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<SEC-DOCUMENT>0000905148-04-003185.txt : 20040709
<SEC-HEADER>0000905148-04-003185.hdr.sgml : 20040709
<ACCEPTANCE-DATETIME>20040709164251
ACCESSION NUMBER:		0000905148-04-003185
CONFORMED SUBMISSION TYPE:	N-2
PUBLIC DOCUMENT COUNT:		6
FILED AS OF DATE:		20040709

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MUNIYIELD FUND INC
		CENTRAL INDEX KEY:			0000879361
		IRS NUMBER:				223136942
		STATE OF INCORPORATION:			NJ
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-117271
		FILM NUMBER:		04908431

	BUSINESS ADDRESS:	
		STREET 1:		800 SCUDDERS MILL RD
		CITY:			PLAINSBORO
		STATE:			NJ
		ZIP:			08543-9011
		BUSINESS PHONE:		6092822800

	MAIL ADDRESS:	
		STREET 1:		PO BOX 9011
		STREET 2:		C/O MERRILL LYNCH ASSET MANAGEMENT
		CITY:			PRINCETON
		STATE:			NJ
		ZIP:			08543-9011

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MUNIYIELD FUND INC
		CENTRAL INDEX KEY:			0000879361
		IRS NUMBER:				223136942
		STATE OF INCORPORATION:			NJ
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-06414
		FILM NUMBER:		04908432

	BUSINESS ADDRESS:	
		STREET 1:		800 SCUDDERS MILL RD
		CITY:			PLAINSBORO
		STATE:			NJ
		ZIP:			08543-9011
		BUSINESS PHONE:		6092822800

	MAIL ADDRESS:	
		STREET 1:		PO BOX 9011
		STREET 2:		C/O MERRILL LYNCH ASSET MANAGEMENT
		CITY:			PRINCETON
		STATE:			NJ
		ZIP:			08543-9011
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2
<SEQUENCE>1
<FILENAME>efc4-1321_5563202fmn2.txt
<DESCRIPTION>MUNIYIELD FUND, INC.
<TEXT>
       As filed with the Securities and Exchange Commission on July 9, 2004

                                         Securities Act File No. 333-
                                      Investment Company Act File No. 811-06414
===============================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                          -----------------------------
                                    FORM N-2
           REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933     [X]
                         Pre-Effective Amendment No.                   [ ]
                        Post-Effective Amendment No.                   [ ]
                                     and/or
                        REGISTRATION STATEMENT UNDER THE
                       INVESTMENT COMPANY ACT OF 1940                  [X]
                               Amendment No. 6                         [X]
                        (Check appropriate box or boxes)

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

                              MUNIYIELD FUND, INC.
               (Exact Name of Registrant as Specified in Charter)

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

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


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

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

                                 Terry K. Glenn
                              MuniYield 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 10019-6018

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

     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 Fee
             Being Registered                  Registered (1)            Unit (1)               Price (1)              (2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                       <C>                  <C>                    <C>
Auction Market Preferred Stock...........       2,280 shares              $25,000              $57,000,000            $7,222
- -----------------------------------------------------------------------------------------------------------------------------------

</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 or sale is not permitted.



                              Subject to Completion
                    Preliminary Prospectus dated July 9, 2004

PROSPECTUS
                                   $57,000,000
                              MuniYield Fund, Inc.
                     Auction Market Preferred Stock ("AMPS")

                             2,280 Shares, Series G
                    Liquidation Preference $25,000 Per Share

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

         MuniYield Fund, Inc. is a non-diversified, closed-end fund. The
investment objective of the Fund is to provide shareholders with as high a level
of current income exempt from Federal income taxes as is consistent with its
investment policies and prudent investment management. The Fund seeks to achieve
its 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 invests at least 75% of its total assets in long term
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 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.

         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      ,2004, 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 47 of this prospectus. You may request a free copy by writing or calling
the Fund at (800) 543-6217.

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

         Investing in the AMPS involves certain risks that are described in the
"Risk Factors and Special Considerations" section beginning on page 47 of this
prospectus. The minimum purchase amount for the AMPS is $25,000.

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

                                                      Per Share       Total
                                                    -------------  ------------
         Public offering price........................ $25,000     $57,000,000
         Underwriting discount........................    $250        $570,000
         Proceeds, before expenses, to the Fund (1)... $24,750     $56,430,000

         (1) The estimated offering expenses payable by the Fund are $155,000.

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

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

         One certificate for the AMPS will be ready for delivery to the nominee
of The Depository Trust Company on or about    , 2004.

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

                               Merrill Lynch & Co.

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

             The date of this prospectus is           , 2004.

<PAGE>

                                TABLE OF CONTENTS

                                                                          Page
                                                                          -----

PROSPECTUS SUMMARY...........................................................3
RISK FACTORS AND SPECIAL CONSIDERATIONS......................................7
FINANCIAL HIGHLIGHTS........................................................11
THE FUND....................................................................13
USE OF PROCEEDS.............................................................13
CAPITALIZATION..............................................................13
PORTFOLIO COMPOSITION.......................................................13
INVESTMENT OBJECTIVE AND POLICIES...........................................14
OTHER INVESTMENT POLICIES...................................................22
DESCRIPTION OF AMPS.........................................................26
THE AUCTION.................................................................31
RATING AGENCY GUIDELINES....................................................39
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS.............................40
TAXES.......................................................................41
DESCRIPTION OF CAPITAL STOCK................................................42
CUSTODIAN...................................................................44
UNDERWRITING................................................................45
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR.....................45
ACCOUNTING SERVICES PROVIDER................................................45
LEGAL OPINIONS..............................................................46
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND EXPERTS...................46
ADDITIONAL INFORMATION......................................................46
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....................47
GLOSSARY....................................................................48


                               ------------------
         Information about the Fund can be reviewed and copied at the SEC'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 SEC'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
SEC, Washington, D.C. 20549-0102.


                               ------------------
         You should rely only on the information contained in this prospectus.
We have not, and the underwriters have 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
underwriters are 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.



                                       2
<PAGE>

<TABLE>
<CAPTION>

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

The Offering                 The Fund is offering a total of 2,280 shares of Auction Market Preferred Stock,
                             Series G at a purchase price of $25,000 per share plus accumulated dividends,
                             if any, from the date the shares are first issued. The shares of AMPS are
                             being offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
                             Lynch"), as underwriter.

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

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

Investment Objective and     The investment objective of the Fund is to provide shareholders with as high a
Policies                     level of  current income exempt from Federal income taxes as is consistent with
                             its investment policies and prudent investment management. The Fund seeks to
                             achieve its 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.

                             Investment Grade Municipal Bonds. Under normal market conditions, the Fund invests
                             at least 75% of its total assets in a portfolio of long term Municipal Bonds that
                             are rated investment grade by one or more nationally recognized statistical rating
                             organizations ("NRSROs") or in unrated bonds considered by Fund Asset Management,
                             L.P., the Fund's investment adviser (the "Investment Adviser"), to be of comparable
                             quality.

                             Junk Bonds. The Fund may invest up to 25% of its total assets in junk 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. Junk bonds generally are less
                             liquid and experience more



                                                       3
<PAGE>


                             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 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."

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

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



                                                       4
<PAGE>

                                                                               Initial                Initial
                                                          Initial             Dividend                Dividend
                                                          Dividend             Period                 Payment
                                 AMPS Series                Rate               Ending                   Date
                            --------------------------  --------------  ---------------------  ------------------------
                            Series G..................         %                       , 2004                    , 2004

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

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

                             Dividends for the Series G 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 G AMPS.

Determination of             Generally, the applicable dividend rate for any dividend period for the Series G AMPS
Maximum Dividend             will not be more than the maximum applicable rate attributable to such shares. The
Rates                        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 G 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:
</TABLE>

<TABLE>
<CAPTION>

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

<TABLE>
<CAPTION>

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

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

Other AMPS                   The Fund has outstanding 11,720 shares of six 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 $293,000,000 (the
                             "Other AMPS").  The Other AMPS are as follows:  1,800 shares of Auction Market



                                                       5
<PAGE>

                             Preferred Stock, Series A; 1,800 shares of Auction Market Preferred Stock, Series B;
                             1,800 shares of Auction Market Preferred Stock, Series C; 1,800 shares of Auction
                             Market Preferred Stock, Series D; 2,800 shares of Auction Market Preferred Stock,
                             Series E; and 1,720 shares of Auction Market Preferred Stock, Series F.  The Series G
                             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 G 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,
                             2004, asset coverage of the AMPS and Other AMPS as required by the 1940 Act would
                             be approximately 274% immediately after the Fund issues the shares of AMPS offered by
                             this prospectus representing approximately 36% of the Fund's capital, or approximately
                             57% of the Fund's common stock equity, immediately after the issuance of such AMPS.

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

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

Liquidation 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 AMPS will be issued with a rating of Aaa from Moody's Investors Service, Inc.
                             ("Moody's") and AAA from Standard & Poor's ("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>



                                                       6
<PAGE>

                     RISK FACTORS AND SPECIAL CONSIDERATIONS

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

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

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

         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.

         Secondary Market. The broker-dealers intend to maintain a secondary
trading market in the AMPS outside of auctions; however, they have no obligation
to do so 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.

         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.



                                       7
<PAGE>

         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 longer term
securities generally change more in response to interest rate changes than
prices of shorter term securities. The Fund's use of leverage by the issuance of
preferred stock and its investment in inverse floating obligations, as discussed
below, may increase interest rate risk. Because market interest rates are
currently near their lowest levels in many years, there is a greater risk that
the Fund's portfolio will decline in value if interest rates increase in the
future. 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.

         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.

         Risks Associated with Non-Investment Grade Securities. Under normal
market conditions, the Fund invests at least 75% of its total assets in
Municipal Bonds that are rated investment grade by S& P, Moody's or Fitch
Ratings, 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 also may invest up to 25% of its total assets in 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
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.

         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



                                       8
<PAGE>

to seek to hedge its portfolio and may choose not to do so. There can be no
assurance that the Fund's portfolio strategies will be effective. Some of the
derivative strategies that the Fund may use to seek to increase its return are
riskier than its hedging transactions and have speculative characteristics.
Such strategies do not attempt to limit the Fund's risk of loss.

         General Risks Related to Derivatives. Derivatives are financial
contracts or instruments whose value depends on, or is derived from, the value
of an underlying asset, reference rate or index (or relationship between two
indices). The Fund may invest in a variety of derivative instruments for
investment purposes, hedging purposes or to seek to increase its return, such as
options, futures contracts and swap agreements. The Fund may use derivatives as
a substitute for taking a position in an underlying security or other asset
and/or as part of a strategy designed to reduce exposure to other risks, such as
interest rate risk. The Fund also may use derivatives to add leverage to the
portfolio and/or to hedge against increases in the Fund's costs associated with
the dividend payments on the preferred stock, including the AMPS. The Fund also
may invest in certain derivative products that pay tax exempt income interest
via a trust or partnership through which the Fund holds interests in one or more
underlying long term municipal securities. The Fund's use of derivative
instruments involves risks different from, and possibly greater than, the risks
associated with investing directly in securities and other traditional
investments. Derivatives are subject to a number of risks such as liquidity
risk, interest rate risk, credit risk, leverage risk, the risk of ambiguous
documentation 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 interest payments on its outstanding borrowings
or to seek to increase the Fund's return, the Fund may enter into interest rate,
credit default or total return 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). Total return swap
transactions involve the risks that the counterparty will default on its payment
obligation to the Fund in the transaction and that the Fund will not be able to
meet its obligation to the counterparty in the transaction. The Fund is not
required to enter into interest rate, credit default or total return swap
transactions for hedging purposes or to enhance its return and may choose not to
do so.

         Taxability Risk. The Fund intends to minimize the payment of taxable
income to stockholders by investing in Municipal Bonds and other tax exempt
securities in reliance on an opinion of bond counsel to the issuer that the
interest paid on those securities will be excludable from gross income for
Federal income tax purposes. Such securities, however, may be determined 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. If a security acquired based on reliance on such an
opinion of counsel is subsequently determined to pay interest that is includable
in gross income for Federal income tax purposes, the Fund will dispose of that
security as soon as reasonably practicable.



                                       9
<PAGE>

         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.

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



                                       10
<PAGE>

                              FINANCIAL HIGHLIGHTS

         The following Financial Highlights table is intended to help you
understand the Fund's financial performance for the periods shown. Certain
information reflects financial results for a single share of common stock or
preferred stock of the Fund. The total returns in the table represent the rate
an investor would have earned or lost on an investment in shares of common stock
of the Fund (assuming reinvestment of all dividends). The information with
respect to the fiscal years ended October 31, 1994 to October 31, 2003 has been
audited by _____________ whose report for the fiscal year ended October 31,
2003, along with the financial statements of the Fund, is included in the Fund's
2003 Annual Report, which is incorporated by reference herein. The information
with respect to the six months ended April 30, 2004 is unaudited and is included
in the Fund's 2004 Semi-Annual Report, which is incorporated by reference
herein. You may obtain a copy of the 2003 Annual Report and the 2004 Semi-Annual
Report at no cost by calling (800) 221-7210 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.

<TABLE>
<CAPTION>


                               For the                                   For the Year Ended October 31,
                                 Six       ---------------------------------------------------------------------------------------
                               Months
                               Ended
                               April
                                 30,
                                2004
                            (unaudited)     2003      2002    2001++    2000++    1999++    1998    1997     1996     1995   1994
                            -----------   -------- --------- --------- --------- --------  ------- -------- -------- ------ ------
<S>                            <C>       <C>       <C>      <C>       <C>       <C>       <C>     <C>      <C>     <C>     <C>
Increase (Decrease) in Net
Asset Value: Per Share
Operating Performance
  Net asset value, beginning
  of period                    $13.85    $13.28    $13.55   $13.08    $13.21    $16.27    $16.09  $15.68   $15.47  $14.35  $16.80
                                         -------- --------  --------  --------- --------  ------- -------  ------  ------  ------

  Investment income-- net         .53++++   1.06++++ 1.04     1.03      1.09      1.12      1.19    1.24     1.26    1.27    1.29

  Realized and unrealized
    gain (loss) on               (.14)      .52      (.31)     .52      (.08)    (2.34)      .49     .65      .23    1.34   (2.23)
    investments-- net
  Dividends and distributions
    to
    Preferred Stock
    shareholders:
    Investment income-- net      (.03)     (.07)     (.08)    (.22)     (.27)     (.17)      --       --       --      --     --
    Realized gain on
    investments-- net              --        --        --       --        --      (.04)      --       --       --      --     --
    In excess of realized
    gain on
    investments-- net              --        --        --       --        --      (.03)      --       --       --      --     --
                             ---------   -------- --------- --------- --------- --------  ------- -------- -------- ------- ----
  Total from investment
  operations                      .36      1.51       .65     1.33       .74     (1.46)     1.68    1.89     1.49    2.61   ( .94)
                             ---------   -------- --------- --------- --------- --------  ------- -------- -------- -------- -------
  Less dividends and
    distributions to
    Common Stock
    shareholders:
    Investment income-- net      (.48)     (.94)     (.92)    (.86)     (.87)     (.95)     (.97)  (1.00)   (1.04)  (1.00)  (1.07)
    Realized gain on
    investments-- net              --         --       --       --        --      (.38)     (.26)   (.22)      --    (.22)   (.23)
    In excess of realized
    gain on
      investments-- net            --         --       --       --        --      (.27)       --    (.01)      --      --     --
                             ---------   -------- --------- --------- --------- --------  ------- -------- -------- -------- ----
  Total dividends and
    distributions to             (.48)     (.94)     (.92)    (.86)     (.87)    (1.60)    (1.23)   (1.23)   (1.04) (1.22)  (1.30)
    Common Stock
    shareholders:            ---------   -------- --------- --------- --------- --------  ------- -------- -------- -------- ----

  Effect of Preferred Stock
    activity
    Dividends and
     distributions to
     Preferred Stock
     shareholders:
    Investment income-- net        --         --        --        --        --      --      (.18)    (.20)    (.24)  (.23)   (.18)
    Realized gain on
     investments--
     net                           --         --        --        --        --      --      (.09)    (.05)      --   (.04)   (.03)
    In excess of realized
    gain on
    investments-- net              --         --        --        --        --      --        --      -- +      --     --     --
  Total effect of Preferred  ---------   -------- --------- --------- --------- --------  ------- -------- -------- -------- ----
    Stock activity                 --         --        --        --        --      --      (.27)    (.25)    (.24)  (.27)   (.21)
                             ---------   -------- --------- --------- --------- --------  ------- -------- -------- -------- ----
  Net asset value, end of
    period                     $13.73    $13.85    $13.28   $13.55    $13.08    $13.21    $16.27   $16.09   $15.68 $15.47  $14.35
                             =========   ======== ========= ========= ========= ========  ======= ======== ======== ===== =======
  Market price per share, end
    of period                  $12.50    $13.29    $12.88   $13.94    $12.625  $12.875    $16.875  $15.875 $14.875 $14.375 $12.125
                             =========   ======== ========= ========= ========= ========  ======= ======== ======== ====== =======
Total Investment Return*
  Based on market price per
    share                       (2.55%)## 10.80%     (.94%)  17.79%     5.26%  (15.35%)    14.74%   15.56%  10.88%  29.76% (20.94%)
                             =========   ======== ========= ========= ========= ========  ======= ======== ======== ====== =======
  Based on net asset value
    per share                    2.71%##  11.99%     5.07%   10.51%     6.28%   (9.92%)     9.15%   11.11%   8.61%  18.00%  (6.71%)
                             =========   ======== ========= ========= ========= ========  ======= ======== ======= ======= ======
Ratios Based on Average Net
  Assets of Common Stock
  Total expenses, net of
  reimbursement**                 .96%#     .99%     1.01%    1.01%      .99%     .93%        --      --       --       --    --
                             =========   ======== ========= ========= ========= ========  ======= ======== ======== ======== ====
  Total expenses**                .96%#     .99%     1.01%    1.01%      .99%     .93%        --      --       --       --     --
                             =========   ======== ========= ========= ========= ========  ======= ======== ======== =============
  Total investment income--
    net**                        7.54%#    7.86%     7.97%    7.74%     8.35%    7.42%        --      --       --       --    --
                             =========   ======== ========= ========= ========= ========  ======= ======== ======== ====== =====
  Amount of dividends to
    Preferred                     .42%#     .50%      .74%    1.63%     2.07%    1.11%        --      --       --       --    --
    Stock shareholders
                             =========   ======== ========= ========= ========= ========  ======= ======== ======== ====== ======
  Investment income-- net, to
    Common
    Stock shareholders           7.12%#    7.36%     7.23%    6.11%     6.28%    6.31%        --      --       --       --    --
                             =========   ======== ========= ========= ========= ========  ======= ======== ======== ====== ======
                                                                                                                    (continued on
                                                                                                                    following page)



