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Fund to facilitate the sale or resale of
the Shares, and (b) until the Closing Date (i) sell, bid for or purchase the
Shares or pay any person (other than the Underwriter) any compensation for
soliciting purchases of the Shares or (ii) pay or agree to pay to any person
any compensation for soliciting another to purchase any other securities of
the Fund (other than payments to broker-dealers in connection with the
auctions of the Outstanding AMPS).

     SECTION 4. Covenants of the Underwriter. The Underwriter covenants and
agrees with the Fund that no later than the second business day succeeding
Closing Time, it will provide the Fund and the Auction Agent (as defined in
the Prospectus) with a listing of Existing Holders (as defined in the
Prospectus) of Shares, the number of shares held by each such Existing Holder
and the number of Shares it is holding as Underwriter as of the date of such
notice.

     SECTION 5. Payment of Expenses.

     (a) Expenses. The Fund will pay all expenses incident to the performance
of its obligations under this Agreement, including (i) the preparation,
printing and filing of the Registration Statement (including financial
statements and exhibits) as originally filed and of each amendment thereto,
(ii) the preparation, printing and delivery to the Underwriter of this
Agreement and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Shares, (iii) the
preparation, issuance and delivery of the certificates for the Shares to the
Underwriter, including any stock or other transfer taxes and any stamp or
other duties payable upon the sale, issuance or delivery of the Shares to the
Underwriter, (iv) the fees and disbursements of the Fund's counsel,
accountants and other advisers, (v) the qualification of the Shares under the
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel to
the Underwriter and the Fund in connection therewith, (vi) the printing and
delivery to the Underwriter of copies of each preliminary
prospectus/statement, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the fees and expenses of any transfer agent or
registrar for the Shares, and (viii) the fees charged by rating agencies
rating the Shares.



                                      14
<PAGE>

     (b) Termination of Agreement. If this Agreement is terminated by the
Underwriter in accordance with the provisions of Section 6 or Section 10(a)(i)
hereof, the Fund or the Investment Adviser shall reimburse, or arrange for an
affiliate to reimburse, the Underwriter for all of its out-of-pocket expenses,
including the reasonable fees and disbursements of counsel to the Fund and the
Underwriter.

     SECTION 6. Conditions of Underwriter's Obligations. The obligations of
the Underwriter hereunder are subject to the accuracy of the representations
and warranties of the Fund and the Investment Adviser contained in Section 1
hereof, or in the certificates of any officer of the Fund and the Investment
Adviser delivered pursuant to the provisions hereof, to the performance by the
Fund and the Investment Adviser of their respective covenants and obligations
hereunder, and to the following further conditions:

     (a) Effectiveness of Registration Statement. The Registration Statement
including any Rule 462(b) Registration Statement has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriter and the Fund. Either (i)
a certificate has been filed with the Commission in accordance with Rule
497(j) or a prospectus and statement of additional information have been filed
with the Commission in accordance with Rule 497(c), or (ii) a prospectus and
statement of additional information containing the Rule 430A Information shall
have been filed with the Commission in accordance with Rule 497(h) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if
the Fund has elected to rely upon Rule 434, a Term Sheet shall have been filed
with the Commission in accordance with Rule 497(h).

     (b) Opinion of Counsel for the Fund and the Underwriter. At Closing Time,
the Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Sidley Austin Brown & Wood llp, counsel to the Fund and the
Underwriter, to the effect set forth in Exhibit A hereto.

     (c) Opinion of Senior Attorney of the Investment Adviser. At Closing
Time, the Underwriter shall have received the favorable opinion, dated as of
Closing Time, of Andrew J. Donohue, Esq., General Counsel of the Investment
Adviser, or another senior attorney of the Investment Adviser, in form and
substance satisfactory to counsel to the Underwriter, to the effect set forth
in Exhibit B hereto and to such further effect as counsel to the Underwriter
may reasonably request.

     (d) Officers' Certificates. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Fund, whether or not arising in the ordinary course of
business, and the Underwriter shall have received (A) a certificate of the
President or a Vice President of the Fund, dated as of Closing Time, to the
effect that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made at and as of Closing
Time,


                                      15
<PAGE>

(iii) the Fund has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to Closing Time, and (iv)
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or, to the officer's knowledge, are contemplated by the Commission and
(B) a certificate of the President or a Vice President of the Investment
Adviser, dated as of Closing Time, to the effect that (i) there has been no
such material change, (ii) the representations and warranties in Sections 1(a)
and 1(b) hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Investment Adviser has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time and (iv) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Investment Adviser,
whether or not arising in the ordinary course of business.

     (e) Independent Registered Public Accounting Firm's Comfort Letter. At
the time of the execution of this Agreement, the Underwriter shall have
received from _________________ a letter, dated such date, in form and
substance satisfactory to the Underwriter containing statements and
information of the type ordinarily included in independent registered public
accounting firms' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus, to the effect set forth in Exhibit
C hereto and to such further effect as counsel to the Underwriter may
reasonably request.

     (f) Bring-down Comfort Letter. At Closing Time, the Underwriter shall
have received from ______________ a letter, dated as of Closing Time, to the
effect that they reaffirm the statements made in the letter, furnished
pursuant to subsection (e) of this Section, except that the "specified date"
referred to shall be a date not more than three business days prior to Closing
Time.

     (g) Ratings Letters. Subsequent to the execution and delivery of this
Agreement and prior to Closing Time, there shall not have occurred any
downgrading, nor shall any notice have been given of (i) any intended or
potential downgrading or (ii) any review or possible change that indicates
anything other than a stable outlook, in the rating accorded any securities of
or guaranteed by the Fund by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2) under
the 1933 Act; and prior to Closing Time, S&P and Moody's shall have confirmed
by letter that the Shares have been rated AAA and Aaa, respectively, by such
agencies.

     (h) Asset Coverage. As of the Closing Date and assuming the receipt of
the net proceeds from the sale of the Shares, the 1940 Act AMPS Asset Coverage
and the AMPS Basic Maintenance Amount (each as defined in the Fund's articles
supplementary creating the Shares) each will be met.

     (i) Additional Documents. At Closing Time, counsel to the Fund and the
Underwriter shall have been furnished with such documents and opinions as it
may reasonably require for the purpose of enabling it to pass upon the
issuance and sale of the Shares as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Fund


                                      16
<PAGE>

in connection with the issuance and sale of the Shares as herein contemplated
shall be reasonably satisfactory in form and substance to the Underwriter and
counsel to the Fund and the Underwriter.

     (j) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, may be terminated by the Underwriter by notice to the Fund at any
time at or prior to Closing Time and such termination shall be without
liability of any party to any other party except as provided in Section 5 and
except that Sections 1, 7, 8, 9 and 12 shall survive any such termination and
remain in full force and effect.

     SECTION 7. Indemnification.

     (a) Indemnification of the Underwriter. The Fund and the Investment
Adviser jointly and severally agree to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the 1933 Act or Section 25 of the 1934 Act and any
director, officer, employee or affiliate thereof as follows:

          (i) against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, arising out of any untrue statement or alleged
     untrue statement of a material fact contained in the Registration
     Statement (or any amendment thereto), including the Rule 430A Information
     and the Rule 434 Information, if applicable, or the omission or alleged
     omission therefrom of a material fact required to be stated therein or
     necessary to make the statements therein not misleading or arising out of
     any untrue statement or alleged untrue statement of a material fact
     included in any preliminary prospectus/statement or the Prospectus (or
     any amendment or supplement thereto), or the omission or alleged omission
     therefrom of a material fact necessary in order to make the statements
     therein, in the light of the circumstances under which they were made,
     not misleading;

          (ii) against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, to the extent of the aggregate amount paid in
     settlement of any litigation, or any investigation or proceeding by any
     governmental agency or body, commenced or threatened, or of any claim
     whatsoever based upon any such untrue statement or omission, provided
     that (subject to Section 7(d) below) any such settlement is effected with
     the written consent of the indemnifying party; and

          (iii) against any and all expense whatsoever, as incurred (including
     the fees and disbursements of counsel chosen by the Underwriter)
     reasonably incurred in investigating, preparing or defending against any
     litigation, or any investigation or proceeding by any governmental agency
     or body, commenced or threatened, or any claim whatsoever based upon any
     such untrue statement or omission, or any such alleged untrue statement
     or omission, to the extent that any such expense is not paid under (i) or
     (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue


                                      17
<PAGE>

statement or omission made in reliance upon and in conformity with written
information furnished to the Fund by the Underwriter expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus/statement or the Prospectus (or any amendment or supplement
thereto).

     (b) Indemnification of Fund, Investment Adviser, General Partner, and
Directors and Officers. The Underwriter agrees to indemnify and hold harmless
the Fund, the Investment Adviser, the directors of the Fund, the general
partner of the Investment Adviser, each of the Fund's officers who signed the
Registration Statement, and each person, if any, who controls the Fund or the
Investment Adviser within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act, against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto) including the Rule 430A Information and the Rule
434 Information, if applicable, or in any preliminary prospectus/statement or
the Prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Fund by the
Underwriter expressly for use in the Registration Statement (or any amendment
thereto), or any preliminary prospectus/statement or the Prospectus (or any
amendment or supplement thereto).

     (c) Actions against Parties, Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party
of any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve
such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section
7(a) above, counsel to the indemnified parties shall be selected by the
Underwriter, and, in the case of parties indemnified pursuant to Section 7(b)
above, counsel to the indemnified parties shall be selected by the Fund and
the Investment Adviser. An indemnifying party may participate at its own
expense in the defense of any such action; provided, however, that counsel to
the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for the fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 7 or Section 8 hereof (whether
or not the indemnified parties are actual or potential parties thereto),
unless such settlement, compromise or consent (i) includes an unconditional
release of each indemnified party from all liability arising out of such
litigation, investigation, proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.



                                      18
<PAGE>

     (d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated
by Section 7(a)(ii) effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party
shall have received notice of the terms of such settlement at least 30 days
prior to such settlement being entered into and (iii) such indemnifying party
shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.

     SECTION 8. Contribution. If the indemnification provided for in Section 7
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Fund and the
Investment Adviser on the one hand and the Underwriter on the other hand from
the offering of the Shares pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Fund and
the Investment Adviser on the one hand and of the Underwriter on the other
hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.

     The relative benefits received by the Fund and the Investment Adviser on
the one hand and the Underwriter on the other hand in connection with the
offering of the Shares pursuant to this Agreement shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of the
Shares pursuant to this Agreement (before deducting expenses) received by the
Fund, and the total underwriting commission received by the Underwriter, in
each case as set forth on the cover of the Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet, bear to the aggregate
initial public offering price of the Shares as set forth on such cover.

     The relative fault of the Fund and the Investment Adviser on the one hand
and the Underwriter on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Fund and the Investment Adviser or by the
Underwriter and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.

     The Fund, the Investment Adviser and the Underwriter agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in
this Section 8. The aggregate amount of losses, liabilities, claims, damages
and expenses incurred by an indemnified party and referred to above in this
Section 7 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by


                                      19
<PAGE>

any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue or alleged untrue statement or omission
or alleged omission.

     Notwithstanding the provisions of this Section 8, the Underwriter shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

     No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.

     For purposes of this Section 8, each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as the Underwriter,
and each director of the Fund and the Investment Adviser, respectively, each
officer of the Fund who signed the Registration Statement and each person, if
any, who controls the Fund and the Investment Adviser within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, shall have the same
rights to contribution as the Fund and the Investment Adviser.

     SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Fund or of the Investment
Adviser submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of the
Underwriter or controlling person, or by or on behalf of the Fund or the
Investment Adviser and shall survive delivery of the Shares to the
Underwriter.

     SECTION 10. Termination of Agreement.

     (a) Termination; General. The Underwriter may terminate this Agreement by
notice to the Fund, at any time at or prior to Closing Time (i) if there has
been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Fund or the Investment Adviser, whether
or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or the international financial markets, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political,
financial or economic conditions, in each case the effect of which is such as
to make it, in the judgment of the Underwriter, impracticable or inadvisable
to market the Shares or to enforce contracts for the sale of the Shares, or
(iii) if trading in any securities of the Fund has been suspended or
materially limited by the Commission or the NYSE or such other national
securities exchange upon which the Fund's securities trade, or if trading
generally on the NYSE or the American Stock Exchange or in the Nasdaq National
Market System has been suspended or materially limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by any of said exchanges or by such system or
by order


                                      20
<PAGE>

of the Commission, the NASD or any other governmental authority, or a material
disruption has occurred in commercial banking or securities settlement or
clearance services in the United States or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.

