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<SEC-DOCUMENT>/in/edgar/work/0000950156-00-000567/0000950156-00-000567.txt : 20001129
<SEC-HEADER>0000950156-00-000567.hdr.sgml : 20001129
ACCESSION NUMBER:		0000950156-00-000567
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		8
FILED AS OF DATE:		20001128

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MFS MUNICIPAL INCOME TRUST
		CENTRAL INDEX KEY:			0000801961
		STANDARD INDUSTRIAL CLASSIFICATION:	 [
]		IRS NUMBER:				046554822
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			1031
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		N-2/A
			SEC ACT:		
			SEC FILE NUMBER:	333-42364
			FILM NUMBER:		777461
</FILING-VALUES>

			FILING VALUES:
				FORM TYPE:		N-2/A
				SEC ACT:		
				SEC FILE NUMBER:	811-04841
				FILM NUMBER:		777462
</FILING-VALUES>

				BUSINESS ADDRESS:	
					STREET 1:		500 BOYLSTON ST
					STREET 2:		15TH FLOOR
					CITY:			BOSTON
					STATE:			MA
					ZIP:			02116
					BUSINESS PHONE:		6179545268
</BUSINESS-ADDRESS>

					MAIL ADDRESS:	
						STREET 1:		500 BOYLSTON STREET
						STREET 2:		15TH FLOOR
						CITY:			BOSTON
						STATE:			MA
						ZIP:			02116
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>MFS MUNICIPAL INCOME TRUST
<TEXT>

<PAGE>

 AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 2000

                        SECURITIES ACT FILE NO. 333-42364
                    INVESTMENT COMPANY ACT FILE NO. 811-4841
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM N-2

                        (Check appropriate box or boxes)

           REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933    [X]

                          Pre-Effective Amendment No. 1               [X]

                                   -----------

                          Post-Effective Amendment No.                [ ]

                                   -----------

                                     and/or

      REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

                                Amendment No. 11                      [X]

                           MFS MUNICIPAL INCOME TRUST
               (Exact Name of Registrant as Specified in Charter)
                               500 Boylston Street
                           Boston, Massachusetts 02116
                    (Address of Principal Executive Offices)

                                 (617) 954-5000
              (Registrant's Telephone Number, including Area Code)

<TABLE>
<S>                             <C>                            <C>
- -----------------------------------------------------------------------------------------
Name and Address of
- -----------------------------------------------------------------------------------------
Agent for Service               Copies to                      Copies to
- -----------------------------------------------------------------------------------------
Stephen E. Cavan                Jeremiah J. Bresnahan, Jr.     Cynthia G. Cobden, Esq.
- -----------------------------------------------------------------------------------------
c/o Massachusetts Financial     Bingham Dana LLP               Simpson Thacher & Bartlett
Services Company                150 Federal Street             425 Lexington Avenue
- -----------------------------------------------------------------------------------------
500 Boylston Street             Boston, Massachusetts  02110   New York, New York  10017
- -----------------------------------------------------------------------------------------
Boston, Massachusetts  02116
- -----------------------------------------------------------------------------------------
</TABLE>


         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. [ ]

<PAGE>

<TABLE>
                                        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<CAPTION>
                                                      PROPOSED MAXIMUM              PROPOSED MAXIMUM
TITLE OF SECURITIES            AMOUNT BEING           OFFERING PRICE PER            AGGREGATE OFFERING         AMOUNT OF
BEING REGISTERED               REGISTERED (1)         UNIT (1)                      PRICE (1)                  REGISTRATION FEE (2)
- ---------------------------    -------------------    --------------------------    -------------------------- --------------------
<S>                            <C>                    <C>                           <C>                        <C>
Municipal Auction              5,600 Shares           $25,000                       $140,000,000               $36,960
Rate Cumulative
Preferred Shares
No Par Value
Per Share

(1) Estimated solely for purposes of calculating the registration fee.
(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, Pennsylvania. $264 was previously paid. $36,696.00 was
    transmitted in connection with this filing.
</TABLE>

         THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>

                SUBJECT TO COMPLETION, DATED NOVEMBER 27, 2000

[Red Herring]

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 is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.

PROSPECTUS
                                 $140,000,000
                          MFS MUNICIPAL INCOME TRUST

                 MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED
                        ("MUNICIPAL PREFERRED") SHARES
                            2,800 SHARES, SERIES T
                           2,800 SHARES, SERIES TH
                   LIQUIDATION PREFERENCE $25,000 PER SHARE

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

    MFS Municipal Income Trust (the "Trust") is selling 2,800 Series T and 2,800
Series TH Municipal Auction Rate Cumulative Preferred Shares ("Municipal
Preferred"). The Trust is a non-diversified, closed-end management investment
company that, as its investment objective, seeks to provide high current income
exempt from federal income taxes. The Trust seeks to achieve its investment
objective by investing primarily (i.e., at least 80% of its assets under normal
circumstances) in debt securities issued by or on behalf of states, territories
and possessions of the United States, and the District of Columbia and their
political subdivisions, agencies or instrumentalities, the interest on which is
exempt from federal income tax. Normally, at least 65% of the Trust's assets
will be invested in tax-exempt securities rated below the three highest rating
categories of recognized rating agencies. Tax-exempt securities rated below the
four highest categories of recognized agencies are commonly known as "junk
bonds." The Trust may invest up to 100% of its assets in junk bonds.
                                                        (continued on next page)

    INVESTING IN THE SHARES OF MUNICIPAL PREFERRED INVOLVES CERTAIN RISKS. SEE
THE "RISK FACTORS AND SPECIAL CONSIDERATIONS" SECTION BEGINNING ON PAGE 10 OF
THIS PROSPECTUS.

    Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the issuance of these securities or
determined if this Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
                                 ------------
                                                    PER SHARE         TOTAL
                                                    ---------         -----
Public Price ..................................      $25,000       $140,000,000
Sales Load ....................................      $   250       $  1,400,000
Proceeds to Trust (before expenses)* ..........      $24,750       $138,600,000
*Offering Expenses to be paid by the Trust are estimated to be $518,460.

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

    The underwriter is offering the shares of Municipal Preferred subject to
various conditions. The underwriter expects to deliver the shares to
purchasers, in book-entry form through The Depository Trust Company, on or about
December , 2000.
                                 ------------
                             SALOMON SMITH BARNEY
December   , 2000

<PAGE>

(continued from previous page)

    Investors in Municipal Preferred shares will be entitled to receive cash
dividends at an annual rate that may vary for the successive dividend periods
for such shares. The dividend rate on the Series T Municipal Preferred shares
for the period from and including the date of issue to but excluding
  , 2000 will be % per year. The dividend rate on the Series TH Municipal
Preferred shares for the period from and including the date of issue to but
excluding , 2000 will be % per year. For each subsequent period for a series,
the auction agent will determine the dividend rate for a particular period by an
auction conducted on the business day prior to that period. Investors in shares
of Municipal Preferred may participate in auctions through their broker-dealers
in accordance with the procedures specified herein. The Trust may redeem shares
of Municipal Preferred as described under "Description of Municipal Preferred --
Redemption."

    This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing, including information about
risks. You should read this Prospectus before you invest and keep it for future
reference. The Trust's Statement of Additional Information, dated
         , 2000, has been filed with the Securities and Exchange Commission and
contains additional information about the Trust and is incorporated by reference
into (which means it is considered to be a part of) this Prospectus. You may
obtain a free copy by calling Massachusetts Financial Services Company at
1-800-637-2304. See page B-1 of this Prospectus for a table of contents of the
Statement of Additional Information.

<PAGE>


YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. THE TRUST HAS NOT, AND THE UNDERWRITER HAS NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. THE TRUST IS NOT, AND THE UNDERWRITER IS NOT, MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU
SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE AS
OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS ONLY. THE TRUST'S BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE
THAT DATE.

                              TABLE OF CONTENTS

                                                                          PAGE
Prospectus Summary ....................................................      4
Risk Factors and Special Considerations ...............................     10
Financial Highlights ..................................................     12
The Trust .............................................................     12
Use of Proceeds .......................................................     12
Capitalization At April 30, 2000 ......................................     13
Portfolio Composition .................................................     13
Investment Objective and Policies .....................................     13
Management of the Trust ...............................................     14
The Auction ...........................................................     15
Determination of Net Asset Value ......................................     17
Description of Municipal Preferred ....................................     17
Rating Agency Guidelines ..............................................     23
Description of Common Shares ..........................................     24
Certain Provisions in the Declaration of Trust ........................     24
Repurchase of Common Shares; Conversion to Open-end Fund ..............     25
Tax Matters ...........................................................     26
Custodian, Auction Agent, Transfer Agent, Dividend Disbursing
  Agent and Registrar .................................................     27
Underwriting ..........................................................     28
Legal Opinions ........................................................     28
Reports to Shareholders ...............................................     28
Experts ...............................................................     28
Further Information ...................................................     28
Glossary ..............................................................     29
Appendix A -- Investment Techniques and Practices .....................    A-1
Table of Contents of Statement of Additional Information ..............    B-1

<PAGE>

                              PROSPECTUS SUMMARY

This summary highlights some information from this Prospectus. It may not
contain all of the information that is important to you. To understand the
offering of the Municipal Preferred shares fully, you should read the entire
Prospectus carefully, including the risk factors. You should also refer to the
Glossary, which defines certain terms used in this Prospectus. This summary is
qualified in its entirety by reference to the detailed information included in
this Prospectus and the Statement of Additional Information.


THE OFFERING ...........  MFS Municipal Income Trust (the "Trust") is offering a
                          total of 2,800 shares of Series T and 2,800 shares of
                          Series TH Municipal Preferred at a purchase price of
                          $25,000 per share plus dividends, if any, that have
                          accumulated from the date the Trust first issues the
                          shares. Except as described in this Prospectus, the
                          two series have the same rights and preferences and
                          are offered on the same terms. The two offerings,
                          however, are independent of each other, and one
                          offering is not contingent upon the closing of the
                          other offering. Certain information presented in this
                          Prospectus assumes that each offering is made and
                          effected as contemplated, but there can be no
                          assurance that this will be the case. Salomon Smith
                          Barney Inc. is offering the shares as underwriter.


                          The Municipal Preferred shares of each series will be
                          preferred shares of the Trust that entitle their
                          holders to receive cash dividends at an annual rate
                          that may vary for the successive dividend periods for
                          that series. Except as described under "-- Dividends
                          and Dividend Periods" and "Description of the
                          Municipal Preferred -- Dividends and Dividend
                          Periods," each dividend period for each series will be
                          seven days. An auction agent will determine the
                          dividend rate for each series for a particular period
                          by an auction conducted on the business day
                          immediately prior to the start of that dividend period
                          for that series.

                          Investors and potential investors in the Municipal
                          Preferred shares of each series may participate in
                          auctions for the Municipal Preferred shares through
                          their broker-dealers.

                          Generally, investors in Municipal Preferred shares
                          will not receive certificates representing ownership
                          of their shares. The securities depository (The
                          Depository Trust Company or any successor) or its
                          nominee for the account of the investor's agent member
                          (generally the investor's broker-dealer) will maintain
                          record ownership of the Municipal Preferred shares of
                          each series in book-entry form. An investor's agent
                          member, in turn, will maintain records of that
                          investor's beneficial ownership of Municipal Preferred
                          shares.

THE TRUST ..............  The Trust is a closed-end, non-diversified management
                          investment company. See "The Trust." The Trust was
                          organized as a Massachusetts business trust on
                          September 18, 1986 and has registered under the
                          Investment Company Act of 1940, as amended. The
                          Trust's common shares of beneficial interest are
                          traded on the New York Stock Exchange under the symbol
                          "MFM."


RISK FACTORS SUMMARY ...  Risk is inherent in all investing. Therefore, before
                          investing you should consider certain risks carefully
                          when you invest in the Trust.


                          The primary risks of investing in Municipal Preferred
                          shares are the following:

                          o  if an auction of a series fails you may not be able
                             to sell some or all of your shares of that series;

                          o  because of the nature of the market for Municipal
                             Preferred shares, you may receive less than the
                             price you paid for your shares if you sell them
                             outside of the auction, especially when market
                             interest rates are rising;

                          o  a rating agency could downgrade Municipal Preferred
                             shares, which could affect liquidity;

                          o  the Trust may be forced to redeem your shares to
                             meet regulatory or rating agency requirements or
                             may voluntarily redeem your shares in certain
                             circumstances;


                          o  in extraordinary circumstances the Trust may not
                             earn sufficient income from its investments to pay
                             dividends;

                          o  if long-term rates rise, the value of the Trust's
                             investment portfolio may decline, reducing the
                             asset coverage for the Municipal Preferred shares;

                          o  if an issuer of a municipal bond in which the Trust
                             invests defaults, there may be a negative impact on
                             the income and asset value of the Trust's portfolio
                             (the effects of this risk may, however, be
                             mitigated by the Trust's investment in municipal
                             bonds covered by insurance);

                          o  because the Trust may invest a higher percentage of
                             its assets in a small number of issuers, the Trust
                             is more susceptible to any single economic,
                             political or regulatory event affecting those
                             issuers than is a diversified fund;

                          o  junk bonds are subject to a substantially higher
                             degree of credit risk than higher rated bonds;
                             during recessions, a high percentage of issuers of
                             junk bonds may default on payments of principal and
                             interest; the price of a junk bond may therefore
                             fluctuate drastically due to bad news about the
                             issuer or the economy in general; and

                          o  during recessions and periods of broad market
                             declines, junk bonds could become less liquid,
                             meaning that they will be harder to value or sell
                             at a fair price.

                          For additional risks of investing in the Municipal
                          Preferred shares of the Trust, see "Risk Factors and
                          Special Considerations" below.

DIVIDENDS AND
DIVIDEND PERIODS .......  Dividends on each series of Municipal Preferred shares
                          are cumulative from the date the shares are first
                          issued. The Trust will pay dividends on the shares of
                          Municipal Preferred, out of legally available funds
                          and when declared by the Board of Trustees, beginning
                          on , 2000 for Series T and , 2000 for Series TH.

                          After the initial dividend period, each dividend
                          period for each series of the Municipal Preferred
                          shares will generally consist of seven days; provided,
                          however, that before any auction for a series, the
                          Trust may decide, subject to certain limitations and
                          only if it gives certain notices, to declare a Special
                          Rate Period of up to five years. The Trust may declare
                          a Special Rate Period if, for example, it expects that
                          short-term rates may increase or market conditions
                          otherwise change, in an effort to optimize the effect
                          of the Trust's leverage on common shareholders. In the
                          case of dividend periods that are not Special Rate
                          Periods, dividends generally will be payable on each
                          succeeding Wednesday for Series T and Friday for
                          Series TH Municipal Preferred shares. The Trust may
                          specify different dividend payment dates for certain
                          Special Rate Periods.


                          The Trust will pay dividends through the securities
                          depository (The Depository Trust Company) on each
                          dividend payment date for each series.


                          The dividend rate on the Series T Municipal Preferred
                          for the period from and including the date of issue to
                          but excluding , 2000 will be
                             % per year. The dividend rate on the Series TH
                          Municipal Preferred for the period from and
                          including the date of issue to but excluding
                                      , 2000 will be % per year. For each
                          subsequent dividend period for a series, the auction
                          agent (Bankers Trust Company) will determine the
                          dividend rate on the shares of Municipal Preferred
                          through an auction for that series.

MAXIMUM DIVIDEND RATE ..  Generally, the rate at which the Trust pays dividends
                          on shares of a series of Municipal Preferred may not
                          exceed the maximum dividend rate. The maximum dividend
                          rate may vary for different dividend periods. It is
                          determined by the current credit rating assigned to
                          the shares of Municipal Preferred and an independent
                          reference rate (as discussed under "Description of
                          Municipal Preferred -- Dividends and Dividend Periods"
                          on page 18 herein) that may vary over time.


                          If the number of shares of a series of Municipal
                          Preferred available during an auction exceeds the
                          total number of shares of such series subject to bids
                          for that auction at less than or equal to the maximum
                          dividend rate for such series, then the dividend rate
                          for the subsequent dividend period for that series
                          will be the maximum dividend rate. In addition, if the
                          Trust fails to pay a dividend on shares of a series of
                          Municipal Preferred, or if the Trust fails to pay the
                          full redemption price for shares of a series of
                          Municipal Preferred when due, then the dividend rate
                          for the subsequent dividend period for that series
                          will be the maximum dividend rate. If, however, the
                          Trust cures its failure to pay a dividend or to pay
                          the full redemption price, then the maximum dividend
                          rate will not apply.

ASSET MAINTENANCE ......  Under the Statement creating the Municipal Preferred
                          shares of the Trust, which establishes and fixes the
                          rights and preferences of the shares of Municipal
                          Preferred, the Trust must maintain:

                          o  asset coverage of the Municipal Preferred shares as
                             required by the rating agency or agencies rating
                             the Municipal Preferred shares, and

                          o  asset coverage of the Municipal Preferred shares of
                             at least 200% as required by the Investment Company
                             Act of 1940.


                          Based on the composition of the Trust's portfolio and
                          market conditions as of October 31, 2000, the asset
                          coverage of the Municipal Preferred shares as measured
                          pursuant to the Investment Company Act of 1940 would
                          be approximately 317% if the Trust were to issue all
                          Municipal Preferred shares of both series offered in
                          this Prospectus, representing approximately 32% of the
                          Trust's capital.

MANDATORY REDEMPTION ...  If the Trust does not maintain its required asset
                          coverage, it must redeem shares of each series of
                          Municipal Preferred at $25,000 per share plus any
                          dividends that accumulate and remain unpaid up to the
                          date fixed for redemption. The Trustwill limit
                          redemption to the number of Municipal Preferred
                          shares, together with all other preferred shares of
                          the Trust (if any), necessary to restore the required
                          asset coverage. As of the date of this offering, there
                          are no other preferred shares outstanding. The Trust
                          may avoid mandatory redemption by restoring its
                          required asset coverage pursuant to rating agency
                          guidelines. The provisions of the Investment Company
                          Act of 1940 may restrict the Trust's ability to make a
                          mandatory redemption in connection with a failure to
                          comply with the rating agencies' asset coverage
                          requirements.

OPTIONAL REDEMPTION ....  The Trust, at its option and subject to certain
                          conditions, may choose to redeem all or a portion of
                          the shares of Municipal Preferred of each series
                          generally on the second business day preceding any
                          dividend payment date at the price of $25,000 per
                          share plus accumulated but unpaid dividends, if any,
                          whether or not earned or declared to (but not
                          including) the date fixed for redemption, and, during
                          certain Special Rate Periods, any applicable premium.

LIQUIDATION PREFERENCE    The liquidation preference (that is, the amount the
                          Trust must pay to Municipal Preferred shareholders if
                          the Trust is liquidated) for shares of each series of
                          Municipal Preferred will be $25,000 per share plus
                          accumulated but unpaid dividends, if any, whether or
                          not earned or declared.


VOTING RIGHTS ..........  The Investment Company Act of 1940 requires that the
                          holders of both series of Municipal Preferred shares,
                          and the holders of any other preferred shares of the
                          Trust, voting as a separate class, have the right to:

                          o  elect at least two trustees at all times, and

                          o  elect a majority of the trustees at any time when
                             dividends on the Municipal Preferred shares, or any
                             other preferred shares of the Trust, are unpaid for
                             two full years.

                          In each case, the holders of common shares, both
                          series of Municipal Preferred shares, and any other
                          preferred shares of the Trust, voting together as a
                          single class, will elect the remaining trustees. The
                          holders of each series of Municipal Preferred shares,
                          and the holders of any other preferred shares of the
                          Trust, will vote as a separate class or classes on
                          certain other matters as required under the Trust's
                          Declaration of Trust, the Investment Company Act of
                          1940, and Massachusetts law. Each common share, each
                          Municipal Preferred share, and each share of any other
                          class of preferred shares of the Trust is entitled to
                          one vote per share.


TAXATION ...............  In general, dividends on shares of Municipal Preferred
                          will be exempt from regular federal income tax in the
                          hands of owners of such shares to the extent such
                          dividends are paid from tax- exempt income earned on
                          the Trust's investments. Exempt- interest dividends
                          paid by the Trust from interest earned on certain
                          private activity bonds may increase a corporate
                          shareholder's alternative minimum tax liability, and
                          all exempt-interest dividends may increase a corporate
                          shareholder's alternative minimum tax liability. The
                          extent of any such increase will depend on the
                          shareholder's particular tax situation. The Trust is
                          currently required to allocate net capital gain, net
                          tax-exempt income and other income taxable for federal
                          income tax purposes, if any, proportionately between
                          common shares of beneficial interest and shares of
                          Municipal Preferred. The Trust shall, in the case of a
                          seven- day dividend period or a Special Rate Period of
                          28 days or fewer for the shares of Municipal
                          Preferred, and may, in the case of any other Special
                          Rate Period for such shares, give notice of the amount
                          of any income taxable for federal income tax purposes
                          to be included in a dividend on shares of Municipal
                          Preferred in advance of the related auction.
                          Alternatively, if the Trust does not give such advance
                          notice, it generally will be required to pay such
                          dividend, increased by a Gross-Up Payment, to holders
                          of shares of Municipal Preferred. The amount of
                          taxable income allocable to shares of Municipal
                          Preferred will depend upon the amount of such income
                          realized by the Trust, but is not generally expected
                          to be significant.

INVESTMENT OBJECTIVE ...  The Trust's investment objective is to provide high
                          current income exempt from federal income taxes. There
                          can be no assurance that the Trust will achieve its
                          investment objective.

INVESTMENT STRATEGIES ..  The Trust is a non-diversified mutual fund. This means
                          that the Trust may invest a relatively high percentage
                          of its assets in a small number of issuers. The Trust
                          also may invest a high percentage of its assets in
                          securities of issuers located in the same state, that
                          derive income from similar projects and that are
                          otherwise related.

                          The Trust invests, under normal market conditions, at
                          least 80% of its total assets in municipal securities
                          and participation interests in municipal securities
                          issued by banks, the interest on which is exempt from
                          federal income tax. Municipal securities are bonds or
                          other debt obligations of a U.S. state or political
                          subdivision, such as a county, city, town, village, or
                          authority. Participation interests in municipal
                          securities are interests in holdings of municipal
                          obligations backed by a letter of credit or guarantee
                          from the issuing bank. The Trust seeks to invest in
                          municipal securities whose income is exempt from
                          federal income taxes. However, the interest income on
                          certain of these municipal securities may be subject
                          to an alternative minimum tax. Under normal
                          circumstances, the Trust will invest at least 65% of
                          its assets in tax exempt securities rated below the
                          three highest rating categories of recognized rating
                          agencies. Tax-exempt securities rated below the four
                          highest categories of recognized agencies are commonly
                          known as "junk bonds." The Trust may invest up to 100%
                          of its assets in junk bonds.


                          The Trust may temporarily invest either in tax-exempt
                          securities in the higher rating categories of
                          recognized rating agencies or in cash or cash
                          equivalent short-term obligations of similar quality,
                          including, but not limited to, short-term municipal
                          obligations, certificates of deposit, commercial
                          paper, short-term notes, obligations issued or
                          guaranteed by the U.S. Government, its agencies,
                          authorities or instrumentalities and repurchase
                          agreements. Interest on certain of these short-term
                          obligations will be subject to federal income tax.


INVESTMENT ADVISER .....  Massachusetts Financial Services Company ("MFS" or the
                          "Adviser"), an investment adviser registered under the
                          Investment Advisers Act of 1940, as amended, has
                          served as the Trust's investment adviser since the
                          Trust's inception.


RATINGS ................  The Trust will not issue shares of Municipal Preferred
                          unless such shares have a rating of Aaa from Moody's
                          Investors Service, Inc. ("Moody's") and AAA from
                          Standard & Poor's Ratings Group ("Standard & Poor's").


SECONDARY MARKET TRADING  Broker-dealers may, but are not obligated to, maintain
                          a secondary market in shares of each series of
                          Municipal Preferred outside of auctions. There can be
                          no assurance that a secondary market will develop or,
                          if it does develop, that it will provide owners with
                          liquidity of investment. Shares of each series of
                          Municipal Preferred may be transferred outside of
                          auctions only to a broker-dealer or such other persons
                          who may be permitted by the Trust.


<PAGE>


                   RISK FACTORS AND SPECIAL CONSIDERATIONS


    You should consider the following risk factors and other special
considerations in deciding whether to invest in shares of Municipal Preferred.
Please note that there are many circumstances which could cause the value of
your investment in the Municipal Preferred to decline, and which could prevent
the Trust from achieving its objective, that are not described here.

MUNICIPAL SECURITIES RISK.

o  INTEREST RATE RISK. As with any fixed income security, the prices of
   municipal securities in the Trust's portfolio will generally fall when
   interest rates rise. Conversely, when interest rates fall, the prices of
   municipal securities in the Trust's portfolio will generally rise.


o  MATURITY RISK. The Trust may invest in municipal securities of any maturity.
   Interest rate risk will generally affect the price of a municipal security
   more if the security has a longer maturity. Municipal securities with longer
   maturities will therefore be more volatile than other fixed income securities
   with shorter maturities. Conversely, municipal securities with shorter
   maturities will be less volatile but generally provide lower returns than
   municipal securities with longer maturities. The average maturity of the
   Trust's municipal security investments may affect the volatility of the
   Trust's share price.


o  CREDIT RISK. Credit risk is the risk that the issuer of a municipal security
   will not be able to pay principal and interest when due. Rating agencies
   assign credit ratings to certain municipal securities to indicate their
   credit risk. The price of a municipal security will generally fall if the
   issuer defaults on its obligation to pay principal or interest, the rating
   agencies downgrade the issuer's credit rating or other news affects the
   market's perception of the issuer's credit risk. A participation interest is
   also subject to the risk of default by the issuing bank.


o  CALL RISK. The issuers of municipal securities held by the Trust may call, or
   prepay principal due on, their securities, particularly during periods of
   declining interest rates. The Trust may not be able to reinvest that
   principal at attractive rates, reducing income to the Trust. The Trust also
   may lose the premium paid for the securities.

o  GENERAL OBLIGATIONS AND REVENUE OBLIGATIONS RISK. The Trust may invest in
   municipal bonds that are general obligations backed by the full faith and
   credit of the municipal issuer. The Trust may also invest in municipal bonds
   called revenue obligations which are subject to a higher degree of credit
   risk than general obligations. Generally, the Trust primarily invests in
   revenue obligations. Revenue obligations finance specific projects, such as
   building a hospital, and are not backed by the full faith and credit of the
   municipal issuer. Because revenue obligations are repaid from the revenues
   from a facility, they are subject to a risk of default in payments of
   principal and interest if the facility does not generate enough income.

LIQUIDITY RISK. The fixed income securities purchased by the Trust may be traded
in the over-the-counter market rather than on an organized exchange and are
subject to liquidity risk. This means that they may be harder to purchase or
sell at a fair price. The inability to purchase or sell these fixed income
securities at a fair price could have a negative impact on the Trust's
performance.


LOWER RATED MUNICIPAL SECURITIES RISK.


o  HIGHER CREDIT RISK. Junk bonds are subject to a substantially higher degree
   of credit risk than higher rated bonds. During recessions, a high percentage
   of issuers of junk bonds may default on payments of principal and interest.
   The likelihood of these issuers declaring or being placed into bankruptcy may
   be higher relative to issuers of investment grade securities. The price of a
   junk bond may therefore fluctuate drastically due to bad news about the
   issuer or the economy in general. Municipal securities in the lower rating
   categories and comparable unrated bonds are deemed to be predominantly
   speculative in character.


o  HIGHER LIQUIDITY RISK. During recessions and periods of broad market
   declines, junk bonds could become less liquid, meaning that they will be
   harder to value or sell at a fair price.


NON-DIVERSIFIED STATUS RISK. Because the Trust may invest a higher percentage of
its assets in a small number of issuers, the Trust is more susceptible to any
single economic, political or regulatory event affecting those issuers than is a
diversified fund.

AUCTION RISK. Shareholders may not be able to sell a series of Municipal
Preferred shares at an auction if the auction fails; that is, if there are more
Municipal Preferred shares of that series offered for sale than there are buyers
for those shares. The Trust believes this event is unlikely. Also, if a
shareholder places hold orders (orders to retain Municipal Preferred shares) at
an auction only at a specified rate, and that bid rate exceeds the rate set at
the auction, such shareholder will not retain his or her Municipal Preferred
shares. Finally, if a shareholder buys shares or elects to retain shares without
specifying a rate below which he or she would not wish to continue to hold those
shares, and the auction sets a below-market rate, such shareholder may receive a
lower rate of return on his or her shares than the market rate. See "Description
of Municipal Preferred" and "The Auction -- Auction Procedures."

ANTITAKEOVER PROVISIONS. The Trust's Declaration of Trust includes provisions
that could limit the ability of other entities or persons to acquire control of
the Trust or to change the composition of its Board of Trustees. Such provisions
could discourage a third party from seeking to obtain control of the Trust.

INVESTMENT CONSIDERATIONS. Investors in the shares of Municipal Preferred
should consider the following factors:


o  The credit ratings of the shares of Municipal Preferred could be reduced
   while an investor holds such shares.

o  Neither broker-dealers nor the Trust are obligated to purchase shares of the
   Municipal Preferred in an auction or otherwise nor is the Trust required to
   redeem shares of the Municipal Preferred 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
   the shares of Municipal Preferred wishing to sell will not be able to sell
   all, and may not be able to sell any, of such shares in the auction. As a
   result, investors may not have liquidity of investment.


SECONDARY MARKET. The broker-dealers intend to maintain a secondary trading
market in the shares of each series of Municipal Preferred outside of auctions;
however, they have no obligation to do so and there can be no assurance that a
secondary market for either series of the shares of the Municipal Preferred will
develop or, if one does develop, that it will provide holders with a liquid
trading market. The shares of each series of Municipal Preferred 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 shares of Municipal Preferred, and a selling
shareholder may have to sell Municipal Preferred between auctions at a price per
share of less than $25,000. You may transfer shares outside of auctions only to
broker-dealers or such other persons as may be permitted by the Trust.

<PAGE>


                             FINANCIAL HIGHLIGHTS

    The table below sets forth certain specified information for a common share
of beneficial interest of the Trust outstanding throughout each period
presented. The financial highlights for the period ended October 31, 1999 have
been audited by Deloitte & Touche LLP, the Trust's independent accountants,
whose unqualified report for the period ended October 31, 1999 is included in
the Trust's October 31, 1999 Annual Report and in "Report of Independent
Accountants" in the "Financial Statements" section of the Statement of
Additional Information. The financial highlights for the six month period ended
April 30, 2000 are unaudited. The financial highlights should be read in
conjunction with the financial statements and notes thereto included in
"Financial Statements" in the Statement of Additional Information.


<TABLE>
<CAPTION>
                                                                              YEAR ENDED OCTOBER 31,
                            SIX MONTHS ENDED       ----------------------------------------------------------------------------
                              APRIL 30, 2000              1999             1998            1997            1996            1995
                                 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>               <C>              <C>             <C>             <C>             <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value - beginning of
  period                              $ 7.96            $ 8.55           $ 8.51          $ 8.58          $ 8.84          $ 8.73
                                      ------            ------           ------          ------          ------          ------
Income from investment operations# -
  Net investment income               $ 0.26            $ 0.54           $ 0.57          $ 0.61          $ 0.66          $ 0.68
Net realized and unrealized
  gain (loss) on investments           (0.23)            (0.60)            0.05           (0.03)          (0.26)           0.13
                                      ------            ------           ------          ------          ------          ------
    Total from investment
      operations                      $ 0.03            $(0.06)          $ 0.62          $ 0.58          $ 0.40          $ 0.81
                                      ------            ------           ------          ------          ------          ------
Less distributions declared to
  shareholders from net
  investment income                   $(0.26)           $(0.53)          $(0.58)         $(0.65)         $(0.66)         $(0.70)
                                      ------            ------           ------          ------          ------          ------
Net asset value - end of period       $ 7.73            $ 7.96           $ 8.55          $ 8.51          $ 8.58          $ 8.84
                                      ======            ======           ======          ======          ======          ======
Per share market value - end of
  period                              $ 6.94            $ 7.13           $ 9.19          $ 9.06          $ 9.38          $ 9.50
                                      ------            ------           ------          ------          ------          ------
Total return                            0.84%++          (0.59)%           8.37%           3.90%           4.50%          12.57%
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA:
  Expenses##                            1.08%+            1.06%            1.10%           1.19%           1.24%           1.33%
  Net investment income                 6.79%+            6.49%            6.62%           7.26%           7.47%           7.66%
PORTFOLIO TURNOVER                        10%               15%              12%             21%             13%             14%
NET ASSETS AT END OF PERIOD
  (000 OMITTED)                     $303,230          $312,195         $333,544        $329,282        $328,630        $334,985
- ------
 + Annualized.
++ Not annualized.
 # Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
</TABLE>


                                  THE TRUST

    The Trust is a closed-end, non-diversified management investment company.
The Trust's investment objective is to provide high current income exempt from
federal income taxes. The bonds and notes purchased by the Trust generally are
issued by or on behalf of states, territories and possessions of the United
States, and the District of Columbia and their political subdivisions, agencies
or instrumentalities, the interest on which is exempt from federal income tax
("Municipal Bonds" or "tax-exempt securities"). See "Investment Objective and
Policies." No assurance can be given that the Trust's investment objective will
be achieved. All or a portion of the Trust's dividends may be subject to the
Federal alternative minimum tax. The Trust was organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on September
18, 1986, and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"). In November 1986, the Trust issued 31,011,802 shares of
beneficial interest, no par value (the "Common Shares"), pursuant to the initial
public offering thereof and commenced operations. The Trust's Common Shares are
traded on the New York Stock Exchange under the symbol "MFM." The Trust's
principal office is located at 500 Boylston Street, Boston, MA 02116, and its
telephone number is (617) 954-5000.

                               USE OF PROCEEDS

    The net proceeds of this offering will be approximately $138,081,540, after
payment of the sales load to Salomon Smith Barney Inc. (the "Underwriter") and
estimated offering costs.


    The net proceeds of the offering will be invested in accordance with the
Trust's investment objective and policies. It is presently anticipated that the
Trust will be able to invest substantially all of the net proceeds in Municipal
Obligations that meet the Trust's investment objective at or shortly (within six
to eight weeks) after the completion of the offering. To the extent that all of
the proceeds cannot be so invested, pending such investment, the Trust will
invest such proceeds initially in high-quality, short-term tax-exempt
securities, the income on which will be exempt from federal income taxes (other
than the possible incidence of any alternative minimum tax), or in high-quality
Municipal Obligations with relatively low volatility (such as pre-refunded and
intermediate-term securities), to the extent such securities are available. If
necessary to invest fully the net proceeds of the offerings immediately, the
Trust may also purchase, as temporary investments, short-term taxable
investments of the type described under "Investment Objective and Policies," the
income on which is subject to federal income taxes.

                       CAPITALIZATION AT APRIL 30, 2000

    The following table sets forth the unaudited capitalization of the Trust at
April 30, 2000 and as adjusted to give effect to the issuance of the shares of
Series T and Series TH Municipal Preferred offered hereby (including estimated
offering expenses and sales loads of $1,918,460).

<TABLE>
<CAPTION>
                                                                   ACTUAL               AS ADJUSTED
                                                              ----------------        ----------------
<S>                                                               <C>                     <C>

Shareholders' Equity:
  Preferred Shares, no par value per share; unlimited shares
    authorized (no shares issued; 5,600 shares of Municipal
    Auction Rate Cumulative Preferred Shares issued, as
    adjusted, at $25,000 per share liquidation preference) .      $       --              $140,000,000
  Common Shares, no par value per share; unlimited shares
    authorized; 39,297,340 less 55,500 treasury shares .....       355,603,287             353,684,827
  Accumulated undistributed net investment income ..........         1,038,188               1,038,188
  Accumulated net realized loss on investments .............        (6,919,649)             (6,919,649)
  Unrealized depreciation on investments ...................       (46,491,950)            (46,491,950)
                                                                  ------------            ------------
Net Assets .................................................      $303,229,876            $441,311,416
                                                                  ============            ============

</TABLE>

                            PORTFOLIO COMPOSITION


    As of April 30, 2000, approximately 99% of the market value of the Trust's
portfolio was invested in long and intermediate-term Municipal Obligations and
approximately 1% of the market value of the Trust's portfolio was invested in
short-term securities. For purposes of the foregoing sentence, futures contracts
in which the Trust has invested are not included in the market value of the
Trust's portfolio. The following table sets forth certain information with
respect to the composition of the Trust's investment portfolio (excluding
short-term securities) as of April 30, 2000.

<TABLE>
<CAPTION>
   STANDARD &       NUMBER           MARKET                                         NUMBER           MARKET
    POOR'S*       OF ISSUES          VALUE           PERCENT         MOODY'S*     OF ISSUES          VALUE             PERCENT
- ------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>       <C>                    <C>            <C>             <C>       <C>                      <C>
      AAA             28        $ 52,694,199.27        17.4%           Aaa            24        $ 42,535,819.95          14.0%
       AA              7           9,801,500.08         3.2             Aa             9          13,652,447.32           4.5
       A               9          13,873,447.66         4.6             A              3           2,890,122.79           1.0
      BBB             31          44,507,212.81        14.7            Baa            25          42,976,466.90          14.2
       BB              9           9,729,799.27         3.2             Ba            14          18,048,986.11           6.0
       B               6           8,676,648.29         2.9             B              1             706,039.39           0.2
      NR**           121         163,818,067.10        54.0            NR**          135         182,290,992.02          60.1
                     ---        ---------------       -----                          ---         --------------         -----
     Total           211        $303,100,874.47       100.0%          Total          211         303,100,874.47         100.0%
                     ===        ===============       =====                          ===         ==============         =====
- ------
 * Standard & Poor's rating categories may be modified further by a plus (+) or minus (-) in AA, A, BBB, BB and B ratings.
   Moody's rating categories may be modified further by a 1, 2 or 3 in Aa, A, Baa, Ba and B ratings.
** Many bonds are rated by only one rating agency, which results in a higher percentage of bonds in this category. The total
   market value of bonds that do not carry a rating from any rating service is $144,348,744.19, which represents 47.6% of the
   market value of the Trust's portfolio (excluding short-term securities and futures) as of April 30, 2000.
</TABLE>

                      INVESTMENT OBJECTIVE AND POLICIES

    The Trust's investment objective is to provide high current income exempt
from federal income taxes.


    The Trust is a non-diversified mutual fund and invests, under normal market
conditions, at least 80% of its total assets in municipal securities and
participation interests in municipal securities issued by banks, the interest on
which is exempt from federal income tax. Municipal securities are bonds or other
debt obligations of a U.S. state or political subdivision, such as a county,
city, town, village, or authority. Participation interests in municipal
securities are interests in holdings of municipal obligations backed by a letter
of credit or guarantee from the issuing bank. The Trust seeks to invest in
municipal securities whose income is exempt from federal income taxes. However,
the interest income on certain of these municipal securities may be subject to
an alternative minimum tax. Under normal circumstances, the Trust will invest at
least 65% of its assets in tax-exempt securities rated below the three highest
rating categories of recognized rating agencies. Tax- exempt securities rated
below the four highest categories of recognized agencies are commonly known as
"junk bonds." The Trust may invest up to 100% of its assets in junk bonds.

    In selecting fixed income investments for the Trust, MFS considers the views
of its large group of fixed income portfolio managers and research analysts.
This group periodically assesses the three-month total return outlook for
various segments of the fixed income markets. This three-month "horizon" outlook
is used by the portfolio manager(s) of MFS' fixed income oriented funds
(including the Trust) as a tool in making or adjusting a fund's asset
allocations to various segments of the fixed income markets. In assessing the
credit quality of fixed income securities, MFS does not rely solely on the
credit ratings assigned by credit rating agencies, but rather performs its own
independent credit analysis.


    The Trust may temporarily invest either in tax-exempt securities in the
higher rating categories of recognized rating agencies or in cash or cash
equivalent short-term obligations of similar quality, including, but not limited
to, short-term municipal obligations, certificates of deposit, commercial paper,
short-term notes, obligations issued or guaranteed by the U.S. Government, its
agencies, authorities or instrumentalities and repurchase agreements. Interest
on certain of these short-term obligations will be subject to federal income
tax.

    The Trust may invest in various types of securities and engage in various
investment techniques and practices which are not the principal focus of the
Trust and therefore are not described in this Prospectus. The types of
securities and investment techniques and practices in which the Trust may
engage, including the principal investment techniques and practices described
above, are identified in Appendix A to this Prospectus, and are discussed,
together with their risks, in the Trust's Statement of Additional Information.


    The Trust may engage in active and frequent trading to achieve its principal
investment strategies. This may result in the realization and distribution to
shareholders of higher capital gains as compared to a Trust with less active
trading policies, which may increase your tax liability. Frequent trading also
increases transaction costs, which could detract from the Trust's performance.

                           MANAGEMENT OF THE TRUST


TRUSTEES AND OFFICERS
    The Board of Trustees is responsible for the general supervision of the
Trust, including general supervision of the duties performed by the Adviser
under its Advisory Agreement (as defined below) with the Trust. There are 8
trustees of the Trust, 2 of whom are "interested persons" (as defined in the
1940 Act) of the Trust or the Adviser. The names and addresses of the trustees
and officers of the Trust and their principal occupations and other affiliations
during the past five years are set forth under "Management of the Trust" in the
Statement of Additional Information.

THE ADVISER
MFS. MFS, a Delaware corporation, is the Trust's Adviser. MFS and its
predecessor organizations have a history of money management dating from 1924,
thus making MFS America's oldest mutual fund organization. MFS is a subsidiary
of Sun Life of Canada (U.S.) Financial Services Holdings, Inc. ("Sun Life of
Canada (U.S.)") which in turn is an indirect wholly owned subsidiary of Sun Life
of Canada ("Sun Life"). Sun Life, is one of the largest international life
insurance companies and has been operating in the United States since 1895. The
executive officers of MFS report to the Chairman of Sun Life. The principal
business address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.

PORTFOLIO MANAGER. Michael Roberge is a Senior Vice President of MFS. Mr.
Roberge has been the portfolio manager of the Trust since December, 1997 and
has been employed in the investment area of MFS since 1996. From 1994 to 1996,
Mr. Roberge worked as a municipal credit analyst and portfolio manager with
Colonial Investment Management.

ADVISORY AGREEMENT. The Investment Advisory Agreement between MFS and the Trust
(the "Advisory Agreement") provides that, subject to the direction of the Board
of Trustees of the Trust, MFS is responsible for the actual management of the
Trust's portfolio. The responsibility for making decisions to buy, sell or hold
a particular security rests with the Adviser, subject to review by the Board of
Trustees. The Adviser also provides certain administrative services and general
office facilities.

ADVISORY FEE. For the services provided by MFS under the Advisory Agreement, the
Trust pays it a fee computed and paid monthly in an amount equal to the sum of
0.4% of the average daily net assets of the Trust and 6.32% of the gross income
(i.e., income other than gains from the sale of securities or gains received
from futures contracts) of the Trust, in each case on an annualized basis, for
the Trust's then-current fiscal year. This advisory fee may be greater than that
paid by funds with similar investment objectives.


                                 THE AUCTION


GENERAL
    The provisions of the Statement creating the Municipal Preferred shares of
the Trust (the "Statement") provide that, except as otherwise described herein,
the Applicable Rate with respect to shares of Municipal Preferred for each Rate
Period after the Initial Rate Period thereof shall be equal to the rate per
annum that the Auction Agent advises has resulted on the Business Day preceding
the first day of such Subsequent Rate Period (an "Auction Date") from
implementation of the auction procedures (the "Auction Procedures") set forth in
the Statement and summarized below, in which persons determine to hold or offer
to sell or, based on dividend rates bid by them, offer to purchase or sell such
shares. Each periodic implementation of the Auction Procedures is referred to
herein as an "Auction."

    Certain defined terms used in this section and under "Description of
Municipal Preferred" are defined in the Glossary.

AUCTION PROCEDURES

    Prior to the Submission Deadline on each Auction Date for the shares of each
series of Municipal Preferred, each 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 Municipal Preferred (a "Beneficial Owner") may submit orders
("Orders") to that Broker-Dealer as follows:


    o  Hold Order -- indicating its desire to hold shares of Municipal Preferred
       without regard to the Applicable Rate for the next Rate Period.

    o  Bid -- indicating its desire to sell shares of Municipal Preferred at
       $25,000 per share if the Applicable Rate for the next Rate Period is less
       than the rate specified in such Bid (also known as a hold-at-a-rate
       order).

    o  Sell Order -- indicating its desire to sell shares of Municipal Preferred
       at $25,000 per share without regard to the Applicable Rate for the next
       Rate Period.

    A Beneficial Owner may submit different types of Orders to its Broker-
Dealer with respect to shares of Municipal Preferred then held by such
Beneficial Owner. A Beneficial Owner that submits a Bid to its Broker-Dealer
having a rate higher than the Maximum Rate on the Auction Date will be treated
as having submitted a Sell Order to its Broker-Dealer. A Beneficial Owner that
fails to submit an Order to its Broker-Dealer will ordinarily be deemed to have
submitted a Hold Order to its Broker-Dealer; provided, however, that if a
Beneficial Owner fails to submit an Order to its Broker-Dealer for an Auction
relating to a Rate Period for Municipal Preferred of more than 28 Rate Period
Days, such Beneficial Owner will be deemed to have submitted a Sell Order to its
Broker-Dealer. A Sell Order shall constitute an irrevocable offer to sell the
shares of Municipal Preferred subject thereto. A Beneficial Owner that offers to
become the Beneficial Owner of additional shares of Municipal Preferred is, for
purposes of such offer, a Potential Beneficial Owner of additional shares of
Municipal Preferred as discussed below.

    A customer of a Broker-Dealer that is not a Beneficial Owner of shares of
Municipal Preferred but that wishes to purchase shares, or that is a Beneficial
Owner that wishes to purchase additional shares (in each case, a "Potential
Beneficial Owner"), may submit Bids to its Broker-Dealer in which it offers to
purchase shares of Municipal Preferred at $25,000 per share if the Applicable
Rate for the next Rate Period is not less than the rate specified in such Bid. A
Bid placed by a Potential Beneficial Owner specifying a rate higher than the
Maximum Rate on the Auction Date will not be accepted.

    The Broker-Dealers in turn will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves (unless otherwise permitted by the Trust)
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.
However, neither the Trust nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing. Any Order placed with the
Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder or a
Potential Holder will be treated in the same manner as an Order placed with a
Broker-Dealer by a Beneficial Owner or Potential Beneficial Owner. Similarly,
any failure by a Broker-Dealer to submit to the Auction Agent an Order in
respect of any shares of Municipal Preferred held by it or 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 shares of
Municipal Preferred held by it. A Broker-Dealer may also submit Orders to the
Auction Agent for its own account as an Existing Holder or Potential Holder,
provided it is not an affiliate of the Trust. The Auction Agent after each
Auction for shares of Municipal Preferred will pay to each Broker-Dealer, from
funds provided by the Trust, a service charge at the annual rate of 14 of 1% in
the case of any Auction immediately preceding a Rate Period of less than one
year, or a percentage agreed to by the Trust and the Broker-Dealers in the case
of any Auction immediately preceding a Rate Period of one year or longer, of the
purchase price of shares of Municipal Preferred placed by such Broker-Dealer at
such Auction. See "The Auction -- Broker-Dealers" in the Statement of Additional
Information.

    If Sufficient Clearing Bids exist (that is, the number of shares of
Municipal Preferred subject to Bids submitted or deemed submitted to the Auction
Agent by Broker-Dealers as or on behalf of Potential Holders with rates equal to
or lower than the Maximum Rate is at least equal to the number of shares of
Municipal Preferred subject to Sell Orders submitted or deemed submitted to the
Auction Agent by Broker-Dealers as or on behalf of Existing Holders), the
Applicable Rate for the next succeeding Rate Period will be the lowest rate
specified in the Submitted Bids which, taking into account such rate and all
lower rates bid by Broker-Dealers as or on behalf of Existing Holders and
Potential Holders, would result in Existing Holders and Potential Holders owning
all the shares of Municipal Preferred available for purchase in the Auction. If
Sufficient Clearing Bids do not exist, the Applicable Rate for the next
succeeding Rate Period will be the Maximum Rate on the Auction Date. In such
event, Beneficial Owners that have submitted or are deemed to have submitted
Sell Orders may not be able to sell in such Auction all shares of Municipal
Preferred subject to such Sell Orders. If Broker-Dealers submit or are deemed to
have submitted to the Auction Agent Hold Orders with respect to all Existing
Holders, the Applicable Rate for the next succeeding Rate Period will be the All
Hold Order Rate.

    The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder continuing to hold or selling,
or a Potential Holder purchasing, a number of shares of Municipal Preferred that
is fewer than the number of shares of Municipal Preferred specified in its
Order. To the extent the allocation procedures have that result, Broker-Dealers
that have designated themselves as Existing Holders or Potential Holders in
respect of customer Orders will be required to make appropriate pro rata
allocations among their respective customers.

    Settlement of purchases and sales with respect to shares of each series of
Municipal Preferred will be made on the next Business Day (also a Dividend
Payment Date) after the Auction Date through the Securities Depository.
Purchasers will make payment through their Agent Members in same-day funds to
the Securities Depository against delivery to their respective Agent Member. The
Securities Depository will make payment to the Sellers' Agent Members in
accordance with the Securities Depository's normal procedures, which now provide
for payment against delivery by their Agent Members in same-day funds. The
settlement procedures to be used with respect to Auctions for shares of
Municipal Preferred are set forth in Appendix D to the Statement of Additional
Information.


    The first Auction for shares of Municipal Preferred will be held on   , 2000
for Series T and , 2000 for Series TH, the Business Day preceding the Dividend
Payment Date for the Initial Rate Period of each respective series. Thereafter,
except during Special Rate Periods, Auctions will normally be held every Tuesday
for Series T and Thursday for Series TH, and each Subsequent Rate Period will
normally begin on the following Wednesday for Series T and Friday for Series TH.

    Except as noted below, whenever the Trust intends to include any net capital
gain or other income taxable for federal income tax purposes in any dividend on
shares of Municipal Preferred, the Trust shall, in the case of Minimum Rate
Periods or Special Rate Periods of 28 Rate Period Days or fewer, and may, in the
case of any other Special Rate Period, notify the Auction Agent of the amount to
be so included not later than the Dividend Payment Date next preceding the
Auction Date on which the Applicable Rate for such dividend is to be
established. Whenever the Auction Agent receives such notice from the Trust, it
will be required in turn to notify each Broker-Dealer, who, on or prior to such
Auction Date, in accordance with its Broker-Dealer Agreement, will be required
to notify its customers who are Beneficial Owners and Potential Beneficial
Owners believed by it to be interested in submitting an Order in the Auction to
be held on such Auction Date. The Trust may also include such net capital gain
or other income taxable for federal income tax purposes in a dividend on shares
of Municipal Preferred without giving advance notice if the dividend is
increased by a Gross-Up Payment. The Trust must 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.

SECONDARY MARKET TRADING AND TRANSFER OF MUNICIPAL PREFERRED

    The Broker-Dealers (including the Underwriter) expect, but are not
obligated, to maintain a secondary trading market in shares of Municipal
Preferred outside of Auctions. The Broker-Dealers may discontinue such activity
at any time. There can be no assurance that a secondary trading market for
shares of Municipal Preferred will develop or, if it does develop, that it will
provide owners with liquidity of investment. The shares of Municipal Preferred
will not be registered on any stock exchange or on the National Association of
Securities Dealers Automated Quotations System. Investors who purchase shares of
Municipal Preferred in an Auction for a Special Rate Period should note that
because the dividend rate on such shares will be fixed for the length of such
Rate Period, the secondary market value of such shares may fluctuate in response
to the changes in interest rates, and may be more or less than their original
cost if sold on the open market in advance of the next Auction thereof,
depending on market conditions.

    A Beneficial Owner or an Existing Holder may sell, transfer, or otherwise
dispose of shares of Municipal Preferred only in whole shares and only (1)
pursuant to a Bid or Sell Order placed with the Auction Agent in accordance with
the Auction Procedures, (2) to a Broker-Dealer or (3) to such other persons as
may be permitted by the Trust; provided, however, that (a) a sale, transfer or
other disposition of shares of Municipal Preferred from a customer of a
Broker-Dealer who is listed on the records of that Broker-Dealer as the holder
of such shares to that Broker-Dealer or another customer of that Broker-Dealer
shall not be deemed to be a sale, transfer or other disposition for purposes of
the foregoing if such Broker-Dealer remains the Existing Holder of the shares so
sold, transferred or disposed of immediately after such sale, transfer or
disposition and (b) in the case of all transfers other than pursuant to
Auctions, the Broker-Dealer (or other person, if permitted by the Trust) to whom
such transfer is made shall advise the Auction Agent of such transfer.


                       DETERMINATION OF NET ASSET VALUE

    Net asset value of the Trust will be determined no less frequently than as
of the close of regular trading on the New York Stock Exchange (the "Exchange")
(generally 4:00 p.m. New York City time) on the last Business Day of each week
(generally Friday), and at such other times as the Trust may authorize. The net
asset value of the Trust equals the value of the Trust's assets less the Trust's
liabilities. Debt securities (other than short-term obligations which mature in
60 days or less), including listed issues, are valued on the basis of valuations
furnished by dealers or by a pricing service with consideration to factors such
as institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Securities for which there are no such
quotations or valuations are valued in good faith, at fair value, by the
Trustees.

                      DESCRIPTION OF MUNICIPAL PREFERRED

GENERAL
    The Declaration of Trust of the Trust (the "Declaration") provides that the
Trust may authorize separate classes of shares of beneficial interest. The
Statement authorizes the issuance of 5,600 preferred shares of beneficial
interest, no par value per share, which may be issued from time to time in such
series and with such designations, preferences and other rights, qualifications,
limitations and restrictions as are determined in a resolution of the Board of
Trustees ("Preferred Shares"). The Statement authorizes the issuance of up to
2,800 shares of Series T and 2,800 shares of Series TH Municipal Preferred.
Shares of Municipal Preferred carry one vote per share. Shares of Municipal
Preferred will, when issued, be fully paid and, subject to matters discussed in
"Shareholder Liability" in the Statement of Additional Information,
nonassessable, and will have no pre-emptive or conversion rights or rights to
cumulative voting.

DIVIDENDS AND DIVIDEND PERIODS
GENERAL. The Initial Rate Period for Series T Municipal Preferred shares is a
period consisting of days. The Initial Rate Period for Series TH Municipal
Preferred shares is a period consisting of days. Any Subsequent Rate Period will
be a Minimum Rate Period (7 Rate Period Days) unless the Trust, subject to
certain conditions, designates such Subsequent Rate Period as a Special Rate
Period. See "Designation of Special Rate Periods" below.