                                       11
<PAGE>
(continued from prior page)

                               For the                                   For the Year Ended October 31,
                                  Six      ---------------------------------------------------------------------------------------
                               Months
                               Ended
                               April
                                 30,
                                2004
                            (unaudited)     2003      2002    2001++    2000++    1999++     1998    1997     1996     1995   1994
                                           -------- --------- --------- --------- --------  ------- -------- -------- ------ ------
Ratios Based on Average Net
  Assets of Common & Preferred
  Stock**
  Total expenses, net of
    reimbursement                 .65%#     .66%      .67%     .68%      .66%     .65%        --       --       --      --    --
                                  ===== ========= ========= ========= ========= ========  ======= ======== ======== ====== =====
  Total expenses                  .66%#     .66%      .67%     .68%      .66%     .65%       .63%     .64%     .64%   .66%    .66%
                                  ===== ========= ========= ========= ========= ========  ======= ======== ======== ====== =====
  Total investment income--
    net                          5.14%#    5.27%     5.33%    5.20%     5.56%    5.17%      5.26%    5.48%    5.64%  5.91%   5.76%
                                 ====== ========= ========= ========= ========= ========  ======= ======== ======== ====== =====
Ratios Based on Average Net
  Assets of Preferred Stock
  Dividends to Preferred
    Stock shareholders            .89%#    1.02%     1.50%    3.33%     4.12%    2.55%        --       --       --       --   --
                             =========  ========= ========= ========= ========= ========  ======= ======== ======== ====== =====
Supplemental Data
  Net assets applicable to
    Common Stock, end of
    period (in thousands)   $609,840   $615,169   $590,101  $524,737 $501,361 $506,030 $611,222 $596,320 $581,124 $573,400 $531,657
                             =========  ========= ========= ========= ======= ========  =======  ======== ======= ======= =======
  Preferred Stock
    outstanding, end
    of period (in thousands) $293,000  $293,000  $293,000 $250,000  $250,000 $250,000  $250,000 $250,000 $250,000 $250,000 $250,000
                             =========  ========= ======= ========  ======== ========   ======= ======== ======== ======== =======

  Portfolio turnover           13.32%    61.95%    104.63%  83.26%    103.44%   78.42%   91.63%   111.45%   96.74%   52.99%  44.27%
                             =========  ========= ======= ========= ========= ========  ======= ======== ======== ======== =======
Leverage:
Asset coverage per $1,000     $3,081    $3,100     $3,014  $3,099     $3,005   $3,024   $3,445    $3,385   $3,324   $3,294  $3,127
                             =========  ========= ========= ========= ========= ========  ======= ======== ======== ======== =======
Dividends Per Share on
  Preferred
  Stock Outstanding+++
                               =========
Series A - Investment income
  --net                         $105      $256       $346    $816    $1,052      $588     $694     $747     $894     $887    $598
                               =========  ======= ======== ======== ======== ========  ======= ======== ======== ======== =======
Series B - Investment income
  --net                         $128      $274       $369    $864    $1,009      $595     $687     $751     $897     $850    $733
                               =========  ======= ======== ======== ======== ========  ======= ======== ======== ======== =======
Series C - Investment income
  --net                         $105      $261       $353    $847    $1,032      $687     $643     $763     $998     $827    $647
                               =========  ======= ======== ======== ======== ========  ======= ======== ======== ======== =======
Series D - Investment income
  --net                         $107      $281       $504    $850    $1,035      $694     $637     $762     $888     $897    $659
                               =========  ======= ======== ======== ======== ========  ======= ======== ======== ======== =======
Series E - Investment income
  --net                         $109      $236       $346    $805    $1,038      $627     $656     $752     $875     $759    $707
                               =========  ========= ======= ======= =======   ========  ======= ======== ======== ======== =======
Series F - Investment income
  --net                         $114      $247      $324###    --       --       --       --       --       --       --      --
                               =========  ========= ======= ======== ======= ========  ======= ======== ======== ======== =======

</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.
   + Amount is less than $.01 per share.
  ++ Certain prior year amounts have been reclassified to conform to current
     year presentation.
 +++ Dividends per share have been adjusted to reflect a two-for-one stock
     split that occurred on December 1, 1994.
++++ Based on average shares outstanding.
#    Annualized.
##   Aggregate total investment return.
###  Series F was issued on November 19, 2001.



                                       12
<PAGE>

                                   THE FUND

         MuniYield Fund, Inc. (the "Fund") is a non-diversified, closed-end
fund. The Fund was incorporated under the laws of the State of Maryland on
September 20, 1991, and has registered under the Investment Company Act of
1940, as amended ("1940 Act"). The Fund's principal 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 $56,275,000
after payment of offering expenses (estimated to be approximately $155,000)
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, 2004 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 (11,720 shares of Other AMPS authorized, issued and
     outstanding at $25,000 per share liquidation preference, plus
     accumulated but unpaid dividends; 14,000 shares of AMPS and
     Other AMPS authorized, issued and outstanding, as adjusted, at
     $25,000 per share liquidation preference, plus accumulated but
     unpaid dividends) ................................................       $293,000,000          $350,000,000
                                                                          ===================   =====================
Common Stock, par value $.10 per share (199,988,280 shares
     authorized, 44,430,631 shares issued and outstanding;
     199,986,000 shares authorized, 44,430,631 shares issued and
     outstanding, as adjusted)                                                $  4,443,063          $4,443,063
   Paid-in capital in excess of par value..............................        632,818,026         632,093,026
   Undistributed investment income--net................................         12,555,461          12,555,461
   Accumulated realized capital losses on investments--net.............       (73,057,859)         (73,057,859)
   Unrealized appreciation on investments--net.........................         33,081,313          33,081,313
                                                                          -------------------   ---------------------

   Net assets applicable to outstanding common stock...................       $609,840,004        $609,115,004
                                                                          ===================   =====================
</TABLE>

                             PORTFOLIO COMPOSITION

         As of April 30, 2004, approximately 99.93% of the market value of the
Fund's portfolio was invested in long term municipal obligations and
approximately .07% 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 municipal
obligation investment portfolio as of April 30, 2004.



                                      13
<PAGE>

                                         Number of      Value
      Moody's*       Fitch*       S&P*    Issues    (in thousands)   Percent
- ----------------- ------------  -------- ---------- --------------- ----------
        Aaa           AAA         AAA        68      $364,015          40.85%
         Aa           AA           AA        22        88,792           9.96%
         A             A           A         11        65,547           7.35%
        Baa           BBB         BBB        29       134,178          15.05%
         Ba           BB           BB        16        84,362           9.47%
         B             B           B          9        28,600           3.21%
        Caa           CCC         CCC         3        16,112           1.81%
         NR           NR           NR        32       109,604          12.30%
                                         ---------- --------------- ----------
Total...................................    190      $891,180            100%
                                         ========== =============== ==========

- -----------------
*    Ratings: Using the higher of Moody's, S&P or Fitch Ratings ("Fitch")
     ratings on the Fund's investments. See "Schedule of 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. Fitch rating
     categories may be modified further by a plus (+) or minus (-) in AA, A,
     BBB, BB, B and CCC.

                       INVESTMENT OBJECTIVE AND POLICIES

         The Fund's investment objective is to provide shareholders with as
high a level of current income exempt from Federal income taxes as is
consistent with its investment policies and prudent investment management. The
Fund seeks to achieve its objective by 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 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.

         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 invests at least 75% of its
total assets in a portfolio of long term 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 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. If unrated, such
securities will possess creditworthiness comparable, in the opinion of the
Investment Adviser, to other obligations in which the Fund may invest. For a
description of the investment rating categories for Moody's, S&P and Fitch,
including a description of their speculative characteristics, see Appendix A
"Description of Municipal Bond Ratings" to the statement of additional
information.



                                      14
<PAGE>

         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 average maturity of the Fund's portfolio securities will vary
based upon the Investment Adviser's assessment of economic and market
conditions. 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
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.

         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.

         Certain Municipal Bonds may be entitled to the benefits of letters of
credit or similar credit enhancements issued by financial institutions. In
such instances, the Investment Adviser will take into account, in assessing
the quality of such bonds, both the creditworthiness of the issuer of such
bonds and the creditworthiness of the financial institution that provides the
credit enhancement.

         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




                                      15
<PAGE>

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.

         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



                                      16
<PAGE>

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 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




                                      17
<PAGE>

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.

         "High Yield" or "Junk" Bonds. The Fund invests 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 are unrated securities that are considered by the Investment
Adviser to possess similar credit characteristics. See Appendix A "Description
of Municipal Bond Ratings" in the statement of additional information
regarding ratings of debt securities. 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.

         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 stress, it may be
            unable to meet its debt obligations. The issuer's ability to pay
            its debt obligations also may be lessened by specific issuer
            developments, or the unavailability of additional financing.

         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




                                      18
<PAGE>

            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.

         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.

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

Hedging Transactions

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

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

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

         Futures Contracts. A futures contract is an agreement between two
parties to buy and sell a security or, in the case of an index-based futures
contract, to make and accept a cash settlement for a set price on a future
date. A



                                      19
<PAGE>

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
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





                                      20
<PAGE>

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."

         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




                                      21
<PAGE>

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.

         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.





                                      22
<PAGE>

                           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 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




                                      23
<PAGE>

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 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 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




                                      24
<PAGE>

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. 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.



                                      25
<PAGE>

Borrowings

         The Fund is authorized to borrow money in amounts of up to 5% of the
value of its total assets at the time of such borrowings; provided, however,
that the Fund is authorized to borrow moneys in amounts of up to 33 1/3% 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 G 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 G 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 "The Auction" herein and in the statement of
additional information.

         The Fund has outstanding 11,720 shares of six 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 $293,000,000 (the "Other AMPS"). The Other AMPS are
as follows: 1,800 shares of Auction Market Preferred Stock, Series A; 1,800
shares of Auction Market Preferred Stock, Series B; 1,800 shares of Auction
Market Preferred Stock, Series C; 1,800 shares of Auction Market Preferred
Stock, Series D; 2,800 shares of Auction Market Preferred Stock, Series E; and
1,720 shares of Auction Market Preferred Stock, Series F. The Series G AMPS
offered hereby rank on a parity with the Other AMPS with respect to dividends
and liquidation preference. The terms of the shares of Other AMPS are
substantially the same as the terms of the shares of AMPS described below.

         The following is a brief description of the terms of the shares of
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



                                      26
<PAGE>

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

         Dividends on the shares of AMPS will accumulate from the date on
which the Fund originally issues the shares of AMPS (the "Date of Original
Issue") and will be payable on the dates described below. Dividends on shares
of AMPS with respect to the Initial Dividend Period shall be payable on the
Initial Dividend Payment Date. Following the Initial Dividend Payment Date for
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 Monday in the case of the Series G AMPS. Although
any particular Dividend Payment Date may not occur on the originally scheduled
date because of the exceptions discussed above, the next succeeding Dividend
Payment Date, subject to such exceptions, will occur on the next following
originally scheduled date. If for any reason a Dividend Payment Date cannot be
fixed as described above, then the Board of Directors shall fix the Dividend
Payment Date. The Board of Directors by resolution prior to authorization of a
dividend by the Board of Directors may change a Dividend Payment Date if such
change does not adversely affect the contract rights of the holders of shares
of AMPS set forth in the Charter. The Initial Dividend Period, 7-Day Dividend
Periods and Special Dividend Periods are hereinafter sometimes referred to as
"Dividend Periods." Each dividend payment date determined as provided above is
hereinafter referred to as a "Dividend Payment Date."

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

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

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



                                      27
<PAGE>

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

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

         Determination of Dividend Rate. The dividend rate on shares of the
AMPS during the period from and including the Date of Original Issue for the
Series G AMPS to but excluding the Initial Dividend Payment Date (the "Initial
Dividend Period") with respect to the Series G 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 G AMPS, the
Applicable Rate on the Series G 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,
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, 2004, asset coverage
with respect to shares of AMPS would be approximately 274% representing
approximately 36% of the Fund's capital and 57% 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.



                                      28
<PAGE>

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

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

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

Asset Maintenance

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

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



                                      29
<PAGE>

         Based upon the composition of the Fund's portfolio at April 30, 2004,
the 1940 Act AMPS Asset Coverage immediately following the issuance of AMPS
offered hereby (after giving effect to the deduction of the underwriting
discount and offering expenses for the shares of AMPS) will be computed as
follows:

<TABLE>
<CAPTION>
<S>                                                                <C>                                    <C>
                Value of Fund assets less
              liabilities not constituting
                    senior securities                          =            $959,115,004          =       274%
- ----------------------------------------------------------          -------------------------
                    Senior securities                                       $350,000,000
                representing indebtedness
              plus liquidation value of the
                     shares of AMPS
</TABLE>

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

Redemption

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

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

         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.



                                      30
<PAGE>

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 Series G 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 G AMPS (and Other AMPS) may vote as a
separate series under certain circumstances. See "Description of AMPS--Voting
Rights" in the statement of additional information.

                                  THE AUCTION

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

General

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

         The provisions of the Articles Supplementary establishing the terms
of the shares of AMPS offered hereby will provide that the Applicable Rate for
the Series G 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.



                                      31
<PAGE>

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



                                      32
<PAGE>

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

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

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

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

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

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

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

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

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

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



                                      33
<PAGE>

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

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

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

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

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

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



                                      34
<PAGE>

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

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

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

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

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

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

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



                                      35
<PAGE>

         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 G AMPS, and the Applicable Rate for
such Dividend Period will be equal to the Maximum Applicable Rate.

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

         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:



                                      36
<PAGE>

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

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

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

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

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

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

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

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

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

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



                                      37
<PAGE>

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.

         Merrill Lynch has advised the Fund that they and certain
Broker-Dealers and other participants in the auction rate securities markets,
including both taxable and tax exempt markets, have received a letter from the
Commission requesting that each of them voluntarily conduct an investigation
regarding their respective practices and procedures in those markets. Merrill
Lynch is cooperating fully with the Commission in this process. No assurance
can be given as to whether the results of this process 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.

         Secondary Trading Market. The Broker-Dealers intend to maintain a
secondary trading market in the AMPS outside of Auctions; however, they have
no obligation to do so and there can be no assurance that a



                                      38
<PAGE>

secondary market for the AMPS will develop or, if it does develop, that it
will provide holders with a liquid trading market (i.e., trading will depend
on the presence of willing buyers and sellers and the trading price is subject
to variables to be determined at the time of the trade by the Broker-Dealers).
The AMPS will not be registered on any stock exchange or on any automated
quotation system. An increase in the level of interest rates, particularly
during any Long Term Dividend Period, likely will have an adverse effect on
the secondary market price of the AMPS, and a selling stockholder may sell
AMPS between Auctions at a price per share of less than $25,000.

                           RATING AGENCY GUIDELINES

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

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

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



                                      39
<PAGE>

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 100 registered investment companies and offers investment
advisory services to individuals and institutional accounts. As of May 2004,
the Investment Adviser and its affiliates, including Merrill Lynch Investment
Managers, L.P. ("MLIM"), had a total of approximately $491 billion in
investment company and other portfolio assets under management, including
approximately $253 billion in fixed income assets. This amount includes assets
managed by certain affiliates of the Investment Adviser. The Investment
Adviser is a limited partnership, the partners of which are ML & Co. and
Princeton Services. The principal business address of the Investment Adviser
is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.

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

         The portfolio manager primarily responsible for the Fund's day-to-day
management is Theodore R. Jaeckel. Mr. Jaeckel has been a Director of MLIM
since 1997. Mr. Jaeckel has been a portfolio manager with the Investment
Adviser and MLIM since 1991 and has been the Fund's portfolio manager since
1998. 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 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



                                      40
<PAGE>

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.

                                     TAXES


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

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



                                      41
<PAGE>

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

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

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

                         DESCRIPTION OF CAPITAL STOCK

         The Fund is authorized to issue 200,000,000 shares of capital stock,
par value $.10 per share, all of which shares initially were classified as
common stock. The Board of Directors is authorized, however, to classify and
reclassify any unissued shares of capital stock into one or more additional or
other classes or series as may be established from time to time by setting or
changing in any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock
and pursuant to such classification or reclassification to increase or
decrease the number of authorized shares of any existing class or series. In
this regard, the Board of Directors previously reclassified 11,720 shares of
unissued common stock as Other AMPS and has reclassified 2,280 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
July 6, 2004.

<TABLE>
<CAPTION>
                                                                                                          Amount
                                                                                                        Outstanding
                                                                                                      (Exclusive Of
                                                                                     Amount Held       Amount Held
                                                                                     By Fund For       By Fund For
                                                                    Amount             Its Own           Its Own
Title of Class                                                    Authorized          Account)           Account)
- -----------------------------------------------------------   -----------------   ----------------  ------------------
<S>                                                           <C>                 <C>               <C>
Common Stock............................................          199,988,280           - 0 -           44,430,631
Auction Market Preferred Stock
   Series A AMPS........................................             1,800              - 0 -             1,800
   Series B AMPS........................................             1,800              - 0 -             1,800
   Series C AMPS........................................             1,800              - 0 -             1,800
   Series D AMPS........................................             1,800              - 0 -             1,800
   Series E AMPS........................................             2,800              - 0 -             2,800
   Series F AMPS........................................             1,720              - 0 -             1,720
</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



                                      42
<PAGE>

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

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

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

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

Preferred Stock

         The Fund has issued an aggregate of 11,720 shares of Other AMPS.
Under the Articles Supplementary for the AMPS, the Fund is authorized to issue
an aggregate of 2,280 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
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 but only 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 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;



                                      43
<PAGE>

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 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, 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 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 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 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.

         The Board of Directors has determined that the 66 2/3% 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 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, 101 Barclay Street, New York, New York 10286.



                                      44
<PAGE>

                                 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 ___________, 2004.

         The expenses of the offering, excluding underwriting discount, are
estimated at $155,000 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,
101Barclay Street, New York, New York 10286.

                         ACCOUNTING SERVICES PROVIDER

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



                                      45
<PAGE>

                                LEGAL OPINIONS

         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
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 Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
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 at 450 Fifth Street, N.W., 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.

         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.



                                      46
<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......................................................20
Investment Advisory and Management Arrangements.............................26
Portfolio Transactions......................................................31
Taxes.......................................................................33
Net Asset Value.............................................................38
Financial Statements........................................................38
APPENDIX A  Description of Municipal Bond Ratings..........................A-1
APPENDIX B  Settlement Procedures..........................................B-1
APPENDIX C  Auction Procedures.............................................C-1



                                      47
<PAGE>

                                   GLOSSARY

         "Additional Dividend" has the meaning set forth on page [26] 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 G; 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
[27] of this prospectus.

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

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

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

         "Applicable Percentage" has the meaning set forth on page [31] of
this prospectus.

