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<SEC-DOCUMENT>0000905148-05-004555.txt : 20050902
<SEC-HEADER>0000905148-05-004555.hdr.sgml : 20050902
<ACCEPTANCE-DATETIME>20050902131332
ACCESSION NUMBER:		0000905148-05-004555
CONFORMED SUBMISSION TYPE:	N-2
PUBLIC DOCUMENT COUNT:		7
FILED AS OF DATE:		20050902
DATE AS OF CHANGE:		20050902

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MUNIHOLDINGS FUND INC
		CENTRAL INDEX KEY:			0001034665
		IRS NUMBER:				223508039
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-08081
		FILM NUMBER:		051067041

	BUSINESS ADDRESS:	
		STREET 1:		800 SCUDDERS MILL RD
		STREET 2:		C/O MERRILL LYNCH ASSET MANAGEMENT
		CITY:			PLAINSBORO
		STATE:			NJ
		ZIP:			08536
		BUSINESS PHONE:		6092823087

	MAIL ADDRESS:	
		STREET 1:		MERRILL LYNCH ASSET MANAGEMENT
		STREET 2:		INFO SYSTEMS SECT 2-B PO BOX 9011
		CITY:			PRINCETON
		STATE:			NJ
		ZIP:			08543-9011

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MUNIHOLDINGS FUND INC
		CENTRAL INDEX KEY:			0001034665
		IRS NUMBER:				223508039
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-128066
		FILM NUMBER:		051067042

	BUSINESS ADDRESS:	
		STREET 1:		800 SCUDDERS MILL RD
		STREET 2:		C/O MERRILL LYNCH ASSET MANAGEMENT
		CITY:			PLAINSBORO
		STATE:			NJ
		ZIP:			08536
		BUSINESS PHONE:		6092823087

	MAIL ADDRESS:	
		STREET 1:		MERRILL LYNCH ASSET MANAGEMENT
		STREET 2:		INFO SYSTEMS SECT 2-B PO BOX 9011
		CITY:			PRINCETON
		STATE:			NJ
		ZIP:			08543-9011
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2
<SEQUENCE>1
<FILENAME>efc5-1896_5750223formn2.txt
<TEXT>
  As filed with the Securities and Exchange Commission on September 2, 2005

                                           Securities Act File No. 333-
                                     Investment Company Act File No. 811-08081

                      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)

                                  -----------
                            MUNIHOLDINGS 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.
                            MuniHoldings 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...........        600 shares               $25,000              $15,000,000           $1,766
- -------------------------------------------- -------------------- ------------------------ -------------------- ------------------
</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>


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 is not permitted.


                             Subject to Completion
                Preliminary Prospectus dated September 2, 2005

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

                                  $15,000,000

                            MuniHoldings Fund, Inc.
                   Auction Market Preferred Stock ("AMPS")

                             600 Shares, Series C

                   Liquidation Preference $25,000 per Share

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

      MuniHoldings Fund, Inc. is a non-diversified, closed-end fund. The
investment objective of the Fund is to provide shareholders with current
income exempt from Federal income taxes. 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 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). Under normal
market conditions, the Fund expects to invest at least 75% of its total assets
in municipal obligations that are rated investment grade or, if unrated, are
considered by the Fund's investment adviser to be of comparable quality. The
Fund may invest up to 25% of its total assets in municipal obligations that
are rated below investment grade (commonly known as "junk" bonds) or, if
unrated, are considered by the Fund's investment adviser to possess similar
credit characteristics. The Fund invests primarily in long term municipal
obligations. 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      $15,000,000
Underwriting discount.............................      $250         $150,000
Proceeds, before expenses, to the Fund (1)........   $24,750      $14,850,000

- ------------------------------------------------------------------------------
(1)   The estimated offering expenses payable by the Fund are $135,000.

      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.

      The AMPS will be ready for delivery in book-entry form through 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. Copies of the Fund's
semi-annual and annual reports may also be obtained without charge at
mutualfunds.ml.com. Due to the abbreviated nature of the offering period for
the AMPS, the statement of additional information is not available at this
website. 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.

      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

                                                                          Page
                                                                          ----

Prospectus Summary...........................................................5
Risk Factors and Special Considerations.....................................11
Financial Highlights........................................................16
The Fund....................................................................17
Use of Proceeds.............................................................17
Capitalization..............................................................17
Portfolio Composition.......................................................18
Investment Objective And Policies...........................................18
Other Investment Policies...................................................27
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 Matters...............................................................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                    MuniHoldings Fund, Inc. is a non-diversified, closed-end management investment
                            company.

The Offering                The Fund is offering a total of 600 shares of Auction Market Preferred Stock,
                            Series C, 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 Series C AMPS are
                            being offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
                            Lynch"), as underwriter.

                            The Series C 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 C AMPS may participate in
                            auctions for the AMPS through their broker-dealers.

                            Generally, AMPS investors will not receive certificates evidencing 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 current
and Policies                income exempt from Federal income taxes. 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 any 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.

                            Investment Grade Municipal Bonds. Under normal market conditions, the Fund invests
                            at least 75% of its total assets in a portfolio of Municipal Bonds that are rated
                            investment grade by one or more nationally recognized statistical rating
                            organizations ("NRSROs")



                                                      5
<PAGE>

                            (Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by
                            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.

                            "High Yield" or "Junk" Bonds. The Fund may invest up to 25% of its total assets in
                            high yield Municipal Bonds (commonly known as "junk" bonds) that are rated below
                            investment grade by the NRSROs (Ba or lower by Moody's or BB or lower by S&P or
                            Fitch) or are unrated securities that are considered by the Investment Adviser to
                            possess similar credit characteristics. Although junk bonds generally pay higher
                            rates of interest than investment grade bonds, they are high risk investments that
                            may cause income and principal losses for the Fund. Junk bonds generally are less
                            liquid and experience more price volatility than higher rated debt securities. The
                            issuers of junk bonds may have a larger amount of outstanding debt relative to
                            their assets than issuers of investment grade bonds. In the event of an issuer's
                            bankruptcy, claims of other creditors may have priority over the claims of junk
                            bond holders, leaving few or no assets available to repay junk bond holders. Junk
                            bonds may be subject to greater call and redemption risk than higher rated debt
                            securities.

                            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



                                                      6
<PAGE>

                            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 C
                            AMPS. For a more detailed description of the main risks as well as certain other
                            risks associated with investing in the Fund's Series C 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 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.



                                                      7
<PAGE>

                            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 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.

                            o  Investments in junk bonds entail a higher level of credit risk (loss of income
                               and/or principal) and a corresponding greater risk of loss than investments in
                               investment grade Municipal Bonds. Municipal Bonds rated in the lower rating
                               categories are considered to be predominantly speculative with respect to
                               capacity to pay interest and dividend income and repay principal.

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 0.55% of the Fund's average weekly net assets (including any
                            proceeds from the issuance of preferred stock).



                                                      8
<PAGE>

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

                                                    Initial
                                                   Dividend      Initial Dividend    Initial Dividend
                                AMPS Series          Rate          Period Ending       Payment Date
                            -------------------  ------------   -------------------  ----------------
                            Series C.......          %                  , 2005               , 2005

                            After the initial dividend period, each dividend period for the Series C 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 [
                            ] in the case of the Series C AMPS.

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

Determination of            Generally, the applicable dividend rate for any dividend period for the Series C
Maximum Dividend            AMPS will not be more than the maximum applicable rate attributable to such shares.
Rates                       The maximum applicable rate 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 Series C 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     Percentage    Applicable      Applicable
                                                          Percentage         of        Spread Over     Spread Over
                                   Credit Ratings        of Reference    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.



                                                      9
<PAGE>

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

Other AMPS                  The Fund has outstanding 4,400 shares of two 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 $110,000,000 (the "Other AMPS"). The Other AMPS are as follows: 2,200 shares of
                            Auction Market Preferred Stock, Series A and 2,200 shares of Auction Market
                            Preferred Stock, Series B. The Series C 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 C 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").

                            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 280% immediately after the Fund issues the shares of AMPS offered
                            by this prospectus representing approximately 36% of the Fund's capital, or
                            approximately 56% of the Fund's common stock equity, immediately after the
                            issuance of such AMPS.

Mandatory                   If the required asset coverage is not maintained or, when necessary, restored, the
Redemption                  Fund must redeem shares of Series C 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 some 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 Preference      The liquidation preference (that is, the amount the Fund must pay to holders of
                            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 Series C 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 Series C 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.

      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.

      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.

      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
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 the performance 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 the longer term
securities in which the Fund primarily invests 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
securities will decline in value if interest rates increase in the future.
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. The degree of credit risk depends on both the
financial condition of the issuer and the terms of the obligation.