    Dividends on the shares of Municipal Preferred will be payable, when, as and
if declared by the Board of Trustees out of funds legally available therefor in
accordance with the Declaration, the Statement and applicable law on Wednesday,
, 2000 for Series T and Friday, , 2000 for Series TH, and thereafter on each
Wednesday for Series T and Friday for Series TH; provided, however, that (1) if
the day on which dividends would otherwise be payable is not a Business Day,
then dividends shall be payable instead on the first Business Day that falls
after such regular dividend payment day and (2) the Trust may specify different
Dividend Payment Dates in respect of any Special Rate Period of such shares of
more than 28 Rate Period Days.


    The amount of dividends per share payable on shares of Municipal Preferred
on any date on which dividends shall be payable on such shares shall be computed
by multiplying the Applicable Rate in effect for such Dividend Period or
Dividend Periods or part thereof for which dividends have not been paid by a
fraction, the numerator of which shall be the number of days in such Dividend
Period or Dividend Periods or part thereof and the denominator of which shall be
365 if such Dividend Period consists of 7 Rate Period Days and 360 for all other
Dividend Periods, and applying the rate obtained against $25,000.

    Dividends will be paid through the Securities Depository on each Dividend
Payment Date in accordance with its normal procedures, which now provide for it
to distribute dividends in next-day funds to Agent Members, who in turn are
expected to distribute such dividend payments to the persons for whom they are
acting as agents. Each of the initial Broker-Dealers, however, has indicated to
the Trust that such Broker-Dealer or the Agent Member designated by such
Broker-Dealer will make such dividend payments available in same-day funds on
each Dividend Payment Date to customers that use such Broker-Dealer or its
designee as Agent Member.


    Dividends on shares of Municipal Preferred shall accumulate from the Date of
Original Issue. The dividend rate for Series T Municipal Preferred shares for
the Initial Rate Period will be % per annum. The dividend rate for Series TH
Municipal Preferred shares for the Initial Rate Period will be % per annum. For
each Subsequent Rate Period, the dividend rate will be the Applicable Rate that
the Auction Agent advises the Trust results from an Auction, except as provided
below.


    The Applicable Rate that results from an Auction will not be greater than
the Maximum Rate for shares of a series of Municipal Preferred which is:

        (i) in the case of any Auction Date which is not the Auction Date
    immediately prior to the first day of any proposed Special Rate Period, the
    product of (1) the Reference Rate on such Auction Date for the next Rate
    Period of shares of such series and (2) the Rate Multiple on such Auction
    Date, unless such shares of such series have or had a Special Rate Period
    (other than a Special Rate Period of 28 Rate Period Days or fewer) and an
    Auction at which Sufficient Clearing Bids existed has not yet occurred for a
    Minimum Rate Period after such Special Rate Period, in which case the higher
    of:

            (A) the dividend rate on such shares of such series of the then-
        ending Rate Period; and

            (B) the product of (x) the higher of (I) the Reference Rate on such
        Auction Date for a Rate Period equal in length to the then-ending Rate
        Period, if such then-ending Rate Period was 364 Rate Period Days or
        fewer, or the Treasury Note Rate on such Auction Date for a Rate Period
        equal in length to the then-ending Rate Period of shares of such series,
        if such then-ending Rate Period was more than 364 Rate Period Days, and
        (II) the Reference Rate on such Auction Date for a Rate Period equal in
        length to such Special Rate Period of shares of such series, if such
        Special Rate Period was 364 Rate Period Days or fewer, or the Treasury
        Note Rate on such Auction Date for a Rate Period equal in length to such
        Special Rate Period, if such Special Rate Period was more than 364 Rate
        Period Days and (y) the Rate Multiple on such Auction Date; or

        (ii) in the case of any Auction Date which is the Auction Date
    immediately prior to the first day of any proposed Special Rate Period, the
    product of (1) the highest of (x) the Reference Rate on such Auction Date
    for a Rate Period equal in length to the then-ending Rate Period of shares
    of such series, if such then-ending Rate Period was 364 Rate Period Days or
    fewer, or the Treasury Note Rate on such Auction Date for a Rate Period
    equal in length to the then-ending Rate Period of such series, if such
    then-ending Rate Period was more than 364 Rate Period Days, (y) the
    Reference Rate on such Auction Date for the Special Rate Period for which
    the Auction is being held if such Special Rate Period is 364 Rate Period
    Days or fewer or the Treasury Note Rate on such Auction Date for the Special
    Rate Period for which the Auction is being held if such Special Rate Period
    is more than 364 Rate Period Days, and (z) the Reference Rate on such
    Auction Date for Minimum Rate Periods and (2) the Rate Multiple on such
    Auction Date.

    If any Auction for any Subsequent Rate Period is not held for any reason
other than as described below, the dividend rate on shares of such series for
such Subsequent Rate Period will be the Maximum Rate on the Auction Date for
such Subsequent Rate Period.


    If the Trust fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, shares of Municipal
Preferred during any Rate Period thereof (other than any Special Rate Period of
more than 364 Rate Period Days or any Rate Period succeeding any Special Rate
Period of more than 364 Rate Period Days during which such a failure occurred
that has not been cured), and, prior to 12:00 Noon on the third Business Day
next succeeding the date such failure occurred, such failure shall have been
cured, as described more fully in the Statement of Additional Information, no
Auction will be held in respect of shares of such series for the Subsequent Rate
Period thereof and the dividend rate for shares of Municipal Preferred for such
Subsequent Rate Period will be the Maximum Rate on the Auction Date for such
Subsequent Rate Period.

    If the Trust fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of Municipal
Preferred during any Rate Period (other than any Special Rate Period of more
than 364 Rate Period Days or any Rate Period succeeding any Special Rate Period
of more than 364 Rate Period Days during which such a failure occurred that has
not been cured), and, prior to 12:00 Noon on the third Business Day next
succeeding the date on which such failure occurred, such failure shall not have
been cured, as described more fully in the Statement of Additional Information,
no Auction will be held in respect of such shares of such series for the first
Subsequent Rate Period thereof thereafter (or for any Rate Period thereof
thereafter to and including the Rate Period during which such failure is so
cured no later than 12:00 Noon on the fourth Business Day prior to the end of
such Rate Period), and the dividend rate for such shares for each such
Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate on
the Auction Date for each such Subsequent Rate Period (but with the prevailing
rating for such shares, for purposes of determining such Maximum Rate, being
deemed to be "Below "ba3"/BB-").

    If the Trust fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of Municipal
Preferred during a Special Rate Period of more than 364 Rate Period Days, or
during any Rate Period succeeding any Special Rate Period of more than 364 Rate
Period Days during which such a failure occurred that has not been cured prior
to 12:00 Noon, New York City time, on the fourth Business Day preceding the
Auction Date for the Rate Period subsequent to such Rate Period and as more
fully described in the Statement of Additional Information, no Auction will be
held in respect of shares of such series for such Subsequent Rate Period thereof
(or for any Rate Period thereof thereafter to and including the Rate Period
during which such failure is so cured), and the dividend rate for each such
Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate on
the Auction Date for each such Subsequent Rate Period (but with the prevailing
rating for such shares of such series, for purposes of determining such Maximum
Rate, being deemed to be "Below "ba3"/BB-").


    A failure to pay dividends on or the redemption price of shares of Municipal
Preferred shall have been cured with respect to any Rate Period if, within the
respective time periods described above, the Trust shall have paid to the
Auction Agent (i) all accumulated and unpaid dividends on the shares of
Municipal Preferred of such series and (ii) without duplication, the redemption
price for the shares of Municipal Preferred of such series, if any, for which
notice of redemption has been mailed by the Trust; provided, however, that the
foregoing clause (ii) shall not apply to the Trust's failure to pay the
redemption price in respect of shares of Municipal Preferred when the related
notice of redemption provides that redemption of such shares is subject to one
or more conditions precedent and any such condition precedent shall not have
been satisfied at the time or times and in the manner specified in such notice
of redemption.


GROSS-UP PAYMENTS. Holders of shares of Municipal Preferred shall be entitled to
receive, when, as and if declared by the Board of Trustees, out of funds legally
available therefor in accordance with the Declaration, the Statement and
applicable law, dividends in an amount equal to the aggregate Gross-Up Payments
in accordance with the following:

    If, in the case of any Minimum Rate Period or any Special Rate Period of 28
Rate Period Days or fewer, or, in the case of any other Special Rate Period, the
Trust allocates any net capital gain or other income taxable for federal income
tax purposes to a dividend paid on shares of Municipal Preferred without having
given advance notice thereof to the Auction Agent as described above under "The
Auction -- Auction Procedures" (a "Taxable Allocation") solely by reason of the
fact that such allocation is made retroactively as a result of the redemption of
all or a portion of the outstanding shares of Municipal Preferred or the
liquidation of the Trust, the Trust shall, prior to the end of the fiscal year
in which such dividend was paid or written 90 days (and generally within 60
days) after the end of the Trust's fiscal year for which a retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent and direct the
Trust's dividend disbursing agent to send such notice with a Gross-Up Payment to
each holder of shares (initially Cede & Co., as nominee of the Securities
Depository) that was entitled to such dividend payment with respect to shares of
Municipal Preferred during such fiscal year at such holder's address as the same
appears or last appeared on the record books of the Trust. The Trust, 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 Municipal Preferred), out of
funds legally available therefor, an amount equal to the aggregate Gross-Up
Payment with respect to all retroactive Taxable Allocations made to such holder
during the fiscal year in question.

    If the Trust does not give advance notice of the amount of taxable income to
be included in a dividend on shares of Municipal Preferred in the related
Auction, the Trust may include such taxable income in a dividend on shares of
Municipal Preferred if it increases the dividend by an additional amount
calculated as if such income were a retroactive Taxable Allocation and the
additional amount was a Gross-Up Payment.

    The Trust shall not be required to make Gross-Up Payments with respect to
any net capital gain or other taxable income determined by the Internal Revenue
Service to be allocable in a manner different from that allocated by the Trust.

    A "Gross-Up Payment" in respect of any dividend means payment to a holder of
shares of Municipal Preferred of an amount which, giving effect to the Taxable
Allocations made with respect to such dividend, would cause such holder's
after-tax returns (taking into account both the Taxable Allocations and the
Gross-Up Payment) to be equal to the after-tax return the holder would have
received if no such Taxable Allocations had occurred. Such Gross-Up Payment
shall be calculated: (i) without consideration being given to the time value of
money; (ii) assuming that no holder of shares of Municipal Preferred is subject
to the Federal alternative minimum tax with respect to dividends received from
the Trust; and (iii) assuming that each holder of shares of Municipal Preferred
is taxable at the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or net capital gain, as applicable, or the maximum
marginal regular Federal corporate income tax rate applicable to ordinary income
or net capital gain, as applicable, whichever is greater, in effect at the time
such Gross-Up Payment is made.


RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so long as any shares of
Municipal Preferred are outstanding, the Trust may not declare, pay or set apart
for payment any dividend or other distribution (other than a dividend or
distribution paid in shares of, or in options, warrants or rights to subscribe
for or purchase, Common Shares) in respect of Common Shares or call for
redemption, redeem, purchase or otherwise acquire for consideration any Common
Shares (except by conversion into or exchange for shares of the Trust ranking
junior to the shares of Municipal Preferred as to the payment of dividends and
the distribution of assets upon liquidation), unless (1) full cumulative
dividends on shares of Municipal Preferred through their most recently ended
Dividend Period shall have been paid or shall have been declared and sufficient
funds for the payment thereof deposited with the Auction Agent; (2) the Trust
has redeemed the full number of shares of Municipal Preferred required to be
redeemed by any provision for mandatory redemption pertaining thereto; and (3)
immediately after such transaction the Discounted Value of the Trust's portfolio
would at least equal the Municipal Preferred Basic Maintenance Amount in
accordance with guidelines of the rating agency or agencies then rating the
shares of Municipal Preferred.

    Except as set forth in the next sentence, no dividends shall be declared or
paid or set apart for payment on any class or series of shares of beneficial
interest of the Trust ranking, as to the payment of dividends, on a parity with
shares of Municipal Preferred for any period unless full cumulative dividends
have been or contemporaneously are declared and paid on the shares of Municipal
Preferred through their most recent Dividend Payment Date. When dividends are
not paid in full upon the shares of Municipal Preferred through their most
recent Dividend Payment Date or upon any other class or series of shares ranking
on a parity as to the payment of dividends with shares of Municipal Preferred
through their most recent respective dividend payment dates, all dividends
declared upon shares of Municipal Preferred and any other such class or series
of shares ranking on a parity as to the payment of dividends with shares of
Municipal Preferred shall be declared pro rata so that the amount of dividends
declared per share on shares of Municipal Preferred and such other class or
series of shares shall in all cases bear to each other the same ratio that
accumulated dividends per share on the shares of Municipal Preferred and such
other class or series of shares bear to each other.

DESIGNATION OF SPECIAL RATE PERIODS

    The Trust, at its option, may designate any succeeding Subsequent Rate
Period as a Special Rate Period consisting of a specified number of Rate Period
Days evenly divisible by seven and not more than 1,820 (approximately 5 years),
subject to certain adjustments. A designation of a Special Rate Period shall be
effective only if, among other things, (i) the Trust shall give certain notices
to the Auction Agent, (ii) an Auction for such shares shall have been held on
the Auction Date immediately preceding the first day of such proposed Special
Rate Period and Sufficient Clearing Bids for such shares shall have existed in
such Auction and (iii) if the Trust shall have mailed a notice of redemption
with respect to any shares of Municipal Preferred, the redemption price with
respect to such shares shall have been deposited with the Auction Agent. The
Trust may declare a Special Rate Period if, for example, it expects that
short-term rates may increase or market conditions otherwise change, in an
effort to optimize the effect of the Trust's leverage on common shareholders.


VOTING RIGHTS
    In addition to voting rights described below under "Certain Provisions in
the Declaration of Trust" and in the Statement of Additional Information under
"Investment Objective and Policies -- Fundamental Investment Policies," holders
of shares of Municipal Preferred, voting as a separate class, are entitled to
elect (1) two trustees of the Trust at all times and (2) a majority of the
trustees if at any time dividends on shares of Municipal Preferred shall be
unpaid in an amount equal to two years dividends thereon, and to continue to be
so represented until all dividends in arrears shall have been paid or otherwise
provided for. In all other cases, trustees shall be elected by holders of Common
Shares and Preferred Shares (including Municipal Preferred), voting together as
a single class.


    Subject to the voting rights described above and except as otherwise
specified under "Certain Provisions in the Declaration of Trust," the Trust may
not, among other things, without the approval of the holders of a "majority of
the outstanding" shares of Municipal Preferred, voting as a separate class,
approve any plan of reorganization adversely affecting shares of Municipal
Preferred. In addition, the Trust may not, without the affirmative vote of the
holders of at least a majority of the shares of Municipal Preferred outstanding
at the time, voting as a separate class: (a) authorize, create or issue
additional shares of Municipal Preferred or classes or series of Preferred
Shares ranking prior to or on a parity with shares of Municipal Preferred with
respect to the payment of dividends or the distribution of assets upon
liquidation (except as provided below) or (b) amend, alter or repeal the
provisions of the Declaration or the By-Laws, whether by merger, consolidation
or otherwise, so as to materially affect any preference, right or power of such
shares of Municipal Preferred or the holders thereof; provided, however, that a
division of a share of Municipal Preferred shall be deemed to materially affect
any such preference, right or power only if the terms of such division adversely
affect the holders of shares of Municipal Preferred. The Trust may not, without
the affirmative vote of the holders of at least 6623% of the shares of Municipal
Preferred outstanding at the time, voting as a separate class, file a voluntary
application for relief under Federal bankruptcy law or any similar application
under state law for so long as the Trust is solvent and does not foresee
becoming insolvent. Notwithstanding the second sentence of this paragraph, the
Trust may, without the vote of the holders of shares of Municipal Preferred,
authorize, create or issue additional shares of Municipal Preferred or classes
or series of Preferred Shares ranking on a parity with shares of Municipal
Preferred with respect to the payment of dividends and the distribution of
assets upon liquidation if the Trust obtains written confirmation from Moody's
(if Moody's is then rating the shares of Municipal Preferred) and Standard &
Poor's (if Standard & Poor's is then rating the shares of Municipal Preferred)
that the issuance of any such additional shares or class or series of shares
would not impair the rating then assigned by such rating agency to shares of
Municipal Preferred; provided, however, that if Moody's or Standard & Poor's is
not then rating the shares of Municipal Preferred, the aggregate liquidation
preference of all Preferred Shares of the Trust outstanding after any such
issuance, exclusive of accumulated and unpaid dividends, may not exceed
$140,000,000. If any action set forth in this paragraph would adversely affect
the rights of one or more series (the "Affected Series") of Municipal Preferred
in a manner different from any other series of Municipal Preferred, the Trust
will not approve any such action without the affirmative vote of the holders of
at least a majority of the shares of each such Affected Series outstanding at
the time (each such Affected Series voting as a separate class).


REDEMPTION
MANDATORY REDEMPTION. In the event the Trust does not timely cure a failure to
maintain (1) a Discounted Value of its portfolio equal to the Municipal
Preferred Basic Maintenance Amount or (2) the 1940 Act Municipal Preferred Asset
Coverage, in each case in accordance with the requirements of the rating agency
or agencies then rating the shares of Municipal Preferred, shares of Municipal
Preferred will be subject to mandatory redemption on a date specified by the
Board of Trustees, out of funds legally available therefor in accordance with
the Declaration, the Statement and applicable law, at the redemption price of
$25,000 per share plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared) to (but not including) the date
fixed for redemption. Any such redemption will be limited to the number of
shares of Municipal Preferred necessary to restore the required Discounted Value
or the 1940 Act Municipal Preferred Asset Coverage, as the case may be.

    In determining the number of shares of Municipal Preferred required to be
redeemed in accordance with the foregoing, the Trust will allocate the number of
shares required to be redeemed to satisfy the Municipal Preferred Basic
Maintenance Amount or the 1940 Act Municipal Preferred Asset Coverage, as the
case may be, pro rata among shares of Municipal Preferred and other Preferred
Shares of the Trust, subject to redemption or retirement.


OPTIONAL REDEMPTION. Shares of Municipal Preferred are redeemable, at the
option of the Trust:


        (i) in whole or in part, on the second Business Day preceding any
    Dividend Payment Date for such shares, out of funds legally available
    therefor in accordance with the Declaration, the Statement and applicable
    law, at the redemption price of $25,000 per share plus an amount equal to
    accumulated but unpaid dividends thereon (whether or not earned or declared)
    to (but not including) the date fixed for redemption; provided, however,
    that (1) shares of Municipal Preferred may not be redeemed in part if after
    such partial redemption fewer than 500 shares remain outstanding and (2) the
    notice establishing a Special Rate Period of shares of Municipal Preferred,
    as delivered to the Auction Agent and filed with the Secretary of the Trust,
    may provide that such shares shall not be redeemable during the whole or any
    part of such Special Rate Period (except as provided in (ii) below) or shall
    be redeemable during the whole or any part of such Special Rate Period only
    upon payment of such redemption premium or premiums as shall be specified
    therein; and

        (ii) as a whole but not in part, out of funds legally available therefor
    in accordance with the Declaration, the Statement and applicable law, on the
    first day following any Dividend Period included in a Rate Period of more
    than 364 Rate Period Days if, on the date of determination of the Applicable
    Rate for such Rate Period, such Applicable Rate equaled or exceeded on such
    date of determination the Treasury Note Rate for such Rate Period, at a
    redemption price of $25,000 per share plus an amount equal to accumulated
    but unpaid dividends thereon (whether or not earned or declared) to (but not
    including) the date fixed for redemption.


    Notwithstanding the foregoing, if any dividends on shares of Municipal
Preferred (whether or not earned or declared) are in arrears, no shares of a
series of Municipal Preferred shall be redeemed unless all outstanding shares of
such series of Municipal Preferred are simultaneously redeemed, and the Trust
shall not purchase or otherwise acquire any shares of such series of Municipal
Preferred; provided, however, that the foregoing shall not prevent the purchase
or acquisition of all outstanding shares of such series of Municipal Preferred
pursuant to the successful completion of an otherwise lawful purchase or
exchange offer made on the same terms to, and accepted by, holders of all
outstanding shares of such series of Municipal Preferred.


LIQUIDATION
    Upon a liquidation of the Trust, whether voluntary or involuntary, the
holders of shares of Municipal Preferred then outstanding will be entitled to
receive and to be paid out of the assets of the Trust available for distribution
to its shareholders, an amount equal to the aggregate of (i) the liquidation
preference with respect to such shares ($25,000 per share), (ii) an amount equal
to all dividends thereon (whether or not earned or declared) accumulated but
unpaid to (but not including) the date of final distribution in same-day funds,
and (iii) any applicable Gross-up Payments in connection with the liquidation of
the Trust. The holders of shares of Municipal Preferred will receive this amount
before any payment or distribution shall be made on the Common Shares. The right
to such amount, upon liquidation, is subject to the rights of holders of any
series or class or classes of shares ranking on a parity with shares of
Municipal Preferred with respect to the distribution of assets upon liquidation
of the Trust. After the payment to the holders of the shares of Municipal
Preferred of the full preferential amounts provided for as described herein, the
holders of Municipal Preferred as such shall have no right or claim to any of
the remaining assets of the Trust.

    Neither the sale of all or substantially all the property or business of the
Trust, nor the merger or consolidation of the Trust into or with any
Massachusetts business trust or corporation nor the merger or consolidation of
any Massachusetts business trust or corporation into or with the Trust shall be
a liquidation, whether voluntary or involuntary, for the purposes of the
foregoing paragraph.


                           RATING AGENCY GUIDELINES


    The Trust is required under Moody's and Standard & Poor's guidelines to
maintain assets having in the aggregate a Discounted Value at least equal to the
Municipal Preferred Basic Maintenance Amount. Moody's and Standard & Poor's have
each 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 Standard & Poor's guidelines do not impose any
limitations on the percentage of Trust assets that may be invested in holdings
not eligible for inclusion in the calculation of the Discounted Value of the
Trust's portfolio. The amount of such assets included in the portfolio at any
time may vary depending upon the rating, diversification and other
characteristics of the eligible assets included in the portfolio. The Municipal
Preferred Basic Maintenance Amount includes the sum of (i) the aggregate
liquidation preference of shares of Municipal Preferred then outstanding and
(ii) certain accrued and projected payment obligations of the Trust.


    The Trust is also required under rating agency guidelines to maintain, with
respect to the shares of Municipal Preferred, as of the last Business Day of
each month in which any shares of Municipal Preferred are outstanding, asset
coverage of at least 200% with respect to senior securities which are shares,
including shares of Municipal Preferred (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 shares of a closed-end investment company as a
condition of declaring dividends on its common shares) ("1940 Act Municipal
Preferred Asset Coverage"). Based on the composition of the Trust's portfolio
and market conditions as of October 31, 2000, the 1940 Act Municipal Preferred
Asset Coverage with respect to shares of Municipal Preferred, assuming the
issuance on the date hereof of all shares of Municipal Preferred offered hereby
and after giving effect to the deduction of the sales load and offering costs
relating thereto estimated at $1,918,460, would be computed as follows:


<TABLE>
<CAPTION>
VALUE OF TRUST ASSETS LESS LIABILITIES NOT
CONSTITUTING SENIOR SECURITIES
- ------------------------------------------


<S>                                                                      <C>                              <C>
                                                                         $443,870,662
                                                                         ------------
                                                                 =                            =             317%
Senior securities representing indebtedness plus                         $140,000,000
  liquidation value of the shares of Municipal Preferred                 ------------

</TABLE>

    In the event the Trust does not timely cure a failure to maintain (1) a
Discounted Value of its portfolio equal to the Municipal Preferred Basic
Maintenance Amount or (2) the 1940 Act Municipal Preferred Asset Coverage, in
each case in accordance with the requirements of the rating agency or agencies
then rating the shares of Municipal Preferred, the Trust will be required to
redeem shares of Municipal Preferred as described above under "Description of
Municipal Preferred -- Redemption."

    The Trust may, but is not required to, adopt any modifications to the
guidelines that may hereafter be established by Moody's or Standard & Poor's.
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 Municipal Preferred may, at
any time, change or withdraw any such rating. The Board of Trustees may, without
shareholder approval, amend, alter or repeal any or all of the definitions and
related provisions which have been adopted by the Trust pursuant to the rating
agency guidelines in the event the Trust receives written confirmation from
Moody's or Standard & Poor's, or both, as appropriate, that any such change
would not impair the ratings then assigned by Moody's and Standard & Poor's to
shares of Municipal Preferred.

    As described by Moody's and Standard & Poor's, a preferred share rating is
an assessment of the capacity and willingness of an issuer to pay preferred
share obligations. The ratings on the Municipal Preferred are not
recommendations to purchase, hold or sell shares of Municipal Preferred,
inasmuch as the ratings do not comment as to market price or suitability for a
particular investor. The rating agency guidelines described above also do not
address the likelihood that an owner of shares of Municipal Preferred will be
able to sell such shares in an Auction or otherwise. The ratings are based on
current information furnished to Moody's and Standard & Poor's by the Trust and
the 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.

    A rating agency's guidelines will apply to shares of Municipal Preferred
only so long as such rating agency is rating such shares. The Trust will pay
certain fees to Moody's or Standard & Poor's, or both, for rating shares of
Municipal Preferred.


                         DESCRIPTION OF COMMON SHARES


    In addition to the shares of Municipal Preferred, the Declaration authorizes
the issuance of an unlimited number of Common Shares, no par value. As of April
30, 2000, the Trust had 39,241,840 Common Shares outstanding and net assets of
$303,229,876. See "Financial Highlights," above.

    All Common Shares have equal noncumulative voting rights and equal rights
with respect to dividends, assets and liquidation. Common Shares are fully paid
and nonassessable when issued and have no preemptive, conversion or exchange
rights. So long as any shares of Municipal Preferred are outstanding, the Trust
is not permitted to declare dividends on, make any distributions with respect
to, or purchase its Common Shares unless, at the time of such declaration,
distribution or purchase, as applicable (and after giving effect thereto), all
accumulated dividends on any preferred shares of the Trust have been paid.

    In the past, the Trust's Common Shares have traded on the New York Stock
Exchange at various times at either a premium or a discount in relation to net
asset value. Shares of other closed-end investment companies frequently trade on
a stock exchange at a discount from net asset value.


                CERTAIN PROVISIONS IN THE DECLARATION OF TRUST


    The Board of Trustees is divided into three classes, each having a term of
three years. Each year the term of one class expires. This may make it more
difficult to change the Trust's management and could have the effect of
depriving shareholders of an opportunity to sell their Common Shares at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Trust in a tender offer or similar transaction. Also,
the Declaration provides that the affirmative vote or consent of two-thirds of
the outstanding Common Shares and any Preferred Shares of the Trust (including
shares of Municipal Preferred), voting together as a single class, and of the
Preferred Shares (including shares of Municipal Preferred) voting as a separate
class, would be required to authorize the conversion of the Trust from a
closed-end to an open-end investment company. This two-thirds vote requirement
is higher than the vote required under the 1940 Act. In addition, the
affirmative vote or consent of the holders of two-thirds of the outstanding
shares of the Trust is required to authorize any of the following transactions:

        (i) merger or consolidation of the Trust with or into any other
    corporation;

        (ii) sale, lease or exchange of all or any substantial part of the
    assets of the Trust to any entity or person (except assets having an
    aggregate fair market value of less than $1,000,000); or

        (iii) sale, lease or exchange to the Trust, in exchange for securities
    of the Trust, of any assets of any entity or person (except assets having an
    aggregate fair market value of less than $1,000,000) if such corporation,
    person or entity is directly, or indirectly through affiliates, the
    beneficial owner of five percent or more of the outstanding shares of the
    Trust.

However, such vote or consent will not be required with respect to the foregoing
transactions where the Board of Trustees under certain conditions approves the
transaction.

    The foregoing provisions will make more difficult a change in the Trust's
management, or consummation of the foregoing transactions without the Trustees'
approval, and could have the effect of depriving shareholders 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 Trust in a tender offer or
similar transaction. However, they provide the advantage of potentially
requiring persons seeking control of the Trust to negotiate with its management
regarding the price to be paid and facilitating the continuity of the Trust's
management.

    Reference is made to the Declaration of Trust of the Trust, on file with
SEC, for the full text of these provisions.


           REPURCHASE OF COMMON SHARES; CONVERSION TO OPEN-END FUND


REPURCHASE OF SHARES
    Shares of closed-end investment companies frequently trade at a discount
from net asset value. The Board of Trustees regularly monitors the relationship
between the Trust's market price and net asset value. If shares of the Trust
were to trade at a substantial discount to net asset value for an extended
period of time, the Board may consider the repurchase of its Common Shares on
the open market or the making of tender offers for such shares. Since
commencement of the Trust's operations, no such open market purchases or tender
offers have been made, and no assurances can be given that such actions will be
taken in the future. Subject to its investment restrictions, the Trust may
borrow money to finance the repurchase of shares, subject to compliance with the
1940 Act Municipal Preferred Asset Coverage, Section 18 of the 1940 Act and the
other limitations described under "Rating Agency Guidelines." Shares may not be
repurchased, however, (i) if applicable asset coverage requirements under the
1940 Act (i.e., 200% with respect to any preferred shares of the Trust,
including shares of Municipal Preferred) are not met or would not be met
following such repurchase or (ii) if otherwise prohibited by applicable law.

    There can be no assurance that repurchases or tenders, if they were to
occur, would result in the shares trading at a price which is equal to their net
asset value. The Trust anticipates that the market price of the shares will
usually vary from net asset value. The market price of the shares will be
determined, among other things, by the relative demand for and supply of the
shares in the market, the Trust's investment performance, the Trust's dividends
and yield and investor perception of the Trust's overall attractiveness as an
investment as compared with other investment alternatives. It should be
recognized that any such acquisitions of shares would decrease the total assets
of the Trust and therefore have the effect of increasing the Trust's expense
ratio. Furthermore, any interest on borrowings to finance share repurchase
transactions would reduce the Trust's net income.

CONVERSION TO OPEN-END STATUS
    The Trust's Board of Trustees may from time to time consider submitting to
the holders of the shares of beneficial interest of the Trust at any time a
proposal to convert the Trust to an open-end investment company. In determining
whether to exercise its discretion to submit this issue to shareholders, the
Board of Trustees would consider all factors then relevant, including the
relationship of the market price of the Common Shares to net asset value, the
extent to which the Trust's capital structure is leveraged and the possibility
of re-leveraging, the spread, if any, between yields on lower rated securities
in the Trust's portfolio and interest and dividend charges on senior securities
and general market and economic conditions. In addition to any vote required by
Massachusetts law, conversion of the Trust to an open-end investment company
would require the affirmative vote of two-thirds of the Common Shares and any
Preferred Shares of the Trust (including shares of Municipal Preferred) entitled
to be voted on the matter, voting together as a single class, and of the
Preferred Shares (including shares of Municipal Preferred) entitled to be voted
on the matter, voting as a single class. This two-thirds vote requirement is
higher than the vote required under the 1940 Act. Shareholders of an open-end
investment company may require the company to redeem their shares at any time
(except in certain circumstances as authorized by or under the 1940 Act) at
their net asset value, less such redemption charges, if any, as might be in
effect at the time of redemption. If the Trust converted to an open-end
investment company, it would be required to redeem all shares of Municipal
Preferred then outstanding at the redemption price specified under "Description
of Municipal Preferred -- Redemption -- Optional Redemption." In addition, the
Trust could be required to liquidate portfolio securities to meet required and
requested redemptions, and its Common Shares would no longer be listed on the
Exchange. No assurance can be given that the Board will, at any time in the
future, decide to submit a proposal to convert to open-end status to the
shareholders of the Trust.


                                 TAX MATTERS

    The following discussion briefly summarizes some of the federal income tax
considerations generally applicable to investments in the Trust. This discussion
is based on the Code, existing Treasury regulations, rulings published by the
Internal Revenue Service and judicial decisions, all as of the date of this
prospectus. These authorities are subject to change, possibly with retroactive
effect. A more detailed summary is available under the heading "Tax Matters" in
the Statement of Additional Information. However, because each investor's tax
situation is different (especially with regard to state, local and foreign tax
considerations), investors are urged to consult their own tax advisers regarding
the tax considerations that may be applicable in their particular situations.


    The Trust intends to qualify each year as a "regulated investment company"
under Subchapter M of the Code. Because the Trust intends to distribute all of
its net tax-exempt income, net investment income and net realized capital gains
to shareholders in accordance with the timing requirements imposed by the Code,
it is not expected that the Trust will be required to pay an entity- level
federal income or excise tax.


    The Trust intends to satisfy applicable requirements of the Code so as to be
able to designate dividends that the Trust pays which are attributable to
interest on Municipal Bonds as "exempt-interest dividends." Exempt-interest
dividends are excludable from a shareholder's gross income for federal income
tax purposes, subject to the possible application of the federal alternative
minimum tax discussed below. Distributions of income, if any, from capital
gains, from investments in taxable securities, and from certain other
transactions, including futures transactions, will be taxable to shareholders.
The Trust will designate dividends paid as exempt-interest dividends in a manner
that allocates such dividends between the holders of the Common Shares and the
holders of shares of Municipal Preferred in proportion to the total dividends
paid to each of those classes for a given taxable year, or as otherwise as
required by applicable law. Long-term capital gain distributions and other
income subject to regular federal income tax will similarily be allocated
between the two classes. The amount of taxable income allocable to Municipal
Preferred shares will depend on the amount of such income realized by the Trust,
but generally is not expected to be significant.


    The Trust does not expect any of its dividends to qualify for the
dividends-received deduction for corporations. Shareholders may not have to pay
state or local taxes on the portion of dividends that the Trust pays from
interest on U.S. government obligations; investors should consult with their tax
advisers in this regard.


    Interest on indebtedness incurred or continued by shareholders to purchase
or carry shares of the Trust will not be deductible for federal income tax
purposes to the extent attributable to exempt-interest dividends. Exempt-
interest dividends are taken into account in calculating the amount of social
security and railroad retirement benefits that may be subject to federal income
tax, and a portion of the Trust's exempt-interest dividends may be treated as a
tax preference item for purposes of the federal individual alternative minimum
tax. All exempt-interest dividends may affect a corporate shareholder's
alternative minimum tax liability. All or a portion of exempt- interest
dividends may be subject to state and local income taxes. Exempt- interest
dividends attributable to interest received on certain private activity bonds
and certain industrial development bonds will not be tax-exempt to any
shareholders who are, within the meaning of Section 147(a) of the Code
"substantial users" of the facilities financed by such bonds or who are related
to such "substantial users." Entities or persons who are "substantial users" (or
who are related to "substantial users") of facilities financed by private
activity bonds or industrial development bonds should consult their tax advisers
before purchasing shares of the Trust.


    As described under the heading "Description of Municipal Preferred," above,
the Trust may be required to make Gross-up Payments to holders of Municipal
Preferred shares. Gross-up Payments are generally intended to put holders in the
same federal income tax position they would have been in had all of the
dividends paid to them consisted of exempt-interest dividends. However, Gross-up
Payments will not compensate for any foreign, state or local taxes on
distributions paid by the Trust, including foreign, state or local taxes on the
Gross-up Payments themselves. Gross-up Payments also will not compensate holders
in the event that the Internal Revenue Service recharacterizes as a taxable
distribution any payment that the Trust has designated as an exempt-interest
dividend (including a Gross-up Payment so designated).

    The Trust intends to withhold U.S. federal income tax at the rate of 30% (or
any lower rate permitted by an applicable treaty) on any taxable dividends and
other payments that are subject to such withholding and that are made to persons
who are neither citizens nor residents of the U.S. Different tax consequences
may result if such person is engaged in a trade or business in the United States
and the dividends or other payments received are effectively connected with the
conduct of that trade or business. The Trust is also required under certain
circumstances to apply backup withholding at the rate of 31% on taxable
dividends paid to any shareholder (including a shareholder who is not a citizen
or resident of the U.S.) who does not furnish certain required information and
certifications to the Trust, or who is otherwise subject to backup withholding.
Backup withholding will not, however, be applied to payments that have been
subject to 30% withholding.

    The Trust will send written notices to shareholders regarding the federal
income tax status of all dividends and distributions for each calendar year,
including the portion constituting exempt-interest dividends, the portion, if
any, taxable as ordinary income, the portion, if any, taxable as long-term
capital gain (as well as the rate category or categories under which such gain
is taxable), the portion, if any, representing a return of capital (which is
generally free of current taxes, but which results in a basis reduction), and
the amount, if any, of federal income tax withheld.

    A shareholder's sale or disposition of Trust shares will ordinarily be a
taxable event for federal income tax purposes. A taxable disposition will result
in a capital gain or loss if the shares are held as a capital asset, which will
generally be a long-term capital gain or loss if the shares were held for more
than twelve months, and otherwise a short-term capital gain or loss. A loss
realized on a sale of shares held for six months or less will be disallowed to
the extent of exempt-interest dividends received on the shares, and any portion
allowed will be treated as a long-term capital loss to the extent of capital
gain dividends received on the shares (or the amount designated as undistributed
capital gain with respect to the shares). Losses may also be disallowed under
rules relating to wash sales. If shares are sold after tax-exempt income is
accrued but before it is paid as a dividend, the sales price generally will
reflect that accrued income, which will increase the taxable gain (or reduce the
loss) on the sale, even though the income would have been exempt from tax if
distributed as a dividend prior to the sale.

                  CUSTODIAN, AUCTION AGENT, TRANSFER AGENT,
                   DIVIDEND DISBURSING AGENT AND REGISTRAR

    The Trust's securities and cash are held by State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110, as custodian (the
"Custodian") under a custodian contract.


    Bankers Trust Company, serves as auction agent for the Trust in connection
with the shares of Municipal Preferred. Bankers Trust Company also serves as the
transfer agent, registrar, dividend disbursing agent and redemption agent for
shares of Municipal Preferred.


    MFS Service Center, Inc., 2 Avenue de Lafayette, Boston, Massachusetts
02111-1738, is the shareholder servicing agent, registrar and transfer agent for
the Common Shares of the Trust.


                                 UNDERWRITING

    Subject to the terms and conditions of the Underwriting Agreement between
Salomon Smith Barney Inc. (the "Underwriter") and the Trust (the "Underwriting
Agreement") dated the date hereof, the Underwriter has agreed to purchase, and
the Trust has agreed to sell, 2,800 shares of Series T and 2,800 shares of
Series TH Municipal Preferred offered hereby.

    The Underwriting Agreement provides that the obligations of the Underwriter
are subject to the approval of certain legal matters by counsel and to certain
conditions precedent, and that the Underwriter is obligated to purchase all of
the shares of Municipal Preferred if any are purchased. In the Underwriting
Agreement, the Trust and the Adviser have agreed to indemnify the Underwriter
with respect to certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended, and to contribute in respect thereof.

    The Trust has been advised by the Underwriter that it proposes initially to
offer the shares of each series of Municipal Preferred offered hereby to the
public at the price set forth on the cover page of this Prospectus and to
selected dealers at such price less a concession not to exceed $ per share. The
underwriting commission to be paid by the Trust of $250 per share is equal to 1%
of the initial offering price. The Underwriter may allow, and such dealers may
re-allow, a concession not in excess of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price and the
concession may be changed by the Underwriter. Investors must pay for any
Municipal Preferred purchased in the initial public offering on or before
             ,   2000.


    The Trust anticipates that the Underwriter may from time to time act as a
broker or dealer in connection with the execution of its portfolio transactions
after it has ceased to be an Underwriter. The Trust anticipates that the
Underwriter or one of its affiliates may, from time to time, act in Auctions as
Broker-Dealers as set forth under "The Auction -- General" and will receive the
fees described under "The Auction -- Broker-Dealers" in the Statement of
Additional Information in exchange for so acting. The Underwriter is an active
underwriter of, and dealer in, securities and acts as a market maker in a number
of such securities and therefore can be expected to engage in portfolio
transactions with the Trust.

    The principal business address of Salomon Smith Barney Inc. is 388
Greenwich Street, New York, New York 10010.


                                LEGAL OPINIONS

    Certain legal matters in connection with the Series T and TH Municipal
Preferred offered hereby will be passed upon for the Trust by Bingham Dana LLP,
Boston, Massachusetts, and for the Underwriters by Simpson Thacher & Bartlett,
New York, New York. Simpson Thacher & Bartlett will rely, as to certain matters
of Massachusetts law in its opinion, on the opinion of Bingham Dana LLP.

                           REPORTS TO SHAREHOLDERS


    The Trust will send unaudited semiannual and audited annual reports to its
shareholders based on Generally Accepted Accounting Principals in the United
States of America, including, as currently required by regulations of the
Securities and Exchange Commission, a list of investments held.


                                   EXPERTS

    The Financial Statements included in the Statement of Additional Information
have been so included in reliance on the report of Deloitte & Touche LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing. The address of Deloitte & Touche LLP is 200 Berkeley
Street, Boston, Massachusetts 02116.

                             FURTHER INFORMATION


    The Trust has filed with the Securities and Exchange Commission (the
"Commission"), Washington, DC 20549, a Registration Statement under the
Securities Act with respect to the shares of Municipal Preferred offered hereby.
Further information concerning these securities and the Trust may be found in
the Registration Statement, of which this Prospectus constitutes a part, on file
with the Commission. The Registration Statement may be inspected without charge
at the Commission's office in Washington, DC, and copies of all or any part
thereof may be obtained from such office after payment of the fees prescribed by
the Commission.

    The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith
files reports and other information with the Commission. Such reports, proxy and
information statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, DC 20549 and the Commission's regional offices, including
offices at Seven World Trade Center, New York, New York 10048. Call
1-202-942-8090 for information about the public reference facilities. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, DC 20549 at prescribed rates.
Such reports and other information concerning the Trust may also be inspected at
the offices of the Exchange. The Statement of Additional Information, material
incorporated by reference into this Prospectus and the Statement of Additional
Information, and reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission is also
available on the EDGAR Database on the SEC Internet site at http://www.sec.gov.
In addition, reports, proxy and information statements and other information
concerning the Trust can be inspected at the offices of the Exchange, 20 Broad
Street, New York, New York 10005.


                                   GLOSSARY


    " "AA" Composite Commercial Paper Rate," on any date for any Rate Period of
shares of a series of Municipal Preferred, means: (i)(A) in the case of any
Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period
Days, the interest equivalent of the 30-day rate; provided, however, that if
such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial
Paper Rate is being used to determine the Applicable Rate for shares of such
series when all of the outstanding shares of such series of Municipal Preferred
are subject to Submitted Hold Orders, then the interest equivalent of the
seven-day rate, and (B) in the case of any Special Rate Period of (1) 49 or more
but fewer than 70 Rate Period Days, the interest equivalent of the 60-day rate;
(2) 70 or more but fewer than 85 Rate Period Days, the arithmetic average of the
interest equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer
than 99 Rate Period Days, the interest equivalent of the 90-day rate; (4) 99 or
more but fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120- day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the interest
equivalent of the 120-day and 180-day rates; and (7) 162 or more but fewer than
183 Rate Period Days, the interest equivalent of the 180-day rate, in each case
on commercial paper placed on behalf of issuers whose corporate bonds are rated
"AA" by Standard & Poor's or the equivalent of such rating by Standard & Poor's
or another rating agency, as made available on a discount basis or otherwise by
the Federal Reserve Bank of New York for the Business Day next preceding such
date; or (ii) in the event that the Federal Reserve Bank of New York does not
make available any such rate, then the arithmetic average of such rates, as
quoted on a discount basis or otherwise, by certain commercial paper dealers to
the Auction Agent for the close of business on the Business Day next preceding
such date.

    "Agent Member" means a member of or participant in the Securities Depository
that will act on behalf of a Bidder.

    "All Hold Order Rate," with respect to a Rate Period for which an Auction is
held, means the lesser of the Kenny Index (if the Rate Period for which the
Auction is held consists of fewer than 183 Rate Period Days) or the product of
(i)(1) the "AA" Composite Commercial Paper Rate on the Auction Date for such
Rate Period, if such Rate Period consists of fewer than 183 Rate Period Days,
(2) the Treasury Bill Rate on such Auction Date for such Rate Period, if such
Rate Period consists of more than 182 but fewer than 365 Rate Period Days or (3)
the Treasury Note Rate on such Auction Date for such Rate Period, if such Rate
Period is more than 364 Rate Period Days (the rate described in the foregoing
clause (i)(1), (2) or (3), as applicable, being referred to herein as the
"Benchmark Rate"), and (ii) 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater; provided, however, that if the Trust has notified the
Auction Agent of its intent to allocate to shares of such series of Municipal
Preferred in such Rate Period any net capital gains or other income taxable for
federal income tax purposes ("Taxable Income"), the Applicable Rate on shares of
Municipal Preferred for such Rate Period will be (A) if the Taxable Yield Rate
(as defined below) is greater than the Benchmark Rate, then the Benchmark Rate,
or (B) if the Taxable Yield Rate is less than or equal to the Benchmark Rate,
then the rate equal to the sum of (x) the lesser of the Kenny Index (if such
Rate Period consists of fewer than 183 Rate Period Days) or the product of the
Benchmark Rate multiplied by the factor set forth in the preceding clause (ii)
and (y) the product of the maximum marginal regular Federal individual income
tax rate applicable to ordinary income or the maximum marginal regular Federal
corporate income tax rate applicable to ordinary income, whichever is greater,
multiplied by the Taxable Yield Rate. For purposes of the foregoing, Taxable
Yield Rate means the rate determined by (a) dividing the amount of Taxable
Income available for distribution per share of Municipal Preferred by the number
of days in the Dividend Period in respect of which such Taxable Income is
contemplated to be distributed, (b) multiplying the amount determined in (a)
above by 365 (in the case of a Dividend Period of 7 Rate Period Days) or 360 (in
the case of any other Dividend Period), and (c) dividing the amount determined
in (b) above by $25,000.

    "Applicable Rate" means the rate per annum at which dividends are payable on
shares of Municipal Preferred for any Rate Period thereof.

    "Auction Agency Agreement" means an agreement between the Trust and the
Auction Agent which provides, among other things, that the Auction Agent will
follow the Auction Procedures for purposes of determining the Applicable Rate
for shares of a series of Municipal Preferred so long as the Applicable Rate for
such shares is to be based on the results of an Auction.

    "Auction Agent" means the entity appointed as such by a resolution of the
Board of Trustees.

    "Bidder" means a Beneficial Owner or a Potential Beneficial Owner placing an
Order with its Broker-Dealer or an Existing Holder or Potential Holder placing
an order with the Auction Agent or on whose behalf an Order is placed with an
Auction Agent.

    "Board of Trustees" means the Board of Trustees of the Trust or any duly
authorized committee thereof.

    "Broker-Dealer" means any broker-dealer, commercial bank or other entity
permitted by law to perform the functions required of a Broker-Dealer, that is a
member of, or a participant in, the Securities Depository or is an affiliate of
such member or participant, has been selected by the Trust and has entered into
a Broker-Dealer Agreement 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 Auction
Procedures.


    "Business Day" shall mean a day on which the New York Stock Exchange is open
for trading, and which is neither a Saturday, Sunday nor any other day on which
banks in The City of New York, New York are authorized by law to close.

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


    "Date of Original Issue" with respect to shares of a series of Municipal
Preferred means the Business Day on which the Trust initially issued such
shares.

    "Dividend Payment Date" with respect to shares of a series of Municipal
Preferred means any Business Day on which dividends on shares of such series of
Municipal Preferred are payable as provided under "Description of Municipal
Preferred -- Dividends and Dividend Periods."


    "Dividend Period" with respect to shares of a series of Municipal Preferred
means the period from and including the Date of Original Issue of shares of such
series of Municipal Preferred to but excluding the initial Dividend Payment Date
for such shares and any period thereafter from and including one Dividend
Payment Date for such shares to but excluding the next succeeding Dividend
Payment Date for such shares.

    "Existing Holder" with respect to shares of a series of Municipal Preferred
means a Broker-Dealer (or any such other person as may be permitted by the
Trust) that is listed on the records of the Auction Agent as a holder of shares
of such series of Municipal Preferred.

    "Gross-Up Payment" has the meaning specified under "Dividends and Dividend
Periods - Gross-Up Payments."


    "Initial Rate Period" means the period from and including the Date of
Original Issue of shares of Municipal Preferred to but excluding Wednesday,
         , 2000 for Series T shares and Friday                  , 2000 for
Series TH shares.


    "Kenny Index" has the meaning specified under "Taxable Equivalent of the
Short-Term Municipal Bond Rate."


    "Maximum Rate" has the meaning specified under "Description of Municipal
Preferred -- Dividends and Dividend Periods" on page 18.

    "Minimum Rate Period" means any Rate Period consisting of 7 Rate Period
Days.


    "Potential Holder" with respect to shares of a series of Municipal Preferred
means a Broker-Dealer (or any such other person as may be permitted by the
Trust) that is not an Existing Holder of shares of Municipal Preferred or that
is an Existing Holder of such shares that wishes to become the Existing Holder
of additional shares.


    "Rate Multiple" with respect to shares of a series of Municipal Preferred
means a percentage, determined as set forth below (depending on whether the
Trust has notified the Auction Agent of its intent to allocate any net capital
gain or other income taxable for Federal income tax purposes to shares of such
series prior to the Auction establishing the Applicable Rate for shares of such
series), based on the prevailing rating of shares of Municipal Preferred in
effect at the close of business on the Business Day next preceding the relevant
Auction Date:

                                              APPLICABLE            APPLICABLE
                                            PERCENTAGE --         PERCENTAGE --
PREVAILING RATING                          NO NOTIFICATION         NOTIFICATION
- -----------------                          ---------------         ------------
"aa3"/AA- or higher ....................         110%                  150%
"a3"/A- ................................         125%                  160%
"baa3"/BBB- ............................         150%                  250%
"ba3"/BB- ..............................         200%                  275%
Below "ba3"/BB- ........................         250%                  300%

    "Rate Period" with respect to shares of a series of Municipal Preferred
means the Initial Rate Period of shares of such series of Municipal Preferred
and any Subsequent Rate Period of such shares.


    "Rate Period Days," for any Rate Period or Dividend Period, means the number
of days that would constitute such Rate Period or Dividend Period but for either
(i) the shortening or lengthening, as the case may be, of such Rate Period or
Dividend Period as set forth under "Description of Municipal Preferred --
Dividends and Dividend Periods" because the day on which dividends would
otherwise be payable is not a Business Day or (ii) the shortening of such Rate
Period pursuant to the provisions relating to the designation of Special Rate
Periods as set forth in the Statement of Additional Information under
"Description of Municipal Preferred -- Designation of Special Rate Periods."

    "Reference Rate" means (i) the higher of the Taxable Equivalent of the
Short-Term Municipal Bond Rate and the "AA" Composite Commercial Paper Rate in
the case of Minimum Rate Periods and Special Rate Periods of 28 Rate Period Days
or fewer; (ii) the "AA" Composite Commercial Paper Rate in the case of Special
Rate Periods of more than 28 Rate Period Days but fewer than 183 Rate Period
Days; and (iii) the Treasury Bill Rate in the case of Special Rate Periods of
more than 182 Rate Period Days but fewer than 365 Rate Period Days.

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

    "Special Rate Period" with respect to shares of a series of Municipal
Preferred means any Subsequent Rate Period commencing on the date designated by
the Trust, as set forth under "Description of Municipal Preferred -- Designation
of Special Rate Periods," and ending on the last day of the last Dividend Period
thereof.

    "Submission Deadline" means 1:30 P.M. New York City time, on any Auction
Date or such other time on any Auction Date by which Broker-Dealers are required
to submit Orders to the Auction Agent as specified by the Auction Agent from
time to time.

    "Submitted Bid" means a valid Bid submitted or deemed submitted to the
Auction Agent by a Broker-Dealer by the Submission Deadline.

    "Submitted Hold Order" means a valid Hold Order submitted or deemed
submitted to the Auction Agent by a Broker-Dealer by the Submission Deadline.

    "Subsequent Rate Period" with respect to shares of a series of Municipal
Preferred means any period from and including the first day following the
Initial Rate Period of shares of such series of Municipal Preferred to but
excluding the next Dividend Payment Date for such shares and any period
thereafter from and including one Dividend Payment Date for such shares to but
excluding the next succeeding Dividend Payment Date for such shares; provided,
however, that if any Subsequent Rate Period is also a Special Rate Period, such
term shall mean the period commencing on the first day of such Special Rate
Period and ending on the last day of the last Dividend Period thereof.

    "Taxable Equivalent of the Short-Term Municipal Bond Rate," on any date for
any Minimum Rate Period or Special Rate Period of 28 Rate Period Days or fewer,
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Standard & Poor's Kenny 30-day High Grade Index or
any successor index (the "Kenny Index") (provided, however, that any such
successor index must be approved by Moody's (if Moody's is then rating the
shares of Municipal Preferred) and Standard & Poor's (if Standard & Poor's is
then rating the shares of Municipal Preferred)), made available for the Business
Day immediately preceding such date but in any event not later than 8:30 A.M.,
New York City time, on such date by Standard & Poor's J.J. Kenny Evaluation
Services or any successor thereto, based upon 30-day yield evaluations at par of
short-term bonds the interest on which is excludable for regular federal income
tax purposes under the Code, of "high grade" component issuers selected by
Standard & Poor's J.J. Kenny Evaluation Services 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 maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income (in each case
expressed as a decimal), whichever is greater; provided, however, that if the
Kenny Index is not made so available by 8:30 A.M., New York City time, on such
date by Standard & Poor's J.J. Kenny Evaluation Services 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 maximum marginal regular Federal individual income
tax rate applicable to ordinary income or the maximum marginal regular Federal
corporate income tax rate applicable to ordinary income (in each case expressed
as a decimal), whichever is greater.

    "Treasury Bill" means a direct obligation of the U.S. Government having a
maturity at the time of issuance of 364 days or less.

    "Treasury Bill Rate," on any date for any Rate Period, means: (i) the bond
equivalent yield, calculated in accordance with prevailing industry convention,
of the rate on the most recently auctioned Treasury Bill with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such date; or (ii) in
the event that any such rate is not published in The Wall Street Journal, then
the bond equivalent yield, calculated in accordance with prevailing industry
convention, as calculated by reference to the arithmetic average of the bid
price quotations of the most recently auctioned Treasury Bill with a remaining
maturity closest to the length of such Rate Period, as determined by bid price
quotations as of the close of business on the Business Day immediately preceding
such date obtained from certain U.S. Government securities dealers to the
Auction Agent.

    "Treasury Note" means a direct obligation of the U.S. Government having a
maturity at the time of issuance of five years or less but more than 364 days.