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

         "Applicable Spread" has the meaning set forth on page [31] 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 [30] of this
prospectus.

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

         "Available AMPS" has the meaning set forth on page [33] 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 [33] of this prospectus.



                                      48
<PAGE>

         "Bidder" has the meaning set forth on page [31] 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 [25] of
this prospectus.

         "Dividend Period" has the meaning set forth on page [25] of this
prospectus.

         "DTC" means The Depository Trust Company.

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

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

         "Fitch" means Fitch Ratings or its successors.

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

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



                                      49
<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 [30] of this
prospectus.

         "Initial Dividend Payment Date" means the first Dividend Payment Date
for the Series G 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 G 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



                                      50
<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) more than 21 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 [28]
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 [31] of
this prospectus.

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

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

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

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

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

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

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



                                      51
<PAGE>

         "Municipal Bonds" has the meaning set forth on page [12] 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 [27]
of this prospectus.

         "1940 Act Cure Date" has the meaning set forth on page [27] 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 [8] of the
statement of additional information.

         "Non-Payment Period Rate" has the meaning set forth on page [8] of
the statement of additional information.

         "Normal Dividend Payment Date" has the meaning set forth on page [24]
of this prospectus.

         "Notice of Revocation" has the meaning set forth on page [7] of the
statement of additional information.

         "Notice of Special Dividend Period" has the meaning set forth on page
[26] 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 [28] of
this prospectus.

         "Order" has the meaning set forth on page [31] of this prospectus.

         "Other AMPS" means the Auction Market Preferred Stock, Series A; the
Auction Market Preferred Stock, Series B; the Auction Market Preferred Stock,
Series C; the Auction Market Preferred Stock, Series D; the Auction Market
Preferred Stock, Series E; and the Auction Market Preferred Stock, Series F,
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.



                                      52
<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 [25] of this prospectus.

         "Response" has the meaning set forth on page [26] of this prospectus.

         "Retroactive Taxable Allocation" has the meaning set forth on page
[26] 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 G AMPS" means the Auction Market Preferred Stock, Series G,
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 pages [14 to 15]of
the statement of additional information.

         "S&P Eligible Assets" has the meaning set forth on pages [15 to 16]
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 [24] 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



                                      53
<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 [32] of this
prospectus.

         "Submitted Bid" has the meaning set forth on page [33] of this
prospectus.

         "Submitted Hold Order" has the meaning set forth on page [33] of this
prospectus.

         "Submitted Order" has the meaning set forth on page [33] of this
prospectus.

         "Submitted Sell Order" has the meaning set forth on page [33] 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 [33] 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.



                                      54
<PAGE>

         "Valuation Date" has the meaning set forth on page [27] 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 [33] of this
prospectus.



                                      55
<PAGE>

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



                                  $57,000,000


                             MuniYield Fund, Inc.


                    Auction Market Preferred Stock ("AMPS")
                            2,280 Shares, Series G
                   Liquidation Preference $25,000 Per Share



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







                              Merrill Lynch & Co.







                                          , 2004           CODE #       -0804

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


                                      56
<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 a prospectus.



                    Subject to Completion
      Preliminary Statement of Additional Information Dated July 9, 2004



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


                                  $57,000,000

                             MuniYield Fund, Inc.

                    Auction Market Preferred Stock ("AMPS")

                            2,280 Shares, Series G

                   Liquidation Preference $25,000 Per Share

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

     MuniYield Fund, Inc. (the "Fund") is a non-diversified, closed-end fund.
The investment objective of the Fund is to provide shareholders with as high a
level of current income exempt from Federal income taxes as is consistent with
its investment policies and prudent investment management. The Fund seeks to
achieve its 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 invests at least 75% of its total assets in
long term 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 may invest in certain tax
exempt securities classified as "private activity bonds," as discussed within,
hat 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           , 2004.

<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......................................................20
Investment Advisory and Management Arrangements.............................26
Portfolio Transactions......................................................31
Taxes  .....................................................................33
Net Asset Value.............................................................38
Financial Statements........................................................38
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 as high a
level of current income exempt from Federal income taxes as is consistent with
its investment policies and prudent investment management. The Fund seeks to
achieve its investment objective by investing 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 (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.

     Under normal market conditions, the Fund invests at least 75% of its
total assets in a portfolio of long term 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 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. If unrated, such
securities will possess creditworthiness comparable, in the opinion of the
Investment Adviser, to other obligations in which the Fund may invest. For a
description of the investment rating categories for Moody's, S&P and Fitch,
including a description of their speculative characteristics, see Appendix A
"Description of Municipal Bond Ratings".

     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.

     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 the
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:


                                      3


<PAGE>

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

          2. Purchase securities of other investment companies, except in
     connection with a merger, consolidation, acquisition or reorganization,
     or by purchase in the open market of securities of closed-end investment
     companies and only if immediately thereafter no more than 10% of the
     Fund's total assets would be invested in such securities.

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

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

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

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

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

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

          9. Invest more than 25% of its total assets (taken at market value
     at the time of each investment) in 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 fundamental investment restriction (9), the exception for
states, municipalities and their political subdivisions applies only to tax
exempt securities issued by such entities.

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

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

     The Fund is classified as non-diversified within the meaning of the 1940
Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in securities of a single issuer.
As a non-diversified fund, the Fund's investments are limited, however, in
order to allow the Fund to continue to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). See
"Taxes." To qualify, the Fund complies with certain requirements, including
limiting its investments so that at the close of each


                                      4


<PAGE>


quarter of the taxable year (i) not more than 25% of the market value of the
Fund's total assets will be invested in the securities of a single issuer and
(ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer. 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."

                              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 G 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 G 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.


                                      5


<PAGE>

     The Fund also has outstanding six 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 G 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.

     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 G 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


                                      6


<PAGE>


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 (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


                                      7


<PAGE>


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 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


                                      8


<PAGE>


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 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
third 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 last
Business Day of each month 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 third 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
in the case of S&P and 25% or more in the case of Moody's. 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 S&P
and Moody's an AMPS Basic Maintenance Report as of the close of business on
such date that common stock is repurchased.



                                      9


<PAGE>

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 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 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



                                      10
<PAGE>

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
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 as a separate
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



                                      11
<PAGE>

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



                                      12
<PAGE>

terms and conditions as the Auction Agent Agreement. The Fund may terminate
the Auction Agent Agreement at any time, provided that prior to such
termination the Fund shall have entered into such an agreement with respect
thereto with a successor Auction Agent.

Broker-Dealer Agreements

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

     For the six months ended April 30, 2004 and the fiscal years ended
October 31, 2003, 2002 and 2001, Merrill Lynch, an affiliate of the Investment
Adviser, earned $135,927, $353,723, $404,541 and $317,747, respectively,
pursuant to its Broker-Dealer Agreement with the Fund.

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)
- ---------------------------------------------------------------------------------------------------------------
    <S>            <C>            <C>          <C>           <C>            <C>          <C>          <C>
    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%
</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



                                      13
<PAGE>

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.

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

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

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

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

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

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

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

     Notwithstanding the foregoing:

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

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

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



                                      14
<PAGE>

          (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 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



                                      15


<PAGE>

     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 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:

<TABLE>
<CAPTION>

                                     Moody's Rating Category(1)
    ----------------------------------------------------------------------------------------------
           <S>                 <C>                 <C>              <C>             <C>
           Aaa                 Aa                  A                Baa             Other (2)
    ------------------ ------------------ ------------------ ------------------ ------------------
           151%               159%                160%              173%              225%
</TABLE>

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



                                      16
<PAGE>

for Municipal Bonds sold as of or prior to such Valuation Date if such
receivables are due within 30 Business Days of such Valuation Date.

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

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

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

<TABLE>
<CAPTION>
                                  Minimum Issue Size     Maximum Underlying Obligor    Maximum State Allowed
           Rating                    ($ Millions)                 (%)(1)                     (%)(1)(3)
   -------------------------- -------------------------- -------------------------- --------------------------
   <S>                        <C>                        <C>                        <C>
            Aaa                           *                          100                          100
            Aa                            10                          20                           60
             A                            10                          10                           40
            Baa                           10                           6                           20
            Ba                            10                           4                           12
             B                            10                           3                           12
          Other (2)                       10                           2                           12
</TABLE>

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



                                      17
<PAGE>

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

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

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

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

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

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



                                      18
<PAGE>

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

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

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

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

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

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

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



                                      19
<PAGE>

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

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

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

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

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

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

                            DIRECTORS AND OFFICERS

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



                                      20
<PAGE>

independent accountants, including the resolution of disagreements regarding
financial reporting between Fund management and such independent accountants.
The Audit Committee's responsibilities include, without limitation, to (i)
review with the independent accountants the arrangements for and scope of
annual and special audits and any other services provided by the independent
accountants to the Fund; (ii) discuss with the independent accountants

certain matters relating to the Fund's financial statements, including any
adjustment to such financial statements recommended by such independent
accountants or any other results of any audit; (iii) ensure that the
independent accountants submit on a periodic basis a formal written statement
with respect to their independence, discuss with the independent accountants
any relationships or services disclosed in the statement that may impact the
objectivity and independence of the Fund's independent accountants and
recommend that the Board of Directors take appropriate action in response
thereto to satisfy itself of the independent accountants' independence; and
(iv) consider the comments of the independent accountants with respect to the
quality and adequacy of the Fund's accounting and financial reporting policies
and practices and internal controls and Fund management's responses thereto.
The Board of Directors of the Fund has adopted a written charter for the Audit
Committee. The Committee has retained independent legal counsel to assist it
in connection with these duties. The Audit Committee met three times during
the Fund's fiscal year ended October 31, 2003.

     Each non-interested Director is also a member of the 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 is newly formed and did not meet
during the Fund's fiscal year ended October 31, 2003.

Biographical Information

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

<TABLE>
<CAPTION>
                                                                                               Number of
                                            Term of                                         MLIM/FAM-Advised
   Name,              Position(s)         Office** and                                         Funds and
  Address*           Held with the       Length of Time      Principal Occupation(s)           Portfolios              Public
  and Age                Fund                Served          During Past Five Years             Overseen           Directorships
- ----------------- ------------------- ------------------- ------------------------------- -------------------- --------------------
<S>               <C>                 <C>                 <C>                             <C>                  <C>
James H.          Director            Director            Director, The China Business    39 registered        None
Bodurtha (60)                         since 2002          Group, Inc. since 1996 and      investment
                                                          Executive Vice President        companies
                                                          thereof from 1996 to 2003;      consisting of
                                                          Chairman of the Board,            56 portfolios
                                                          Berkshire Holding
                                                          Corporation since 1980;
                                                          Partner, Squire, Sanders &
                                                          Dempsey from 1980 to 1993.

Joe Grills        Director            Director since 1994 Member of the Committee of      39 registered        Kimco Realty
(69)                                                      Investment of Employee          investment           Corporation
                                                          Benefit Assets of the           companies
                                                          Association of Financial        consisting of
                                                          Professionals ("CIEBA")         56 portfolios
                                                          since 1986; Member of CIEBA's
                                                          Executive Committee since
                                                          1988 and its Chairman from
                                                          1991 to 1992; Assistant
                                                          Treasurer of International
                                                          Business Machines Corporation
                                                          ("IBM") and Chief



                                          21
<PAGE>

                                                                                               Number of
                                            Term of                                         MLIM/FAM-Advised
   Name,              Position(s)         Office** and                                         Funds and
  Address*           Held with the       Length of Time      Principal Occupation(s)           Portfolios              Public
  and Age                Fund                Served          During Past Five Years             Overseen           Directorships
- ----------------- ------------------- ------------------- ------------------------------- -------------------- --------------------
                                                          Investment Officer of IBM
                                                          Retirement Funds from 1986 to
                                                          1993; Member of the Investment
                                                          Advisory Committee of the
                                                          State of New York Common                       (continued on next page)
                                                          Retirement Fund since 1989;
                                                          Member of the Investment
                                                          Advisory Committee of the
                                                          Howard Hughes Medical
                                                          Institute from 1997 to 2000;
                                                          Director, Duke Management
                                                          Company since 1992 and Vice
                                                          Chairman thereof since 1998;
                                                          Director, LaSalle Street Fund
                                                          from 1995 to 2001; Director,
                                                          Kimco Realty Corporation
                                                          since 1997; Member of the
                                                          Investment Advisory Committee
                                                          of the Virginia Retirement
                                                          System since 1998 and Vice
                                                          Chairman thereof since 2002;
                                                          Director, Montpelier
                                                          Foundation since 1998 and its
                                                          Vice Chairman since 2000;
                                                          Member of the Investment
                                                          Committee of the Woodberry
                                                          Forest School since 2000;
                                                          Member of the Investment
                                                          Committee of the National
                                                          Trust for Historic
                                                          Preservation since 2000.

Herbert I.        Director            Director            John M. Olin Professor of       39 registered        None
London (65)                           since 2002          Humanities, New York            investment
                                                          University since 1993 and       companies
                                                          Professor thereof since         consisting of
                                                          1980; President, Hudson         56 portfolios
                                                          Institute since 1997 and
                                                          Trustee thereof since 1980;
                                                          Dean, Gallatin Division of
                                                          New York University from 1976
                                                          to 1993; Distinguished
                                                          Fellow, Herman Kahn Chair,
                                                          Hudson Institute from 1984 to
                                                          1985; Director, Damon Corp.
                                                          from 1991 to 1995; Overseer,
                                                          Center for Naval Analyses
                                                          from 1983 to 1993; Limited
                                                          Partner, Hypertech LP since
                                                          1996.

Andre F.          Director            Director since      Harvard Business School:        39 registered
Perold (52)                           2002                George Gund Professor of        investment
                                                          Finance and Banking since       companies
                                                          2000; Senior Associate          consisting of
                                                          Dean, Director of Faculty       56 portfolios
                                                          Recruiting since 2001;
                                                          Finance Area Chair from 1996
                                                          to 2001; Sylvan C. Coleman
                                                          Professor of Financial
                                                          Management from 1993 to 2000;
                                                          Director, Genbel Securities
                                                          Limited and Gensec Bank from
                                                          1999 to 2003; Director,
                                                          Stockback, Inc. from 2000 to
                                                          2002; Director, Sanlam
                                                          Limited from 2001 to 2003;
                                                          Trustee, Commonfund from 1989
                                                          to

                                                                                                        (continued on next page)


                                          22


<PAGE>


                                                                                               Number of
                                            Term of                                         MLIM/FAM-Advised
   Name,              Position(s)         Office** and                                         Funds and
  Address*           Held with the       Length of Time      Principal Occupation(s)           Portfolios              Public
  and Age                Fund                Served          During Past Five Years             Overseen           Directorships
- ----------------- ------------------- ------------------- ------------------------------- -------------------- --------------------
                                                          2001; Director, Sanlam
                                                          Investment Management from
                                                          1999 to 2001; Director,
                                                          Bulldogresearch.com from
                                                          2000 to 2001; Director,
                                                          Quantec

                                                          Limited from 1991 to 1999;
                                                          Director and Chairman of the
                                                          Board of UNX Inc. since 2003.

Roberta           Director            Director since 2002 Shareholder, Modrall,           39 registered        None
Cooper Ramo                                               Sperling, Roehl, Harris &       investment
(61)                                                      Sisk, P.A. since 1993;          companies
                                                          President, American Bar         consisting of
                                                          Association from 1995 to        56 portfolios
                                                          1996 and Member of the Board
                                                          of Governors thereof from
                                                          1994 to 1997; Shareholder,
                                                          Poole, Kelly & Ramo,
                                                          Attorneys at Law, P.C. from
                                                          1977 to 1993; Director,
                                                          Coopers, Inc. since 1999;
                                                          Director of ECMC Group
                                                          (service provider to
                                                          students, schools and
                                                          lenders) since 2001;
                                                          Director, United New Mexico
                                                          Bank (now Wells Fargo) from
                                                          1983 to 1988; Director, First
                                                          National Bank of New Mexico
                                                          (now Wells Fargo) from 1975
                                                          to 1976.

Robert S.         Director            Director since      Principal of STI                39 registered        None
Salomon, Jr.                          1996                Management (investment          investment
(67)                                                      adviser) since 1994;            companies
                                                          Chairman and CEO of             consisting of
                                                          Salomon Brothers Asset          56 portfolios
                                                          Management from 1992 until
                                                          1995; Chairman of Salomon
                                                          Brothers equity mutual funds
                                                          from 1992 until 1995; regular
                                                          columnist with Forbes
                                                          Magazine from 1992 to 2002;
                                                          Director of Stock Research
                                                          and U.S. Equity Strategist at
                                                          Salomon Brothers from 1975
                                                          until 1991; Trustee,
                                                          Commonfund from 1980 to 2001.

Stephen B.        Director            Director since      Chairman of Fernwood            40 registered        None
Swensrud (71)                         1992                Associates (investment          investment
                                                          adviser) since 1996;            companies
                                                          Principal, Fernwood             consisting of
                                                          Associates (financial           57 portfolios
                                                          consultants) since 1975;
                                                          Chairman of R.P.P.
                                                          Corporation (manufacturing
                                                          company) since 1978; Director
                                                          of International Mobile
                                                          Communications, Incorporated
                                                          (telecommunications company)
                                                          since 1998.
</TABLE>

- -------------------
*    The address of each non-interested Director is P.O. Box 9095, Princeton,
     New Jersey 08543-9095.
**   Each Director serves until his or her successor is elected and qualified,
     until December 31 of the year in which he or she turns 72, or until his
     or her death, resignation, or removal as provided in the Fund's By-laws,
     Charter or by statute.



                                      23
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                               Number of
                                            Term of                                         MLIM/FAM-Advised
   Name,              Position(s)         Office** and                                         Funds and
  Address*           Held with the       Length of Time      Principal Occupation(s)           Portfolios              Public
  and Age                Fund                Served          During Past Five Years             Overseen           Directorships
- ----------------- ------------------- ------------------- ------------------------------- -------------------- --------------------
<S>               <C>                 <C>                 <C>                             <C>                  <C>
Terry K.          President and       President and       President of the                125 registered       None
Glenn(63)***      Director            Director **** since MLIM/FAM-advised funds          investment
                                      1999                since 1999; Chairman            companies
                                                          (Americas Region) of MLIM       consisting of
                                                          from 2000 to 2002;              160 portfolios
                                                          Executive Vice President of
                                                          MLIM and the Investment
                                                          Adviser (which terms as used
                                                          herein include their
                                                          corporate predecessors) from
                                                          1983 to 2002; President of
                                                          FAM Distributors, Inc.
                                                          ("FAMD" or the "Distributor")
                                                          from 1986 to 2002 and
                                                          Director thereof from 1991 to
                                                          2002; Executive Vice
                                                          President and Director of
                                                          Princeton Services, Inc.
                                                          ("Princeton Services") from
                                                          1993 to 2002; President of
                                                          Princeton Administrators,
                                                          L.P. from 1988 to 2002;
                                                          Director of Financial Data
                                                          Services, Inc. from 1985 to
                                                          2002.