     (b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 5 hereof, and provided further that
Sections 1, 7, 8, 9 and 12 shall survive such termination and remain in full
force and effect.

     SECTION 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriter shall be directed to Merrill Lynch & Co. Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated at 4 World Financial Center, New York, New
York 10080, Attention: Equity Capital Markets; notices to the Fund and the
Investment Adviser shall be directed to 800 Scudders Mill Road, Plainsboro,
New Jersey 08536, Attention: Donald C. Burke.

     SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriter, the Fund, the Investment Adviser and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriter, the Fund, the Investment Adviser and their respective
successors and the controlling persons and officers, directors and general
partner referred to in Sections 7 and 8 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement
and all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriter, the Fund and the Investment Adviser and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Shares from the Underwriter
shall be deemed to be a successor merely by reason of such purchase.

     SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.

     SECTION 14. No Fiduciary Relationship. The Fund acknowledges and agrees
that (i) the purchase and sale of the Shares pursuant to this Agreement,
including the determination of the public offering price of the Shares and any
related discounts and commissions, is an arm's-length commercial transaction
between the Fund on the one hand, and the Underwriter, on the other hand, (ii)
in connection with the offering contemplated hereby and the process leading to
such transaction the Underwriter is and has been acting solely as a principal
and is not the agent or fiduciary of the Fund, or its stockholders, creditors,
employees or any other party, (iii) the Underwriter has not assumed nor will
it assume an advisory or fiduciary responsibility in favor of the Fund with
respect to the offering contemplated hereby or the process leading thereto
(irrespective of whether the Underwriter has advised or is currently advising
the Fund on other matters) and the Underwriter has no obligation to the Fund
with respect to the offering


                                      21
<PAGE>

contemplated hereby except the obligations expressly set forth in this
Agreement, (iv) the Underwriter and its respective affiliates may be engaged
in a broad range of transactions that involve interests that differ from those
of the Fund, and (v) the Underwriter has not provided any legal, accounting,
regulatory or tax advice with respect to the offering contemplated hereby and
the Fund has consulted its own legal, accounting, regulatory and tax advisors
to the extent it deemed appropriate.

     SECTION 15. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.




                                      22
<PAGE>


     If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Fund a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriter and the Fund and the Investment Adviser in accordance
with its terms.

                                        Very truly yours,

                                        MUNIYIELD QUALITY FUND, INC.


                                        By:_____________________________
                                           Authorized Officer



                                        FUND ASSET MANAGEMENT, L.P.

                                        By: PRINCETON SERVICES, INC.,
                                              General Partner


                                        By:_____________________________
                                           Authorized Officer


CONFIRMED AND ACCEPTED,
  as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
            INCORPORATED

By:_____________________________
   Authorized Officer




                                      23
<PAGE>

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



                         MUNIYIELD QUALITY FUND, INC.
                           (a Maryland corporation)

                                  $50,000,000


                        Auction Market Preferred Stock

                            2,000 Shares, Series E




                  (Liquidation Preference $25,000 per share)



     1. The initial public offering price per share for the Shares, determined
as provided in Section 2 hereof shall be $25,000 plus accumulated dividends,
if any, from the date of original issue.

     2. The purchase price per share for the Shares to be paid by the
Underwriter shall be $24,750 plus accumulated dividends, if any, from the date
of original issue, being an amount equal to the initial public offering price
set forth above less $250 per share.

     3. The dividend rate for the Series E AMPS for the initial dividend
period ending [ ], 2005, shall be [ ]%.





                                      24
<PAGE>


                                                                       Exhibit A



                       FORM OF OPINION OF FUND'S COUNSEL
                          TO BE DELIVERED PURSUANT TO
                                 SECTION 6(b)


1.   The Fund has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Maryland.

2.   The Fund has the corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and
to enter into and perform its obligations under the Purchase Agreement.

3.   The Fund is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure to so qualify or to be in good
standing would not result in a material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Fund, whether or not arising in the ordinary course of
business (a "Material Adverse Effect").

4.   The authorized, issued and outstanding capital stock of the Fund is as set
forth in the Prospectus under the caption "Description of Capital Stock." The
outstanding shares of Common Stock of the Fund and the Outstanding AMPS have
been duly authorized and validly issued and are fully paid and non-assessable.

5.   The Shares to be purchased by the Underwriter from the Fund pursuant to the
Purchase Agreement have been duly authorized for issuance and sale to the
Underwriter and, when issued and delivered by the Fund to the Underwriter
pursuant to the Purchase Agreement against payment of the consideration set
forth in the Purchase Agreement, will be validly issued and fully paid and
non-assessable, and no holder of the Shares is or will be subject to personal
liability solely by reason of being such a holder.

6.   The issuance of the Shares is not subject to the preemptive or other
similar rights of any securityholder of the Fund.

7.   To the best of our knowledge, the Fund does not have any subsidiaries.

8.   The Purchase Agreement has been duly authorized, executed and delivered by
the Fund and complies with all applicable provisions of the Investment Company
Act.

9.   The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the certificate pursuant to Rule 497(j) or the Prospectus pursuant to Rule
497(c) or Rule 497(h), as the case may be, has been made in the manner and
within the time period required by Rule 497(j), Rule 497(c) or Rule


                                     A-1
<PAGE>

497(h), as the case may be; and, to the best of our knowledge, no stop order
suspending the effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no proceedings
for that purpose have been instituted or are pending or threatened by the
Commission.

10.  The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus, and each amendment or supplement to the
Registration Statement and the Prospectus, as of their respective effective or
issue dates, complied as to form in all material respects (other than the
financial statements and supporting schedules included or incorporated by
reference therein or omitted therefrom, as to which we express no opinion)
with the requirements of the 1933 Act, the Investment Company Act and the
rules and regulations of the Commission under the 1933 Act and the Investment
Company Act (the "Rules and Regulations").

11.  The form of certificate(s) used to evidence the Shares complies in all
material respects with all applicable statutory requirements and with any
applicable requirements of the charter and by-laws of the Fund.

12.  To the best of our knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the Fund is a
party, or to which the property of the Fund is subject, before or brought by
any court or governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of the transactions contemplated in the
Purchase Agreement or the performance by the Fund of its obligations
thereunder, other than those disclosed in the Prospectus.

13.  The information in the Prospectus under "Description of AMPS,"
"Description of Capital Stock," and "Taxes" and in the Registration Statement
under Item 30, to the extent that it constitutes matters of law, summaries of
legal matters, the Fund's charter and bylaws or legal proceedings, or legal
conclusions, has been reviewed by us and is correct in all material respects.

14.  To the best of our knowledge, there are no statutes or regulations that
are required to be described in the Prospectus that are not described as
required.

15.  All descriptions in the Prospectus of contracts and other documents to
which the Fund is a party are accurate in all material respects; to the best
of our knowledge, there are no franchises, contracts, indentures, mortgages,
loan agreements, notes, leases or other instruments of the Fund required to be
described or referred to in the Registration Statement or to be filed as
exhibits thereto other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the descriptions thereof or
references thereto are correct in all material respects.

16.  To the best of our knowledge, the Fund is not in violation of its charter
or by-laws and no default by the Fund exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan


                                     A-2
<PAGE>

agreement, note, lease or other agreement or instrument that is described or
referred to in the Registration Statement or the Prospectus or filed or
incorporated by reference as an exhibit to the Registration Statement.

17.  No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority
or agency, domestic or foreign (other than under the 1933 Act, the 1934 Act,
the Investment Company Act, the Rules and Regulations, which have been
obtained, or as may be required under the securities or blue sky laws of the
various states, as to which we express no opinion) is necessary or required in
connection with the due authorization, execution and delivery by the Fund of
the Purchase Agreement, the Advisory Agreement, the Custody Agreement, the
Auction Agreement and the Letter of Representations or for the offering,
issuance, sale or delivery of the Shares.

18.  The Advisory Agreement and the Custody Agreement have each been duly
authorized and approved by the Fund and comply as to form in all material
respects with all applicable provisions of the Investment Company Act, and
each has been duly executed and delivered by the Fund.

19.  Each of the Auction Agreement and the Letter of Representations has been
duly authorized, executed and delivered by the Fund, and each constitutes a
valid and binding obligation of the Fund, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization
or other laws relating to or affecting creditors' rights and to general
equitable principles.

20.  The Fund is registered with the Commission under the Investment Company
Act as a closed-end, non-diversified management investment company, and all
required action has been taken by the Fund under the 1933 Act, the Investment
Company Act and the Rules and Regulations to make the public offering and
consummate the sale of the Shares pursuant to the Purchase Agreement; the
provisions of the charter and the by-laws of the Fund comply as to form in all
material respects with the requirements of the Investment Company Act; and, to
the best of our knowledge and information, no order of suspension or
revocation of such registration under the Investment Company Act, pursuant to
Section 8(e) of the Investment Company Act, has been issued or proceedings
therefor initiated or threatened by the Commission.

21.  The execution, delivery and performance of the Purchase Agreement and the
consummation of the transactions contemplated in the Purchase Agreement and in
the Registration Statement (including the issuance and sale of the Shares, and
the use of the proceeds from the sale of the Shares as described in the
Prospectus under the caption "Use of Proceeds") and compliance by the Fund
with its obligations under the Purchase Agreement do not and will not, whether
with or without the giving of notice or lapse of time or both, conflict with
or constitute a breach of, or default or Repayment Event (as defined in
Section 1(a)(xii) of the Purchase Agreement) under or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets
of the Fund pursuant to any contract, indenture, mortgage, deed of trust, loan
or credit agreement, note, lease or any other agreement or instrument, known
to us, to which the Fund is a party or by which it may be bound, or to which
any of the property or assets of the Fund is subject (except for such
conflicts, breaches or


                                     A-3
<PAGE>

defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Fund, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to us, of
any government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Fund or any of its properties, assets or
operations.

22.  The Investment Adviser has been duly organized as a limited partnership
under the laws of the State of Delaware, with power and authority to conduct
its business as described in the Registration Statement and in the Prospectus.

23.  The Investment Adviser is duly registered as an investment adviser under
Advisers Act, and is not prohibited by the Advisers Act or the Investment
Company Act, or the rules and regulations of the Commission under the Advisers
Act or the Investment Company Act, from acting under the Investment Advisory
Agreement for the Fund as contemplated by the Registration Statement and the
Prospectus.

24.  The Purchase Agreement and the Advisory Agreement have been duly
authorized, executed and delivered by the Investment Adviser, and the Advisory
Agreement constitutes valid and binding obligation of the Investment Adviser,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization or other laws relating to or affecting
creditors' rights and to general equity principles.

     We have endeavored to see that the Registration Statement and the
Prospectus comply with the 1933 Act and the Investment Company Act and the
Rules and Regulations relating to registration statements on Form N-2 and
related prospectuses, but we cannot, of course, make any representation to you
as to the accuracy or completeness of statements of fact contained in the
Registration Statement or in the Prospectus. Nothing, however, has come to our
attention that has caused us to believe that the Registration Statement or any
amendment thereto, including the Rule 430A Information and Rule 434
Information (if applicable), (except for financial statements and schedules
and other financial data included or incorporated by reference therein or
omitted therefrom, as to which we make no statement), at the time such
Registration Statement or any such amendment was declared effective, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement thereto
(except for financial statements and schedules and other financial data
included or incorporated by reference therein or omitted therefrom, as to
which we make no statement), at the time the Prospectus was issued, at the
time any such amended or supplemented prospectus was issued or at the Closing
Time, included or includes an untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

     In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates and written statements of responsible officers of and accountants
for the Fund, the Investment Adviser and Princeton Services and of public
officials. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to


                                     A-4
<PAGE>

legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).





                                     A-5
<PAGE>


                                                                       Exhibit B

           FORM OF OPINION OF THE GENERAL COUNSEL OR SENIOR ATTORNEY
                   OF THE INVESTMENT ADVISER TO BE DELIVERED
                           PURSUANT TO SECTION 6(c)

     To the best of my knowledge and information, neither the execution and
delivery of the Purchase Agreement or the Advisory Agreement nor the
performance by the Investment Adviser of its obligations hereunder or
thereunder will conflict with, or result in a breach of, any of the terms and
provisions of, or constitute, with or without the giving of notice or the
lapse of time or both, a default under, any agreement or instrument to which
the Investment Adviser is a party or by which the Investment Adviser is bound,
or any law, order, rule or regulation applicable to the Investment Adviser of
any jurisdiction, court, Federal or state regulatory body, administrative
agency or other governmental body, stock exchange or securities association
having jurisdiction over the Investment Adviser or its properties or
operations.