    "Treasury Note Rate," on any date for any Rate Period, means: (i) the yield
on the most recently auctioned Treasury Note with a remaining maturity closest
to the length of such Rate Period, as quoted in The Wall Street Journal on such
date for the Business Day next preceding such date; or (ii) in the event that
any such rate is not published in The Wall Street Journal, then the yield as
calculated by reference to the arithmetic average of the bid price quotations of
the most recently auctioned Treasury Note with a remaining maturity closest to
the length of such Rate Period, as determined by bid price quotations as of the
close of business on the Business Day immediately preceding such date obtained
from certain U.S. Government securities dealers to the Auction Agent.
<PAGE>

APPENDIX

INVESTMENT TECHNIQUES AND PRACTICES
    In pursuing its investment objective, the Trust may engage in the following
principal and non-principal techniques and practices. Investment techniques and
practices which are the principal focus of the Trust are also described,
together with their risks, under "Investment Objective and Policies" and "Risk
Factors and Special Considerations" in the Prospectus. Both principal and
non-principal investment techniques and practices are described, together with
their risks in the SAI.

<TABLE>
<CAPTION>
INVESTMENT TECHNIQUES/PRACTICES

SYMBOLS                      x  permitted                   -- not permitted
- ----------------------------------------------------------------------------------------------------------
<S>                                              <C>    <C>                                          <C>
Debt Securities                                         Inverse Floating Rate Obligations              x
  Asset-Backed Securities                               Investment in Other Investment Companies
   Collateralized Mortgage Obligations and               Open-End Funds                               --
Multiclass Pass-Through Securities                  x    Closed-End Funds                              x
   Corporate Asset-Backed Securities                x   Lending of Portfolio Securities               --
   Mortgage Pass-Through Securities                 x   Leveraging Transactions
   Stripped Mortgage-Backed Securities              x    Bank Borrowings                             --*
  Corporate Securities                              x    Mortgage "Dollar-Roll" Transactions         x**
  Loans and Other Direct Indebtedness               x    Reverse Repurchase Agreements               --*
  Lower Rated Bonds                                 x   Options
  Municipal Bonds                                   x    Options on Foreign Currencies               --*
  Speculative Bonds                                 x    Options on Futures Contracts                --*
  U.S. Government Securities                        x    Options on Securities                       --*
  Variable and Floating Rate Obligations            x    Options on Stock Indices                    --*
  Zero Coupon Bonds, Deferred                            Reset Options                               --*
Interest Bonds and PIK Bonds                        x    "Yield Curve" Options                       --*
Equity Securities                                   x   Repurchase Agreements                          x
Foreign Securities Exposure                             Restricted Securities                          x
  Brady Bonds                                      --   Short Sales                                  --*
  Depositary Receipts                              --   Short Sales Against the Box                  --
  Dollar-Denominated Foreign Debt Securities       --   Short Term Instruments                         x
  Emerging Markets                                 --   Swaps and Related Derivative Instruments       x
  Foreign Securities                               --   Temporary Borrowings                           x
Forward Contracts                                  --   Temporary Defensive Positions                  x
Futures Contracts                                   x   Warrants                                       x
Indexed Securities/Structured Products              x   "When-Issued" Securities                       x

- ------------
 * May only be changed with shareholder approval
** The Trust will only enter into "covered" mortgage dollar-roll transactions, meaning that the Trust
   segregates liquid securities it will repurchase and does not use these transactions as a form of leverage.
</TABLE>

<PAGE>


           TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

                                                                          Page
Use of Proceeds .....................................................      3
Investment Objective and Policies ...................................      3
Trust Charges and Expenses ..........................................      4
Management of the Trust .............................................      5
Portfolio Transactions ..............................................      8
Net Asset Value .....................................................      9
The Auction .........................................................      9
Description of Municipal Preferred ..................................     19
Repurchase of Common Shares .........................................     35
Tax Matters .........................................................     35
Shareholder Liability ...............................................     38
Custodian and Shareholder Servicing Agent ...........................     38
Independent Accountants .............................................     38
Glossary ............................................................     38
Financial Statements ................................................     44
Appendix A -- Description of Investments ............................    A-1
Appendix B -- Ratings of Investments ................................    B-1
Appendix C -- Auction Procedures ....................................    C-1
Appendix D -- Settlement Procedures .................................    D-1
Appendix E -- Rating Agency Futures and Options Restrictions ........    E-1


<PAGE>

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

                                 $140,000,000


                          MFS MUNICIPAL INCOME TRUST

              MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
                            2,800 SHARES, SERIES T
                           2,800 SHARES, SERIES TH


                                   --------


                                  PROSPECTUS

                              DECEMBER   , 2000


                                   --------


                             SALOMON SMITH BARNEY

                                                            MFMCE-IRH-11/00-2M

- --------------------------------------------------------------------------------
<PAGE>


                SUBJECT TO COMPLETION, DATED NOVEMBER 27, 2000


[Red Herring]

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

[Logo] M F S(R)
INVESTMENT MANAGEMENT                                   STATEMENT OF ADDITIONAL
We invented the Mutual fund(R)                                      INFORMATION
                                                                         , 2000

MFS MUNICIPAL INCOME TRUST


This Statement of Additional Information ("SAI") relating to the Series T and
Series TH Municipal Auction Rate Cumulative Preferred shares ("Municipal
Preferred") offered by MFS Municipal Income Trust (the "Trust") contains
information which may be useful to investors but which is not included in the
Prospectus of the Trust. This SAI is not a prospectus and is authorized for
distribution only when accompanied or preceded by the Prospectus of the Trust
dated       , 2000, describing the Municipal Preferred (the "Prospectus").
This SAI should be read together with the Prospectus. Investors may obtain a
free copy of the Prospectus by calling Massachusetts Financial Services
Company at 1-800-637-2304. Capitalized terms used but not defined in this SAI
have the meanings ascribed to them in the Prospectus.


THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.


                                                           MFMCE-IRH-11/00 100

<PAGE>


                               TABLE OF CONTENTS
                                                                          PAGE
USE OF PROCEEDS .......................................................      3
INVESTMENT OBJECTIVE AND POLICIES .....................................      3
TRUST CHARGES AND EXPENSES ............................................      4
MANAGEMENT OF THE TRUST ...............................................      5
PORTFOLIO TRANSACTIONS ................................................      8
NET ASSET VALUE .......................................................      9
THE AUCTION ...........................................................      9
DESCRIPTION OF MUNICIPAL PREFERRED ....................................     19
REPURCHASE OF COMMON SHARES ...........................................     35
TAX MATTERS ...........................................................     35
SHAREHOLDER LIABILITY .................................................     38
CUSTODIAN AND SHAREHOLDER SERVICING AGENT .............................     38
INDEPENDENT ACCOUNTANTS ...............................................     38
GLOSSARY ..............................................................     38
FINANCIAL STATEMENTS ..................................................     44
APPENDIX A -- Description of Investments ..............................    A-1
APPENDIX B -- Ratings of Investments ..................................    B-1
APPENDIX C -- Auction Procedures ......................................    C-1
APPENDIX D -- Settlement Procedures ...................................    D-1
APPENDIX E -- Rating Agency Futures and Options Restrictions ..........    E-1


       This Statement of Additional Information is dated        , 2000.
<PAGE>


   USE OF PROCEEDS
   The net proceeds of the offering of shares of Municipal Preferred will be
   approximately $138,081,540 after payment of the sales load to Salomon Smith
   Barney Inc. (the "Underwriter") and estimated offering costs.


       The net proceeds of the offering will be invested as described under
   "Use of Proceeds" in the Prospectus.


   INVESTMENT OBJECTIVE AND POLICIES

   The Trust's Prospectus describes its investment objective and investment
   policies. This SAI includes additional information concerning, among other
   things, the investment policies of the Trust and information about certain
   securities and investment techniques that are described or referred to in
   the Prospectus or in which the Trust expects to engage. Except as indicated
   under "Fundamental Investment Policies," the Trust's investment policies
   are not fundamental and the Trustees may change the policies without
   shareholder approval.

   FUNDAMENTAL INVESTMENT POLICIES
   The Trust has adopted the following policies which cannot be changed
   without the approval of the holders of a "majority of the outstanding"
   Common Shares and Preferred Shares, including shares of Municipal
   Preferred, voting together as a single class, and of the holders of a
   "majority of the outstanding" Preferred Shares, including shares of
   Municipal Preferred, voting as a separate class. A "majority of the
   outstanding" shares means the lesser of (i) 67% of the shares represented
   at a meeting at which more than 50% of the outstanding shares are
   represented or (ii) more than 50% of the outstanding shares. All percentage
   limitations set forth below apply immediately after a purchase or initial
   investment and any subsequent change in any applicable percentage resulting
   from market fluctuations does not require elimination of any security from
   the portfolio. The Trust may not:

        (1)  borrow money or pledge, mortgage or hypothecate its assets,
             except as a temporary measure for extraordinary or emergency
             purposes or for a repurchase of its shares, and in no event in
             excess of  1/3 of its assets (the Trust intends to borrow money
             only from banks);

        (2)  purchase any security or evidence of interest therein on margin,
             except that the Trust may obtain such short-term credit as may be
             necessary for the clearance of purchases and sales of securities
             and except that the Trust may make deposits on margin in
             connection with interest rate futures contracts;

        (3)  purchase or sell any put or call option or any combination
             thereof, provided that this shall not prevent the purchase,
             ownership, holding or sale of contracts for the future delivery
             of fixed income securities;

        (4)  underwrite securities issued by other persons except insofar as
             the Trust may technically be deemed an underwriter under the
             Securities Act of 1933 in selling a portfolio security;

        (5)  purchase or sell real estate (including limited partnership
             interests but excluding securities secured by real estate or
             interests therein), interests in oil, gas or mineral leases,
             commodities or commodity contracts (except contracts for the
             future acquisition or delivery of fixed income securities) in the
             ordinary course of the business of the Trust (the Trust reserves
             the freedom of action to hold and to sell real estate acquired as
             a result of the ownership of securities);

        (6)  purchase securities of any issuer if such purchase at the time
             thereof would cause more than 10% of the voting securities of
             such issuer to be held by the Trust;

        (7)  issue any senior security (as that term is defined in the
             Investment Company Act of 1940 (the "1940 Act"), if such issuance
             is specifically prohibited by the 1940 Act or the rules and
             regulations promulgated thereunder;

        (8)  make loans to other persons except through the use of repurchase
             agreements, the purchase of commercial paper or the purchase of
             all or a portion of an issue of debt securities in accordance
             with its investment objective, policies and restrictions, and
             provided that not more than 10% of the assets of the Trust will
             be invested in repurchase agreements maturing in more than seven
             days.

       The requirement that at least 80% of the Trust's assets under normal
   circumstances be invested in Municipal Bonds is a fundamental policy. In
   addition, subject to these restrictions, the Trust may enter into
   repurchase agreements only with member banks of the Federal Reserve System
   and only collateralized by U.S. Government securities; however, this
   operating policy is not fundamental and may be changed without shareholder
   approval.

       For purposes of the investment restrictions described above and the
   state and federal restrictions described below, the issuer of a tax-exempt
   security is deemed to be the entity (public or private) ultimately
   responsible for the payment of the principal of and interest on the
   security.

   OTHER INVESTMENT POLICIES
   In addition to the foregoing restrictions, the Trust will not, as a matter
   of operating policy, (i) pledge, mortgage or hypothecate for any purpose in
   excess of 15% of its assets (taken at market value), (ii) invest more than
   5% of its total assets at the time of investment in unsecured obligations
   of issuers which, including predecessors, controlling persons, general
   partners and guarantors, have a record of less than three years' continuous
   business operation or relevant business experience, (iii) purchase or
   retain in its portfolio any securities issued by an issuer any of whose
   officers, directors, trustees or security holders is an officer or Trustee
   of the Trust, or is a member, partner, officer or Director of the Adviser
   if, after the purchase of the securities of such issuer by the Trust, one
   or more of such persons owns beneficially more than  1/2 of 1% of the
   shares or securities, or both (all taken at market value), of such issuer
   and such persons owning more than  1/2 of 1% of such shares or securities
   together own beneficially more than 5% of such shares or securities, or
   both (all taken at market value), (iv) sell any security which it does not
   own unless by virtue of its ownership of other securities the Trust has at
   the time of sale a right to obtain securities, without payment of further
   consideration, equivalent in kind and amount to the securities sold and
   provided that if such right is conditional the sale is made upon the same
   conditions, (v) invest for the purpose of exercising control or management,
   (vi) purchase securities issued by any registered investment company except
   by purchase in the open market where no commission or profit to a sponsor
   or dealer results from such purchase other than the customary broker's
   commission, or except when such purchase, though not made in the open
   market, is part of a plan of merger or consolidation, provided, however,
   that the Trust shall not purchase the securities of any registered
   investment company if such purchase at the time thereof would cause more
   than 10% of the total assets of the Trust (taken at market value) to be
   invested in the securities of such issuers or would cause more than 3% of
   the outstanding voting securities of any such issuer to be held by the
   Trust, and provided further, that the Trust shall not purchase securities
   issued by any open-end investment company, or (vii) knowingly invest in
   securities which are subject to legal or contractual restrictions on resale
   (other than repurchase agreements) if, as a result thereof, more than 15%
   of the total assets of the Trust (taken at market value) would be so
   invested. These policies are not fundamental and may be changed by the
   Trust without shareholder approval.

       Restrictions imposed by Moody's Investors Service, Inc. ("Moody's") or
   Standard & Poor's Ratings Group ("Standard & Poor's"), or both, on engaging
   in futures and options transactions as described under "Description of
   Municipal Preferred -- Asset Maintenance," are not fundamental policies and
   may be changed by the Trust from time to time without shareholder approval;
   provided, however, that if Moody's or Standard & Poor's, or both, are
   rating the shares of Municipal Preferred, the Trust must receive written
   confirmation from Moody's or Standard & Poor's, or both, as appropriate,
   that any such change would not impair the ratings then assigned by Moody's
   and Standard & Poor's to shares of Municipal Preferred. See also
   "Description of Municipal Preferred -- Rating Agency Guidelines" for a
   description of other rating agency restrictions, none of which is a
   fundamental policy of the Trust and which may be changed by the Trust from
   time to time without shareholder approval subject to the foregoing proviso.


   TRUST CHARGES AND EXPENSES

   For the services provided by Massachusetts Financial Services Company
   ("MFS" or the "Adviser") under the Advisory Agreement, the Trust pays MFS a
   fee, as described under "Management of the Trust - The Adviser" in the
   Prospectus.


       Pursuant to the Registrar, Transfer Agency and Service Agreement with
   respect to the Common Shares of the Trust, between the Trust and MFS
   Service Center, Inc., for account maintenance, the Trust currently pays MFS
   Service Center, Inc. ("MFSC") a fee based on the total number of accounts
   for all closed-end funds advised by MFS for which MFSC acts as registrar
   and transfer agent. If the total number of accounts is less than 75,000,
   the annual account fee is $9.00. If the total number of accounts is 75,000
   or more, the annual account fee is $8.00. For dividend services, MFSC
   charges $0.75 per dividend reinvestment and $0.75 per cash infusion. If the
   total amount of fees related to dividend services is less than $1,000 per
   month for all closed-end funds advised by MFS for which MFSC acts as
   registrar and transfer agent, the minimum fee for the Trust for these
   services will be $167 per month. The Trust will reimburse MFSC for
   reasonable out-of-pocket expenses and advances incurred by MFSC and for any
   other expenses incurred by MFSC at the request, or with the consent, of the
   Trust.


                    RECENT FEES PAID TO THE ADVISER AND MFSC


                                                      YEAR ENDED OCTOBER 31,
                                                     -------------------------
                                                      2000     1999     1998

                                                      (DOLLARS IN THOUSANDS)
      Management fee ..............................   $2,733   $2,856   $2,952
      Transfer agent fee ..........................   $   94   $  104   $  111

   BROKERAGE COMMISSIONS
   The Trust did not pay any brokerage commissions for the fiscal years ended
   October 31, 2000, 1999 and 1998.

   MANAGEMENT OF THE TRUST

   TRUSTEES AND OFFICERS
   The Trustees and officers of the Trust, their ages and their principal
   occupations for at least the last five years are set forth below. (Their
   titles may have varied during that period.) Unless otherwise noted, the
   address of each Trustee and officer is 500 Boylston Street, Boston,
   Massachusetts 02116. Trustees and officers who are "interested persons" of
   the Trust, as defined in the 1940 Act, are denoted by an asterisk (*). The
   Board of Trustees is divided into three classes, each class having a term
   of three years ending with the annual meeting of shareholders (or any
   adjournment thereof) held in the year of expiration, or until the election
   of a successor. Each year, the term of office of one class expires: Mr.
   Schmidt will continue in office until 2001; Messrs. Poorvu and Stone and
   Ms. Smith will continue in office until 2002; and Messrs. Ives, Perera,
   Scott and Shames will continue in office until 2003.


   TRUSTEES AND OFFICERS

   JEFFREY L. SHAMES*, (born 6/2/55) Trustee, Chairman and President
   Chairman and President; Massachusetts Financial Services Company, Chairman
   and Chief Executive Officer.

   J. ATWOOD IVES, (born 5/1/36) Trustee
   Eastern Enterprises (diversified services company), Chairman, Trustee and
   Chief Executive Officer.

   LAWRENCE T. PERERA, (born 6/23/35) Trustee
   Hemenway & Barnes (attorneys), Partner.


   WILLIAM J. POORVU, (born 4/10/35) Trustee
   Harvard University Graduate School of Business Administration, Adjunct
   Professor; CBL & Associates Properties, Inc. (real estate investment
   trust), Director; The Baupost Fund (a mutual fund), Vice Chairman and
   Trustee.


   CHARLES W. SCHMIDT, (born 3/18/28) Trustee
   Private Investor; IT Group, Inc. (diversified environmental services and
   consulting), Director.

   ARNOLD D. SCOTT*, (born 12/16/42) Trustee
   Massachusetts Financial Services Company, Senior Executive Vice President
   and Director.


   ELAINE R. SMITH, (born 4/25/46) Trustee
   Independent consultant.


   DAVID B. STONE, (born 9/2/27) Trustee
   North American Management Corp. (Investment Adviser), Chairman and
   Director; Eastern Enterprises (diversified services company).

   STEPHEN E. CAVAN*, (born 11/6/53) Secretary and Clerk
   Massachusetts Financial Services Company, Senior Vice President, General
   Counsel and Secretary.


   JAMES R. BORDEWICK, JR.*, (born 3/6/59) Assistant Secretary and Assistant
   Clerk
   Massachusetts Financial Services Company, Senior Vice President and
   Associate General Counsel

   JAMES O. YOST*, (born 6/12/60) Treasurer
   Massachusetts Financial Services Company, Senior Vice President.

   ROBERT R. FLAHERTY*, (born 9/18/63) Assistant Treasurer
   Massachusetts Financial Services Company, Vice President (since August
   2000), UAM Fund Services, Senior Vice President (since 1996), Chase Global
   Fund Services, Vice President (1995 to 1996).

   LAURA F. HEALY*, (born 3/20/64) Assistant Treasurer
   Massachusetts Financial Services Company, Vice President (since December
   1996), State Street Bank Fund Administration Group, Assistant Vice
   President (prior to December 1996).


   ELLEN MOYNIHAN*, (born 11/13/57) Assistant Treasurer
   Massachusetts Financial Services Company, Vice President (since September,
   1996); Deloitte & Touche LLP, Senior Manager (until September 1996).

   MARK E. BRADLEY*, (born 11/23/59) Assistant Treasurer
   Massachusetts Financial Services Company, Vice President (since March,
   1997); Putnam Investments, Vice President (prior to March 1997).


       Each Trustee and officer holds comparable positions with certain MFS
   affiliates or with certain other funds of which MFS or a subsidiary of MFS
   is the investment adviser or distributor.


       All Trustees serve as Trustees of 38 funds within the MFS fund complex
   advised by MFS, investment adviser to the Trust, except for Mr. Scott, who
   serves as Trustee of 79 funds within the MFS fund complex, and Mr. Shames,
   who serves as Trustee of 108 funds within the MFS fund complex. Messrs.
   Scott and Shames are "interested persons" (as defined under the 1940 Act)
   of the Trust because they are each an officer and director of MFS; Messrs.
   Scott and Shames each own shares of common stock of MFS.

       At the next annual meeting of the Trust's shareholders, holders of
   outstanding shares of Municipal Preferred, voting together as one separate
   class, will elect two trustees, and holders of outstanding Common Shares
   and shares of Municipal Preferred, voting together as a single class, will
   elect one trustee. See "Description of Municipal Preferred -- Voting
   Rights."

       The Trust pays each Trustee who is not an officer of the Adviser a fee
   of $7,000 per year plus $400 per meeting and $400 per committee meeting
   attended, together with such Trustee's actual out-of-pocket expenses
   relating to attendance at meetings. In addition, each Trustee who is not an
   officer of the Adviser will be entitled to receive certain benefits
   pursuant to the Trust's retirement plan. Under this plan, each such Trustee
   (or his or her beneficiaries) will be entitled to receive an annual
   retirement or death benefit in an amount of up to a maximum of 50% of such
   Trustee's average annual compensation, depending on the Trustee's length of
   service.

   TRUSTEES AND TRUSTEES' FEES
   Set forth below is certain information concerning the cash compensation
   paid to these Trustees and benefits accrued, and estimated benefits
   payable, under the retirement plan.

<TABLE>
<CAPTION>
                                                                                        RETIREMENT                         TOTAL
                                                                                          BENEFIT                         TRUSTEE
                                                                         TRUSTEE          ACCRUED        ESTIMATED       FEES FROM
                                                                          FEES            AS PART         CREDITED         TRUST
                                                                          FROM           OF TRUST         YEARS OF        AND FUND
        TRUSTEE                                                         TRUST(1)        EXPENSE(1)       SERVICE(2)      COMPLEX(3)
        -------                                                         --------        ----------       ----------      ----------

   <S>                                                                   <C>              <C>                <C>          <C>
   J. Atwood Ives ..................................................     $13,367          $4,876             17           $132,623
   Lawrence T. Perera ..............................................     $13,367          $6,094             21           $144,098
   William J. Poorvu ...............................................     $13,367          $6,161             21           $141,338
   Charles W. Schmidt ..............................................     $13,367          $6,161             14           $137,678
   Arnold D. Scott .................................................           0               0            N/A                  0
   Jeffrey L. Shames ...............................................           0               0            N/A                  0
   Elaine R. Smith .................................................     $13,367          $5,356             27           $144,098
   David B. Stone ..................................................     $15,767          $6,961             12           $151,418

   ----------
   (1) For fiscal year ended October 31, 1999.
   (2) Based on normal retirement age of 73 (age 74 for Mr. Stone).
   (3) For calendar year 1999. All Trustees receiving compensation served as Trustees of 34 funds within the MFS fund complex
       (having aggregate net assets at December 31, 1999, of approximately $58.6 billion).

<CAPTION>
                                          ESTIMATED ANNUAL BENEFITS PAYABLE BY
                                              THE TRUST UPON RETIREMENT(4)


          AVERAGE                                                YEARS OF SERVICE
          TRUSTEE             ----------------------------------------------------------------------------------------
           FEES                       3                      5                      7                 10 OR MORE
           ----                      ---                    ---                    ---                ----------
          <S>                      <C>                    <C>                    <C>                    <C>
          $12,030                  $1,805                 $3,008                 $4,211                 $6,015
          $13,093                  $1,964                 $3,273                 $4,583                 $6,546
          $14,156                  $2,123                 $3,539                 $4,954                 $7,078
          $15,218                  $2,283                 $3,805                 $5,326                 $7,609
          $16,281                  $2,442                 $4,070                 $5,698                 $8,141
          $17,344                  $2,602                 $4,336                 $6,070                 $8,672

   ----------
   (4) Other funds in the MFS fund complex provide similar retirement benefits to the Trustees.
</TABLE>

       In addition to the provisions discussed in the Prospectus under
   "Certain Provisions in the Declaration of Trust," the Declaration provides
   that the obligations of the Trust are not binding upon the Trustees of the
   Trust individually, but only upon the assets and property of the Trust. The
   Declaration also provides that the Trust will indemnify its Trustees and
   officers against liabilities and expenses incurred in connection with
   litigation in which they may be involved because of their offices with the
   Trust but that such indemnification will not relieve any officer or Trustee
   of any liability to the Trust or its shareholders by reason of willful
   misfeasance, bad faith, gross negligence or reckless disregard of his or
   her duties. The Trust, at its expense, provides liability insurance for the
   benefit of its Trustees and officers.


       As of November 20, 2000, all Trustees and officers as a group owned
   less than 1% of the outstanding shares of the Trust. As of the same date,
   the Trust did not have knowledge of any shareholder holding 5% or more of
   the outstanding shares of the Trust.

   INVESTMENT ADVISER

   MFS, a Delaware corporation, is the Trust's Adviser. The principal business
   address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.

       MFS also serves as investment adviser to each of the funds in the MFS
   Family of Funds (the "MFS Funds"), to MFS Intermediate Income Trust, MFS
   Government Markets Income Trust, MFS Multimarket Income Trust, MFS Charter
   Income Trust, MFS Special Value Trust, MFS Institutional Trust, MFS
   Variable Insurance Trust, Sun Growth Variable Annuity Fund, Inc., MFS/Sun
   Life Series Trust and seven variable accounts, each of which is a
   registered investment company established by Sun Life of Canada (U.S.) in
   connection with the sale of Compass-2 and Compass-3 combination fixed/
   variable annuity contracts. MFS and its wholly-owned subsidiary, MFS
   Institutional Advisers, Inc., provide investment advice to substantial
   private clients. Net assets under the management of the MFS organization
   were approximately $151.19 billion on behalf of approximately 5.1 million
   investors as of June 30, 2000. As of such date, the MFS organization
   managed approximately $5.2 billion of assets in municipal obligations.

       Michael Roberge, a Senior Vice President of MFS, has been the portfolio
   manager of the Fund since December, 1997.

   GENERAL. The Investment Advisory Agreement between MFS and the Trust (the
   "Advisory Agreement") provides that, subject to the direction of the Board
   of Trustees of the Trust, MFS is responsible for the actual management of
   the Trust's portfolio. The responsibility for making decisions to buy, sell
   or hold a particular security rests with the Adviser, subject to review by
   the Board of Trustees. The Adviser also provides certain administrative
   services and general office facilities.

       The Adviser is not dependent on any other party in providing the
   investment advisory services required in the management of the Trust. The
   Adviser may, however, consider analyses from various sources, including
   broker-dealers with which the Trust does business.

       The Adviser pays the compensation of the Trust's officers and of the
   Trustees who are affiliated with the Adviser. The Adviser also furnishes at
   its own expense all necessary administrative services, including office
   space, equipment, clerical personnel, investment advisory facilities and
   all executive and supervisory personnel necessary for managing the Trust's
   investments, effecting the Trust's portfolio transactions and, in general,
   administrating its affairs.

       The Advisory Agreement also provides that neither MFS or its personnel
   shall be liable for any error of judgment or mistake of law or for any loss
   arising out of any investment or for any act or omission in the execution
   and management of the Trust, except for willful misfeasance, bad faith or
   gross negligence in the performance of its or their duties or by reason of
   reckless disregard of its or their obligations and duties under the
   Advisory Agreement.

   ADVISORY FEE. For the services provided by MFS under the Advisory
   Agreement, the Trust pays it a fee computed and paid monthly in an amount
   equal to the sum of 0.4% of the average daily net assets of the Trust and
   6.32% of the gross income (i.e., income other than gains from the sale of
   securities or gains received from futures contracts) of the Trust, in each
   case on an annualized basis, for the Trust's then-current fiscal year. This
   advisory fee may be higher than that paid by funds with similar investment
   objectives.


   PAYMENT OF EXPENSES. The Trust pays the compensation of the six Trustees
   who are not affiliated with MFS and all the Trust's expenses (other than
   those assumed by MFS), including governmental fees, interest charges,
   taxes, membership dues in the Investment Company Institute allocable to the
   Trust, fees and expenses of independent auditors, of legal counsel, and of
   any transfer agent, registrar or dividend disbursing agent of the Trust, to
   MFS as administrator to the Trust, expenses of repurchasing shares,
   expenses of preparing, printing and mailing share certificates, shareholder
   reports, notices, proxy statements and reports to governmental officers and
   commissions, brokerage and other expenses connected with the execution,
   recording and settlement of portfolio security transactions, insurance
   premiums, fees and expenses of the Trust's custodian, for all services to
   the Trust, including safekeeping of funds and securities and maintaining
   required books and accounts, expenses of calculating the net asset value of
   the Trust's shares, expenses of shareholder meetings, expenses in
   connection with the Dividend Reinvestment and Cash Purchase Plan relating
   to the Common Shares of the Trust and Securities and Exchange Commission
   ("SEC") fees.


   USE OF NAME. The Advisory Agreement provides that if MFS ceases to serve as
   the Adviser to the Trust, the Trust will change its name so as to delete
   the initials "MFS" and that MFS may render services to others and may
   permit fund clients in addition to the Trust to use the initials "MFS" in
   their names.

       The Advisory Agreement will continue in effect only if such continuance
   is specifically approved at least annually by the Board of Trustees or by
   vote of a majority of the Trust's outstanding voting securities and, in
   either case, by a majority of the Trustees who are not parties to the
   Advisory Agreement or interested persons of any such party. The Advisory
   Agreement terminates automatically if it is assigned and may be terminated
   without penalty by vote of a majority of the Trust's outstanding voting
   securities or by either party on not more than 60 days' nor less than 30
   days' written notice.

   CODES OF ETHICS
   The Trust, the Adviser and the Underwriter have adopted codes of ethics as
   required under the 1940 Act. Subject to certain conditions and
   restrictions, these codes permit personnel subject to the codes to invest
   in securities for their own accounts, including securities that may be
   purchased, held or sold by the Trust. Securities transactions by some of
   these persons may be subject to prior approval of the Adviser's Compliance
   Department. Securities transactions of certain personnel are subject to
   quarterly reporting and review requirements. These codes of ethics can be
   reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
   Information on the operation of the Public Reference Room may be obtained
   by calling the Commission at 1-202-942-8090. These codes of ethics also are
   available on the EDGAR Database on the SEC's Internet site at http://
   www.sec.gov, and copies of these codes of ethics may be obtained, after
   paying a duplicating fee, by electronic request at the following e-mail
   address: publicinfo@sec.gov, or by writing the SEC's Public Reference
   Section, Washington, D.C. 20549-0102.


   PORTFOLIO TRANSACTIONS

   Specific decisions to purchase or sell securities for the Trust are made by
   the Trust's portfolio manager who is an employee of MFS and who is
   appointed and supervised by its senior officers. The portfolio manager may
   serve other clients of the Trust's Adviser or any subsidiary of the Adviser
   in a similar capacity.

       The primary consideration in portfolio security transactions is
   execution at the most favorable prices. The Adviser has complete freedom as
   to the markets in and the broker-dealers through which it seeks this
   result. Municipal Bonds and other debt securities are traded principally in
   the over-the-counter market on a net basis through dealers acting for their
   own account and not as brokers. The cost of securities purchased from
   underwriters includes an underwriter's commission or concession, and the
   prices at which securities are purchased and sold from and to dealers
   include a dealer's mark-up or mark-down. The Adviser normally seeks to deal
   directly with the primary market makers, unless in its opinion, better
   execution is available elsewhere. Subject to the requirement of seeking
   execution at the most favorable price, securities may, as authorized by the
   Advisory Agreement, be bought from or sold to dealers who have furnished
   statistical, research and other information or services to the Adviser or
   who have sold shares of funds for which MFS serves as investment adviser.
   At present no arrangements to recapture commission payments are in effect.

       In certain instances, there may be securities which are suitable for
   the Trust's portfolio as well as for that of one or more of the other
   clients of the Trust's Adviser or any subsidiary of the Adviser. Investment
   decisions for the Trust and for the Adviser's other clients are made with a
   view to achieving their respective investment objectives. It may develop
   that a particular security is bought or sold for only one client even
   though it might be held by, or bought or sold for, other clients. Likewise,
   a particular security may be bought for one or more clients when one or
   more other clients are selling that same security. Some simultaneous
   transactions are inevitable when several clients receive investment advice
   from the same investment adviser, particularly when the same security is
   suitable for the investment objectives of more than one client. When two or
   more clients are simultaneously engaged in the purchase or sale of the same
   security, the securities are allocated among clients in a manner believed
   to be equitable to each. It is recognized that in some cases this system
   could have a detrimental effect on the price or volume of the security as
   far as the Trust is concerned. In other cases, however, it is believed that
   the ability of the Trust to participate in volume transactions will produce
   better executions for the Trust.


       For the fiscal years ended October 31, 1998, 1999 and 2000, the Trust
   paid no brokerage commissions for the execution of portfolio transactions.
   The rates of portfolio turnover for each of the fiscal years ended October
   31, 1998, 1999 and 2000 were 12%, 15% and 18%, respectively.

   NET ASSET VALUE
   Net asset value of the Trust will be determined no less frequently than as of
   the close of regular trading on the New York Stock Exchange (the "Exchange")
   (generally 4:00 p.m. New York City time) on the last Business Day of each
   week (generally Friday), and at such other times as the Trust may authorize.
   The net asset value of the Trust equals the value of the Trust's assets less
   the Trust's liabilities. Debt securities (other than short-term obligations
   which mature in 60 days or less), including listed issues, are valued on the
   basis of valuations furnished by dealers or by a Pricing Service with
   consideration to factors such as institutional-size trading in similar groups
   of securities, yield, quality, coupon rate, maturity, type of issue, trading
   characteristics, and other market data, without exclusive reliance upon
   exchange or over-the-counter prices. Short-term obligations, which mature in
   60 days or less, are valued at amortized cost, which approximates market
   value. Securities for which there are no such quotations are valued at fair
   value as determined in good faith by or at the direction of the Trustees.

       In determining net asset value for the Trust, the Trust's custodian
   utilizes the valuations of portfolio securities furnished by a Pricing
   Service approved by the Board of Trustees. Securities for which quotations
   are not readily available are valued at fair value as determined by the
   Pricing Service using methods which include consideration of the following:
   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 or a matrix system, or both, to determine valuations.
   The procedures of the Pricing Service and its valuations are reviewed by
   the officers of the Trust under the general supervision of the Board of
   Trustees.

   THE AUCTION

   GENERAL
   The Statement creating the Municipal Preferred shares (the "Statement"),
   provides that the Applicable Rate for each Rate Period of Municipal
   Preferred after the Initial Rate Period therefor shall be equal to the rate
   per annum that the Auction Agent advises has resulted on the Business Day
   preceding the first day of such Subsequent Rate Period (an "Auction Date")
   from implementation of the auction procedures (the "Auction Procedures")
   set forth in the Statement and summarized below, in which persons determine
   to hold or offer to sell or, based on dividend rates bid by them, offer to
   purchase or sell such shares. Each periodic implementation of the Auction
   Procedures is referred to herein as an "Auction." The following summary is
   qualified by reference to the Auction Procedures set forth in the
   Statement.

       As used herein with respect to shares of Municipal Preferred, (i)
   "Applicable Rate" means the rate per annum at which dividends are payable on
   such shares for any Rate Period thereof, (ii) "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 such
   shares, (iii) "Business Day" means a day on which the New York Stock Exchange
   is open for trading and is not a Saturday, Sunday or other day on which banks
   in New York City are authorized by law to close, (iv) "Date of Original
   Issue" means the date on which the Trust initially issued such shares, (v)
   "Dividend Payment Date" means any date on which dividends on such shares are
   payable as provided under "Description of Municipal Preferred -- Dividends --
   General," (vi) "Dividend Period" means the period from and including the Date
   of Original Issue of such shares to but excluding the initial Dividend
   Payment Date for such shares and any period thereafter from and including one
   Dividend Payment Date for such shares to but excluding the next succeeding
   Dividend Payment Date for such shares, (vii) "Existing Holder" means a
   Broker-Dealer (or any such other Person as may be permitted by the Trust)
   that is listed on the records of the Auction Agent as a holder of such
   shares, (viii) "Initial Rate Period" means the period from and including the
   Date of Original Issue of such shares to but excluding the initial Dividend
   Payment Date for such shares, (ix) "Potential Beneficial Owner" means a
   customer of a Broker-Dealer that is not a Beneficial Owner of such shares
   that wishes to purchase such shares, or that is a Beneficial Owner that
   wishes to purchase additional such shares, (x) "Potential Holder" means a
   Broker-Dealer (or any such other Person as may be permitted by the Trust)
   that is not an Existing Holder of such shares or that is an Existing Holder
   of such shares that wishes to become the Existing Holder of additional such
   shares, (xi) "Rate Period" means the Initial Rate Period of such shares and
   any Subsequent Rate Period, including any Special Rate Period, of such
   shares, (xii) "Subsequent Rate Period" means any period from and including
   the first day following the Initial Rate Period of such shares to but
   excluding the next Dividend Payment Date for such shares and any period
   thereafter from and including one Dividend Payment Date for such shares to
   but excluding the next succeeding Dividend Payment Date for such shares;
   provided, however, that if any Subsequent Rate Period is also a Special Rate
   Period, such term shall mean the period commencing on the first day of such
   Special Rate Period and ending on the last day of the last Dividend Period
   thereof, (xiii) "Minimum Rate Period" means any Rate Period consisting of 7
   Rate Period Days and (xiv) "Special Rate Period" means any Subsequent Rate
   Period commencing on the date designated by the Trust, as set forth under
   "Description of Municipal Preferred -- Dividends -- Designation of Special
   Rate Periods," and ending on the last day of the last Dividend Period
   thereof.


   AUCTION AGENCY AGREEMENT. The Trust will enter into an agreement (the
   "Auction Agency Agreement") with Bankers Trust Company (together with any
   successor bank or trust company or other entity entering into a similar
   agreement with the Trust, the "Auction Agent") which provides, among other
   things, that the Auction Agent will follow the Auction Procedures for
   purposes of determining the Applicable Rate for shares of Municipal
   Preferred so long as the Applicable Rate for such shares is to be based on
   the results of an Auction.


   BROKER-DEALER AGREEMENTS. Each Auction requires the participation of one or
   more broker-dealers. The Auction Agent will enter into an agreement with
   Salomon Smith Barney Inc., and may enter into similar agreements
   (collectively, the "Broker-Dealer Agreements") with one or more additional
   broker-dealers (collectively, the "Broker-Dealers") selected by the Trust,
   which provide for the participation of Broker-Dealers in Auctions. See
   "Broker-Dealers" below.

   SECURITIES DEPOSITORY. The Depository Trust Company ("DTC," together with
   any successor securities depository selected by the Trust, the "Securities
   Depository") will act as the Securities Depository for the Agent Members
   with respect to shares of Municipal Preferred. One certificate for all of
   the shares of Municipal Preferred will be registered in the name of Cede &
   Co. ("Cede"), as nominee of the Securities Depository. Such certificate
   will bear a legend to the effect that such certificate is issued subject to
   the provisions restricting transfers of shares of Municipal Preferred
   contained in the Statement. The Trust will also issue stop-transfer
   instructions to the transfer agent for shares of Municipal Preferred. Prior
   to the commencement of the right of holders of Preferred Shares to elect a
   majority of the Trust's trustees, as described below under "Description of
   Municipal Preferred -- Voting Rights," Cede will be the holder of record of
   all shares of Municipal Preferred, and owners of shares of Municipal
   Preferred will not be entitled to receive certificates representing their
   ownership interest in such shares.

       DTC, a New York-chartered limited purpose trust company, performs
   services for its participants (including the Agent Members), some of whom
   (and/or their representatives) own DTC. DTC maintains lists of its
   participants and will maintain the positions (ownership interests) held by
   each such participant (the "Agent Member") in shares of Municipal
   Preferred, whether for its own account or as a nominee for another person.

   AUCTION DATES; ADVANCE NOTICE OF ALLOCATION OF TAXABLE INCOME

   The first Auction for shares of Series T Municipal Preferred will be held
   on        ,          , 2000, the Business Day preceding the Dividend
   Payment Date for the Initial Rate Period of Series T shares of Municipal
   Preferred. The first Auction for shares of Series TH Municipal Preferred
   will be held on         ,          , 2000, the Business Day preceding the
   Dividend Payment Date for the Initial Rate Period of Series TH shares of
   Municipal Preferred. See "Description of Municipal Preferred -- Dividends."
   Thereafter, Auctions will normally be held every Tuesday for Series T
   Municipal Preferred, and each Subsequent Rate Period will normally begin on
   the following Wednesday, and every Thursday for Series TH Municipal
   Preferred, and each Subsequent Rate Period will normally begin on the
   following Friday, unless the then-current Rate Period is a Special Rate
   Period or, in certain circumstances, the day that would normally be the
   Auction Date or the first day of such Subsequent Rate Period is not a
   Business Day. The Auction Date and the first day of the related Rate Period
   (also a Dividend Payment Date) must be Business Days but need not be
   consecutive days. See "Description of Municipal Preferred -- Dividends" for
   information concerning the circumstances under which the first day of a
   Rate Period or the Auction Date, or both, may be moved to a date other than
   such specified days.

       Except as noted below, whenever the Trust intends to include any net
   capital gain or other income taxable for federal income tax purposes in any
   dividend on shares of Municipal Preferred, the Trust shall, in the case of
   Minimum Rate Periods or Special Rate Periods of 28 Rate Period Days or
   fewer, and may, in the case of any other Special Rate Period, notify the
   Auction Agent of the amount to be so included not later than the Dividend
   Payment Date next preceding the Auction Date on which the Applicable Rate
   for such dividend is to be established. Whenever the Auction Agent receives
   such notice from the Trust, it will be required in turn to notify each
   Broker-Dealer, who, on or prior to such Auction Date, in accordance with
   its Broker-Dealer Agreement, will be required to notify its customers who
   are Beneficial Owners and Potential Beneficial Owners believed by it to be
   interested in submitting an Order in the Auction to be held on such Auction
   Date. The Trust may also include such net capital gain or other income
   taxable for federal income tax purposes in a dividend on shares of
   Municipal Preferred without giving advance notice if the dividend is
   increased by a Gross-Up Payment. The Trust must 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 also
   "Description of Municipal Preferred -- Dividends -- Gross-up Payments"
   below.


   ORDERS BY EXISTING HOLDERS AND POTENTIAL HOLDERS
   Prior to the Submission Deadline (as defined under "Submission of Orders by
   Broker-Dealers to Auction Agent" below) on each Auction Date for shares of
   Municipal Preferred:

       (a) each Beneficial Owner of such shares may submit to its Broker-Dealer
   by telephone or otherwise a:

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

              (ii) "Bid" -- indicating the number of outstanding shares of
          Municipal Preferred, if any, that such Beneficial Owner offers to
          sell if the Applicable Rate for such shares for the next succeeding
          Rate Period shall be less than the rate per annum specified by such
          Beneficial Owner in such bid; and/or

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

          (b) Broker-Dealers shall contact customers who are Potential
      Beneficial Owners by telephone or otherwise to determine whether such
      customers desire to submit Bids, in which they will indicate the number
      of shares of Municipal Preferred that they offer to purchase if the
      Applicable Rate for such shares for the next succeeding Rate Period is
      not less than the rate per annum specified in such Bids.

       The communication to a Broker-Dealer of the foregoing information is
   herein referred to as an "Order" and collectively as "Orders." A Beneficial
   Owner or a Potential Beneficial Owner placing an Order with its
   Broker-Dealer, and such Broker-Dealer placing an Order with the Auction
   Agent, is herein referred to as a "Bidder" and collectively as "Bidders." The
   submission by a Broker-Dealer of an Order to the Auction Agent shall likewise
   be referred to herein as an "Order" and collectively as "Orders," and an
   Existing Holder or Potential Holder who places an Order with the Auction
   Agent or on whose behalf an Order is placed with the Auction Agent shall
   likewise be referred to herein as a "Bidder" and collectively as "Bidders."

       A Beneficial Owner may submit different types of Orders to its
   Broker-Dealer with respect to shares of Municipal Preferred then held by such
   Beneficial Owner. A Bid placed by a Beneficial Owner specifying a rate higher
   than the Applicable Rate determined in the Auction shall constitute an
   irrevocable offer to sell the shares subject thereto. A Beneficial Owner that
   submits a Bid to its Broker-Dealer having a rate higher than the Maximum Rate
   on the Auction Date thereof will be treated as having submitted a Sell Order
   to its Broker-Dealer. A Beneficial Owner that fails to submit to its
   Broker-Dealer prior to the Submission Deadline for shares of Municipal
   Preferred an Order or Orders covering all the outstanding shares of Municipal
   Preferred held by such Beneficial Owner will be deemed to have submitted a
   Hold Order to its Broker-Dealer covering the number of outstanding shares of
   Municipal Preferred held by such Beneficial Owner and not subject to Orders
   submitted to its Broker-Dealer; provided, however, that if a Beneficial Owner
   fails to submit to its Broker-Dealer prior to the Submission Deadline for
   shares of Municipal Preferred an Order or Orders covering all of the
   outstanding shares of Municipal Preferred held by such Beneficial Owner for
   an Auction relating to a Special Rate Period consisting of more than 28 Rate
   Period Days, such Beneficial Owner will be deemed to have submitted a Sell
   Order to its Broker-Dealer covering the number of outstanding shares of
   Municipal Preferred held by such Beneficial Owner and not subject to Orders
   submitted to its Broker-Dealer. A Sell Order shall constitute an irrevocable
   offer to sell the shares of Municipal Preferred subject thereto at a price
   per share equal to $25,000. A Beneficial Owner of shares of Municipal
   Preferred that offers to become the Beneficial Owner of additional shares of
   Municipal Preferred is, for purposes of such offer, a Potential Beneficial
   Owner.

       A Potential Beneficial Owner of shares of Municipal Preferred may
   submit to its Broker-Dealer Bids in which it offers to purchase shares of
   Municipal Preferred if the Applicable Rate for the next Rate Period is not
   less than the rate specified in such Bid. A Bid placed by a Potential
   Beneficial Owner specifying a rate not higher than the Maximum Rate shall
   constitute an irrevocable offer to purchase the number of shares of
   Municipal Preferred specified in such Bid if the rate determined in the
   Auction is equal to or greater than the rate specified in such Bid.

       As described more fully below under "Submission of Orders by
   Broker-Dealers to Auction Agent," the Broker-Dealers will submit the Orders
   of their respective customers who are Beneficial Owners and Potential
   Beneficial Owners to the Auction Agent, designating themselves (unless
   otherwise permitted by the Trust) 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. However, neither the Trust nor the
   Auction Agent will be responsible for a Broker-Dealer's failure to comply
   with the foregoing. Any Order placed with the Auction Agent by a
   Broker-Dealer as or on behalf of an Existing Holder or a Potential Holder
   will be treated in the same manner as an Order placed with a Broker-Dealer by
   a Beneficial Owner or a Potential Beneficial Owner, as described in the
   preceding paragraph. Similarly, any failure by a Broker- Dealer to submit to
   the Auction Agent an Order in respect of any shares of Municipal Preferred
   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 shares of Municipal Preferred held by it, as described in
   the second preceding paragraph. 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" below.

       Neither the Trust nor an affiliate may submit an Order in any Auction,
   except that any Broker-Dealer that is an affiliate of the Trust may submit
   Orders in an Auction, but only if such Orders are not for its own account.

       The Auction Procedures include a pro rata allocation of shares for
   purchase and sale, which may result in an Existing Holder continuing to
   hold or selling, or a Potential Holder purchasing, a number of shares of
   Municipal Preferred that is fewer than the number of shares of Municipal
   Preferred specified in its Order. See "Acceptance and Rejection of
   Submitted Bids and Submitted Sell Orders and Allocation of Shares" below.
   To the extent the allocation procedures have that result, Broker-Dealers
   that have designated themselves as Existing Holders or Potential Holders in
   respect of customer Orders will be required to make appropriate pro rata
   allocations among their respective customers. Each purchase or sale shall
   be made for settlement on the Business Day next succeeding the Auction Date
   at a price per share equal to $25,000. See "Notification of Results;
   Settlement" below.

       As described above, any Bid specifying a rate higher than the Maximum
   Rate (as defined below) will (i) be treated as a Sell Order if submitted by
   a Beneficial Owner or an Existing Holder and (ii) not be accepted if
   submitted by a Potential Beneficial Owner or a Potential Holder.
   Accordingly, the Auction Procedures establish the Maximum Rate as a maximum
   rate per annum that can result from an Auction. 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" below.

       As used herein, "Maximum Rate," when used with respect to shares of
   Municipal Preferred on an Auction Date, means:

          (i) in the case of any Auction Date which is not the Auction Date
      immediately prior to the first day of any proposed Special Rate Period,
      the product of (1) the Reference Rate on such Auction Date for the next
      Rate Period and (2) the Rate Multiple on such Auction Date, unless such
      shares have or had a Special Rate Period (other than a Special Rate
      Period of 28 Rate Period Days or fewer) and an Auction at which
      Sufficient Clearing Bids existed has not yet occurred for a Minimum Rate
      Period after such Special Rate Period, in which case the higher of:

              (A) the dividend rate on such shares for the then-ending Rate
          Period; and

              (B) the product of (x) the higher of (I) the Reference Rate on
          such Auction Date for a Rate Period equal in length to the then-ending
          Rate Period, if such then-ending Rate Period was 364 Rate Period Days
          or fewer, or the Treasury Note Rate on such Auction Date for a Rate
          Period equal in length to the then-ending Rate Period, if such
          then-ending Rate Period was more than 364 Rate Period Days, and (II)
          the Reference Rate on such Auction Date for a Rate Period equal in
          length to such Special Rate Period, if such Special Rate Period was
          364 Rate Period Days or fewer, or the Treasury Note Rate on such
          Auction Date for a Rate Period equal in length to such Special Rate
          Period, if such Special Rate Period was more than 364 Rate Period Days
          and (y) the Rate Multiple on such Auction Date; or

          (ii) in the case of any Auction Date which is the Auction Date
      immediately prior to the first day of any proposed Special Rate Period,
      the product of (1) the highest of (x) the Reference Rate on such Auction
      Date for a Rate Period equal in length to the then-ending Rate Period,
      if such then-ending Rate Period was 364 Rate Period Days or fewer, or
      the Treasury Note Rate on such Auction Date for a Rate Period equal in
      length to the then-ending Rate Period, if such then-ending Rate Period
      was more than 364 Rate Period Days, (y) the Reference Rate on such
      Auction Date for the Special Rate Period for which the Auction is being
      held if such Special Rate Period is 364 Rate Period Days or fewer or the
      Treasury Note Rate on such Auction Date for the Special Rate Period for
      which the Auction is being held if such Special Rate Period is more than
      364 Rate Period Days, and (z) the Reference Rate on such Auction Date
      for Minimum Rate Periods and (2) the Rate Multiple on such Auction Date.

       As used herein, "Reference Rate" shall mean (i) the higher of the
   Taxable Equivalent of the Short-Term Municipal Bond Rate and the "AA"
   Composite Commercial Paper Rate in the case of Minimum Rate Periods and
   Special Rate Periods of 28 Rate Period Days or fewer; (ii) the "AA"
   Composite Commercial Paper Rate in the case of Special Rate Periods of more
   than 28 Rate Period Days but fewer than 183 Rate Period Days; and (iii) the
   Treasury Bill Rate in the case of Special Rate Periods of more than 182
   Rate Period Days but fewer than 365 Rate Period Days.

       As used herein, "Taxable Equivalent of the Short-Term Municipal Bond
   Rate," on any date for any Minimum Rate Period or Special Rate Period of 28
   Rate Period Days or fewer, shall mean 90% of the quotient of (A) the per
   annum rate expressed on an interest equivalent basis equal to the Standard
   & Poor's Kenny 30 day High Grade Index or any successor index (the "Kenny
   Index") (provided, however, that any such successor index must be approved
   by Moody's (if Moody's is then rating the shares of Municipal Preferred)
   and Standard & Poor's (if Standard & Poor's is then rating the shares of
   Municipal Preferred)), made available for the Business Day immediately
   preceding such date but in any event not later than 8:30 A.M., New York
   City time, on such date by Standard & Poor's J.J. Kenny Evaluation Services
   or any successor thereto, based upon 30-day yield evaluations at par of
   short-term bonds, the interest on which is excludable for regular federal
   income tax purposes under the Code, of "high grade" component issuers
   selected by Standard & Poor's J.J. Kenny Evaluation Services 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
   maximum marginal regular Federal individual income tax rate applicable to
   ordinary income or the maximum marginal regular Federal corporate income
   tax rate applicable to ordinary income (in each case expressed as a
   decimal), whichever is greater; provided, however, that if the Kenny Index
   is not made so available by 8:30 A.M., New York City time, on such date by
   Standard & Poor's J.J. Kenny Evaluation Services 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 maximum marginal
   regular Federal individual income tax rate applicable to ordinary income or
   the maximum marginal regular Federal corporate income tax rate applicable
   to ordinary income (in each case expressed as a decimal), whichever is
   greater.

       As used herein, " 'AA" Composite Commercial Paper Rate," on any date
   for any Rate Period, means:

          (i) (A) in the case of any Minimum Rate Period or any Special Rate
      Period of fewer than 49 Rate Period Days, the interest equivalent of the
      30-day rate; provided, however, that if such Rate Period is a Minimum Rate
      Period and the "AA" Composite Commercial Paper Rate is being used to
      determine the Applicable Rate when all of the outstanding shares of
      Municipal Preferred are subject to Submitted Hold Orders, then the
      interest equivalent of the seven-day rate, and (B) in the case of any
      Special Rate Period of (1) 49 or more but fewer than 70 Rate Period Days,
      the interest equivalent of the 60-day rate; (2) 70 or more but fewer than
      85 Rate Period Days, the arithmetic average of the interest equivalent of
      the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate Period
      Days, the interest equivalent of the 90-day rate; (4) 99 or more but fewer
      than 120 Rate Period Days, the arithmetic average of the interest
      equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than
      141 Rate Period Days, the interest equivalent of the 120-day rate; (6) 141
      or more but fewer than 162 Rate Period Days, the arithmetic average of the
      interest equivalent of the 120-day and 180-day rates; and (7) 162 or more
      but fewer than 183 Rate Period Days, the interest equivalent of the
      180-day rate, in each case on commercial paper placed on behalf of issuers
      whose corporate bonds are rated "AA" by Standard & Poor's or the
      equivalent of such rating by Standard & Poor's or another rating agency,
      as made available on a discount basis or otherwise by the Federal Reserve
      Bank of New York for the Business Day immediately preceding such date; or

          (ii) in the event that the Federal Reserve Bank of New York does not
      make available any such rate, then the arithmetic average of such rates,
      as quoted on a discount basis or otherwise, by the Commercial Paper
      Dealers to the Auction Agent for the close of business on the Business
      Day next preceding such date.