Donald C.         Vice President      Vice President      First Vice President of         124 registered       None
Burke (43)        and Treasurer       since 1994 and      MLIM and the Investment         investment
                                      Treasurer since     Adviser since 1997 and          companies
                                      1999                Treasurer thereof since         consisting of
                                                          1999; Senior Vice               159 portfolios
                                                          President and Treasurer of
                                                          Princeton Services since
                                                          1999; Vice President of FAMD
                                                          since 1999; Vice President of
                                                          MLIM and the Investment
                                                          Adviser from 1990 to 1997;
                                                          Director of Taxation of MLIM
                                                          since 1990.

Kenneth A.        Senior Vice         Senior Vice         Managing Director of MLIM       39 registered        None
Jacob (53)        President           President since     since 2000; First Vice          investment
                                      2002                President of MLIM from          companies
                                                          1997 to 2000; Vice              consisting of
                                                          President of MLIM from          51 portfolios
                                                          1984 to 1997.

John M.           Senior Vice         Senior Vice         Managing Director of MLIM       39 registered        None
Loffredo (40)     President           President since     since 2000; First Vice          investment
                                      2002                President of MLIM from          companies
                                                          1997 to 2000; Vice              consisting of
                                                          President of MLIM from          51 portfolios
                                                          1991 to 1997; Portfolio
                                                          Manager of the Investment
                                                          Adviser and MLIM since 1997.

Theodore R.       Vice President      Vice President      Director (Municipal             5 registered         None
Jaeckel, Jr.                          since 2003          Tax-Exempt Fund                 investment
(44)                                                      Management) of MLIM since       companies
                                                          1997; Vice President of         consisting of
                                                          MLIM since 1991.                5 portfolios

Phillip S.        Secretary           Secretary since     First Vice President of MLIM    124 registered       None
Gillespie (40)                        2004                since 2001; Director of MLIM    investment



                                          24
<PAGE>

                                                                                               Number of
                                            Term of                                         MLIM/FAM-Advised
   Name,              Position(s)         Office** and                                         Funds and
  Address*           Held with the       Length of Time      Principal Occupation(s)           Portfolios              Public
  and Age                Fund                Served          During Past Five Years             Overseen           Directorships
- ----------------- ------------------- ------------------- ------------------------------- -------------------- --------------------
                                                          from 2000 to 2001; Vice         companies
                                                          President of MLIM from 1999     consisting of 159
                                                          to 2000.                        portfolios
</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. Glenn is an "interested person," as defined in the 1940 Act, of the
     Fund based on his former positions with the Investment Adviser, MLIM,
     FAMD, Princeton Services, and Princeton Administrators, L.P.
**** As a Director, Mr. Glenn 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,
     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. Salomon and Mr. Bodurtha 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, 2003 is set forth in the chart below.

<TABLE>
<CAPTION>
                                                                                                   Aggregate Dollar Range of
                                                                    Aggregate Dollar Range of      Securities in Supervised
Name                                                                   Equity in the Fund            Merrill Lynch Funds
- ----------------------------------------------------------------- ----------------------------- -------------------------------
<S>                                                               <C>                           <C>
Interested Director:
     Terry K. Glenn..........................................            Over $100,000                   Over $100,000
Non-interested Directors:
     James H. Bodurtha.......................................                None                        Over $100,000
     Joe Grills..............................................                None                        Over $100,000
     Herbert I. London.......................................                None                        Over $100,000
     Andre F. Perold.........................................                None                             None
     Roberta Cooper Ramo.....................................                None                       50,001-$100,000
     Robert S. Salomon, Jr...................................                None                             None
     Stephen B. Swensrud.....................................                None                             None
</TABLE>

     As of the date of this statement of additional information, none of the
Directors and officers of the Fund owned any outstanding shares of common
stock or Other AMPS of the Fund. As of the date of this statement of
additional information, none of the non-interested Directors of the Fund nor
any of their immediate family members owned beneficially or of record any
securities in ML & Co.

Compensation of Directors

     The Fund pays fees to each non-interested Director for service to the
Fund. Each non-interested Director receives an aggregate annual retainer of
$125,000 for his or her services to MLIM/FAM-advised funds, including
the Fund. The portion of the annual retainer allocated to each
MLIM/FAM-advised fund is determined quarterly based on the relative net assets
of each fund. In addition, each non-interested Director receives a fee per
in-person Board meeting attended and per in-person Audit Committee meeting
attended. The annual per meeting fees paid to each non-interested Director
aggregate $100,000 for all MLIM/FAM-advised funds for which that Director
serves and are allocated equally among those funds. Each Co-Chairman of the
Audit Committee receives an additional annual retainer in the amount of
$25,000, which is paid quarterly and allocated to each MLIM/FAM-advised fund
for which such Co-Chairman provides services based on the relative net assets
of each such fund.



                                      25
<PAGE>

     The following table shows the compensation earned by the non-interested
Directors for the Fund's fiscal year ended October 31, 2003 and the aggregate
compensation paid to them from all MLIM/FAM-advised funds for the calendar
year ended December 31, 2003.



                                      26
<PAGE>

<TABLE>
<CAPTION>
                                                                             Pension or            Aggregate
                                                                             Retirement          Compensation
                                                                              Benefits           From Fund and
                                                                             Accrued as              other
                                                         Compensation       Part of Fund           MLIM/FAM-
                Name of Director                           From Fund           Expense          Advised Funds**
  ---------------------------------------------------  -----------------  ---------------  -----------------------
     <S>                                                 <C>                   <C>                <C>
     James H. Bodurtha*..............................    $5,694                None               $183,219
     Joe Grills*.....................................    $5,694                None               $182,219
     Herbert I. London...............................    $5,189                None               $163,219
     Andre F Perold..................................    $5,189                None               $162,219
     Roberta Cooper Ramo.............................    $5,189                None               $163,219
     Robert S. Salomon, Jr...........................    $5,189                None               $168,219
     Stephen B. Swensrud.............................    $5,189                None               $168,219
</TABLE>

- ------------------
*    Co-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."

     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.

                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 100 registered investment
companies and offers investment advisory services to individuals and
institutional accounts. As of May 2004, the Investment Adviser and its
affiliates, including MLIM, had a total of approximately $491 billion in
investment company and other portfolio assets under management, including
approximately $253 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
supervision of the Fund's Board of Directors, the Investment Adviser is
responsible for the actual management of the Fund's portfolio. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to review by the Board of
Directors.

     The portfolio manager primarily responsible for the Fund's day-to-day
management is Theodore R. Jaeckel. Mr. Jaeckel has been a Director of MLIM
since 1997. Mr. Jaeckel has been a portfolio manager with the Investment
Adviser and MLIM since 1991 and has been the Fund's portfolio manager since
1998. 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 daily net assets.

     For the six months ended April 30, 2004 and the fiscal years ended
October 31, 2003, 2002 and 2001, the fees paid by the Fund to the Investment
Adviser pursuant to the Investment Advisory Agreement were $2,291,512,
$4,474,523, $4,395,305 and $3,816,141, respectively.



                                      27
<PAGE>

     For the six months ended April 30, 2004, and the fiscal years ended
October 31, 2003, 2002 and 2001, the Investment Adviser reimbursed the Fund
$19,446, $32,653, $2,056, and $0, 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 periods indicated:

<TABLE>
<CAPTION>

                                                          Paid by the Fund        Paid by the Fund to the
            Period                                        to State Street         Investment Adviser
            ------                                        ---------------         ------------------
            <S>                                           <C>                     <C>
            Six months ended April 30, 2004.............  $122,241                $ 9,331

            Fiscal year ended 2003......................  $238,094                $19,339

            Fiscal year ended 2002......................  $236,795                $33,990

            Fiscal year ended 2001......................  $222,177                $42,754
</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.

     In connection with the Board of Directors' consideration of the
Investment Advisory Agreement, the Board compared the Fund's fee rate for
advisory and administrative services and the Fund's historical performance to
certain comparable funds and reviewed information derived from a number of
sources and covering a range of issues. The Board of Directors considered the
compensation paid to the Investment Adviser and the services provided to the
Fund by the Investment Adviser under the Investment Advisory Agreement, as
well as other services provided by the Investment Adviser and its affiliates
under other agreements, and the personnel who will provide these services. In
addition to the investment advisory services provided to the Fund, the
Investment Adviser and its affiliates provide administrative services,
stockholder services, oversight of fund accounting, marketing services,
assistance in meeting legal and regulatory requirements, and other services
necessary for the operation of the Fund. The Fund's Board of Directors also
considered the direct and indirect benefits to the Investment Adviser from its
relationship with the Fund. Based on their experience as Directors of the Fund
and as directors of other MLIM/FAM-advised funds, the Board of Directors
concluded that the services provided in all areas were of a high quality and
that the Fund benefits and would continue to benefit from those services.

     In reviewing the Investment Advisory Agreement, the Board focused on the
experience, resources and strengths of the Investment Adviser and its
affiliates in managing investment companies that invest in Municipal



                                      28
<PAGE>

Bonds, including a number of other MLIM/FAM-advised leveraged closed end
funds that have investment objectives and strategies substantially similar to
those of the Fund. The Board also considered the Investment Adviser's
experience in managing funds that use leverage through the issuance of
preferred stock. The Board concluded that the Investment Adviser has a high
level of expertise in managing the types of investments used by the Fund and
in managing leverage, and concluded that the Fund benefits from that
expertise. The Directors, based on their experience as directors of other
investment companies managed by the Investment Adviser and its affiliates as
well as of the Fund, also focused on the quality of the Investment Adviser's
compliance and administrative staff. The Board noted that, in addition to the
analysts and compliance personnel dedicated to the tax-exempt fixed income
management group, the Investment Adviser has a separate administrative, legal
and compliance staff to ensure a high level of quality in the compliance and
administrative services provided to the Fund.

     In connection with its consideration of the Investment Advisory
Agreement, the Board of Directors also reviewed the compliance and
administrative services provided to the Fund by the Investment Adviser,
including its oversight of the Fund's day to day operations and its oversight
of Fund accounting. The Investment Adviser and its affiliates provide
compliance and administrative services to the Fund and all the
MLIM/FAM-advised funds, as well as to a number of third party fund groups. The
Board of Directors concluded, based on their experience as Directors, that,
historically, the compliance and administrative services provided by the
Investment Adviser and its affiliates were of a high quality and that the Fund
has benefited from these services.

     In reviewing the Investment Advisory Agreement, the Board of Directors
placed significant emphasis on the Fund's fee rate for advisory and
administrative services and the Fund's historical performance as compared to
those of comparable leveraged, closed-end funds that are managed by other
investment advisers that invest primarily in municipal obligations as provided
by Lipper Inc. In particular, the Board of Directors noted that the Fund had
the second lowest contractual advisory fee rate at a common asset level (equal
to the median of the group) among seven comparable funds. The Board of
Directors also found that the Fund ranked above the median with respect to fee
rate for advisory and administrative services as a percentage of total assets
at a common asset level and fee rate for advisory and administrative services
as a percentage of assets attributable to common stock at a common asset level
including leverage. The Board also compared the Fund's total expenses, both
including and excluding assets attributable to leverage, and concluded that,
in each case, the Fund's expenses were the fourth in its category and below
the median of the group. The Board also noted that the Fund's historical
performance was comparable to that of other similarly managed closed-end
leveraged insured municipal debt funds. The Board of Directors concluded that
the advisory fee rate was reasonable in relation to the services provided by
the Investment Adviser to the Fund as well as the costs incurred and benefits
to be gained by the Investment Adviser and its affiliates in providing such
services.

     The Board considered whether there should be changes in the advisory fee
rate or structure in order to enable the Fund to participate in any economies
of scale that the Investment Adviser may experience as a result of growth in
the Fund's assets. The Board of Directors determined that the current
management fee structure was reasonable and that no changes are currently
necessary. The non-interested Directors were represented by independent
counsel who assisted them in their deliberations.

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



                                      29
<PAGE>

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 "Committee"). The Committee is
comprised of the Investment Adviser's Chief Investment Officer (the "CIO"),
one or more other senior investment professionals appointed by the CIO,
portfolio managers and investment analysts appointed by the CIO and any other
personnel the CIO deems appropriate. The Committee will also include two
non-voting representatives from the Investment Adviser's Legal department
appointed by the Investment Adviser's General Counsel. The 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 Committee or participate in its decision making (except to the extent
such person is asked by the Committee to present information to the Committee,
on the same basis as other interested knowledgeable parties not affiliated
with the Investment Adviser might be asked to do so). The 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 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 Committee may determine to vote a
particular proxy in a manner contrary to its generally stated policies. In
addition, the Committee will be responsible for ensuring that all reporting
and recordkeeping requirements related to proxy voting are fulfilled.

     The 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 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
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 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 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 certain circumstances. In addition, the Investment
Adviser will vote proxies related to securities of foreign issuers only on a
best efforts basis and may elect not to vote at all in certain countries where
the Committee determines that the costs associated with voting generally
outweigh the benefits. The 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



                                      30
<PAGE>

Adviser (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 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 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 Committee may, in its discretion for the
purposes of ensuring that an independent determination is reached, retain an
independent fiduciary to advise the Committee on how to vote or to cast votes
on behalf of the Investment Adviser's clients.

     In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent fiduciary,
the powers of the Committee shall pass to a subcommittee, appointed by the CIO
(with advice from the Secretary of the 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
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 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
          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 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 Committee may look at a
          nominee's history of representing stockholder interests as a
          director of other companies or other factors, to the extent the
          Committee deems relevant.

     o    Proposals related to the selection of an issuer's independent
          auditors. As a general matter, the 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
          Committee will generally defer to a corporation's choice of auditor,
          in individual cases, the Committee may look at an auditors' history
          of representing stockholder interests as auditor of other companies,
          to the extent the Committee deems relevant.

     o    Proposals related to management compensation and employee benefits.
          As a general matter, the 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



                                      31
<PAGE>

          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 Committee will support requests
          that enhance the rights of common stockholders and oppose requests
          that appear to be unreasonably dilutive.

     o    Proposals related to requests for approval of amendments to an
          issuer's charter or by-laws. As a general matter, the 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
          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 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
          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 Committee is generally supportive of proposals to
          require corporate disclosure of matters that seem relevant and
          material to the economic interests of stockholders, the Committee is
          generally not supportive of proposals to require disclosure of
          corporate matters for other purposes.

                            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,



                                      32
<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.

     The Fund has received an exemptive order from the Commission permitting
it to lend portfolio securities to Merrill Lynch or its affiliates. Pursuant
to that order, the Fund also has retained an affiliated entity of the
Investment Adviser as the securities lending agent for a fee, including a fee
based on a share of the returns on investment of cash collateral. That entity
may, on behalf of the Fund, invest cash collateral received by the Fund for
such loans, among other things, in a private investment company managed by
that entity or in registered money market funds advised by the Investment
Adviser or its affiliates.

     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



                                      33
<PAGE>

by the Fund during the particular fiscal year. For purposes of determining this
rate, all securities whose maturities at the time of acquisition are one year
or less are excluded.) A high portfolio turnover rate results in greater
transaction costs, which are borne directly by the Fund and may have certain
tax consequences for stockholders.

     For the six months ended April 30, 2004 and the fiscal years ended
October 31, 2003 and 2002, the Fund's portfolio turnover rates were 13.32%,
61.95% and 104.63%, respectively.

                                     TAXES

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

     The Code requires a RIC to pay a nondeductible 4% excise tax to the
extent the RIC does not distribute, during each calendar year, 98% of its
ordinary income, determined on a calendar year basis, and 98% of its capital
gains, determined, in general, on an October 31 year-end, plus certain
undistributed amounts from previous years. The required distributions,
however, are based only on the taxable income of a RIC. The excise tax,
therefore, generally will not apply to the tax exempt income of a RIC, such as
the Fund, that pays exempt-interest dividends.

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

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



                                      34
<PAGE>

stockholder would be treated as a "substantial user" or "related person"
under Code Section 147(a) with respect to property financed with the proceeds
of an issue of PABs, if any, held by the Fund.

     To the extent that the Fund's distributions are derived from interest on
its taxable investments or from an excess of net short-term capital gains over
net long-term capital losses ("ordinary income dividends"), such distributions
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 pursuant to recent legislation. 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 ("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 G 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



                                      35
<PAGE>

income realized by the Fund and the total dividends paid by the Fund on shares
of common stock and shares of the series of AMPS during a taxable year, but
the taxable distribution generally is not expected to be significant.

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

     In the opinion of Sidley Austin Brown & Wood LLP, counsel to the Fund,
under current law the manner in which the Fund intends to allocate items of
tax exempt income, net capital gain and other taxable income among shares of
common stock and shares of the series 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 swaps. The Federal income tax rules
governing the taxation of interest rate 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.



                                      36
<PAGE>

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

     The Fund's ability to distribute dividends exempt from Federal income tax
depends on the exclusion from gross income of the interest income that it
receives on the securities in which it invests. The Fund will only purchase
Municipal Bonds 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.



                                      37
<PAGE>

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

     Under certain Code provisions, some stockholders may be subject to a
withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Backup withholding may also be
required on distributions paid by the Fund, unless it reasonably estimates
that at least 95% of its distributions during the taxable year are comprised
of exempt-interest dividends. Generally, stockholders subject to backup
withholding will be those for whom no certified taxpayer identification number
is on file with the Fund or who, to the Fund's knowledge, have furnished an
incorrect number. When establishing an account, an investor must certify under
penalty of perjury that such number is correct and that such investor is not
otherwise subject to backup withholding. Backup withholding is not an
additional tax. Any amount withheld generally may be allowed as a refund or a
credit against a shareholder's Federal income tax liability; provided that the
required information is timely provided 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.


                                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.



                                      38
<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 October
31, 2003, together with the report of __________________ thereon, are
incorporated in this statement of additional information by reference to its
2003 Annual Report. The Fund's unaudited financial statements for the six
months ended April 30, 2004 are incorporated in this statement of additional
information by reference to its 2004 Semi-Annual Report. You may request a
copy of the Annual Report and the Semi-Annual Report at no charge by calling
(800) 543-6217 between 8:30 a.m. and 5:30 p.m. Eastern time on any business
day.



                                      39
<PAGE>

                                  APPENDIX A

                     DESCRIPTION OF MUNICIPAL BOND RATINGS

Description of Municipal Bond Ratings

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

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

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

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

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

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

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

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

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

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.


                                     A-1


<PAGE>


Description of Moody's U.S. Short-Term Ratings

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

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

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

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

Description of Moody's Commercial Paper Ratings

     Moody's Commercial Paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:

     Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of short term promissory obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well established industries; high rates of return
on funds employed; conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earning coverage
of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.