                                      12
<PAGE>

      Risks Associated with Non-Investment Grade Securities. Under normal
market conditions, the Fund expects to invest at least 75% of its total assets
in Municipal Bonds that are rated investment grade by Moody's, S&P or Fitch,
or in unrated Municipal Bonds that are considered by the Investment Adviser to
possess similar credit characteristics. Obligations rated in the lowest
investment grade category may have certain speculative characteristics. The
Fund may invest up to 25% of its total assets in high yield Municipal Bonds
that are rated below investment grade or are unrated securities that are
considered by the Investment Adviser to possess similar credit
characteristics. Securities rated below investment grade, also known as junk
bonds, generally entail greater interest rate and credit risks than investment
grade securities. For example, their prices are more volatile, economic
downturns and financial setbacks may affect their prices more negatively, and
their trading market may be more limited.

      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.

      Rating Categories. The Fund intends to invest in Municipal Bonds that
are rated investment grade by S&P, Moody's or Fitch, or in unrated Municipal
Bonds that are considered by the Investment Adviser to possess similar credit
characteristics. Obligations rated in the lowest investment grade category may
have certain speculative characteristics. For example, their prices are more
volatile, economic downturns and financial setbacks may affect their prices
more negatively, and their trading market may be more limited.

      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 may be 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 floating rate 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 floating rate 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



                                      13
<PAGE>

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.

      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 its outstanding 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.

      Federal 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 purpose 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. Non-investment grade securities tend to be more
volatile than investment grade fixed income securities so that these events
and other market disruptions may have a greater impact on the prices and
volatility of non-investment grade securities than on investment grade fixed
income securities. There can be no assurance that



                                      14
<PAGE>

these events and other market disruptions will not have other material and
adverse implications for the non-investment grade securities markets.



                                      15
<PAGE>

                             FINANCIAL HIGHLIGHTS

      The following Financial Highlights table is intended to help you
understand the Fund's financial performance for the years 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 ended April 30, 1998 to April 30, 2005 has
been audited by , whose report for the fiscal year ended April 30, 2005, along
with the financial statements of the Fund, is included in the Fund's 2005
Annual Report, which is incorporated by reference herein. You may obtain a
copy of the 2005 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.
For the Year Ended April 30,

<TABLE>
<CAPTION>
                                                For the Year Ended April 30,
- ----------------------------------------------------------------------------------------------------------------------    For the
                                                                                                                        Period May
                                                                                                                       2, 1997++ to
                                                                                                                        April 30,
                                                                                                                           1998
                                                  2005      2004      2003      2002     2001++     2000++      1999++
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
<S>                                            <C>       <C>       <C>       <C>       <C>        <C>        <C>         <C>
Per Share Operating Performance
   Net asset value, beginning of year            $15.54    $15.07    $14.50    $13.76    $13.16     $16.05     $16.00      $15.00
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Investment income-- and distributions net       1.20+     1.25+     1.25+     1.17      1.10       1.18       1.24        1.21
   Realized and unrealized gain (loss)--net         .84       .40       .40       .66       .65      (2.66)       .40        1.03
   Dividends and distributions to Preferred
     Stock shareholders:
   Investment income net                           (.12)     (.07)     (.10)     (.16)     (.32)      (.26)      (.21)      (.26)
   Realized gain on investments--net                 -         -         -         -         -          -        (.09)        -
   In excess of realized gain on
     investments--net                                -         -         -         -         -        (.04)        -          -
   Capital charge resulting from issuance of
     Preferred Stock                                 -         -         -         -         -         -           -        (.08)
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Total from investment operations                1.92      1.58      1.55      1.67      1.43      (1.78)      1.34       1.90
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Less dividends and distributions to Common
     Stock shareholders:
   Investment income--net                         (1.15)    (1.11)     (.98)     (.93)     (.83)      (.94)      (.97)      (.87)
   Realized gain--net                                -         -        -          -         -          -        (.32)        -
   In excess of realized gain--net                   -         -        -          -         -        (.17)        -          -
   Total dividends and distributions to Common
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
     Stock shareholders                           (1.15)    (1.11)     (.98)     (.93)     (.83)     (1.11)     (1.29)       (.87)
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Capital charge resulting from issuance of
     Common Stock                                    -          -         -         -        -          -          -         (.03)
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Net asset value, end of year                  $16.31    $15.54    $15.07    $14.50    $13.76     $13.16     $16.05      $16.00
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Market price per share, end of year           $16.12    $14.43    $14.43    $13.38    $13.18   $12.5625     $15.25      $14.75
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
Total Investment Return*
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Based on net asset value per share             12.95%    10.94%    11.54%    12.64%    11.71%    (10.89%)     8.73%      12.83%++
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Based on market price per share                20.22%     7.58%    15.75%     8.51%    12.09%    (10.47%)    12.06%       4.01%++
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
Ratios Based on Average Net Assets of Common
   Stock
   Total expenses, net of reimbursement**          1.13%     1.14%     1.18%     1.21%     1.27%      1.16%      1.09%        .85%+
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Total expenses**                                1.13%     1.15%     1.18%     1.21%     1.27%      1.16%      1.09%       1.05%+
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Total investment income--net**                  7.61%     7.98%     8.40%     8.03%     8.08%      8.34%      7.52%       7.77%+
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Amount of dividends to Preferred Stock
     shareholders                                   .74%      .45%      .66%     1.08%     2.32%      1.83%      1.27%       1.67%+
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Investment income--net, to Common Stock
     shareholders                                  6.87%     7.53%     7.74%     6.95%     5.76%      6.51%      6.25%       6.10%+
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
Ratios Based on Average Net Assets of
   Preferred Stock
   Dividends to Preferred Stock shareholders       1.47%      .88%     1.23%     1.96%     3.97%      3.27%      2.58%       3.60%+
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
Supplemental Data
   Net assets applicable to Common Stock,
     end of year (in thousands)                $225,218  $214,473  $207,960  $200,091  $189,787   $181,324   $221,118    $219,717
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Preferred Stock outstanding, end of year
     (in thousands)                            $110,000  $110,000  $110,000  $110,000  $110,000   $110,000   $110,000    $110,000
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Portfolio turnover                             36.23%    42.89%    50.68%    62.94%    91.25%    137.69%     66.07%    106.16%
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
Leverage:
   Asset coverage per $1,000                     $3,047    $2,950    $2,981    $2,819    $2,725     $2,648     $3,010      $2,997
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Liquidation preference per share             $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
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------

Dividends Per Share on Preferred Stock
   Outstanding+++
   Series A--Investment income--net                $366      $220      $315      $492    $1,016       $820       $657        $810
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
   Series B--Investment income--net                $365      $223      $302      $490      $968       $813       $642        $816
                                               --------- --------- --------- --------- ---------  ---------  ---------   -----------
</TABLE>

- ---------------
*   Total investment returns based on market value, which can be significantly
    greater or lesser 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.
++  Certain prior year amounts have been reclassified to conform to current
    year presentation.
+++ The Fund's Preferred Stock was issued on June 5, 1997. # Based on monthly
    market value per share. ++ Commencement of operations.
+   Annualized.
++  Aggregate total investment return.



                                      16
<PAGE>

                                   THE FUND

      MuniHoldings Fund, Inc. (the "Fund") is a non-diversified, closed-end
fund. The Fund was incorporated under the laws of the State of Maryland on
February 27, 1997, 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 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 $14,715,000
after payment of offering expenses (estimated to be approximately $135,000)
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."

                                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 $.10 per share (4,400 shares of Other AMPS
   authorized, issued and outstanding at $25,000 per share liquidation
   preference, plus accumulated but unpaid dividends; 5,000 shares of AMPS
   and Other AMPS authorized, issued and outstanding, as adjusted, at $25,000
   per share liquidation preference, plus accumulated but unpaid dividends)........         $110,000,000       $125,000,000
                                                                                          ===============    ================
Common Stock, par value $.10 per share (199,995,600 shares authorized,
   13,811,738  shares issued and outstanding); 199,995,000 shares authorized,
   13,811,738  shares issued and outstanding, as adjusted..........................           $1,381,174         $1,381,174
Paid-in capital in excess of par ..................................................          204,410,623        204,125,623
Undistributed investment income-net................................................            4,473,210          4,473,210
Accumulated realized capital losses-net............................................           (3,560,213)        (3,560,213)
Unrealized appreciation-net........................................................           18,513,466         18,513,466

Net assets applicable to outstanding common stock..................................         $225,218,260       $224,933,260
                                                                                          ===============    ================
</TABLE>



                                      17
<PAGE>

                             PORTFOLIO COMPOSITION

      As of April 30, 2005, approximately [ ]% of the market value of the
Fund's portfolio was invested in long term and intermediate term municipal
obligations and approximately 0.[ ]% 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.