   If any Commercial Paper Dealer does not quote a rate required to determine
   the "AA" Composite Commercial Paper Rate, the "AA" Composite Commercial
   Paper Rate shall be determined on the basis of the quotation or quotations
   furnished by the remaining Commercial Paper Dealer or Commercial Paper
   Dealers and any Substitute Commercial Paper Dealer or Substitute Commercial
   Paper Dealers selected by the Trust to provide such rate or rates not being
   supplied by any Commercial Paper Dealer or Commercial Paper Dealers, as the
   case may be, or, if the Trust does not select any such Substitute
   Commercial Paper Dealer or Substitute Commercial Paper Dealers, by the
   remaining Commercial Paper Dealer or Commercial Paper Dealers. For purposes
   of this definition, the "interest equivalent" of a rate stated on a
   discount basis (a "discount rate") for commercial paper of a given days'
   maturity shall be equal to the quotient (rounded upwards to the next higher
   one-thousandth (0.001) of 1%) of (A) the discount rate divided by (B) the
   difference between (x) 1.00 and (y) a fraction the numerator of which shall
   be the product of the discount rate times the number of days in which such
   commercial paper matures and the denominator of which shall be 360. As used
   herein, "Commercial Paper Dealers" means [Lehman Commercial Paper
   Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner &
   Smith Incorporated] and such other commercial paper dealer or dealers as
   the Trust may from time to time appoint, or, in lieu of any thereof, their
   respective affiliates or successors. As used herein, "Substitute Commercial
   Paper Dealer" means [CS First Boston Corporation or Morgan Stanley & Co.
   Incorporated] or their respective affiliates or successors, if such entity
   is a commercial paper dealer, provided that none of such entities shall be
   a Commercial Paper Dealer.

       As used herein, "Treasury Bill Rate," on any date for any Rate Period,
   means:

          (i) the bond equivalent yield, calculated in accordance with
      prevailing industry convention, of the rate on the most recently
      auctioned Treasury Bill with a remaining maturity closest to the length
      of such Rate Period, as quoted in The Wall Street Journal on such date
      for the Business Day next preceding such date; or

          (ii) in the event that any such rate is not published in The Wall
      Street Journal, then the bond equivalent yield, calculated in accordance
      with prevailing industry convention, as calculated by reference to the
      arithmetic average of the bid price quotations of the most recently
      auctioned Treasury Bill with a remaining maturity closest to the length
      of such Rate Period, as determined by bid price quotations as of the
      close of business on the Business Day immediately preceding such date
      obtained from the U.S. Government Securities Dealers to the Auction
      Agent.

          As used herein, "Treasury Note Rate," on any date for any Rate
      Period, means:

              (i) the yield on the most recently auctioned Treasury Note with
          a remaining maturity closest to the length of such Rate Period, as
          quoted in The Wall Street Journal on such date for the Business Day
          next preceding such date; or

              (ii) in the event that any such rate is not published in The
          Wall Street Journal, then the yield as calculated by reference to
          the arithmetic average of the bid price quotations of the most
          recently auctioned Treasury Note with a remaining maturity closest
          to the length of such Rate Period, as determined by bid price
          quotations as of the close of business on the Business Day
          immediately preceding such date obtained from the U.S. Government
          Securities Dealers to the Auction Agent.

       For purposes of the foregoing, "Treasury Bill" means a direct
   obligation of the U.S. Government having a maturity at the time of issuance
   of 364 days or less, and "Treasury Note" means a direct obligation of the
   U.S. Government having a maturity at the time of issuance of five years or
   less but more than 364 days. If any U.S. Government Securities Dealer does
   not quote a rate required to determine the Treasury Bill Rate or the
   Treasury Note Rate, such rate shall be determined on the basis of the
   quotation or quotations furnished by the remaining U.S. Government
   Securities Dealer or U.S. Government Securities Dealers and any Substitute
   U.S. Government Securities Dealers selected by the Trust to provide such
   rate or rates not being supplied by any U.S. Government Securities Dealer
   or U.S. Government Securities Dealers, as the case may be, or, if the Trust
   does not select any such Substitute U.S. Government Securities Dealer or
   Substitute U.S. Government Securities Dealers, by the remaining U.S.
   Government Securities Dealer or U.S. Government Securities Dealers. As used
   herein, "U.S. Government Securities Dealer" means [Lehman Government
   Securities Incorporated, Goldman, Sachs & Co., Salomon Smith Barney Inc.
   and Morgan Guaranty Trust Company of New York] or their respective
   affiliates or successors, if such entity is a U.S. Government securities
   dealer. As used herein, "Substitute U.S. Government Securities Dealer"
   shall mean [CS First Boston Corporation and Merrill Lynch, Pierce, Fenner &
   Smith Incorporated] or their respective affiliates or successors, if such
   entity is a U.S. Government securities dealer, provided that none of such
   entities shall be a U.S. Government Securities Dealer.

       The applicable "AA" Composite Commercial Paper Rates, Taxable
   Equivalent of the Short-Term Municipal Bond Rates, Treasury Bill Rates and
   Treasury Note Rates will be the rates announced on such Auction Date for
   the Business Day immediately prior to such Auction Date.


       The "Rate Multiple," when used with respect to shares of Municipal
   Preferred, on an Auction Date, will be a percentage, determined as set
   forth below (depending on whether the Trust has notified the Auction Agent
   of its intent to allocate any net capital gain or other income taxable for
   Federal income tax purposes to such shares prior to the Auction
   establishing the Applicable Rate for such shares), based on the prevailing
   rating of shares of Municipal Preferred in effect at the close of business
   on the Business Day next preceding such Auction Date:

                                                  APPLICABLE        APPLICABLE
                                                  PERCENTAGE-      PERCENTAGE-
   PREVAILING RATING                            NO NOTIFICATION    NOTIFICATION
   -----------------                            ---------------    ------------

   "aa3"/AA- or higher ......................             110%            150%
   "a3"/A- ..................................             125%            160%
   "baa3"/BBB- ..............................             150%            250%
   "ba3"/BB- ................................             200%            275%
   Below "ba3"/BB- ..........................             250%            300%

       For purposes of this definition, the "prevailing rating" of shares of
   Municipal Preferred shall be (i) "aa3"/AA- or higher if such shares have a
   rating of "aa3" or better by Moody's and AA- or better by Standard & Poor's
   or the equivalent of such ratings by such agencies or a substitute rating
   agency or substitute rating agencies selected as provided below, (ii) if
   not "aa3"/AA- or higher, then "a3"/A- if such shares have a rating of "a3"
   or better by Moody's and A- or better by Standard & Poor's or the
   equivalent of such ratings by such agencies or a substitute rating agency
   or substitute rating agencies selected as provided below, (iii) if not
   "aa3"/AA- or higher or "a3"/A-, then "baa3"/BBB- if such shares have a
   rating of "baa3" or better by Moody's and BBB- or better by Standard &
   Poor's or the equivalent of such ratings by such agencies or a substitute
   rating agency or substitute rating agencies selected as provided below,
   (iv) if not "aa3"/AA- or higher, "a3"/A- or "baa3"/BBB-, then "ba3"/BB- if
   such shares have a rating of "ba3" or better by Moody's and BB- or better
   by Standard & Poor's or the equivalent of such ratings by such agencies or
   a substitute rating agency or substitute rating agencies selected as
   provided below, and (v) if not "aa3"/AA- or higher, "a3"/A-, "baa3"/BBB-,
   or "ba3"/BB-, then below "ba3"/BB-; provided, however, that if such shares
   are rated by only one rating agency, the prevailing rating shall be
   determined without reference to the rating of any other rating agency. The
   Trust will take all reasonable action necessary to enable either Standard &
   Poor's or Moody's to provide a rating for shares of Municipal Preferred. If
   neither Standard & Poor's nor Moody's shall make such a rating available,
   Salomon Smith Barney Inc. or its successor shall select at least one
   nationally recognized statistical rating organization (as that term is used
   in the rules and regulations of the SEC under the Securities Exchange Act
   of 1934, as amended) to act as a substitute rating agency in respect of the
   shares of Municipal Preferred, and the Trust shall take all reasonable
   action to enable such rating agency to provide a rating for such shares.


   SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT

   Prior to 1:30 P.M., New York City time, on each Auction Date, or such other
   time on the Auction Date specified by the Auction Agent (the "Submission
   Deadline"), each Broker-Dealer will submit to the Auction Agent in writing
   or over the internet all Orders obtained by it for the Auction to be
   conducted on such Auction Date, designating itself (unless otherwise
   permitted by the Trust) as the Existing Holder or Potential Holder, as the
   case may be, in respect of the shares of Municipal Preferred 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 any rate specified in any Bid contains more than three figures to
   the right of the decimal point, the Auction Agent will round such rate to
   the next highest one-thousandth (0.001) of 1%.

       If one or more Orders of an Existing Holder is submitted to the Auction
   Agent covering in the aggregate more than the number of outstanding shares
   of Municipal Preferred subject to an Auction held by such Existing Holder,
   such Orders will be considered valid in the following order of priority:

          (a) all Hold Orders will be considered valid, but only up to and
      including in the aggregate the number of shares of Municipal Preferred
      held by such Existing Holder, and, if the number of shares subject to
      such Hold Orders exceeds the number of shares held by such Existing
      Holder, the number of shares subject to each such Hold Order shall be
      reduced pro rata to cover the number of shares held by such Existing
      Holder;

          (b) (i) any Bid will be considered valid up to and including the
      excess of the number of shares of Municipal Preferred held by such
      Existing Holder over the number of shares of Municipal Preferred subject
      to any Hold Orders referred to in clause (a) above;

          (ii) subject to subclause (i), if more than one Bid of an Existing
      Holder is submitted to the Auction Agent with the same rate and the
      number of shares of Municipal Preferred subject to such Bids is greater
      than such excess, such Bids will be considered valid up to and including
      the amount of such excess, and the number of shares of Municipal
      Preferred subject to each Bid with the same rate will be reduced pro
      rata to cover the number of shares of Municipal Preferred equal to such
      excess;

          (iii) subject to subclauses (i) and (ii), if more than one Bid of an
      Existing Holder is submitted to the Auction Agent with different rates,
      such Bids shall be considered valid in the ascending order of their
      respective rates up to and including the amount of such excess; and

          (iv) in any such event, the number, if any, of such shares subject
      to any portion of Bids considered not valid in whole or in part under
      this clause (b) will be treated as the subject of a Bid by or on behalf
      of a Potential Holder at the rate specified therein; and

          (c) all Sell Orders will be considered valid up to and including the
      excess of the number of outstanding shares of Municipal Preferred held
      by such Existing Holder over the sum of shares of Municipal Preferred
      subject to valid Hold Orders referred to in clause (a) above and valid
      Bids referred to in clause (b) above.

       If more than one Bid of a Potential Holder for shares of Municipal
   Preferred is submitted to the Auction Agent by or on behalf of any
   Potential Holder, each Bid submitted will be a separate Bid with the rate
   and number of shares therein specified.

   DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE
   RATE
   Not earlier than the Submission Deadline on each Auction Date, the Auction
   Agent will assemble all valid 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 being herein 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 collectively as "Submitted
   Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may
   be, or as "Submitted Orders") and will determine the excess of the number
   of outstanding shares of Municipal Preferred over the number of outstanding
   shares of Municipal Preferred subject to Submitted Hold Orders (such excess
   being herein referred to as the "Available Municipal Preferred") and
   whether Sufficient Clearing Bids have been made in the Auction. "Sufficient
   Clearing Bids" will have been made if the number of outstanding shares of
   Municipal Preferred that are the subject of Submitted Bids of Potential
   Holders specifying rates not higher than the Maximum Rate equals or exceeds
   the number of outstanding shares of Municipal Preferred that are the
   subject of Submitted Sell Orders (including the number of shares subject to
   Bids of Existing Holders specifying rates higher than the Maximum Rate).

       If Sufficient Clearing Bids have been made, the Auction Agent will
   determine the lowest rate specified in the Submitted Bids (the "Winning Bid
   Rate") which, taking into account the rates in the Submitted Bids of
   Existing Holders, would result in Existing Holders continuing to hold an
   aggregate number of outstanding shares of Municipal Preferred which, when
   added to the number of outstanding shares of Municipal Preferred to be
   purchased by Potential Holders, based on the rates in their Submitted Bids,
   would equal not less than the Available Municipal Preferred. In such event,
   the Winning Bid Rate will be the Applicable Rate for the next Rate Period
   for all shares of Municipal Preferred.

       If Sufficient Clearing Bids have not been made (other than because all
   of the outstanding shares of Municipal Preferred are subject to Submitted
   Hold Orders), the Applicable Rate for the next Rate Period for all shares
   of Municipal Preferred will be equal to the Maximum Rate. If Sufficient
   Clearing Bids have not been made, Beneficial Owners that have submitted or
   that are deemed to have submitted Sell Orders may not be able to sell in
   the Auction all shares of Municipal Preferred subject to such Sell Orders
   but will continue to own shares of Municipal Preferred for the next Rate
   Period, dividends for which may include income taxable to such Beneficial
   Owners. See "The Auction -- Auction Dates; Advance Notice of Allocation of
   Taxable Income" above and "Acceptance and Rejection of Submitted Bids and
   Submitted Sell Orders and Allocation of Shares" below.

       If all of the outstanding shares of Municipal Preferred are subject to
   Submitted Hold Orders, the Applicable Rate for the next Rate Period will be
   the lesser of the Kenny Index (if such Rate Period consists of fewer than
   183 Rate Period Days) or the product of (i) (1) the "AA" Composite
   Commercial Paper Rate on the Auction Date for such Rate Period, if such
   Rate Period consists of fewer than 183 Rate Period Days; (2) the Treasury
   Bill Rate on such Auction Date for such Rate Period, if such Rate Period
   consists of more than 182 but fewer than 365 Rate Period Days; or (3) the
   Treasury Note Rate on such Auction Date for such Rate Period, if such Rate
   Period is more than 364 Rate Period Days (the rate described in the
   foregoing clause (i)(1), (2) or (3) as applicable, being referred to herein
   as the "Benchmark Rate") and (ii) 1 minus the maximum marginal regular
   Federal individual income tax rate applicable to ordinary income or the
   maximum marginal regular Federal corporate income tax rate applicable to
   ordinary income, whichever is greater; provided, however, that if the Trust
   has notified the Auction Agent of its intent to allocate to shares of
   Municipal Preferred in such Rate Period any net capital gain or other
   income taxable for federal income tax purposes ("Taxable Income"), the
   Applicable Rate for shares of Municipal Preferred for such Rate Period will
   be (A) if the Taxable Yield Rate (as defined below) is greater than the
   Benchmark Rate, then the Benchmark Rate, or (B) if the Taxable Yield Rate
   is less than or equal to the Benchmark Rate, then the rate equal to the sum
   of (x) the lesser of the Kenny Index (if such Rate Period consists of fewer
   than 183 Rate Period Days) or the product of the Benchmark Rate multiplied
   by the factor set forth in the preceding clause (ii) and (y) the product of
   the maximum marginal regular Federal individual income tax rate applicable
   to ordinary income or the maximum marginal regular Federal corporate income
   tax applicable to ordinary income, whichever is greater, multiplied by the
   Taxable Yield Rate. For purposes of the foregoing, "Taxable Yield Rate"
   means the rate determined by (a) dividing the amount of Taxable Income
   available for distribution per share of Municipal Preferred by the number
   of days in the Dividend Period in respect of which such Taxable Income is
   contemplated to be distributed, (b) multiplying the amount determined in
   (a) above by 365 (in the case of a Dividend Period of 7 Rate Period Days)
   or 360 (in the case of any other Dividend Period), and (c) dividing the
   amount determined in (b) above by $25,000. In calculating the "AA"
   Composite Commercial Paper Rate, the Treasury Bill Rate and the Treasury
   Note Rate for such purpose, the rates used will be the rates or yields
   specified in the applicable definitions of "AA" Composite Commercial Paper
   Rate, Treasury Bill Rate and Treasury Note Rate set forth under "The
   Auction -- Orders by Existing Holders and Potential Holders."

   ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND
   SUBMITTED SELL ORDERS AND ALLOCATION OF SHARES
   Based on the determinations made under "Determination of Sufficient
   Clearing Bids, Winning Bid Rate and Applicable Rate" above and, subject to
   the discretion of the Auction Agent to round and allocate certain shares 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 shares of
   Municipal Preferred will sell, continue to hold and/or purchase such shares
   as set forth below. Existing Holders that submitted or were deemed to have
   submitted Hold Orders (or on whose behalf Hold Orders were submitted or
   deemed to have been submitted) will continue to hold the shares of
   Municipal Preferred subject to such Hold Orders.

       If Sufficient Clearing Bids have been made:

          (a) Each Existing Holder that placed or on whose behalf was placed a
      Submitted Sell Order or Submitted Bid specifying any rate higher than
      the Winning Bid Rate will sell the outstanding shares of Municipal
      Preferred subject to such Submitted Sell Order or Submitted Bid;

          (b) Each Existing Holder that placed or on whose behalf was placed a
      Submitted Bid specifying a rate lower than the Winning Bid Rate will
      continue to hold the outstanding shares of Municipal Preferred subject
      to such Submitted Bid;

          (c) Each Potential Holder that placed or on whose behalf was placed
      a Submitted Bid specifying a rate lower than the Winning Bid Rate will
      purchase the number of outstanding shares of Municipal Preferred subject
      to such Submitted Bid;

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

          (e) Each Potential Holder that placed or on whose behalf was placed
      a Submitted Bid specifying a rate equal to the Winning Bid Rate will
      purchase any shares of Available Municipal Preferred not accounted for
      in clauses (b) through (d) above on a pro rata basis based on the
      outstanding shares of Municipal Preferred subject to all such Submitted
      Bids.

       If Sufficient Clearing Bids have not been made (unless this results
   because all outstanding shares of Municipal Preferred are subject to
   Submitted Hold Orders):

          (a) Each Existing Holder that placed or on whose behalf was placed a
      Submitted Bid specifying a rate equal to or lower than the Maximum Rate
      will continue to hold the outstanding shares of Municipal Preferred
      subject to such Submitted Bid;

          (b) Each Potential Holder that placed or on whose behalf was placed
      a Submitted Bid specifying a rate equal to or lower than the Maximum
      Rate will purchase the number of outstanding shares of Municipal
      Preferred subject to such Submitted Bid; and

          (c) Each Existing Holder that placed or on whose behalf was placed a
      Submitted Bid specifying a rate higher than the Maximum Rate or a
      Submitted Sell Order will sell a number of shares of Municipal Preferred
      determined on a pro rata basis based on the number of outstanding shares
      of Municipal Preferred subject to all such Submitted Bids and Submitted
      Sell Orders.

       If, as a result of the pro rata allocation described in clauses (d) or
   (e) of the second preceding paragraph or clause (c) of the next preceding
   paragraph, 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 Municipal Preferred, the Auction Agent will, in such manner
   as, in its sole discretion, it will determine, round up or down to the
   nearest whole share the number of shares of Municipal Preferred being sold
   or purchased on such Auction Date so that the number of shares sold or
   purchased by each Existing Holder or Potential Holder will be whole shares
   of Municipal Preferred. If as a result of the pro rata allocation described
   in clause (e) of the second preceding paragraph, any Potential Holder would
   be entitled or required to purchase less than a whole share of Municipal
   Preferred, the Auction Agent will, in such manner as, in its sole
   discretion, it will determine, allocate shares of Municipal Preferred for
   purchase among Potential Holders so that only whole shares of Municipal
   Preferred are purchased by any such Potential Holder, even if such
   allocation results in one or more of such Potential Holders not purchasing
   shares of Municipal Preferred.

   NOTIFICATION OF RESULTS; SETTLEMENT
   The Auction Agent will be required to advise each Broker-Dealer that
   submitted an Order of the Applicable Rate for the next Rate Period and, if
   the Order was a Bid or Sell Order, whether such Bid or Sell Order was
   accepted or rejected, in whole or in part, by telephone by approximately
   3:00 P.M., New York City time, on each Auction Date. Each Broker-Dealer
   that submitted an Order for the account of a customer will then be required
   to advise such customer of the Applicable Rate for the next Rate Period
   and, if such Order was a Bid or a Sell Order, whether such Bid or Sell
   Order was accepted or rejected, in whole or in part, will be required to
   confirm purchases and sales with each customer purchasing or selling shares
   of Municipal Preferred as a result of the Auction and will be required to
   advise each customer purchasing or selling shares of Municipal Preferred as
   a result of the Auction to give instructions to its Agent Member of the
   Securities Depository to pay the purchase price against delivery of such
   shares or to deliver such shares against payment therefor, as appropriate.
   The Auction Agent will be required to record each transfer of shares of
   Municipal Preferred on the registry of Existing Holders to be maintained by
   the Auction Agent. See "General" above.

       In accordance with the Securities Depository's normal procedures, on
   the Business Day after the 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 and shares delivered as necessary to effect the purchases and
   sales of shares of Municipal Preferred as determined in the 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 against delivery by their Agent
   Members in same-day funds. The settlement procedures to be used with
   respect to Auctions for shares of Municipal Preferred are set forth in
   Appendix D hereto.

       If any Existing Holder selling shares of Municipal Preferred in an
   Auction fails to deliver such shares, the Broker-Dealer of any person that
   was to have purchased shares of Municipal Preferred in such Auction may
   deliver to such person a number of whole shares of Municipal Preferred 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 Municipal Preferred to
   be so delivered shall be determined by such Broker-Dealer. Delivery of such
   lesser number of shares shall constitute good delivery.

   CONCERNING THE AUCTION AGENT
   The Auction Agent is acting as agent for the Trust 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 Agency Agreement and will not be liable for any error of
   judgment made in good faith unless the Auction Agent will have been
   negligent in ascertaining the pertinent facts.

       The Auction Agent may rely upon, as evidence of the identities of the
   Existing Holders of shares of Municipal Preferred, a list of initial owners
   of such shares provided by the Trust, the results of Auctions, notices from
   any Broker-Dealer (or other Person, if permitted by the Trust) with respect
   to transfers described in the Prospectus under "The Auction -- Secondary
   Market Trading and Transfer of Municipal Preferred" and notices from the
   Trust. The Auction Agent is not required to accept any such notice for an
   Auction unless it is received by the Auction Agent by 3:00 P.M., New York
   City time, on the Business Day preceding such Auction.

       The Auction Agent will be the transfer agent, registrar, dividend
   disbursing agent and redemption agent for shares of Municipal Preferred.
   The registrar for shares of Municipal Preferred will send notices to
   holders of shares of Municipal Preferred of any special meetings at which
   holders of Municipal Preferred have the right to elect trustees of the
   Trust. See "Description of Municipal Preferred -- Voting Rights" below.


       The Auction Agent may terminate the Auction Agency Agreement upon
   notice to the Trust on a date no earlier than 60 days after such notice. If
   the Auction Agent should resign, the Trust will use its best efforts to
   enter into an agreement with a successor Auction Agent containing
   substantially the same terms and conditions as the Auction Agency
   Agreement. The Trust may remove the Auction Agent provided that prior to
   such removal the Trust shall have entered into such an agreement with a
   successor Auction Agent.


   BROKER-DEALERS
   The Auction Agent after each Auction for shares of Municipal Preferred will
   pay to each Broker-Dealer, from funds provided by the Trust, a service charge
   at the annual rate of 1/4 of 1% in the case of any Auction immediately
   preceding a Rate Period of less than one year, or a percentage agreed to by
   the Trust and the Broker-Dealers in the case of any Auction immediately
   preceding a Rate Period of one year or longer, of the purchase price of
   shares of Municipal Preferred placed by such Broker-Dealer at such Auction.
   For the purposes of the preceding sentence, shares of Municipal Preferred
   will be placed by a Broker-Dealer if such shares were (i) the subject of Hold
   Orders deemed to have been submitted to the Auction Agent by the
   Broker-Dealer and were acquired by such Broker-Dealer for its own account or
   were acquired by such Broker-Dealer for its customers who are Beneficial
   Owners or (ii) the subject of an Order submitted by such Broker-Dealer that
   is (A) a Submitted Bid of an Existing Holder that resulted in such Existing
   Holder continuing to hold such shares as a result of the Auction or (B) a
   Submitted Bid of a Potential Holder that resulted in such Potential Holder
   purchasing such shares as a result of the Auction or (C) a valid Hold Order.

       The Trust may request the Auction Agent to terminate one or more
   Broker-Dealer Agreements at any time, provided that at least one
   Broker-Dealer Agreement is in effect after such termination.

       The Broker-Dealer Agreements provide that a Broker-Dealer (other than
   an affiliate of the Trust) may submit Orders in Auctions for its own
   account, unless the Trust notifies all Broker-Dealers that they may no
   longer do so, in which case Broker-Dealers may continue to submit Hold
   Orders and Sell Orders for their own accounts. Any Broker-Dealer that is an
   affiliate of the Trust may submit Orders in Auctions, but only if such
   Orders are not for its own account. If a Broker-Dealer submits an Order for
   its own account in any Auction, it might have an advantage over other
   Bidders because it would have knowledge of all Orders submitted by it in
   that Auction; such Broker-Dealer, however, would not have knowledge of
   Orders submitted by other Broker-Dealers in that Auction.

       The Broker-Dealers expect, but are not obligated, to maintain a
   secondary trading market in shares of Municipal Preferred outside of
   Auctions. There can be no assurance that a secondary trading market in
   shares of Municipal Preferred will develop or, if it does develop, that it
   will provide owners with liquidity of investment. The shares of Municipal
   Preferred will not be registered on any stock exchange or on the National
   Association of Securities Dealers Automated Quotations system.


   DESCRIPTION OF MUNICIPAL PREFERRED

   The descriptions of the shares of Municipal Preferred contained in the
   Prospectus and this Statement of Additional Information do not purport to
   be complete and are subject to and qualified in their entireties by
   reference to the Declaration and the Statement. Copies of the Declaration
   and the form of the Statement are filed as exhibits to the Registration
   Statement of which the Prospectus and this Statement of Additional
   Information are a part and may be inspected, and copies thereof may be
   obtained, as described under "Further Information" in the Prospectus.

   GENERAL
   The shares of Municipal Preferred will rank on a parity with each other,
   with shares of any other series of Municipal Preferred and with shares of
   any other series of Preferred Shares as to the payment of dividends and the
   distribution of assets upon dissolution, liquidation or winding up of the
   affairs of the Trust.

   DIVIDENDS

   GENERAL. The holders of shares of Municipal Preferred offered pursuant to
   the Prospectus will be entitled to receive, when, as and if declared by the
   Board of Trustees, out of funds legally available therefor in accordance
   with the Declaration, the Statement and applicable law, cumulative cash
   dividends at the Applicable Rate thereof, determined as set forth below
   under "Determination of Dividend Rate," and no more (except as otherwise
   provided below under "Gross-up Payments"), payable on the respective dates
   determined as set forth below. Holders of shares of Municipal Preferred
   shall not be entitled to any dividend, whether payable in cash, property or
   shares, in excess of full cumulative dividends on shares of Municipal
   Preferred. No interest, or sum of money in lieu of interest, will be
   payable in respect of any dividend payment or payments on shares of
   Municipal Preferred which may be in arrears, and, except as otherwise
   provided herein, no additional sum of money will be payable in respect of
   any such arrearage.


       Dividends on shares of Municipal Preferred shall accumulate at the
   Applicable Rate from the Date of Original Issue and, except as provided
   below, shall be payable on Wednesday,          ,      and each Wednesday
   thereafter with respect to shares of Series T Municipal Preferred and
   Friday,          ,      and each Friday thereafter with respect to shares
   of Series TH Municipal Preferred; provided, however, that (1) if the
   Wednesday or Friday, as the case may be, on which dividends would otherwise
   be payable on shares of such series is not a Business Day, then such
   dividends shall be payable on shares of such series on the first Business
   Day that falls after such Wednesday or Friday, as the case may be; and (2)
   the Trust in its discretion may establish Dividend Payment Dates in respect
   of any Special Rate Period of such shares consisting of more than 28 Rate
   Period Days that differ from those set forth above; provided, however, that
   such dates shall be set forth in the Notice of Special Rate Period relating
   to such Special Rate Period, as delivered to the Auction Agent and filed
   with the Secretary of the Trust; and further provided that (1) any such
   Dividend Payment Date shall be a Business Day and (2) the last Dividend
   Payment Date in respect of such Special Rate Period shall be the Business
   Day immediately following the last day thereof, as such last day is
   determined as set forth below under "Designation of Special Rate Periods."


       The amount of dividends per share payable on shares of Municipal
   Preferred on any date on which dividends shall be payable on such shares
   shall be computed by multiplying the Applicable Rate in effect for such
   Dividend Period or Dividend Periods or part thereof for which dividends
   have not been paid by a fraction, the numerator of which shall be the
   number of days in such Dividend Period or Dividend Periods or part thereof
   and the denominator of which shall be 365 if such Dividend Period consists
   of 7 Rate Period Days and 360 for all other Dividend Periods, and applying
   the rate obtained against $25,000. Any dividend payment made on shares of
   Municipal Preferred shall first be credited against the earliest
   accumulated but unpaid dividends due with respect to such shares.

       Each dividend on shares of Municipal Preferred will be paid on the
   Dividend Payment Date therefor to the holders of record as their names
   appear on the record books of the Trust on the Business Day next preceding
   such 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 of record as their names
   appear on the record books of the Trust on such date, not exceeding 15 days
   preceding the payment date thereof, as may be fixed by the Board of
   Trustees.

       The Securities Depository, in accordance with its current procedures,
   is expected to credit on each Dividend Payment Date dividends received from
   the Trust to the accounts of the respective Agent Members in next-day
   funds. Each of the initial Broker-Dealers, however, has represented to the
   Trust that such Broker-Dealer (or if such Broker-Dealer does not act as
   Agent Member, the Agent Member designated by such Broker-Dealer) will make
   such dividend payments available in same-day funds on each Dividend Payment
   Date to Beneficial Owners that use such Broker-Dealer or its designee as
   Agent Member. A Beneficial Owner of shares of Municipal Preferred that does
   not use one of the initial Broker-Dealers or a designee thereof as its
   Agent Member should contact the Agent Member used by such Beneficial Owner
   to determine whether such Agent Member will make dividend payments
   available to such Beneficial Owner in next-day or same-day funds. If any
   Agent Member does not make such dividends available in same-day funds to a
   Beneficial Owner, such Beneficial Owner who uses such Agent Member would
   not have same-day funds available to it until the next Business Day, which,
   in the case of a Dividend Payment Date that is a Wednesday, would be the
   following Thursday if it is a Business Day, and which, in the case of a
   Dividend Payment Date that is a Friday, would be the following Monday if it
   is a Business Day.

   DETERMINATION OF DIVIDEND RATE. The dividend rates on shares of Municipal
   Preferred offered pursuant to the Prospectus during the period from and
   after the Date of Original Issue thereof to and including the last day of
   the Initial Rate Period therefor will be equal to the rate per annum set
   forth with respect to such shares on the cover page of the Prospectus. For
   each Subsequent Rate Period thereafter, the dividend rate on such shares
   will be equal to the rate per annum that results from an Auction on the
   Auction Date next preceding such Subsequent Rate Period; provided, however,
   if:

          (i) an Auction for any Subsequent Rate Period is not held for any
      reason other than as described below, the dividend rate on such shares
      for such Subsequent Rate Period will be the Maximum Rate on the Auction
      Date therefor;


          (ii) any Failure to Deposit shall have occurred with respect to
      shares of Municipal Preferred during any Rate Period thereof (other than
      any Special Rate Period of more than 364 Rate Period Days or any Rate
      Period succeeding any Special Rate Period of more than 364 Rate Period
      Days during which a Failure to Deposit occurred that has not been
      cured), but, prior to 12:00 Noon, New York City time, on the third
      Business Day next succeeding the date on which such Failure to Deposit
      occurred, such Failure to Deposit shall have been cured in accordance
      with the next succeeding paragraph, no Auction will be held in respect
      of shares of Municipal Preferred for the Subsequent Rate Period thereof
      and the dividend rate for such Subsequent Rate Period will be the
      Maximum Rate on the Auction Date for such Subsequent Rate Period;

          (iii) any Failure to Deposit shall have occurred with respect to
      shares of Municipal Preferred during any Rate Period thereof (other than
      any Special Rate Period of more than 364 Rate Period Days or any Rate
      Period succeeding any Special Rate Period of more than 364 Rate Period
      Days during which a Failure to Deposit occurred that has not been
      cured), and, prior to 12:00 Noon, New York City time, on the third
      Business Day next succeeding the date on which such Failure to Deposit
      occurred, such Failure to Deposit shall not have been cured in
      accordance with the next succeeding paragraph, no Auction will be held
      in respect of Municipal Preferred for the first Subsequent Rate Period
      thereof thereafter (or for any Rate Period thereafter to and including
      the Rate Period during which such Failure to Deposit is cured in
      accordance with the next succeeding paragraph, no later than 12:00 Noon,
      New York City time, on the fourth Business Day prior to the end of such
      Rate Period), and the dividend rate for shares of Municipal Preferred
      for each such Subsequent Rate Period will be a rate per annum equal to
      the Maximum Rate on the Auction Date for such Subsequent Rate Period
      (but with the prevailing rating for such shares, for purposes of
      determining such Maximum Rate, being deemed to be "Below 'ba3"/BB-");
      or

          (iv) any Failure to Deposit shall have occurred with respect to
      shares of Municipal Preferred during a Special Rate Period thereof of
      more than 364 Rate Period Days, or during any Rate Period thereof
      succeeding any Special Rate Period of more than 364 Rate Period Days
      during which a Failure to Deposit occurred that has not been cured, and,
      prior to 12:00 Noon, New York City time, on the fourth Business Day
      preceding the Auction Date for the Rate Period subsequent to such Rate
      Period, such Failure to Deposit shall not have been cured in accordance
      with the next succeeding paragraph, no Auction will be held in respect
      of shares of Municipal Preferred for such Subsequent Rate Period (or for
      any Rate Period thereafter to and including the Rate Period during which
      such Failure to Deposit is cured in accordance with the next succeeding
      paragraph, no later than 12:00 Noon, New York City time, on the fourth
      Business Day prior to the end of such Rate Period), and the dividend
      rate for shares of Municipal Preferred for each such Subsequent Rate
      Period shall be a rate per annum equal to the Maximum Rate on the
      Auction Date for such Subsequent Rate Period (but with the prevailing
      rating for such shares, for purposes of determining such Maximum Rate,
      being deemed to be "Below 'ba3"/BB-") (the rate per annum at which
      dividends are payable on shares of Municipal Preferred for any Rate
      Period being herein referred to as the "Applicable Rate" for such
      shares).


       A Failure to Deposit with respect to shares of Municipal Preferred
   shall have been cured (if such Failure to Deposit is not solely due to the
   willful failure of the Trust to make the required payments to the Auction
   Agent) with respect to any Rate Period if, within the respective time
   periods described immediately above, the Trust shall have paid to the
   Auction Agent (i) all accumulated and unpaid dividends on the shares of
   Municipal Preferred and (ii) without duplication, the Redemption Price for
   the shares of Municipal Preferred, if any, for which a Notice of Redemption
   has been mailed; provided, however, that the foregoing clause (ii) shall
   not apply to the Trust's failure to pay the Redemption Price in respect of
   shares of Municipal Preferred when the related Notice of Redemption
   provides that redemption of such shares is subject to one or more
   conditions precedent and any such condition precedent shall not have been
   satisfied at the time or times and in the manner specified in such Notice
   of Redemption.


       The Trust shall pay to the Auction Agent, not later than 12:00 noon,
   New York City time, on each Dividend Payment Date for shares of Municipal
   Preferred, an aggregate amount of federal funds or similar same-day funds
   in The City of New York, New York, equal to the dividends to be paid to all
   Holders of such shares on such Dividend Payment Date. All moneys paid to
   the Auction Agent for the payment of dividends shall be held in trust for
   the payment of such dividends by the Auction Agent for the benefit of the
   Holders specified above. Any moneys paid to the Auction Agent in accordance
   with the foregoing but not applied by the Auction Agent to the payment of
   dividends will, to the extent permitted by law, be repaid to the Trust at
   the end of 90 days from the date on which such moneys were so to have been
   applied.


   GROSS-UP PAYMENTS. Holders of shares of Municipal Preferred shall be
   entitled to receive, when, as and if declared by the Board of Trustees, out
   of funds legally available therefor in accordance with the Declaration, the
   Statement and applicable law, dividends in an amount equal to the aggregate
   Gross-up Payment in accordance with the following:


       If, in the case of any Minimum Rate Period or any Special Rate Period
   of 28 Rate Period Days or fewer, or in the case of any Special Rate Period,
   the Trust allocates any net capital gain or other income taxable for
   federal income tax purposes to a dividend paid on shares of Municipal
   Preferred without having given advance notice thereof to the Auction Agent
   as described above under "The Auction -- Auction Dates; Advance Notice of
   Allocation of Taxable Income" (such allocation is referred to herein as a
   "Taxable Allocation") solely by reason of the fact that such allocation is
   made retroactively as a result of the redemption of all or a portion of the
   outstanding shares of Municipal Preferred or the liquidation of the Trust,
   the Trust shall, prior to the end of the fiscal year in which such dividend
   was paid or within 90 days (and generally within 60 days) after the end of
   the Trust's fiscal year for which a retroactive Taxable Allocation is made,
   provide notice thereof to the Auction Agent and direct the Trust's dividend
   disbursing agent to send such notice with a Gross-up Payment to each holder
   of shares (initially Cede & Co., as nominee of the Securities Depository)
   that was entitled to such dividend payment with respect to shares of
   Municipal Preferred during such fiscal year at such holder's address as the
   same appears or last appeared on the record books of the Trust. The Trust,
   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 Municipal
   Preferred), out of funds legally available therefor, an amount equal to the
   aggregate Gross-up Payment with respect to all retroactive Taxable
   Allocations made to such holder during the fiscal year in question.

       If the Trust does not give advance notice of the amount of taxable
   income to be included in a dividend on shares of Municipal Preferred in the
   related Auction, the Trust may include such taxable income in a dividend on
   shares of Municipal Preferred if it increases the dividend by an additional
   amount calculated as if such income were a retroactive Taxable Allocation
   and the additional amount was a Gross-up Payment.


       The Trust shall not be required to make Gross-up Payments with respect
   to any net capital gain or other taxable income determined by the Internal
   Revenue Service to be allocable in a manner different from that allocated
   by the Trust.

       A "Gross-up Payment" in respect of any dividend means payment to a
   holder of shares of Municipal Preferred of an amount which, giving effect
   to the Taxable Allocations made with respect to such dividend, would cause
   such holder's after-tax returns (taking into account both the Taxable
   Allocations and the Gross-up Payment) to be equal to the after-tax return
   the holder would have received if no such Taxable Allocations had occurred.
   Such Gross-up Payment shall be calculated: (i) without consideration being
   given to the time value of money; (ii) assuming that no holder of shares of
   Municipal Preferred is subject to the Federal alternative minimum tax with
   respect to dividends received from the Trust; and (iii) assuming that each
   holder of shares of Municipal Preferred is taxable at the maximum marginal
   regular Federal individual income tax rate applicable to ordinary income or
   net capital gain, as applicable, or the maximum marginal regular Federal
   corporate income tax rate applicable to ordinary income or net capital
   gain, as applicable, whichever is greater, in effect at the time such
   Gross-up Payment is made.

   RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS. Under the 1940 Act, the Board
   of Trustees may not declare any dividend (except a dividend payable in
   Common Shares), or declare any other distribution, upon Common Shares, or
   purchase Common Shares, unless in every such case the Preferred Shares,
   including the shares of Municipal Preferred, have, at the time of any such
   declaration or purchase (and after giving effect thereto), an asset
   coverage (as defined in and determined pursuant to the 1940 Act) of at
   least 200% (or such other percentage as may in the future be required by
   law).

       In addition, for so long as any shares of Municipal Preferred are
   outstanding, except as set forth in the following paragraph or otherwise
   described herein, (A) the Trust may not declare, pay or set apart for
   payment any dividend or other distribution (other than a dividend or
   distribution paid in shares of, or in options, warrants or rights to
   subscribe for or purchase, Common Shares or other shares, if any, ranking
   junior to the shares of Municipal Preferred as to the payment of dividends
   and the distribution of assets upon dissolution, liquidation or winding up
   of the affairs of the Trust) in respect of Common Shares or any other
   shares of the Trust ranking junior to or on a parity with the shares of
   Municipal Preferred as to the payment of dividends or the distribution of
   assets upon dissolution, liquidation or winding up of the affairs of the
   Trust, or call for redemption, redeem, purchase or otherwise acquire for
   consideration any Common Shares or any other such junior shares (except by
   conversion into or exchange for shares of the Trust ranking junior to the
   shares of Municipal Preferred as to the payment of dividends and the
   distribution of assets upon dissolution, liquidation or winding up of the
   affairs of the Trust), or any such parity shares (except by conversion into
   or exchange for shares of the Trust ranking junior to or on a parity with
   the shares of Municipal Preferred as to payment of dividends and the
   distribution of assets upon dissolution, liquidation or winding up of the
   affairs of the Trust), unless (1) full cumulative dividends on shares of
   Municipal Preferred through their most recently ended Dividend Period shall
   have been paid or shall have been declared and sufficient funds for the
   payment thereof deposited with the Auction Agent and (2) the Trust has
   redeemed the full number of shares of Municipal Preferred required to be
   redeemed by any provision for mandatory redemption pertaining thereto and
   (B) if either Moody's or Standard & Poor's is rating the shares of
   Municipal Preferred, the Trust may not declare, pay or set apart for
   payment any dividend or other distribution (other than a dividend or
   distribution paid in shares of, or in options, warrants or rights to
   subscribe for or purchase, Common Shares or other shares, if any, ranking
   junior to shares of Municipal Preferred as to the payment of dividends and
   the distribution of assets upon dissolution, liquidation or winding up of
   the affairs of the Trust) in respect of Common Shares or any other shares
   of the Trust ranking junior to shares of Municipal Preferred as to the
   payment of dividends or the distribution of assets upon dissolution,
   liquidation or winding up of the affairs of the Trust, or call for
   redemption, redeem, purchase or otherwise acquire for consideration any
   Common Shares or any other such junior shares (except by conversion into or
   exchange for shares of the Trust ranking junior to the shares of Municipal
   Preferred as to the payment of dividends or the distribution of assets upon
   dissolution, liquidation or winding up of the affairs of the Trust), unless
   immediately after such transaction the Discounted Value of Moody's Eligible
   Assets or Standard & Poor's Eligible Assets, or both, as the case may be,
   would at least equal the Municipal Preferred Basic Maintenance Amount (see
   "Description of Municipal Preferred -- Rating Agency Guidelines" and "--
   Redemption").

       Except as set forth in the next sentence, no dividends shall be
   declared or paid or set apart for payment on any class or series of shares
   of beneficial interest of the Trust ranking, as to the payment of
   dividends, on a parity with shares of Municipal Preferred for any period
   unless full cumulative dividends have been or contemporaneously are
   declared and paid on the shares of Municipal Preferred through their most
   recent Dividend Payment Date. When dividends are not paid in full upon the
   shares of Municipal Preferred through their most recent Dividend Payment
   Date or upon any other class or series of shares ranking on a parity as to
   the payment of dividends with shares of Municipal Preferred through their
   most recent respective dividend payment dates, all dividends declared upon
   shares of Municipal Preferred and any other such class or series of shares
   ranking on a parity as to the payment of dividends with shares of Municipal
   Preferred shall be declared pro rata so that the amount of dividends
   declared per share on shares of Municipal Preferred and such other class or
   series of shares shall in all cases bear to each other the same ratio that
   accumulated dividends per share on the shares of Municipal Preferred and
   such other class or series of shares bear to each other (for purposes of
   this sentence, the amount of dividends declared per share of Municipal
   Preferred shall be based on the Applicable Rate for such share for the
   Dividend Periods during which dividends were not paid in full).

       Under the Code, the Trust must, among other things, distribute at least
   90% of the sum of its net investment income (including the excess, if any,
   of net short-term capital gain over net long-term capital loss) and its net
   tax-exempt 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 may under certain circumstances
   impair the Trust's ability to maintain such qualification. See "Tax Matters
   -- Federal Income Tax Matters."

   DESIGNATION OF SPECIAL RATE PERIODS. The Trust, at its option, may
   designate any succeeding Subsequent Rate Period of shares of Municipal
   Preferred as a Special Rate Period consisting of a specified number of Rate
   Period Days evenly divisible by seven and not more than 1,820
   (approximately 5 years), subject to adjustment as described below. A
   designation of a Special Rate Period shall be effective only if (i) notice
   thereof shall have been given as provided herein, (ii) an Auction for such
   shares shall have been held on the Auction Date immediately preceding the
   first day of such proposed Special Rate Period and Sufficient Clearing Bids
   for such shares shall have existed in such Auction and (iii) if the Trust
   shall have mailed a Notice of Redemption with respect to any shares of
   Municipal Preferred, as described under "Redemption -- Notice of
   Redemption" below, the Redemption Price with respect to such shares shall
   have been deposited with the Auction Agent. In the event the Trust wishes
   to designate any succeeding Subsequent Rate Period for shares of Municipal
   Preferred as a Special Rate Period consisting of more than 28 Rate Period
   Days, the Trust shall notify Standard & Poor's (if Standard & Poor's is
   then rating such shares) and Moody's (if Moody's is then rating such
   shares) in advance of the commencement of such Subsequent Rate Period that
   the Trust wishes to designate such Subsequent Rate Period as a Special Rate
   Period and shall provide Standard & Poor's (if Standard & Poor's is then
   rating such shares) and Moody's (if Moody's is then rating such shares)
   with such documents as either may request.


       In the event the Trust wishes to designate a Subsequent Rate Period as
   a Special Rate Period, but the day following what would otherwise be the
   last day of such Special Rate Period is not (a) a Wednesday that is a
   Business Day in the case of a series of Municipal Preferred designated as
   "Series T Municipal Preferred," or (b) a Friday that is a Business Day in
   the case of a series of Municipal Preferred designated as "Series TH
   Municipal Preferred," then the Trust shall designate such Subsequent Rate
   Period as a Special Rate Period consisting of the period commencing on the
   first day following the end of the immediately preceding Rate Period and
   ending (a) on the first Tuesday that is followed by a Wednesday that is a
   Business Day proceeding what would otherwise be such last day, in the case
   of Series T Municipal Preferred, or (b) on the first Thursday that is
   followed by a Friday that is a Business Day proceeding what would otherwise
   be such last day in the case of Series TH Municipal Preferred.


       If the Trust proposes to designate any succeeding Subsequent Rate
   Period of shares of Municipal Preferred as a Special Rate Period, not less
   than 20 (or such lesser number of days as may be agreed to from time to
   time by the Auction Agent) nor more than 30 days prior to the date the
   Trust proposes to designate as the first day of such Special Rate Period
   (which shall be such day that would otherwise be the first day of a Minimum
   Rate Period), notice shall be (i) published or caused to be published by
   the Trust in a newspaper of general circulation to the financial community
   in The City of New York, New York, which carries financial news, and (ii)
   mailed by the Trust by first-class mail, postage prepaid, to the holders of
   shares of Municipal Preferred. Each such notice shall state (A) that the
   Trust may exercise its option to designate a succeeding Subsequent Rate
   Period of shares of Municipal Preferred as a Special Rate Period,
   specifying the first day thereof and (B) that the Trust will, by 11:00
   A.M., New York City time, on the second Business Day next preceding such
   date (or by such later time or date, or both, as may be agreed to by the
   Auction Agent), notify the Auction Agent of either (x) its determination,
   subject to certain conditions, to exercise such option, in which case the
   Trust shall specify the Special Rate Period designated, or (y) its
   determination not to exercise such option.

       No later than 11:00 A.M., New York City time, on the second Business
   Day next preceding the first day of any proposed Special Rate Period as to
   which notice has been given as set forth in the preceding paragraph (or
   such later time or date, or both, as may be agreed to by the Auction
   Agent), the Trust shall deliver to the Auction Agent either:

          (i) a notice ("Notice of Special Rate Period") stating (A) that the
      Trust has determined to designate the next succeeding Rate Period of
      shares of Municipal Preferred as a Special Rate Period, specifying the
      same and the first day thereof, (B) the Auction Date immediately prior
      to the first day of such Special Rate Period, (C) that such Special Rate
      Period shall not commence if (1) an Auction for such shares shall not be
      held on such Auction Date for any reason or (2) an Auction for such
      shares shall be held on such Auction Date but Sufficient Clearing Bids
      for such shares shall not exist in such Action, (D) the scheduled
      Dividend Payment Dates for such shares during such Special Rate Period
      and (E) the Special Redemption Provisions, if any, applicable to such
      shares in respect of such Special Rate Period; such notice to be
      accompanied by a Municipal Preferred Basic Maintenance Report showing
      that, as of the third Business Day next preceding such proposed Special
      Rate Period, Moody's Eligible Assets (if Moody's is then rating such
      shares) and Standard & Poor's Eligible Assets (if Standard & Poor's is
      then rating such shares) each have an aggregate Discounted Value at
      least equal to the Municipal Preferred Basic Maintenance Amount as of
      such Business Day (assuming for purposes of the foregoing calculation
      that (a) the Maximum Rate is the Maximum Rate on such Business Day as if
      such Business Day were the Auction Date for the proposed Special Rate
      Period, and (b) the Moody's Discount Factors applicable to Moody's
      Eligible Assets will be determined by reference to the first Moody's
      Exposure Period longer than the Moody's Exposure Period then applicable
      to the Trust); or

          (ii) a notice stating that the Trust has determined not to exercise
      its option to designate a Special Rate Period of shares of Municipal
      Preferred and that the next succeeding Rate Period shall be a Minimum
      Rate Period.

       If the Trust fails to deliver either such notice (and, in the case of
   the notice described in clause (i) above, a Municipal Preferred Basic
   Maintenance Report to the effect set forth in clause (i) (if either Moody's
   or Standard & Poor's is then rating the shares of Municipal Preferred))
   with respect to any designation of any proposed Special Rate Period to the
   Auction Agent by 11:00 A.M., New York City time, on the second Business Day
   next preceding the first day of such proposed Special Rate Period (or by
   such later time or date, or both, as may be agreed to by the Auction
   Agent), the Trust shall be deemed to have delivered a notice to the Auction
   Agent with respect to such Special Rate Period to the effect set forth in
   clause (ii) above. In the event the Trust delivers to the Auction Agent a
   notice described in clause (i) above, it shall file a copy of such notice
   with the Secretary of the Trust, and the contents of such notice shall be
   binding on the Trust. In the event the Trust delivers to the Auction Agent
   a notice described in clause (ii) above, the Trust will provide Moody's (if
   Moody's is then rating the shares of Municipal Preferred) and Standard &
   Poor's (if Standard & Poor's is then rating the shares of Municipal
   Preferred) a copy of such notice.

   VOTING RIGHTS
   Holders of shares of Municipal Preferred are entitled to vote on certain
   matters as described herein under "Investment Objective and Policies --
   Fundamental Investment Policies" and in the Prospectus under "Description
   of Municipal Preferred -- Voting Rights" and "Certain Provisions in the
   Declaration of Trust."

       In connection with the election of the Trust's trustees, holders of
   outstanding Preferred Shares, including shares of Municipal Preferred,
   voting together as one separate class, shall be entitled to elect two of
   the Trust's trustees, and the remaining trustees will be elected by holders
   of Common Shares and Preferred Shares, including shares of Municipal
   Preferred, voting together as a single class. In addition, if at any time
   dividends (whether or not earned or declared) on outstanding Preferred
   Shares, including shares of Municipal Preferred, shall be due and unpaid in
   an amount equal to two full years' dividends thereon, and sufficient cash
   or specified securities shall not have been deposited with the Auction
   Agent for the payment of such dividends, then, as the sole remedy of
   holders of outstanding Preferred Shares, including shares of Municipal
   Preferred, the number of trustees constituting the Board of Trustees shall
   be automatically increased by the smallest number that, when added to the
   two trustees elected exclusively by the holders of Preferred Shares,
   including shares of Municipal Preferred, as described above, would
   constitute a majority of the Board of Trustees as so increased by such
   smallest number; and at a special meeting of shareholders which will be
   called and held as soon as practicable, and at all subsequent meetings at
   which trustees are to be elected, the holders of Preferred Shares,
   including shares of Municipal Preferred, voting as a separate class, will
   be entitled to elect the smallest number of additional trustees that,
   together with the two trustees which such holders will be in any event
   entitled to elect, constitutes a majority of the total number of trustees
   of the Trust as so increased. The terms of office of the persons who are
   trustees at the time of that election will continue. If the Trust
   thereafter shall pay, or declare and set apart for payment, in full all
   dividends payable on all outstanding Preferred Shares, including shares of
   Municipal Preferred, the voting rights stated in the preceding sentence
   shall cease, and the terms of office of all of the additional trustees
   elected by the holders of Preferred Shares, including shares of Municipal
   Preferred (but not of the trustees with respect to whose election the
   holders of Common Shares were entitled to vote or the two trustees the
   holders of Preferred Shares have the right to elect in any event), will
   terminate automatically.

       So long as any shares of Municipal Preferred are outstanding, the Trust
   may not, without the affirmative vote of the holders of at least a majority
   of the shares of Municipal Preferred outstanding at the time, voting
   together as one separate class:


          (a) authorize, create or issue additional shares of Municipal
      Preferred or classes or series of Preferred Shares ranking prior to or
      on a parity with shares of Municipal Preferred with respect to the
      payment of dividends or the distribution of assets upon dissolution,
      liquidation or winding up of the affairs of the Trust (except that the
      Trust may, without the vote of the holders of shares of Municipal
      Preferred, authorize, create or issue additional shares of Municipal
      Preferred or classes or series of Preferred Shares ranking on a parity
      with shares of Municipal Preferred with respect to the payment of
      dividends and the distribution of assets upon dissolution, liquidation
      or winding up of the affairs of the Trust if the Trust obtains written
      confirmation from Moody's (if Moody's is then rating the shares of
      Municipal Preferred) and Standard & Poor's (if Standard & Poor's is then
      rating the shares of Municipal Preferred) that the issuance of any such
      additional shares or class or series of shares would not impair the
      rating then assigned by such rating agency to shares of Municipal
      Preferred; provided, however, that if Moody's or Standard & Poor's is
      not then rating the shares of Municipal Preferred the aggregate
      liquidation preference of all Preferred Shares of the Trust outstanding
      after any such issuance, exclusive of accumulated and unpaid dividends,
      may not exceed $140,000,000); or


          (b) amend, alter or repeal the provisions of the Declaration, the
      By-Laws or the Statement, whether by merger, consolidation or otherwise,
      so as to materially affect any preference, right or power of the shares
      of Municipal Preferred or the holders thereof (provided, however, that a
      division of a share of Municipal Preferred shall be deemed to affect any
      such preference, right or power only if the terms of such division
      adversely affect the holders of any shares of Municipal Preferred);


   provided, however, that (i) none of the actions permitted by the exception
   to (a) above will be deemed to affect such preferences, rights or powers
   and (ii) the authorization, creation and issuance of classes or series of
   shares ranking junior to the Municipal Preferred with respect to the
   payment of dividends and the distribution of assets upon dissolution,
   liquidation or winding up of the affairs of the Trust will be deemed to
   affect such preferences, rights or powers only if at least one of Moody's
   or Standard & Poor's is then rating the shares of Municipal Preferred and
   such issuance would, at the time thereof, cause the Trust not to satisfy
   the 1940 Act Municipal Preferred Asset Coverage or the Municipal Preferred
   Basic Maintenance Amount. So long as any shares of Municipal Preferred are
   outstanding, the Trust may not, without the affirmative vote of the holders
   of at least 66 2/3% of the shares of Municipal Preferred outstanding at the
   time, voting as a separate class, file a voluntary application for relief
   under Federal bankruptcy law or any similar application under state law for
   so long as the Trust is solvent and does not foresee becoming insolvent. If
   any action set forth in this paragraph would adversely affect the rights of
   one or more series (the "Affected Series") of Municipal Preferred in a
   manner different from any other series of Municipal Preferred, the Trust
   will not approve any such action without the affirmative vote of the
   holders of at least a majority of the shares of each such Affected Series
   outstanding at the time (each such Affected Series voting as a separate
   class).