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

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

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

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.

     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


                                     A-2


<PAGE>


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"
B                        are regarded as having significant speculative
CCC                      characteristics. "BB" indicates the least degree of
CC                       speculation and "C" the highest degree of
C                        speculation. While such debt likely have some quality
                         and 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. 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.


                                     A-3


<PAGE>


*                        Continuance of the ratings is not contigent 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 Commercial Paper Ratings

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

A-1                      A short-term obligation rated "A-1" is rated in the
                         highest category by Standard & Poor's. The obligor's
                         capacity to meet its financial commitment on the
                         obligation is strong. Within this category, certain
                         obligations are designated with a plus sign (+). This
                         indicates that the obligor's capacity to meet its
                         financial commitment on these obligations is
                         extremely strong.

A-2                      A short-term obligation rated "A-2" is somewhat more
                         susceptible to the adverse effects of changes in
                         circumstances and economic conditions than
                         obligations in higher rating categories. However, the
                         obligor's capacity to meet its financial commitment
                         on the obligation is satisfactory.

A-3                      A short-term obligation rated "A-3" exhibits adequate
                         protection parameters. However, adverse economic
                         conditions or changing circumstances are more likely
                         to lead to a weakened capacity of the obligor to meet
                         its financial commitment on the obligation.

B                        A short-term obligation rated "B" is regarded as
                         having significant speculative characteristics. The
                         obligor currently has the capacity to meet its
                         financial commitment on the obligation; however, it
                         faces major ongoing uncertainties which could lead to
                         the obligor's inadequate capacity to meet its
                         financial commitment on the obligation.

C                        A short-term obligation rated "C" is currently
                         vulnerable to nonpayment and is dependent upon
                         favorable business, financial and economic conditions
                         for the obligor to meet its financial commitment on
                         the obligation.

D                        A short-term obligation rated "D" is in payment
                         default. The "D" rating category is used when
                         interest payments or principal payments are not made
                         on the date due even if the applicable grace period
                         has not expired, unless Standard & Poor's believes
                         that such payments will be made during such grace
                         period. The "D" rating will also be used upon the
                         filing of a bankruptcy petition or the taking of a
                         similar action if payments on an obligation are
                         jeopardized.

c                        The "c" subscript is used to provide additional
                         information to investors that the bank may terminate
                         its obligation to purchase tendered bonds if the long
                         term credit rating of the issuer is below an
                         investment-grade level and/or the issuer's bonds are
                         deemed taxable.


                                     A-4


<PAGE>


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

*                        Continuance of the ratings is contingent upon
                         Standard & Poor's receipt of an executed copy of the
                         escrow agreement or closing

r                        The "r" highlights derivative, hybrid, and certain
                         other obligations that Standard & Poor's believes may
                         experience high volatility or high variability in
                         expected returns as a result of noncredit risks.
                         Examples of such obligations are securities with
                         principal or interest return indexed to equities,
                         commodities, or currencies; certain swaps and
                         options, and interest-only and principal-only
                         mortgage securities. The absence of an "r" symbol
                         should not be taken as an indication that an
                         obligation will exhibit no volatility or variability
                         in total return.

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

     A Standard & Poor's note rating reflects the liquidity factors and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long term debt rating. The following criteria will be used in making
that assessment.

     --Amortization schedule--the larger the final maturity relative to other
     maturities, the more likely it will be treated as a note.

     --Source of payment--the more dependent the issue is on the market for
     its refinancing, the more likely it will be treated as a note.

     Note rating symbols are as follows:

SP-1                     Strong capacity to pay principal and interest. An
                         issue determined to possess a very strong capacity to
                         pay debt service is given a plus (+) designation.

SP-2                     Satisfactory capacity to pay principal and interest
                         with some vulnerability to adverse financial and
                         economic changes over the term of the notes.

SP-3                     Speculative capacity to pay principal and interest.

Description of Fitch Ratings' ("Fitch") Investment Grade Bond Ratings

     Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations
of a specific debt issue or class of debt in a timely manner.

     The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.


                                     A-5


<PAGE>


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

     Bonds carrying the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect
small differences in the degrees of credit risk.

     Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax exempt nature or taxability of
payments made in respect of any security.

     Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

AAA                      Bonds considered to be investment grade and of the
                         highest credit quality. The obligor has an
                         exceptionally strong ability to pay interest and
                         repay principal, which is unlikely to be affected by
                         reasonably foreseeable events.

AA                       Bonds considered to be investment grade and of very
                         high credit quality. The obligor's ability to pay
                         interest and repay principal is very strong, although
                         not quite as strong as bonds rated "AAA." Because
                         bonds rated in the "AAA" and "AA" categories are not
                         significantly vulnerable to foreseeable future
                         developments, short term debt of these issuers is
                         generally rated "F-1+."

A                        Bonds considered to be investment grade and of high
                         credit quality. The obligor's ability to pay interest
                         and repay principal is considered to be strong, but
                         may be more vulnerable to adverse changes in economic
                         conditions and circumstances than bonds with higher
                         ratings.

BBB                      Bonds considered to be investment grade and of
                         satisfactory-credit quality. The obligor's ability to
                         pay interest and repay principal is considered to be
                         adequate. Adverse changes in economic conditions and
                         circumstances, however, are more likely to have
                         adverse impact on these bonds, and therefore impair
                         timely payment. The likelihood that the ratings of
                         these bonds will fall below investment grade is
                         higher than for bonds with higher ratings.

     Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.

Description of Fitch's Speculative Grade Bond Ratings

     Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or
liquidation. The rating takes into consideration special features of the
issue, its relationship to other obligations of the issuer, the current and
prospective financial condition and operating performance of the issuer and
any guarantor, as well as the economic and political environment that might
affect the issuer's future financial strength.

     Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.

BB                       Bonds are considered speculative. The obligor's
                         ability to pay interest and repay principal may be
                         affected over time by adverse economic changes.
                         However, business and financial alternatives can be
                         identified which could assist the obligor in
                         satisfying its debt service


                                     A-6


<PAGE>


                         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.

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
DD                       payments. Such bonds are extremely speculative and
DDD                      should be valued on the basis of their ultimate
                         recovery value in liquidation or reorganization of
                         the obligor. "DDD" represents the highest potential
                         for recovery on these bonds, and "D" represents the
                         lowest potential for recovery.

                         Plus (+) or Minus (-): Plus and minus signs are used
                         with a rating symbol to indicate the relative
                         position of a credit within the rating category. Plus
                         and minus signs, however, are not used in the "DDD,"
                         "DD," or "D" categories.

Description of Fitch's Short term Ratings

     Fitch's short term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and investment notes.

     The short term rating places greater emphasis than a long term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.

     Fitch short term ratings are as follows:

F-1+                     Exceptionally Strong Credit Quality. Issues assigned
                         this rating are regarded as having the strongest
                         degree of assurance for timely payment.

F-1                      Very Strong Credit Quality. Issues assigned this
                         rating reflect an assurance of timely payment only
                         slightly less in degree than issues rated "F-1+."

F-2                      Good Credit Quality. Issues assigned this rating have
                         a satisfactory degree of assurance for timely
                         payment, but the margin of safety is not as great as
                         for issues assigned "F-1+" and "F-1" ratings.

F-3                      Fair Credit Quality. Issues assigned this rating have
                         characteristics suggesting that the degree of
                         assurance for timely payment is adequate; however,
                         near-term adverse changes could cause these
                         securities to be rated below investment grade.

F-S                      Weak Credit Quality. Issues assigned this rating have
                         characteristics suggesting a minimal degree of
                         assurance for timely payment and are vulnerable to
                         near-term adverse changes in financial and economic
                         conditions.

D                        Default. Issues assigned this rating are in actual or
                         imminent payment default.


                                     A-7


<PAGE>


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.

Withdrawn                A rating will be withdrawn when an issue matures or
                         is called or refinanced and, at Fitch's discretion,
                         when an issuer fails to furnish proper and timely
                         information.

FitchAlert               Ratings are placed on FitchAlert to notify investors
                         of an occurrence that is likely to result in a rating
                         change and the likely direction of such change. These
                         are designated as "Positive," indicating a potential
                         upgrade, "Negative," for potential downgrade, or
                         "Evolving," where ratings may be raised or lowered.
                         FitchAlert is relatively short term, and should be
                         resolved within 12 months.

Ratings Outlook: An outlook is used to describe the most likely direction of
any rating change over the intermediate term. It is described as "Positive" or
"Negative." The absence of a designation indicates a stable outlook.


                                     A-8


<PAGE>


                                  APPENDIX B

                             SETTLEMENT PROCEDURES

     The following summary of Settlement Procedures sets forth the procedures
expected to be followed in connection with the settlement of each Auction and
will be incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. Nothing contained in this Appendix B constitutes a
representation by the Fund that in each Auction each party referred to herein
actually will perform the procedures described herein to be performed by such
party. Capitalized terms used herein shall have the respective meanings
specified in the Glossary in the prospectus or this Appendix B hereto, as the
case may be.

     (a) On each Auction Date, the Auction Agent shall notify by telephone or
through the Auction Agent's Processing System the Broker-Dealers that
participated in the Auction held on such Auction Date and submitted an Order
on behalf of any Beneficial Owner or Potential Beneficial Owner of:

          (i) the Applicable Rate fixed for the next succeeding Dividend
     Period;

          (ii) whether Sufficient Clearing Bids existed for the determination
     of the Applicable Rate;

          (iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a
     Bid or a Sell Order on behalf of a Beneficial Owner, the number of
     shares, if any, of AMPS to be sold by such Beneficial Owner;

          (iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a
     Bid on behalf of a Potential Beneficial Owner, the number of shares, if
     any, of AMPS to be purchased by such Potential Beneficial Owner;

          (v) if the aggregate number of shares of AMPS to be sold by all
     Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid or a
     Sell Order exceeds the aggregate number of shares of AMPS to be purchased
     by all Potential Beneficial Owners on whose behalf such Broker-Dealer
     submitted a Bid, the name or names of one or more Buyer's Broker-Dealers
     (and the name of the Agent Member, if any, of each such Buyer's
     Broker-Dealer) acting for one or more purchasers of such excess number of
     shares of AMPS and the number of such shares to be purchased from one or
     more Beneficial Owners on whose behalf such Broker-Dealer acted by one or
     more Potential Beneficial Owners on whose behalf each of such Buyer's
     Broker-Dealers acted;

          (vi) if the aggregate number of shares of AMPS to be purchased by
     all Potential Beneficial Owners on whose behalf such Broker-Dealer
     submitted a Bid exceeds the aggregate number of shares of AMPS to be sold
     by all Beneficial Owners on whose behalf such Broker-Dealer submitted a
     Bid or a Sell Order, the name or names of one or more Seller's
     Broker-Dealers (and the name of the Agent Member, if any, of each such
     Seller's Broker-Dealer) acting for one or more sellers of such excess
     number of shares of AMPS and the number of such shares to be sold to one
     or more Potential Beneficial Owners on whose behalf such Broker-Dealer
     acted by one or more Beneficial Owners on whose behalf each of such
     Seller's Broker-Dealers acted; and

          (vii) the Auction Date of the next succeeding Auction with respect
     to the AMPS.

     (b) On each Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner shall:

          (i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer,
     instruct each Potential Beneficial Owner on whose behalf such
     Broker-Dealer submitted a Bid that was accepted, in whole or in part, to
     instruct such Potential Beneficial Owner's Agent Member to pay to such
     Broker-Dealer (or its Agent Member) through the Securities Depository the
     amount necessary to purchase the number of shares 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;


                                     B-1


<PAGE>

          (ii) in the case of a Broker-Dealer that is a Seller's
     Broker-Dealer, instruct each Beneficial Owner on whose behalf such
     Broker-Dealer submitted a Sell Order that was accepted, in whole or in
     part, or a Bid that was accepted, in whole or in part, to instruct such
     Beneficial Owner's Agent Member to deliver to such Broker-Dealer (or its
     Agent Member) through the Securities Depository the number of shares of
     AMPS to be sold pursuant to such Order against payment therefor and
     advise any such Beneficial Owner that will continue to hold shares of
     AMPS of the Applicable Rate for the next succeeding Dividend Period;

          (iii) advise each Beneficial Owner on whose behalf such
     Broker-Dealer submitted a Hold Order of the Applicable Rate for the next
     succeeding Dividend Period;

          (iv) advise each Beneficial Owner on whose behalf such Broker-Dealer
     submitted an Order of the Auction Date for the next succeeding Auction;
     and

          (v) advise each Potential Beneficial Owner on whose behalf such
     Broker-Dealer submitted a Bid that was accepted, in whole or in part, of
     the Auction Date for the next succeeding Auction.

     (c) On the basis of the information provided to it pursuant to (a) above,
each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a
Potential Beneficial Owner or a Beneficial Owner shall, in such manner and at
such time or times as in its sole discretion it may determine, allocate any
funds received by it pursuant to (b)(i) above and any shares of AMPS received
by it pursuant to (b)(ii) above among the Potential Beneficial Owners, if any,
on whose behalf such Broker-Dealer submitted Bids, the Beneficial Owners, if
any, on whose behalf such Broker-Dealer submitted Bids that were accepted or
Sell Orders, and any Broker-Dealer or Broker-Dealers identified to it by the
Auction Agent pursuant to (a)(v) or (a)(vi) above.

     (d) On each Auction Date:

          (i) each Potential Beneficial Owner and Beneficial Owner shall
     instruct its Agent Member as provided in (b)(i) or (ii) above, as the
     case may be;

          (ii) each Seller's Broker-Dealer which is not an Agent Member of the
     Securities Depository shall instruct its Agent Member to (A) pay through
     the Securities Depository to the Agent Member of the Beneficial Owner
     delivering shares to such Broker-Dealer pursuant to (b)(ii) above the
     amount necessary to purchase such shares against receipt of such shares,
     and (B) deliver such shares through the Securities Depository to a
     Buyer's Broker-Dealer (or its Agent Member) identified to such Seller's
     Broker-Dealer pursuant to (a)(v) above against payment therefor; and

          (iii) each Buyer's Broker-Dealer which is not an Agent Member of the
     Securities Depository shall instruct its Agent Member to (A) pay through
     the Securities Depository to a Seller's Broker-Dealer (or its Agent
     Member) identified pursuant to (a)(vi) above the amount necessary to
     purchase the shares to be purchased pursuant to (b)(i) above against
     receipt of such shares, and (B) deliver such shares through the
     Securities Depository to the Agent Member of the purchaser thereof
     against payment therefor.

     (e) On the day after the Auction Date:

          (i) each Bidder's Agent Member referred to in (d)(i) above shall
     instruct the Securities Depository to execute the transactions described
     in (b)(i) or (ii) above, and the Securities Depository shall execute such
     transactions;

          (ii) each Seller's Broker-Dealer or its Agent Member shall instruct
     the Securities Depository to execute the transactions described in
     (d)(ii) above, and the Securities Depository shall execute such
     transactions; and


                                     B-2


<PAGE>


          (iii) each Buyer's Broker-Dealer or its Agent Member shall instruct
     the Securities Depository to execute the transactions described in
     (d)(iii) above, and the Securities Depository shall execute such
     transactions.

     (f) If a Beneficial Owner selling shares of AMPS in an Auction fails to
deliver such shares (by authorized book-entry), a Broker-Dealer may deliver to
the Potential Beneficial Owner on behalf of which it submitted a Bid that was
accepted a number of whole shares of AMPS that is less than the number of
shares that otherwise was to be purchased by such Potential Beneficial Owner.
In such event, the number of shares of AMPS to be so delivered shall be
determined solely by such Broker-Dealer. Delivery of such lesser number of
shares shall constitute good delivery. Notwithstanding the foregoing terms of
this paragraph (f), any delivery or non-delivery of shares which shall
represent any departure from the results of an Auction, as determined by the
Auction Agent, shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or non-delivery in accordance with the
provisions of the Auction Agent Agreement and the Broker-Dealer Agreements.


                                     B-3


<PAGE>


                                  APPENDIX C

                              AUCTION PROCEDURES

     The following procedures will be set forth in provisions of the Articles
Supplementary relating to the AMPS, and will be incorporated by reference in
the Auction Agent Agreement and each Broker-Dealer Agreement. The terms not
defined below are defined in the prospectus or in the Glossary in the
prospectus. Nothing contained in this Appendix C constitutes a representation
by the Fund that in each Auction each party referred to herein actually will
perform the procedures described herein to be performed by such party.

Paragraph 10(a) Certain Definitions.

     As used in this Paragraph 10, the following terms shall have the
following meanings, unless the context otherwise requires:

          (i) "AMPS" shall mean the shares of AMPS being auctioned pursuant to
     this Paragraph 10.

          (ii) "Auction Date" shall mean the first Business Day preceding the
     first day of a Dividend Period.

          (iii) "Available AMPS" shall have the meaning specified in Paragraph
     10(d)(i) below.

          (iv) "Bid" shall have the meaning specified in Paragraph 10(b)(i)
     below.

          (v) "Bidder" shall have the meaning specified in Paragraph 10(b)(i)
     below.

          (vi) "Hold Order" shall have the meaning specified in Paragraph
     10(b)(i) below.

          (vii) "Maximum Applicable Rate" for any Dividend Period will be the
     higher of the Applicable Percentage of the Reference Rate or the
     Applicable Spread plus the Reference Rate. The Applicable Percentage and
     the Applicable Spread will be determined based on 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) as follows:

<TABLE>
<CAPTION>
<S>                      <C>                       <C>                  <C>             <C>             <C>

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



                                     C-1
<PAGE>

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 Submitted Bids made by all such Existing
     Holders that specified a rate per annum equal to the Winning Bid Rate;
     and


                                     C-6


<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

          (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
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.


                                     C-7


<PAGE>


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 24. Financial Statements And Exhibits.

(1)       Financial Statements
Part A:

          Financial Highlights for the six months ended April 30, 2003 and
          each of the fiscal years in the ten-year period ended October 31,
          2003.

Part B:
          Schedule of Investments of the Fund as of October 31, 2003.*
          Statement of Net Assets of the Fund as of October 31, 2003.*
          Statement of Operations of the Fund for the fiscal year ended
          October 31, 2003.*
          Statements of Changes in Net Assets of the Fund for the fiscal years
          ended October 31, 2002 and 2003.*
          Financial Highlights of the Fund for each of the fiscal years in the
          five-year period ended October 31, 2003.*
          Report of Independent Auditors.*
          Schedule of Investments of the Fund as of April 30, 2004.**
          Statement of Net Assets of the Fund as of April 30, 2004.**
          Statement of Operations of the Fund for the six months ended April
          30, 2004.**
          Statements of Changes in Net Assets of the Fund for the six months
          ended April 30, 2004.**
          Financial Highlights of the Fund for the six months ended April 30,
          2004 and each of the fiscal years in the five-year period ended
          October 31, 2003.**

*   Incorporated by reference to the Registrant's Annual Report to
    Shareholders for the fiscal year ended October 31, 2003 filed with the
    Securities and Exchange Commission ("Commission") on January 6, 2004
    pursuant to Rule 30b2-1 under the Investment Company Act of 1940, as
    amended ("1940 Act").