                              Number of        Value (in
   Moody's*        S&P*        Issues          thousands)       Percent
- -------------   -----------  -------------   --------------  -------------
     Aaa           AAA
      Aa            AA
      A             A
     Baa           BBB
      Ba            BB
      B             B
     Caa           CCC
      NR            NR
                             -------------   --------------  -------------
                                                                  100.00%
=============   ===========  =============   ==============  =============

- ---------
*  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.

                       INVESTMENT OBJECTIVE AND POLICIES

      The Fund's investment objective is to provide shareholders with current
income exempt from Federal income taxes. 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'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 the approval 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 also will not invest more than 25% of its total
assets (taken at market value at the time of each investment) in Municipal
Bonds whose issuers are located in the same state.

      Under normal market conditions, the Fund expects to invest at least 75%
of its total assets in a portfolio of Municipal Bonds that are commonly
referred to as "investment grade" securities, which are obligations rated at
the time of purchase within the four highest quality ratings as determined by
either Moody's Investors Service, Inc. ("Moody's") (currently Aaa, Aa, A and
Baa), Standard & Poor's ("S&P") (currently AAA, AA, A and BBB) or Fitch
Ratings ("Fitch") (currently AAA, AA, A and BBB). In the case of short term
notes, the investment 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-3 for Fitch. In the case of
tax exempt commercial paper, the investment grade rating categories are A-1+
through A-3 for S&P, Prime-1 through Prime-3 for Moody's and F-1+ through F-3
for Fitch. Obligations ranked in the lowest



                                      18
<PAGE>

investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and
Prime-3 for Moody's and BBB and F-3 for Fitch), while considered "investment
grade," may have certain speculative characteristics. 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.

      The Fund also may invest up to 25% of its total assets in Municipal
Bonds that are rated below Baa by Moody's or below BBB by S&P or Fitch or, if
unrated, are considered by the Investment Adviser to possess similar credit
characteristics. Such securities, sometimes referred to as "high yield" or
"junk" bonds, are predominantly speculative with respect to the capacity to
pay interest and repay principal in accordance with the terms of the security
and generally involve a greater volatility of price than securities in higher
rating categories. The Fund does not intend to purchase Municipal Bonds that
are in default or which the Investment Adviser believes will soon be in
default. Below investment grade securities and comparable unrated securities
involve substantial risk of loss, are considered speculative with respect to
the issuer's ability to pay interest and any required redemption or principal
payments and are susceptible to default or decline in market value due to
adverse economic and business developments.

      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 Adviser's
assessment of economic and market conditions. As of April 30, 2005, the
weighted average maturity of the Fund's portfolio was approximately 19.87
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.



                                      19
<PAGE>

      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.

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 PABs, 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.



                                      20
<PAGE>

      The Fund has not established any limit on the percentage of its
portfolio that may be invested in 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
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



                                      21
<PAGE>

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 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.

      "High Yield" or "Junk" Bonds. The Fund may invest up to 25% of its total
assets in high yield Municipal Bonds that are rated below Baa by Moody's or
below BBB by S&P or Fitch or are unrated securities that are considered by the
Investment Adviser to possess similar credit characteristics. See Appendix A
"Description of Municipal Bond Ratings" to the statement of additional
information for additional information regarding ratings of Municipal Bonds.
Junk bonds are debt securities that are rated below investment grade by the
major rating agencies or are unrated securities that are considered by the
Investment Adviser to possess similar credit characteristics. Although junk
bonds generally pay higher rates of interest than investment grade bonds, they
are high risk investments that may cause income and principal losses for the
Fund. The major risks in junk bond investments include the following:

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



                                      22
<PAGE>

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

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

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

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

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

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

      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



                                      23
<PAGE>

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. 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



                                      24
<PAGE>

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. 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."



                                      25
<PAGE>

      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.

      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.



                                      26
<PAGE>

      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.

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



                                      27
<PAGE>

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.

      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



                                      28
<PAGE>

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 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.



                                      29
<PAGE>

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.

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 C 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 C 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 4,400 shares of two 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 $110,000,000 (the "Other AMPS"). The Other AMPS are
as follows: 2,200 shares of Auction Market Preferred Stock, Series A and 2,200
shares of Auction Market Preferred Stock, Series B. The Series C 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.



                                      30
<PAGE>

      The following is a brief description of the terms of the shares of 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 of the AMPS, including the provisions thereof establishing the
AMPS. The Fund's Charter and the form of Articles Supplementary of the AMPS
establishing the terms of the 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 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 the
AMPS, dividends on the 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 [ ] in the case of the Series C 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.



                                      31
<PAGE>

      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 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 Series
C AMPS to but excluding the Initial Dividend Payment Date (the "Initial
Dividend Period") with respect to the Series C 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 Series C AMPS, the
Applicable Rate on the Series C 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 the 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,



                                      32
<PAGE>

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 280% representing
approximately 36% of the Fund's capital and 56% 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.

      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.



                                      33
<PAGE>

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.

      Based upon the composition of the Fund's portfolio at 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:

           Value of Fund assets less
          liabilities not constituting
               senior securities               =     $349,933,260    =      280%
     --------------------------------------        ----------------
         Senior securities representing              $125,000,000
         indebtedness plus liquidation
          value of the shares of AMPS

      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.



                                      34
<PAGE>

      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."

      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 Other AMPS and 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 C 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.



                                      35
<PAGE>

General

      Holders of the shares of the Series C 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 Series C 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 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, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
more than [ ] 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 C AMPS. One or more registered certificates for all of the shares of
the Series C 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 C AMPS offered hereby for each Dividend



                                      36
<PAGE>

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 C AMPS for
Dividend Periods after the Initial Dividend Period normally will be held every
[    ] after the preceding Dividend Payment Date, and each subsequent Dividend
Period normally will begin on the following [    ] (also a Dividend Payment
Date). The Auction Date and the first day of the related Dividend Period (both
of which must be Business Days) need not be consecutive calendar days. For
example, in most cases, if the [    ] that normally would be an Auction Date for
the Series C AMPS is not a Business Day, then such Auction Date will be the
preceding [    ] and the first day of the related Dividend Period will continue
to be the following [    ]. See "Description of AMPS--Dividends" for information
concerning the 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



                                      37
<PAGE>

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 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         Applicable      Applicable Spread      Applicable
            Credit Ratings                 Percentage of       Percentage of      Over Reference       Spread Over
- ---------------------------------------  Reference Rate-No       Reference           Rate-No            Reference
      Moody's                S&P            Notification     Rate-Notification     Notification     Rate-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.



                                      38
<PAGE>

      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 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:



                                      39
<PAGE>

            (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 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 C 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



                                      40
<PAGE>

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.

      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



                                      41
<PAGE>

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 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.



                                      42
<PAGE>

      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 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



                                      43
<PAGE>

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 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 June 30, 2005, the Investment
Adviser and its affiliates, including Merrill Lynch Investment Managers, L.P.
("MLIM"), had a total of approximately $474 billion in investment company and
other portfolio assets under management, including approximately $221 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.



                                      44
<PAGE>

      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 Robert A. DiMella. Mr. DiMella has been a portfolio manager with
MLIM since 1997, was a Vice President of MLIM from 1997 to 2001, was a
Director (Tax-Exempt Fund Management) of MLIM from 2002 to 2004, has been a
Managing Director of MLIM since 2004 and has 15 years of experience investing
in Municipal Bonds as a portfolio manager on behalf of registered investment
companies. He has been the portfolio manager and a Vice President of the Fund
since [ ]. 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 0.55% 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 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 daily 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.

      For a discussion of the basis for the Board of Directors' most recent
approval of the Fund's Investment Advisory Agreement, see the Fund's annual
shareholder report for the period ended April 30, 2005.

                                     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



                                      45
<PAGE>

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 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,



                                      46
<PAGE>

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 4,400 shares of
unissued common stock as Other AMPS and reclassified 600 shares of unissued
common stock as AMPS, which are being offered hereby. See "Description of
AMPS" herein and in the statement of additional information.