       Voting provisions will not apply with respect to shares of Municipal
   Preferred if, at or prior to the time when a vote is required, 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 Board of Trustees may, without shareholder approval, amend, alter
   or repeal any or all of the definitions and related provisions required to
   be contained in the Statement by the rating agencies in the event the Trust
   receives confirmation from Moody's or Standard & Poor's, or both, as
   appropriate, that any such amendment, alteration or repeal would not impair
   the ratings then assigned by Moody's and Standard & Poor's to shares of
   Municipal Preferred.


   RATING AGENCY GUIDELINES

   The Trust intends that, so long as shares of Municipal Preferred are
   outstanding, the composition of its portfolio will reflect guidelines
   established by at least one of Moody's or Standard & Poor's in connection
   with the Trust's receipt on the Date of Original Issue of the shares of
   Municipal Preferred of ratings of "Aaa" from Moody's or AAA from Standard &
   Poor's. Moody's and Standard & Poor's, nationally recognized independent
   rating agencies, issue ratings for various securities reflecting their
   perceived creditworthiness of such securities. The guidelines described below
   have been developed by Moody's and Standard & Poor's in connection with other
   issuances of asset-backed and similar securities, including debt obligations
   and adjustable rate preferred shares, generally on a case-by-case basis
   through discussions with the issuers of those securities. The guidelines are
   designed to ensure that assets underlying outstanding debt or preferred
   shares will be sufficiently varied 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 Trust in order to satisfy current
   requirements necessary for Moody's or Standard & Poor's, or both, to issue
   the above-described ratings for shares of Municipal Preferred, which ratings
   are generally relied upon by investors in purchasing such securities. In the
   context of a closed-end investment company such as the Trust, therefore, 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. A rating agency's guidelines will
   apply to shares of Municipal Preferred only so long as such rating agency is
   rating such shares. The Board of Trustees may, without shareholder approval,
   amend, alter or repeal any or all of the definitions and related provisions
   which have been adopted by the Trust pursuant to the rating agency guidelines
   in the event the Trust receives confirmation from Moody's or Standard &
   Poor's, or both, as appropriate, that any such change would not impair the
   ratings then assigned by Moody's and Standard & Poor's to shares of Municipal
   Preferred.

       So long as either Standard & Poor's or Moody's, or both, are rating the
   shares of Municipal Preferred, the Trust may not, among other things, (1)
   buy or sell futures contracts, write, purchase or sell options on futures
   contracts or write put or call options on portfolio securities except to
   the extent set forth in the Statement, which include the restrictions set
   forth as Appendix E to this Statement of Additional Information, (2) borrow
   money, except that the Trust may, without obtaining the written
   confirmation described below, borrow money for the purpose of clearing
   securities transactions if (a) the Municipal Preferred Basic Maintenance
   Amount would continue to be satisfied after giving effect to such borrowing
   (which shall mean, for purposes of the calculation of the Municipal
   Preferred Basic Maintenance Amount, adding the amount of the liability for
   such borrowing to the calculation of the Municipal Preferred Basic
   Maintenance Amount) and (b) such borrowing (i) is privately arranged with a
   bank or other person and is evidenced by a promissory note or other
   evidence of indebtedness that is not intended to be publicly distributed or
   (ii) is for "temporary purposes," is evidenced by a promissory note or
   other evidence of indebtedness and is an amount not exceeding 5 per centum
   of the value of the total assets of the Trust at the time of the borrowing
   (for purposes of the foregoing, "temporary purpose" means that the
   borrowing is to be repaid within sixty days and is not to be extended or
   renewed), (3) issue additional shares of Municipal Preferred or any class
   or series of shares ranking prior to or on a parity with the shares of
   Municipal Preferred with respect to the payment of dividends or the
   distribution of assets upon dissolution, liquidation or winding up of the
   Trust, or reissue any shares of Municipal Preferred previously purchased or
   redeemed by the Trust, (4) engage in any short sales of securities, (5)
   lend any securities, (6) merge or consolidate into or with any corporation,
   (7) change the Trust's primary Pricing Services, or (8) enter into reverse
   repurchase agreements, unless in each case (except as described above) it
   has received confirmation from Standard & Poor's or Moody's, or both, as
   appropriate, that any such action would not impair the rating then assigned
   by such rating agency to shares of Municipal Preferred. While the Trust
   does not presently intend to borrow, and while the Trust is restricted
   under the 1940 Act from borrowing in excess of 33 1/3% of its total assets
   and is otherwise restricted from borrowing pursuant to rating agency
   guidelines, under certain circumstances and notwithstanding adverse
   interest rate or market conditions, the Trust is permitted to borrow for
   temporary or emergency purposes (e.g., to make required distributions or
   pay dividends) or to repurchase shares when such borrowing is deemed to be
   in the best interest of the common shareholders. See "Repurchase of Common
   Shares" herein and "Repurchase of Common Shares; Conversion to Open-end
   Fund" in the Prospectus for the circumstances under which the Trust may
   purchase Common Shares and incur indebtedness in connection therewith.
   Should the Trust borrow, the Trust would be required to pay when due the
   interest obligation on any debt incurred by the Trust before it would be
   able to pay dividends on shares of Municipal Preferred, and it is likely
   that the Trust would be required to pay the principal amount of any such
   debt prior to meeting the liquidation preference of the shares of Municipal
   Preferred. Because the interest expense on borrowings by the Trust will
   reduce the Trust's net investment earnings available to pay dividends on
   shares of Municipal Preferred, borrowing may impair the Trust's ability to
   pay such dividends on shares of Municipal Preferred. This risk is
   heightened in the event the Trust incurs variable rate debt, the interest
   rate on which may increase with increases in prevailing market rates.


   ASSET MAINTENANCE

   1940 ACT MUNICIPAL PREFERRED ASSET COVERAGE. The Trust will be required
   under rating agency guidelines to maintain, as of the last Business Day of
   each month on which any shares of Municipal Preferred are outstanding,
   asset coverage of at least 200% with respect to such shares (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 shares of a
   closed-end investment company as a condition of declaring dividends on its
   Common Shares). If the Trust fails to maintain such asset coverage in
   accordance with the requirements of the rating agency or agencies then
   rating the shares of Municipal Preferred ("1940 Act Municipal Preferred
   Asset Coverage") and such failure is not cured as of the last Business Day
   of the following month (the "1940 Act Cure Date"), the Trust will be
   required under certain circumstances to redeem certain of the shares of
   Municipal Preferred. See "Redemption" below.

   MUNICIPAL PREFERRED BASIC MAINTENANCE AMOUNT. The Trust will be required
   under rating agency guidelines to maintain, as of each Business Day (a
   "Valuation Date") on which shares of Municipal Preferred are outstanding,
   assets having in the aggregate a Discounted Value at least equal to the
   Municipal Preferred Basic Maintenance Amount established by the rating
   agency or agencies then rating the shares of Municipal Preferred. If the
   Trust fails to meet such requirement on any Valuation Date and such failure
   is not cured on or before the second Business Day after such Valuation Date
   (the "Municipal Preferred Basic Maintenance Cure Date"), the Trust will be
   required under certain circumstances to redeem certain of the shares of
   Municipal Preferred. See "Redemption" below.

       The "Municipal Preferred Basic Maintenance Amount" as of any Valuation
   Date is defined as the dollar amount equal to the sum of:

          (A) (i) the product of the number of shares of Municipal Preferred
      outstanding on such date multiplied by $25,000 (plus the product of the
      number of shares of any other series of Preferred Shares outstanding on
      such date multiplied by the liquidation preference of such shares), plus
      any redemption premium applicable to shares of Municipal Preferred (or
      other Preferred Shares) then subject to redemption;

              (ii) the aggregate amount of dividends that will have
          accumulated at the Applicable Rate (whether or not earned or
          declared) to (but not including) the first Dividend Payment Date for
          each share of Municipal Preferred outstanding that follows such
          Valuation Date (plus the aggregate amount of dividends, whether or
          not earned or declared, that will have accumulated in respect of
          other outstanding Preferred Shares to, but not including, the first
          respective dividend payment dates for such other shares that follow
          such Valuation Date);


              (iii) subject to certain exceptions, the aggregate amount of
          dividends that would accumulate on shares of Municipal Preferred
          outstanding from such first Dividend Payment Date through the 49th
          day after such Valuation Date, at the Maximum Rate (calculated as if
          such Valuation Date were the Auction Date for the Rate Period
          commencing on such Dividend Payment Date) for a Minimum Rate Period
          thereof to commence on such Dividend Payment Date, assuming, solely
          for purposes of the foregoing, that if on such Valuation Date the
          Trust shall have delivered a Notice of Special Rate Period to the
          Auction Agent with respect to such shares, such Maximum Rate shall
          be the higher of (a) the Maximum Rate for the Special Rate Period of
          such shares to commence on such Dividend Payment Date and (b) the
          Maximum Rate for a Minimum Rate Period of such shares to commence on
          such Dividend Payment Date, multiplied by the Volatility Factor
          applicable to a Minimum Rate Period, or, in the event the Trust
          shall have delivered a Notice of Special Rate Period to the Auction
          Agent with respect to such shares designating a Special Rate Period
          consisting of 49 Rate Period Days or more, the Volatility Factor
          applicable to a Special Rate Period of that length (plus the
          aggregate amount of dividends that would accumulate at the maximum
          dividend rate or rates on any other Preferred Shares outstanding
          from such respective dividend payment dates through the 49th day
          after such Valuation Date, as established by or pursuant to the
          respective statements establishing and fixing the rights and
          preferences of such other Preferred Shares);


              (iv) the amount of anticipated Trust expenses for the 90 days
          subsequent to such Valuation Date;

              (v) the amount of the Trust's Maximum Potential Gross-up Payment
          Liability as of such Valuation Date; and

              (vi) any current liabilities as of such Valuation Date to the
          extent not reflected in any of (A)(i) through (A)(v) (including,
          without limitation, any payables for Municipal Obligations purchased
          as of such Valuation Date and any liabilities incurred for the
          purpose of clearing securities transactions) less

          (B) the value of any Trust assets irrevocably deposited by the Trust
      for the payment of any of (A)(i) through (A)(vi), all as calculated in
      accordance with the requirements of the rating agency or agencies then
      rating the shares of Municipal Preferred.

       For purposes of the foregoing, "Maximum Potential Gross-up Payment
   Liability," as of any Valuation Date, means the aggregate amount of Gross-up
   Payments that would be due if the Trust were to make Taxable Allocations,
   with respect to any taxable year, estimated based upon dividends paid and the
   amount of undistributed realized net capital gain and other taxable income
   earned by the Trust, as of the end of the calendar month immediately
   preceding such Valuation Date, and assuming such Gross-up Payments are fully
   taxable.

       In managing the Trust's portfolio, the Adviser will not alter the
   composition of the Trust's portfolio if, in the reasonable belief of the
   Adviser, the effect of any such alteration would be to cause the Trust to
   have Eligible Assets with an aggregate Discounted Value, as of the
   immediately preceding Valuation Date, less than the Municipal Preferred
   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 the Trust's Eligible Assets exceeded the
   Municipal Preferred Basic Maintenance Amount by 5% or less, the Adviser
   will not alter the composition of the Trust's portfolio in a manner
   reasonably expected to reduce the aggregate Discounted Value of the Trust's
   Eligible Assets unless the Trust shall have confirmed that, after giving
   effect to such alteration, the aggregate Discounted Value of the Trust's
   Eligible Assets would exceed the Municipal Preferred Basic Maintenance
   Amount.

       Upon any failure to maintain the required Discounted Value, the Trust
   will seek to alter the composition of its portfolio to reattain the
   Municipal Preferred Basic Maintenance Amount on or prior to the Municipal
   Preferred Basic Maintenance Cure Date, thereby incurring additional
   transaction costs and possible losses and/or gains on dispositions of
   portfolio securities.


       On or before the third Business Day after a Valuation Date on which the
   Trust fails to meet the Municipal Preferred Basic Maintenance Amount, and
   on the third Business Day after the Municipal Preferred Basic Maintenance
   Cure Date with respect to such Valuation Date, the Trust is required to
   deliver to the Auction Agent (so long as either Moody's or Standard &
   Poor's is rating the shares of Municipal Preferred) a report with respect
   to the calculation of the Municipal Preferred Basic Maintenance Amount and
   the value of its portfolio holdings as of the date of such failure or such
   cure date, as the case may be (a "Municipal Preferred Basic Maintenance
   Report"). The Trust will also deliver, as required, a Municipal Preferred
   Basic Maintenance Report to the Auction Agent, Moody's (if Moody's is then
   rating the shares of Municipal Preferred) and Standard & Poor's (if
   Standard & Poor's is then rating the shares of Municipal Preferred) as of
   the last Business Day of each January, April, July and October of each
   year, commencing on January 31, 2001, in each case on or before the third
   Business Day after such day, and Standard & Poor's, as of any biweekly
   Valuation Date, in each case on or before the third Business Day after such
   day for the first year. The Trust will also deliver a Municipal Preferred
   Basic Maintenance Report to Moody's (if Moody's is then rating the shares
   of the Municipal Preferred) and Standard & Poor's (if Standard & Poor's is
   then rating the shares of the Municipal Preferred) if and when requested by
   Standard & Poor's or Moody's for any Valuation Date, on or before the third
   Business Day after such request. Within ten Business Days after delivery of
   such report relating to the last Business Day of each January, April, July
   and October of each year, commencing January 31, 2001, the Trust will
   deliver a letter prepared by the Trust's independent accountants regarding
   the accuracy of the calculations made by the Trust in its most recent
   Municipal Preferred Basic Maintenance Report. If any such letter prepared
   by the Trust's independent accountants shows that an error was made in the
   most recent Municipal Preferred Basic Maintenance Report, the calculation
   or determination made by the Trust's independent accountants will be
   conclusive and binding on the Trust.


       The Discount Factors and guidelines for determining the market value of
   the Trust's portfolio holdings, described below, have been based by the
   rating agencies on criteria such as 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. The ratings may be changed, suspended or withdrawn as a
   result of changes in, or the unavailability of, such information.

   STANDARD & POOR'S AAA RATING GUIDELINES. For purposes of calculating the
   Discounted Value of the Trust's portfolio under current Standard & Poor's
   guidelines, the fair market value of Municipal Obligations eligible for
   consideration under such guidelines ("Standard & Poor's Eligible Assets")
   must be discounted by certain discount factors set forth in the table below
   ("Standard & Poor's Discount Factors"). The Discounted Value of a Municipal
   Obligation under Standard & Poor's guidelines is the fair market value
   thereof divided by the Standard & Poor's Discount Factor. The Standard &
   Poor's Discount Factor used to discount a particular Municipal Obligation
   will be determined by reference to the "Standard & Poor's Exposure Period"
   (currently, three Business Days) and the Standard & Poor's rating on such
   Municipal Obligation. Standard & Poor's Discount Factors for a range of
   exposure periods are set forth below:

<TABLE>
<CAPTION>

                                                      STANDARD & POOR'S DISCOUNT FACTORS RATING CATEGORY
                                             -------------------------------------------------------------------

   EXPOSURE PERIOD                           AAA*        AA*        A*        BBB*       UNRATED**      ZEROS***
   <S>                                        <C>        <C>        <C>        <C>          <C>            <C>
   45 Business Days .....................     190%       195%       210%       250%         220%           572%
   25 Business Days .....................     170        175        190        230          220            496
   10 Business Days .....................     155        160        175        215          220            426
   7 Business Days ......................     150        155        170        210          220            411
   3 Business Days ......................     130        135        150        190          220            388

   ------------
     * Standard & Poor's rating.
    ** Standard & Poor's Eligible Assets not rated or rated less than BBB by Standard & Poor's and not rated at
       least the equivalent of an "A" rating by another nationally recognized credit rating agency.
   *** Municipal Obligations which are not interest bearing or do not pay interest at least semi-annually and
       that are rated AAA by Standard & Poor's.
</TABLE>

       Since the Standard & Poor's Exposure Period currently applicable to the
   Trust is three Business Days, the Standard & Poor's Discount Factors
   currently applicable to Standard & Poor's Eligible Assets will be
   determined by reference to the factors set forth opposite the line entitled
   "3 Business Days." Notwithstanding the foregoing, (i) the Standard & Poor's
   Discount Factor for short-term Municipal Obligations will be 115%, so long
   as such Municipal Obligations are rated A-1+ or SP-1+ by Standard & Poor's
   and mature or have a demand feature exercisable within 30 days or less,
   120% if such Municipal Obligations are rated A-1 or SP-1- by Standard &
   Poor's and mature or have a demand feature exercisable within 30 days or
   less, or 125% if such Municipal Obligations are not rated by Standard &
   Poor's but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however,
   that any such Moody's-rated short-term Municipal Obligations which have
   demand features exercisable within 30 days or less must be backed by a
   letter of credit, liquidity facility or guarantee from a bank or other
   financial institution with a short-term rating of at least A-1+ from
   Standard & Poor's; (ii) no Standard & Poor's Discount Factor will be
   applied to cash; and (iii) except as set forth in clause (i) above, in the
   case of any Municipal Obligation that is not rated by Standard & Poor's or
   rated less than BBB by Standard & Poor's but qualifies as a Standard &
   Poor's Eligible Asset pursuant to clause (1)(c) of the following paragraph,
   such Municipal Obligation will be deemed to have a Standard & Poor's rating
   one full rating category lower than the Standard & Poor's rating category
   that is the equivalent of the rating category in which such Municipal
   Obligation is placed by another nationally recognized credit rating agency.
   For purposes of the foregoing, Anticipation Notes rated SP-1+ or, if not
   rated by Standard & Poor's, rated MIG-1 or VMIG-1 by Moody's, which do not
   mature or have a demand feature at par exercisable in 30 days and which do
   not have a long-term rating, will be considered to be short-term Municipal
   Obligations. In calculating the Discounted Value of the Trust's portfolio
   (1) Standard & Poor's Discount Factors will be applied to futures and
   Inverse Floaters and (2) a Discount Factor of 388% will be applied to
   Municipal Obligations rated AAA by Standard & Poor's which are not interest
   bearing or do not pay interest at least semi-annually.

       All Trust assets shall be valued at trade date in determining Standard &
   Poor's Eligible Assets. The Standard & Poor's guidelines impose certain
   minimum issue size, issuer, geographical diversification and other
   requirements for purposes of determining Standard & Poor's Eligible Assets.
   Solely for purposes of this definition, the term "Municipal Obligation" means
   any obligation the interest on which is exempt from regular federal income
   taxation and which is issued by any of the fifty United States, the District
   of Columbia or any of the territories of the United States, their
   subdivisions, counties, cities, towns, villages, school districts and
   agencies (including authorities and special districts created by the states),
   and federally sponsored agencies such as local housing authorities.
   Notwithstanding the foregoing limitations:


          (1) In order to be considered Standard & Poor's Eligible Assets,
      Municipal Obligations owned by the Trust must:


              (a) be interest bearing and pay interest at least semi-annually
          (except as stated in number five (5) below);

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

              (c) in the case of Anticipation Notes that are Grant
          Anticipation Notes or Bond Anticipation Notes, be rated by Standard
          & Poor's;

              (d) not be private placements (except in the case of Inverse
          Floaters);

              (e) be part of an issue (excluding Escrowed Bonds that are
          legally defeased) with an original issue size of at least $20
          million or, if of an issue with an original issue size below $20
          million (but in no event lower than $10 million), be issued by an
          issuer with a total of at least $50 million of securities
          outstanding; and


              (f) is not subject to a covered call or covered put option
          written by the Trust.

          (2) Municipal Obligations (excluding Escrowed Bonds) of any one
      issuer or guarantor (excluding bond insurers) will be considered
      Standard & Poor's Eligible Assets only to the extent the Market Value of
      such Municipal Obligations does not exceed 10% of the aggregate Market
      Value of Standard & Poor's Eligible Assets, provided that 2% is added to
      the applicable Standard & Poor's Discount Factor for every 1% by which
      the Market Value of such Municipal Obligations exceeds 5% of the
      aggregate Market Value of Standard & Poor's Eligible Assets, and
      provided that Municipal Obligations (excluding Escrowed Bonds) not rated
      or rated less than BBB by Standard & Poor's and not rated at least A by
      another nationally recognized credit rating agency of any one issuer or
      guarantor (excluding bond insurers) shall constitute Standard & Poor's
      Eligible Assets only to the extent the Market Value of such Municipal
      Obligations does not exceed 5% of the aggregate Market Value of Standard
      & Poor's Eligible Assets.


          (3) Municipal Obligations not rated at least BBB or not rated by
      Standard & Poor's and not rated at least A by another nationally
      recognized credit rating agency will be considered Standard & Poor's
      Eligible Assets only to the extent the Market Value of such Municipal
      Obligations does not exceed 50% of the aggregate Market Value of
      Standard & Poor's Eligible Assets; provided, however, that if the Market
      Value of such Municipal Obligations exceeds 50% of the aggregate Market
      Value of Standard & Poor's Eligible Assets, a portion of such Municipal
      Obligations (selected by the Trust) shall not be considered Standard &
      Poor's Eligible Assets, so that the Market Value of such Municipal
      Obligations (excluding such portion) does not exceed 50% of the
      aggregate Market Value of Standard & Poor's Eligible Assets.


          (4) Long-term Municipal Obligations (excluding Escrowed Bonds)
      issued by issuers in any one state or territory will be considered
      Standard & Poor's Eligible Assets only to the extent the Market Value of
      such Municipal Obligations does not exceed 25% of the aggregate Market
      Value of Standard & Poor's Eligible Assets.

          (5) Municipal Obligations which are not interest bearing or do not
      pay interest at least semi-annually shall be considered Standard &
      Poor's Eligible Assets if rated AAA by Standard & Poor's.


       MOODY'S "Aaa" RATING GUIDELINES. For purposes of calculating the
   Discounted Value of the Trust's portfolio under current Moody's guidelines,
   Municipal Obligations eligible for consideration under such guidelines
   ("Moody's Eligible Assets") must be discounted by certain discount factors
   set forth in the table below ("Moody's Discount Factors"). All Trust assets
   shall be valued at trade date in determining Moody's Eligible Assets. The
   Discounted Value of a Municipal Obligation under Moody's guidelines is, as of
   any Valuation Date, (i) with respect to a Moody's Eligible Asset that is not
   currently callable as of such Valuation Date at the option of the issuer
   thereof, the quotient of the market value thereof divided by the applicable
   Moody's Discount Factor, or (ii) with respect to a Moody's Eligible Asset
   that is currently callable as of such Valuation Date at the option of the
   issuer thereof, the quotient of (a) the lesser of the market value or call
   price thereof, including any call premium, divided by (b) the applicable
   Moody's Discount Factor. The Moody's Discount Factor used to discount a
   particular Municipal Obligation will be determined by reference to the
   "Moody's Exposure Period" (currently, the period commencing on a given
   Valuation Date and ending 49 days thereafter) and the Moody's rating on such
   Municipal Obligation. Moody's Discount Factors for a range of exposure
   periods are set forth below:


<TABLE>
<CAPTION>
                                        MOODY'S DISCOUNT FACTORS RATING CATEGORY


   EXPOSURE PERIOD     AAA*        Aa*        A*         Baa*       OTHER**       (V)MIG-1***      SP-1+****      UNRATED*****

   <S>                  <C>        <C>        <C>        <C>          <C>             <C>             <C>             <C>
   7 weeks ........     151%       159%       166%       173%         187%            136%            148%            225%
   8 weeks or less
     but greater
     than 7 weeks .     154        161        168        176          190             137             149             231
   9 weeks or less
     but greater
     than 8 weeks .     156        163        170        177          192             138             150             240

   ------------
       * Moody's rating.
      ** Municipal Obligations not rated by Moody's but rated BBB by Standard & Poor's.
     *** Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or have a demand feature at par exercisable
         in 30 days and which do not have a long-term rating.
    **** Municipal Obligations not rated by Moody's but rated SP-1+ by Standard & Poor's, which do not mature or have a
         demand feature at par exercisable in 30 days and which do not have a long-term rating.
   ***** Municipal Obligations not rated or rated lower than Baa3 by Moody's and not rated or rated lower than BBB by
         Standard & Poor's.
</TABLE>


   Since the Moody's Exposure Period currently applicable to the Trust is 49
   days, the Moody's Discount Factors currently applicable to Moody's Eligible
   Assets will be determined by reference to the factors set forth opposite
   the line entitled "7 weeks." Notwithstanding the foregoing, (i) the Moody's
   Discount Factor for short-term Municipal Obligations will be 115%, so long
   as such Municipal Obligations are rated at least MIG-1, VMIG-1 or P-1 by
   Moody's and mature or have a demand feature at par exercisable in 30 days
   or less or 125% so long as such Municipal Obligations are rated at least
   A-1+/AA or SP-1+/AA by Standard & Poor's and mature or have a demand
   feature at par exercisable in 30 days or less and (ii) no Moody's Discount
   Factor will be applied to cash or futures, options and similar instruments
   (to the extent such securities are Moody's Eligible Assets).


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


                             MINIMUM          MAXIMUM             MAXIMUM
                            ISSUE SIZE       UNDERLYING      STATE OR TERRITORY
   RATING                  ($ MILLIONS)*    OBLIGOR (%)       CONCENTRATION(%)

   Aaa ................         10              100                 100
   Aa .................         10               20                  60
   A ..................         10               10                  40
   Baa ................         10                6                  20
   Other** ............         10                4                  12

    * Excludes Escrowed Bonds that are legally defeased.
   ** Municipal Obligations not rated by Moody's but rated BBB by Standard &
      Poor's. Municipal Obligations issued by any one issuer (excluding
      escrowed bonds) and not rated by Moody's or rated lower than Baa3 by
      Moody's and not rated by Standard & Poor's or rated lower than BBB by
      Standard & Poor's ("Unrated Moody's Municipal Obligations"), together
      with any Municipal Obligations issued by the same issuer and rated BBB
      by Standard & Poor's may comprise no more than 4% of total Moody's
      Eligible Assets.

       For purposes of the foregoing table, the percentages provided, for a
   given rating, in the columns entitled "Maximum Underlying Obligor" and
   "Maximum State or Territory Concentration" shall apply to the aggregate
   total of the Municipal Obligations in the rating category indicated and all
   rated Municipal Obligations in lower rating categories, as well as unrated
   Municipal Obligations that are Moody's Eligible Assets.

       Current Moody's guidelines require that Municipal Obligations
   constituting Moody's Eligible Assets (i) pay interest in cash, (ii) if
   applicable, not have suspended ratings, and (iii) not be subject to a
   covered call or a covered put option written by the Trust. For purposes of
   determining the Moody's Discount Factors applicable to such Standard &
   Poor's-rated Municipal Obligations, any such Municipal Obligation
   (excluding short-term Municipal Obligations) will be deemed to have a
   Moody's rating which is one full rating category lower than its Standard &
   Poor's rating. For purposes of applying the foregoing requirements,
   Municipal Obligations shall be deemed to be rated BBB by Standard & Poor's
   if rated BBB-, BBB or BBB+ by Standard & Poor's, and Municipal Obligations
   rated MIG-1, VMIG-1, or P-1, or, if not rated by Moody's, rated A-1+/AA or
   SP-1+/AA by Standard & Poor's, will be considered to have a long-term
   rating of A. In general, Municipal Obligations which are not rated by
   Moody's or Standard & Poor's may comprise no more than 40% of the aggregate
   Market Value of Moody's Eligible Assets.

       Notwithstanding the foregoing, an asset will not be considered a
   Moody's Eligible Asset to the extent it is (i) subject to any material
   lien, mortgage, pledge, security interest or security agreement of any kind
   (collectively, "Liens"), except for (a) Liens which are being contested in
   good faith by appropriate proceedings and which Moody's has indicated to
   the Trust will not affect the status of such asset as a Moody's Eligible
   Asset, (b) Liens for taxes that are not then due and payable or that can be
   paid thereafter without penalty, (c) Liens to secure payment for services
   rendered or cash advanced to the Trust by [Massachusetts Financial Services
   Company], [The Chase Manhattan Bank] or the Auction Agent and (d) Liens by
   virtue of any repurchase agreement or future contract; or (ii) deposited
   irrevocably for the payment of any liabilities for purposes of determining
   the Municipal Preferred Basic Maintenance Amount. In addition, an asset
   will not be considered a Moody's Eligible Asset if it is an Internally
   Priced Security (as defined under "Market Value").

       The Trust will enter into futures and options transactions only for
   bona fide hedging purposes and not for leveraging or speculative purposes.
   So long as either Standard & Poor's or Moody's is rating the Municipal
   Preferred, the Trust will only engage in futures or options transactions in
   accordance with guidelines of such ratings agencies and, to the extent
   transactions would not be permitted by such guidelines, only after it has
   received written confirmation from Standard & Poor's or Moody's, as
   appropriate, that such transactions would not impair the ratings then
   assigned by such rating agency to shares of Municipal Preferred. The
   guidelines in effect with respect to futures and options transactions in
   which the Trust may engage are set forth in the Statement and are included
   as Appendix E to this Statement of Additional Information.


   REDEMPTION

   OPTIONAL REDEMPTION. Except as described below,

          (i) shares of Municipal Preferred are redeemable, at the option of
      the Trust, as a whole or from time to time in part, on the second
      Business Day preceding any Dividend Payment Date therefor, out of funds
      legally available therefor in accordance with the Declaration, the
      Statement and applicable law, at a redemption price per share equal to
      the sum of $25,000 plus an amount equal to accumulated but unpaid
      dividends thereon (whether or not earned or declared) to (but not
      including) the date fixed for redemption; provided, however, that (1)
      shares of Municipal Preferred may not be redeemed in part if after such
      partial redemption fewer than 500 shares remain outstanding; (2) unless
      otherwise provided in the Statement, shares of Municipal Preferred are
      redeemable by the Trust during the Initial Rate Period thereof only on
      the second Business Day next preceding the last Dividend Payment Date
      for such Initial Rate Period; and (3) subject to the next succeeding
      sentence, the Notice of Special Rate Period relating to a Special Rate
      Period of shares of Municipal Preferred, as delivered to the Auction
      Agent and filed with the Secretary of the Trust, may provide that such
      shares shall not be redeemable during the whole or any part of such
      Special Rate Period (except as provided in (ii) below) or shall be
      redeemable during the whole or any part of such Special Rate Period only
      upon payment of such redemption premium or premiums as shall be
      specified therein ("Special Redemption Provisions"); and

          (ii) shares of Municipal Preferred are redeemable, at the option of
      the Trust, as a whole but not in part, out of funds legally available
      therefor in accordance with the Declaration, the Statement and
      applicable law, on the first day following any Dividend Period thereof
      included in a Rate Period of more than 364 Rate Period Days if, on the
      date of determination of the Applicable Rate for such shares for such
      Rate Period, such Applicable Rate equaled or exceeded on such date of
      determination the Treasury Note Rate for such Rate Period, at a
      redemption price of $25,000 per share plus an amount equal to
      accumulated but unpaid dividends thereon (whether or not earned or
      declared) to (but not including) the date fixed for redemption.

   A Notice of Special Rate Period relating to shares of Municipal Preferred for
   a Special Rate Period may contain Special Redemption Provisions only if the
   Board of Trustees, after consultation with the Broker-Dealer or
   Broker-Dealers for such Special Rate Period of such shares, determines that
   such Special Redemption Provisions are in the best interest of the Trust.

       If fewer than all of the outstanding shares of Municipal Preferred are
   to be redeemed as set forth above, the number of shares to be redeemed
   shall be determined by the Board of Trustees, and such shares shall be
   redeemed pro rata from the holders of record of shares of such series
   (initially Cede & Co. as nominee of the Securities Depository) in
   proportion to the number of such shares held by such holders. Since the
   nominee of the Securities Depository is the only record holder of shares of
   Municipal Preferred, the Securities Depository will determine the number of
   shares to be redeemed from the accounts of the Agent Members. The Agent
   Members, in turn, may determine to redeem shares from some persons listed
   on their records as beneficial owners (which may include an Agent Member
   holding shares for its own account) without redeeming shares from the
   accounts of other persons listed on their records as beneficial owners.

       The Trust may not mail a Notice of Redemption relating to an optional
   redemption as described above on any date unless on such date (a) the Trust
   has available certain 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 (including any applicable premium) due to
   holders of shares of Municipal Preferred by reason of the redemption of
   such shares on such redemption date and (b) the Discounted Value of Moody's
   Eligible Assets (if Moody's is then rating the shares of Municipal
   Preferred) and the Discounted Value of Standard & Poor's Eligible Assets
   (if Standard & Poor's is then rating the shares of Municipal Preferred)
   each at least equal the Municipal Preferred Basic Maintenance Amount and
   would at least equal the Municipal Preferred Basic Maintenance Amount
   immediately subsequent to such redemption if such redemption were to occur
   on such date. For purposes of determining in clause (b) of the preceding
   sentence whether the Discounted Value of Moody's Eligible Assets at least
   equals the Municipal Preferred Basic Maintenance Amount, the Moody's
   Discount Factors applicable to Moody's Eligible Assets will be determined
   by reference to the first Moody's Exposure Period longer than the Moody's
   Exposure Period then applicable to the Trust.

   MANDATORY REDEMPTION. The Trust will be required to redeem, at a redemption
   price equal to $25,000 per share plus accumulated but unpaid dividends
   thereon (whether or not earned or declared) to (but not including) the date
   fixed by the Board of Trustees for redemption (such amount, together with
   the redemption prices described above under "Optional Redemption," being
   herein referred to as the "Redemption Price"), certain of the shares of
   Municipal Preferred to the extent permitted under the 1940 Act, the
   Declaration, the Statement and any applicable law, if the Trust fails to
   maintain the Municipal Preferred Basic Maintenance Amount or the 1940 Act
   Municipal Preferred Asset Coverage in accordance with the requirements of
   the rating agency or rating agencies then rating the shares of Municipal
   Preferred and such failure is not cured on or before the Municipal
   Preferred Basic Maintenance Cure Date or the 1940 Act Cure Date (herein
   respectively referred to as a "Cure Date"), as the case may be. The number
   of shares of Municipal Preferred to be redeemed will be equal to the lesser
   of (a) the minimum number of shares of Municipal Preferred, together with
   all other Preferred Shares subject to redemption or retirement, the
   redemption of which, if deemed to have occurred immediately prior to the
   opening of business on the Cure Date, would have resulted in the
   satisfaction of the Municipal Preferred Basic Maintenance Amount or the
   1940 Act Municipal Preferred Asset Coverage, as the case may be, on such
   Cure Date (provided, however, that, if there is no such minimum number of
   shares of Municipal Preferred and other Preferred Shares the redemption or
   retirement of which would have had such result, all shares of Municipal
   Preferred and Preferred Shares then outstanding will be redeemed), and (b)
   the maximum number of shares of Municipal Preferred, together with all
   other Preferred Shares subject to redemption or retirement, that can be
   redeemed out of funds expected to be legally available therefor. In
   determining the shares of Municipal Preferred required to be redeemed in
   accordance with the foregoing, the Trust will allocate the number of shares
   required to be redeemed to satisfy the Municipal Preferred Basic
   Maintenance Amount or the 1940 Act Municipal Preferred Asset Coverage, as
   the case may be, pro rata among shares of Municipal Preferred and any other
   Preferred Shares subject to redemption or retirement.

       The Trust is required to effect such a mandatory redemption not earlier
   than 20 days and not later than 40 days after such Cure Date, except that
   if the Trust does not have funds legally available under the Declaration,
   the Statement and applicable law for the redemption of all of the required
   number of shares of Municipal Preferred and other Preferred Shares which
   are subject to mandatory redemption or retirement or the Trust otherwise is
   unable to effect such redemption on or prior to 40 days after such Cure
   Date, the Trust will redeem those shares of Municipal Preferred and other
   Preferred Shares which it was unable to redeem on the earliest practicable
   date on which it is able to effect such redemption. If fewer than all of
   the outstanding shares of Municipal Preferred are to be redeemed pursuant
   to a mandatory redemption, the number of shares to be redeemed shall be
   redeemed pro rata from the holders of such shares in proportion to the
   number of such shares held by such holders, in the same manner as described
   above in respect of optional redemptions of fewer than all outstanding
   shares of Municipal Preferred.

   NOTICE OF REDEMPTION. Notice of redemption shall be given by mailing the
   same to each holder of the shares to be redeemed (initially Cede & Co. as
   nominee of the Securities Depository), not less than 20 nor more than 45
   days prior to the date fixed for redemption thereof, to the respective
   addresses of such holders as the same shall appear on the record books of
   the Trust ("Notice of Redemption"). Each such notice shall state (i) the
   redemption date; (ii) the number of shares of Municipal Preferred to be
   redeemed; (iii) the CUSIP number for such shares; (iv) the Redemption
   Price; (v) the place or places where certificate(s) for such shares
   (properly endorsed or assigned for transfer, if the Board of Trustees shall
   so require and the notice shall so state) are to be surrendered for payment
   of the Redemption Price; (vi) that dividends on the shares to be redeemed
   will cease to accumulate on such redemption date; and (vii) the provisions
   of the Statement under which such redemption is made. If fewer than all
   shares of Municipal Preferred held by any holder are to be redeemed, the
   notice mailed to such holder shall also specify the number of shares to be
   redeemed from such holder. The Trust may provide in any Notice of
   Redemption relating to an optional redemption that such redemption is
   subject to one or more conditions precedent and that the Trust shall not be
   required to effect such redemption unless each such condition shall have
   been satisfied at the time or times and in the manner specified in such
   Notice of Redemption.

   OTHER REDEMPTION PROCEDURES. To the extent that any redemption for which a
   Notice of Redemption has been mailed is not made by reason of the absence
   of legally available funds therefor, such redemption will be made as soon
   as practicable to the extent such funds become available. Failure to redeem
   shares of Municipal Preferred will be deemed to exist at any time after the
   date specified for redemption in a Notice of Redemption when the Trust
   shall have failed, for any reason whatsoever, to deposit with the Auction
   Agent the Redemption Price with respect to any shares for which such Notice
   of Redemption has been mailed. Notwithstanding the fact that the Trust may
   not have redeemed shares of Municipal Preferred for which a Notice of
   Redemption has been mailed, dividends may be declared and paid on shares of
   Municipal Preferred and will include those shares of Municipal Preferred
   for which a Notice of Redemption has been mailed. The first two sentences
   of this paragraph shall not apply in the event the Trust provides in any
   Notice of Redemption relating to an optional redemption that such
   redemption is subject to one or more conditions precedent and any such
   condition precedent shall not have been satisfied at the time or times and
   in the manner specified in such Notice of Redemption.


       Provided a Notice of Redemption has been mailed as described above,
   upon the deposit with the Auction Agent (by noon on the Business Day fixed
   for redemption thereby, in funds available on that Business Day in The City
   of New York, New York) of funds sufficient to redeem the shares of
   Municipal Preferred that are the subject of such notice, dividends on such
   shares will cease to accumulate and such shares will no longer be deemed
   outstanding for any purpose, and all rights of the holders of the shares so
   called for redemption will cease and terminate, except the right of the
   holders thereof to receive the Redemption Price, but without any interest
   or other additional amount, except as otherwise provided above under
   "Dividends -- Determination of Dividend Rate" and "-- Gross-up Payments."
   Upon surrender in accordance with the Notice of Redemption of the
   certificates for any shares so redeemed (properly endorsed or assigned for
   transfer, if the Board of Trustees shall so require and the notice shall so
   state), the Redemption Price shall be paid by the Auction Agent to the
   holders of shares of Municipal Preferred subject to redemption. In the case
   that fewer than all of the shares represented by any such certificate are
   redeemed, a new certificate shall be issued, representing the unredeemed
   shares, without cost to the holder thereof. The Trust will be entitled to
   receive from the Auction Agent, promptly after the date fixed for
   redemption, any cash deposited with the Auction Agent in excess of (i) the
   aggregate Redemption Price of the shares of Municipal Preferred called for
   redemption on such date and (ii) all other amounts to which holders of
   shares of Municipal Preferred called for redemption may be entitled. Any
   funds so deposited that are unclaimed at the end of 90 days from such
   redemption date will, to the extent permitted by law, be repaid to the
   Trust, after which time the holders of shares of Municipal Preferred so
   called for redemption may look only to the Trust for payment of the
   Redemption Price and all other amounts to which they may be entitled. The
   Trust will be entitled to receive, from time to time after the date fixed
   for redemption, any interest on the funds so deposited.


       Notwithstanding the foregoing, if any dividends on shares of Municipal
   Preferred (whether or not earned or declared) are in arrears, no shares of
   Municipal Preferred shall be redeemed unless all outstanding shares of
   Municipal Preferred are simultaneously redeemed, and the Trust shall not
   purchase or otherwise acquire any shares of Municipal Preferred; provided,
   however, that the foregoing shall not prevent the purchase or acquisition
   of all outstanding shares of Municipal Preferred pursuant to the successful
   completion of an otherwise lawful purchase or exchange offer made on the
   same terms to, and accepted by, holders of all outstanding shares of
   Municipal Preferred.

       Except as described above with respect to redemptions and under "The
   Auction -- Orders by Existing Holders and Potential Holders," the
   Declaration and the Statement do not prohibit the Trust or any affiliate of
   the Trust from purchasing or otherwise acquiring any shares of Municipal
   Preferred.

       The Trust has the right to arrange for third parties to purchase from
   the holders thereof shares of Municipal Preferred which are to be redeemed
   as described above.

   LIQUIDATION

   Upon a dissolution, liquidation or winding up of the affairs of the Trust,
   whether voluntary or involuntary, the holders of shares of Municipal
   Preferred then outstanding will be entitled to receive and to be paid out
   of the assets of the Trust available for distribution to its shareholders,
   before any payment or distribution shall be made on the Common Shares or on
   any other class of shares of the Trust ranking junior to the Municipal
   Preferred upon dissolution, liquidation or winding up, an amount equal to
   the liquidation preference with respect to such shares. The liquidation
   preference for shares of Municipal Preferred shall be $25,000 per share,
   plus an amount equal to all dividends thereon (whether or not earned or
   declared) accumulated but unpaid to (but not including) the date of final
   distribution in same-day funds, together with any applicable Gross-up
   Payments in connection with the dissolution, liquidation or winding up of
   the Trust. After the payment to the holders of the shares of Municipal
   Preferred of the full preferential amounts provided for as described
   herein, the holders of Municipal Preferred as such shall have no right or
   claim to any of the remaining assets of the Trust. In the event the assets
   of the Trust available for distribution to the holders of shares of
   Municipal Preferred, upon any dissolution, liquidation or winding up of the
   affairs of the Trust, whether voluntary or involuntary, shall be
   insufficient to pay in full all amounts to which such holders are entitled,
   no such distribution shall be made on account of any other class or series
   of Preferred Shares ranking on a parity with the shares of Municipal
   Preferred upon such dissolution, liquidation or winding up unless
   proportionate distributive amounts shall be paid on account of the shares
   of Municipal Preferred, ratably, in proportion to the full distributable
   amounts for which holders of all such parity shares are respectively
   entitled upon such dissolution, liquidation or winding up. Subject to the
   rights of the holders of any series or class or classes of shares ranking
   on a parity with the shares of Municipal Preferred with respect to the
   distribution of assets upon dissolution, liquidation or winding up of the
   affairs of the Trust, after payment shall have been made in full to the
   holders of the shares of Municipal Preferred as described herein, but not
   prior thereto, any other series or class or classes of shares ranking
   junior to the shares of Municipal Preferred with respect to the
   distribution of assets upon dissolution, liquidation or winding up shall,
   subject to the respective terms and provisions (if any) applying thereto,
   be entitled to receive any and all assets remaining to be paid or
   distributed, and the holders of the shares of Municipal Preferred shall not
   be entitled to share therein.

       Neither the sale of all or substantially all the property or business
   of the Trust, nor the merger or consolidation of the Trust into or with any
   trust, corporation or other entity nor the merger or consolidation of any
   trust, corporation or other entity into or with the Trust shall be a
   dissolution, liquidation or winding up of the affairs of the Trust, whether
   voluntary or involuntary, for the purposes of the foregoing paragraph.

   REPURCHASE OF COMMON SHARES

   The Trust is a closed-end management investment company and as such its
   shareholders do not, and will not, have the right to redeem their shares of
   the Trust. The Trust, however, may repurchase its common shares from time
   to time in the open market or otherwise as and when it is deemed advisable
   by the Trustees. Such repurchases will be made only when the Trust's common
   shares are trading at a discount of 5 percent or more from the net asset
   value of those shares. The Trust may incur debt to finance share repurchase
   transactions.

       The common shares of the Trust trade in the open market at a price
   which is a function of several factors, including their net asset value and
   yield. The common shares of closed-end investment companies generally sell
   at market prices varying from their net asset values. If the Trust
   repurchases its common shares for a price below their net asset value, the
   net asset value of those common shares that remain outstanding will be
   enhanced, but this does not necessarily mean that the market price of those
   outstanding shares will be affected, either positively or negatively.
   Further, interest on borrowings to finance share repurchase transactions
   will reduce the Trust's net income.


   TAX MATTERS

   FEDERAL INCOME TAX MATTERS

   The Trust has elected to be treated and intends to qualify each year as a
   "regulated investment company" under Subchapter M of the Code, by meeting all
   applicable requirements of Subchapter M, including requirements as to the
   nature of the Trust's gross income, the amount of Trust distributions (as a
   percentage of both the Trust's net investment income and its tax-exempt
   income), and the composition of the Trust's portfolio assets. Because the
   Trust intends to distribute all of its net investment income and net realized
   capital gains to shareholders in accordance with the timing requirements
   imposed by the Code, it is not expected that the Trust will be required to
   pay any federal income or excise taxes.


       However, if at any time when shares of Municipal Preferred are
   outstanding, the Trust does not meet applicable asset coverage
   requirements, the Trust will be required to suspend distributions to
   holders of Common Shares until the requisite asset coverage is restored.
   Such a suspension of distributions may cause the Trust to fail applicable
   distribution requirements under the Code, which could result in liability
   for a 4% federal excise tax on undistributed amounts, or could cause the
   Trust to fail to qualify as a regulated investment company. If the Trust
   should fail to qualify as a regulated investment company in any year for
   this or any other reason, the Trust would incur a regular corporate federal
   income tax upon its taxable income and Trust distributions would generally
   be taxable as ordinary dividend income to the shareholders.


       The portion of the Trust's distributions of income that is attributable
   to interest from tax-exempt securities will be designated by the Trust as an
   "exempt-interest dividend" under the Code and will generally be exempt from
   federal income tax in the hands of shareholders so long as at least 50% of
   the total value of the Trust's assets consists of obligations described in
   Section 103(a) of the Code at the close of each quarter of the Trust's
   taxable year. Distributions of tax-exempt interest earned from certain
   securities may, however, be treated as an item of tax preference for
   shareholders under the federal alternative minimum tax, and all
   exempt-interest dividends may increase a corporate shareholder's alternative
   minimum tax. The percentage of income designated as tax-exempt will be
   applied uniformly to all distributions by the Trust of income made during
   each fiscal year of the Trust and may differ from the percentage of
   distributions consisting of tax-exempt interest in any particular month.
   Shareholders are required to report exempt-interest dividends received from
   the Trust on their federal income tax returns.


       In order for any distributions to holders of Municipal Preferred to be
   eligible to be treated as exempt-interest dividends, the shares of
   Municipal Preferred must be treated as equity for federal income tax
   purposes. Based in part on certain representations made by the Trust to
   Bingham Dana LLP relating to the lack of any present intention to redeem or
   purchase shares of Municipal Preferred at any time in the future, it is the
   opinion of Bingham Dana LLP that the shares of Municipal Preferred will
   constitute equity for federal income tax purposes. This opinion relies in
   part on a published ruling of the Internal Revenue Service stating that
   certain auction rate preferred stock similar in many material respects to
   the Municipal Preferred represents equity. The opinion of Bingham Dana LLP
   represents only its best legal judgment and is not binding on the Internal
   Revenue Service or the courts. If the Internal Revenue Service were
   successfully to assert that variable rate preferred stock such as the
   Municipal Preferred should be treated as debt for federal income tax
   purposes, dividends on shares of Municipal Preferred would be treated as
   taxable interest for federal income tax purposes. In such event, dividends
   on shares of Municipal Preferred would not be increased by the Trust and
   holders of shares of Municipal Preferred would not be entitled to any
   additional distributions from the Trust (including any Gross-up Payments)
   to offset the effect of paying federal income tax on Trust distributions so
   recharacterized as interest. Bingham Dana LLP has advised the Trust that,
   should the Internal Revenue Service pursue in court the position that the
   shares of Municipal Preferred should be treated as debt for federal income
   tax purposes, the Internal Revenue Service would be unlikely to prevail.


       The Trust may also recognize some ordinary income that is not tax-exempt,
   as well as capital gains and losses as a result of the disposition of
   securities and from certain futures transactions. Shareholders of the Trust
   normally will have to pay federal income taxes, and any state or local taxes,
   on the non exempt-interest dividends and capital gain distributions they
   receive from the Trust; however, the Trust does not expect that the
   non-tax-exempt portion of its ordinary income, if any, will be substantial.
   Because the Trust expects to earn primarily tax-exempt interest income, it is
   expected that no Trust dividends will qualify for the dividends received
   deduction for corporations. Distributions of net capital gain (i.e., the
   excess of net long-term capital gain over net short-term capital loss),
   whether paid in cash or reinvested in additional shares, are taxable to
   shareholders as long-term capital gains for federal income tax purposes
   without regard to the length of time the shareholders have held their shares.
   Any Trust dividend that is declared in October, November, or December of any
   calendar year, that is payable to shareholders of record in such a month, and
   that is paid the following January will be treated as if received by the
   shareholders on December 31 of the year in which the dividend is declared.
   The Trust will notify shareholders regarding the federal tax status of its
   distributions after the end of each calendar year.


       The Internal Revenue Service requires that a regulated investment
   company that has two or more classes of shares designate to each such class
   proportionate amounts of each type of its income for each tax year based
   upon the percentage of total dividends distributed to each class for such
   year. The Trust intends each year to allocate, to the fullest extent
   practicable, net tax-exempt interest income, net capital gain and other
   taxable income, if any, between its Common Shares and Municipal Preferred
   shares, in proportion to the total dividends paid to each class with
   respect to such year. To the extent permitted under applicable law, the
   Trust reserves the right to make special allocations of income within a
   class, consistent with the objective of the Trust.

       Any Trust distribution will have the effect of reducing the per share
   net asset value of shares in the Trust by the amount of the distribution.
   Shareholders purchasing shares shortly before the record date of any
   distribution other than an exempt-interest dividend may thus pay the full
   price for the shares and then effectively receive a portion of the purchase
   price back as a taxable distribution. In addition, shareholders disposing
   of shares after tax-exempt income has been accrued but not yet declared as
   a dividend should be aware that a portion of the sales proceeds realized
   upon disposition of the shares may reflect the existence of such accrued
   tax-exempt income, and that this portion of the proceeds may be subject to
   tax as a capital gain even though it would have been tax-exempt had it been
   declared as a dividend prior to the disposition.


       Interest on indebtedness incurred or continued by shareholders to
   purchase or carry shares of the Trust will not be deductible for federal
   income tax purposes to the extent attributable to exempt-interest
   dividends. Exempt-interest dividends are taken into account in calculating
   the amount of social security and railroad retirement benefits that may be
   subject to federal income tax. Exempt-interest dividends paid from interest
   on certain private activity bonds and certain industrial development bonds
   will not be tax-exempt to any shareholder that is a "substantial user" (or
   is related to a "substantial user") of the facilities financed by those
   bonds; persons who are, or are related to, substantial users of such
   facilities should consult their tax advisers before purchasing shares of
   the Trust.

       In general, any gain or loss realized upon a taxable disposition of
   shares of the Trust by a shareholder that holds such shares as a capital
   asset will be treated as a long-term capital gain or loss if the shares
   have been held for more than twelve months and otherwise as a short-term
   capital gain or loss. However, any loss realized upon a disposition of
   shares in the Trust held for six months or less will be disallowed to the
   extent of any exempt-interest dividends received with respect to those
   shares. If not disallowed, any such loss will be treated as a long-term
   capital loss to the extent of any distributions of net capital gain made
   with respect to those shares (or the amount designated as undistributed
   capital gain with respect to those shares). Any loss realized upon a
   disposition of shares may also be disallowed under rules relating to wash
   sales.


       From time to time the Trust may make a tender or repurchase offer for
   its Common Shares. It is expected that the terms of any such offer will
   require a tendering shareholder to tender all Common Shares, and dispose of
   all shares of Municipal Preferred, held or considered under Code rules to
   be held by such shareholder. Shareholders who tender all Common Shares and
   dispose of all shares of Municipal Preferred held, or considered held, by
   them will be treated as having sold such shares and generally will realize
   a capital gain or loss. If, however, a shareholder tenders fewer than all
   of its Common Shares, or retains a substantial portion of its Municipal
   Preferred, such shareholder may be treated as having received a taxable
   dividend upon the tender of its Common Shares. In such a case, there is a
   remote risk that non-tendering shareholders (including holders of Municipal
   Preferred) will be treated as having received taxable distributions from
   the Trust. Likewise, if the Trust redeems some but not all of the Municipal
   Preferred held by a holder of Municipal Preferred and such holder of
   Municipal Preferred is treated as having received a taxable dividend upon
   such redemption, there is a remote risk that holders of Common Shares and
   non-redeeming holders of Municipal Preferred will be treated as having
   received taxable distributions from the Trust.