**  Incorporated by reference to the Registrant's Semi-Annual Report to
    Shareholders for the six month period ended April 30, 2004 filed with the
    Commission on June 28, 2004 pursuant to Rule 30b2-1 under the 1940 Act.

Exhibits          Description
- --------          -----------
(a)(1)            Articles of Incorporation of the Registrant, dated September
                  20, 1991.(a)
(a)(2)            Articles of Amendment to the Articles of Incorporation of
                  the Registrant, dated November 15, 1991.(a)
(a)(3)            Articles Supplementary creating the Registrant's Five Series
                  of Auction Market Preferred Stock ("AMPS").(b)
(a)(4)            Articles of Amendment to the Articles Supplementary dated
                  November 13, 1992.(a)
(a)(5)            Articles of Amendment to the Articles Supplementary dated
                  November 30, 1994.(b)
(a)(6)            Articles of Amendment to the Articles Supplementary dated
                  November 30, 1994.(a)
(a)(7)            Articles of Amendment to the Articles Supplementary dated
                  June 23, 1999.(a)
(a)(8)            Form of Articles Supplementary creating the Registrant's
                  Series F AMPS.(d)
(a)(9)            Form of Articles Supplementary creating the Series G AMPS.
(b)               By-Laws of the Registrant.(a)
(c)               Not applicable.
(d)(1)            Copies of instruments defining the rights of stockholders,
                  including the relevant portions of the Articles of
                  Incorporation and the By-Laws and Articles Supplementary of
                  the Registrant.(c)
(d)(2)            Form of specimen certificate for the AMPS of the Registrant.
(e)               Form of Automatic Dividend Reinvestment Plan.
(f)               Not Applicable.


                                     C-1


<PAGE>


(g)               Investment Advisory Agreement between Registrant and Fund
                  Asset Management, L.P.(a)
(h)(1)            Form of Purchase Agreement between the Registrant and
                  Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
                  Lynch") relating to the AMPS.
(h)(2)            Form of Merrill Lynch Standard Dealer Agreement.(b)
(i)               Not applicable.
(j)               Form of Custodian Agreement between the Registrant and The
                  Bank of New York ("BONY").(b)
(k)(1)            Form of Registrar, Transfer Agency, Dividend Disbursing
                  Agency and Shareholder Servicing Agreement
                  between the Registrant and BONY.(b)
(k)(2)            Form of Agreement of Resignation, Appointment and Acceptance
                  between the Registrant, IBJ Whitehall Bank & Trust Company
                  and BONY.(b)
(k)(3)            Form of Administrative Services Agreement between the
                  Registrant and State Street Bank and Trust Company.(e)
(k)(4)            Form of Auction Agent Agreement between the Registrant and
                  BONY.
(k)(5)            Form of Broker-Dealer Agreement.(f)
(k)(6)            Form of Letter of Representations.
(l)               Opinion and Consent of Sidley Austin Brown & Wood LLP.*
(m)               Not applicable.
(n)               Consent of        , independent auditors for the Registrant.*
(o)               Not applicable.
(p)               Not applicable.
(q)               Not applicable.
(r)               Code of Ethics.(g)

- --------------
(a)  Refiled on July 17, 2001 as an Exhibit to the Registrant's Registration
     Statement on Form N-14 (File No. 333-65242) (the "N-14 Registration
     Statement") pursuant to Electronic Data Gathering, Analysis and Retrieval
     (EDGAR) requirements.
(b)  Filed on September 14, 2001 as an Exhibit to the N-14 Registration
     Statement.
(c)  Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6),
     Article VII, Article VIII, Article X, Article XI, Article XII and Article
     XIII of the Registrant's Articles of Incorporation, filed as Exhibit 1(a)
     hereto, 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, filed as Exhibit 2 hereto, and to the Form of
     Articles Supplementary relating to the Registrant's Five Series of AMPS,
     filed as Exhibit 1(c) hereto. Reference is also made to the Form of
     Articles Supplementary relating to the Registrant's Series F AMPS, filed
     as Exhibit 1(h) hereto.
(d)  Filed on July 17, 2001 as an Exhibit to the N-14 Registration Statement.
(e)  Incorporated by reference to Exhibit 8(d) to Post-Effective Amendment No.
     1 to the Registration Statement on N-1A of Merrill Lynch Focus Twenty
     Fund, Inc. (File No. 333-89775) filed on March 20, 2001.
(f)  Incorporated by reference to Exhibit (k)(5) to the Registration Statement
     on Form N-2 of MuniYield Insured Fund, Inc. (File No. 333-116604) filed
     on June 18, 2004.
(g)  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 25. Marketing Arrangements.

     See Exhibits (h)(1) and (2).

Item 26. 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                                             $7,222
Printing (other than stock certificates)                      $21,250
Legal fees and expenses                                       $60,000
Accounting fees and expenses                                  $6,000
Rating Agency Fees                                            $55,000
Miscellaneous                                                 $5,528
                                                              ------------
Total                                                         $155,000


                                      C-2


<PAGE>


Item 27. Persons Controlled by or Under Common Control with Registrant.

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

Item 28. Number of Holders of Securities.

                                                    Number of Record Holders At
Title of Class                                               , 2004
- --------------------------------------------------  ---------------------------
Common Stock, $.10 par value
Preferred Stock                                                          1

Item 29. 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.

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

     In Section 7 of the Purchase Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify Merrill Lynch and each
person, if any, who controls Merrill Lynch within the meaning of the
Securities Act of 1933 (the "1933 Act") against certain types of civil
liabilities arising in connection with the Registration Statement or
Prospectus and Statement of Additional Information.

     Insofar as indemnification for liabilities arising under the 1933 Act may
be provided to directors, officers and controlling persons of the Registrant
and Merrill Lynch, pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with any successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being



                                      C-3
<PAGE>

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 30. Business and Other Connections of The Investment Adviser.

     FAM 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 Merrill Lynch and Merrill Lynch & Co., Inc. ("ML & Co.") is World
Financial Center, North Tower, 250 Vesey Street, New York, New York 10080. The
address of the Fund's transfer agent, The Bank of New York (the "Transfer
Agent"), is 101 Barclay Street, 7 West, New York, New York 10286.

     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.

<TABLE>
<CAPTION>

                                                                                     Other Substantial Business,
                                                                                        Profession, Vocation
               Name                     Position(s) with Investment Adviser               Or Employment
- ------------------------------------ ---------------------------------------- --------------------------------------
<S>                                  <C>                                      <C>
ML & Co.                             Limited Partner                          Financial Services Holding
                                                                              Company; Limited Partner of MLIM

Princeton Services                   General Partner                          General Partner of MLIM

Robert C. Doll, Jr.                  President                                President of MLIM; Director of
                                                                              Princeton Services; Chief Investment
                                                                              Officer of OppenheimerFunds, Inc. in
                                                                              1999 and Executive Vice President
                                                                              thereof from 1991 to 1999

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

Andrew J. Donohue                    General Counsel                          Senior Vice President, General
                                                                              Counsel of MLIM; Senior Vice
                                                                              President, Director and General


                                     C-4


<PAGE>


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


Counsel of Princeton Services.
</TABLE>


Item 31. 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 and transfer agent, The Bank of
New York, 101 Barclay Street, New York, New York 10286 and its accounting
services provider, State Street (500 College Road East, Princeton, New Jersey
08540).

Item 32. Management Services.

     Not applicable.

Item 33. 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.

          (c) 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, and State of New
Jersey, on the 9th day of July, 2004.

                                       MUNIYIELD FUND, INC.
                                       (Registrant)

                                       By: /s/ Donald C. Burke
                                           ------------------------------------
                                             (Donald C. Burke, Vice President
                                                and Treasurer)

     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
              <S>                                            <C>                                  <C>
              Signature                                      Title                                Date
              ---------                                      -----                                ----

          Terry K. Glenn*
- ------------------------------------             President (Principal Executive
         (TERRY K. GLENN)                            Officer) and Director

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

         James H. Bodurtha*                               Director
- ------------------------------------
        (JAMES H. BODURTHA)

             Joe Grills*                                  Director
- ------------------------------------
            (JOE GRILLS)

         Herbert I. London*                               Director
- ------------------------------------
        (HERBERT I. LONDON)

          Andre F. Perold*                                Director
- ------------------------------------
         (ANDRE F. PEROLD)

           Roberta C. Ramo*                               Director
- ------------------------------------
          (ROBERTA C. RAMO)

       Robert S. Salomon, Jr.*                            Director
- ------------------------------------
      (ROBERT S. SALOMON, JR.)

        Stephen B. Swensrud*                              Director
- ------------------------------------
       (STEPHEN B. SWENSRUD)

   *By: /s/ Donald C. Burke                                                                 July 9, 2004
        --------------------------
  (Donald C. Burke, Attorney-in-Fact)
</TABLE>


                                     C-6


<PAGE>


                               POWER OF ATTORNEY


     The undersigned, Terry K. Glenn, Donald C. Burke, James H. Bodurtha, Joe
Grills, Herbert I. London, Andre F. Perold, Roberta Cooper Ramo, Robert S.
Salomon, Jr. and Stephen B. Swensrud, the Directors/Trustees and the Officers
of each of the registered investment companies listed below, hereby authorize
Terry K. Glenn, Andrew J. Donohue, Donald C. Burke, Robert C. Doll, Jr. and
Phillip S. Gillespie or any of them, as attorney-in-fact, to sign on his or
her behalf in the capacities indicated any Registration Statement or amendment
thereto (including post-effective amendments) for each of the following
registered investment companies and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission: Apex Municipal Fund,
Inc.; Corporate High Yield Fund, Inc.; Corporate High Yield Fund III, Inc.;
Corporate High Yield Fund V, Inc.; Corporate High Yield Fund VI, Inc.; Fund
Asset Management Master Trust; Master Focus Twenty Trust; Master Large Cap
Series Trust; Mercury Funds II; Merrill Lynch California Municipal Series
Trust; Merrill Lynch Focus Value Fund, Inc.; Merrill Lynch Fundamental Growth
Fund, Inc.; Merrill Lynch Investment Managers Funds, Inc.; Merrill Lynch Large
Cap Series Funds, Inc.; Merrill Lynch Multi-State Municipal Series Trust;
Merrill Lynch Retirement Reserves Money Fund of Merrill Lynch Retirement
Series Trust; Merrill Lynch Short Term U.S. Government Fund, Inc.; Merrill
Lynch U.S. Government Mortgage Fund; Merrill Lynch Variable Series Funds,
Inc.; Merrill Lynch World Income Fund, Inc.; MuniAssets Fund, Inc.;
MuniEnhanced Fund, Inc.; MuniHoldings California Insured Fund, Inc.;
MuniHoldings Insured Fund II, Inc.; MuniInsured Fund, Inc; MuniYield Arizona
Fund, Inc.; MuniYield California Fund, Inc.; MuniYield California Insured
Fund, Inc.; MuniYield Florida Fund; MuniYield Fund, Inc.; MuniYield Insured
Fund, Inc.; MuniYield Michigan Insured Fund II, Inc.; MuniYield New Jersey
Fund, Inc.; MuniYield New York Insured Fund, Inc.; MuniYield Quality Fund,
Inc.; MuniYield Quality Fund II, Inc.; Summit Cash Reserves Fund of Financial
Institutions Series Trust; and The Asset Program, Inc.

Dated:  February 18, 2004


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



          /s/ James H. Bodurtha                      /s/ Joe Grills
- ------------------------------------       ------------------------------------
        James H. Bodurtha                                Joe Grills
        (Director/Trustee)                           (Director/Trustee)


          /s/ Herbert I. London                     /s/ Andre F. Perold
- ------------------------------------       ------------------------------------
           Herbert I. London                           Andre F. Perold
           (Director/Trustee)                         (Director/Trustee)



          /s/ Roberta Cooper Ramo               /s/ Robert S. Salomon, Jr.
- ------------------------------------       ------------------------------------
          Roberta Cooper Ramo                   Robert S. Salomon, Jr.
           (Director/Trustee)                     (Director/Trustee)



          /s/ Stephen B. Swensrud
- ------------------------------------
          Stephen B. Swensrud
          (Director/Trustee)


<PAGE>


Exhibit Index

(a)(9)        Form of Articles Supplementary creating the Series G AMPS.
(d)(2)        Form of specimen certificate for the AMPS of the
              Registrant.
(e)           Form of Automatic Dividend Reinvestment Plan.
(h)(1)        Form of Purchase Agreement between the Registrant and Merrill
              Lynch, Pierce, Fenner & Smith Incorporated relating to the AMPS.
(k)(4)        Form of Auction Agent Agreement between the Registrant and The
              Bank of New York.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(A)(9)
<SEQUENCE>2
<FILENAME>efc4-1321_5561964992a9.txt
<TEXT>

                                                                Exhibit (a)(9)


                             MUNIYIELD FUND, INC.

                 Articles Supplementary creating one series of

                        Auction Market Preferred Stock



     MUNIYIELD FUND, INC., a Maryland corporation having its principal
Maryland office in the City of Baltimore (the "Corporation"), certifies to the
State Department of Assessments and Taxation of Maryland that:

     FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by article fifth of its Charter, the Board of Directors has
reclassified 2,280 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 G.

     SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the
shares of preferred stock are as follows:

                                  DESIGNATION

     A series of 2,280 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 G." Each share of Auction
Market Preferred Stock, Series G (sometimes referred to herein as "AMPS")
shall be issued on a date to be determined by the Board of Directors of the
Corporation or pursuant to their delegated authority; have an Initial Dividend
Rate and an Initial


<PAGE>


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 G shall constitute a separate series of
preferred stock of the Corporation, and each share of Auction Market Preferred
Stock, Series G shall be identical.


                                      2
<PAGE>


     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 G.

     "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 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


                                      3
<PAGE>


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 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 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).


                                      4
<PAGE>


     "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.

     "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


                                      5
<PAGE>


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.

     "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.


                                      6
<PAGE>


     "Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the Corporation on
file in the State Department of Assessments and Taxation of Maryland.

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

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

     "Corporation" means MuniYield 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.

     "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.


                                      7
<PAGE>


     "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.

     "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.


                                      8
<PAGE>


     "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 (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.


                                      9
<PAGE>


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


                                      10
<PAGE>


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) more than 21 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" 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.


                                      11
<PAGE>


     "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
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.


                                      12
<PAGE>


     "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.

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


Footnotes:

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

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


                                      13
<PAGE>


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

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

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

     "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 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:


                                      14
<PAGE>


<TABLE>
<CAPTION>

                                                   Minimum                Maximum                 Maximum State
                                                 Issue Size              Underlying                  Allowed
Rating                                          ($ Millions)          Obligor (%) (1)              (%) (1)(3)
- ------------------------------------------     ----------------    -----------------------    ----------------------

<S>                                                  <C>                    <C>                        <C>
Aaa...............................                    *                     100                        100
Aa................................                   10                      20                        60
A.................................                   10                      10                        40
Baa...............................                   10                      6                         20
Ba................................                   10                      4                         12
B ................................                   10                      3                         12
Other (2).........................                   10                      2                         12

</TABLE>

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

(1)  The referenced percentages represent maximum cumulative totals for the
     related rating category and each lower rating category.
(2)  Municipal Bonds not rated by Moody's, S&P or Fitch, but rated at least
     the equivalent of B3 internally by the Adviser.
(3)  Territorial bonds (other than those issued by Puerto Rico and counted
     collectively) are each limited to 10% of Moody's Eligible Assets. For
     diversification purposes, Puerto Rico will be treated as a state.
N/A  Not applicable.

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

     When the Corporation sells a Municipal Bond and agrees to repurchase it
at a future date, the Discounted Value of such Bond will constitute a Moody's
Eligible Asset and the amount the Corporation is required to pay upon
repurchase of such Bond will count as a liability for purposes of calculating
the AMPS Basic Maintenance Amount. For so long as the AMPS are rated by
Moody's, the Corporation will not enter into any such reverse repurchase
agreements 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.


                                      15
<PAGE>


     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.

     "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:


                                      16
<PAGE>


                % Change in                 Moody's Volatility
              Marginal Tax Rate                   Factor
              -----------------             ------------------

                     <=5%                          292%
                 >5% but <=10%                     313%
                >10% but <=15%                     338%
                >15% but <=20%                     364%
                >20% but <=25%                     396%
                >25% but <=30%                     432%
                >30% but <=35%                     472%
                >35% but <=40%                     520%


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

     "Municipal Bonds" means "Municipal Bonds" as defined in the Corporation's
Registration Statement on Form N-2 (File No. 333-_____) relating to the AMPS
on file with the Securities and Exchange Commission, as such Registration
Statement may be amended from time to time, as well as short-term municipal
obligations, High Yield Municipal Bonds and Inverse Floaters.

     "Municipal Index" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.

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

     "1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all
outstanding senior securities of the Corporation which are stock, including
all outstanding shares of AMPS and Other AMPS (or such other asset 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).


                                      17
<PAGE>


     "1940 Act Cure Date," with respect to the failure by the Corporation to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of these
Articles Supplementary) as of the last Business Day of each month, means the
last Business Day of the following month.

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

     "Non-Payment Period" means, with respect to the AMPS, any period
commencing on and including the day on which the Corporation shall fail to (i)
declare, prior to the close of business on the second Business Day preceding
any Dividend Payment Date, for payment on or (to the extent permitted by
paragraph 2(c)(i) of these Articles Supplementary) within three Business Days
after such Dividend Payment Date to the Holders as of 12:00 noon, Eastern
time, on the Business Day preceding such Dividend Payment Date, the full
amount of any dividend on shares of AMPS payable on such Dividend Payment Date
or (ii) deposit, irrevocably in trust, in same-day funds, with the Auction
Agent by 12:00 noon, Eastern time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any shares of AMPS
called for redemption, the Mandatory Redemption Price per share of such AMPS
or, in the case of an optional redemption, the Optional Redemption Price per
share, and ending on and including the Business Day on which, by 12:00 noon,
Eastern time, all unpaid cash dividends and unpaid redemption prices shall
have been so deposited or shall have otherwise been made available to Holders
in same-day funds; provided that, a Non-Payment Period shall not end unless
the 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


                                      18
<PAGE>


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.

     "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.


                                      19
<PAGE>


     "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.

     "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.


                                      20
<PAGE>


     "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.

     "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.