                                      B-1
<PAGE>


                                                                       Exhibit C

            FORM OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S
                    COMFORT LETTER PURSUANT TO SECTION 6(e)

     (1) We are an independent registered public accounting firm with respect
to the Fund within the meaning of the 1933 Act, Investment Company Act and the
applicable rules and regulations thereunder adopted by the Commission and the
Public Company Accounting Oversight Board (United States);

     (2) In our opinion the financial statements audited by us and included or
incorporated by reference in the Registration Statement and the Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act, the Investment Company Act and the related rules
and regulations adopted by the Commission;

     Such independent registered public accounting firm shall also state that
they have performed specified procedures, not constituting an audit, including
a reading of the latest available interim financial statements of the Fund, a
reading of the minute books of the Fund, made inquiries of officials of the
Fund responsible for financial accounting matters and such other inquiries and
procedures as may be specified in such letter, and on the basis of such
inquiries and procedures nothing came to their attention that caused them to
believe that (A) the unaudited financial statements included or incorporated
by reference in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act,
the Investment Company Act and of the Rules and Regulations applicable to
unaudited interim financial statements included or incorporated by reference
in registration statements or are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included or incorporated by reference in the
Registration Statement, and (B) during the period from the date of the
unaudited financial statements included or incorporated by reference in the
Registration Statement to a specified date not more than three days prior to
the date of the Purchase Agreement, there was any change in the capital stock
(other than by reason of the issuance of shares of common stock in connection
with the Fund's dividend reinvestment plan, as specified in such letter) or
decrease in net assets of the Fund or any increase in the long-term debt of
the Fund, as compared with amounts shown on the unaudited financial statements
included or incorporated by reference in the Registration Statement, except
for changes which the Registration Statement discloses have occurred or may
occur; and in addition, they have performed other specified procedures, not
constituting an audit, with respect to certain amounts, percentages, numerical
data, financial information and financial statements appearing in the
Registration Statement, which previously have been specified by such
independent registered public accounting firm and which shall be specified in
such letter, and have compared certain of such items with, and have found such
items to be in agreement with, the accounting and financial records of the
Fund.

                                     C-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2K3
<SEQUENCE>13
<FILENAME>efc5-1587_ex992k3.txt
<TEXT>
                                                                  Exhibit (k)(3)







================================================================================

                            AUCTION AGENT AGREEMENT

                                    between

                         MUNIYIELD QUALITY FUND, INC.

                                      and

                             THE BANK OF NEW YORK

                            Dated as of [__], 2005

                                  Relating to

                        AUCTION MARKET PREFERRED STOCK

                                   ("AMPS"),

                                   Series E

                                      of

                         MUNIYIELD QUALITY FUND, INC.



================================================================================

<PAGE>


     THIS AUCTION AGENT AGREEMENT, dated as of [__], 2005, is between
MUNIYIELD QUALITY FUND, INC., a Maryland corporation (the "Company"), and THE
BANK OF NEW YORK, a New York banking corporation.

     The Company proposes to duly authorize and issue 2,000 shares of Auction
Market Preferred Stock, Series E ("Series E AMPS") with a par value of $.10
per share and a liquidation preference of $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared),
pursuant to the Company's Articles Supplementary (as defined below). The
Series E AMPS are sometimes referred to as the "AMPS." A separate Auction (as
defined below) will be conducted for the AMPS. The Company desires that The
Bank of New York perform certain duties as agent in connection with each
Auction of shares of AMPS (in such capacity, the "Auction Agent"), and as the
transfer agent, registrar, dividend disbursing agent and redemption agent with
respect to the shares of AMPS (in such capacity, the "Paying Agent"), upon the
terms and conditions of this Agreement, and the Company hereby appoints The
Bank of New York as said Auction Agent and Paying Agent in accordance with
those terms and conditions (hereinafter generally referred to as the "Auction
Agent," except in Sections 3 and 4 below).

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Company and the Auction Agent agree as follows:

I. DEFINITIONS AND RULES OF CONSTRUCTION.

     1.1. Terms Defined by Reference to Articles Supplementary.

Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary.

     1.2. Terms Defined Herein.

As used herein and in the Settlement Procedures (as defined below), the
following terms shall have the following meanings, unless the context
otherwise requires:

          (a) "Affiliate" shall mean any Person, other than Merrill Lynch,
          Pierce, Fenner & Smith Incorporated, made known to the Auction Agent
          to be controlled by, in control of, or under common control with,
          the Company or its successors.

          (b) "Agent Member" of any Person shall mean such Person's agent
          member of the Securities Depository that will act on behalf of a
          Bidder.

          (c) "Articles Supplementary" shall mean the Articles Supplementary
          of the Company, establishing the powers, preferences and rights of
          the AMPS, filed on [__], 2005 with the state of Maryland.

          (d) "Auction" shall have the meaning specified in Section 2.1
          hereof.

          (e) "Auction Agent Acceptance Fee" means an acceptance fee as set
          forth in a written agreement between the Auction Agent and the
          Company.



                                      2
<PAGE>

          (f) "Auction Agent Fee" means the fees, other than the Auction Agent
          Acceptance Fee, set forth in a written agreement signed by the
          Auction Agent and the Company.

          (g) "Auction Procedures" shall mean the Auction Procedures that are
          set forth in Paragraph 10 of the Articles Supplementary.

          (h) "Authorized Officer" shall mean each Vice President, Assistant
          Vice President, and Assistant Treasurer of the Auction Agent
          assigned to the Dealing and Trading Group of its Corporate Trust
          Department, and every other officer or employee of the Auction Agent
          designated as an "Authorized Officer" for purposes hereof in a
          written communication to the Company.

          (i) "Broker-Dealer Agreement" shall mean each agreement between the
          Auction Agent and a Broker-Dealer substantially in the form attached
          hereto as Exhibit A.

          (j) "Company Officer" shall mean the Chairman and Chief Executive
          Officer, the President, each Vice President (whether or not
          designated by a number or word or words added before or after the
          title "Vice President"), the Secretary, the Treasurer, each
          Assistant Secretary and each Assistant Treasurer of the Company and
          every other officer or employee of the Company designated as a
          "Company Officer" for purposes hereof in a written notice from the
          Company to the Auction Agent.

          (k) "Holder" shall be a holder of record of one or more shares of
          AMPS, listed as such in the stock register maintained by the Paying
          Agent pursuant to Section 4.6 hereof.

          (l) "Settlement Procedures" shall mean the Settlement Procedures
          attached as Exhibit A to the Broker-Dealer Agreement.

     1.3. Rules of Construction.

Unless the context or use indicates another or different meaning or intent,
the following rules shall apply to the construction of this Agreement:

          (a) Words importing the singular number shall include the plural
          number and vice versa.

          (b) The captions and headings herein are solely for convenience of
          reference and shall not constitute a part of this Agreement nor
          shall they affect its meaning, construction or effect.

          (c) The words "hereof," "herein," "hereto," and other words of
          similar import refer to this Agreement as a whole.



                                      3
<PAGE>

          (d) All references herein to a particular time of day shall be to
          Eastern Standard Time.

II.               THE AUCTION.

     2.1. Purpose; Incorporation by Reference of Auction Procedures and
          Settlement Procedures.

          (a) The Articles Supplementary provide that the Applicable Rate on
          shares of Series E AMPS for each Dividend Period therefor after the
          Initial Dividend Period shall be the rate per annum that a
          commercial bank, trust company or other financial institution
          appointed by the Company advises results from implementation of the
          Auction Procedures. The Board of Directors of the Company has
          adopted a resolution appointing The Bank of New York as Auction
          Agent for purposes of the Auction Procedures. The Auction Agent
          hereby accepts such appointment and agrees that, on each Auction
          Date, it shall follow the procedures set forth in this Section 2 and
          the Auction Procedures for the purpose of determining the Applicable
          Rate for the AMPS for the next Dividend Period therefor. Each
          periodic operation of such procedures is hereinafter referred to as
          an "Auction."

          (b) All of the provisions contained in the Auction Procedures and in
          the Settlement Procedures are incorporated herein by reference in
          their entirety and shall be deemed to be a part hereof to the same
          extent as if such provisions were set forth fully herein. In the
          case of any conflict between the terms of any document incorporated
          herein by reference and the terms hereof, the Auction Agent is,
          subject to its obligations as set forth in Section 6.1, authorized
          to perform its duties according to the terms hereof, and shall have
          no liability for so doing.

     2.2. Preparation for Each Auction; Maintenance of Registry of Existing
          Holders.

          (a) As of the date hereof, the Company shall provide the Auction
          Agent with a list of the Broker-Dealers and shall cause to be
          delivered to the Auction Agent for execution by the Auction Agent a
          Broker-Dealer Agreement signed by each such Broker-Dealer. The
          Auction Agent shall keep a list of Broker-Dealers with whom it has
          signed such Broker-Dealer Agreements, and shall endeavor to keep
          such list current and accurate and shall indicate thereon, or on a
          separate list, the identity of each Existing Holder, if any, whose
          most recent Order was submitted by a Broker-Dealer on such list and
          resulted in such Existing Holder continuing to hold or purchasing
          shares of AMPS. Not later than five Business Days prior to any
          Auction Date for which any change in such list of Broker-Dealers is
          to be effective, the Company shall notify the Auction Agent in
          writing of such change and, if any such change is the addition of a
          Broker-Dealer to such list, the Company shall cause to be delivered
          to the Auction Agent for execution by the Auction Agent a
          Broker-Dealer Agreement signed by such Broker-Dealer. The


                                      4
<PAGE>

          Auction Agent shall have entered into a Broker-Dealer Agreement with
          each Broker-Dealer prior to the participation of any such
          Broker-Dealer in any Auction.

          (b) In the event that the Auction Date for any Auction shall be
          changed after the Auction Agent shall have given the notice referred
          to in clause (vii) of Paragraph (a) of the Settlement Procedures,
          the Auction Agent, by such means as the Auction Agent deems
          practicable, shall give notice of such change to the Broker-Dealers
          not later than the earlier of 9:15 A.M. on the new Auction Date or
          9:15 A.M. on the old Auction Date.

          (c) The provisions contained in paragraph 2 of the Articles
          Supplementary concerning Special Dividend Periods and the
          notification of a Special Dividend Period will be followed by the
          Company and, to the extent applicable, the Auction Agent, and the
          provisions contained therein are incorporated herein by reference in
          their entirety and shall be deemed to be a part of this Agreement to
          the same extent as if such provisions were set forth fully herein.

          (d) (i) On each Auction Date, the Auction Agent shall determine the
          Reference Rate and the Maximum Applicable Rate. If the rate obtained
          by the Auction Agent is not quoted on an interest or discount basis,
          the Auction Agent shall convert the quoted rate to an interest rate
          after consultation with the Company as to the method of such
          conversion. Not later than 9:30 A.M. on each Auction Date, the
          Auction Agent shall notify the Company and the Broker-Dealers of the
          Reference Rate so determined and of the Maximum Applicable Rate.

               (ii) If the Reference Rate is the applicable LIBOR Rate and
          such rate is to be based on rates supplied by LIBOR Dealers and one
          or more of the LIBOR Dealers shall not provide a quotation for the
          determination of the applicable LIBOR Rate, the Auction Agent
          promptly shall notify the Company so that the Company can determine
          whether to select a Substitute LIBOR Dealer or Substitute LIBOR
          Dealers to provide the quotation or quotations not being supplied by
          any LIBOR Dealer or LIBOR Dealers. The Company promptly shall advise
          the Auction Agent of any such selection. If the Company does not
          select any such Substitute LIBOR Dealer or Substitute LIBOR Dealers,
          then the rates shall be supplied by the remaining LIBOR Dealer or
          LIBOR Dealers.