       Any investment in zero coupon bonds, deferred interest bonds,
   payment-in-kind bonds, certain stripped securities, and certain securities
   purchased at a market discount will cause the Trust to recognize income prior
   to the receipt of cash payments with respect to those securities. In order to
   distribute this income and avoid a tax on the Trust, the Trust may be
   required to borrow or to liquidate portfolio securities that it might
   otherwise have continued to hold.

       The Trust's transactions in options, if any, and futures contracts will
   be subject to special tax rules that may affect the amount, timing, and
   character of Trust income and distributions to shareholders. For example,
   certain positions held by the Trust on the last business day of each
   taxable year will be marked to market (i.e., treated as if closed out) on
   that day, and any gain or loss associated with the positions will be
   treated as 60% long-term and 40% short-term capital gain or loss. Certain
   positions held by the Trust that substantially diminish its risk of loss
   with respect to other positions in its portfolio may constitute
   "straddles," and may be subject to special tax rules that would cause
   deferral of Trust losses, adjustments in the holding periods of Trust
   securities, and conversion of short-term capital losses into long-term
   capital losses. Certain tax elections exist for straddles that may alter
   the effects of these rules. The Trust will limit its activities in options,
   if any, and futures contracts to the extent necessary to meet the
   requirements of Subchapter M of the Code.

       Dividends and certain other payments to persons who are not citizens or
   residents of the United States or U.S. entities ("Non-U.S. Persons") are
   generally subject to U.S. tax withholding at the rate of 30%. The Trust
   intends to withhold U.S. federal income tax at the rate of 30% (or any
   lower rate permitted under an applicable treaty) on taxable dividends and
   other payments to Non-U.S. Persons that are subject to such withholding.
   Different tax consequences may result if such Non-U.S. Person is engaged in
   a trade or business in the United States and the dividends or other
   payments received are effectively connected with the conduct of that trade
   or business. Any amounts overwithheld may be recovered by such persons by
   filing a claim for refund with the U.S. Internal Revenue Service within the
   time period appropriate to such claims. Distributions received from the
   Trust by Non-U.S. Persons also may be subject to tax under the laws of
   their own jurisdictions.

       The Trust is also required in certain circumstances to apply backup
   withholding at the rate of 31% on taxable dividends and redemption proceeds
   paid to any shareholder (including a Non-U.S. Person) who does not furnish
   to the Trust certain information and certifications or who is otherwise
   subject to backup withholding. Backup withholding will not, however, be
   applied to payments that have been subject to 30% withholding. Backup
   withholding is not an additional tax. Any amounts withheld from payments
   made to a shareholder may be refunded or credited against such
   shareholder's United States federal income tax liability, provided that the
   required information is furnished to the Internal Revenue Service.

       The foregoing is a general and abbreviated summary of the applicable
   provisions of the Code and Treasury regulations presently in effect, as
   interpreted by rulings published by the Internal Revenue Service and
   judicial decisions, that directly govern the taxation of the Trust and
   owners of shares of Municipal Preferred. These provisions are subject to
   change, possibly with retroactive effect. Shareholders are urged to consult
   their tax advisers for more detailed information regarding the federal
   income tax consequences of any investment in the Trust.

   STATE INCOME TAX MATTERS

   As long as it qualifies as a regulated investment company under the Code,
   the Trust will not be required to pay Massachusetts income or excise taxes.

       The exemption of exempt-interest dividends for federal income tax
   purposes does not necessarily result in exemption under the tax laws of any
   state or local taxing authority. Some states do exempt from tax that
   portion of the exempt-interest dividend which represents interest received
   by a regulated investment company on its holdings of tax-exempt securities
   of that state and its political subdivisions and instrumentalities.
   Therefore, the Trust will report annually to its shareholders the
   percentage of interest income earned by the Trust during the preceding year
   from Municipal Bonds and will indicate, on a state-by-state basis only, the
   source of such income. Residents of certain states may be subject to an
   intangibles tax or a personal property tax on all or a portion of the value
   of their shares.

       Distributions of the Trust that are derived from interest on
   obligations of the U.S. Government and certain of its agencies and
   instrumentalities (but generally not from capital gains realized upon the
   disposition of such obligations) may be exempt from state and local taxes.
   The Trust intends to advise shareholders of the extent, if any, to which
   its distributions consist of such interest. Shareholders are urged to
   consult their tax advisers regarding the possible exclusion of a portion of
   their dividends for state and local income tax purposes as well as more
   generally regarding the state and local tax consequences of an investment
   in the Trust.


   SHAREHOLDER LIABILITY

   The Trust is an entity of the type commonly known as a "Massachusetts
   business trust." Under Massachusetts law, shareholders of such a trust may,
   under certain circumstances, be held personally liable as partners for its
   obligations. However, the Declaration of Trust contains an express
   disclaimer of shareholder liability for acts or obligations of the Trust
   and provides for indemnification and reimbursement of expenses out of the
   Trust's property for any shareholder held personally liable for the
   obligations of the Trust. The Declaration of Trust also provides that the
   Trust shall maintain appropriate insurance (for example, fidelity bonding
   and errors and omissions insurance) for the protection of the Trust, its
   shareholders, Trustees, officers, employees and agents covering possible
   tort and other liabilities. Thus, the risk of a shareholder incurring
   financial loss on account of shareholder liability is limited to
   circumstances in which both inadequate insurance existed and the Trust
   itself was unable to meet its obligations.

       The Declaration of Trust further provides that obligations of the Trust
   are not binding upon the Trustees individually but only upon the property
   of the Trust and that the Trustees will not be liable for errors of
   judgment or mistakes of fact or law, but nothing in the Declaration of
   Trust protects a Trustee against any liability to which he would otherwise
   be subject by reason of willful misfeasance, bad faith, gross negligence,
   or reckless disregard of the duties involved in the conduct of his office.


   CUSTODIAN AND SHAREHOLDER SERVICING AGENT

   State Street Bank and Trust Company, 225 Franklin Street, Boston,
   Massachusetts 02110 is the custodian and dividend disbursing agent for the
   Trust. MFS Service Center, Inc., 2 Avenue de Lafayette, Boston,
   Massachusetts 02111-1738, is the shareholder servicing agent.


   INDEPENDENT ACCOUNTANTS

   Deloitte & Touche LLP are the Trust's independent public accountants and
   certify financial statements of the Trust as required to be certified by
   any law or regulation and provide certain other tax-related services for
   the Trust (such as tax return preparation and assistance and consultation
   with respect to the preparation of filings with the SEC). The principal
   business address of Deloitte & Touche LLP is 200 Berkeley Street, Boston,
   Massachusetts 02116. The financial statements included in this SAI have
   been so included, and the financial highlights included in the Prospectus
   have been so included, in reliance upon the report of Deloitte & Touche LLP
   given on the authority of said firm as experts in accounting and auditing.


   GLOSSARY
     ""AA" Composite Commercial Paper Rate" has the meaning set forth on page
   13 of this Statement of Additional Information.


       "Adviser" means Massachusetts Financial Services Company.


       "Affected Series" has the meaning set forth on page 25 of this
   Statement of Additional Information.


       "Affiliate" means, for purposes of the definition of "Outstanding," any
   Person known to the Auction Agent to be controlled by, in control of or under
   common control with the Trust; provided, however, that no Broker-Dealer
   controlled by, in control of or under common control with the Trust shall be
   deemed to be an Affiliate nor shall any corporation or any Person controlled
   by, in control of or under common control with such corporation, one of the
   directors, trustees or executive officers of which is a trustee of the Trust
   be deemed to be an Affiliate solely because such director, trustee or
   executive officer is also a trustee of the Trust.

       "Agent Member" means a member of or participant in the Securities
   Depository that will act on behalf of a Bidder.

       "Anticipation Notes" means Tax Anticipation Notes (TANs), Revenue
   Anticipation Notes (RANs), Tax and Revenue Anticipation Notes (TRANs),
   Grant Anticipation Notes (GANs) that are rated by Standard & Poor's and
   Bond Anticipation Notes (BANs).


       "Applicable Rate" has the meaning set forth on page 9 of this Statement
   of Additional Information.


       "Auction" means each periodic implementation of the Auction Procedures.


       "Auction Agency Agreement" has the meaning set forth on page 10 of this
   Statement of Additional Information.


       "Auction Agent" means the entity appointed as such by a resolution of
   the Board of Trustees.

       "Auction Date," with respect to any Rate Period, means the Business Day
   next preceding the first day of such Rate Period.

       "Auction Procedures" means the procedures for conducting Auctions as
   described in this Statement of Additional Information, including Appendix C
   hereto.


       "Available Municipal Preferred" has the meaning set forth on page 16 of
   this Statement of Additional Information.

       "Benchmark Rate" has the meaning set forth on page 16 of this Statement
   of Additional Information.

       "Beneficial Owner" has the meaning set forth on page 9 of this
   Statement of Additional Information.

       "Bid" has the meaning set forth on page 11 of this Statement of
   Additional Information.

       "Bidder" and "Bidders" have the respective meanings set forth on page
   11 of this Statement of Additional Information.


       "Board of Trustees" or "Board" means the Board of Trustees of the Trust
   or any duly authorized committee thereof.

       "Broker-Dealer" means any broker-dealer, commercial bank or other entity
   permitted by law to perform the functions required of a Broker-Dealer, that
   is a member of, or a participant in, the Securities Depository or is an
   affiliate of such member or participant, has been selected by the Trust and
   has entered into a Broker-Dealer Agreement 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 the Statement, the Prospectus and this
   Statement of Additional Information.

       "Business Day" has the meaning set forth on page 9 of this Statement of
   Additional Information.


       "By-Laws" means the Amended and Restated By-Laws of MFS Municipal
   Income Trust, as may be further amended from time to time.

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


       "CFTC" means Commodity Futures Trading Commission.


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


       "Commercial Paper Dealers" has the meaning set forth on page 13 of
   this Statement of Additional Information.


       "Common Shares" means the common shares of beneficial interest, without
   par value, of the Trust.

       "Cure Date" means the Municipal Preferred Basic Maintenance Cure Date
   or the 1940 Act Cure Date, as the case may be.


       "Date of Original Issue" has the meaning set forth on page 9 of this
   Statement of Additional Information.

       "Declaration" means the Amended and Restated Declaration of Trust dated
   November 6, 2000 of the Trust, on file with the Secretary of The
   Commonwealth of Massachusetts and as hereafter restated or amended from
   time to time.


       "Deposit Securities" means cash and Municipal Obligations rated at
   least A-1+ or SP-1+ by Standard & Poor's, except that, for purposes of
   determining whether the Trust may mail a Notice of Redemption, such
   Municipal Obligations shall be considered "Deposit Securities" only if they
   are also rated P-1, MIG-1 or VMIG-1 by Moody's.

       "Discount Factor" means a Moody's Discount Factor or a Standard &
   Poor's Discount Factor, as the case may be.

       "Discounted Value" means, as of any Valuation Date, (i) with respect to
   a Standard & Poor's Eligible Asset, the quotient of the Market Value
   thereof divided by the applicable Standard & Poor's Discount Factor and
   (ii)(a) with respect to a Moody's Eligible Asset that is not currently
   callable as of such Valuation Date at the option of the issuer thereof, the
   quotient of the Market Value thereof divided by the applicable Moody's
   Discount Factor, or (b) with respect to a Moody's Eligible Asset that is
   currently callable as of such Valuation Date at the option of the issuer
   thereof, the quotient of (1) the lesser of the Market Value or call price
   thereof, including any call premium, divided by (2) the applicable Moody's
   Discount Factor.


       "Dividend Payment Date" has the meaning set forth on page 9 of this
   Statement of Additional Information.

       "Dividend Period" has the meaning set forth on page 9 of this Statement
   of Additional Information.

       "DTC" has the meaning set forth on page 10 of this Statement of
   Additional Information.


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


       "Escrowed Bonds" means Municipal Obligations that (i) have been
   determined to be legally defeased in accordance with Standard & Poor's/
   Moody's legal defeasance criteria, (ii) have been determined to be
   economically defeased in accordance with Standard & Poor's economic
   defeasance criteria and assigned a rating of AAA by Standard & Poor's and a
   rating of Aaa by Moody's, (iii) are not rated by Standard & Poor's but have
   been determined to be legally defeased by Moody's or not rated by Moody's
   but have been determined to be legally defeased by Standard & Poor's, or
   (iv) have been determined to be economically defeased by Moody's and
   assigned a rating no lower than the rating that is Moody's equivalent of
   Standard & Poor's AAA rating or have been determined to be economically
   defeased by Standard & Poor's and assigned a rating no lower than the
   rating that is Standard & Poor's equivalent of Moody's Aaa rating.

       "Exchange" has the meaning set forth on page 9 of this Statement of
   Additional Information.

       "Existing Holder" has the meaning set forth on page 9 of this Statement
   of Additional Information.

       "Failure to Deposit," with respect to shares of Municipal Preferred,
   means a failure by the Trust to pay to the Auction Agent, not later than
   12:00 noon, New York City time, (A) on any Dividend Payment Date for such
   shares, in funds available on such Dividend Payment Date in The City of New
   York, New York, the full amount of any dividend (whether or not earned or
   declared) to be paid on such Dividend Payment Date on any share or (B) on
   any redemption date in funds available on such redemption date for such
   shares in The City of New York, New York, the Redemption Price to be paid
   on such redemption date for any share after notice of redemption is mailed
   as set forth in the Statement, the Prospectus or this Statement of
   Additional Information; provided, however, that the foregoing clause (B)
   shall not apply to the Trust's failure to pay the Redemption Price in
   respect of shares of Municipal Preferred when the related Notice of
   Redemption provides that redemption of such shares is subject to one or
   more conditions precedent and any such condition precedent shall not have
   been satisfied at the time or times and in the manner specified in such
   Notice of Redemption.

       "Gross-up Payment" has the meaning set forth on page 22 of this
   Statement of Additional Information.

       "Hold Order" has the meaning set forth on page 11 of this Statement of
   Additional Information.


       "Holder" means the registered holder of shares of Municipal Preferred
   as the same appears on the record books of the Trust.

       "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.


       "Initial Rate Period" has the meaning set forth on page 9 of this
   Statement of Additional Information.


       "IRS" means the Internal Revenue Service.


       "Inverse Floater" shall mean trust certificates or other instruments
   evidencing interests in one or more municipal securities that qualify as
   Standard & Poor's Eligible Assets and Moody's Eligible Assets (and satisfy
   the issuer and size requirements of the definition of Standard & Poor'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 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 or original issuance unless the floating rate instrument has
   only one reset remaining until maturity.

       "Kenny Index" has the meaning set forth on page 13 of this Statement of
   Additional Information.

       "Liquidation Preference," with respect to a given number of shares of
   Municipal Preferred, means $25,000 times that number.

       "Market Value" of any asset of the Trust means the market value thereof
   determined by the Pricing Services. Market Value of any asset shall include
   any interest accrued thereon. The Pricing Services will use current
   industry standards to value portfolio securities. The Pricing Services may
   employ electronic data processing techniques or a matrix system, or both,
   to determine valuations. Futures contracts and options shall be valued at
   closing prices for such instruments established by the exchange or board of
   trade on which they are traded. Securities for which quotations are not
   readily available ("Internally Priced Securities") shall be valued at fair
   value on a consistent basis using methods determined in good faith by the
   Board of Trustees.

       "Maximum Potential Gross-up Payment Liability" has the meaning set
   forth on pages 27-28 of this Statement of Additional Information.

       "Maximum Rate" has the meaning set forth on page 12 of this Statement
   of Additional Information.


       "Minimum Rate Period" means any Rate Period consisting of 7 Rate Period
   Days.

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


       "Moody's Discount Factors" has the meaning set forth on page 30 of this
   Statement of Additional Information.

       "Moody's Eligible Assets" has the meaning set forth on page 30 of this
   Statement of Additional Information.

       "Moody's Exposure Period" has the meaning set forth on page 30 of this
   Statement of Additional Information.


       "Moody's Volatility Factor" means, as of any Valuation Date, (i) in the
   case of any Minimum Rate Period, any Special Rate Period of 28 Rate Period
   Days or fewer, or any Special Rate Period of 57 Rate Period Days or more, a
   multiplicative factor equal to 275%, except as otherwise provided in the
   last sentence of this definition; (ii) in the case of any Special Rate
   Period of more than 28 but fewer than 36 Rate Period Days, a multiplicative
   factor equal to 203%; (iii) in the case of any Special Rate Period of more
   than 35 but fewer than 43 Rate Period Days, a multiplicative factor equal
   to 217%; (iv) in the case of any Special Rate Period of more than 42 but
   fewer than 50 Rate Period Days, a multiplicative factor equal to 226%; and
   (v) in the case of any Special Rate Period of more than 49 but fewer than
   57 Rate Period Days, a multiplicative factor equal to 235%. If, as a result
   of the enactment of changes to the Code, the greater of the maximum
   marginal Federal individual income tax rate applicable to ordinary income
   and the maximum marginal Federal corporate income tax rate applicable to
   ordinary income will increase, such increase being rounded up to the next
   five percentage points, until the effective date of such increase, the
   Moody's Volatility Factor in the case of any Rate Period described in (i)
   above in this definition instead shall be determined by reference to the
   following table:

              FEDERAL                      VOLATILITY
         TAX RATE INCREASE                   FACTOR
         -----------------                   ------

                 5%                           295%
                10%                           317%
                15%                           341%
                20%                           369%
                25%                           400%
                30%                           436%
                35%                           477%
                40%                           525%


       "Municipal Preferred" means the Municipal Auction Rate Cumulative
   Preferred Shares, Series T and/or Series TH without par value, liquidation
   preference $25,000 per share, of the Trust.

       "Municipal Preferred Basic Maintenance Amount" has the meaning set
   forth on page 27 of this Statement of Additional Information.

       "Municipal Preferred Basic Maintenance Cure Date" has the meaning set
   forth on page 27 of this Statement of Additional Information.

       "Municipal Preferred Basic Maintenance Report" has the meaning set
   forth on page 28 of this Statement of Additional Information.


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


       "1940 Act Cure Date" has the meaning set forth on page 27 of this
   Statement of Additional Information.

       "1940 Act Municipal Preferred Asset Coverage" has the meaning set forth
   on page 27 of this Statement of Additional Information.

       "Notice of Redemption" has the meaning set forth on page 33 of this
   Statement of Additional Information.

       "Notice of Special Rate Period" has the meaning set forth on page 24 of
   this Statement of Additional Information.

       "Order" and "Orders" have the respective meanings set forth on page 11
   of this Statement of Additional Information.


       "Outstanding" means, as of any Auction Date with respect to shares of
   Municipal Preferred, the number of such shares theretofore issued by the
   Trust except, without duplication, (i) any shares of Municipal Preferred
   theretofore canceled or delivered to the Auction Agent for cancellation or
   redeemed by the Trust, (ii) any shares of Municipal Preferred as to which
   the Trust or any Affiliate thereof shall be an Existing Holder, and (iii)
   any shares of Municipal Preferred represented by any certificate in lieu of
   which a new certificate has been executed and delivered by the Trust.

       "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" has the meaning set forth on page 9 of
   this Statement of Additional Information.

       "Potential Holder" has the meaning set forth on page 9 of this
   Statement of Additional Information.


       "Preferred Shares" means the preferred shares of beneficial interest,
   without par value of the Trust, and includes the Municipal Preferred.


       "Pricing Services" shall mean those pricing services which are both
   designated from time to time by the Board of Trustees and approved from
   time to time for use by Standard & Poor's (the pricing services approved
   for use by Standard & Poor's as of the date of this Statement of Additional
   Information are Bloomberg, Bridge Information Services, Interactive Data
   Corporation, Merrill Lynch Securities Pricing Service, Standard and Poor's,
   JJ Kenny (Municipal securities only) and CIBC Wood Gundy (Canadian
   government and provincial securities only)).

       "Rate Multiple" has the meaning set forth on page 14 of this Statement
   of Additional Information.

       "Rate Period" has the meaning set forth on page 9 of this Statement of
   Additional Information.


       "Rate Period Days," for any Rate Period or Dividend Period, means the
   number of days that would constitute such Rate Period or Dividend Period
   but for the application of the second paragraph under "Description of
   Municipal Preferred -- Dividends -- General" or the second paragraph under
   "Description of Municipal Preferred -- Dividends -- Designation of Special
   Rate Periods."


       "Redemption Price" has the meaning set forth on page 33 of this
   Statement of Additional Information.

       "Reference Rate" has the meaning set forth on page 12 of this Statement
   of Additional Information.


       "SEC" means the Securities and Exchange Commission.

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


       "Sell Order" has the meaning set forth on page 11 of this Statement of
   Additional Information.

       "Special Rate Period" has the meaning set forth on page 9 of this
   Statement of Additional Information.

       "Special Redemption Provisions" has the meaning set forth on page 32 of
   this Statement of Additional Information.


       "Standard & Poor's" means Standard & Poor's Ratings Services, a
   division of The McGraw-Hill Companies, and its successors.


       "Standard & Poor's Discount Factors" has the meaning set forth on
   page 28 of this Statement of Additional Information.

       "Standard & Poor's Eligible Assets" has the meaning set forth on
   page 28 of this Statement of Additional Information.

       "Standard & Poor's Exposure Period" has the meaning set forth on
   page 28 of this Statement of Additional Information.


       "Standard & Poor's Volatility Factor" means, as of any Valuation Date,
   a multiplicative factor equal to (i) 305% in the case of any Minimum Rate
   Period or any Special Rate Period of 28 Rate Period Days or fewer, (ii)
   268% in the case of any Special Rate Period of more than 28 Rate Period
   Days but fewer than 183 Rate Period Days, and (iii) 204% in the case of any
   Special Rate Period of more than 182 Rate Period Days.

       "Statement" means the Statement creating the Municipal Preferred
   shares.

       "Submission Deadline" means 1:30 P.M., New York City time, on any
   Auction Date or such other time on any Auction Date by which Broker-Dealers
   are required to submit Orders to the Auction Agent as specified by the
   Auction Agent from time to time.


       "Submitted Bid" and "Submitted Bids" have the respective meanings set
   forth on page 16 of this Statement of Additional Information.

       "Submitted Hold Order" and "Submitted Hold Orders" have the respective
   meanings set forth on page 16 of this Statement of Additional Information.

       "Submitted Order" and "Submitted Orders" have the respective meanings
   set forth on page 16 of this Statement of Additional Information.

       "Submitted Sell Order" and "Submitted Sell Orders" have the respective
   meanings set forth on page 16 of this Statement of Additional Information.

       "Subsequent Rate Period" has the meaning set forth on page 9 of this
   Statement of Additional Information.

       "Substitute Commercial Paper Dealer" has the meaning set forth on page
   13 of this Statement of Additional Information.

       "Substitute U.S. Government Securities Dealer" has the meaning set
   forth on page 14 of this Statement of Additional Information.

       "Sufficient Clearing Bids" has the meaning set forth on page 16 of this
   Statement of Additional Information.

       "Taxable Allocation" has the meaning set forth on page 21 of this
   Statement of Additional Information.

       "Taxable Equivalent of the Short-Term Municipal Bond Rate" has the
   meaning set forth on page 13 of this Statement of Additional Information.

       "Taxable Income" has the meaning set forth on page 16 of this Statement
   of Additional Information.

       "Taxable Yield Rate" has the meaning set forth on pages 16-17 of this
   Statement of Additional Information.

       "Treasury Bill" has the meaning set forth on page 14 of this Statement
   of Additional Information.

       "Treasury Bill Rate" has the meaning set forth on page 14 of this
   Statement of Additional Information.

       "Treasury Note" has the meaning set forth on page 14 of this Statement
   of Additional Information.

       "Treasury Note Rate" has the meaning set forth on page 14 of this
   Statement of Additional Information.


       "Trust" means MFS Municipal Income Trust, a Massachusetts business
   trust, which is the issuer of the shares of Municipal Preferred.


       "U.S. Government Securities Dealer" has the meaning set forth on page
   14 of this Statement of Additional Information.

       "Valuation Date" has the meaning set forth on page 27 of this Statement
   of Additional Information.


       "Variation Margin" means, in connection with an outstanding futures
   contract owned or sold by the Trust, 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.

       "Volatility Factor" means, as of any Valuation Date, the greater of the
   Moody's Volatility Factor and the Standard & Poor's Volatility Factor.

       "Voting Period" means a period that shall commence (A) if at the close
   of business on any dividend payment date accumulated dividends (whether or
   not earned or declared) on any outstanding Preferred Share, including
   Municipal Preferred, 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 (B) if at any time holders of Preferred Shares are entitled
   under the 1940 Act to elect a majority of the trustees of the Trust.


       "Winning Bid Rate" has the meaning set forth on page 16 of this
   Statement of Additional Information.

   FINANCIAL STATEMENTS

   The financial statements for the Trust contained in the Trust's Annual
   Report to Shareholders, dated October 31, 1999 (audited) and Semi-Annual
   Report to Shareholders, dated April 30, 2000 (unaudited), have been
   incorporated by reference into this Statement of Additional Information.
   The financial statements contained in the Trust's Annual Report to
   Shareholders, dated October 31, 1999, and notes thereto have been so
   incorporated in reliance upon the reports of Deloitte & Touche LLP, the
   Trust's independent accountants.
<PAGE>

APPENDIX A

    DESCRIPTION OF INVESTMENTS
    Set forth below is a description of investment techniques and practices
    which the Trust may generally use in pursuing its investment objective and
    principal investment policies, and the risks associated with these
    investment techniques and practices.

    DEBT SECURITIES
    To the extent the Trust invests in the following types of debt securities,
    its net asset value may change as the general levels of interest rates
    fluctuate. When interest rates decline, the value of debt securities can
    be expected to rise. Conversely, when interest rates rise, the value of
    debt securities can be expected to decline. The Trust's investment in debt
    securities with longer terms to maturity are subject to greater volatility
    than the Trust's shorter-term obligations. Debt securities may have all
    types of interest rate payment and reset terms, including fixed rate,
    adjustable rate, zero coupon, contingent, deferred, payment in kind and
    auction rate features.

    ASSET-BACKED SECURITIES: The Trust may purchase the following types of
    asset-backed securities:

        COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
    SECURITIES: The Trust may invest a portion of its assets in collateralized
    mortgage obligations or "CMOs," which are debt obligations collateralized
    by mortgage loans or mortgage pass-through securities (such collateral
    referred to collectively as "Mortgage Assets"). Unless the context
    indicates otherwise, all references herein to CMOs include multiclass
    pass-through securities.

        Interest is paid or accrues on all classes of the CMOs on a monthly,
    quarterly or semi-annual basis. The principal of and interest on the
    Mortgage Assets may be allocated among the several classes of a CMO in
    innumerable ways. In a common structure, payments of principal, including
    any principal prepayments, on the Mortgage Assets are applied to the
    classes of a CMO in the order of their respective stated maturities or
    final distribution dates, so that no payment of principal will be made on
    any class of CMOs until all other classes having an earlier stated
    maturity or final distribution date have been paid in full. Certain CMOs
    may be stripped (securities which provide only the principal or interest
    factor of the underlying security). See "Stripped Mortgage-Backed
    Securities" below for a discussion of the risks of investing in these
    stripped securities and of investing in classes consisting of interest
    payments or principal payments.

        The Trust may also invest in parallel pay CMOs and Planned
    Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
    provide payments of principal on each payment date to more than one class.
    These simultaneous payments are taken into account in calculating the
    stated maturity date or final distribution date of each class, which, as
    with other CMO structures, must be retired by its stated maturity date or
    final distribution date but may be retired earlier.

        CORPORATE ASSET-BACKED SECURITIES: The Trust may invest in corporate
    asset-backed securities. These securities, issued by trusts and special
    purpose corporations, are backed by a pool of assets, such as credit card
    and automobile loan receivables, representing the obligations of a number
    of different parties. These securities present certain risks. For
    instance, in the case of credit card receivables, these securities may not
    have the benefit of any security interest in the related collateral.
    Credit card receivables are generally unsecured and the debtors are
    entitled to the protection of a number of state and federal consumer
    credit laws, many of which give such debtors the right to set off certain
    amounts owed on the credit cards, thereby reducing the balance due. Most
    issuers of automobile receivables permit the servicers to retain
    possession of the underlying obligations. If the servicer were to sell
    these obligations to another party, there is a risk that the purchaser
    would acquire an interest superior to that of the holders of the related
    automobile receivables. In addition, because of the large number of
    vehicles involved in a typical issuance and technical requirements under
    state laws, the trustee for the holders of the automobile receivables may
    not have a proper security interest in all of the obligations backing such
    receivables. Therefore, there is the possibility that recoveries on
    repossessed collateral may not, in some cases, be available to support
    payments on these securities. The underlying assets (e.g., loans) are also
    subject to prepayments which shorten the securities' weighted average life
    and may lower their return.


        Corporate asset-backed securities are backed by a pool of assets
    representing the obligations of a number of different parties. To lessen
    the effect of failures by obligors on underlying assets to make payments,
    the securities may contain elements of credit support which fall into two
    categories: (i) liquidity protection and (ii) protection against losses
    resulting from ultimate default by an obligor on the underlying assets.
    Liquidity protection refers to the provision of advances, generally by the
    entity administering the pool of assets, to ensure that the receipt of
    payments on the underlying pool occurs in a timely fashion. Protection
    against losses resulting from ultimate default ensures payment through
    insurance policies or letters of credit obtained by the issuer or sponsor
    from third parties. The Trust will not pay any additional or separate fees
    for credit support. The degree of credit support provided for each issue
    is generally based on historical information respecting the level of
    credit risk associated with the underlying assets. Delinquency or loss in
    excess of that anticipated or failure of the credit support could
    adversely affect the return on an investment in such a security.


        MORTGAGE PASS-THROUGH SECURITIES: The Trust may invest in mortgage
    pass-through securities. Mortgage pass-through securities are securities
    representing interests in "pools" of mortgage loans. Monthly payments of
    interest and principal by the individual borrowers on mortgages are passed
    through to the holders of the securities (net of fees paid to the issuer or
    guarantor of the securities) as the mortgages in the underlying mortgage
    pools are paid off. The average lives of mortgage pass-throughs are variable
    when issued because their average lives depend on prepayment rates. The
    average life of these securities is likely to be substantially shorter than
    their stated final maturity as a result of unscheduled principal prepayment.
    Prepayments on underlying mortgages result in a loss of anticipated
    interest, and all or part of a premium if any has been paid, and the actual
    yield (or total return) to the Trust may be different than the quoted yield
    on the securities. Mortgage premiums generally increase with falling
    interest rates and decrease with rising interest rates. Like other fixed
    income securities, when interest rates rise the value of a mortgage
    pass-through security generally will decline; however, when interest rates
    are declining, the value of mortgage pass-through securities with prepayment
    features may not increase as much as that of other fixed-income securities.
    In the event of an increase in interest rates which results in a decline in
    mortgage prepayments, the anticipated maturity of mortgage pass-through
    securities held by the Trust may increase, effectively changing a security
    which was considered short or intermediate-term at the time of purchase into
    a long-term security. Long-term securities generally fluctuate more widely
    in response to changes in interest rates than short or intermediate-term
    securities.

        Payment of principal and interest on some mortgage pass-through
    securities (but not the market value of the securities themselves) may be
    guaranteed by the full faith and credit of the U.S. Government (in the
    case of securities guaranteed by the Government National Mortgage
    Association ("GNMA")); or guaranteed by agencies or instrumentalities of
    the U.S. Government (such as the Federal National Mortgage Association
    "FNMA") or the Federal Home Loan Mortgage Corporation, ("FHLMC") which are
    supported only by the discretionary authority of the U.S. Government to
    purchase the agency's obligations). Mortgage pass-through securities may
    also be issued by non-governmental issuers (such as commercial banks,
    savings and loan institutions, private mortgage insurance companies,
    mortgage bankers and other secondary market issuers). Some of these
    mortgage pass-through securities may be supported by various forms of
    insurance or guarantees.

        Interests in pools of mortgage-related securities differ from other
    forms of debt securities, which normally provide for periodic payment of
    interest in fixed amounts with principal payments at maturity or specified
    call dates. Instead, these securities provide a monthly payment which
    consists of both interest and principal payments. In effect, these
    payments are a "pass-through" of the monthly payments made by the
    individual borrowers on their mortgage loans, net of any fees paid to the
    issuer or guarantor of such securities. Additional payments are caused by
    prepayments of principal resulting from the sale, refinancing or
    foreclosure of the underlying property, net of fees or costs which may be
    incurred. Some mortgage pass-through securities (such as securities issued
    by the GNMA) are described as "modified pass-through." These securities
    entitle the holder to receive all interests and principal payments owed on
    the mortgages in the mortgage pool, net of certain fees, at the scheduled
    payment dates regardless of whether the mortgagor actually makes the
    payment.

        The principal governmental guarantor of mortgage pass-through
    securities is GNMA. GNMA is a wholly owned U.S. Government corporation
    within the Department of Housing and Urban Development. GNMA is authorized
    to guarantee, with the full faith and credit of the U.S. Government, the
    timely payment of principal and interest on securities issued by
    institutions approved by GNMA (such as savings and loan institutions,
    commercial banks and mortgage bankers) and backed by pools of Federal
    Housing Administration ("FHA") insured or Veterans Administration ("VA")
    guaranteed mortgages. These guarantees, however, do not apply to the
    market value or yield of mortgage pass-through securities. GNMA securities
    are often purchased at a premium over the maturity value of the underlying
    mortgages. This premium is not guaranteed and will be lost if prepayment
    occurs.

        Government-related guarantors (i.e., whose guarantees are not backed
    by the full faith and credit of the U.S. Government) include FNMA and
    FHLMC. FNMA is a government-sponsored corporation owned entirely by
    private stockholders. It is subject to general regulation by the Secretary
    of Housing and Urban Development. FNMA purchases conventional residential
    mortgages (i.e., mortgages not insured or guaranteed by any governmental
    agency) from a list of approved seller/servicers which include state and
    federally chartered savings and loan associations, mutual savings banks,
    commercial banks, credit unions and mortgage bankers. Pass-through
    securities issued by FNMA are guaranteed as to timely payment by FNMA of
    principal and interest.

        FHLMC is also a government-sponsored corporation owned by private
    stockholders. FHLMC issues Participation Certificates ("PCs") which
    represent interests in conventional mortgages (i.e., not federally insured
    or guaranteed) for FHLMC's national portfolio. FHLMC guarantees timely
    payment of interest and ultimate collection of principal regardless of the
    status of the underlying mortgage loans.

        Commercial banks, savings and loan institutions, private mortgage
    insurance companies, mortgage bankers and other secondary market issuers
    also create pass through pools of mortgage loans. Such issuers may also be
    the originators and/or servicers of the underlying mortgage-related
    securities. Pools created by such non-governmental issuers generally offer
    a higher rate of interest than government and government-related pools
    because there are no direct or indirect government or agency guarantees of
    payments in the former pools. However, timely payment of interest and
    principal of mortgage loans in these pools may be supported by various
    forms of insurance or guarantees, including individual loan, title, pool
    and hazard insurance and letters of credit. The insurance and guarantees
    are issued by governmental entities, private insurers and the mortgage
    poolers. There can be no assurance that the private insurers or guarantors
    can meet their obligations under the insurance policies or guarantee
    arrangements. The Trust may also buy mortgage-related securities without
    insurance or guarantees.

        STRIPPED MORTGAGE-BACKED SECURITIES:  The Trust may invest a portion
    of its assets in stripped mortgage-backed securities ("SMBS") which are
    derivative multiclass mortgage securities issued by agencies or
    instrumentalities of the U.S. Government, or by private originators of, or
    investors in, mortgage loans, including savings and loan institutions,
    mortgage banks, commercial banks and investment banks.

        SMBS are usually structured with two classes that receive different
    proportions of the interest and principal distributions from a pool of
    mortgage assets. A common type of SMBS will have one class receiving some
    of the interest and most of the principal from the Mortgage Assets, while
    the other class will receive most of the interest and the remainder of the
    principal. In the most extreme case, one class will receive all of the
    interest (the interest-only or "IO class) while the other class will
    receive all of the principal (the principal-only or "PO class). The yield
    to maturity on an IO is extremely sensitive to the rate of principal
    payments, including prepayments on the related underlying Mortgage Assets,
    and a rapid rate of principal payments may have a material adverse effect
    on such security's yield to maturity. If the underlying Mortgage Assets
    experience greater than anticipated prepayments of principal, the Trust
    may fail to fully recoup its initial investment in these securities. The
    market value of the class consisting primarily or entirely of principal
    payments generally is unusually volatile in response to changes in
    interest rates. Because SMBS were only recently introduced, established
    trading markets for these securities have not yet developed, although the
    securities are traded among institutional investors and investment banking
    firms.

        CORPORATE SECURITIES:  The Trust may invest in debt securities, such
    as convertible and non-convertible bonds, notes and debentures, issued by
    corporations, limited partnerships and other similar entities.

        LOANS AND OTHER DIRECT INDEBTEDNESS:  The Trust may purchase loans and
    other direct indebtedness. In purchasing a loan, the Trust acquires some
    or all of the interest of a bank or other lending institution in a loan to
    a corporate, governmental or other borrower. Many such loans are secured,
    although some may be unsecured. Such loans may be in default at the time
    of purchase. Loans that are fully secured offer the Trust more protection
    than an unsecured loan in the event of non-payment of scheduled interest
    or principal. However, there is no assurance that the liquidation of
    collateral from a secured loan would satisfy the corporate borrowers
    obligation, or that the collateral can be liquidated.

        These loans are made generally to finance internal growth, mergers,
    acquisitions, stock repurchases, leveraged buy-outs and other corporate
    activities. Such loans are typically made by a syndicate of lending
    institutions, represented by an agent lending institution which has
    negotiated and structured the loan and is responsible for collecting
    interest, principal and other amounts due on its own behalf and on behalf
    of the others in the syndicate, and for enforcing its and their other
    rights against the borrower. Alternatively, such loans may be structured
    as a novation, pursuant to which the Trust would assume all of the rights
    of the lending institution in a loan or as an assignment, pursuant to
    which the Trust would purchase an assignment of a portion of a lenders
    interest in a loan either directly from the lender or through an
    intermediary. The Trust may also purchase trade or other claims against
    companies, which generally represent money owned by the company to a
    supplier of goods or services. These claims may also be purchased at a
    time when the company is in default.

        Certain of the loans and the other direct indebtedness acquired by the
    Trust may involve revolving credit facilities or other standby financing
    commitments which obligate the Trust to pay additional cash on a certain
    date or on demand. These commitments may have the effect of requiring the
    Trust to increase its investment in a company at a time when the Trust
    might not otherwise decide to do so (including at a time when the
    company's financial condition makes it unlikely that such amounts will be
    repaid). To the extent that the Trust is committed to advance additional
    funds, it will at all times hold and maintain in a segregated account cash
    or other high grade debt obligations in an amount sufficient to meet such
    commitments.

        The Trust's ability to receive payment of principal, interest and
    other amounts due in connection with these investments will depend
    primarily on the financial condition of the borrower. In selecting the
    loans and other direct indebtedness which the Trust will purchase, the
    Adviser will rely upon its own (and not the original lending
    institution's) credit analysis of the borrower. As the Trust may be
    required to rely upon another lending institution to collect and pass onto
    the Trust amounts payable with respect to the loan and to enforce the
    Trust's rights under the loan and other direct indebtedness, an
    insolvency, bankruptcy or reorganization of the lending institution may
    delay or prevent the Trust from receiving such amounts. In such cases, the
    Trust will evaluate as well the creditworthiness of the lending
    institution and will treat both the borrower and the lending institution
    as an "issuer" of the loan for purposes of certain investment restrictions
    pertaining to the diversification of the Trust's portfolio investments.
    The highly leveraged nature of many such loans and other direct
    indebtedness may make such loans and other direct indebtedness especially
    vulnerable to adverse changes in economic or market conditions.
    Investments in such loans and other direct indebtedness may involve
    additional risk to the Trust.

        LOWER RATED BONDS:  The Trust may invest in fixed income securities
    rated Ba or lower by Moody's or BB or lower by S&P or Fitch IBCA, Duff &
    Phelps and comparable unrated securities (commonly known as "junk bonds").
    See Appendix D for a description of bond ratings. No minimum rating
    standard is required by the Trust. These securities are considered
    speculative and, while generally providing greater income than investments
    in higher rated securities, will involve greater risk of principal and
    income (including the possibility of default or bankruptcy of the issuers
    of such securities) and may involve greater volatility of price
    (especially during periods of economic uncertainty or change) than
    securities in the higher rating categories and because yields vary over
    time, no specific level of income can ever be assured. These lower rated
    high yielding fixed income securities generally tend to reflect economic
    changes (and the outlook for economic growth), short-term corporate and
    industry developments and the market's perception of their credit quality
    (especially during times of adverse publicity) to a greater extent than
    higher rated securities which react primarily to fluctuations in the
    general level of interest rates (although these lower rated fixed income
    securities are also affected by changes in interest rates). In the past,
    economic downturns or an increase in interest rates have, under certain
    circumstances, caused a higher incidence of default by the issuers of
    these securities and may do so in the future, especially in the case of
    highly leveraged issuers. The prices for these securities may be affected
    by legislative and regulatory developments. The market for these lower
    rated fixed income securities may be less liquid than the market for
    investment grade fixed income securities. Furthermore, the liquidity of
    these lower rated securities may be affected by the market's perception of
    their credit quality. Therefore, the Adviser's judgment may at times play
    a greater role in valuing these securities than in the case of investment
    grade fixed income securities, and it also may be more difficult during
    times of certain adverse market conditions to sell these lower rated
    securities to meet redemption requests or to respond to changes in the
    market.

        While the Adviser may refer to ratings issued by established credit
    rating agencies, it is not the Trust's policy to rely exclusively on
    ratings issued by these rating agencies, but rather to supplement such
    ratings with the Adviser's own independent and ongoing review of credit
    quality. To the extent the Trust invests in these lower rated securities,
    the achievement of its investment objectives may be a more dependent on
    the Adviser's own credit analysis than in the case of a fund investing in
    higher quality fixed income securities. These lower rated securities may
    also include zero coupon bonds, deferred interest bonds and PIK bonds.

        MUNICIPAL BONDS:  The Trust will invest in debt securities issued by
    or on behalf of states, territories and possessions of the United States
    and the District of Columbia and their political subdivisions, agencies or
    instrumentalities, the interest on which is exempt from federal income tax
    ("Municipal Bonds"). Municipal Bonds include debt securities which pay
    interest income that is subject to the alternative minimum tax. The Trust
    may invest in Municipal Bonds whose issuers pay interest on the Bonds from
    revenues from projects such as multifamily housing, nursing homes,
    electric utility systems, hospitals or life care facilities.

        If a revenue bond is secured by payments generated from a project, and
    the revenue bond is also secured by a lien on the real estate comprising
    the project, foreclosure by the indenture trustee on the lien for the
    benefit of the bondholders creates additional risks associated with owning
    real estate, including environmental risks.

        Housing revenue bonds typically are issued by a state, county or local
    housing authority and are secured only by the revenues of mortgages
    originated by the authority using the proceeds of the bond issue. Because
    of the impossibility of precisely predicting demand for mortgages from the
    proceeds of such an issue, there is a risk that the proceeds of the issue
    will be in excess of demand, which would result in early retirement of the
    bonds by the issuer. Moreover, such housing revenue bonds depend for their
    repayment upon the cash flow from the underlying mortgages, which cannot
    be precisely predicted when the bonds are issued. Any difference in the
    actual cash flow from such mortgages from the assumed cash flow could have
    an adverse impact upon the ability of the issuer to make scheduled
    payments of principal and interest on the bonds, or could result in early
    retirement of the bonds. Additionally, such bonds depend in part for
    scheduled payments of principal and interest upon reserve funds
    established from the proceeds of the bonds, assuming certain rates of
    return on investment of such reserve funds. If the assumed rates of return
    are not realized because of changes in interest rate levels or for other
    reasons, the actual cash flow for scheduled payments of principal and
    interest on the bonds may be inadequate. The financing of multi-family
    housing projects is affected by a variety of factors, including
    satisfactory completion of construction within cost constraints, the
    achievement and maintenance of a sufficient level of occupancy, sound
    management of the developments, timely and adequate increases in rents to
    cover increases in operating expenses, including taxes, utility rates and
    maintenance costs, changes in applicable laws and governmental regulations
    and social and economic trends.

        Electric utilities face problems in financing large construction
    programs in inflationary periods, cost increases and delay occasioned by
    environmental considerations (particularly with respect to nuclear
    facilities), difficulty in obtaining fuel at reasonable prices, the cost
    of competing fuel sources, difficulty in obtaining sufficient rate
    increases and other regulatory problems, the effect of energy conservation
    and difficulty of the capital market to absorb utility debt.

        Health care facilities include life care facilities, nursing homes and
    hospitals. Life care facilities are alternative forms of long-term housing
    for the elderly which offer residents the independence of condominium life
    style and, if needed, the comprehensive care of nursing home services.
    Bonds to finance these facilities have been issued by various state
    industrial development authorities. Since the bonds are secured only by
    the revenues of each facility and not by state or local government tax
    payments, they are subject to a wide variety of risks. Primarily, the
    projects must maintain adequate occupancy levels to be able to provide
    revenues adequate to maintain debt service payments. Moreover, in the case
    of life care facilities, since a portion of housing, medical care and
    other services may be financed by an initial deposit, there may be risk if
    the facility does not maintain adequate financial reserves to secure
    estimated actuarial liabilities. The ability of management to accurately
    forecast inflationary cost pressures weighs importantly in this process.
    The facilities may also be affected by regulatory cost restrictions
    applied to health care delivery in general, particularly state regulations
    or changes in Medicare and Medicaid payments or qualifications, or
    restrictions imposed by medical insurance companies. They may also face
    competition from alternative health care or conventional housing
    facilities in the private or public sector. Hospital bond ratings are
    often based on feasibility studies which contain projections of expenses,
    revenues and occupancy levels. A hospital's gross receipts and net income
    available to service its debt are influenced by demand for hospital
    services, the ability of the hospital to provide the services required,
    management capabilities, economic developments in the service area,
    efforts by insurers and government agencies to limit rates and expenses,
    confidence in the hospital, service area economic developments,
    competition, availability and expense of malpractice insurance, Medicaid
    and Medicare funding, and possible federal legislation limiting the rates
    of increase of hospital charges.

        The Trust may invest in municipal lease securities. These are
    undivided interests in a portion of an obligation in the form of a lease
    or installment purchase which is issued by state and local governments to
    acquire equipment and facilities. Municipal leases frequently have special
    risks not normally associated with general obligation or revenue bonds.
    Leases and installment purchase or conditional sale contracts (which
    normally provide for title to the leased asset to pass eventually to the
    governmental issuer) have evolved as a means for governmental issuers to
    acquire property and equipment without meeting the constitutional and
    statutory requirements for the issuance of debt. The debt-issuance
    limitations are deemed to be inapplicable because of the inclusion in many
    leases or contracts of "non-appropriation" clauses that provide that the
    governmental issuer has no obligation to make future payments under the
    lease or contract unless money is appropriated for such purpose by the
    appropriate legislative body on a yearly or other periodic basis. Although
    the obligations will be secured by the leased equipment or facilities, the
    disposition of the property in the event of non-appropriation or
    foreclosure might, in some cases, prove difficult. There are, of course,
    variations in the security of municipal lease securities, both within a
    particular classification and between classifications, depending on
    numerous factors.

        The Trust may also invest in bonds for industrial and other projects,
    such as sewage or solid waste disposal or hazardous waste treatment
    facilities. Financing for such projects will be subject to inflation and
    other general economic factors as well as construction risks including
    labor problems, difficulties with construction sites and the ability of
    contractors to meet specifications in a timely manner. Because some of the
    materials, processes and wastes involved in these projects may include
    hazardous components, there are risks associated with their production,
    handling and disposal.

        SPECULATIVE BONDS:  The Trust may invest in fixed income and
    convertible securities rated Baa by Moody's or BBB by S&P or Fitch IBCA,
    Duff & Phelps and comparable unrated securities. See Appendix D for a
    description of bond ratings. These securities, while normally exhibiting
    adequate protection parameters, have speculative characteristics and
    changes in economic conditions or other circumstances are more likely to
    lead to a weakened capacity to make principal and interest payments than
    in the case of higher grade securities.


        U.S. GOVERNMENT SECURITIES:  U.S. Government Securities are bonds or
    other debt obligations issued by, or whose principal or interest payments
    are guaranteed by, the U.S. Government or one of its agencies or
    instrumentalities. U.S. Government Securities also include interests in
    trust or other entities representing interests in obligations that are
    issued or guaranteed by the U.S. Government, its agenices, authorities or
    instrumentalities.

        ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS:  The Trust
    may invest in zero coupon bonds, deferred interest bonds and bonds on
    which the interest is payable in kind ("PIK bonds"). Zero coupon and
    deferred interest bonds are debt obligations which are issued at a
    significant discount from face value. The discount approximates the total
    amount of interest the bonds will accrue and compound over the period
    until maturity or the first interest payment date at a rate of interest
    reflecting the market rate of the security at the time of issuance. While
    zero coupon bonds do not require the periodic payment of interest,
    deferred interest bonds provide for a period of delay before the regular
    payment of interest begins. PIK bonds are debt obligations which provide
    that the issuer may, at its option, pay interest on such bonds in cash or
    in the form of additional debt obligations. Such investments benefit the
    issuer by mitigating its need for cash to meet debt service, but also
    require a higher rate of return to attract investors who are willing to
    defer receipt of such cash. Such investments may experience greater
    volatility in market value than debt obligations which make regular
    payments of interest. The Trust will accrue income on such investments for
    tax and accounting purposes, which is distributable to shareholders and
    which, because no cash is received at the time of accrual, may require the
    liquidation of other portfolio securities to satisfy the Trust's
    distribution obligations.


    EQUITY SECURITIES
    The Trust may invest in all types of equity securities, including the
    following: common stocks, preferred stocks and preference stocks; and
    securities such as bonds, warrants or rights that are convertible into
    stocks. These securities may be listed on securities exchanges, traded in
    various over-the-counter markets or have no organized market.

    FUTURES CONTRACTS
    The Trust may purchase and sell futures contracts ("Futures Contracts") on
    interest rates or interest-rate related instruments. The Trust may also
    purchase and sell Futures Contracts on foreign or domestic fixed income
    securities or indices of such securities including municipal bond indices
    and any other indices of foreign or domestic fixed income securities that
    may become available for trading. Such investment strategies will be used
    for hedging purposes and for non-hedging purposes, subject to applicable
    law.

        A Futures Contract is a bilateral agreement providing for the purchase
    and sale of a specified type and amount of a financial instrument or
    commodity, or for the making and acceptance of a cash settlement, at a
    stated time in the future for a fixed price. By its terms, a Futures
    Contract provides for a specified settlement month in which, in the case
    of the majority of commodities and interest rate futures contracts, the
    underlying commodities or fixed income securities are delivered by the
    seller and paid for by the purchaser, or on which, in the case of index
    futures contracts and certain interest rate futures contracts, the
    difference between the price at which the contract was entered into and
    the contract's closing value is settled between the purchaser and seller
    in cash. Futures Contracts differ from options in that they are bilateral
    agreements, with both the purchaser and the seller equally obligated to
    complete the transaction. Futures Contracts call for settlement only on
    the expiration date and cannot be "exercised" at any other time during
    their term.

        The purchase or sale of a Futures Contract differs from the purchase
    or sale of a security or the purchase of an option in that no purchase
    price is paid or received. Instead, an amount of cash or cash equivalents,
    which varies but may be as low as 5% or less of the value of the contract,
    must be deposited with the broker as "initial margin." Subsequent payments
    to and from the broker, referred to as "variation margin," are made on a
    daily basis as the value of the index or instrument underlying the Futures
    Contract fluctuates, making positions in the Futures Contract more or less
    valuable -- a process known as "mark-to-market."

        Interest rate Futures Contracts may be purchased or sold to attempt to
    protect against the effects of interest rate changes on the Trust's
    current or intended investments in fixed income securities. For example,
    if the Trust owned long-term bonds and interest rates were expected to
    increase, the Trust might enter into interest rate futures contracts for
    the sale of debt securities. Such a sale would have much the same effect
    as selling some of the long-term bonds in the Trust's portfolio. If
    interest rates did increase, the value of the debt securities in the
    portfolio would decline, but the value of the Trust's interest rate
    futures contracts would increase at approximately the same rate, subject
    to the correlation risks described below, thereby keeping the net asset
    value of the Trust from declining as much as it otherwise would have.

        Similarly, if interest rates were expected to decline, interest rate
    futures contracts may be purchased to hedge in anticipation of subsequent
    purchases of long-term bonds at higher prices. Since the fluctuations in the
    value of the interest rate futures contracts should be similar to that of
    long-term bonds, the Trust could protect itself against the effects of the
    anticipated rise in the value of long-term bonds without actually buying
    them until the necessary cash became available or the market had stabilized.
    At that time, the interest rate futures contracts could be liquidated and
    the Trust's cash reserves could then be used to buy long-term bonds on the
    cash market. The Trust could accomplish similar results by selling bonds
    with long maturities and investing in bonds with short maturities when
    interest rates are expected to increase. However, since the futures market
    may be more liquid than the cash market in certain cases or at certain
    times, the use of interest rate futures contracts as a hedging technique may
    allow the Trust to hedge its interest rate risk without having to sell its
    portfolio securities.

        The use by the Trust of Futures Contracts also involves the risks
    described under the caption "Special Risk Factors -- Futures, Swaps and
    Other Derivative Transactions" in this Appendix.

    INDEXED SECURITIES
    The Trust may purchase securities with principal and/or interest payments
    whose prices are indexed to the prices of other securities, securities
    indices, precious metals or other commodities, or other financial
    indicators. Indexed securities typically, but not always, are debt
    securities or deposits whose value at maturity or coupon rate is determined
    by reference to a specific instrument or statistic. The Trust may also
    purchase indexed deposits with similar characteristics. Gold-indexed
    securities, for example, typically provide for a maturity value that depends
    on the price of gold, resulting in a security whose price tends to rise and
    fall together with gold prices. Certain indexed securities may expose the
    Trust to the risk of loss of all or a portion of the principal amount of its
    investment and/or the interest that might otherwise have been earned on the
    amount invested.

        The performance of indexed securities depends to a great extent on the
    performance of the security or other instrument to which they are indexed,
    and may also be influenced by interest rate changes in the U.S. and
    abroad. At the same time, indexed securities are subject to the credit
    risks associated with the issuer of the security, and their values may
    decline substantially if the issuer's creditworthiness deteriorates.
    Recent issuers of indexed securities have included banks, corporations,
    and certain U.S. Government-sponsored entities.