                                      21
<PAGE>


     "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 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:


                                      22
<PAGE>


<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------------------------------------------
                                            S&P's Rating Category (1)
- ----------------- ------------ ------------- --------------- ------------- ------------ -------------- ------------
<S>               <C>          <C>           <C>             <C>           <C>          <C>            <C>
    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%
- ----------------- ------------ ------------- --------------- ------------- ------------ -------------- ------------

</TABLE>

- ------------------
*    S&P rating.
(1)  For Municipal Bonds of any one issuer rated at least BBB- by S&P, or if
     not rated by S&P, rated at least A- by another NRSRO, 2% is added to the
     applicable S&P Discount Factor for every 1% by which the Market Value of
     such Municipal Bonds exceeds 5% of the aggregate Market Value of the S&P
     Eligible Assets, but in no event greater than 10%; or for any percentage
     over 5% add 10 percentage points to the applicable S&P Discount Factor.
(2)  For zero coupon Municipal Bonds, the S&P Discount Factor is 441.80%.

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


                                      23
<PAGE>


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 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


                                      24
<PAGE>

     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 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.


                                      25
<PAGE>


     "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 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 seven), evenly divisible by seven,
and not fewer than seven nor more than 364.


                                      26
<PAGE>


     "Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven), 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.

     "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.


                                      27
<PAGE>


     "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 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


                                      28
<PAGE>


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 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


                                      29
<PAGE>


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 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


                                      30
<PAGE>


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-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


                                      31
<PAGE>


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
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.


                                      32
<PAGE>


     (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 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


                                      33
<PAGE>


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 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 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


                                      34
<PAGE>


     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 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


                                      35
<PAGE>


     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 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


                                      36
<PAGE>


     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 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


                                      37
<PAGE>


     of Special Dividend Period for 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 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


                                      38
<PAGE>


     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 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 a portion of the outstanding shares of AMPS or the
liquidation of the Corporation (the amount


                                      39
<PAGE>


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 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


                                      40
<PAGE>


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 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.

     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


                                      41
<PAGE>


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 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


                                      42
<PAGE>


     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 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


                                      43
<PAGE>


     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, Other AMPS and other Preferred Stock subject to redemption
     pursuant to provisions similar to those contained in this paragraph
     4(a)(ii); provided that, shares of AMPS which may not be redeemed at the
     option of the Corporation due to the designation of a Non-Call Period
     applicable to such shares (A) will be subject to mandatory redemption
     only to the extent that other shares are not available to satisfy the
     number of shares required to be redeemed and (B) will be selected for
     redemption in an ascending order of outstanding number of days in the
     Non-Call Period (with shares with the lowest number of days to be
     redeemed first) and by lot in the event of shares having an equal number
     of days in such Non-Call Period. The Corporation shall effect such
     redemption on a Business Day which is not later than 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,


                                      44
<PAGE>


     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 a series of AMPS are
to be redeemed and there is more than one Holder, the shares of that series of
AMPS to be redeemed shall be selected by lot or such other method as the
Corporation shall deem fair and equitable.

     (c) 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 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


                                      45
<PAGE>


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 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.


                                      46
<PAGE>


     5. Voting Rights.

     (a) General. Except as otherwise provided in the Charter or By-laws, each
Holder of shares of AMPS shall be entitled to one vote for each share held 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 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:


                                      47
<PAGE>


          (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
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


                                      48
<PAGE>


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 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


                                      49
<PAGE>


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
     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


                                      50
<PAGE>


     by an announcement at the meeting, to a date not more than 120 days after
     the original record date.

          (ii) For purposes of determining any rights of the Holders to vote
     on any matter or the number of shares required to constitute a quorum,
     whether such right is created by these Articles Supplementary, by the
     other provisions of the Charter, by statute or otherwise, a share of AMPS
     which is not Outstanding shall not be counted.

          (iii) The terms of office of all persons who are directors of the
     Corporation at the time of a special meeting of Holders and holders of
     other Preferred Stock to elect directors shall continue, notwithstanding
     the election at such meeting by the Holders and such other holders of the
     number of directors that they are entitled to elect, and the persons so
     elected by the Holders and such other holders, together with the two
     incumbent directors elected by the Holders and such other holders of
     Preferred Stock and the remaining incumbent directors elected by the
     holders of the Common Stock and Preferred Stock, shall constitute the
     duly elected directors of the Corporation.

          (iv) Simultaneously with the expiration of a Voting Period, the
     terms of office of the additional directors elected by the Holders and
     holders of other Preferred Stock pursuant to paragraph 5(b) above shall
     terminate, the remaining directors shall constitute the directors of the
     Corporation and the voting rights of the Holders and such other holders
     to elect additional directors pursuant to paragraph 5(b) above shall
     cease, subject to the provisions of the last sentence of paragraph 5(b).

     (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


                                      51
<PAGE>


the event that the Corporation fails to pay any dividends on the shares of
AMPS, the exclusive remedy of the Holders shall be the right to vote for
directors pursuant to the provisions of this paragraph 5.

     (f) Notification to S&P and Moody's. In the event a vote of Holders of
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Corporation shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify S&P and Moody's that such vote is to be
taken and the nature of the action with respect to which such vote is to be
taken and, not later than ten Business Days after the date on which such vote
is taken, notify S&P and Moody's of the result of such vote.

     6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as of
the last Business Day of each month in which any share of AMPS is outstanding,
the 1940 Act AMPS Asset Coverage.

     7. AMPS Basic Maintenance Amount.

     (a) The Corporation shall maintain, on each Valuation Date, and shall
verify to its satisfaction that it is maintaining on such Valuation Date, (i)
S&P Eligible Assets having an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount and (ii) Moody's Eligible Assets having
an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount. Upon any failure to maintain the required Discounted
Value, the Corporation will use its best efforts to alter the composition of
its portfolio to 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 third Business Day in the case of S & P, after
a Valuation Date on which the


                                      52
<PAGE>


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
immediate electronic notification of such failure. The Corporation will (i)
deliver an AMPS Basic Maintenance Report to Moody's and (ii) send S&P an
immediate 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 third 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 in the case of S&P and 25% or more in the case of Moody's. The
Corporation will also deliver an AMPS Basic Maintenance Report to Moody's and
S&P as of the last Business Day of each month 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 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


                                      53
<PAGE>


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.

     (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


                                      54
<PAGE>


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 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


                                      55
<PAGE>


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 ("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


                                      56
<PAGE>


     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;

          (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


                                      57
<PAGE>


     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 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


                                      58
<PAGE>


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)
     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


                                      59
<PAGE>


     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
     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;


                                      60
<PAGE>


          (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 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


                                      61
<PAGE>


securities; and (v) where delivery may be made to the Corporation with any
security of a class of securities, the Corporation shall assume that it will
take delivery of the security with the lowest Discounted Value.

     For purposes of determining whether the Corporation has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the AMPS
Basic Maintenance Amount, the following amounts shall be subtracted from the
aggregate Discounted Value of the Moody's Eligible Assets held by the
Corporation: (i) 10% of the exercise price of a written call option; (ii) the
exercise price of any written put option; (iii) where the Corporation is the
seller under a futures contract, 10% of the settlement price of the futures
contract; (iv) where the Corporation is the purchaser under a futures
contract, the settlement price of assets purchased under such futures
contract; (v) the settlement price of the underlying futures contract if the
Corporation writes put options on a futures contract; and (vi) 105% of the
Market Value of the underlying futures contracts if the Corporation writes
call options on a futures contract and does not own the underlying contract.

     (c) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not enter into any contract to purchase securities for a
fixed price at a future date beyond customary settlement time (other than such
contracts that constitute Moody's Hedging Transactions that are permitted
under paragraph 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


                                      62
<PAGE>


     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 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)


                                      63
<PAGE>


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 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


                                      64
<PAGE>


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 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%.


                                      65
<PAGE>


     (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.

          (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


                                      66
<PAGE>


     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 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.


                                      67
<PAGE>


          (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.

     (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


                                      68
<PAGE>


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


                                      69
<PAGE>


          Beneficial Owners, on such list to determine the number of
          Outstanding shares, if any, of AMPS which each such Potential
          Beneficial Owner offers to purchase, provided that the Applicable
          Rate for the next succeeding Dividend Period shall not be less than
          the rate per annum specified by such Potential Beneficial Owner.

     For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an
Order containing the information referred to in clause (A)(1) of this
paragraph 10(b)(i) is hereinafter referred to as a "Hold Order"; an Order
containing the information referred to in clause (A)(2) or (B) of this
paragraph 10(b)(i) is hereinafter referred to as a "Bid"; and an Order
containing the information referred to in clause (A)(3) of this paragraph
10(b)(i) is hereinafter referred to as a "Sell Order". Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.

          (ii) A 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


                                      70
<PAGE>


               (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


                                      71
<PAGE>


          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:

                    (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


                                      72
<PAGE>


               (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 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


                                      73
<PAGE>


          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 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


                                      74
<PAGE>


          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 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:


                                      75
<PAGE>


                    (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 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,


                                      76
<PAGE>


     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 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.


                                      77
<PAGE>


     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


                                      78
<PAGE>


          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

               (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


                                      79
<PAGE>


          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


                                      80
<PAGE>


          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
     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


                                      81
<PAGE>


     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-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


                                      82
<PAGE>


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 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 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


                                      83
<PAGE>


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.

     (b) On the date that the notice is given in paragraph 12(a) above and on
the date that compliance with the Moody's Provisions and/or the S&P
Provisions, as the case may be, is terminated, the Corporation shall provide
the Auction Agent and Moody's or S&P, as applicable, with an officers'
certificate as to the compliance with the provisions of paragraph 12(a)
hereof, and the Moody's Provisions and/or the S&P Provisions, as applicable,
on such later date and thereafter shall have no force or effect.


                                      84
<PAGE>


     IN WITNESS WHEREOF, MUNIYIELD 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 _____, 2004.

                                    MUNIYIELD FUND, INC.



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


Attest:




- --------------------
Name:
Title:  Secretary


     THE UNDERSIGNED, Vice President of MUNIYIELD 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:
                                         Title:

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2 (D)(2)
<SEQUENCE>3
<FILENAME>efc4-1321_5570205ex992d2.txt
<TEXT>
                                                                 EXHIBIT (d)(2)

                    Auction Market Preferred Stock, Series G

NUMBER 1                                                           2,280 SHARES

                             MUNIYIELD 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 # 626299 80 4

THIS CERTIFIES THAT

                                  CEDE & CO.

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF AUCTION MARKET PREFERRED STOCK, PAR
VALUE $.10 PER SHARE, LIQUIDATION PREFERENCE $25,000 PER SHARE PLUS AN AMOUNT
EQUAL TO ACCUMULATED BUT UNPAID DIVIDENDS THEREON (WHETHER OR NOT EARNED OR
DECLARED) OF

                             MUNIYIELD FUND, INC.

TRANSFERABLE ON THE BOOKS OF SAID CORPORATION IN PERSON OR BY DULY AUTHORIZED
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.

THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT AND
REGISTERED BY THE REGISTRAR.

IN WITNESS WHEREOF, MUNIYIELD 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:           , 2004

Countersigned and Registered:

THE BANK OF NEW YORK                                ---------------------------
(New York)    Transfer Agent

By:_______________________________                  ___________________________
        Authorized Signature


<PAGE>


THE TRANSFER OF THE SHARES OF AUCTION MARKET PREFERRED STOCK REPRESENTED
HEREBY IS SUBJECT TO THE RESTRICTIONS CONTAINED IN THE CORPORATION'S CHARTER.
THE CORPORATION WILL FURNISH INFORMATION ABOUT SUCH RESTRICTIONS TO ANY
STOCKHOLDER, WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE CORPORATION.

                             MUNIYIELD 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 securities or other identifying number of assignee

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

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

- -------------------------------------------------------------------------------
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)


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

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

<PAGE>

_________________________________________________________________________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-99.2(E)
<SEQUENCE>4
<FILENAME>efc4-1321_5570192ex992e.txt
<TEXT>
                                                                   Exhibit (e)

                             MUNIYIELD FUND, INC.

                            TERMS AND CONDITIONS OF
                     AUTOMATIC DIVIDEND REINVESTMENT PLAN

     1. Appointment of Agent. You, ____________, will act as Agent for me, and
will open an account for me under the Dividend Reinvestment Plan (the "Plan")
in the same name as my present shares of common stock, par value $.10 per
share ("Common Stock"), of MUNIYIELD FUND, INC. (the "Fund") are registered,
and will automatically put into effect for me the dividend reinvestment option
of the Plan as of the first record date for a dividend or capital gains
distribution (collectively referred to herein as a "dividend"), payable at the
election of shareholders in cash or shares of Common Stock.

     2. Dividends Payable in Common Stock. My participation in the Plan
constitutes an election by me to receive dividends in shares of Common Stock
whenever the Fund declares a dividend. In such event, the dividend amount
shall automatically be made payable to me entirely in shares of Common Stock
which shall be acquired by the Agent for my account, depending upon the
circumstances described in paragraph 3, either (i) through receipt of
additional shares of unissued but authorized shares of Common Stock from the
Fund ("newly issued shares") as described in paragraph 6 or (ii) by purchase
of outstanding shares of Common Stock on the open market ("open-market
purchases") as described in paragraph 7.

     3. Determination of Whether Newly-Issued Shares or Open Market Purchases.
If on the payment date for the dividend (the "valuation date"), the net asset
value per share of the Common Stock, as defined in paragraph 8, is equal to or
less than the market price per share of the Common Stock, as defined in
paragraph 8, plus estimated brokerage commissions (such condition being
referred to herein as "market premium"), the Agent shall invest the dividend
amount in newly issued shares on my behalf as described in paragraph 6. If on
the valuation date, the net asset value per share is greater than the market
value (such condition being referred to herein as "market discount"), the
Agent shall invest the dividend amount in shares acquired on my behalf in
open-market purchases as described in paragraph 7.

     4. Purchase Period for Open-Market Purchases. In the event of a market
discount on the valuation date, the Agent shall have until the last business
day before the next ex-dividend date with respect to the shares of Common
Stock or in no event more than 30 days after the valuation date (the "last
purchase date") to invest the dividend amount in shares acquired in
open-market purchases except where temporary curtailment or suspension of
purchases is necessary to comply with applicable provisions of federal
securities laws.

     5. Failure to Complete Open-Market Purchases During Purchase Period. If
the Agent is unable to invest the full dividend amount in open-market
purchases during the purchase period because the market discount has shifted
to a market premium or otherwise, the Agent will invest the uninvested portion
of the dividend amount in newly issued shares at the close of business on the
last purchase date as described in paragraph 4; except that the Agent may not
acquire newly issued shares after the valuation date under the foregoing
circumstances unless it has received a legal opinion that registration of such
shares is not required under the Securities Act of 1933 or unless the shares
to be issued are registered under such Act.


<PAGE>


     6. Acquisition of Newly-Issued Shares. In the event that all or part of
the dividend amount is to be invested in newly issued shares, you shall
automatically receive such newly-issued shares of Common Stock, including
fractions, for my account, and the number of additional newly-issued shares of
Common Stock to be credited to my account shall be determined by dividing the
dollar amount of the dividend on my shares to be invested in newly-issued
shares by the net asset value per share of Common Stock on the date the shares
are issued (the valuation date in the case of an initial market premium or the
last purchase date in case the Agent is unable to complete open-market
purchases during the purchase period); provided, that the maximum discount
from the then current market price per share on the date of issuance shall not
exceed 5%.

     7. Manner of Making Open-Market Purchases. In the event that the dividend
amount is to be invested in shares of Common Stock acquired in open-market
purchases, you shall apply the amount of such dividend on my shares (less my
pro rata share of brokerage commissions incurred with respect to your
open-market purchases) to the purchase on the open-market of shares of the
Common Stock for my account. Open-market purchases may be made on any
securities exchange where the Common Stock is traded, in the over-the-counter
market or in negotiated transactions and may be on such terms as to price,
delivery and otherwise as you shall determine. My funds held by you uninvested
will not bear interest, and it is understood that, in any event, you shall
have no liability in connection with any inability to purchase shares within
30 days after the initial date of such purchase as herein provided, or with
the timing of any purchases affected. You shall have no responsibility as to
the value of the Common Stock acquired for my account. For the purposes of
cash investments you may commingle my funds with those of other shareholders
of the Fund for whom you similarly act as Agent, and the average price
(including brokerage commissions) of all shares purchased by you as Agent in
the open market shall be the price per share allocable to me in connection
with open-market purchases.

     8. Meaning of Market Price and Net Asset Value. For all purposes of the
Plan: (a) the market price of the Common Stock on a particular date shall be
the last sales price on the New York Stock Exchange (the "Exchange") on that
date, or, if there is no sale on the Exchange on that date, then the mean
between the closing bid and asked quotations for such stock on the Exchange on
such date and (b) net asset value per share of the Common Stock on a
particular date shall be as determined by or on behalf of the Fund.

     9. Registration of Shares Acquired Pursuant to the Plan. You may hold my
shares of Common Stock acquired pursuant to the Plan, together with the shares
of other shareholders of the Fund acquired pursuant to the Plan, in
noncertificated form in your name or that of your nominee. You will forward to
me any proxy solicitation material and will vote any shares so held for me
only in accordance with the proxy returned by me to the Fund. Upon my written
request, you will deliver to me, without charge, a certificate or certificates
for the full shares held by you for my account.

     10. Confirmations. You will confirm to me each acquisition made for my
account as soon as practicable but not later than 60 days after the date
thereof.


                                       2
<PAGE>


     11. Fractional Interests. Although I may from time to time have an
undivided fractional interest (computed to three decimal places) in a share of
the Fund, no certificates for a fractional share will be issued. However,
dividends and distributions on fractional shares will be credited to my
account. In the event of termination of my account under the Plan, you will
adjust for any such undivided fractional interest in cash at the market value
of the Fund's shares at the time of termination less the pro rata expense of
any sale required to make such an adjustment.

     12. Stock Dividends or Share Purchase Rights. Any stock dividends or
split shares distributed by the Fund on shares held by you for me will be
credited to my account. In the event that the Fund makes available to its
shareholders rights to purchase additional shares or other securities, the
shares held for me under the Plan will be added to other shares held by me in
calculating the number of rights to be issued to me.

     13. Service Fee. Your service fee for handling capital gains
distributions or income dividends will be paid by the Fund. I will be charged
for my pro rata share of brokerage commissions on all open market purchases.

     14. Termination of Account. I may terminate my account under the Plan by
notifying you in writing. Such termination will be effective immediately if my
notice is received by you not less than ten days prior to any dividend or
distribution record date; otherwise such termination will be effective on the
first trading day after the payment date for such dividend or distribution
with respect to any subsequent dividend or distribution. The Plan may be
terminated by you or the Fund upon notice in writing mailed to me at least 90
days prior to any record date for the payment of any dividend or distribution
by the Fund. Upon any termination you will cause a certificate or certificates
for the full shares held for me under the Plan and cash adjustment for any
fraction to be delivered to me without charge. If I elect by notice to you in
writing in advance of such termination to have you sell part or all of my
shares and remit the proceeds to me, you are authorized to deduct brokerage
commissions for this transaction from the proceeds.