               (iii) If, after the date of this Agreement, there is any change
          in the prevailing rating of AMPS by either of the rating agencies
          (or Substitute Rating Agency or successor rating agency) referred to
          in the definition of the Maximum Applicable Rate, subject to the
          provisions of paragraph 12 of the Articles Supplementary, thereby
          resulting in any change in the corresponding applicable percentage
          or corresponding applicable spread for the AMPS, as set forth in
          said definition (the "Percentage or Spread"), the Company shall
          notify the Auction Agent in writing of such change in the Percentage
          or Spread prior to 9:00 A.M. on the Auction Date for AMPS next
          succeeding such change. The Percentage or


                                      5
<PAGE>

          Spread for the AMPS on the date of this Agreement is as specified in
          paragraph 10(a)(vii) of the Articles Supplementary. The Auction
          Agent shall be entitled to conclusively rely on the last Percentage
          or Spread of which it has received notice from the Company (or, in
          the absence of such notice, the Percentage or Spread set forth in
          the preceding sentence) in determining the Maximum Applicable Rate
          as set forth in Section 2.2(d)(i) hereof.

          (e) The Auction Agent shall maintain a current registry of the
          Existing Holders of the shares of AMPS for purposes of each Auction.
          The Company shall use its best efforts to provide or cause to be
          provided to the Auction Agent within ten Business Days following the
          date of the Closing a list of the initial Existing Holders of AMPS,
          and the Broker-Dealer of each such Existing Holder through which
          such Existing Holder purchased such shares. The Auction Agent may
          conclusively rely upon, as evidence of the identities of the
          Existing Holders, such list, the results of each Auction and notices
          from any Existing Holder, the Agent Member of any Existing Holder or
          the Broker-Dealer of any Existing Holder with respect to such
          Existing Holder's transfer of any shares of AMPS to another Person.

          (f) In the event of any partial redemption of AMPS, upon notice by
          the Company to the Auction Agent of such partial redemption, the
          Auction Agent promptly shall request the Securities Depository to
          notify the Auction Agent of the identities of the Agent Members (and
          the respective numbers of shares) from the accounts of which shares
          have been called for redemption and the person or department at such
          Agent Member to contact regarding such redemption, and at least two
          Business Days prior to the Auction preceding the date of redemption
          with respect to shares of AMPS being partially redeemed, the Auction
          Agent shall request each Agent Member so identified to disclose to
          the Auction Agent (upon selection by such Agent Member of the
          Existing Holders whose shares are to be redeemed) the number of
          shares of AMPS of each such Existing Holder, if any, to be redeemed
          by the Company, provided that the Auction Agent has been furnished
          with the name and telephone number of a person or department at such
          Agent Member from which it is to request such information. In the
          absence of receiving any such information with respect to an
          Existing Holder, from such Existing Holder's Agent Member or
          otherwise, the Auction Agent may continue to treat such Existing
          Holder as having ownership of the number of shares of AMPS shown in
          the Auction Agent's registry of Existing Holders.

               (i) The Auction Agent shall register a transfer of the
          ownership of shares of AMPS from an Existing Holder to another
          Existing Holder, or to another Person if permitted by the Company,
          only if (A) such transfer is made pursuant to an Auction or (B) if
          such transfer is made other than pursuant to an Auction, the Auction
          Agent has been notified of such transfer in writing in a notice
          substantially in the form of Exhibit C to the Broker-Dealer
          Agreements, by such Existing Holder or by the Agent Member of such
          Existing Holder. The Auction Agent is not required to accept any
          notice of transfer delivered for an Auction unless it is received by
          the Auction Agent by 3:00 P.M. on the Business Day next


                                      6
<PAGE>

          preceding the applicable Auction Date. The Auction Agent shall
          rescind a transfer made on the registry of the Existing Holders of
          any shares of AMPS if the Auction Agent has been notified in
          writing, in a notice substantially in the form of Exhibit D to the
          Broker-Dealer Agreement, by the Agent Member or the Broker-Dealer of
          any Person that (i) purchased any shares of AMPS and the seller
          failed to deliver such shares or (ii) sold any shares of AMPS and
          the purchaser failed to make payment to such Person upon delivery to
          the purchaser of such shares.

          (g) The Auction Agent may, but shall not be obligated, to request
          that the Broker-Dealers, as set forth in Section 3.2(c) of the
          Broker-Dealer Agreements, provide the Auction Agent with a list of
          their respective customers that such Broker-Dealers believe are
          Beneficial Owners of shares of AMPS. The Auction Agent shall keep
          confidential any such information and shall not disclose any such
          information so provided to any Person other than the relevant
          Broker-Dealer and the Company; provided, however, that the Auction
          Agent reserves the right and is authorized to disclose any such
          information if (i) it is ordered to do so by a court of competent
          jurisdiction or a regulatory body, judicial or quasi-judicial agency
          or authority having the authority to compel such disclosure, (ii) it
          is advised by its counsel that its failure to do so would be
          unlawful or (iii) failure to do so would expose the Auction Agent to
          loss, liability, claim, damage or expense for which it has not
          received indemnity or security satisfactory to it.

     2.3. Auction Schedule.

     The Auction Agent shall conduct Auctions in accordance with the schedule
set forth below. Such schedule may be changed by the Auction Agent with the
consent of the Company, which consent shall not be withheld unreasonably. The
Auction Agent shall give notice of any such change to each Broker-Dealer. Such
notice shall be received prior to the first Auction Date on which any such
change shall be effective. The Auction Agent will follow The Bond Market
Association's Market Practice U.S. Holiday Recommendations for shortened
trading days for bond markets (the "BMA Recommendation") unless the Auction
Agent is instructed otherwise by the Company. In the event of a BMA
Recommendation on an Auction Date, the Submission Deadline will be 11:30 A.M.
instead of 1:00 P.M. and as a result the notice of Auction results will occur
at an earlier time.

                   Time                              Event
                   ----                              -----

         By 9:30 A.M.                Auction Agent advises the Company and the
                                     Broker-Dealers of the Reference Rate and
                                     the Maximum Applicable Rate as set forth in
                                     Section 2.2(d)(i) hereof.

         9:30 A.M. - 1:00 P.M.       Auction Agent assembles information
                                     communicated to it by Broker-Dealers as
                                     provided in Paragraph 10(c)(i) of the
                                     Articles Supplementary.  Submission
                                     deadline is 1:00 P.M.

         Not earlier than 1:00 P.M.  Auction Agent makes determinations pursuant
                                     to Paragraph 10(d)(i) of the Articles
                                     Supplementary.



                                      7
<PAGE>

         By approximately            Auction Agent advises the Company of the
         3:00 P.M.                   results of the Auction as provided in
                                     Paragraph 10(d)(ii) of the Articles
                                     Supplementary.

                                     Submitted Bids and Submitted Sell Orders
                                     are accepted and rejected in whole or in
                                     part and shares of AMPS allocated as
                                     provided in Paragraph 10(e) of the Articles
                                     Supplementary. Auction Agent gives notice
                                     of the Auction results as set forth in
                                     Section 2.4 hereof.

     2.4. Notice of Auction Results.

     On each Auction Date, the Auction Agent shall notify Broker-Dealers of
the results of the Auction held on such date by telephone or other mutually
acceptable electronic means as set forth in Paragraph (a) of the Settlement
Procedures. Unless instructed otherwise in writing by the Company, the Auction
Agent is authorized to release the Applicable Rate determined as a result of
the Auction for public dissemination.

     2.5. Broker-Dealers.

          (a) Not later than 12:00 noon on each Auction Date, the Company
          shall pay to the Auction Agent in Federal Funds or similar same-day
          funds an amount in cash equal to (i) in the case of any Auction Date
          immediately preceding a 7-Day Dividend Period, the product of (A) a
          fraction the numerator of which is the number of days in such
          Dividend Period (calculated by counting the first day of such
          Dividend Period but excluding the last day thereof) and the
          denominator of which is 360, times (B) 1/4 of 1%, times (C) $25,000
          times (D) the sum of the aggregate number of Outstanding shares of
          AMPS and (ii) in the case of any Special Dividend Period, the amount
          determined by mutual consent of the Company and the Broker-Dealers
          pursuant to Section 3.5 of the Broker-Dealer Agreements. The Auction
          Agent shall apply such moneys as set forth in Section 3.5 of the
          Broker-Dealer Agreements and shall thereafter remit to the Company
          any remaining funds paid to the Auction Agent pursuant to this
          Section 2.5(a).

          (b) The Company may designate an Affiliate or Merrill Lynch, Pierce,
          Fenner & Smith Incorporated to act as a Broker-Dealer.

          (c) The Auction Agent shall terminate any Broker-Dealer Agreement as
          set forth therein if so directed by the Company.

          (d) Subject to Section 2.5(b) hereof, the Auction Agent from time to
          time shall enter into such Broker-Dealer Agreements as the Company
          shall request.

          (e) Subject to Section 2.2(a), the Auction Agent shall maintain a
          list of Broker-Dealers.



                                      8
<PAGE>

     2.6. Ownership of Shares of AMPS and Submission of Bids
          by the Company and its Affiliates.

     Neither the Company nor any Affiliate of the Company may submit any Sell
Order or Bid, directly or indirectly, in any Auction, except that an Affiliate
of the Company that is a Broker-Dealer may submit a Sell Order or Bid on
behalf of a Beneficial Owner or a Potential Beneficial Owner. The Company
shall notify the Auction Agent if the Company or, to the best of the Company's
knowledge, any Affiliate of the Company becomes a Beneficial Owner of any
shares of AMPS. Any shares of AMPS redeemed, purchased or otherwise acquired
(i) by the Company shall not be reissued, except in accordance with the
requirements of the Securities Act of 1933, as amended, or (ii) by its
Affiliates shall not be transferred (other than to the Company). The Auction
Agent shall have no duty or liability with respect to enforcement of this
Section 2.6.

     2.7. Access to and Maintenance of Auction Records.

     The Auction Agent shall afford to the Company, its agents, independent
registered public accounting firm and counsel, access at reasonable times
during normal business hours to review and make extracts or copies (at the
Company's sole cost and expense) of all books, records, documents and other
information concerning the conduct and results of Auctions, provided that any
such agent, accounting firm or counsel shall furnish the Auction Agent with a
letter from the Company requesting that the Auction Agent afford such person
access. The Auction Agent shall maintain records relating to any Auction for a
period of two years after such Auction (unless requested by the Company to
maintain such records for such longer period not in excess of four years, then
for such longer period which shall not be in excess of four years), and such
records, in reasonable detail, shall accurately and fairly reflect the actions
taken by the Auction Agent hereunder. The Company agrees to keep confidential
any information regarding the customers of any Broker-Dealer received from the
Auction Agent in connection with this Agreement or any Auction, and shall not
disclose such information or permit the disclosure of such information without
the prior written consent of the applicable Broker-Dealer to anyone except
such agent, accounting firm or counsel engaged to audit or review the results
of Auctions as permitted by this Section 2.7, provided that the Company
reserves the right to disclose any such information if it is advised by its
counsel that its failure to do so would (i) be unlawful or (ii) expose it to
liability, unless the Broker-Dealer shall have offered indemnification
satisfactory to the Company. Any such agent, accounting firm or counsel,
before having access to such information, shall agree to keep such information
confidential and not to disclose such information or permit disclosure of such
information without the prior written consent of the applicable Broker-Dealer,
provided that such agent, accounting firm or counsel may reserve the right to
disclose any such information if it is advised by its counsel that its failure
to do so would (i) be unlawful or (ii) expose it to liability, unless the
Broker-Dealer shall have offered indemnification satisfactory to such agent,
accountant or counsel. The Auction Agent shall have no liability in connection
with allowing access to the Company's books, records, documents and other
information pursuant to the terms of this Section 2.7 to the Company, its
agents, independent public accountants and counsel.

III. THE AUCTION AGENT AS PAYING AGENT.

     3.1. The Paying Agent.



                                      9
<PAGE>

     The Board of Directors of the Company has adopted a resolution appointing
The Bank of New York as transfer agent, registrar, dividend disbursing agent
and redemption agent for the Company in connection with any shares of AMPS (in
such capacity, the "Paying Agent"). The Paying Agent hereby accepts such
appointment and agrees to act in accordance with its standard procedures and
the provisions of the Articles Supplementary which are specified herein with
respect to the shares of AMPS and as set forth in this Section 3.

     3.2. The Company's Notices to the Paying Agent.

     Whenever any shares of AMPS are to be redeemed, the Company promptly
shall deliver to the Paying Agent a Notice of Redemption upon the terms set
forth in Section 4(c) of the Articles Supplementary, which will be mailed by
the Company to each Holder at least five Business Days prior to the date such
Notice of Redemption is required to be mailed pursuant to the Articles
Supplementary. The Paying Agent shall have no responsibility to confirm or
verify the accuracy of any such Notice.