    INVERSE FLOATING RATE OBLIGATIONS
    The Trust may invest in so-called "inverse floating rate obligations" or
    "residual interest bonds" or other obligations or certificates relating
    thereto structured to have similar features. In creating such an
    obligation, a municipality issues a certain amount of debt and pays a
    fixed interest rate. Half of the debt is issued as variable rate short
    term obligations, the interest rate of which is reset at short intervals,
    typically 35 days. The other half of the debt is issued as inverse
    floating rate obligations, the interest rate of which is calculated based
    on the difference between a multiple of (approximately two times) the
    interest paid by the issuer and the interest paid on the short-term
    obligation. Under usual circumstances, the holder of the inverse floating
    rate obligation can generally purchase an equal principal amount of the
    short term obligation and link the two obligations in order to create
    long-term fixed rate bonds. Because the interest rate on the inverse
    floating rate obligation is determined by subtracting the short-term rate
    from a fixed amount, the interest rate will decrease as the short-term
    rate increases and will increase as the short-term rate decreases. The
    magnitude of increases and decreases in the market value of inverse
    floating rate obligations may be approximately twice as large as the
    comparable change in the market value of an equal principal amount of
    long-term bonds which bear interest at the rate paid by the issuer and
    have similar credit quality, redemption and maturity provisions.

    INVESTMENT IN OTHER INVESTMENT COMPANIES
    The Trust may invest in other investment companies. The total return on
    such investment will be reduced by the operating expenses and fees of such
    other investment companies, including advisory fees.

        CLOSED-END FUNDS.  The Trust may invest in closed-end investment
    companies. Such investment may involve the payment of substantial premiums
    above the value of such investment companies" portfolio securities.

    LEVERAGING TRANSACTIONS
    The Trust may engage in the types of transactions described below, which
    involve "leverage" because in each case the Trust receives cash which it
    can invest in portfolio securities and has a future obligation to make a
    payment. The use of these transactions by the Trust will generally cause
    its net asset value to increase or decrease at a greater rate than would
    otherwise be the case. Any investment income or gains earned from the
    portfolio securities purchased with the proceeds from these transactions
    which is in excess of the expenses associated from these transactions can
    be expected to cause the net asset value of the Trust's shares and
    distributions on the Trust's shares to rise more quickly than would
    otherwise be the case. Conversely, if the investment income or gains
    earned from the portfolio securities purchased with proceeds from these
    transactions fail to cover the expenses associated with these
    transactions, the net asset value of the Trust's shares is likely to
    decrease more quickly than otherwise would be the case and distributions
    thereon will be reduced or eliminated. Hence, these transactions are
    speculative, involve leverage and increase the risk of owning or investing
    in the shares of the Trust. These transactions also increase the Trust's
    expenses because of interest and similar payments and administrative
    expenses associated with them. Unless the appreciation and income on
    assets purchased with proceeds from these transactions exceed the costs
    associated with them, the use of these transactions by the Trust would
    diminish the investment performance of the Trust compared with what it
    would have been without using these transactions.

    BANK BORROWINGS:  The Trust may borrow money for investment purposes from
    banks and invest the proceeds in accordance with its investment objectives
    and policies.

    MORTGAGE "DOLLAR ROLL" TRANSACTIONS:  The Trust may enter into mortgage
    "dollar roll" transactions pursuant to which it sells mortgage-backed
    securities for delivery in the future and simultaneously contracts to
    repurchase substantially similar securities on a specified future date.
    During the roll period, the Trust foregoes principal and interest paid on
    the mortgage-backed securities. The Trust is compensated for the lost
    interest by the difference between the current sales price and the lower
    price for the future purchase (often referred to as the "drop") as well as
    by the interest earned on, and gains from, the investment of the cash
    proceeds of the initial sale. The Trust may also be compensated by receipt
    of a commitment fee.

        If the income and capital gains from the Trust's investment of the
    cash from the initial sale do not exceed the income, capital appreciation
    and gain or loss that would have been realized on the securities sold as
    part of the dollar roll, the use of this technique will diminish the
    investment performance of the Trust compared with what the performance
    would have been without the use of the dollar rolls. Dollar roll
    transactions involve the risk that the market value of the securities the
    Trust is required to purchase may decline below the agreed upon repurchase
    price of those securities. If the broker/dealer to whom the Trust sells
    securities becomes insolvent, the Trust's right to purchase or repurchase
    securities may be restricted. Successful use of mortgage dollar rolls may
    depend upon the Adviser's ability to correctly predict interest rates and
    prepayments. There is no assurance that dollar rolls can be successfully
    employed. The Trust will only enter into "covered" mortgage dollar-roll
    transactions, meaning that the Trust segregates liquid securities it will
    repurchase and does not use these transactions as a form of leverage.

    REPURCHASE AGREEMENTS

    The Trust may enter into repurchase agreements with sellers who are member
    firms (or a subsidiary thereof) of the New York Stock Exchange or members
    of the Federal Reserve System, recognized primary U.S. Government
    securities dealers or institutions which the Adviser has determined to be
    of comparable creditworthiness. The securities that the Trust purchases
    and holds through its agent are U.S. Government Securities, the values of
    which are equal to or greater than the repurchase price agreed to be paid
    by the seller. The repurchase price may be higher than the purchase price,
    the difference being income to the Trust, or the purchase and repurchase
    prices may be the same, with interest at a standard rate due to the Trust
    together with the repurchase price on repurchase. In either case, the
    income to the Trust is unrelated to the interest rate on the U.S.
    Government Securities.


        The repurchase agreement provides that in the event the seller fails
    to pay the amount agreed upon on the agreed upon delivery date or upon
    demand, as the case may be, the Trust will have the right to liquidate the
    securities. If at the time the Trust is contractually entitled to exercise
    its right to liquidate the securities, the seller is subject to a
    proceeding under the bankruptcy laws or its assets are otherwise subject
    to a stay order, the Trust's exercise of its right to liquidate the
    securities may be delayed and result in certain losses and costs to the
    Trust. The Trust has adopted and follows procedures which are intended to
    minimize the risks of repurchase agreements. For example, the Trust only
    enters into repurchase agreements after the Adviser has determined that
    the seller is creditworthy, and the Adviser monitors that seller's
    creditworthiness on an ongoing basis. Moreover, under such agreements, the
    value of the securities (which are marked to market every business day) is
    required to be greater than the repurchase price, and the Trust has the
    right to make margin calls at any time if the value of the securities
    falls below the agreed upon collateral.

    RESTRICTED SECURITIES
    The Trust may purchase securities that are not registered under the
    Securities Act of 1933, as amended ("1933 Act") ("restricted securities"),
    including those that can be offered and sold to "qualified institutional
    buyers" under Rule 144A under the 1933 Act ("Rule 144A securities") and
    commercial paper issued under Section 4(2) of the 1933 Act ("4(2) Paper").
    A determination is made, based upon a continuing review of the trading
    markets for the Rule 144A security or 4(2) Paper, whether such security is
    liquid and thus not subject to the Trust's limitation on investing in
    illiquid investments. The Board of Trustees has adopted guidelines and
    delegated to MFS the daily function of determining and monitoring the
    liquidity of Rule 144A securities and 4(2) Paper. The Board, however,
    retains oversight of the liquidity determinations focusing on factors such
    as valuation, liquidity and availability of information. Investing in Rule
    144A securities could have the effect of decreasing the level of liquidity
    in the Trust to the extent that qualified institutional buyers become for
    a time uninterested in purchasing these Rule 144A securities held in the
    Trust's portfolio. Subject to the Trust's limitation on investments in
    illiquid investments, the Trust may also invest in restricted securities
    that may not be sold under Rule 144A, which presents certain risks. As a
    result, the Trust might not be able to sell these securities when the
    Adviser wishes to do so, or might have to sell them at less than fair
    value. In addition, market quotations are less readily available.
    Therefore, judgment may at times play a greater role in valuing these
    securities than in the case of unrestricted securities.

    SHORT TERM INSTRUMENTS
    The Trust may hold cash and invest in cash equivalents, such as short-term
    U.S. Government Securities, commercial paper and bank instruments.

    SWAPS AND RELATED DERIVATIVE INSTRUMENTS
    The Trust may enter into interest rate swaps and other types of available
    swap agreements, including swaps on securities, commodities and indices,
    and related types of derivatives, such as caps, collars and floors. A swap
    is an agreement between two parties pursuant to which each party agrees to
    make one or more payments to the other on regularly scheduled dates over a
    stated term, based on different interest rates, security or commodity
    prices, the prices or rates of other types of financial instruments or
    assets or the levels of specified indices. Under a typical swap, one party
    may agree to pay a fixed rate or a floating rate determined by reference
    to a specified instrument, rate or index, multiplied in each case by a
    specified amount (the "notional amount"), while the other party agrees to
    pay an amount equal to a different floating rate multiplied by the same
    notional amount. On each payment date, the obligations of parties are
    netted, with only the net amount paid by one party to the other. All swap
    agreements entered into by the Trust with the same counterparty are
    generally governed by a single master agreement, which provides for the
    netting of all amounts owed by the parties under the agreement upon the
    occurrence of an event of default, thereby reducing the credit risk to
    which such party is exposed.

        Swap agreements are typically individually negotiated and structured to
    provide exposure to a variety of different types of investments or market
    factors. Swap agreements may be entered into for hedging or non-hedging
    purposes and therefore may increase or decrease the Trust's exposure to the
    underlying instrument, rate, asset or index. Swap agreements can take many
    different forms and are known by a variety of names. The Trust is not
    limited to any particular form or variety of swap agreement if the Adviser
    determines it is consistent with the Trust's investment objective and
    policies.

        For example, the Trust may enter into an interest rate swap in order
    to protect against declines in the value of fixed income securities held
    by the Trust. In such an instance, the Trust would agree with a
    counterparty to pay a fixed rate (multiplied by a notional amount) and the
    counterparty would agree to pay a floating rate multiplied by the same
    notional amount. If interest rates rise, resulting in a diminution in the
    value of the Trust's portfolio, the Trust would receive payments under the
    swap that would offset, in whole or part, such diminution in value. The
    Trust might also enter into a swap on a particular security, or a basket
    or index of securities, in order to gain exposure to the underlying
    security or securities, as an alternative to purchasing such securities.
    Such transactions could be more efficient or less costly in certain
    instances than an actual purchase or sale of the securities.

        The Trust may enter into other related types of over-the-counter
    derivatives, such as "caps", "floors" and "collars", for the same types of
    hedging or non-hedging purposes. Caps and floors are similar to swaps,
    except that one party pays a fee at the time the transaction is entered
    into and has no further payment obligations, while the other party is
    obligated to pay an amount equal to the amount by which a specified fixed
    or floating rate exceeds or is below another rate (multiplied by a
    notional amount). A collar is in effect a combination of a cap and a
    floor, with payments made only within or outside a specified range of
    prices or rates.

        The Trust will maintain liquid and unencumbered assets to cover its
    current obligations under swap and other over-the-counter derivative
    transactions. If the Trust enters into a swap agreement on a net basis
    (i.e., the two payment streams are netted out, with the Trust receiving or
    paying, as the case may be, only the net amount of the two payments), the
    Trust will maintain liquid and unencumbered assets with a daily value at
    least equal to the excess, if any, of the Trust's accrued obligations
    under the swap agreement over the accrued amount the Trust is entitled to
    receive under the agreement. If the Trust enters into a swap agreement on
    other than a net basis, it will maintain liquid and unencumbered assets
    with a value equal to the full amount of the Trust's accrued obligations
    under the agreement.

        The most significant factor in the performance of swaps, caps, floors
    and collars is the change in the underlying price, rate or index level
    that determines the amount of payments to be made under the arrangement.
    If the Adviser is incorrect in its forecasts of such factors, the
    investment performance of the Trust would be less than what it would have
    been if these investment techniques had not been used. If a swap agreement
    calls for payments by the Trust, the Trust must be prepared to make such
    payments when due. In addition, if the counterparty's creditworthiness
    would decline, the value of the swap agreement would be likely to decline,
    potentially resulting in losses.

        If the counterparty defaults, the Trust's risk of loss consists of the
    net amount of payments that the Trust is contractually entitled to
    receive. The Trust anticipates that it will be able to eliminate or reduce
    its exposure under these arrangements by assignment or other disposition
    or by entering into an offsetting agreement with the same or another
    counterparty, but there can be no assurance that it will be able to do so.

        The uses by the Trust of swaps and related derivative instruments also
    involves the risks described under the caption "Special Risk Factors --
    Futures, Swaps and Other Derivative Transactions" in this Appendix.

    TEMPORARY BORROWINGS
    The Trust may borrow money for temporary purposes (e.g., to meet
    redemption requests or settle outstanding purchases of portfolio
    securities).

    TEMPORARY DEFENSIVE POSITIONS
    The Trust may temporarily invest either in tax-exempt securities in the
    higher rating categories of recognized rating agencies or in cash or cash
    equivalent short-term obligations of similar quality, including, but not
    limited to, short-term municipal obligations, certificates of deposit,
    commercial paper, short-term notes, obligations issued or guaranteed by
    the U.S. Government, its agencies, authorities or instrumentalities and
    repurchase agreements. Interest on certain of these short-term obligations
    will be subject to federal income tax.

    "WHEN-ISSUED" SECURITIES
    The Trust may purchase securities on a "when-issued" or on a "forward
    delivery" basis which means that the securities will be delivered to the
    Trust at a future date usually beyond customary settlement time. The
    commitment to purchase a security for which payment will be made on a
    future date may be deemed a separate security. In general, the Trust does
    not pay for such securities until received, and does not start earning
    interest on the securities until the contractual settlement date. While
    awaiting delivery of securities purchased on such bases, the Trust will
    identify liquid and unencumbered assets equal to its forward delivery
    commitment.

    SPECIAL RISK FACTORS -- FUTURES, SWAPS AND OTHER DERIVATIVE TRANSACTIONS

    RISK OF IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE TRUST'S
    PORTFOLIO: The Trust's ability effectively to hedge all or a portion of
    its portfolio through transactions in derivatives, including Futures
    Contracts, swaps and other types of derivatives depends on the degree to
    which price movements in the underlying index or instrument correlate with
    price movements in the relevant portion of the Trust's portfolio. In the
    case of derivative instruments based on an index, the portfolio will not
    duplicate the components of the index, and in the case of derivative
    instruments on fixed income securities, the portfolio securities which are
    being hedged may not be the same type of obligation underlying such
    derivatives. The use of derivatives for "cross hedging" purposes may
    involve greater correlation risks. Consequently, the Trust bears the risk
    that the price of the portfolio securities being hedged will not move in
    the same amount or direction as the underlying index or obligation.

        The trading of derivatives for hedging purposes entails the additional
    risk of imperfect correlation between movements in the price of the
    derivative and the price of the underlying index or obligation. The
    anticipated spread between the prices may be distorted due to the
    differences in the nature of the markets such as differences in margin
    requirements, the liquidity of such markets and the participation of
    speculators in the derivatives markets. In this regard, trading by
    speculators in derivatives has in the past occasionally resulted in market
    distortions, which may be difficult or impossible to predict, particularly
    near the expiration of such instruments.

    RISKS OF NON-HEDGING TRANSACTIONS: The Trust may enter transactions in
    derivatives for non-hedging purposes as well as hedging purposes.
    Non-hedging transactions in such instruments involve greater risks and may
    result in losses which may not be offset by increases in the value of
    portfolio securities or declines in the cost of securities to be acquired.
    The Trust will only write covered options, such that liquid and unencumbered
    assets necessary to satisfy an option exercise will be identified, unless
    the option is covered in such other manner as may be in accordance with the
    rules of the exchange on which, or the counterparty with which, the option
    is traded and applicable laws and regulations. Nevertheless, the method of
    covering an option employed by the Trust may not fully protect it against
    risk of loss and, in any event, the Trust could suffer losses on the option
    position which might not be offset by corresponding portfolio gains. The
    Trust may also enter into futures, Forward Contracts or swaps for
    non-hedging purposes. For example, the Trust may enter into such a
    transaction as an alternative to purchasing or selling the underlying
    instrument or to obtain desired exposure to an index or market. In such
    instances, the Trust will be exposed to the same economic risks incurred in
    purchasing or selling the underlying instrument or instruments. However,
    transactions in futures, Forward Contracts or swaps may be leveraged, which
    could expose the Trust to greater risk of loss than such purchases or sales.
    Entering into transactions in derivatives for other than hedging purposes,
    therefore, could expose the Trust to significant risk of loss if the prices,
    rates or values of the underlying instruments or indices do not move in the
    direction or to the extent anticipated.

        With respect to the writing of straddles on securities, the Trust
    incurs the risk that the price of the underlying security will not remain
    stable, that one of the options written will be exercised and that the
    resulting loss will not be offset by the amount of the premiums received.
    Such transactions, therefore, create an opportunity for increased return
    by providing the Trust with two simultaneous premiums on the same
    security, but involve additional risk, since the Trust may have an option
    exercised against it regardless of whether the price of the security
    increases or decreases.

    RISK OF A POTENTIAL LACK OF A LIQUID SECONDARY MARKET:  Prior to exercise
    or expiration, a futures or option position can only be terminated by
    entering into a closing purchase or sale transaction. This requires a
    secondary market for such instruments on the exchange on which the initial
    transaction was entered into. While the Trust will enter into options or
    futures positions only if there appears to be a liquid secondary market
    therefor, there can be no assurance that such a market will exist for any
    particular contract at any specific time. In that event, it may not be
    possible to close out a position held by the Trust, and the Trust could be
    required to purchase or sell the instrument underlying an option, make or
    receive a cash settlement or meet ongoing variation margin requirements.
    Under such circumstances, if the Trust has insufficient cash available to
    meet margin requirements, it will be necessary to liquidate portfolio
    securities or other assets at a time when it is disadvantageous to do so.
    The inability to close out options and futures positions, therefore, could
    have an adverse impact on the Trust's ability effectively to hedge its
    portfolio, and could result in trading losses.

        The liquidity of a secondary market in a Futures Contract or option
    thereon may be adversely affected by "daily price fluctuation limits,"
    established by exchanges, which limit the amount of fluctuation in the
    price of a contract 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 or
    option positions and requiring traders to make additional margin deposits.
    Prices have in the past moved to the daily limit on a number of
    consecutive trading days.

        The trading of Futures Contracts and options is also subject to the
    risk of trading halts, suspensions, exchange or clearinghouse equipment
    failures, government intervention, insolvency of a brokerage firm or
    clearinghouse or other disruptions of normal trading activity, which could
    at times make it difficult or impossible to liquidate existing positions
    or to recover excess variation margin payments.

    MARGIN:  Because of low initial margin deposits made upon the
    establishment of a futures, forward or swap position (certain of which may
    require no initial margin deposits) and the writing of an option, such
    transactions involve substantial leverage. As a result, relatively small
    movements in the price of the contract can result in substantial
    unrealized gains or losses. Where the Trust enters into such transactions
    for hedging purposes, 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 or other assets held by the Trust or
    decreases in the prices of securities or other assets the Trust intends to
    acquire. Where the Trust enters into such transactions for other than
    hedging purposes, the margin requirements associated with such
    transactions could expose the Trust to greater risk.

    POTENTIAL BANKRUPTCY OF A CLEARINGHOUSE OR BROKER:  When the Trust enters
    into transactions in exchange-traded futures or options, it is exposed to
    the risk of the potential bankruptcy of the relevant exchange
    clearinghouse or the broker through which the Trust has effected the
    transaction. In that event, the Trust might not be able to recover amounts
    deposited as margin, or amounts owed to the Trust in connection with its
    transactions, for an indefinite period of time, and could sustain losses
    of a portion or all of such amounts. Moreover, the performance guarantee
    of an exchange clearinghouse generally extends only to its members and the
    Trust could sustain losses, notwithstanding such guarantee, in the event
    of the bankruptcy of its broker.

    TRADING AND POSITION LIMITS:  The exchanges on which futures and options
    are traded may impose limitations governing the maximum number of
    positions on the same side of the market and involving the same underlying
    instrument which may be held by a single investor, whether acting alone or
    in concert with others (regardless of whether such contracts are held on
    the same or different exchanges or held or written in one or more accounts
    or through one or more brokers). Further, the CFTC and the various
    contract markets have established limits referred to as "speculative
    position limits" on the maximum net long or net short position which any
    person may hold or control in a particular futures or option contract. An
    exchange may order the liquidation of positions found to be in violation
    of these limits and it may impose other sanctions or restrictions. The
    Adviser does not believe that these trading and position limits will have
    any adverse impact on the strategies for hedging the portfolios of the
    Trust.

    RISKS OF OPTIONS ON FUTURES CONTRACTS:  The amount of risk the Trust
    assumes when it purchases an Option on a Futures Contract is the premium
    paid for the option, plus related transaction costs. In order to profit
    from an option purchased, however, it may be necessary to exercise the
    option and to liquidate the underlying Futures Contract, subject to the
    risks of the availability of a liquid offset market described herein. The
    writer of an Option on a Futures Contract is subject to the risks of
    commodity futures trading, including the requirement of initial and
    variation margin payments, as well as the additional risk that movements
    in the price of the option may not correlate with movements in the price
    of the underlying security, index, currency or Futures Contract.
<PAGE>

APPENDIX B

    RATINGS OF INVESTMENTS
    The ratings of Moody's, S&P and Fitch IBCA, Duff & Phelps represent their
    opinions as to the quality of various debt instruments. It should be
    emphasized, however, that ratings are not absolute standards of quality.
    Consequently, debt instruments with the same maturity, coupon and rating
    may have different yields while debt instruments of the same maturity and
    coupon with different ratings may have the same yield.

    MOODY'S INVESTORS SERVICE, INC.

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

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

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

    Baa: Bonds which are rated Baa are considered as medium-grade obligations,
    (i.e., they are neither highly protected nor poorly secured). Interest
    payments and principal security appear adequate for the present but certain
    protective elements may be lacking or may be characteristically unreliable
    over any great length of time. Such bonds lack outstanding investment
    characteristics and in fact have speculative characteristics as well. Ba:
    Bonds which are rated Ba are judged to have speculative elements; their
    future cannot be considered as well-assured. Often the protection of
    interest 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.

    STANDARD & POOR'S RATINGS SERVICES

    AAA: An obligation rated AAA has the highest rating assigned by Standard &
    Poor's. The obligor's capacity to meet its financial commitment on the
    obligation is EXTREMELY STRONG.

    AA:  An obligation rated AA differs from the highest rated obligations
    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
    obligations 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.

    Obligations rated BB, B, CCC, CC, and C are regarded as having significant
    speculative characteristics. BB indicates the least degree of speculation
    and C the highest. While such obligations will likely have some quality
    and protective characteristics, these may be outweighed by large
    uncertainties or major exposures to adverse conditions.

    BB:  An obligation rated BB is LESS VULNERABLE to nonpayment than other
    speculative issues. However, it faces major ongoing uncertainties or
    exposure to adverse business, financial, or economic conditions which
    could lead to the obligor's inadequate capacity to meet its financial
    commitment on the obligation.

    B:  An obligation rated B is MORE VULNERABLE to nonpayment than
    obligations rated BB, but the obligor currently has the capacity to meet
    its financial commitment on the obligation. Adverse business, financial,
    or economic conditions will likely impair the obligor's capacity or
    willingness to meet its financial commitment on the obligation.

    CCC:  An obligation rated CCC 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. In the
    event of adverse business, financial, or economic conditions the obligor
    is not likely to have the capacity to meet its financial commitment on the
    obligation.

    CC:  An obligation rated CC is CURRENTLY HIGHLY VULNERABLE to nonpayment.

    C:  Subordinated debt or preferred stock obligation rated C is CURRENTLY
    HIGHLY VULNERABLE to nonpayment. The C rating may be used to cover a
    situation where a bankruptcy petition has been filed or similar action has
    been taken, but payments on this obligation are being continued. A C
    rating will also be assigned to a preferred stock issue in arrears on
    dividends or sinking Trust payments, but that is currently paying.

    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 a similar action if payments on an obligation are jeopardized.

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

    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. Examples
    include: obligations linked or indexed to equities, currencies, or
    commodities; obligations exposed to severe prepayment risk -- such as
    interest-only or principal-only mortgage securities; and obligations with
    unusually risky interest terms, such as inverse floaters.

    FITCH IBCA, DUFF & PHELPS

    AAA
    HIGHEST CREDIT QUALITY.  "AAA" ratings denote the lowest expectation of
    credit risk. They are assigned only in case of exceptionally strong
    capacity for timely payment of financial commitments. This capacity is
    highly unlikely to be adversely affected by foreseeable events.

    AA
    VERY HIGH CREDIT QUALITY.  "AA" ratings denote a very low expectation of
    credit risk. They indicate very strong capacity for timely payment of
    financial commitments. This capacity is not significantly vulnerable to
    foreseeable events.

    A
    HIGH CREDIT QUALITY.  "A" ratings denote a low expectation of credit risk.
    The capacity for timely payment of financial commitments is considered
    strong. This capacity may, nevertheless, be more vulnerable to changes in
    circumstances or in economic conditions than is the case for higher
    ratings.

    BBB
    GOOD CREDIT QUALITY. "BBB" ratings indicate that there is currently a low
    expectation of credit risk. The capacity for timely payment of financial
    commitments is considered adequate, but adverse changes in circumstances
    and in economic conditions are more likely to impair this capacity. This
    is the lowest investment-grade category.

    SPECULATIVE GRADE

    BB
    SPECULATIVE. "BB" ratings indicate that there is a possibility of credit
    risk developing, particularly as the result of adverse economic change
    over time; however, business or financial alternatives may be available to
    allow financial commitments to be met. Securities rated in this category
    are not investment grade.

    B
    HIGHLY SPECULATIVE. "B" ratings indicate that significant credit risk is
    present, but a limited margin of safety remains. Financial commitments are
    currently being met; however, capacity for continued payment is contingent
    upon a sustained, favourable business and economic environment.

    CCC, CC, C
    HIGH DEFAULT RISK. Default is a real possibility. Capacity for meeting
    financial commitments is solely reliant upon sustained, favourable
    business or economic developments. A "CC" rating indicates that default of
    some kind appears probable. "C" ratings signal imminent default.

    DDD, DD, D
    DEFAULT. The ratings of obligations in this category are based on their
    prospects for achieving partial or full recovery in a reorganization or
    liquidation of the obligor. While expected recovery values are highly
    speculative and cannot be estimated with any precision, the following
    serve as general guidelines. "DDD" obligations have the highest potential
    for recovery, around 90% - 100% of outstanding amounts and accrued
    interest. "DD" indicates potential recoveries in the range of 50% - 90%
    and "D" the lowest recovery potential, i.e., below 50%.

    Entities rated in this category have defaulted on some or all of their
    obligations. Entities rated "DDD" have the highest prospect for resumption
    of performance or continued operation with or without a formal
    reorganization process. Entities rated "DD" and "D" are generally undergoing
    a formal reorganization or liquidation process; those rated "DD" are likely
    to satisfy a higher portion of their outstanding obligations, while entities
    rated "D" have a poor prospect of repaying all obligations.

    NOTES TO LONG-TERM AND SHORT-TERM RATINGS:
    "+" or "-" may be appended to a rating to denote relative status within
    major rating categories. Such suffixes are not added to the "AAA" Long-term
    rating category, to categories below "CCC", or to Short-term ratings other
    than "F1".

    "NR" indicates that Fitch does not rate the issuer or issue in question.

    "Withdrawn": A rating is withdrawn when Fitch deems the amount of
    information available to be inadequate for rating purposes, or when an
    obligation matures, is called, or refinanced.

    Rating Watch: Ratings are placed on Rating Watch to notify investors that
    there is a reasonable probability of a rating change and the likely
    direction of such change. These are designated as "Positive", indicating a
    potential upgrade, "Negative", for a potential downgrade, or "Evolving",
    if ratings may be raised, lowered or maintained. Rating Watch is typically
    resolved over a relatively short period.
<PAGE>

APPENDIX C

    AUCTION PROCEDURES
    The following procedures will be set forth in the Statement. The terms not
    defined below are defined in the Glossary or in the Prospectus or this
    Statement of Additional Information.

      1. ORDERS.

        (a) Prior to the Submission Deadline on each Auction Date for shares
    of a series of Municipal Preferred:

          (i) each Beneficial Owner of shares of such series may submit to its
      Broker-Dealer by telephone or otherwise information as to:

            (A) the number of Outstanding shares, if any, of such series held
        by such Beneficial Owner which such Beneficial Owner desires to
        continue to hold without regard to the Applicable Rate for shares of
        such series for the next succeeding Rate Period of such shares;

            (B) the number of Outstanding shares, if any, of such series held
        by such Beneficial Owner which such Beneficial Owner offers to sell if
        the Applicable Rate for shares of such series for the next succeeding
        Rate Period of shares of such series shall be less than the rate per
        annum specified by such Beneficial Owner; and/or


            (C) the number of Outstanding shares, if any, of such series held
        by such Beneficial Owner which such Beneficial Owner offers to sell
        without regard to the Applicable Rate for shares of such series for
        the next succeeding Rate Period of shares of such series;


      and

          (ii) one or more Broker-Dealers, using lists of Potential Beneficial
      Owners, shall in good faith for the purpose of conducting a competitive
      Auction in a commercially reasonable manner, contact Potential
      Beneficial Owners (by telephone or otherwise), including Persons that
      are not Beneficial Owners, on such lists to determine the number of
      shares, if any, of such series which each such Potential Beneficial
      Owner offers to purchase if the Applicable Rate for shares of such
      series for the next succeeding Rate Period of shares of such series
      shall not be less than the rate per annum specified by such Potential
      Beneficial Owner.

    For purposes hereof, the communication by a Beneficial Owner or Potential
    Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction
    Agent, of information referred to in clause (i)(A), (i)(B), (i)(C), or (ii)
    of this subparagraph (a) is hereinafter referred to as an "Order" and
    collectively as "Orders" and each Beneficial Owner and each Potential
    Beneficial Owner placing an Order with a Broker-Dealer, and such
    Broker-Dealer placing an Order with the Auction Agent, is hereinafter
    referred to as a "Bidder" and collectively as "Bidders"; an Order containing
    the information referred to in clause (i)(A) of this subparagraph (a) is
    hereinafter referred to as a "Hold Order" and collectively as "Hold Orders";
    an Order containing the information referred to in clause (i)(B) or (ii) of
    this subparagraph (a) is hereinafter referred to as a "Bid" and collectively
    as "Bids"; and an Order containing the information referred to in clause
    (i)(C) of this subparagraph (a) is hereinafter referred to as a "Sell Order"
    and collectively as "Sell Orders."

        (b)(i) A Bid by a Beneficial Owner or an Existing Holder of shares of
    a series of Municipal Preferred subject to an Auction on any Auction Date
    shall constitute an irrevocable offer to sell:

            (A) the number of Outstanding shares of such series specified in
        such Bid if the Applicable Rate for shares of such series determined
        on such Auction Date shall be less than the rate specified therein;

            (B) such number or a lesser number of Outstanding shares of such
        series to be determined as set forth in paragraph 4(a)(iv) herein if
        the Applicable Rate for shares of such series determined on such
        Auction Date shall be equal to the rate specified therein; or

            (C) the number of Outstanding shares of such series specified in
        such Bid if the rate specified therein shall be higher than the
        Maximum Rate for shares of such series, or such number or a lesser
        number of Outstanding shares of such series to be determined as set
        forth in paragraph 4(b)(iii) herein if the rate specified therein
        shall be higher than the Maximum Rate for shares of such series and
        Sufficient Clearing Bids for shares of such series do not exist.

          (ii) A Sell Order by a Beneficial Owner or an Existing Holder of
      shares of a series of Municipal Preferred subject to an Auction on any
      Auction Date shall constitute an irrevocable offer to sell:

            (A) the number of Outstanding shares of such series specified in
        such Sell Order; or

            (B) such number or a lesser number of Outstanding shares of such
        series as set forth in paragraph 4(b)(iii) herein if Sufficient
        Clearing Bids for shares of such series do not exist;

    provided, however, that a Broker-Dealer that is an Existing Holder with
    respect to shares of a series of Municipal Preferred shall not be liable
    to any Person for failing to sell such shares pursuant to a Sell Order
    described in the proviso to paragraph 2(c) herein if (1) such shares were
    transferred by the Beneficial Owner thereof without compliance by such
    Beneficial Owner or its transferee Broker-Dealer (or other transferee
    person, if permitted by the Trust) with the provisions of paragraph 7
    herein or (2) such Broker-Dealer has informed the Auction Agent pursuant
    to the terms of its Broker-Dealer Agreement that, according to such
    Broker-Dealer's records, such Broker-Dealer believes it is not the
    Existing Holder of such shares.

          (iii) A Bid by a Potential Beneficial Holder or a Potential Holder
      of shares of a series of Municipal Preferred subject to an Auction on
      any Auction Date shall constitute an irrevocable offer to purchase:

            (A) the number of Outstanding shares of such series specified in
        such Bid if the Applicable Rate for shares of such series determined
        on such Auction Date shall be higher than the rate specified therein;
        or

            (B) such number or a lesser number of Outstanding shares of such
        series as set forth in paragraph 4(a)(v) herein if the Applicable Rate
        for shares of such series determined on such Auction Date shall be
        equal to the rate specified therein.

        (c) No Order for any number of shares of Municipal Preferred other
    than whole shares shall be valid.

        2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.


        (a) Each Broker-Dealer shall submit in writing or over the internet to
    the Auction Agent prior to the Submission Deadline on each Auction Date
    all Orders for shares of Municipal Preferred of a series subject to an
    Auction on such Auction Date obtained by such Broker-Dealer, designating
    itself (unless otherwise permitted by the Trust) 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 shall
    specify with respect to each Order for such shares:


          (i) the name of the Bidder placing such Order (which shall be the
      Broker-Dealer unless otherwise permitted by the Trust);

          (ii) the aggregate number of shares of such series that are the
      subject of such Order;

          (iii) to the extent that such Bidder is an Existing Holder of shares
      of such series:

            (A) the number of shares, if any, of such series subject to any
        Hold Order of such Existing Holder;

            (B) the number of shares, if any, of such series subject to any
        Bid of such Existing Holder and the rate specified in such Bid; and

            (C) the number of shares, if any, of such series subject to any
        Sell Order of such Existing Holder; and

          (iv) to the extent such Bidder is a Potential Holder of shares of
      such series, the rate and number of shares of such series specified in
      such Potential Holder's Bid.

        (b) If any rate 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%.

        (c) If an Order or Orders covering all of the Outstanding shares of
    Municipal Preferred of a series held by any Existing Holder is not
    submitted to the Auction Agent prior to the Submission Deadline, the
    Auction Agent shall deem a Hold Order to have been submitted by or on
    behalf of such Existing Holder covering the number of Outstanding shares
    of such series held by such Existing Holder and not subject to Orders
    submitted to the Auction Agent; provided, however, that if an Order or
    Orders covering all of the Outstanding shares of such series held by any
    Existing Holder is not submitted to the Auction Agent prior to the
    Submission Deadline for an Auction relating to a Special Rate Period
    consisting of more than 28 Rate Period Days, the Auction Agent shall deem
    a Sell Order to have been submitted by or on behalf of such Existing
    Holder covering the number of outstanding shares of such series held by
    such Existing Holder and not subject to Orders submitted to the Auction
    Agent.

        (d) If one or more Orders of an Existing Holder is submitted to the
    Auction Agent covering in the aggregate more than the number of
    Outstanding shares of Municipal Preferred of a series subject to an
    Auction held by such Existing Holder, such Orders shall be considered
    valid in the following order of priority:

          (i) all Hold Orders for shares of such series shall be considered
      valid, but only up to and including in the aggregate the number of
      Outstanding shares of such series held by such Existing Holder, and if
      the number of shares of such series subject to such Hold Orders exceeds
      the number of Outstanding shares of such series held by such Existing
      Holder, the number of shares subject to each such Hold Order shall be
      reduced pro rata to cover the number of Outstanding shares of such
      series held by such Existing Holder;

          (ii) (A) any Bid for shares of such series shall be considered valid
      up to and including the excess of the number of Outstanding shares of
      such series held by such Existing Holder over the number of shares of
      such series subject to any Hold Orders referred to in clause (i) above;

            (B) subject to subclause (A), if more than one Bid of an Existing
        Holder for shares of such series is submitted to the Auction Agent
        with the same rate and the number of Outstanding shares of such series
        subject to such Bids is greater than such excess, such Bids shall be
        considered valid up to and including the amount of such excess, and
        the number of shares of such series subject to each Bid with the same
        rate shall be reduced pro rata to cover the number of shares of such
        series equal to such excess;

            (C) subject to subclauses (A) and (B), if more than one Bid of an
        Existing Holder for shares of such series is submitted to the Auction
        Agent with different rates, such Bids shall be considered valid in the
        ascending order of their respective rates up to and including the
        amount of such excess; and

            (D) in any such event, the number, if any, of such Outstanding
        shares of such series subject to any portion of Bids considered not
        valid in whole or in part under this clause (ii) shall be treated as
        the subject of a Bid for shares of such series by or on behalf of a
        Potential Holder at the rate therein specified; and

          (iii) all Sell Orders for shares of such series shall be considered
      valid up to and including the excess of the number of Outstanding shares
      of such series held by such Existing Holder over the sum of shares of
      such series subject to valid Hold Orders referred to in clause (i) above
      and valid Bids referred to in clause (ii) above.

        (e) If more than one Bid for one or more shares of a series of
    Municipal Preferred is submitted to the Auction Agent by or on behalf of
    any Potential Holder, each such Bid submitted shall be a separate Bid with
    the rate and number of shares therein specified.

        (f) 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.

        3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
           APPLICABLE RATE.

        (a) Not earlier than the Submission Deadline on each Auction Date for
    shares of a series of Municipal Preferred, the Auction Agent shall
    assemble all valid Orders submitted or deemed submitted to it by the
    Broker-Dealers in respect of shares of such series (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 collectively as "Submitted Hold Orders," "Submitted Bids" or
    "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and
    shall determine for such series:

          (i) the excess of the number of Outstanding shares of such series
      over the number of Outstanding shares of such series subject to
      Submitted Hold Orders (such excess being hereinafter referred to as the
      "Available Municipal Preferred" of such series);

          (ii) from the Submitted Orders for shares of such series whether:

            (A) the number of Outstanding shares of such series subject to
        Submitted Bids of Potential Holders specifying one or more rates equal
        to or lower than the Maximum Rate for shares of such series;

        exceeds or is equal to the sum of:

            (B) the number of Outstanding shares of such series subject to
        Submitted Bids of Existing Holders specifying one or more rates higher
        than the Maximum Rate for shares of such series; and

            (C) the number of Outstanding shares of such series subject to
        Submitted Sell Orders

        (in the event such excess or such equality exists (other than because
        the number of shares of such series in subclauses (B) and (C) above is
        zero because all of the Outstanding shares of such series are subject
        to Submitted Hold Orders), such Submitted Bids in subclause (A) above
        being hereinafter referred to collectively as "Sufficient Clearing
        Bids" for shares of such series); and

          (iii) if Sufficient Clearing Bids for shares of such series exist,
      the lowest rate specified in such Submitted Bids (the "Winning Bid Rate"
      for shares of such series) which if:

            (A) (I) each such Submitted Bid of Existing Holders specifying
        such lowest rate and (II) all other such Submitted Bids of Existing
        Holders specifying lower rates were rejected, thus entitling such
        Existing Holders to continue to hold the shares of such series that
        are subject to such Submitted Bids; and

            (B) (I) each such Submitted Bid of Potential Holders specifying
        such lowest rate and (II) all other such Submitted Bids of Potential
        Holders specifying lower rates were accepted;

    would result in such Existing Holders described in subclause (A) above
    continuing to hold an aggregate number of Outstanding shares of such
    series which, when added to the number of Outstanding shares of such
    series to be purchased by such Potential Holders described in subclause
    (B) above, would equal not less than the Available Municipal Preferred of
    such series.

        (b) Promptly after the Auction Agent has made the determinations
    pursuant to subparagraph (a) of this paragraph 3, the Auction Agent shall
    advise the Trust of the Maximum Rate for shares of the series of Municipal
    Preferred for which an Auction is being held on the Auction Date and,
    based on such determination, the Applicable Rate for shares of such series
    for the next succeeding Rate Period thereof as follows:

          (i) if Sufficient Clearing Bids for shares of such series exist,
      that the Applicable Rate for all shares of such series for the next
      succeeding Rate Period thereof shall be equal to the Winning Bid Rate
      for shares of such series so determined;

          (ii) if Sufficient Clearing Bids for shares of such series do not
      exist (other than because all of the Outstanding shares of such series
      are subject to Submitted Hold Orders), that the Applicable Rate for all
      shares of such series for the next succeeding Rate Period thereof shall
      be equal to the Maximum Rate for shares of such series; or

          (iii) if all of the Outstanding shares of such series are subject to
      Submitted Hold Orders, that the Applicable Rate for all shares of such
      series for the next succeeding Rate Period thereof shall be as set forth
      in subparagraph (c) of this paragraph 3.

        (c) For purposes of subparagraph (b)(iii) of this paragraph 3, the
    Applicable Rate for shares of such series for the next succeeding Rate
    Period of shares of such series shall be equal to the lesser of the Kenny
    Index (if such Rate Period consists of fewer than 183 Rate Period Days) or
    the product of (A) (I) the "AA" Composite Commercial Paper Rate on such
    Auction Date for such Rate Period, if such Rate Period consists of fewer
    than 183 Rate Period Days; (II) the Treasury Bill Rate on such Auction
    Date for such Rate Period, if such Rate Period consists of more than 182
    but fewer than 365 Rate Period Days; or (III) the Treasury Note Rate on
    such Auction Date for such Rate Period, if such Rate Period is more than
    364 Rate Period Days (the rate described in the foregoing clause (A)(I),
    (II) or (III), as applicable, being referred to herein as the "Benchmark
    Rate") and (B) 1 minus the maximum marginal regular Federal individual
    income tax rate applicable to ordinary income or the maximum marginal
    regular Federal corporate income tax rate applicable to ordinary income,
    whichever is greater; provided, however, that if the Trust has notified
    the Auction Agent of its intent to allocate to shares of such series in
    such Rate Period any net capital gains or other income taxable for federal
    income tax purposes ("Taxable Income"), the Applicable Rate for shares of
    such series for such Rate Period will be (i) if the Taxable Yield Rate (as
    defined below) is greater than the Benchmark Rate, then the Benchmark
    Rate, or (ii) if the Taxable Yield Rate is less than or equal to the
    Benchmark Rate, then the rate equal to the sum of (x) the lesser of the
    Kenny Index (if such Rate Period consists of fewer than 183 Rate Period
    Days) or the product of the Benchmark Rate multiplied by the factor set
    forth in the preceding clause (B) and (y) the product of the maximum
    marginal regular Federal individual income tax rate applicable to ordinary
    income or the maximum marginal regular Federal corporate income tax
    applicable to ordinary income, whichever is greater, multiplied by the
    Taxable Yield Rate. For purposes of the foregoing, Taxable Yield Rate
    means the rate determined by (a) dividing the amount of Taxable Income
    available for distribution per such share of Municipal Preferred by the
    number of days in the Dividend Period in respect of which such Taxable
    Income is contemplated to be distributed, (b) multiplying the amount
    determined in (a) above by 365 (in the case of a Dividend Period of 7 Rate
    Period Days) or 360 (in the case of any other Dividend Period), and (c)
    dividing the amount determined in (b) above by $25,000.

        4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL
    ORDERS AND ALLOCATION OF SHARES. Existing Holders shall continue to hold
    the shares of Municipal Preferred that are subject to Submitted Hold
    Orders, and, based on the determinations made pursuant to paragraph 3(a)
    herein, the Submitted Bids and Submitted Sell Orders shall be accepted or
    rejected by the Auction Agent and the Auction Agent shall take such other
    action as set forth below:

        (a)  If Sufficient Clearing Bids for shares of a series of Municipal
    Preferred have been made, all Submitted Sell Orders with respect to shares
    of such series shall be accepted and, subject to the provisions of
    subparagraphs (d) and (e) of this paragraph 4, Submitted Bids with respect
    to shares of such series shall be accepted or rejected as follows in the
    following order of priority and all other Submitted Bids with respect to
    shares of such series shall be rejected:

          (i) Existing Holders" Submitted Bids for shares of such series
      specifying any rate that is higher than the Winning Bid Rate for shares
      of such series shall be accepted, thus requiring each such Existing
      Holder to sell the shares of Municipal Preferred subject to such
      Submitted Bids;

          (ii) Existing Holders' Submitted Bids for shares of such series
      specifying any rate that is lower than the Winning Bid Rate for shares
      of such series shall be rejected, thus entitling each such Existing
      Holder to continue to hold the shares of Municipal Preferred subject to
      such Submitted Bids;

          (iii) Potential Holders' Submitted Bids for shares of such series
      specifying any rate that is lower than the Winning Bid Rate for shares
      of such series shall be accepted;


          (iv) Existing Holders' Submitted Bids for shares of such series
      specifying a rate that is equal to the Winning Bid Rate for shares of
      such series shall be rejected, thus entitling such Existing Holder to
      continue to hold the share of Municipal Preferred subject to such
      Submitted Bid, unless the number of Outstanding shares of Municipal
      Preferred subject to all such Submitted Bids shall be greater than the
      number of shares of Municipal Preferred ("remaining shares") in the
      excess of the Available Municipal Preferred of such series over the
      number of shares of Municipal Preferred subject to Submitted Bids
      described in clauses (ii) and (iii) of this subparagraph (a), in which
      event such Submitted Bid of such Existing Holder shall be rejected in
      part, and such Existing Holder shall be entitled to continue to hold
      shares of Municipal Preferred subject to such Submitted Bid, but only in
      an amount equal to the number of shares of Municipal Preferred of such
      series obtained by multiplying the number of remaining shares by a
      fraction, the numerator of which shall be the number of Outstanding
      shares of Municipal Preferred held by such Existing Holder subject to
      such Submitted Bid and the denominator of which shall be the aggregate
      number of Outstanding shares of Municipal Preferred subject to such
      Submitted Bids made by all such Existing Holders that specified a rate
      equal to the Winning Bid Rate for shares of such series; and

          (v) Potential Holder's Submitted Bids for shares of such series
      specifying a rate that is equal to the Winning Bid Rate of shares of
      such series shall be accepted but only in an amount equal to the number
      of shares of such series obtained by multiplying the number of shares in
      the excess of the Available Municipal Preferred of such series over the
      number of shares of Municipal Preferred subject to Submitted Bids
      described in clauses (ii) through (iv) of this subparagraph (a) by a
      fraction, the numerator of which shall be the number of Outstanding
      shares of Municipal Preferred subject to such Submitted Bids and the
      denominator of which shall be the aggregate number of Outstanding shares
      of Municipal Preferred subject to such Submitted Bids made by all such
      Potential Holders that specified a rate equal to the Winning Bid Rate
      for shares of such series.


        (b) If Sufficient Clearing Bids for shares of a series of Municipal
    Preferred have not been made (other than because all of the Outstanding
    shares of such series are subject to Submitted Hold Orders), subject to
    the provisions of subparagraph (d) of this paragraph 4, Submitted Orders
    for shares of such series shall be accepted or rejected as follows in the
    following order of priority and all other Submitted Bids for shares of
    such series shall be rejected:

          (i) Existing Holders' Submitted Bids for shares of such series
      specifying any rate that is equal to or lower than the Maximum Rate for
      shares of such series shall be rejected, thus entitling such Existing
      Holders to continue to hold the shares of Municipal Preferred subject to
      such Submitted Bids;

          (ii) Potential Holders' Submitted Bids for shares of such series
      specifying any rate that is equal to or lower than the Maximum Rate for
      shares of such series shall be accepted; and


          (iii) Existing Holder's Submitted Bids for shares of such series
      specifying any rate that is higher than the Maximum Rate for shares of
      such series and the Submitted Sell Orders for shares of such series of
      each Existing Holder shall be accepted, thus entitling each Existing
      Holder that submitted or on whose behalf was submitted any such
      Submitted Bid or Submitted Sell Order to sell the shares of such series
      subject to such Submitted Bid or Submitted Sell Order, but in both cases
      only in an amount equal to the number of shares of such series obtained
      by multiplying the number of shares of such series subject to Submitted
      Bids described in clause (ii) of this subparagraph (b) by a fraction,
      the numerator of which shall be the number of Outstanding shares of such
      series held by such Existing Holder subject to such Submitted Bid or
      Submitted Sell Order and the denominator of which shall be the aggregate
      number of Outstanding shares of such series subject to all such
      Submitted Bids and Submitted Sell Orders.


        (c) If all of the Outstanding shares of a series of Municipal
    Preferred are subject to Submitted Hold Orders, all Submitted Bids for
    shares of such series shall be rejected.

        (d) If, as a result of the procedures described in clause (iv) or (v)
    of subparagraph (a) or clause (iii) of subparagraph (b) of this paragraph
    4, 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 a series of Municipal Preferred on any Auction Date, the
    Auction Agent shall, in such manner as it shall determine in its sole
    discretion, round up or down the number of shares of Municipal Preferred
    of such series to be purchased or sold by any Existing Holder or Potential
    Holder on such Auction Date as a result of such procedures so that the
    number of shares so purchased or sold by each Existing Holder or Potential
    Holder on such Auction Date shall be whole shares of Municipal Preferred.

        (e) If, as a result of the procedures described in clause (v) of
    subparagraph (a) of this paragraph 4, any Potential Holder would be
    entitled or required to purchase less than a whole share of series of
    Municipal Preferred on any Auction Date, the Auction Agent shall, in such
    manner as it shall determine in its sole discretion, allocate shares of
    Municipal Preferred of such series for purchase among Potential Holders so
    that only whole shares of Municipal Preferred of such series are purchased
    on such Auction Date as a result of such procedures by any Potential
    Holder, even if such allocation results in one or more Potential Holders
    not purchasing shares of Municipal Preferred of such series on such
    Auction Date.

        (f) Based on the results of each Auction for shares of a series of
    Municipal Preferred, the Auction Agent shall determine the aggregate
    number of shares of such series to be purchased and the aggregate number
    of shares of such series to be sold by Potential Holders and Existing
    Holders and, with respect to each Potential Holder and Existing Holder, to
    the extent that such aggregate number of shares to be purchased and such
    aggregate number of shares to be sold differ, determine to which other
    Potential Holder(s) or Existing Holder(s) they shall deliver, or from
    which other Potential Holder(s) or Existing Holder(s) they shall receive,
    as the case may be, shares of Municipal Preferred of such series.
    Notwithstanding any provision of the Auction Procedures or the Settlement
    Procedures to the contrary, in the event an Existing Holder or Beneficial
    Owner of shares of a series of Municipal Preferred with respect to whom a
    Broker-Dealer submitted a Bid to the Auction Agent for such shares that
    was accepted in whole or in part, or submitted or is deemed to have
    submitted a Sell Order for such shares that was accepted in whole or in
    part, fails to instruct its Agent Member to deliver such shares against
    payment therefor, partial deliveries of shares of Municipal Preferred that
    have been made in respect of Potential Holders' or Potential Beneficial
    Owners' Submitted Bids for shares of such series that have been accepted
    in whole or in part shall constitute good delivery to such Potential
    Holders and Potential Beneficial Owners.

        (g) Neither the Trust nor the Auction Agent nor any affiliate of
    either shall have any responsibility or liability with respect to the
    failure of an Existing Holder, a Potential Holder, a Beneficial Owner, a
    Potential Beneficial Owner or its respective Agent Member to deliver
    shares of Municipal Preferred of any series or to pay for shares of
    Municipal Preferred of any series sold or purchased pursuant to the
    Auction Procedures or otherwise.


        5. NOTIFICATION OF ALLOCATIONS. Except as noted below, whenever the
    Trust intends to include any net capital gain or other income taxable for
    federal income tax purposes in any dividend on shares of Municipal
    Preferred, the Trust shall, in the case of a Minimum Rate Period or a
    Special Rate Period of 28 Rate Period Days or fewer, and may, in the case
    of any other Special Rate Period, notify the Auction Agent of the amount
    to be so included not later than the Dividend Payment Date next preceding
    the Auction Date on which the Applicable Rate for such dividend is to be
    established. Whenever the Auction Agent receives such notice from the
    Trust, it will be required in turn to notify each Broker-Dealer, who, on
    or prior to such Auction Date, in accordance with its Broker-Dealer
    Agreement, will be required to notify its Beneficial Owners and Potential
    Beneficial Owners of shares of Municipal Preferred believed by it to be
    interested in submitting an Order in the Auction to be held on such
    Auction Date. The Trust may also include such net capital gain or other
    income taxable for federal income tax purposes in a dividend on shares of
    Municipal Preferred without giving advance notice if the dividend is
    increased by a Gross-Up Payment. The Trust must 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.

        6. AUCTION AGENT. For so long as any shares of Municipal Preferred are
    outstanding, the Auction Agent, duly appointed by the Trust to so act, shall
    be in each case a commercial bank, trust company or other financial
    institution independent of the Trust and its affiliates (which however, may
    engage or have engaged in business transactions with the Trust or its
    affiliates) and at no time shall the Trust or any of its affiliates act as
    the Auction Agent in connection with the Auction Procedures. If the Auction
    Agent resigns or for any reason its appointment is terminated during any
    period that any shares of Municipal Preferred are outstanding, the Board of
    Trustees shall use its best efforts promptly thereafter to appoint another
    qualified commercial bank, trust company or financial institution to act as
    the Auction Agent. The Auction Agent's registry of Existing Holders of
    shares of a series of Municipal Preferred shall be conclusive and binding on
    the Broker-Dealers. A Broker-Dealer may inquire of the Auction Agent between
    3:00 p.m. on the Business Day preceding an Auction for shares of a series of
    Municipal Preferred and 9:30 a.m. on the Auction Date for such Auction to
    ascertain the number of shares of a series in respect of which the Auction
    Agent has determined such Broker-Dealer to be an Existing Holder. If such
    Broker-Dealer believes it is the Existing Holder of fewer shares of such
    series than specified by the Auction Agent in response to such
    Broker-Dealer's inquiry, such Broker- Dealer may so inform the Auction Agent
    of that belief. Such Broker-Dealer shall not, in its capacity as Existing
    Holder of shares of such series, submit Orders in such Auction in respect of
    shares of such series covering in the aggregate more than the number of
    shares of such series specified by the Auction Agent in response to such
    Broker-Dealer's inquiry.