      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 Held    Amount Outstanding
                                                                         By Fund For   (Exclusive Of Amount
                                                                           Its Own     Held By Fund For Its
Title of Class                                      Amount Authorized      Account         Own Account)
- -------------------------------------------------  -------------------- ------------ ------------------------
<S>                                                    <C>                  <C>             <C>
Common Stock.....................................      199,995,600          - 0 -           13,811,738
Auction Market Preferred Stock...................
      Series A AMPS..............................         2,200             - 0 -              2,200
      Series B AMPS..............................         2,200             - 0 -              2,200
</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 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 4,400 shares of Other AMPS. Under
the Articles Supplementary for the AMPS, the Fund is authorized to issue an
aggregate of 600 additional shares of AMPS. The terms of the shares of Other
AMPS are substantially the same as the terms of the shares of 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



                                      47
<PAGE>

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
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 by vote of the holders of at least 66 2/3% 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 2/3% 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 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 2/3% 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 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 the exclusion of stockholders, to make, alter or repeal any of the
By-laws (except for any By-law specified not to be amended 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 2/3% 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
The Bank of New York, 1010 Church Street, New York, New York 10286.

                                 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 $135,000 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.
See "Portfolio Transactions" in the statement of additional information.
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, Other AMPS and common stock is The Bank of New York,
101 Barclay Street, New York, New York 10286.



                                      49
<PAGE>

                         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 10019.

          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......................................................34
Taxes.......................................................................36
Conflicts of Interest.......................................................36
Net Asset Value.............................................................42
Financial Statements........................................................43
APPENDIX A  Description of Municipal Bond Ratings..........................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 pages [30 to 31] 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 C, 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 [31]
of this prospectus.

      "AMPS Basic Maintenance Cure Date" has the meaning set forth on page
[31] 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 pages [35 to 36] 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 pages [35 to 36] 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 [34] 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 [37] 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 [34]of this prospectus.



                                      52
<PAGE>

      "Bidder" has the meaning set forth on page [35] 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 [28] of this
prospectus.

      "Dividend Period" has the meaning set forth on page [28] 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 [19] of the
statement of additional information.

      "Fund" means MuniHoldings 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 [37] of this prospectus.

      "Initial Dividend Payment Date" means the first Dividend Payment Date
for the Series C 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 C 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 [32] 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 [35] of this
prospectus.

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

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

      "Moody's Eligible Assets" has the meaning set forth on pages [16 to 20]
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:

                                                                   Moody's
                               % Change in                        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%



                                      55
<PAGE>

      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.

      "Municipal Bonds" has the meaning set forth on page [15] 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 [31] of
this prospectus.

      "1940 Act Cure Date" has the meaning set forth on page [31] 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 pages [7 to 8] of
the statement of additional information.

      "Normal Dividend Payment Date" has the meaning set forth on page [28] 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
[29] 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 [32] of
this prospectus.

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

      "Other AMPS" means the Auction Market Preferred Stock, Series A and the
Auction Market Preferred Stock, Series B, 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
[29] of this prospectus.

      "Response" has the meaning set forth on page [29] of this prospectus.

      "Retroactive Taxable Allocation" has the meaning set forth on page [30]
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 C AMPS" means the Auction Market Preferred Stock, Series C, 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.

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

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

      "S&P Eligible Assets" has the meaning set forth on pages [13 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 [27] 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 [36] of this
prospectus.

      "Submitted Bid" has the meaning set forth on page [37] of this
prospectus.

      "Submitted Hold Order" has the meaning set forth on page [37] of this
prospectus.

      "Submitted Order" has the meaning set forth on page [37] of this
prospectus.

      "Submitted Sell Order" has the meaning set forth on page [37] of this
prospectus.

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

      "Substitute Rating Agency" and "Substitute Rating Agencies" shall mean
an 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 [37] 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 [31] 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 [38] of this
prospectus.



                                      59
<PAGE>


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




                                  $15,000,000

                            MuniHoldings Fund, Inc.



                   Auction Market Preferred Stock ("AMPS")

                             600 Shares, Series C

                   Liquidation Preference $25,000 per Share








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






                              Merrill Lynch & Co.





                                    , 2005


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

<PAGE>


The information in this statement of additional information 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
statement of additional information 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 September 2, 2005

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

                                  $15,000,000

                            MuniHoldings Fund, Inc.
                   Auction Market Preferred Stock ("AMPS")

                            1,600 Shares, Series C

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


      MuniHoldings Fund, Inc. (the "Fund") is a non-diversified, closed-end
fund. The investment objective of the Fund is to provide shareholders with
current income exempt from Federal income taxes. 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
any preferred stock), and the proceeds 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). Under
normal market conditions, the Fund expects to invest at least 75% of its total
assets in municipal obligations that are rated investment grade or, if
unrated, are considered by the Fund's investment adviser to be of comparable
quality. The Fund may invest up to 25% of its total assets in high yield
municipal obligations that are rated below investment grade (commonly known as
"junk bonds") or, if unrated, are considered by the Fund's investment adviser
to possess similar credit characteristics. The Fund invests primarily in long
term municipal obligations. 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



                                                                          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......................................................34
Taxes.......................................................................36
Conflicts of Interest.......................................................36
Net Asset Value.............................................................42
Financial Statements........................................................43
Appendix A  Description of Municipal Bond Ratings..........................A-1
Appendix B  Settlement Procedures..........................................B-1
Appendix C  Auction Procedures.............................................C-1



                                      2
<PAGE>

                       INVESTMENT OBJECTIVE AND POLICIES

      The Fund's investment objective is to provide shareholders with current
income exempt from Federal income taxes. 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'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 any preferred stock) and the proceeds of any
borrowings for investment purposes, in Municipal Bonds are fundamental
policies that may not be changed without the approval 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.

      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 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 interest therein, and the Fund
      may purchase and sell financial futures contracts and options thereon..

            3. Issue senior securities or borrow money except as permitted by
      Section 18 of the 1940 Act.

            4. 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.

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

            6. Invest more than 25% of its total assets (taken at market value
      at the time of each investment) in securities of issuers in a single
      industry; 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 (6) above, the exception for
states, municipalities and their political subdivisions applies only to tax
exempt securities issued by such entities.

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



                                      3
<PAGE>

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

      b. 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
(3) above or except as may be necessary in connection with transactions in
financial futures contracts and options thereon.

      c. 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).

      d. 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 and may purchase and sell Call Rights to require mandatory
tender for the purchase of related Municipal Bonds.

      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 percentages 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 not otherwise defined in
this statement of additional information have the meaning provided in the
Glossary at the back of the prospectus.

      The Series C 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 C 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 two 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 C 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 also
serves as 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.



                                      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 C 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 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 25th 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



                                      11
<PAGE>

AMPS, voting together as a single class, will be required to approve any
voluntary application by the Fund for relief 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 fiscal years ended April 30, 2005, 2004 and 2003, Merrill Lynch,
an affiliate of the Investment Adviser, earned $168,937, $145,785 and
$175,133, respectively, pursuant to its Broker-Dealer Agreement with the Fund.



                                      12
<PAGE>

Auction Procedures

      The Auction Procedures are set forth in Appendix C. The Settlement
Procedures to be used with respect to Auctions are set forth in Appendix B.

                           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:

<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.

**    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 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.



                                      13
<PAGE>

      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; (a) not be subject to a covered call or covered put option
      written by the Fund; (b) except for Inverse Floaters, not be part of a
      private placement; and

            (iv) 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 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



                                      14
<PAGE>

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 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



                                      15
<PAGE>

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.

      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%.



                                      16
<PAGE>

      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
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.



                                      17
<PAGE>

      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 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;



                                      18
<PAGE>

            (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 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



                                      19
<PAGE>

      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 securities 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-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.



                                      20
<PAGE>

                            DIRECTORS AND OFFICERS

      The Directors of the Fund consist of seven individuals, six 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 April 30, 2005.

      Cynthia A. Montgomery and Edward D. Zinbarg 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 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 met once during the Fund's fiscal year ended April 30, 2005.

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>
                                         Term of
  Name, Address*      Position(s)      Office** and           Principal                Number of
    and Age of       Held with the    Length of Time    Occupation(s) During    MLIM/FAM-Advised Funds      Public
     Director            Fund             Served           Past Five Years      and Portfolios Overseen  Directorships
- -----------------   ---------------  ---------------   -----------------------  -----------------------  -------------
<S>                 <C>              <C>               <C>                      <C>                      <C>
Ronald W. Forbes    Director and     Director since    Professor Emeritus of    48 registered            None
(64)***             Chairman         1993; Chairman    Finance, School of       investment companies
                                     since 2004        Business, State          consisting of 51
                                                       University of New York   portfolios
                                                       at Albany since 2000
                                                       and Professor thereof
                                                       from 1989 to 2000;
                                                       International
                                                       Consultant, Urban



                                                                21
<PAGE>

                                         Term of
  Name, Address*      Position(s)      Office** and           Principal                Number of
    and Age of       Held with the    Length of Time    Occupation(s) During    MLIM/FAM-Advised Funds      Public
     Director            Fund             Served           Past Five Years      and Portfolios Overseen  Directorships
- -----------------   ---------------  ---------------   -----------------------  -----------------------  -------------
                                                       Institute, Washington,
                                                       D.C. from 1995 to 1999.