     15. Amendment of Plan. These terms and conditions may be amended or
supplemented by you or the Fund at any time or times but, except when
necessary or appropriate to comply with applicable law or the rules or
policies of the Securities and Exchange Commission or any other regulatory
authority, only by mailing to me appropriate written notice at least 90 days
prior to the effective date thereof. The amendment or supplement shall be
deemed to be accepted by me unless, prior to the effective date, thereof, you
receive written notice of the termination of my account under the Plan. Any
such amendment may include an appointment by you in your place and stead of a
successor Agent under these terms and conditions, with full power and
authority to perform all or any of the acts to be performed by the Agent under
these terms and conditions. Upon any such appointment of an Agent for the
purpose of receiving dividends and distributions, the Fund will be authorized
to pay to such successor Agent, for my account, all dividends and
distributions payable on Common Stock of the Fund held in my name or under the
Plan for retention or application by such successor Agent as provided in these
terms and conditions.

     16. Extent of Responsibility of Agent. You shall at all times act in good
faith and agree to use your best efforts within reasonable limits to insure
the accuracy of all services


                                       3
<PAGE>


performed under this Agreement and to comply with applicable law, but assume
no responsibility and shall not be liable for loss or damage due to errors
unless such error is caused by your negligence, bad faith, or will willful
misconduct or that of your employees.

     17. Governing Law. These terms and conditions shall be governed by the
laws of the State of New York without regard to its conflicts of laws
provisions.



                                       4


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(H)(1)
<SEQUENCE>5
<FILENAME>efc4-1321_5570180ex992h1.txt
<TEXT>
                                                                EXHIBIT (h)(1)


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



                             MUNIYIELD FUND, INC.


                           (a Maryland corporation)


                                  $57,000,000
                        Auction Market Preferred Stock


                            2,280 Shares, Series G

                  (Liquidation Preference $25,000 Per Share)


                              PURCHASE AGREEMENT



                         Dated:                , 2004



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


<PAGE>


<TABLE>
<CAPTION>

                                               TABLE OF CONTENTS

                                                                                                            Page
<S>                                                                                                          <C>
SECTION 1.  Representations and Warranties...................................................................3

   (a)  Representations and Warranties by the Fund and the Adviser...........................................3

   (b)  Additional Representations of the Adviser............................................................9

   (c)  Officers' Certificates..............................................................................10

SECTION 2.  Sale and Delivery to the Underwriter; Closing...................................................10

   (a)  Purchase Price......................................................................................10

   (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..............................................................................13

   (l)  Rule 462(b) Registration Statement..................................................................14

   (m) No Manipulation of Market for the Shares.............................................................14

SECTION 4.  Covenants of the Underwriter....................................................................14

SECTION 5.  Payment of Expenses.............................................................................14

   (a)  Expenses............................................................................................14

   (b)  Termination of Agreement............................................................................14

SECTION 6.  Conditions of Underwriter's Obligations.........................................................15

   (a)  Effectiveness of Registration Statement.............................................................15

   (b)  Opinion of Counsel for the Fund and the Underwriter.................................................15


                                                       i


<PAGE>


                                               Table of Contents
                                               -----------------
                                                  continued


                                                                                                          Page
                                                                                                          ----

   (c)  Opinion of Senior Attorney of the 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............................................................................16

SECTION 7.  Indemnification.................................................................................17

   (a)  Indemnification of the Underwriter..................................................................17

   (b)  Indemnification of Fund, Adviser, General Partner, and Directors and Officers.......................17

   (c)  Actions against Parties, Notification...............................................................18

   (d)  Settlement without Consent if Failure to Reimburse..................................................18

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.........................................................................................20

SECTION 11.  Notices........................................................................................21

SECTION 12.  Parties........................................................................................21

SECTION 13.  Governing Law and Time.........................................................................21

SECTION 14.  Effect of Headings.............................................................................21
</TABLE>


                                                      ii


<PAGE>


EXHIBITS
Exhibit A    -    Form of Opinion of Fund's Counsel
Exhibit B    -    Form of Opinion of Senior Attorney of the Investment Adviser
Exhibit C    -    Form of Accountant's Comfort Letter


                                                     iii


<PAGE>


                             MUNIYIELD FUND, INC.
                           (a Maryland corporation)

                                  $57,000,000
                        Auction Market Preferred Stock


                            2,280 Shares, Series G



                  (Liquidation Preference $25,000 Per Share)

                              PURCHASE AGREEMENT

                                                                        , 2004

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
            Incorporated
4 World Financial Center
New York, New York  10080

Ladies and Gentlemen:

     MuniYield Fund, Inc., a Maryland corporation (the "Fund"), and Fund Asset
Management, L.P., a Delaware limited partnership (the "Adviser"), each
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated (the "Underwriter" or "Merrill Lynch"), with respect to
the issue and sale by the Fund and the purchase by the Underwriter of 2,280
shares of Auction Market Preferred Stock, Series G ("Series G AMPS"), with a
par value of $.10 per share and a liquidation preference $25,000 per share
plus an amount equal to accumulated but unpaid dividends thereon (whether or
not earned or declared), of the Fund (together, 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-
, 811-06414), 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
_________ ___, 2004, 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 Adviser. The Fund
and the 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 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 requirement of Rule 111, under the 1933 Act Regulations
     relating to the payment of filing fees thereof.

          (ii) Independent Accountants. The accountants who certified the
     financial statements and supporting schedules, if any, included or
     incorporated by reference in the Registration Statement are independent
     public accountants 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
     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 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 intends 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 Adviser. The 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 Adviser. The 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 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 Adviser. The description of the 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 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 Adviser; the Advisory Agreement
     has been duly authorized, executed and delivered by the Adviser, and
     constitutes a valid and binding obligation of the 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 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


                                      9


<PAGE>


     or the lapse of time or both, a default under, any agreement or
     instrument to which the Adviser is a party or by which it is bound, the
     certificate of formation, the operating agreement, or other
     organizational documents of the Adviser, or the 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 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 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 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 Adviser, threatened against or affecting the Adviser or any
     "affiliated person" of the 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 Adviser, materially and
     adversely affect the properties or assets of the Adviser or materially
     impair or adversely affect the ability of the 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 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 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 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 Adviser, as the case may be, to the Underwriter as to the
matters covered thereby.

     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


                                      10


<PAGE>


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 third (fourth, 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 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


                                      11


<PAGE>


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, 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


                                      12


<PAGE>


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.

     (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


                                      13


<PAGE>


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
auctiors 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 advisors, (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.

     (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 Adviser shall reimburse, or arrange for an affiliate
to reimburse, the Underwriter for all of its out-of-


                                      14


<PAGE>


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 Adviser contained in Section 1 hereof, or
in the certificates of any officer of the Fund and the Adviser delivered
pursuant to the provisions hereof, to the performance by the Fund and the
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 Adviser. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Andrew I. Donohue, Esq., General Counsel of the Adviser, or another
senior attorney of the 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, (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 are contemplated by the Commission and (B) a
certificate


                                      15


<PAGE>


of the President or a Vice President of the Adviser, dated as of Closing Time,
to the effect that (i) 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, and (ii) the Adviser has complied
with all agreements and satisfied all conditions on its part to be performed
or satisfied at or prior to Closing Time.

     (e) Accountant'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
accountants' "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 at 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 Charter)
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 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


                                      16


<PAGE>


Section 5 and except that Sections 1, 7, 8 and 9 shall survive any such
termination and remain in full force and effect.

     SECTION 7. Indemnification.

     (a) Indemnification of the Underwriter. The Fund and the Adviser jointly
and severally agree to indemnify and hold harmless the Underwriter and each
person, if any, who controls the Underwriter within the meaning of Section 15
of the 1933 Act or Section 25 of the 1934 Act and any director, officer,
employee or affiliate thereof as follows:

          (i) against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, arising out of any untrue statement or alleged
     untrue statement of a material fact contained in the Registration
     Statement (or any amendment thereto), including the Rule 430A Information
     and the Rule 434 Information, if applicable, or the omission or alleged
     omission therefrom of a material fact required to be stated therein or
     necessary to make the statements therein not misleading or arising out of
     any untrue statement or alleged untrue statement of a material fact
     included in any preliminary prospectus/statement or the Prospectus (or
     any amendment or supplement thereto), or the omission or alleged omission
     therefrom of a material fact necessary in order to make the statements
     therein, in the light of the circumstances under which they were made,
     not misleading;

          (ii) against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, to the extent of the aggregate amount paid in
     settlement of any litigation, or any investigation or proceeding by any
     governmental agency or body, commenced or threatened, or of any claim
     whatsoever based upon any such untrue statement or omission, provided
     that (subject to Section 7(d) below) any such settlement is effected with
     the written consent of the indemnifying party; and

          (iii) against any and all expense whatsoever, as incurred (including
     the fees and disbursements of counsel chosen by the Underwriter)
     reasonably incurred in investigating, preparing or defending against any
     litigation, or any investigation or proceeding by any governmental agency
     or body, commenced or threatened, or any claim whatsoever based upon any
     such untrue statement or omission, or any such alleged untrue statement
     or omission, to the extent that any such expense is not paid under (i) or
     (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue 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, Adviser, General Partner, and Directors and
Officers. The Underwriter agrees to indemnify and hold harmless the Fund, the
Adviser, the directors of


                                      17


<PAGE>


the Fund, the general partner of the Adviser, each of the Fund's officers who
signed the Registration Statement, and each person, if any, who controls the
Fund or the 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 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.

     (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.


                                      18


<PAGE>


     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
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 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 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 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 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 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 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.


                                      19


<PAGE>


     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 Adviser, respectively, each officer of
the Fund who signed the Registration Statement and each person, if any, who
controls the Fund and the 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 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 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
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 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 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 and 9 shall survive such termination and remain in full force
and effect.


                                      20


<PAGE>


     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
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 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 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 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. 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.


                                      21


<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 Adviser in accordance with its
terms.

                                       Very truly yours,

                                       MUNIYIELD 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


                                      22


<PAGE>


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


                             MUNIYIELD FUND, INC.
                           (a Maryland corporation)

                                  $57,000,000


                        Auction Market Preferred Stock

                            2,280 Shares, Series G




                  (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 G AMPS for the initial dividend
period ending [ , 2004] shall be [ ]%.


                                      23


<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 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 so to 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 nonassessable.

5. The Shares to be purchased by the Underwriter from the Fund have been duly
authorized for issuance and sale to the Underwriter pursuant to the Purchase
Agreement and, when issued and delivered by the Fund 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 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 (other than the financial statements and supporting schedules
included or incorporated by reference therein or omitted therefrom, as to
which we need express no opinion) complied as to form in all material respects
with the requirements of the 1933 Act, the Investment Company Act and the
Rules and Regulations.

11. The form of certificate(s) used to evidence each of 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. 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.

12. The information in the Prospectus under "Description of AMPS,"
"Description of Capital Stock," and "Taxes" and in the Registration Statement
under Item 29, 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.

13. 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.

14. 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.

15. 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 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.


                                     A-2


<PAGE>


16. 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 need express no opinion) is necessary or
required in connection with the due authorization, execution and delivery 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.

17. 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 by the Fund.

18. Each of the Auction Agent 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.

19. 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.

20. 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)(xi) 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 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


                                     A-3


<PAGE>


government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Fund or any of its properties, assets or operations.

     Nothing 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 need make no
statement), at the time such Registration Statement or any such amendment
became 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 need 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 and the Adviser and 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 legal
opinions, including, without limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991).


                                     A-4


<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)

     (1) The 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.

     (2) The Adviser is duly registered as an investment adviser under 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
Prospectus.

     (3) This Agreement and the Advisory Agreement have been duly authorized,
executed and delivered by the Adviser, and the Advisory Agreement constitutes
a valid and binding obligation of the 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; and, to the best of his knowledge and information,
neither the execution and delivery of this Agreement or the Advisory Agreement
nor the performance by the 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 Adviser is
a party or by which the Adviser is bound, or any law, order, rule or
regulation applicable to the 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 Adviser or its
properties or operations.

     (4) To the best of his knowledge and information, the description of the
Adviser in the Registration Statement and in the Prospectus does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.


                                     B-1


<PAGE>


                                                                     Exhibit C

                             FORM OF ACCOUNTANTS'
                    COMFORT LETTER PURSUANT TO SECTION 6(e)

     (1) We are independent public accountants 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;

     (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 accountants shall also state that they have performed specified
procedures, not constituting an audit, including a reading of the latest
available interim financial statements of the Fund, a reading of the minute
books of the Fund, made inquiries of officials of the Fund responsible for
financial accounting matters and such other inquiries and procedures as may be
specified in such letter, and on the basis of such inquiries and procedures
nothing came to their attention that caused them to believe that (A) the
unaudited financial statements included or incorporated by reference in the
Registration Statement do not comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act, the Investment Company
Act and of the Rules and Regulations applicable to unaudited interim financial
statements included or incorporated by reference in registration statements or
are not in conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial statements
included or incorporated by reference in the Registration Statement, and (B)
during the period from the date of the unaudited financial statements included
or incorporated by reference in the Registration Statement to a specified date
not more than three days prior to the date of the Purchase Agreement, there
was any change in the capital stock or net assets of the Fund (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 any increase in
the long-term debt of the Fund, as compared with amounts shown on the
unaudited financial statements included or incorporated by reference in the
Registration Statement, except for changes which the Registration Statement
discloses have occurred or may occur; and in addition, they have performed
other specified procedures, not constituting an audit, with respect to certain
amounts, percentages, numerical data, financial information and financial
statements appearing in the Registration Statement, which previously have been
specified by such accountants 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-99.2(K)(4)
<SEQUENCE>6
<FILENAME>efc4-1321_5570209ex992k4.txt
<TEXT>
                                                                EXHIBIT (k)(4)


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

                            AUCTION AGENT AGREEMENT

                                    between

                             MUNIYIELD FUND, INC.

                                      and

                             THE BANK OF NEW YORK

                       Dated as of ___________ __, 2004

                                  Relating to

                        AUCTION MARKET PREFERRED STOCK

                                   ("AMPS"),

                                   Series G

                                      of

                             MUNIYIELD FUND, INC.



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


<PAGE>


     THIS AUCTION AGENT AGREEMENT, dated as of ________ ___, 2004, is between
MUNIYIELD FUND, INC., a Maryland corporation (the "Company"), and THE BANK OF
NEW YORK, a New York banking corporation.

     The Company proposes to duly authorize and issue 2,280 shares of Auction
Market Preferred Stock, Series G ("Series G 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 G AMPS are sometimes referred to as the "AMPS." A separate Auction (as
defined below) will be conducted for each series of 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 __________ ___, 2004 with the state of Maryland.

          (d) "Auction" shall have the meaning specified in Section 2.1
          hereof.

          (e) "Auction Procedures" shall mean the Auction Procedures that are
          set forth in Paragraph 10 of the Articles Supplementary.


                                       2


<PAGE>


          (f) "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.

          (g) "Broker-Dealer Agreement" shall mean each agreement between the
          Auction Agent and a Broker-Dealer substantially in the form attached
          hereto as Exhibit A.

          (h) "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.

          (i) "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.

          (j) "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.

          (d) All references herein to a particular time of day shall be to
          New York City time.


                                      3


<PAGE>


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 G 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 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.


                                      4


<PAGE>


          (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 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 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


                                      5


<PAGE>


          sentence) in determining the Maximum Applicable Rate as set forth in
          Section 2.2(d)(i) hereof.

          (e) The Auction Agent shall maintain by series a current registry of
          the Existing Holders of the shares of each series 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 each series of AMPS, and the
          Broker-Dealer of each such Existing Holder through which such
          Existing Holder purchased such shares. The Auction Agent may 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 any series 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 such
          series 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 such series
          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 such series 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 a series 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 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


                                      6


<PAGE>


          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 any series 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.

              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.


     By approximately              Auction Agent advises the Company of the
     3:00 P.M.                     results of the Auction as provided in
                                   Paragraph 10(d)(ii) of the Articles
                                   Supplementary.

                                   Submitted Bids and Submitted Sell Orders
                                   are accepted and rejected in whole or in
                                   part and shares of AMPS


                                      7


<PAGE>


                                   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.

     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
          the series of AMPS for which the Auction is conducted 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.

     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


                                      8
<PAGE>


of the Company's knowledge, any Affiliate of the Company becomes a Beneficial
Owner of any shares of AMPS. Any shares of a series 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
public accountants 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,
accountant 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, accountant 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, accountant 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, accountant 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.

     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.


                                      9


<PAGE>


     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 Company to such Holders. The Paying Agent shall
have no duty to determine the redemption price and may rely on the amount
thereof set forth in a Notice of Redemption.


                                      10


<PAGE>


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
each series of 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 each series 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 each series 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 a series 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 any series 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 each series 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 certificates evidencing the shares of
          each series of AMPS comply with all applicable laws of the State of
          Maryland;

               (v) the shares of each series of AMPS have been duly and
          validly authorized by the Company and, upon completion of the
          initial sale of the shares of such series 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 each series
          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 each series 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 each series 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


                                      13


<PAGE>


               (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 each series of AMPS.

     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 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.


                                      14


<PAGE>


     6.2. Rights of the Auction Agent.

          (a) The Auction Agent may rely upon, and shall be protected in
          acting or refraining from acting upon, any communication authorized
          hereby and 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 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.

     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 disbursements of its agents
          and counsel), except any expense, disbursement or advance
          attributable to its negligence or willful misconduct.


                                      15


<PAGE>


          (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.

     Except for (i) communications authorized to be made by telephone 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


                                      16


<PAGE>


communications to any party hereunder shall be in writing (including telecopy
or similar writing) and shall be given to such party at its address or
telecopier number set forth below:

    If to the Company,                MUNIYIELD 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 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.


                                      17


<PAGE>


          (b) Failure of either party hereto to exercise any right or remedy
          hereunder in the event of a breach hereof by the other party shall
          not constitute a waiver of any such right or remedy with respect to
          any subsequent breach.

     7.6. Successors and Assigns.

     This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Company and the Auction Agent. This Agreement may not be assigned by either
party hereto absent the prior written consent of the other party, which
consent shall not be withheld unreasonably.

     7.7. Severability.

     If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.

     7.8. Execution in Counterparts.

     This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.

     7.9. Governing Law.

     This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be
performed in said State.


                                      18


<PAGE>


     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.

                                       MUNIYIELD FUND, INC.



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



                                      THE BANK OF NEW YORK



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


                                      19

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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