     3.3. The Company to Provide Funds for Dividends and Redemptions.

          (a) Not later than noon on each Dividend Payment Date, the Company
          shall deposit with the Paying Agent an aggregate amount of Federal
          Funds or similar same-day funds equal to the declared dividends to
          be paid to Holders on such Dividend Payment Date, and shall give the
          Paying Agent irrevocable instructions to apply such funds to the
          payment of such dividends on such Dividend Payment Date.

          (b) If the Company shall give a Notice of Redemption, then by noon
          of the date fixed for redemption, the Company shall deposit in trust
          with the Paying Agent an aggregate amount of Federal Funds or
          similar same-day funds sufficient to redeem such shares of AMPS
          called for redemption and shall give the Paying Agent irrevocable
          instructions and authority to pay the redemption price to the
          Holders of shares of AMPS called for redemption upon surrender of
          the certificate or certificates therefor.

     3.4. Disbursing Dividends and Redemption Price.

     After receipt of the Federal Funds or similar same-day funds and
instructions from the Company described in Sections 3.3(a) and (b) above, the
Paying Agent shall pay to the Holders (or former Holders) entitled thereto (i)
on each corresponding Dividend Payment Date, dividends on the shares of AMPS
and (ii) on any date fixed for redemption, the redemption price of any shares
of AMPS called for redemption. The amount of dividends for any Dividend Period
to be paid by the Paying Agent to Holders will be determined by the Company as
set forth in Paragraph 2 of the Articles Supplementary. The redemption price
to be paid by the Paying Agent to the Holders of any shares of AMPS called for
redemption will be determined as set forth in Paragraph 4 of the Articles
Supplementary. The Company shall notify the Paying Agent in writing of a
decision to redeem any shares of AMPS on or prior to the date specified in
Section 3.2 above, and such notice by the Company to the Paying Agent shall
contain the information required to be stated in a Notice of Redemption
required to be mailed by the


                                      10
<PAGE>

Company to such Holders. The Paying Agent shall have no duty to determine the
redemption price and may rely conclusively on the amount thereof set forth in
a Notice of Redemption.

IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.

     4.1. Original Issue of Stock Certificates.

     On the Date of Original Issue for any share of AMPS, one certificate for
the AMPS shall be issued by the Company and registered in the name of Cede &
Co., as nominee of the Securities Depository, and countersigned by the Paying
Agent. The Company will give the Auction Agent prior written notice and
instruction as to the issuance and redemption of AMPS.

     4.2. Registration of Transfer or Exchange of Shares.

     Except as provided in this Section 4.2, the shares of AMPS shall be
registered solely in the name of the Securities Depository or its nominee. If
the Securities Depository shall give notice of its intention to resign as
such, and if the Company shall not have selected a substitute Securities
Depository acceptable to the Paying Agent prior to such resignation, then upon
such resignation, the shares of AMPS, at the Company's request, may be
registered for transfer or exchange, and new certificates thereupon shall be
issued in the name of the designated transferee or transferees, upon surrender
of the old certificate in form deemed by the Paying Agent properly endorsed
for transfer with (a) all necessary endorsers' signatures guaranteed in such
manner and form as the Paying Agent may require by a guarantor reasonably
believed by the Paying Agent to be responsible, (b) such assurances as the
Paying Agent shall deem necessary or appropriate to evidence the genuineness
and effectiveness of each necessary endorsement and (c) satisfactory evidence
of compliance with all applicable laws relating to the collection of taxes in
connection with any registration of transfer or exchange or funds necessary
for the payment of such taxes.

     4.3. Removal of Legend.

     Any request for removal of a legend indicating a restriction on transfer
from a certificate evidencing shares of AMPS shall be accompanied by an
opinion of counsel stating that such legend may be removed and such shares may
be transferred free of the restriction described in such legend, said opinion
to be delivered under cover of a letter from a Company Officer authorizing the
Paying Agent to remove the legend on the basis of said opinion.

     4.4. Lost, Stolen or Destroyed Stock Certificates.

     The Paying Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed, upon the
fulfillment of such requirements as shall be deemed appropriate by the Company
and by the Paying Agent, subject at all times to provisions of law, the
By-Laws of the Company governing such matters and resolutions adopted by the
Company with respect to lost, stolen or destroyed securities. The Paying Agent
may issue new certificates in exchange for and upon the cancellation of
mutilated certificates. Any request by the Company to the Paying Agent to
issue a replacement or new certificate pursuant to this Section 4.4 shall be
deemed to be a representation and warranty by the Company to the Paying Agent
that such issuance will comply with provisions of applicable law and the
By-Laws and resolutions of the Company.



                                      11
<PAGE>

     4.5. Disposition of Canceled Certificates; Record Retention.

     The Paying Agent shall retain stock certificates which have been canceled
in transfer or in exchange and accompanying documentation in accordance with
applicable rules and regulations of the Securities and Exchange Commission for
two calendar years from the date of such cancellation. The Paying Agent, upon
written request by the Company, shall afford to the Company, its agents and
counsel access at reasonable times during normal business hours to review and
make extracts or copies (at the Company's sole cost and expense) of such
certificates and accompanying documentation. Upon request by the Company at
any time during this two-year period, the Paying Agent shall deliver to the
Company the canceled certificates and accompanying documentation. The Company,
at its expense, shall retain such records for a minimum additional period of
four calendar years from the date of delivery of the records to the Company
and shall make such records available during this period at any time, or from
time to time, for reasonable periodic, special, or other examinations by
representatives of the Securities and Exchange Commission. The Company also
shall undertake to furnish to the Securities and Exchange Commission, upon
demand, either at their principal office or at any regional office, complete,
correct and current hard copies of any and all such records.

     4.6. Stock Register.

     The Paying Agent shall maintain the stock register, which shall contain a
list of the Holders, the number of shares held by each Holder and the address
of each Holder. The Paying Agent shall record in the stock register any change
of address of a Holder upon notice by such Holder. In case of any written
request or demand for the inspection of the stock register or any other books
of the Company in the possession of the Paying Agent, the Paying Agent will
notify the Company and secure instructions as to permitting or refusing such
inspection; provided, however, that the Auction Agent reserves the right and
is authorized to permit such inspection if (i) it is ordered to do so by a
court of competent jurisdiction or a regulatory body, judicial or
quasi-judicial agency or authority having the authority to compel such
disclosure, (ii) it is advised by its counsel that its failure to do so would
be unlawful or (iii) failure to do so would expose the Auction Agent to loss,
liability, claim, damage or expense for which it has not received indemnity or
security satisfactory to it.

     4.7. Return of Funds.

     Any funds deposited with the Paying Agent by the Company for any reason
under this Agreement, including for the payment of dividends or the redemption
of shares of AMPS, that remain with the Paying Agent after 12 months shall be
repaid to the Company upon written request by the Company.



                                      12
<PAGE>

V. REPRESENTATIONS AND WARRANTIES.

     5.1. Representations and Warranties of the Company.

     The Company represents and warrants to the Auction Agent that:

               (i) the Company is duly organized and is validly existing as a
          corporation in good standing under the laws of the State of
          Maryland, and has full power to execute and deliver this Agreement
          and to authorize, create and issue the shares of AMPS;

               (ii) the Company is registered with the Securities and Exchange
          Commission under the Investment Company Act of 1940, as amended, as
          a closed-end, diversified, management investment company;

               (iii) this Agreement has been duly and validly authorized,
          executed and delivered by the Company and constitutes the legal,
          valid and binding obligation of the Company, enforceable against the
          Company in accordance with its terms, subject as to such
          enforceability to bankruptcy, insolvency, reorganization and other
          laws of general applicability relating to or affecting creditors'
          rights and to general equitable principles;

               (iv) the forms of the certificate evidencing the shares of AMPS
          comply with all applicable laws of the State of Maryland;

               (v) the shares of AMPS have been duly and validly authorized by
          the Company and, upon completion of the initial sale of the shares
          of AMPS and receipt of payment therefor, will be validly issued,
          fully paid and nonassessable;

               (vi) at the time of the offering of the shares of AMPS, the
          shares offered will be registered under the Securities Act of 1933,
          as amended, and no further action by or before any governmental body
          or authority of the United States or of any state thereof is
          required in connection with the execution and delivery of this
          Agreement or will be required in connection with the issuance of the
          shares of AMPS, except such action as required by applicable state
          securities or insurance laws, all of which action will have been
          taken;

               (vii) the execution and delivery of this Agreement and the
          issuance and delivery of the shares of AMPS do not and will not
          conflict with, violate, or result in a breach of, the terms,
          conditions or provisions of, or constitute a default under, the
          Charter or the By-Laws of the Company, any law or regulation
          applicable to the Company, any order or decree of any court or
          public authority having jurisdiction over the Company, or any
          mortgage, indenture, contract, agreement or undertaking to which the
          Company is a party or by which it is bound; and

               (viii) no taxes are payable upon or in respect of the execution
          of this Agreement or will be payable upon or in respect of the
          issuance of the shares of AMPS.



                                      13
<PAGE>

     5.2. Representations and Warranties of the Auction Agent.

     The Auction Agent represents and warrants to the Company that the Auction
Agent is duly organized and is validly existing as a banking corporation in
good standing under the laws of the State of New York, and has the corporate
power to enter into and perform its obligations under this Agreement.

VI. THE AUCTION AGENT.

     6.1. Duties and Responsibilities.

          (a) The Auction Agent is acting solely as agent for the Company
          hereunder and owes no fiduciary duties to any Person except as
          specifically provided by this Agreement. The Auction Agent owes no
          duties to any person other than the Company by reason of this
          Agreement.

          (b) The Auction Agent undertakes to perform such duties and only
          such duties as are set forth specifically in this Agreement, and no
          implied covenants or obligations shall be read into this Agreement
          against the Auction Agent.

          (c) In the absence of willful misconduct or negligence on its part,
          the Auction Agent shall not be liable for any action taken, suffered
          or omitted by it or for any error of judgment made by it in the
          performance of its duties under this Agreement. The Auction Agent
          shall not be liable for any error of judgment made in the absence of
          willful misconduct unless the Auction Agent shall have been
          negligent in ascertaining (or failing to ascertain) the pertinent
          facts.

          (d) The Auction Agent shall not be responsible or liable for any
          failure or delay in the performance of its obligations under this
          Agreement arising out of or caused, directly or indirectly, by
          circumstances beyond its reasonable control, including, without
          limitation, acts of God; earthquakes; fires, floods; wars; civil or
          military disturbances; sabotage; acts of war or terrorism;
          epidemics; riots; interruptions, loss or malfunctions of utilities;
          computer (hardware or software) or communications services;
          accidents; labor disputes (including, without limitation, strikes or
          work stoppages); acts of civil or military authority or governmental
          actions; it being understood that the Auction Agent shall use
          reasonable efforts which are consistent with accepted practices in
          the banking industry to resume performance as soon as practicable
          under the circumstances. In no event shall the Auction Agent be
          responsible or liable for special, indirect or consequential loss or
          damage of any kind whatsoever (including, but not limited to, loss
          of profit), even if the Auction Agent has been advised of the
          likelihood of such loss or damage and regardless of the form of
          action.


     6.2. Rights of the Auction Agent.

          (a) The Auction Agent may conclusively rely upon, and shall be
          protected in acting or refraining from acting upon, any
          communication authorized hereby and


                                      14
<PAGE>

          any written instruction, notice, request, direction, consent,
          report, certificate, share certificate or other instrument, paper or
          document reasonably believed by it to be genuine. The Auction Agent
          shall not be liable for acting upon any telephone communication or
          by other electronic means acceptable to the parties authorized
          hereby which the Auction Agent believes in good faith to have been
          given by the Company or by a Broker-Dealer. The Auction Agent may
          record telephone communications with the Company or with the
          Broker-Dealers or with both.

          (b) The Auction Agent may consult with counsel of its choice, and
          the written advice of such counsel shall be full and complete
          authorization and protection in respect of any action taken,
          suffered or omitted by it hereunder in good faith and in reliance
          thereon.

          (c) The Auction Agent shall not be required to advance, expend or
          risk its own funds or otherwise incur or become exposed to financial
          liability in the performance of its duties hereunder. The Auction
          Agent shall be under no liability for interest on any money received
          by it hereunder except as otherwise agreed in writing with the
          Company.

          (d) The Auction Agent may perform its duties and exercise its rights
          hereunder either directly or by or through agents or attorneys.