Cynthia A.          Director         Director since    Professor, Harvard       48 registered            Newell
Montgomery                           1993.             Business School since    investment companies     Rubbermaid
(52)****                                               1989; Associate          consisting of 51         Inc.
                                                       Professor, J.L.          portfolios               (manufacturing)
                                                       Kellogg Graduate
                                                       School of Management,
                                                       Northwestern
                                                       University from 1985
                                                       to 1989; Associate
                                                       Professor, Graduate
                                                       School of Business
                                                       Administration,
                                                       University of Michigan
                                                       from 1979 to 1985;
                                                       Director, Harvard
                                                       Business School of
                                                       Publishing since 2005.

Jean Margo Reid     Director         Director since    Self-employed            48 registered            None
(59)                                 2004              consultant since 2001;   investment companies
                                                       Counsel of Alliance      consisting of 51
                                                       Capital Management       portfolios
                                                       (investment adviser)
                                                       in 2000; General
                                                       Counsel, Director and
                                                       Secretary of Sanford
                                                       C. Bernstein & Co.,
                                                       Inc. (investment
                                                       adviser/broker-dealer)
                                                       from 1997 to 2000;
                                                       Secretary, Sanford C.
                                                       Bernstein, Inc. from
                                                       1994 to 2000; Director
                                                       and Secretary of SCB,
                                                       Inc. since 1998;
                                                       Director and Secretary
                                                       of SCB Partners, Inc.
                                                       since 2000; and
                                                       Director of Covenant
                                                       House from 2001 to
                                                       2004.

Roscoe S.           Director         Director since    President, Middle East   48 registered            None
Suddarth (69)                        2000              Institute, from 1995     investment companies
                                                       to 2001; Foreign         consisting of 51
                                                       Service



                                              22
<PAGE>

                                         Term of
  Name, Address*      Position(s)      Office** and           Principal                Number of
    and Age of       Held with the    Length of Time    Occupation(s) During    MLIM/FAM-Advised Funds      Public
     Director            Fund             Served           Past Five Years      and Portfolios Overseen  Directorships
- -----------------   ---------------  ---------------   -----------------------  -----------------------  -------------
                                                       Officer,United States    portfolios
                                                       Foreign Service, from
                                                       1961 to 1995; Career
                                                       Minister from 1989 to
                                                       1995; Deputy Inspector
                                                       General, U.S.
                                                       Department of State,
                                                       from 1991 to 1994;
                                                       U.S. Ambassador to the
                                                       Hashemite Kingdom of
                                                       Jordan, from 1987 to
                                                       1990.

Richard R. West     Director         Director since    Professor of Finance     48 registered            Bowne & Co.,
(67)                                 1993              from 1984 to 1995,       investment companies     Inc.
                                                       Dean from 1984 to 1993   consisting of 51         (financial
                                                       and since 1995 Dean      portfolios               printers);
                                                       Emeritus of New York                              Vornado
                                                       University's Leonard                              Realty Trust
                                                       N. Stern School of                                (real estate
                                                       Business                                          company);
                                                       Administration.                                   Alexander's,
                                                                                                         Inc. (real
                                                                                                         estate
                                                                                                         company)

Edward D. Zinbarg   Director         Director since    Self-employed            48 registered            None
(70)                                 2000              financial consultant     investment companies
                                                       since 1994; Executive    consisting of 51
                                                       Vice President of the    portfolios
                                                       Prudential Insurance
                                                       Company of America
                                                       from 1988 to 1994;
                                                       Former Director of
                                                       Prudential Reinsurance
                                                       Company and former
                                                       Trustee of the
                                                       Prudential Foundation.
</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 or by statute.
  *** Chairman of the Board and Audit Committee.
 **** Chairman 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,



                                      23
<PAGE>

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.


<TABLE>
<CAPTION>
      Name,          Position(s)     Term of Office                              Number of MLIM/FAM-
     Address        Held with the    and Length of     Principal Occupation(s)    Advised Funds and         Public
     and Age             Fund        Time Served**     During Past Five Years    Portfolios Overseen    Directorships
- -----------------   --------------   ---------------   -----------------------   --------------------   -------------
<S>                 <C>              <C>               <C>                       <C>                    <C>
Robert C. Doll,     Director and     Director and      President of MLIM/FAM     125 registered         None
Jr. (50)***         President        President****     advised funds since       investment companies
                                     since 2005        2005; President of MLIM   consisting of 169
                                                       and FAM since 2001;       portfolios
                                                       Co-Head (Americas
                                                       Region) of FAM and MLIM
                                                       (which terms as used
                                                       herein include their
                                                       corporate predecessors)
                                                       from 2000 to 2001 and
                                                       Senior Vice President
                                                       thereof from 1999 to
                                                       2001; President and
                                                       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.

Donald C. Burke     Vice President   Vice President    First Vice President of   131 registered         None
(45)                and Treasurer    and Treasurer     MLIM and FAM since 1997   investment companies
                                     since 1997        and Treasurer thereof     consisting of 175
                                                       since 1999; Senior Vice   portfolios
                                                       President, Director and
                                                       Treasurer of Princeton
                                                       Services since 1999;
                                                       Vice President of FAMD
                                                       since 1999; Vice
                                                       President of MLIM and
                                                       FAM from 1990 to 1997;
                                                       Director of Taxation of
                                                       MLIM since 1990.



                                                  24
<PAGE>

      Name,          Position(s)     Term of Office                              Number of MLIM/FAM-
     Address        Held with the    and Length of     Principal Occupation(s)    Advised Funds and         Public
     and Age             Fund        Time Served**     During Past Five Years    Portfolios Overseen    Directorships
- -----------------   --------------   ---------------   -----------------------   --------------------   -------------
Kenneth A. Jacob    Senior Vice      Senior Vice       Managing Director of      38 registered          None
(54)                President        President since   MLIM since 2000; First    investment companies
                                     2002              Vice President of MLIM    consisting of 50
                                                       from 1997 to 2000; Vice   portfolios
                                                       President of MLIM from
                                                       1984 to 1997.

John M. Loffredo    Senior Vice      Senior Vice       Managing Director of      39 registered          None
(41)                President        President since   MLIM since 2000; First    investment companies
                                     2002              Vice President of MLIM    consisting of 51
                                                       from 1997 to 2000; Vice   portfolios
                                                       President of MLIM from
                                                       1991 to 1997; Portfolio
                                                       Manager with MLIM and
                                                       FAM since 1997.

Robert A. DiMella   Vice President   Vice President    Managing Director of      6 registered           None
(38)                and Portfolio    and Portfolio     MLIM since 2004;          investment companies
                    Manager          Manager since     Director (Tax-Exempt      consisting of 5
                                     1999              Fund Management ) of      portfolios
                                                       MLIM from 2002 to 2004;
                                                       Vice President of MLIM
                                                       from 1996 to 2001.

Jeffrey Hiller      Chief            Chief             Chief Compliance          132 registered         None
(53)                Compliance       Compliance        Officer of the            investment companies
                    Officer          Officer since     MLIM/FAM-advised funds    consisting of 176
                                     2004              since 2004; First Vice    portfolios
                                                       President and Chief
                                                       Compliance Officer of
                                                       MLIM since 2004; Chief
                                                       Compliance Officer of
                                                       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



                                                 25
<PAGE>

      Name,          Position(s)     Term of Office                              Number of MLIM/FAM-
     Address        Held with the    and Length of     Principal Occupation(s)    Advised Funds and         Public
     and Age             Fund        Time Served**     During Past Five Years    Portfolios Overseen    Directorships
- -----------------   --------------   ---------------   -----------------------   --------------------   -------------
                                                       Management in 2000;
                                                       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           126 registered         None
Pellegrino (45)                      2004              Advisory) of MLIM since   investment companies
                                                       2002; Vice President of   consisting of 170
                                                       MLIM from 1999 to 2002;   portfolios
                                                       Attorney associated
                                                       with MLIM since 1997;
                                                       Secretary of FAM, MLIM,
                                                       FAMD and Princeton
                                                       Services since 2004.
</TABLE>

- -----------
 *    The address of 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 FAM, MLIM and Princeton Services, Inc.
 **** 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 or by statute.

      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. Forbes and Mr. West 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.