          (e) The Auction Agent shall have no obligation or liability with
          respect to the registration or exemption therefrom of the AMPS under
          the federal or state securities laws or with respect to the
          sufficiency or the conformity of any transfer of the AMPS to the
          terms of the Auction Agreement, the Broker-Dealer Agreements, the
          AMPS or any other document contemplated thereby.

     6.3. Auction Agent's Disclaimer.

     The Auction Agent makes no representation as to the validity or the
adequacy of this Agreement, the Broker-Dealer Agreements or the AMPS.

     6.4. Compensation, Expenses and Indemnification.

          (a) The Company shall pay to the Auction Agent reasonable
          compensation for all services rendered by it under this Agreement
          and under the Broker-Dealer Agreements as shall be agreed by the
          Auction Agent and the Company from time to time as shall be set
          forth in a separate writing signed by the Company and the Auction
          Agent, subject to adjustments if the AMPS no longer are held of
          record by the Securities Depository or its nominee or if there shall
          be such other change as shall increase materially the Auction
          Agent's obligations hereunder or under the Broker-Dealer Agreements.

          (b) The Company shall reimburse the Auction Agent upon its request
          for all reasonable expenses, disbursements and advances incurred or
          made by the Auction Agent in accordance with any provision of this
          Agreement and of the Broker-Dealer Agreements (including the
          reasonable compensation, expenses and


                                      15
<PAGE>

          disbursements of its agents and counsel), except any expense,
          disbursement or advance attributable to its negligence or willful
          misconduct.

          (c) The Company shall indemnify the Auction Agent, for, and hold it
          harmless against, any loss, liability or expense incurred without
          negligence or willful misconduct on its part arising out of or in
          connection with its agency under this Agreement and under the
          Broker-Dealer Agreements, including the costs and expenses of
          defending itself against any claim of liability in connection with
          its exercise or performance of any of its duties hereunder and
          thereunder, except such as may result from its negligence or willful
          misconduct.

VII. MISCELLANEOUS.

     7.1. Term of Agreement.

          (a) The term of this Agreement is unlimited unless it shall be
          terminated as provided in this Section 7.1. The Company may
          terminate this Agreement at any time by so notifying the Auction
          Agent, provided that if any AMPS remain outstanding the Company
          shall have entered into an agreement in substantially the form of
          this Agreement with a successor auction agent. The Auction Agent may
          terminate this Agreement upon prior notice to the Company on the
          date specified in such notice, which date shall be no earlier than
          60 days after delivery of such notice. If the Auction Agent resigns
          while any shares of AMPS remain outstanding, the Company shall use
          its best efforts to enter into an agreement with a successor auction
          agent containing substantially the same terms and conditions as this
          Agreement.

          (b) Except as otherwise provided in this Section 7.1(b), the
          respective rights and duties of the Company and the Auction Agent
          under this Agreement shall cease upon termination of this Agreement.
          The Company's representations, warranties, covenants and obligations
          to the Auction Agent under Sections 5 and 6.4 hereof shall survive
          the termination hereof. Upon termination of this Agreement, the
          Auction Agent shall (i) resign as Auction Agent under the
          Broker-Dealer Agreements, (ii) at the Company's request, deliver
          promptly to the Company copies of all books and records maintained
          by it in connection with its duties hereunder, and (iii) at the
          request of the Company, transfer promptly to the Company or to any
          successor auction agent any funds deposited by the Company with the
          Auction Agent (whether in its capacity as Auction Agent or as Paying
          Agent) pursuant to this Agreement which have not been distributed
          previously by the Auction Agent in accordance with this Agreement.

          (c) If the AMPS shall no longer settle through an electronic book
          entry system, the Auction Agent (but not necessarily the Paying
          Agent) shall cease to perform its duties hereunder, and under any
          Broker-Dealer Agreement.



                                      16
<PAGE>

     7.2. Communications.

     Except for (i) communications authorized to be made by telephone (or by
other electronic means acceptable to the parties) pursuant to this Agreement
or the Auction Procedures and (ii) communications in connection with Auctions
(other than those expressly required to be in writing), all notices, requests
and other communications to any party hereunder shall be in writing (including
telecopy or similar writing) and shall be given to such party at its address
or telecopier number set forth below:

     If to the Company,              MUNIYIELD QUALITY FUND, INC.
     addressed to:                   800 Scudders Mill Road
                                     Plainsboro, New Jersey 08536

                                     Attention:  Treasurer
                                     Telephone No.: (609) 282-2800
                                     Telecopier No.: (609) 282-3472

     If to the Auction               The Bank of New York
     Agent, addressed to:            Corporate Trust-Dealing and Trading Group
                                     101 Barclay Street, 7W
                                     New York, New York 10286

                                     Attention: Auction Desk
                                     Telephone No.: (212) 815-3450
                                     Telecopier No.: (212) 815-3440

or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified
herein. Communications shall be given on behalf of the Company by a Company
Officer and on behalf of the Auction Agent by an Authorized Officer.

     7.3. Entire Agreement.

     This Agreement contains the entire agreement between the parties relating
to the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or
inferred, between the parties relating to the subject matter hereof, except
for agreements relating to the compensation of the Auction Agent.

     7.4. Benefits.

     Nothing herein, express or implied, shall give to any Person, other than
the Company, the Auction Agent and their respective successors and assigns,
any benefit of any legal or equitable right, remedy or claim hereunder.

     7.5. Amendment; Waiver.

          (a) This Agreement shall not be deemed or construed to be modified,
          amended, rescinded, canceled or waived, in whole or in part, except
          by a written


                                      17
<PAGE>

          instrument signed by a duly authorized representative of the party
          to be charged. The Company shall notify the Auction Agent of any
          change in the Articles Supplementary prior to the effective date of
          any such change. If any such change in the Articles Supplementary
          materially increases the Auction Agent's obligations hereunder, the
          Company shall obtain the written consent to the Auction Agent prior
          to the effective date of such change.

          (b) Failure of either party hereto to exercise any right or remedy
          hereunder in the event of a breach hereof by the other party shall
          not constitute a waiver of any such right or remedy with respect to
          any subsequent breach.

     7.6. Successors and Assigns.

     This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Company and the Auction Agent. This Agreement may not be assigned by either
party hereto absent the prior written consent of the other party, which
consent shall not be withheld unreasonably.

     7.7. Severability.

     If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.

     7.8. Execution in Counterparts.

     This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.

     7.9. Governing Law.

     This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be
performed in said State.




                                      18
<PAGE>


     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.

                                         MUNIYIELD QUALITY FUND, INC.



                                         By:____________________________________
                                            Name:
                                            Title:



                                         THE BANK OF NEW YORK



                                         By:____________________________________
                                            Name:
                                            Title:












                                      19

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2K4
<SEQUENCE>14
<FILENAME>efc5-1587_ex992k4.txt
<TEXT>
                                                                  Exhibit (k)(4)






================================================================================


                            BROKER-DEALER AGREEMENT

                                    between

                             THE BANK OF NEW YORK

                                      and

              MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

                            Dated as of [___], 2005

                                  Relating to

                        AUCTION MARKET PREFERRED STOCK

                                   ("AMPS"),

                                   Series E

                                      of

                         MUNIYIELD QUALITY FUND, INC.


================================================================================


<PAGE>


     BROKER-DEALER AGREEMENT dated as of [___], 2005, between THE BANK OF NEW
YORK, a New York banking corporation (the "Auction Agent") (not in its
individual capacity, but solely as agent of MuniYield Quality Fund, Inc., a
Maryland corporation (the "Company"), pursuant to authority granted to it in
the Auction Agent Agreement dated as of [___], 2005, between the Company and
the Auction Agent (the "Auction Agent Agreement")), and MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED (together with its successors and assigns, "BD").

     The Company proposes to duly authorize and issue 2,000 shares of Auction
Market Preferred Stock, Series E ("Series E AMPS"), par value of $.10 per
share and a liquidation preference of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared), each pursuant to the
Company's Articles Supplementary (as defined below). The Series E AMPS are
sometimes referred to herein as the "AMPS."

     The Company's Articles Supplementary provide that the dividend rate of
the AMPS for each Dividend Period therefor after the Initial Dividend Period
shall be the Applicable Rate therefor, which in each case, in general shall be
the rate per annum that a commercial bank, trust company or other financial
institution appointed by the Company advises results from implementation of
the Auction Procedures (as defined below). The Board of Directors of the
Company has adopted a resolution appointing The Bank of New York as Auction
Agent for purposes of the Auction Procedures, and pursuant to Section 2.5(d)
of the Auction Agent Agreement, the Company has requested and directed the
Auction Agent to execute and deliver this Agreement.

     The Auction Procedures require the participation of one or more
Broker-Dealers.



<PAGE>

     NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:

I. DEFINITIONS AND RULES OF CONSTRUCTION.

     1.1. Terms Defined by Reference to the Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary of the Company.

     1.2. Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:

          (a) "Articles Supplementary" shall mean the Articles Supplementary,
as amended, of the Company, establishing the powers, preferences and rights of
the AMPS filed on [___], 2005 with the State Department of Assessments and
Taxation of Maryland.

          (b) "Auction" shall have the meaning specified in Section 2.1
hereof.

          (c) "Auction Procedures" shall mean the Auction Procedures that are
set forth in Paragraph 10 of the Articles Supplementary.

          (d) "Authorized Officer" shall mean each Vice President, Assistant
Vice President and Assistant Treasurer of the Auction Agent assigned to the
Dealing and Trading Group of its Corporate Trust Department, and every other
officer or employee of the Auction Agent designated as an "Authorized Officer"
for purposes of this Agreement in a written communication to BD.

          (e) "BD Officer" shall mean each officer or employee of BD
designated as a "BD Officer" for purposes of this Agreement in a communication
to the Auction Agent.

          (f) "Broker-Dealer Agreement" shall mean this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.

          (g) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit A.

     1.3. Rules of Construction. Unless the context or use indicates another
or different meaning or intent, the following rules shall apply to the
construction of this Agreement:

          (a) Words importing the singular number shall include the plural
number and vice versa.

          (b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.



                                      2
<PAGE>

          (c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.

          (d) All references herein to a particular time of day shall be to
New York City time.

II. THE AUCTION.

     2.1. Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.

          (a) On the Auction Date, the provisions of the Auction Procedures
will be followed by the Auction Agent for the purpose of determining the
Applicable Rate for the AMPS, for the next Dividend Period therefor. Each
periodic operation of such procedures is hereinafter referred to as an
"Auction."

          (b) All of the provisions contained in the Auction Procedures and
the Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part of this Agreement to the same extent
as if such provisions were set forth fully herein. In the case of any conflict
between the terms of any document incorporated herein by reference and the
terms hereof, the Auction Agent is, subject to its obligations as set forth in
Section 3.1, authorized to perform its duties according to the terms thereof,
and shall have no liability for so doing.

          (c) BD agrees to act as, and assumes the obligations of and
limitations and restrictions placed upon, a Broker-Dealer under this
Agreement. BD understands that other Persons meeting the requirements
specified in the definition of "Broker-Dealer" contained in Paragraph 1 of the
Articles Supplementary may execute a Broker-Dealer Agreement and participate
as Broker-Dealers in Auctions.

          (d) BD and other Broker-Dealers may participate in Auctions for
their own accounts. However, the Company, by notice to BD and all other Broker
Dealers, may prohibit all Broker-Dealers from submitting Bids in Auctions for
their own accounts, provided that Broker-Dealers may continue to submit Hold
Orders and Sell Orders. The Auction Agent shall have no responsibility or
liability in connection with this section 2.1(d).

     2.2. Preparation for Auction.

          (a) Not later than 9:30 A.M. on the Auction Date for the AMPS, the
Auction Agent shall advise BD by telephone of the Reference Rate and the
Maximum Applicable Rate in effect on such Auction Date.

          (b) In the event that the Auction Date for the Auction shall be
changed after the Auction Agent has given the notice referred to in clause
(vii) of paragraph (a) of the Settlement Procedures, the Auction Agent, by
such means as the Auction Agent deems practicable, shall give notice of such
change to BD not later than the earlier of 9:15 A.M. on the new Auction Date
or 9:15 A.M. on the old Auction Date. Thereafter, BD promptly shall notify


                                      3
<PAGE>

customers of BD that BD believes are Beneficial Owners of shares of Series E
AMPS of such change in the Auction Date.

          (c) The Auction Agent from time to time may but shall not be
obligated to, request BD to provide it with a list of the respective customers
BD believes are Beneficial Owners of shares of the AMPS. BD shall comply with
any such request, and the Auction Agent shall keep confidential any such
information, including information received as to the identity of Bidders in
any Auction, and shall not disclose any such information so provided to any
Person other than the Company; and such information shall not be used by the
Auction Agent or its officers, employees, agents or representatives for any
purpose other than such purposes as are described herein; provided, however,
that the Auction Agent reserves the right and is authorized to disclose any
such information if (a) it is ordered to do so by a court of competent
jurisdiction or a regulatory body, judicial or quasi-judicial agency or
authority having the authority to compel such disclosure, (b) it is advised by
its counsel that its failure to do so would be unlawful or (c) failure to do
so would expose the Auction Agent to loss, liability, claim, damage or expense
for which it has not received indemnity or security satisfactory to it. The
Auction Agent shall transmit any list of customers BD believes are Beneficial
Owners of shares of the AMPS and information related thereto only to its
officers, employees, agents or representatives in the Corporate Trust and
Agency Group who need to know such information for the purposes of acting in
accordance with this Agreement, and the Auction Agent shall prevent the
transmission of such information to others and shall cause its officers,
employees, agents and representatives to abide by the foregoing
confidentiality restrictions; provided, however, that the Auction Agent shall
have no responsibility or liability for the actions of any of its officers,
employees, agents or representatives after they have left the employ of the
Auction Agent.

          (d) The provisions contained in paragraph 2 of the Articles
Supplementary concerning the notification of a Special Dividend Period will be
followed by the Auction Agent and BD, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were set forth
fully herein.

     2.3. Auction Schedule; Method of Submission of Orders.

          (a) The Company and the Auction Agent shall conduct Auctions for the
AMPS in accordance with the schedule set forth below. Such schedule may be
changed at any time by the Auction Agent with the consent of the Company,
which consent shall not be withheld unreasonably. The Auction Agent shall give
notice of any such change to BD. Such notice shall be received prior to the
first Auction Date on which any such change shall be effective.




                                      4
<PAGE>


                  Time                                   Event
                  ----                                   -----

       By 9:30 A.M.                     Auction Agent advises the Company and
                                        Broker-Dealers of the Reference Rate and
                                        the Maximum Applicable Rate as set forth
                                        in Section 2.2(a) hereof.

       9:30 A.M. - 1:00 P.M.            Auction Agent assembles information
                                        communicated to it by Broker-Dealers as
                                        provided in Paragraph 10(c)(i) of the
                                        Articles Supplementary.  Submission
                                        Deadline is 1:00 P.M.

       Not earlier than 1:00 P.M.       Auction Agent makes determinations
                                        pursuant to Paragraph 10(d)(i) of the
                                        Articles Supplementary.

       By approximately 3:00 P.M.       Auction Agent advises the Company of the
                                        results of the Auction as provided in
                                        Paragraph 10(d)(ii) of the Articles
                                        Supplementary.

                                        Submitted Bids and Submitted Sell Orders
                                        are accepted and rejected in whole or in
                                        part and shares of AMPS are allocated as
                                        provided in Paragraph 10(e) of the
                                        Articles Supplementary.

                                        Auction Agent gives notice of the
                                        Auction results as set forth in Section
                                        2.4(a) hereof.

          (b) BD agrees to maintain a list of Potential Beneficial Owners and
to contact the Potential Beneficial Owners on such list on or prior to each
Auction Date for the purposes set forth in Paragraph 10 of the Articles
Supplementary.

          (c) BD shall submit Orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit B. BD shall submit separate
Orders to the Auction Agent for each Potential Beneficial Owner or Beneficial
Owner on whose behalf BD is submitting an Order and shall not net or aggregate
the Orders of Potential Beneficial Owners or Beneficial Owners on whose behalf
BD is submitting Orders.

          (d) BD shall deliver to the Auction Agent (i) a written notice,
substantially in the form attached hereto as Exhibit C, of transfers of shares
of the AMPS, made through BD by an Existing Holder to another Person other
than pursuant to an Auction, and (ii) a written notice, substantially in the
form attached hereto as Exhibit D, of the failure of shares of the AMPS to be
transferred to or by any Person that purchased or sold shares of the AMPS
through BD pursuant to an Auction. The Auction Agent is not required to accept
any notice delivered pursuant to the terms of the foregoing sentence with
respect to an Auction unless it is received by the Auction Agent by 3:00 P.M.
on the Business Day next preceding the applicable Auction Date.



                                      5
<PAGE>

     2.4. Notice of Auction Results.

          (a) On each Auction Date, the Auction Agent shall notify BD by
telephone or by other mutually acceptable electronic means as set forth in
paragraph (a) of the Settlement Procedures. On the Business Day next
succeeding such Auction Date, the Auction Agent shall notify BD in writing of
the disposition of all Orders submitted by BD in the Auction held on such
Auction Date.

          (b) BD shall notify each Beneficial Owner, Potential Beneficial
Owner, Existing Holder or Potential Holder on whose behalf BD has submitted an
Order as set forth in paragraph (b) of the Settlement Procedures, and take
such other action as is required of BD pursuant to the Settlement Procedures.

     If any Beneficial Owner or Existing Holder selling shares of AMPS in an
Auction fails to deliver such shares, the BD of any Person that was to have
purchased shares of AMPS in such Auction may deliver to such Person a number
of whole shares of AMPS that is less than the number of shares that otherwise
was to be purchased by such Person. In such event, the number of shares of
AMPS to be so delivered shall be determined by such BD. Delivery of such
lesser number of shares shall constitute good delivery. Upon the occurrence of
any such failure to deliver shares, such BD shall deliver to the Auction Agent
the notice required by Section 2.3(d)(ii) hereof. Notwithstanding the
foregoing terms of this Section 2.4(b), any delivery or non-delivery of shares
of AMPS which represents any departure from the results of an Auction, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the terms of Section 2.3(d) hereof. The Auction Agent shall
have no duty or liability with respect to enforcement of this Section 2.4(b).

     2.5. Service Charge to Be Paid to BD. On the Business Day next succeeding
each Auction Date, the Auction Agent shall pay to BD from moneys received from
the Company an amount equal to: (a) in the case of any Auction Date
immediately preceding a 7-Day Dividend Period or 28-Day Dividend Period, the
product of (i) a fraction the numerator of which is the number of days in such
Dividend Period (calculated by counting the first day of such Dividend Period
but excluding the last day thereof) and the denominator of which is 360, times
(ii) 1/4 of 1%, times (iii) $25,000, times (iv) the sum of (A) the aggregate
number of AMPS placed by BD in the applicable Auction that were (x) the
subject of a Submitted Bid of a Beneficial Owner submitted by BD and continued
to be held as a result of such submission and (y) the subject of a Submitted
Bid of a Potential Beneficial Owner submitted by BD and were purchased as a
result of such submission plus (B) the aggregate number of AMPS subject to
valid Hold Orders (determined in accordance with Paragraph 10 of the Articles
Supplementary) submitted to the Auction Agent by BD plus (C) the number of
AMPS deemed to be subject to Hold Orders by Beneficial Owners pursuant to
Paragraph 10 of the Articles Supplementary that were acquired by such
Beneficial Owners through BD; and (b) in the case of any Auction Date
immediately preceding a Special Dividend Period, that amount as mutually
agreed upon by the Company and BD, based on the selling concession that would
be applicable to an underwriting of fixed or variable rate preferred shares
with a similar final maturity or variable rate dividend period, at the
commencement of such Special Dividend Period.



                                      6
<PAGE>

     For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any
Beneficial Owner who acquired shares of the AMPS through BD transfers those
shares to another Person other than pursuant to an Auction, then the
Broker-Dealer for the shares so transferred shall continue to be BD, provided,
however, that if the transfer was effected by, or if the transferee is, a
Broker-Dealer other than BD, then such Broker-Dealer shall be the
Broker-Dealer for such shares.

III. THE AUCTION AGENT.

     3.1. Duties and Responsibilities.

          (a) The Auction Agent is acting solely as agent for the Company
hereunder and owes no fiduciary duties to any other Person by reason of this
Agreement. The Auction Agent owes no duties to any person other than BD and
the Company by reason of this Agreement.

          (b) The Auction Agent undertakes to perform such duties and only
such duties as are set forth specifically in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.

          (c) In the absence of willful misconduct or negligence on its part,
the Auction Agent shall not be liable for any action taken, suffered or
omitted by it, or for any error of judgment made by it in the performance of
its duties under this Agreement. The Auction Agent shall not be liable for any
error of judgment made in the absence of willful misconduct unless the Auction
Agent shall have been negligent in ascertaining (or failing to ascertain) the
pertinent facts.

     The Auction Agent shall not be responsible or liable for any failure or
delay in the performance of its obligations under this agreement arising out
of or caused, directly or indirectly, by circumstances beyond its reasonable
control, including, without limitation, acts of God; earthquakes; fires;
floods; wars; civil or military disturbances; sabotage; acts of terrorism;
epidemics; riots; interruptions, loss or malfunctions of utilities; computer
(hardware or software) or communications services; accidents; labor disputes;
acts of civil or military authority or governmental actions; it being
understood that the Auction Agent shall use reasonable efforts which are
consistent with accepted practices in the banking industry to resume
performance as soon as practicable under the circumstances. In no event shall
the Auction Agent be responsible or liable for special, indirect or
consequential loss or damage of any kind whatsoever (including, but not
limited to, loss of profit), even if the Auction Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.

     3.2. Rights of the Auction Agent.

          (a) The Auction Agent conclusively may rely upon, and shall be
protected in acting or refraining from acting upon, any communication
authorized by this Agreement and any written instruction, notice, request,
direction, consent, report, certificate, share certificate or other
instrument, paper or document believed by it to be genuine. The Auction Agent
shall not be liable for acting upon any telephone communication authorized by
this Agreement which the Auction Agent believes in good faith to have been
given by the Company or by BD. The Auction Agent may record telephone
communications with BD.



                                      7
<PAGE>

          (b) The Auction Agent may consult with counsel of its own choice,
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.

          (c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.

          (d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys.

     3.3. Auction Agent's Disclaimer. The Auction Agent makes no
representation as to and shall have no liability with respect to the
correctness of the recitals in, or the validity, accuracy or adequacy of this
Agreement, the Auction Agent Agreement, any offering material used in
connection with the offer and sale of the AMPS or any other agreement or
instrument executed in connection with the transactions contemplated herein or
in any thereof. The Auction Agent shall have no obligation or liability in
respect of the registration or exemption therefrom of the AMPS under federal
or state securities laws in respect of the sufficiency or the conformity of
any transfer of the AMPS pursuant to the terms of the Auction Agent Agreement,
any Broker Dealer Agreement or any other document contemplated hereby or
thereby.

IV. MISCELLANEOUS.

     4.1. Termination. BD may terminate this Agreement at any time upon five
days' prior written notice to the Auction Agent; provided, however, that if BD
is Merrill Lynch, Pierce, Fenner & Smith Incorporated, neither BD nor the
Auction Agent may terminate this Agreement without first obtaining the prior
written consent of the Company to such termination, which consent shall not be
withheld unreasonably. The Auction Agent shall terminate this Agreement only
pursuant to the prior written instruction of the Company.

     4.2. Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.

          (a) BD is, and shall remain for the term of this Agreement, a member
of, or a participant in, the Securities Depository (or an affiliate of such a
member or participant).

          (b) BD represents that it (or if BD does not act as Agent Member,
one of its affiliates) shall make all dividend payments on the AMPS available
in same-day funds on each Dividend Payment Date to customers that use BD (or
its affiliate) as Agent Member.

     4.3. Agent Member. At the date hereof, BD is a participant of the
Securities Depository.

     4.4. Communications. Except for (i) communications authorized to be made
by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar
writing) and shall be given to such party at its address or telecopier number
set forth below:



                                      8
<PAGE>

If to BD, addressed to:                    Merrill Lynch, Pierce, Fenner & Smith
                                                       Incorporated
                                           4 World Financial Center
                                           New York, New York 10080
                                           Attention:  Auction Market Securities
                                                       Trading

                                           Telecopier No.:  (212) 449-2761
                                           Telephone No.:  (212) 449-4940

If to the Auction Agent, addressed to:     The Bank of New York
                                           Corporate Trust-Dealing and Trading
                                           101 Barclay Street, 7W Floor
                                           New York, New York  10286

                                           Attention:  Auction Desk

                                           Telecopier No.: (212) 437-6123
                                           Telephone No.:  (212) 437-6166

or such other address or telecopier number as such party hereafter may specify
for such purpose by written notice to the other party. Each such notice,
request or communication shall be effective when delivered at the address
specified herein. Communications shall be given on behalf of BD by a BD
Officer and on behalf of the Auction Agent by an Authorized Officer. BD may
record telephone communications with the Auction Agent.