<TABLE>
<CAPTION>

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

Non-interested Directors:
     Ronald W. Forbes                           $10,001-$50,000                      Over $100,000
     Cynthia A. Montgomery                            None                           Over $100,000



                                              26
<PAGE>

     Jean Margo Reid**                                None                           Over $100,000
     Roscoe S. Suddarth                               None                           Over $100,000
     Richard R. West                                  None                           Over $100,000
     Edward D. Zinbarg                                None                           Over $100,000
</TABLE>

  ----------
  *   For the number of MLIM/FAM advised funds from which each Director
      receives compensation, see the table above under "---Biographical
      Information
  **  Ms. Reid was elected a Director of the Fund and a Director of certain
      other MLIM/FAM advised funds on August 19, 2004.

      As of the date of this statement of additional information, except for
Mr. Forbes who owns common stock of the Fund as noted above, 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
to all officers of the Fund and all Directors of the Fund who are affiliates
with ML & Co. or its subsidiaries as well as such Directors' actual
out-of-pocket expenses relating to attendance at meetings.

      The Fund pays each non-interested Director a combined fee of $3,800 per
year for services on the Board and the Audit Committee plus a fee of $150 for
each in-person Board meeting attended and $150 for each in-person Audit
Committee meeting attended, together with such Director's out-of-pocket
expenses relating to attendance at such meetings. The Chairman of the Fund's
Audit Committee receives an additional annual fee of $1,429.

      The following table shows the compensation earned by the non-interested
Directors for the Fund's fiscal year ended April 30, 2005 and the aggregate
compensation paid to them from all MLIM/FAM-advised funds for the calendar
year ended December 31, 2004.

                                                Pension           Aggregate
                                               Retirement       Compensation
                                            Benefits Accrued    From Fund and
                            Compensation    as Part of Fund    other FAM/MLIM-
     Name of Director         From Fund         Expense        Advised Funds**
- --------------------------  -------------- ------------------ ------------------
Ronald W. Forbes*              $6,107             None            $284,833
Cynthia A. Montgomery          $5,000             None            $248,833
Jean Margo Reid***             $3,133             None            $142,733
Roscoe S. Suddarth             $5,000             None            $248,833
Richard R. West                $5,000             None            $248,833
Edward D. Zinbarg              $5,000             None            $248,833

- ----------
  *   Chairman of the Audit Committee.
  **  For the number of MLIM/FAM-advised funds from which each Director
      received compensation see table above under "--Biographical
      Information."
  *** Ms. Reid was elected a Director of the Fund and a Director of certain
      other MLIM/FAM-advised funds on August 19, 2004.

      Pursuant to its investment advisory agreement with the Fund (the
"Investment Advisory Agreement"), the Investment Adviser pays all compensation
to all officers of the Fund and all Directors of the Fund who are affiliated
with ML & Co. or its subsidiaries.



                                      27
<PAGE>

               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 June 30, 2005, the Investment Adviser and its
affiliates, including MLIM, had a total of approximately $474 billion in
investment company and other portfolio assets under management, including
approximately $221 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 Robert A. DiMella. Mr. DiMella has been a portfolio manager with
MLIM since 1997, was a Vice President of MLIM from 1997 to 2001, was a
Director (Tax-Exempt Fund Management) of MLIM from 2002 to 2004, has been a
Managing Director of MLIM sine 2004 and has 15 years of experience investing
in Municipal Bonds as a portfolio manager on behalf of registered investment
companies.. 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 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.

      For the fiscal years ended April 30, 2005, 2004 and 2003, the fees paid
by the Fund to the Investment Adviser pursuant to the Investment Advisory
Agreement were $1,805,447, $1,795,371 and $1,732,165, respectively.

      For the fiscal years ended April 30, 2005, 2004 and 2003, the Investment
Adviser reimbursed the Fund $1,971, $5,817 and $2,403, 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, 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 years indicated:



                                      28
<PAGE>

<TABLE>
<CAPTION>
                                                                   Paid by the Fund
                                       Paid by the Fund to        to the Investment
Fiscal Year Ended                         State Street                 Adviser
- ------------------------------------  -----------------------   ----------------------
<S>                                         <C>                         <C>
2005                                        $114,307                    $7,141
2004                                        $111,192                    $6,487
2003                                        $108,995                    $7,342
</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 November 10, 2004.

Portfolio Manager Information

      The Fund is managed by Robert A. DiMella.

Other Funds and Accounts Managed by Portfolio Manager as of April 30, 2005

<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      Investment      Investment      Other          Investment    Investment       Other
    and Portfolio Manager         Companies       Vehicles      accounts         Companies      Vehicles      accounts
- -----------------------------  --------------   -------------  ------------     ------------  ------------   ------------
<S>                            <C>              <C>            <C>              <C>           <C>            <C>
Fund Asset Management L.P.
Robert A. DiMella                     6              1             0                 0             1             0
                               $3,352,270,824   $19,638,081                                   $19,638,081
</TABLE>

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

                Robert A. DiMella            $10,000-$50,000

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 a fixed 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.



                                      29
<PAGE>

      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.

      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.

      Other Compensation Programs

      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.



                                      30
<PAGE>

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.



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



                                      31
<PAGE>

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 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 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



                                      32
<PAGE>

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 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 Committee member
and may be amended or deleted upon the vote of a majority of Committee members
present at a 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 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



                                      33
<PAGE>

          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 he most recent 12 month period ended June 30 is
available without charge (i) at www.mutualfunds.ml.com and (ii) the Security
and Exchange 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 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,



                                      34
<PAGE>

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.

      For the fiscal year ended April 30, 2005, the Fund paid $1,500 in
brokerage commissions to Merrill Lynch. For the fiscal years ended April 30,
2004 and 2003, the Fund paid no brokerage commissions.

      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 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.



                                      35
<PAGE>

      For the fiscal years ended April 30, 2005. 2004 and 2003, the Fund's
portfolio turnover rates were 51.81%, 39.94% and 49.59%, 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 April 30 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-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.



                                      36
<PAGE>

      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 C AMPS and Other AMPS as tax exempt
interest, capital 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.



                                      37
<PAGE>

      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.

      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



                                      38
<PAGE>

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.

      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



                                      39
<PAGE>

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.

      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



                                      40
<PAGE>

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.

      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



                                      41
<PAGE>

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.

      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.



                                      42
<PAGE>

      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 April
30, 2005, together with the report of ____________________ thereon, are
incorporated in this statement of additional information by reference to its
2004 Annual Report. You may request a copy of the 2004 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.



                                      43
<PAGE>

                                  APPENDIX A

                     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

MIG1     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.

MIG2     This designation denotes strong credit quality. Margins of
         protection are ample, although not as large as in the preceding
         group.

MIG3     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.

VMIG1    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.

VMIG2    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.

VMIG3    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 as
B        having significant speculative characteristics. "BB" indicates the
CCC      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 project.



                                     A-3
<PAGE>

         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.

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



                                     A-4
<PAGE>

         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.

      Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guarantees unless otherwise indicated.



                                     A-5
<PAGE>

      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.

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.



                                     A-6
<PAGE>

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.  Such
DD       bonds are extremely speculative and should be valued on the basis of
DDD      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.

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.



                                     A-7
<PAGE>

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

                                     B-1
<PAGE>

            necessary to purchase the number of shares 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;


                                     B-2
<PAGE>

                  (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

                  (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>
                                             Applicable          Applicable      Applicable Spread       Applicable
            Credit Ratings                 Percentage of       Percentage of      Over Reference        Spread Over
- ---------------------------------------  Reference Rate--No      Reference           Rate--No            Reference
      Moody's                S&P            Notification     Rate--Notification     Notification     Rate--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>

      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 &

                                     C-1
<PAGE>

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 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

                                     C-2

<PAGE>

      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

            (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:

                                     C-3

<PAGE>

            (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 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

                                     C-4

<PAGE>

      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, 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.

                                     C-5

<PAGE>

      (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 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

                                     C-6

<PAGE>

            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 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

                                     C-7

<PAGE>

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    Financial Highlights for each of the fiscal years in the ten-year
 A:      period ended April 30, 2005.

 Part    Schedule of Investments of the Fund as of April 30, 2005.*
 B:
         Statement of Net Assets of the Fund as of April 30, 2005.*

         Statement of Operations of the Fund for the fiscal year ended April
         30, 2005.*

         Statements of Changes in Net Assets of the Fund for the
         fiscal years ended April 30, 2004 and April 30, 2005.*

         Financial Highlights for each of the fiscal years in the
         five-year period ended April 30, 2005.*

         Report of Independent Registered Public Accounting Firm.*

 ----------
*    Incorporated by reference to the Registrant's Annual Report to Shareholders
for the fiscal year ended April 30, 2005 filed with the Securities and
Exchange Commission ("Commission") on June 30, 2005 pursuant to Rule 30b2-1
under the Investment Company Act of 1940, as amended ("1940 Act").