     4.5. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.

     4.6. Benefits. Nothing in this Agreement, express or implied, shall give
to any person, other than the Company, the Auction Agent and BD and their
respective successors and assigns, any benefit of any legal or equitable
right, remedy or claim under this Agreement.

     4.7. Amendment; Waiver.

          (a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to
be charged.

          (b) Failure of either party to this Agreement to exercise any right
or remedy hereunder in the event of a breach of this Agreement by the other
party shall not constitute a waiver of any such right or remedy with respect
to any subsequent breach.

     4.8. Successors and Assigns. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of BD and the Auction Agent. This Agreement may not
be assigned by either party hereto absent the prior written consent of the
other party;



                                      9
<PAGE>

provided, however, that this Agreement may be assigned by the Auction Agent to
a successor Auction Agent selected by the Company without the consent of BD.

     4.9. Severability. If any clause, provision or section of this Agreement
shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any remaining clause, provision or section hereof.

     4.10. Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.

     4.11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
made and to be performed in said State.




                                      10
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.

                                        THE BANK OF NEW YORK



                                        ________________________________________
                                        By:
                                        Title:



                                        MERRILL LYNCH, PIERCE, FENNER & SMITH
                                                    INCORPORATED


                                        ________________________________________
                                        By:
                                        Title:


                                      11
<PAGE>


                                                                       EXHIBIT A
                                                                       ---------


                             SETTLEMENT PROCEDURES
                             ---------------------



                               [From Prospectus]





<PAGE>



                                                                       EXHIBIT B
                                                                       ---------

                             THE BANK OF NEW YORK
                               AUCTION BID FORM
                            -----------------------

Submit To:   The Bank of New York           Issue:  MuniYield Quality Fund, Inc.
             Securities Transfer Department
             101 Barclay Street, 7W         Series: _______________________
             New York, New York 10286       Auction Date:__________________

             Attention:  Auction Desk
             Telephone: (212) 437-6166
             Facsimile: (212) 437-6123

The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:

Name of Bidder:____________________________

                                            BENEFICIAL OWNER

Shares now held::__________________________            HOLD_____________________
                                                       BID at rate of___________
                                                       SELL_____________________

                          POTENTIAL BENEFICIAL OWNER

                                                       # of shares bid__________
                                                       BID at rate of___________

Notes:

(1)  If submitting more than one Bid for one Bidder, use additional Auction
     Bid Forms.

(2)  If one or more Bids covering in the aggregate more than the number of
     outstanding shares held by any Beneficial Owner are submitted, such bid
     shall be considered valid in the order of priority set forth in the
     Auction Procedures on the above issue.

(3)  A Hold or Sell Order may be placed only by a Beneficial Owner covering a
     number of shares not greater than the number of shares currently held.

(4)  Potential Beneficial Owners may make only Bids, each of which must
     specify a rate. If more than one Bid is submitted on behalf of any
     Potential Beneficial Owner, each Bid submitted shall be a separate Bid
     with the rate specified.

(5)  Bids may contain no more than three figures to the right of the decimal
     point (.001 of 1%). Fractions will not be accepted.

NAME OF BROKER-DEALER ________________________________________

Authorized Signature _________________________________________




<PAGE>


                                                                       EXHIBIT C
                                                                       ---------

                   (Note: To be used only for transfers made
                      other than pursuant to an Auction)


                                 TRANSFER FORM
                                 -------------


       Re:   MuniYield Quality Fund, Inc.
             Auction Market Preferred Stock,
             Series E ("AMPS")


We are (check one):

|_|  the Existing Holder named below;

|_|  the Broker-Dealer for such Existing Holder; or

|_|  the Agent Member for such Existing Holder.


We hereby notify you that such Beneficial Owner has transferred ____________
shares of Series E AMPS to _____________________________________.





                                        ________________________________________
                                        (Name of Existing Holder)



                                        ________________________________________
                                        (Name of Broker-Dealer)



                                        ________________________________________
                                        (Name of Agent Member)



                                        By______________________________________
                                                 Printed Name:
                                                 Title:


<PAGE>


                                                                       EXHIBIT D
                                                                       ---------

                (Note: To be used only for failures to deliver
                       AMPS sold pursuant to an Auction)



                        NOTICE OF A FAILURE TO DELIVER
                        ------------------------------


Complete either I or II


I.             We are a Broker-Dealer for (the "Purchaser"), which
               purchased ___________ shares of Auction Market Preferred
               Stock ("AMPS"), Series _____, of MuniYield Quality Fund,
               Inc. in the Auction held on from the seller of such shares.

II.            We are a Broker-Dealer for _____________________ (the "Seller"),
               which sold _______ shares of AMPS, Series ____, of MuniYield
               Quality Fund, Inc. in the Auction held on ________________ to the
               Purchaser of such shares.

We hereby notify you that (check one):

____________ the Seller failed to deliver such shares to the Purchaser

____________ the Purchaser failed to make payment to the Seller upon delivery of
             such shares


                                       Name:____________________________________
                                                  (Name of Broker-Dealer)



                                       By:______________________________________
                                             Printed Name:
                                             Title:


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2K5
<SEQUENCE>15
<FILENAME>efc5-1587_5738379ex992k5.txt
<TEXT>
                                                            EXHIBIT 99.2(k)(5)



                         The Depository Trust Company
          A subsidiary of The Depository Trust & Clearing Corporation


                       ISSUER LETTER OF REPRESENTATIONS
          [To be Completed by Issuer and Co-Issuer(s), if applicable]


                         MuniYield Quality Fund, Inc.
        ---------------------------------------------------------------
               [Name of Issuer and Co-Issuer(s), if applicable]


                   Auction Market Preferred Stock, Series E
        ---------------------------------------------------------------
      [Security Description, including series designation if applicable]


        ---------------------------------------------------------------
                       [CUSIP Number of the Securities]



                               -----------------------------------------------
                                                [Date]

General Counsel's Office; 22nd Floor
The Depository Trust Company
55 Water Street
New York, NY  10041-0099

Ladies and Gentlemen:

     This letter sets forth our understanding with respect to the Securities
represented by the CUSIP number referenced above (the "Securities"). Issuer
requests that The Depository Trust Company ("DTC") accept the Securities as
eligible for deposit at DTC. The DTC Participant, *______________ (manager,
underwriter, or placement agent) will distribute the securities through DTC.

     To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with DTC's Rules with respect to the Securities,
Issuer represents to DTC that Issuer will comply with the requirements
applicable to it stated in DTC's Operational Arrangements (found at
www.dtcc.com and www.dtc.org), as they may be amended from time to time.

                                           Very truly yours,

* Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated

<TABLE>
<CAPTION>
Note:
- ----

<S>                                                  <C>
Schedule A contains statements that DTC              MUNIYIELD QUALITY FUND, INC.
believes accurately describe DTC, the                --------------------------------------------------
method of effecting book-entry transfers                                (Issuer)
of securities distributed through DTC,
and certain related matters.                        By:
                                                       -------------------------------------------------
                                                               (Authorized Officer's Signature)
Received and Accepted:                              ----------------------------------------------------
THE DEPOSITORY TRUST COMPANY                                              (Print Name)

By:                                                 ----------------------------------------------------
   --------------------------------------                                (Street Address)

                                                     ---------------------------------------------------
                                                     (City)        (State)        (Country)   (Zip Code)

                                                     (     )

                                                     ---------------------------------------------------
[LOGO OMITTED] DTCC(R)                                                  (Phone Number)

The Depository Trust &                               ---------------------------------------------------
Clearing Corporation                                                    (E-mail Address)
</TABLE>

<PAGE>

                       SAMPLE OFFERING DOCUMENT LANGUAGE
                      DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
                      -----------------------------------

 (Prepared by DTC--bracketed material may be applicable only to certain issues)

     1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities
will be issued as fully-registered securities registered in the name of Cede &
Co. (DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. One fully-registered Security certificate
will be issued for [each issue of] the Securities, [each] in the aggregate
principal amount of such issue, and will be deposited with DTC. [If, however,
the aggregate principal amount of [any] issue exceeds $500 million, one
certificate will be issued with respect to each $500 million of principal
amount, and an additional certificate will be issued with respect to any
remaining principal amount of such issue.]

     2. DTC, the world's largest securities depository, is a limited-purpose
trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Securities Exchange Act of 1934. DTC
holds and provides asset servicing for over 2.2 million issues of U.S. and
non-U.S. equity issues, corporate and municipal debt issues, and money market
instruments from over 100 countries that DTC's participants ("Direct
Participants") deposit with DTC. DTC also facilitates the post-trade
settlement among Direct Participants of sales and other securities
transactions in deposited securities, through electronic computerized
book-entry transfers and pledges between Direct Participants' accounts. This
eliminates the need for physical movement of securities certificates. Direct
Participants include both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other
organizations. DTC is a wholly-owned subsidiary of The Depository Trust &
Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct
Participants of DTC and Members of the National Securities Clearing
Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing
Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by
the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as both U.S. and non-U.S. securities brokers and
dealers, banks, trust companies, and clearing corporations that clear through
or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's
highest rating: AAA. The DTC Rules applicable to its Participants are on file
with the Securities and Exchange Commission. More information about DTC can be
found at www.dtcc.com and www.dtc.org.

     3. Purchases of Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual purchaser of each
Security ("Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchase. Beneficial Owners are, however,
expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Securities are to be
accomplished by entries made on the books of Direct and Indirect Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Securities, except in
the event that use of the book-entry system for the Securities is
discontinued.

     4. To facilitate subsequent transfers, all Securities deposited by Direct
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of Securities with DTC and their
registration in the name of Cede & Co. or such other DTC nominee do not effect
any change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Securities; DTC's records reflect only the identity
of the Direct Participants to whose accounts such Securities are credited,
which may or may not be the Beneficial Owners. The Direct and Indirect
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.

     5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.

<PAGE>

[Beneficial Owners of Securities may wish to take certain steps to augment the
transmission to them of notices of significant events with respect to the
Securities, such as redemptions, tenders, defaults, and proposed amendments to
the Security documents. For example, Beneficial Owners of Securities may wish
to ascertain that the nominee holding the Securities for their benefit has
agreed to obtain and transmit notices to Beneficial Owners. In the
alternative, Beneficial Owners may wish to provide their names and addresses
to the registrar and request that copies of notices be provided directly to
them.]

     [6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine
by lot the amount of the interest of each Direct Participant in such issue to
be redeemed.]

     7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or
vote with respect to Securities unless authorized by a Direct Participant in
accordance with DTC's Procedures. Under its usual procedures, DTC mails an
Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).

     8. Redemption proceeds, distributions, and dividend payments on the
Securities will be made to Cede & Co., or such other nominee as may be
requested by an authorized representative of DTC. DTC's practice is to credit
Direct Participants' accounts upon DTC's receipt of funds and corresponding
detail information from Issuer or Agent, on payable date in accordance with
their respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers
in bearer form or registered in "street name," and will be the responsibility
of such Participant and not of DTC, Agent, or Issuer, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
redemption proceeds, distributions, and dividend payments to Cede & Co. (or
such other nominee as may be requested by an authorized representative of DTC)
is the responsibility of Issuer or Agent, disbursement of such payments to
Direct Participants will be the responsibility of DTC, and disbursement of
such payments to the Beneficial Owners will be the responsibility of Direct
and Indirect Participants.

     [9. A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to [Tender/Remarketing] Agent,
and shall effect delivery of such Securities by causing the Direct Participant
to transfer the Participant's interest in the Securities, on DTC's records, to
[Tender/Remarketing] Agent. The requirement for physical delivery of
Securities in connection with an optional tender or a mandatory purchase will
be deemed satisfied when the ownership rights in the Securities are
transferred by Direct Participants on DTC's records and followed by a
book-entry credit of tendered Securities to [Tender/Remarketing] Agent's DTC
account.]

     10. DTC may discontinue providing its services as depository with respect
to the Securities at any time by giving reasonable notice to Issuer or Agent.
Under such circumstances, in the event that a successor depository is not
obtained, Security certificates are required to be printed and delivered.

     11. Issuer may decide to discontinue use of the system of book-entry-only
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered to DTC.

     12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