Exhibits     Description
- --------     -----------
   (a)(1)    Articles of Incorporation of the Registrant. (a)
   (a)(2)    Amended and Restated Articles of Incorporation. (b)
   (a)(3)    Form of Articles Supplementary creating the Series A and Series B
             Auction Market Preferred Stock ("the Other AMPS"). (c)
   (a)(4)    Form of Articles Supplementary creating the Series C Auction
             Market Preferred Stock (the "AMPS").
   (b)       By-laws of the Registrant. (a)
   (c)       Not applicable.
   (d)(1)    Portions of the Articles of Incorporation, By-laws and Articles
             Supplementary of the Registrant defining the rights of holders of
             shares of the Registrant. (d)
   (d)(2)    Form of specimen certificate for the AMPS of the Registrant.
   (e)       Form of Automatic Dividend Reinvestment Plan. (b)
   (f)       Not applicable.
   (g)(1)    Form of Investment Advisory Agreement between the Registrant and
             Fund Asset Management, L.P. ("FAM" or the "Investment Adviser").
             (b)
   (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. (e)
   (i)       Not applicable.
   (j)       Form of Custodian Agreement between the Registrant and The Bank
             of New York ("BONY"). (f)
   (k)(l)    Form of Stock Transfer Agency Agreement between the Registrant
             and BONY (g)
   (k)(3)    Form of Administrative Services Agreement between the Registrant
             and State Street Bank & Trust Company. (h)
   (k)(4)    Form of Auction Agent Agreement between the Registrant and The
             Bank of New York.
   (k)(5)    Form of Broker-Dealer Agreement.
   (k)(6)    Form of Letter of Representations.
   (l)       Opinion and Consent of Sidley Austin Brown & Wood LLP.*
   (m)       Not applicable.


                                     C-1
<PAGE>

   (n)       Consent of ______________, independent auditors for the
             Registrant.*
   (o)       Not applicable.
   (p)       Not applicable.
   (q)       Not applicable.
   (r)       Code of Ethics.(i)
   -----------
   (a)      Incorporated by reference to the Registrant's registration
            statement on Form N-2 (File No. 333-22645), filed on March 3, 1997
            (the "Common Stock Registration Statement").
   (b)       Incorporated by reference to Pre-Effective Amendment No. 1 to the
             Common Stock Registration Statement, filed on April 3, 1997.
   (c)       Incorporated by reference to the Registrant's registration
             statement on Form N-2 (File No. 333-26413), filed on May 2, 1997.
   (d)       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 IX,
             Article X, and Article XII of the Registrant's Amended and
             Restated Articles of Incorporation, previously filed as Exhibit
             (a) (2) to Pre-Effective Amendment No. 1 to the Common Stock
             Registration Statement; to Article II, Article III (sections 1,
             2, 3, 5 and 17) , Article VI, Article VII, Article XII, Article
             XIII and Article XIV of the Registrant's By- laws, previously
             filed as Exhibit (b) to the Common Stock Registration Statement;
             and to the Forms of Articles Supplementary filed as Exhibits
             (a)(3) and (a)(4) to this Registration Statement.
   (e)       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.
   (f)       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.
   (g)       Incorporated by reference to Pre-Effective Amendment No. 2 to the
             Common Stock Registration Statement, filed on April 29, 1997.
   (h)       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..
   (i)       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).

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                                   $1,766
Printing (other than stock certificates)            17,000
Accounting Fees and Expenses                        13,390
Legal fees and expenses                             73,000
Rating Agency Fees                                  25,000
Miscellaneous                                        4,844
                                                  --------
      Total                                       $135,000
                                                  ========

                                     C-2

<PAGE>

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, $.10 par value                                         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
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.

                                     C-3

<PAGE>

      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.


                        Position(s) with        Other Substantial Business,
        Name           Investment Adviser    Profession, Vocation Or Employment
- -------------------   -------------------   -----------------------------------

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



                                     C-4

<PAGE>

                        Position(s) with        Other Substantial Business,
        Name           Investment Adviser    Profession, Vocation Or Employment
- -------------------   -------------------   -----------------------------------

Donald C. Burke       First Vice President  First Vice President and Treasurer
                      and Treasurer         of MLIM; Senior Vice President,
                                            Treasurer and Director of Princeton
                                            Services; Vice President of FAMD

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

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:

            (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-5

<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 2nd day of September, 2005.

                                       MUNIHOLDINGS 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.

        Signatures                        Title                      Date
- --------------------------  --------------------------------  ------------------
ROBERT C. DOLL, JR.*        President (Principal Executive
- --------------------
 (Robert C. Doll, Jr.)      Officer) and Director

DONALD C. BURKE*            Vice President and Treasurer
- ----------------
 (Donald C. Burke)          (Principal Financial and
                            Accounting Officer)

RONALD W. FORBES*           Director
- -----------------
(Ronald W. Forbes)

CYNTHIA A. MONTGOMERY*      Director
- ----------------------
(Cynthia A. Montgomery)

JEAN MARGO REID *           Director
- -----------------
(Jean Margo Reid)

ROSCOE S. SUDDARTH*         Director
- -------------------
(Roscoe S. Suddarth)

RICHARD R. WEST*            Director
- ----------------
(Richard R. West)

EDWARD D. ZINBARG*          Director
- ------------------
(Edward D. Zinbarg)


*By /s/ DONALD C. BURKE
    -------------------
                                                              September 2 , 2005
(Donald C. Burke,
Attorney-in-Fact)


<PAGE>


                               POWER OF ATTORNEY

      The undersigned, Robert C. Doll, Jr., Donald C. Burke, Ronald W.
Forbes, Cynthia A. Montgomery, Jean Margo Reid, Roscoe S. Suddarth, Richard
R. West and Edward D. Zinbarg, the Directors/Trustees and/or the Officers of
each of the registered investment companies listed below, or of the master
trust in which such registered investment company invests, 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: CMA
Government Securities Fund; CMA Money Fund; CMA Multi-State Municipal Series
Trust; CMA Tax-Exempt Fund; CMA Treasury Fund; Debt Strategies Fund, Inc.;
Floating Rate Income Strategies Fund; Floating Rate Income Strategies Fund
II; Global Financial Services Master Trust; Master Bond Trust; Master
Government Securities Trust; Master Money Trust; Master Senior Floating Rate
Trust; Master Tax-Exempt Trust; Master Treasury Trust; Master U.S. High Yield
Trust; Merrill Lynch Balanced Capital Fund, Inc.; Merrill Lynch Bond Fund,
Inc.; Merrill Lynch Developing Capital Markets Fund, Inc.; Merrill Lynch
Equity Dividend Fund; Merrill Lynch EuroFund; Merrill Lynch Global Allocation
Fund, Inc.; Merrill Lynch Global Financial Services Fund, Inc.; Merrill Lynch
Global SmallCap Fund, Inc.; Merrill Lynch Global Technology Fund, Inc.;
Merrill Lynch Global Value Fund, Inc.; Merrill Lynch Healthcare Fund, Inc.;
Merrill Lynch Latin America Fund, Inc.; Merrill Lynch Municipal Bond Fund,
Inc.; Merrill Lynch Municipal Series Trust; Merrill Lynch Pacific Fund, Inc.;
Merrill Lynch Senior Floating Rate Fund, Inc.; Merrill Lynch Senior Floating
Rate Fund II, Inc.; Merrill Lynch U.S. High Yield Fund, Inc.; Merrill Lynch
Utilities and Telecommunications Fund, Inc.; MuniHoldings Florida Insured
Fund; MuniHoldings Fund, Inc.; MuniHoldings Fund II, Inc.; MuniHoldings
Insured Fund, Inc.; MuniHoldings New Jersey Insured Fund, Inc.; MuniHoldings
New York Insured Fund, Inc.; MuniVest Fund, Inc.; MuniVest Fund II, Inc.;
Senior High Income Portfolio, Inc.; Diversified Income Strategies Portfolio,
Inc.: Floating Rate Incomes Strategies Fund, Inc.; Floating Rate Incomes
Strategies Fund II, Inc.; WCMA Government Securities Fund; WCMA Money Fund;
WCMA Tax-Exempt Fund; and WCMA Treasury Fund.

Dated:  February 2, 2005


          /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 Accounting Officer)



          /s/ Ronald W. Forbes                  /s/ Cynthia A. Montgomery
- --------------------------------------        -----------------------------
          Ronald W. Forbes                        Cynthia A. Montgomery
         (Director/Trustee)                        (Director/Trustee)



          /s/ Jean Margo Reid                     /s/ Roscoe S. Suddarth
- --------------------------------------        -----------------------------
           Jean Margo Reid                          Roscoe S. Suddarth
         (Director/Trustee)                         (Director/Trustee)


          /s/ Richard R. West                     /s/ Edward D. Zinbarg
- --------------------------------------        -----------------------------
           Richard R. West                          Edward D. Zinbarg
         (Director/Trustee)                         (Director/Trustee)



<PAGE>

                                 EXHIBIT INDEX



Exhibits     Description
- --------     -----------
   (a)(4)    Form of Articles Supplementary creating the Series C Auction
             Market Preferred Stock (the "AMPS").
   (d)(2)    Form of specimen certificate for the AMPS of the Registrant.
   (h)(1)    Form of Purchase Agreement between the Registrant and Merrill
             Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch")
             relating to the AMPS.
   (k)(4)    Form of Auction Agent Agreement between the Registrant and The
             Bank of New York.
   (k)(5)    Form of Broker-Dealer Agreement.
   (k)(6)    Form of Letter of Representations.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2A4
<SEQUENCE>2
<FILENAME>efc5-1896_5746063ex992a4.txt
<TEXT>
                                                                Exhibit (a)(4)


                            MUNIHOLDINGS FUND, INC.

                 Articles Supplementary creating one series of

                        Auction Market Preferred Stock


      MUNIHOLDINGS 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 600 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 C.

      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 C: A series of 600 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 C." Each share of
Auction Market Preferred Stock, Series C (sometimes referred to herein as
"Series C 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

<PAGE>

Rate and an 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 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.

      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 C.

      "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 MuniHoldings 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



                                      9
<PAGE>

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 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,    MIG-1, VMIG-1,
                             P-1 (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:

                                  Minimum         Maximum        Maximum State
                                Issue Size      Underlying          Allowed
Rating                          ($ Millions)  Obligor (%) (1)     (%) (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

- ---------------------
(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



                                      16
<PAGE>

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 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



                                      17
<PAGE>

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
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:

 -------------------------------------------------------------------------------
                           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.
(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 25th 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 -          Rate - No      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>

      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) 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, MUNIHOLDINGS 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.


                                MUNIHOLDINGS FUND, INC.

                                By:
                                   ---------------------------------
                                Name: Donald C. Burke
                                Title: Vice President

Attest:



____________________________
Name:   Alice A. Pellegrino
Title:  Secretary


      THE UNDERSIGNED, Vice President of MUNIHOLDINGS 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-99.2D2
<SEQUENCE>3
<FILENAME>efc5-1896_5746096ex992d2.txt
<TEXT>
                                                                Exhibit (d)(2)

                   Auction Market Preferred Stock, Series C

NUMBER 1                                                            600 SHARES

                            MUNIHOLDINGS 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 SIX HUNDRED

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

                            MUNIHOLDINGS 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, MUNIHOLDINGS 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:    _________, 2005

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.

                            MUNIHOLDINGS 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>
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 security 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-99.2H1
<SEQUENCE>4
<FILENAME>efc5-1896_5746096ex992h1.txt
<TEXT>
                                                                Exhibit (h)(1)

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

                            MUNIHOLDINGS FUND, INC.


                           (a Maryland corporation)


                                  $15,000,000
                        Auction Market Preferred Stock


                             600 Shares, Series C

                  (Liquidation Preference $25,000 Per Share)


                              PURCHASE AGREEMENT



                              Dated: [___], 2005

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






<PAGE>


<TABLE>
<CAPTION>
                                             TABLE OF CONTENTS

                                                                                                            Page

<S>     <C>                                                                                                 <C>
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.............................................................................15

   (a)  Expenses............................................................................................15

   (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
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
                                             Table of Contents
                                             -----------------
                                                (continued)
                                                                                                          Page
                                                                                                          ----


<S>     <C>                                                                                                 <C>
   (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
</TABLE>


<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>


                            MUNIHOLDINGS FUND, INC.
                           (a Maryland corporation)

                                  $15,000,000
                        Auction Market Preferred Stock


                             600 Shares, Series C



                  (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:

         MuniHoldings 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 600 shares of Auction Market Preferred Stock, Series C
("Series C 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-[ ], 811-08081), 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 Ernst & Young LLP 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 Ernst & Young LLP 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


                                      17
<PAGE>

statement or omission or alleged untrue 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


                                      21
<PAGE>

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 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,

                                          MUNIHOLDINGS 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 Signatory




                                      23
<PAGE>


                                  SCHEDULE A
                                  ----------


                            MUNIHOLDINGS FUND, INC.
                           (a Maryland corporation)

                                  $15,000,000


                        Auction Market Preferred Stock

                             600 Shares, Series C




                  (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 C 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
the 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 during the period from the date of the audited
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 audited 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-99.2K4
<SEQUENCE>5
<FILENAME>efc5-1896_5746078992k4.txt
<TEXT>
                                                                Exhibit (k)(4)


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


                            AUCTION AGENT AGREEMENT

                                    between

                            MUNIHOLDINGS FUND, INC.

                                      and

                             THE BANK OF NEW YORK

                            Dated as of [__], 2005

                                  Relating to

                        AUCTION MARKET PREFERRED STOCK

                                   ("AMPS"),

                                   Series C

                                      of

                            MUNIHOLDINGS FUND, INC.


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



<PAGE>


         THIS AUCTION AGENT AGREEMENT, dated as of [__], 2005, is between
MUNIHOLDINGS 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 600 shares of
Auction Market Preferred Stock, Series C ("Series C 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 C 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 C 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
         3:00 P.M.                      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
                                        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.

         7.2.     Communications.
                  ---------------



                                      16
<PAGE>

         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,           MUNIHOLDINGS 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 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


                                      17
<PAGE>
                  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.

                                     MUNIHOLDINGS FUND, INC.



                                     By:
                                         -----------------------------------
                                         Name:
                                         Title:



                                     THE BANK OF NEW YORK



                                     By:
                                         -----------------------------------
                                         Name:
                                         Title:



                                      19
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2K5
<SEQUENCE>6
<FILENAME>efc5-1896_5746085992k5.txt
<TEXT>
                                                                Exhibit (k)(5)

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


                            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 C

                                      of

                            MUNIHOLDINGS 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 MuniHoldings 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 600 shares of
Auction Market Preferred Stock, Series C ("Series C 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 C 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 C
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, 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:  MuniHoldings 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:      MuniHoldings Fund, Inc.
                  Auction Market Preferred Stock,
                  Series C ("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 C 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 MuniHoldings 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 MuniHoldings 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-99.2K6
<SEQUENCE>7
<FILENAME>efc5-1896_5746348992k6.txt
<TEXT>
                                                                EXHIBIT (k)(6)


                         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]


                            MuniHoldings Fund, Inc.
 -------------------------------------------------------------------------------
               [Name of Issuer and Co-Issuer(s), if applicable]


                   Auction Market Preferred Stock, Series C
 -------------------------------------------------------------------------------
      [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
Note:
- ----




Schedule A contains statements      MUNIHOLDINGS FUND, INC.
that DTC believes accurately        ___________________________________________
describe DTC, the method of                           (Issuer)
effecting book-entry transfers
of securities distributed through   By:________________________________________
DTC, and certain related matters.         (Authorized Officer's Signature)

Received and Accepted:              ___________________________________________
THE DEPOSITORY TRUST COMPANY                        (Print Name)

                                    ___________________________________________
By:_____________________________                  (Street Address)

                                    ___________________________________________
                                    (City)   (State) (Country)       (Zip Code)

                                    (     )

                                    ___________________________________________
                                                   (Phone Number)

                                    ___________________________________________
                                                  (E-mail Address)

[LOGO OMITTED]
DTCC.

The Depository Trust &
Clearing Corporation

                                                                       [03/05]
<PAGE>

       Additional Signature Page to DTC Issuer Letter of Representations
                            for use with Co-Issuers

       -----------------------------------------------------------------
                       [Name of Issuer and Co-Issuer(s)]


In signing this Issuer Letter of Representations dated as
of ____________________, ________ Co-Issuer
agrees to and shall be bound by all "Issuer" representations.


_______________________________________________________
                     (Co-Issuer)

By:____________________________________________________
           (Authorized Officer's Signature)

_______________________________________________________
                     (Print Name)

_______________________________________________________
                   (Street Address)

_______________________________________________________
(City)           (State) (Country)           (Zip Code)
(      )

_______________________________________________________
                    (Phone Number)

_______________________________________________________
                   (E-mail Address)





                                                                       [03/05]


<PAGE>

                                                                    SCHEDULE A

                                         (To Issuer Letter of Representations)


                       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.

                                                                       [03/05]


<PAGE>

     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. [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.


                                                                       [03/05]
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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