        7. TRANSFER OF SHARES OF MUNICIPAL PREFERRED. Unless otherwise permitted
    by the Trust, a Beneficial Owner or an Existing Holder may sell, transfer or
    otherwise dispose of shares of Municipal Preferred only in whole shares and
    only pursuant to a Bid or Sell Order placed with the Auction Agent in
    accordance with the procedures described herein or to a Broker-Dealer;
    provided, however, that (a) a sale, transfer or other disposition of shares
    of Municipal Preferred from a customer of a Broker-Dealer who is listed on
    the records of that Broker-Dealer as the holder of such shares to that
    Broker-Dealer or another customer of that Broker- Dealer shall not be deemed
    to be a sale, transfer or other disposition for purposes of this paragraph 7
    if such Broker-Dealer remains the Existing Holder of the shares so sold,
    transferred or disposed of immediately after such sale, transfer or
    disposition and (b) in the case of all transfers other than pursuant to
    Auctions, the Broker-Dealer (or other Person, if permitted by the Trust) to
    whom such transfer is made shall advise the Auction Agent of such transfer.

        8. GLOBAL CERTIFICATE. Prior to the commencement of a Voting Period,
    (i) all of the shares of a series of Municipal Preferred outstanding from
    time to time shall be represented by one global certificate registered in
    the name of the Securities Depository or its nominee and (ii) no
    registration of transfer of shares of a series of Municipal Preferred
    shall be made on the books of the Trust to any Person other than the
    Securities Depository or its nominee.
<PAGE>

APPENDIX D

    SETTLEMENT PROCEDURES
    Capitalized terms used herein have the respective meanings specified in
    the forepart of the Prospectus or the Glossary included in the Prospectus,
    as the case may be.

        (a) On each Auction Date for shares of Municipal Preferred, the
    Auction Agent shall notify by telephone the Broker-Dealers that
    participated in the Auction held on such Auction Date and submitted an
    Order to the Auction Agent as or on behalf of an Existing Holder or
    Potential Holder of:

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

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

          (iii) if such Broker-Dealer submitted a Bid or a Sell Order to the
      Auction Agent as or on behalf of an Existing Holder, whether such Bid or
      Sell Order was accepted or rejected, in whole or in part, and the number
      of shares, if any, of Municipal Preferred then outstanding to be sold by
      such Existing Holder;

          (iv) if such Broker-Dealer submitted a Bid to the Auction Agent as or
      on behalf of a Potential Holder, whether such Bid was accepted or
      rejected, in whole or in part, and the number of shares, if any, of
      Municipal Preferred to be purchased by such Potential Holder;

          (v) if the aggregate number of shares of Municipal Preferred to be
      sold by all Existing Holders with respect to whom such Broker-Dealer
      submitted Bids or Sell Orders to the Auction Agent is different than the
      aggregate number of shares of Municipal Preferred to be purchased by all
      Potential Holders with respect to whom such Broker-Dealer submitted Bids
      to the Auction Agent, the name or names of one or more other
      Broker-Dealers (and the Agent Member, if any, of each such other
      Broker-Dealer) and the number of shares of Municipal Preferred to be (x)
      purchased from one or more Existing Holders with respect to whom such
      other Broker- Dealers submitted Bids or Sell Orders to the Auction Agent,
      or (y) sold to one or more Potential Holders with respect to whom such
      other Broker- Dealers submitted Bids to the Auction Agent; and

          (vi) the scheduled Auction Date of the next succeeding Auction for
      shares of Municipal Preferred.

        (b) On each Auction Date for shares of Municipal Preferred, each
    Broker-Dealer that submitted an Order to the Auction Agent as or on behalf
    of any Existing Holder or Potential Holder shall:

          (i) advise each Existing Holder and Potential Holder (and each
      Beneficial Owner and Potential Beneficial Owner) with respect to whom
      such Broker-Dealer submitted a Bid or Sell Order to the Auction Agent
      whether such Bid or Sell Order was accepted or rejected, in whole or in
      part;

          (ii) instruct each Potential Holder (and each Potential Beneficial
      Owner) with respect to whom such Broker-Dealer submitted a Bid to the
      Auction Agent that was accepted, in whole or in part, to instruct such
      Bidder'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 Municipal Preferred to be purchased pursuant to such
      Bid against receipt of such shares;

          (iii) instruct each Existing Holder (and each Beneficial Owner) with
      respect to whom such Broker-Dealer submitted a Bid to the Auction Agent
      that was accepted, in whole or in part, or a Sell Order that was
      accepted, in whole or in part, to instruct such Bidder's Agent Member to
      deliver to such Broker-Dealer (or its Agent Member) through the
      Securities Depository the number of shares of Municipal Preferred to be
      sold pursuant to such Bid or Sell Order against payment therefor;

          (iv) advise each Existing Holder (and each Beneficial Owner) with
      respect to whom such Broker-Dealer submitted an Order to the Auction
      Agent and each Potential Holder (and each Potential Beneficial Owner)
      with respect to whom such Broker-Dealer submitted a Bid to the Auction
      Agent of the Applicable Rate for the next succeeding Rate Period;

          (v) advise each Existing Holder (and each Beneficial Owner) with
      respect to whom such Broker-Dealer submitted an Order to the Auction
      Agent of the Auction Date of the next succeeding Auction; and

          (vi) advise each Potential Holder (and each Potential Beneficial
      Owner) with respect to whom such Broker-Dealer submitted a Bid to the
      Auction Agent that was accepted, in whole or in part, of the Auction
      Date of the next succeeding Auction for Municipal Preferred.

        (c) On the basis of the information provided to it pursuant to
    paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order
    to the Auction Agent for any shares of Municipal Preferred shall allocate
    any funds received by it (or its Agent Member) in respect of such shares
    pursuant to paragraph (b)(ii) above and any shares of Municipal Preferred
    received by it (or its Agent Member) pursuant to paragraph (b)(iii) above
    among the Potential Holders and Potential Beneficial Owners, if any, with
    respect to whom such Broker-Dealer submitted Bids to the Auction Agent for
    such shares, the Existing Holders and Beneficial Owners, if any, with
    respect to whom such Broker-Dealer submitted Bids or Sell Orders to the
    Auction Agent for such shares, and any Broker-Dealers identified to it by
    the Auction Agent pursuant to paragraph (a)(v) above.

        (d) On the Business Day after the Auction Date, the Securities
    Depository shall execute the transactions described above, debiting and
    crediting the accounts of the respective Agent Members as necessary to
    effect the purchases and sales of shares of Municipal Preferred as
    determined in the Auction for shares of Municipal Preferred.
<PAGE>

APPENDIX E

    RATING AGENCY FUTURES AND OPTIONS RESTRICTIONS
    The following restrictions will be set forth in the Statement creating the
    preferred shares (the "Statement") of the Trust. The terms not defined
    below are defined in the Glossary, the Prospectus, the Statement of
    Additional Information or the Statement, filed as an exhibit to the
    Registration Statement of the Trust. Reference is made to the Statement
    for the full text of the rating agency restrictions on futures and options
    transactions and certain other actions or investments by the Trust.


        (a) For so long as any shares of Municipal Preferred are outstanding
    and Moody's or Standard & Poor's, or both, are rating such shares, the
    Trust will not, unless it has received confirmation from Moody's or
    Standard & Poor's, or both, as appropriate, that any such action would not
    impair the ratings then assigned by such rating agency to such shares,
    engage in any one or more of the following transactions: 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 except that the Trust may
    purchase or sell futures contracts based on the Bond Buyer Municipal Bond
    Index (the "Municipal Index") or United States Treasury Bonds or Notes
    ("Treasury Bonds") and write, purchase or sell put and call options on
    such contracts (collectively, "Hedging Transactions"), subject to the
    following limitations:

          (i) the Trust will not engage in any Hedging Transaction based on
      the Municipal Index (other than transactions which terminate a futures
      contract or option held by the Trust by the Trust's taking an opposite
      position thereto ("Closing Transactions")), which would cause the Trust
      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
      Trust'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 open interest 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 Trust will not engage in any Hedging Transaction based on
      Treasury Bonds (other than Closing Transactions) which would cause the
      Trust 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 Trust'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 Trust will engage in Closing Transactions to close out any
      outstanding futures contract which the Trust owns or has sold or any
      outstanding option thereon owned by the Trust in the event (A) the Trust
      does not have Standard & Poor's Eligible Assets or Moody's Eligible
      Assets, as the case may be, with an aggregate Discounted Value equal to
      or greater than the Municipal Preferred Basic Maintenance Amount on two
      consecutive Valuation Dates and (B) the Trust is required to pay
      Variation Margin on the second such Valuation Date;

          (iv) the Trust 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 Trust holds the securities deliverable under such
      terms; and

          (v) when the Trust writes a futures contract or option thereon, it
      will either maintain an amount of cash, cash equivalents or high grade
      (rated A or better by Standard & Poor's or Moody's, as the case may be),
      fixed-income securities in a segregated account with the Trust'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
      Trust'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
      Trust 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 Trust has Standard & Poor's
    Eligible Assets or Moody's Eligible Assets, as the case may be, Initial
    and Variation Margin will not constitute eligible assets. Segregated
    Securities will constitute eligible assets, discounted at the factor equal
    to the exposure period.

<PAGE>

                                     PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

         (1)  Financial Statements:

                  Included in Part A

                  Financial Highlights

                  Included in Part B

                  Included in Part B are the financial statements contained in
                  the Registrant's Annual Report dated October 31, 1999 (which
                  were previously filed electronically pursuant to Section
                  30(b)(2) of the Investment Company Act of 1940 - Accession
                  Number: 0000950146-00-000009); and the financial statements
                  contained in the Registrant's Semi-Annual Report dated April
                  30, 2000 (which were previously filed electronically pursuant
                  to Section 30(b)(2) of the Investment Company Act of 1940 -
                  Accession Number: 0000950156-00-000321).

                  The Financial Statements contained in Part B are as follows:

                  Investment Portfolio, October 31, 1999; Statement of Assets
                  and Liabilities, October 31, 1999; Statement of Operations,
                  October 31, 1999; Statement of Changes in Net Assets, years
                  ended October 31, 1998 and 1999; Notes to Financial
                  Statements; Financial Highlights; Report of Independent
                  Accountants.

                  Investment Portfolio, April 30, 2000; Statement of Assets and
                  Liabilities, April 30, 2000; Statement of Operations, April
                  30, 2000; Statement of Changes in Net Assets, six months ended
                  April 30, 2000 and year ended October 31, 1999; Notes to
                  Financial Statements; Financial Highlights.

         (2)  Exhibits
                  (a)(1)     Amended and Restated Declaration of Trust
                  (a)(2)    Statement Creating the Municipal Preferred shares
                  (b)       Amended and Restated By-Laws dated December 21, 1994
                            (previously filed as Exhibit (b)(2) to Amendment No.
                            8 to the Registrant's Registration Statement on Form
                            N-2 filed with the Securities and Exchange
                            Commission on February 28, 1995 ("Amendment No. 8")
                            and incorporated herein by reference)
                  (c)       Not applicable
                  (d)(1)    Portions of the Amended and Restated Declaration of
                            Trust, included as Exhibit (a)(1), Statement
                            Creating the Municipal Preferred shares, included as
                            Exhibit (a)(2), and the Amended and Restated By-Laws
                            of the Registrant, included as Exhibit (b)
                  (d)(2)    Form of specimen certificate for the municipal
                            auction rate cumulative preferred shares
                            (previously filed)
                  (e)       The section "Dividend Reinvestment and Cash Purchase
                            Plan" in the Registrant's Annual Report to its
                            Shareholders, for its fiscal year ended October 31,
                            1999 (incorporated herein by reference)
                  (f)       Not applicable
                  (g)(1)    Investment Advisory Agreement with Massachusetts
                            Financial Services Company (previously filed as
                            Exhibit (g)(1) to Amendment No. 9 to the
                            Registrant's Registration Statement on Form N-2
                            filed with the Securities and Exchange Commission on
                            January 27, 1998 ("Amendment No. 9") and
                            incorporated herein by reference)
                  (g)(2)    Master Administrative Services Agreement dated March
                            1, 1997, as amended and restated April 1, 1999, by
                            and among Massachusetts Financial Services Company
                            and the Registrant (incorporated by reference to MFS
                            Series Trust III (File Nos. 2-60491 and 811-2794)
                            Post-Effective Amendment No. 28 filed with the SEC
                            via EDGAR on March 30, 1999)
                  (h)       Form of Underwriting Agreement with Salomon Smith
                            Barney Inc.
                  (i)       Form of Retirement Plan for Non-Interested Person
                            Trustees, as amended and restated February 17, 1999
                            (incorporated by reference to MFS Growth
                            Opportunities Fund (File Nos. 2-36431 and 811-2032)
                            Post-Effective Amendment No. 29 filed with the SEC
                            via EDGAR on February 26, 1999)
                  (j)(1)    Custodian Agreement between the Registrant and State
                            Street Bank and Trust Company (previously filed as
                            Exhibit (j)(1) to Amendment No. 9 and incorporated
                            herein by reference)
                  (j)(2)    Amendments to the Custodian Agreement between the
                            Registrant and State Street Bank and Trust Company
                            (previously filed as Exhibits (j)(1)-(4) to
                            Amendment No. 9 and incorporated herein by
                            reference)
                  (k)(1)    Form of Auction Agency Agreement with Banks Trust
                            Company
                  (k)(2)    Form of Broker-Dealer Agreement with Bankers Trust
                            Company
                  (k)(3)    Loan Agreement by and among the Banks named therein,
                            and The First National Bank of Boston, and the MFS
                            Funds named therein (previously filed as Exhibit
                            (k)(3) to Amendment No. 8 and incorporated herein by
                            reference)
                  (k)(4)    Registrar, Transfer Agency and Service Agreement
                            between Registrant and MFS Service Center, Inc.,
                            dated August 15, 1994 (previously filed as Exhibit
                            (k)(2) to Amendment No. 8 and incorporated herein by
                            reference)
                  (l)       Opinion and consent of Bingham Dana LLP, counsel to
                            Registrant
                  (m)       Not applicable
                  (n)       Consent of independent accountants
                  (o)       Not applicable
                  (p)       Not applicable
                  (q)       Not applicable
                  (r)       Codes of Ethics under rule 17j-1 of the Investment
                            Company Act of 1940 of the Registrant and the
                            Registrant's adviser, Massachusetts Financial
                            Services Company (incorporated by reference to
                            Massachusetts Investors Growth Stock Fund (File Nos.
                            2-14677 and 811-859) Post-Effective Amendment No. 67
                            filed with the SEC via EDGAR on March 29, 2000)
                  (s)       Powers of Attorney (previously filed)

Item 25.          Marketing Arrangements.
                  Contained in the Form of Underwriting Agreement filed
                  herewith .

Item 26.          Other Expenses of Issuance and Distribution.
                  The following table sets forth the expenses to be incurred
                  in connection with the Offer described in this Registration
                  Statement:

                  Registration fees                           $ 36,960
                  Printing                                    $100,000
                  Accounting fees and expenses                $ 60,000
                  Legal fees and  expenses                    $201,500
                  Miscellaneous                               $120,000
                  Total                                       $518,460

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

                  None.

Item 28.          Number of Holders of Securities

                                                       Number of Record Holders
                  Title of Class                        as of October 16, 2000

                  Shares of Beneficial Interest                 4,772
                  Municipal Auction Rate Cumulative
                         Preferred Shares                        -0-

Item 29.          Indemnification.

                  Article V of the Registrant's Declaration of Trust provides
                  that the Registrant will indemnify its Trustees and officers
                  against liabilities and expenses incurred in connection with
                  litigation in which they may be involved because of their
                  offices with the Registrant, unless as to liabilities to the
                  Registrant or its shareholders, it is finally adjudicated that
                  they engaged in willful misfeasance, bad faith, gross
                  negligence or reckless disregard of the duties involved in
                  their offices, or with respect to any matter unless it is
                  adjudicated that they did not act in good faith in the
                  reasonable belief that their actions were in the best interest
                  of the Registrant. In the case of a settlement, such
                  indemnification will not be provided unless it has been
                  determined in accordance with the Declaration of Trust that
                  such officers or Trustees have not engaged in misfeasance, bad
                  faith, gross negligence or reckless disregard of the duties
                  involved in their offices.

                  The Trustees and officers of the Registrant and the personnel
                  of the Investment Adviser are insured under an errors and
                  omissions liability insurance policy. The Registrant and its
                  officers are also insured under the fidelity bond required by
                  Rule 17g-1 under the Investment Company Act of 1940.

Item 30.          Business and Other Connections of Adviser.

                      MFS serves as investment adviser to the following open-end
                  Funds comprising the MFS Family of Funds (except the Vertex
                  Funds mentioned below): Massachusetts Investors Trust;
                  Massachusetts Investors Growth Stock Fund; MFS Growth
                  Opportunities Fund; MFS Government Securities Fund; MFS
                  Government Limited Maturity Fund; MFS Series Trust I (which
                  has 12 series: MFS Managed Sectors Fund, MFS Cash Reserve
                  Fund, MFS Global Asset Allocation Fund, MFS Strategic Growth
                  Fund, MFS Research Growth and Income Fund, MFS Core Growth
                  Fund, MFS Equity Income Fund, MFS New Discovery Fund, MFS
                  Technology Fund, MFS Research International Fund, MFS Global
                  Telecommunications Fund and MFS Japan Equity Fund); MFS Series
                  Trust II (which has two series: MFS Emerging Growth Fund and
                  MFS Large Cap Growth Fund); MFS Series Trust III (which has
                  three series: MFS High Income Fund, MFS Municipal High Income
                  Fund and MFS High Yield Opportunities Fund); MFS Series Trust
                  IV (which has four series: MFS Money Market Fund, MFS
                  Government Money Market Fund, MFS Municipal Bond Fund and MFS
                  Mid Cap Growth Fund); MFS Series Trust V (which has five
                  series: MFS Total Return Fund, MFS Research Fund, MFS
                  International New Discovery Fund, MFS International Strategic
                  Growth Fund and MFS International Value Fund); MFS Series
                  Trust VI (which has three series: MFS Global Total Return
                  Fund, MFS Utilities Fund and MFS Global Equity Fund); MFS
                  Series Trust VII (which has two series: MFS Global Governments
                  Fund and MFS Capital Opportunities Fund); MFS Series Trust
                  VIII (which has two series: MFS Strategic Income Fund and MFS
                  Global Growth Fund); MFS Series Trust IX (which has eight
                  series: MFS Bond Fund, MFS Limited Maturity Fund, MFS
                  Municipal Limited Maturity Fund, MFS Research Bond Fund, MFS
                  Intermediate Investment Grade Bond Fund, MFS Emerging
                  Opportunities Fund, MFS Large Cap Value Fund and MFS High
                  Quality Bond Fund); MFS Series Trust X (which has 11 series:
                  MFS Government Mortgage Fund, MFS Emerging Markets Equity
                  Fund, MFS International Growth Fund, MFS International Growth
                  and Income Fund, MFS Strategic Value Fund, MFS Emerging
                  Markets Debt Fund, MFS Income Fund, MFS European Equity Fund,
                  MFS High Yield Fund, MFS Concentrated Growth Fund and MFS New
                  Endeavor Fund); MFS Series Trust XI (which has four series:
                  MFS Union Standard Equity Fund, Vertex All Cap Fund, Vertex
                  Contrarian Fund and Vertex Income Fund); and MFS Municipal
                  Series Trust (which has 18 series: MFS Alabama Municipal Bond
                  Fund, MFS Arkansas Municipal Bond Fund, MFS California
                  Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS
                  Georgia Municipal Bond Fund, MFS Maryland Municipal Bond Fund,
                  MFS Massachusetts Municipal Bond Fund, MFS Mississippi
                  Municipal Bond Fund, MFS New York Municipal Bond Fund, MFS
                  North Carolina Municipal Bond Fund, MFS Pennsylvania Municipal
                  Bond Fund, MFS South Carolina Municipal Bond Fund, MFS
                  Tennessee Municipal Bond Fund, MFS Virginia Municipal Bond
                  Fund, MFS West Virginia Municipal Bond Fund, MFS Municipal
                  Income Fund, MFS New York High Income Tax Free Fund and MFS
                  Massachusetts High Income Tax Free Fund) (the "MFS Funds").
                  The principal business address of each of the MFS Funds is 500
                  Boylston Street, Boston, Massachusetts 02116.

                      MFS also serves as investment adviser of the following
                  open-end Funds: MFS Institutional Trust ("MFSIT") (which has
                  11 series) and MFS Variable Insurance Trust ("MVI") (which has
                  16 series). The principal business address of each of the
                  aforementioned funds is 500 Boylston Street, Boston,
                  Massachusetts 02116.

                      In addition, MFS serves as investment adviser to the
                  following closed-end funds: MFS Municipal Income Trust, MFS
                  Multimarket Income Trust, MFS Government Markets Income Trust,
                  MFS Intermediate Income Trust, MFS Charter Income Trust and
                  MFS Special Value Trust (the "MFS Closed-End Funds"). The
                  principal business address of each of the MFS Closed-End Funds
                  is 500 Boylston Street, Boston, Massachusetts 02116.

                      Lastly, MFS serves as investment adviser to MFS/Sun Life
                  Series Trust ("MFS/SL") (which has 30 series), Money Market
                  Variable Account, High Yield Variable Account, Capital
                  Appreciation Variable Account, Government Securities Variable
                  Account, Global Governments Variable Account, Total Return
                  Variable Account and Managed Sectors Variable Account
                  (collectively, the "Accounts"). The principal business address
                  of MFS/SL is 500 Boylston Street, Boston, Massachusetts 02116.
                  The principal business address of each of the aforementioned
                  Accounts is One Sun Life Executive Park, Wellesley Hills,
                  Massachusetts 02181.

                      VERTEX INVESTMENT MANAGEMENT, INC., a Delaware corporation
                  and a wholly owned subsidiary of MFS, whose principal business
                  address is 500 Boylston Street, Boston, Massachusetts 02116
                  ("Vertex"), serves as investment adviser to Vertex All Cap
                  Fund, Vertex Contrarian Fund and Vertex Income Fund, each a
                  series of MFS Series Trust XI. The principal business address
                  of the aforementioned Funds is 500 Boylston Street, Boston,
                  Massachusetts 02116.

                      MFS INTERNATIONAL LTD. ("MIL"), a limited liability
                  company organized under the laws of Bermuda and a subsidiary
                  of MFS, whose principal business address is Cedar House, 41
                  Cedar Avenue, Hamilton HM12 Bermuda, serves as investment
                  adviser to and distributor for MFS American Funds known as the
                  MFS Funds after January 1999 (which will have 11 portfolios as
                  of January 1999): U.S. Equity Fund, U.S. Emerging Growth Fund,
                  U.S. High Yield Bond Fund, U.S. Dollar Reserve Fund, Charter
                  Income Fund, U.S. Research Fund, U.S. Strategic Growth Fund,
                  Global Equity Fund, European Equity Fund and European
                  Corporate Bond Fund) (the "MIL Funds"). The MIL Funds are
                  organized in Luxembourg and qualify as an undertaking for
                  collective investments in transferable securities (UCITS). The
                  principal business address of the MIL Funds is 47, Boulevard
                  Royal, L-2449 Luxembourg. MIL also serves as investment
                  adviser to and distributor for MFS Meridian U.S. Government
                  Bond Fund, MFS Meridian Charter Income Fund, MFS Meridian
                  Global Governments Fund, MFS Meridian U.S. Emerging Growth
                  Fund, MFS Meridian Global Equity Fund, MFS Meridian Limited
                  Maturity Fund, MFS Meridian Global Growth Fund, MFS Meridian
                  Money Market Fund, MFS Meridian Global Balanced Fund, MFS
                  Meridian U.S. Equity Fund, MFS Meridian Research Fund, MFS
                  Meridian U.S. High Yield Fund, MFS Meridian Emerging Markets
                  Debt Fund, MFS Meridian Strategic Growth Fund and MFS Meridian
                  Global Asset Allocation Fund and the MFS Meridian Research
                  International Fund (collectively the "MFS Meridian Funds").
                  Each of the MFS Meridian Funds is organized as an exempt
                  company under the laws of the Cayman Islands. The principal
                  business address of each of the MFS Meridian Funds is P.O. Box
                  309, Grand Cayman, Cayman Islands, British West Indies.

                      MFS INTERNATIONAL (U.K.) LTD. ("MIL-UK"), a private
                  limited company registered with the Registrar of Companies for
                  England and Wales whose current address is Eversheds, Senator
                  House, 85 Queen Victoria Street, London, England EC4V 4JL, is
                  involved primarily in marketing and investment research
                  activities with respect to private clients and the MIL Funds
                  and the MFS Meridian Funds.

                      MFS INSTITUTIONAL ADVISORS (AUSTRALIA) LTD.
                  ("MFSI-AUSTRALIA"), a private limited company organized under
                  the Corporations Law of New South Wales, Australia whose
                  current address is Level 27, Australia Square, 264 George
                  Street, Sydney, NSW2000, Australia, is involved primarily in
                  investment management and distribution of Australian
                  superannuation unit trusts and acts as an investment adviser
                  to institutional accounts.

                      MFS HOLDINGS AUSTRALIA PTY LTD. ("MFS HOLDINGS
                  AUSTRALIA"), a private limited company organized pursuant to
                  the Corporations Law of New South Wales, Australia whose
                  current address is Level 27, Australia Square, 264 George
                  Street, Sydney, NSW2000 Australia, and whose function is to
                  serve primarily as a holding company.

                      MFS FUND DISTRIBUTORS, INC. ("MFD"), a wholly owned
                  subsidiary of MFS, serves as distributor for the MFS Funds,
                  MVI and MFSIT.

                      MFS SERVICE CENTER, INC. ("MFSC"), a wholly owned
                  subsidiary of MFS, serves as shareholder servicing agent to
                  the MFS Funds, the MFS Closed-End Funds, MFSIT and MVI.

                      MFS INSTITUTIONAL ADVISORS, INC. ("MFSI"), a wholly owned
                  subsidiary of MFS, provides investment advice to substantial
                  private clients.

                      MFS RETIREMENT SERVICES, INC. ("RSI"), a wholly owned
                  subsidiary of MFS, markets MFS products to retirement plans
                  and provides administrative and record keeping services for
                  retirement plans.

                      MFS INVESTMENT MANAGEMENT K.K. ("MIMCO"), a wholly owned
                  subsidiary of MFS, is a corporation incorporated in Japan.
                  MIMCO, whose address is Kamiyacho-Mori Building, 3-20,
                  Tranomon 4-chome, Minato-ku, Tokyo, Japan, is involved in
                  investment management activities.

                      MFS HERITAGE TRUST COMPANY ("MFS TRUST"), a New
                  Hampshire-chartered limited-purpose trust company whose
                  current address is 650 Elm Street, Suite 404, Manchester, NH
                  03101, provides directed trustee services to retirement plans.

                      MFS ORIGINAL RESEARCH PARTNERS, LLC, a Delaware limited
                  liability company and a wholly owned subsidiary of MFS whose
                  address is 500 Boylston Street, Boston, Massachusetts 02116,
                  is an adviser to domestic pooled private investment vehicles.

                      MFS ORIGINAL RESEARCH ADVISORS, LLC, a Delaware limited
                  liability company and a wholly owned subsidiary of MFS whose
                  address is 500 Boylston Street, Boston, Massachusetts 02116,
                  is an adviser to offshore pooled private investment vehicles.

                      MFS

                      The Directors of MFS are Jeffrey L. Shames, Arnold D.
                  Scott, John W. Ballen, Kevin R. Parke, Thomas J. Cashman, Jr.,
                  Joseph W. Dello Russo, William W. Scott, Donald A. Stewart,
                  James Prieur and William W. Stinson. Mr. Shames is the
                  Chairman and Chief Executive Officer, Mr. Ballen is President
                  and Chief Investment Officer, Mr. Arnold Scott is a Senior
                  Executive Vice President, Mr. William Scott, Mr. Cashman, Mr.
                  Dello Russo and Mr. Parke are Executive Vice Presidents (Mr.
                  Dello Russo is also Chief Financial Officer and Chief
                  Administrative Officer and Mr. Parke is also Chief Equity
                  Officer), Stephen E. Cavan is a Senior Vice President, General
                  Counsel and Secretary of MFS, Robert T. Burns is a Senior Vice
                  President, Associate General Counsel and an Assistant
                  Secretary of MFS, and Thomas B. Hastings is a Vice President
                  and Treasurer of MFS.

                      MASSACHUSETTS INVESTORS TRUST
                      MASSACHUSETTS INVESTORS GROWTH STOCK FUND
                      MFS GROWTH OPPORTUNITIES FUND
                      MFS GOVERNMENT SECURITIES FUND
                      MFS GOVERNMENT LIMITED MATURITY FUND
                      MFS SERIES TRUST I
                      MFS SERIES TRUST II
                      MFS SERIES TRUST III
                      MFS SERIES TRUST IV
                      MFS SERIES TRUST V
                      MFS SERIES TRUST VI
                      MFS SERIES TRUST VII
                      MFS SERIES TRUST VIII
                      MFS SERIES TRUST IX
                      MFS SERIES TRUST X
                      MFS SERIES TRUST XI
                      MFS MUNICIPAL SERIES TRUST
                      MFS VARIABLE INSURANCE TRUST
                      MFS INSTITUTIONAL TRUST
                      MFS MUNICIPAL INCOME TRUST
                      MFS MULTIMARKET INCOME TRUST
                      MFS GOVERNMENT MARKETS INCOME TRUST
                      MFS INTERMEDIATE INCOME TRUST
                      MFS CHARTER INCOME TRUST
                      MFS SPECIAL VALUE TRUST

                      Jeffrey L. Shames is Chairman and President, Stephen E.
                  Cavan is the Secretary and Clerk, James O. Yost, a Senior Vice
                  President of MFS, is the Treasurer, Ellen M. Moynihan, Laura
                  F. Healy, Robert R. Flaherty and Mark E. Bradley, Vice
                  Presidents of MFS, are the Assistant Treasurers, James R.
                  Bordewick, Jr., Senior Vice President and Associate General
                  Counsel of MFS, is the Assistant Secretary and Assistant
                  Clerk.

                      MFS/SUN LIFE SERIES TRUST

                      C. James Prieur, President and Director of Sun Life
                  Assurance Company of Canada, is the President, S Stephen E.
                  Cavan is the Secretary and Clerk, James O. Yost is the
                  Treasurer, Ellen M. Moynihan, Laura F. Healy, Robert R.
                  Flaherty and Mark E. Bradley are the Assistant Treasurers,
                  James R. Bordewick, Jr., is the Assistant Secretary and
                  Assistant Clerk.

                      MONEY MARKET VARIABLE ACCOUNT
                      HIGH YIELD VARIABLE ACCOUNT
                      CAPITAL APPRECIATION VARIABLE ACCOUNT
                      GOVERNMENT SECURITIES VARIABLE ACCOUNT
                      TOTAL RETURN VARIABLE ACCOUNT
                      GLOBAL GOVERNMENTS VARIABLE ACCOUNT
                      MANAGED SECTORS VARIABLE ACCOUNT

                      C. James Prieur is the President, Stephen E. Cavan is the
                  Secretary, and James R. Bordewick, Jr., is the Assistant
                  Secretary.

                      MIL FUNDS

                      Jeffrey L. Shames is Chairman, Richard W. S. Baker, Arnold
                  D. Scott and William F. Waters are Directors, Stephen E. Cavan
                  is the Secretary, James O. Yost is the Treasurer, Ellen M.
                  Moynihan, Laura F. Healy, Robert R. Flaherty and Mark E.
                  Bradley are the Assistant Treasurers, and James R. Bordewick,
                  Jr. is the Assistant Secretary.

                      MFS MERIDIAN FUNDS

                      Jeffrey L. Shames is Chairman, Richard W. S. Baker, Arnold
                  D. Scott and William F. Waters are Directors, Stephen E. Cavan
                  is the Secretary, James O. Yost is the Treasurer, James R.
                  Bordewick, Jr. is the Assistant Secretary and Ellen M.
                  Moynihan, Laura F. Healy, Robert R. Flaherty and Mark E.
                  Bradley are the Assistant Treasurers.

                      VERTEX

                      Jeffrey L. Shames is the Chairman and President, Arnold D.
                  Scott is a Director, Kevin R. Parke and John W. Ballen are
                  Executive Vice Presidents, John D. Laupheimer is a Senior Vice
                  President, Brian E. Stack is a Vice President, Joseph W. Dello
                  Russo is the Treasurer, Thomas B. Hastings is the Assistant
                  Treasurer, Stephen E. Cavan is the Secretary and Robert T.
                  Burns is the Assistant Secretary.

                      MIL

                      Peter D. Laird is President and a Director, Arnold D.
                  Scott, Jeffrey L. Shames and Thomas J. Cashman, Jr. are
                  Directors, Stephen E. Cavan is a Director, Senior Vice
                  President and the Clerk, Robert T. Burns is an Assistant
                  Clerk, Joseph W. Dello Russo, Executive Vice President and
                  Chief Financial Officer of MFS, is the Treasurer and Thomas B.
                  Hastings is the Assistant Treasurer.

                      MIL-UK

                      Peter D. Laird is President and a Director, Thomas J.
                  Cashman, Arnold D. Scott and Jeffrey L. Shames are Directors,
                  Stephen E. Cavan is a Director and the Secretary, Joseph W.
                  Dello Russo is the Treasurer, Thomas B. Hastings is the
                  Assistant Treasurer and Robert T. Burns is the Assistant
                  Secretary.

                      MFSI - AUSTRALIA

                      Thomas J. Cashman, Jr. is President and a Director, Graham
                  E. Lenzer, John A. Gee and David Adiseshan are Directors,
                  Stephen E. Cavan is the Secretary, Joseph W. Dello Russo is
                  the Treasurer, Thomas B. Hastings is the Assistant Treasurer,
                  and Robert T. Burns is the Assistant Secretary.

                      MFS HOLDINGS - AUSTRALIA

                      Jeffrey L. Shames is the President and a Director, Arnold
                  D. Scott, Thomas J. Cashman, Jr., and Graham E. Lenzer are
                  Directors, Stephen E. Cavan is the Secretary, Joseph W. Dello
                  Russo is the Treasurer, Thomas B. Hastings is the Assistant
                  Treasurer, and Robert T. Burns is the Assistant Secretary.

                      MFD

                      Arnold D. Scott and Jeffrey L. Shames are Directors,
                  William W. Scott, Jr., an Executive Vice President of MFS, is
                  the President, Stephen E. Cavan is the Secretary, Robert T.
                  Burns is the Assistant Secretary, Joseph W. Dello Russo is the
                  Treasurer, and Thomas B. Hastings is the Assistant Treasurer.

                      MFSC

                      Arnold D. Scott and Jeffrey L. Shames are Directors,
                  Joseph A. Recomendes, a Senior Vice President and Chief
                  Information Officer of MFS, is Vice Chairman and a Director,
                  Janet A. Clifford is the President, Joseph W. Dello Russo is
                  the Treasurer, Thomas B. Hastings is the Assistant Treasurer,
                  Stephen E. Cavan is the Secretary, and Robert T. Burns is the
                  Assistant Secretary.

                      MFSI

                      Thomas J. Cashman, Jr. is Chairman and a Director, Jeffrey
                  L. Shames, and Arnold D. Scott are Directors, Joseph J.
                  Trainor is the President and a Director, Leslie J. Nanberg is
                  a Senior Vice President, a Managing Director and a Director,
                  Kevin R. Parke is the Executive Vice President and a Managing
                  Director, George F. Bennett, Jr., John A. Gee, Brianne Grady,
                  Joseph A. Kosciuszek and Joseph J. Trainor are Senior Vice
                  Presidents and Managing Directors, Joseph W. Dello Russo is
                  the Treasurer, Thomas B. Hastings is the Assistant Treasurer
                  and Robert T. Burns is the Secretary.

                      RSI

                      Arnold D. Scott is the Chairman and a Director, Martin E.
                  Beaulieu is the President, William W. Scott, Jr. is a
                  Director, Joseph W. Dello Russo is the Treasurer, Thomas B.
                  Hastings is the Assistant Treasurer, Stephen E. Cavan is the
                  Secretary and Robert T. Burns is the Assistant Secretary.

                      MIMCO

                      Jeffrey L. Shames, Arnold D. Scott and Mamoru Ogata are
                  Directors, Shaun Moran is the Representative Director, Joseph
                  W. Dello Russo is the Statutory Auditor, Robert DiBella is the
                  President and Thomas B. Hastings is the Assistant Statutory
                  Auditor.

                      MFS TRUST

                      The Directors of MFS Trust are Martin E. Beaulieu, Stephen
                  E. Cavan, Janet A. Clifford, Joseph W. Dello Russo and Joseph
                  A. Kosciuszek. Mr. Cavan is President, Mr. Dello Russo is
                  Treasurer, and Robert T. Burns is Clerk of MFS Trust.

                      MFS ORIGINAL RESEARCH PARTNERS, LLC

                      Joseph J. Trainor is the President and a Manager, Jeffrey
                  L. Shames, John W. Ballen and Kevin R. Parke are Managers,
                  Joseph W. Dello Russo is the Treasurer, Stephen E. Cavan is
                  the Secretary, Thomas B. Hastings is the Assistant Treasurer
                  and Robert T. Burns is the Assistant Secretary.

                      MFS ORIGINAL RESEARCH ADVISORS, LLC

                      Joseph J. Trainor is the President and a Manager, Jeffrey
                  L. Shames, John W. Ballen and Kevin R. Parke are Managers,
                  Joseph W. Dello Russo is the Treasurer, Stephen E. Cavan is
                  the Secretary, Thomas B. Hastings is the Assistant Treasurer
                  and Robert T. Burns is the Assistant Secretary.

                      In addition, the following persons, Directors or officers
                  of MFS, have the affiliations indicated:

                      Donald A. Stewart    Chairman, Sun Life Assurance Company
                                             of Canada, Sun Life Centre, 150
                                             King Street West, Toronto, Ontario,
                                             Canada (Mr. Stewart is also an
                                             officer and/or Director of various
                                             subsidiaries and affiliates of Sun
                                             Life)

                      C. James Prieur      President and a Director, Sun Life
                                             Assurance Company of Canada, Sun
                                             Life Centre, 150 King Street West,
                                             Toronto, Ontario, Canada (Mr.
                                             Prieur is also an officer and/or
                                             Director of various subsidiaries
                                             and affiliates of Sun Life)

                      William W. Stinson   Director, Sun Life Assurance Company
                                             of Canada, Sun Life Centre, 150
                                             King Street West, Toronto, Ontario,
                                             Canada; Director, United Dominion
                                             Industries Limited, Charlotte,
                                             N.C.; Director, PanCanadian
                                             Petroleum Limited, Calgary,
                                             Alberta; Director, LWT Services,
                                             Inc., Calgary Alberta; Director,
                                             Western Star Trucks, Inc., Kelowna,
                                             British Columbia; Director,
                                             Westshore Terminals Income Fund,
                                             Vancouver, British Columbia;
                                             Director (until 4/99), Canadian
                                             Pacific Ltd., Calgary, Alberta

Item 31.          Location of Accounts and Records:

                  Adviser:          Massachusetts Financial Services Company
                                    500 Boylston Street
                                    Boston, Massachusetts 02116

                  Custodian:        State Street Bank and Trust Company
                                    5-West
                                    North Quincy, Massachusetts 02171

                  Transfer Agent:   MFS Service Center, Inc.
                  (for common       2 Avenue de Lafayette
                  shares)           Boston, Massachusetts 02111-1738

Item 32.          Management Services.
                  Not applicable.

Item 33.          Undertakings.

                  The undersigned Registrant hereby undertakes:

                  (1)     To suspend the offering of its preferred shares until
                          it amends its prospectus contained herein if (i)
                          subsequent to the effective date of this Registration
                          Statement, its net asset value per share of beneficial
                          interest declines more than 10 percent from its net
                          asset value per share of beneficial interest as of the
                          effective date of this Registration Statement, or (ii)
                          its net asset value per share of beneficial interest
                          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) (a) That, for the purpose of determining any
                          liability under the Securities Act of 1933, the
                          information omitted from the form of prospectus filed
                          as a part of this Registration Statement in reliance
                          upon Rule 430A and contained in a form of prospectus
                          filed by the Registrant under Rule 497(h) under the
                          Securities Act of 1933 shall be deemed to be a part of
                          this Registration Statement as of the time it was
                          declared effective; and

                      (b) That, for the purpose of determining any liability
                          under the Securities Act of 1933, 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
                          the securities at that time shall be deemed to be the
                          initial bona fide offering thereof.

                  (6)     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,
                          the Statement of Additional Information.
<PAGE>
                                   SIGNATURES


    Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and The Commonwealth of
Massachusetts on the 28th day of November, 2000.

                               MFS MUNICIPAL INCOME TRUST

                               By:      James R. Bordewick, Jr.
                                        ---------------------------------------
                               Name:    James R. Bordewick, Jr.
                               Title:   Assistant Clerk and Assistant Secretary

    Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-2 has been signed below by the following
persons in the capacities indicated on November 28, 2000.

        SIGNATURE                  TITLE

JEFFREY L. SHAMES*                 Chairman, President (Principal
- --------------------------          Executive Officer) and Trustee
Jeffrey L. Shames

JAMES O. YOST*                     Treasurer (Principal Financial Officer
- --------------------------          and Principal Accounting Officer)
JAMES O. YOST

J. ATWOOD IVES*                    Trustee
- --------------------------
J. Atwood Ives

LAWRENCE T. PERERA*                Trustee
- --------------------------
Lawrence T. Perera

WILLIAM J. POORVU*                 Trustee
- --------------------------
William J. Poorvu

CHARLES W. SCHMIDT*                Trustee
- --------------------------
Charles W. Schmidt

ARNOLD D. SCOTT*                   Trustee
- --------------------------
Arnold D. Scott

ELAINE R. SMITH*                   Trustee
- --------------------------
Elaine R. Smith

DAVID B. STONE*                    Trustee
- --------------------------
David B. Stone

                                   *By:  James R. Bordewick, Jr.
                                         --------------------------------------
                                   Name: James R. Bordewick, Jr.
                                         as Attorney-in-fact

                                   Executed by James R. Bordewick, Jr. on behalf
                                   of those indicated pursuant to a Power of
                                   Attorney dated July 1, 2000; incorporated
                                   herein by reference to Registrant's
                                   Post-Effective Amendment No. 10, filed with
                                   the SEC via EDGAR on July 27, 2000.
<PAGE>

                                INDEX OF EXHIBITS

(a)(1)    Amended and Restated Declaration of Trust
(a)(2)    Statement Creating the Municipal Preferred shares
(h)       Form of Underwriting Agreement with Salomon Smith Barney Inc.
(k)(1)    Form of Auction Agent Agreement with Bankers Trust Company
(k)(2)    Form of Broker-Dealer Agreement with Bankers Trust Company
(l)       Opinion and consent of Bingham Dana LLP, counsel to the Registrant
(n)       Consent of independent accountants

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(A)(1)
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>AMENDED AND RESTATED DECLARATION OF TRUST
<TEXT>

<PAGE>

                                                                  Exhibit (a)(1)

                           MFS MUNICIPAL INCOME TRUST



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

                              AMENDED AND RESTATED
                              DECLARATION OF TRUST


                          Dated as of November 6, 2000
<PAGE>
                                TABLE OF CONTENTS
                                                                          PAGE

ARTICLE I--Name and Definitions..........................................    1

      Section 1.1.      Name
      Section 1.2.      Definitions

ARTICLE II--Trustees.....................................................    3

      Section 2.1.      Number of Trustees
      Section 2.2.      Term of Office of Trustees
      Section 2.3.      Resignation and Appointment of Trustees
      Section 2.4.      Vacancies
      Section 2.5.      Delegation of Power to Other Trustees

ARTICLE III--Powers of Trustees..........................................    5

      Section 3.1.      General
      Section 3.2.      Investments
      Section 3.3.      Legal Title
      Section 3.4.      Issuance and Repurchase of Securities
      Section 3.5.      Borrowing Money; Lending Trust Property
      Section 3.6.      Delegation; Committees
      Section 3.7.      Collection and Payment
      Section 3.8.      Expenses
      Section 3.9.      Manner of Acting; By-Laws
      Section 3.10.     Miscellaneous Powers
      Section 3.11.     Principal Transactions
      Section 3.12.     Trustees and Officers as Shareholders

ARTICLE IV--Investment Adviser, Distributor and Transfer Agent...........    8

      Section 4.1.      Investment Adviser
      Section 4.2.      Distributor
      Section 4.3.      Transfer Agent
      Section 4.4.      Parties to Contract

ARTICLE V--Limitations of Liability of Shareholders, Trustees and Others      9

      Section 5.1.      No Personal Liability of Shareholders,
                          Trustees, etc.
      Section 5.2.      Non-Liability of Trustees, etc.
      Section 5.3.      Mandatory Indemnification
      Section 5.4.      No Bond Required of Trustees
      Section 5.5.      No Duty of Investigation; Notice in Trust
                          Instruments, etc.
      Section 5.6.      Reliance on Experts, etc.

ARTICLE VI--Shares of Beneficial Interest................................   12

      Section 6.1.      Beneficial Interest
      Section 6.2.      Rights of Shareholders
      Section 6.3.      Trust Only
      Section 6.4.      Issuance of Shares
      Section 6.5.      Register of Shares
      Section 6.6.      Transfer of Shares
      Section 6.7.      Notices
      Section 6.8.      Voting Powers

ARTICLE VII--Determination of Net Asset Value, Net Income and
               Distributions ............................................   16

ARTICLE VIII--Duration; Termination of Trust; Amendment; Mergers, Etc. ..   16

      Section 8.1.      Duration
      Section 8.2.      Termination of Trust
      Section 8.3.      Amendment Procedure
      Section 8.4.      Merger, Consolidation and Sale of Assets
      Section 8.5.      Incorporation and Reorganization
      Section 8.6.      Conversion
      Section 8.7.      Certain Transactions

ARTICLE IX--Reports to Shareholders......................................   20

ARTICLE X--Miscellaneous.................................................   20

      Section 10.1.     Filing
      Section 10.2.     Governing Law
      Section 10.3.     Counterparts
      Section 10.4.     Reliance by Third Parties
      Section 10.5.     Provisions in Conflict with Law or Regulations

SIGNATURE PAGE...........................................................   22
<PAGE>

                              AMENDED AND RESTATED
                              DECLARATION OF TRUST

                                       OF

                           MFS MUNICIPAL INCOME TRUST

                          Dated as of November 6, 2000


      AMENDED AND RESTATED DECLARATION OF TRUST made November 6, 2000 by the
Trustees:

      WHEREAS, by a Declaration of Trust dated September 18, 1986, as amended
and restated November 13, 1986 (the "Declaration"), the Trustees established a
trust for the investment and reinvestment of funds contributed thereto known as
MFS Municipal Income Trust (the "Trust"); and

      WHEREAS, the Declaration provides that a restated Declaration integrating
into a single instrument all of the provisions of the Declaration which are then
in effect and operative, may be executed from time to time by a majority of the
Trustees; and

      WHEREAS, the Trustees desire to amend and to simultaneously restate the
Declaration so that this Amended and Restated Declaration, on the date of its
filing in the office of the Secretary of the Commonwealth of Massachusetts (the
"Effective Date"), shall contain all of the provisions of the Declaration which
are then in effect and operative;

      NOW THEREFORE, the Trustees hereby amend and restate the Declaration, and,
on the Effective Date, the following provisions shall constitute all of the
provisions of the Declaration which are then in effect and operative.

                                    ARTICLE I

                              NAME AND DEFINITIONS

      Section 1.1 Name. The name of the trust created hereby is the "MFS
Municipal Income Trust."

      Section 1.2 Definitions. Wherever they are used herein, the following
terms have the following respective meanings:

      (a) "By-Laws" means the By-Laws referred to in Section 3.9 hereof, as from
time to time amended.

      (b) The terms "Commission," "Interested Person," and "Majority Shareholder
Vote," (the 67% or 50% requirement of the third sentence of Section 2(a)(42) of
the 1940 Act, whichever may be applicable) have the meanings given them in the
1940 Act.

      (c) The terms "Class" and "Class of Shares" refer to the division of
Shares into two or more classes as provided in Section 6.1 hereof.

      (d) "Declaration" means this Declaration of Trust as amended and restated
from time to time. Reference in this Declaration of Trust to "Declaration,"
"hereof," "herein" and "hereunder" shall be deemed to refer to this Declaration
rather than the article or section in which such words appear.

      (e) "Effective Date" shall have the meaning set forth in the third
"Whereas" clause herein.

      (f) "Investment Adviser" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof.

      (g) The "1940 Act" means the Investment Company Act of 1940 and the Rules
and Regulations thereunder, as amended from time to time.

      (h) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof,
whether domestic or foreign.

      (i) The terms "Series" and "Series of Shares" refer to the division of
Shares representing any Class into two or more Series as provided in Section 6.1
hereof.

      (j) "Shareholder" means a record owner of outstanding Shares.

      (k) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time or, if more
than one Class or Series of Shares is authorized by the Trustees, the shares of
beneficial interest into which each Class or Series of Shares shall be divided
from time to time, and includes fractions of Shares as well as whole Shares.

      (l) "Statement" means a certificate signed by any officer of the Trust
setting forth the resolution or resolutions providing for the issuance of a
Class or Classes of Shares and any Series thereof, as described in Section 6.1
hereof.

      (m) "Transfer Agent" means the party, other than the Trust, to a contract
described in Section 4.3 hereof.

      (n) The "Trust" means the entity specified in Section 1.1 above.

      (o) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.

      (p) The "Trustees" means the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.

                                   ARTICLE II

                                    TRUSTEES

      Section 2.1. Number of Trustees. Subject to the voting powers of one or
more Classes or Series of Shares as set forth in this Declaration and in any
Statement, the number of Trustees shall be such number as shall be fixed from
time to time by a written instrument signed by a majority of the Trustees,
provided, however, that the number of Trustees shall in no event be less than
three (3). No reduction in the number of Trustees shall have the effect of
removing any Trustee from office prior to the expiration of his term unless the
Trustee is specifically removed pursuant to Section 2.2 of this Article II at
the time of the decrease.

      Section 2.2. Term of Office of Trustees. The Board of Trustees shall be
divided into three classes. The number of Trustees in each class shall be
determined by resolution of the Board of Trustees. The term of office of all of
the Trustees shall expire on the date of the first annual meeting of
shareholders or special meeting in lieu thereof following the first date of
effectiveness of this Declaration (September 18, 1986). The term of office of
the first class shall expire on the date of the second annual meeting of
shareholders or special meeting in lieu thereof. The term of office of the
second class shall expire on the date of the third annual meeting of
shareholders or special meeting in lieu thereof. The term of office of the third
class shall expire on the date of the fourth annual meeting of shareholders or
special meeting in lieu thereof. Upon expiration of the term of office of each
class as set forth above, the number of Trustees in such class, as determined by
the Board of Trustees, shall be elected for a term expiring on the date of the
third annual meeting of shareholders or special meeting in lieu thereof
following such expiration to succeed the Trustees whose terms of office expire.
The Trustees shall be elected at an annual meeting of the shareholders or
special meeting in lieu thereof called for that purpose, except as provided in
Section 2.3 of this Article; provided, however, if so provided in any Statement
relating to a Class or Classes of Shares and any Series thereof designated by
the Trustees pursuant to Section 6.1 hereof, such Class or Classes of Shares,
voting as a Class at an annual meeting of the Shareholders or special meeting in
lieu thereof called for such purpose, may elect at least two (2) Trustees at all
times, and, provided, further, that under the conditions enumerated in such
Statement, such Class or Classes of Shares voting as a Class shall be entitled
to elect at least a majority of the Trustees pursuant to the designations and
powers, preferences and rights and the qualifications, limitations and
restrictions of such Class or Classes of Shares as determined in accordance with
the Statement relating to such Class or Classes of Shares.

Each Trustee elected shall hold office until his successor shall have been
elected and shall have qualified; except (a) that any Trustee may resign his
trust (without need for prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees, which shall take
effect upon such delivery or upon such later date as is specified therein; (b)
that any Trustee may be removed (provided the aggregate number of Trustees after
such removal shall not be less than the number required by Section 2.1 hereof)
with cause, at any time by written instrument, signed by at least two-thirds of
the remaining Trustees, specifying the date when such removal shall become
effective; (c) that any Trustee who requests in writing to be retired or who has
become incapacitated by illness or injury may be retired by written instrument
signed by a majority of the other Trustees, specifying the date of his
retirement; and (d) subject to the voting powers of one or more Classes or
Series of Shares as set forth in this Declaration and in any Statement, a
Trustee may be removed at any meeting of Shareholders by a vote of two-thirds of
the outstanding Shares of the Classes or Series entitled to vote for the
election of such Trustee. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust property held in the name of the
resigning or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.

      Section 2.3. Resignation and Appointment of Trustees. In case of the
declination, death, resignation, retirement, removal or inability of any of the
Trustees, or in case a vacancy shall, by reason of an increase in number, or for
any other reason, exist, the remaining Trustees shall fill such vacancy by
appointing such other person as they in their discretion shall see fit. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office. Any such appointment shall not become effective,
however, until the person named in the written instrument of appointment shall
have accepted in writing such appointment and agreed in writing to be bound by
the terms of the Declaration. Within twelve months of such appointment, the
Trustees shall cause notice of such appointment to be mailed to each Shareholder
at his address as recorded on the books of the Trustees. An appointment of a
Trustee may be made by the Trustees then in office and notice thereof mailed to
Shareholders as aforesaid in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. The power of appointment is subject to the voting power of one or more
Classes or Series of Shares as set forth in this Declaration and in any
Statement, and is subject to the provisions of Section 16(a) of the 1940 Act.

      Section 2.4. Vacancies. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant to the terms
of this Declaration. Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided in Section 2.3, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees shall be conclusive evidence of the existence of such
vacancy.

      Section 2.5. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under the Declaration except as herein otherwise expressly provided.

                                   ARTICLE III

                               POWERS OF TRUSTEES

      Section 3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as the Trustees deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees.

The enumeration of any specific power herein shall not be construed as limiting
the aforesaid power. Such powers of the Trustees may be exercised without order
of or resort to any court.

      Section 3.2. Investments. (a) The Trustees shall have the power to:

      (i) conduct, operate and carry on the business of an investment company;

      (ii) subscribe for, invest in, reinvest in, purchase or otherwise acquire,
own, hold, pledge, sell, assign, transfer, exchange, distribute, lend or
otherwise deal in or dispose of United States and foreign currencies, any form
of gold and other precious metals, commodity contracts, options, contracts for
the future acquisition or delivery of securities and securities of every nature
and kind, including, without limitation, all types of bonds, debentures, stocks,
negotiable or non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, bankers' acceptances, and other securities of any kind,
issued, created, guaranteed or sponsored by any and all Persons, including,
without limitation, states, territories and possessions of the United States and
the District of Columbia and any political subdivisions, agencies or
instrumentalities thereof and the United States Government, any foreign
government, any political subdivisions thereof or any agencies or
instrumentalities, or by any bank or savings institution, or by any corporation
or organization organized under the laws of the United States or of any state,
territory or possession thereof, or by any corporation or organization organized
under any foreign law, or in "when issued" contracts for any such securities, or
retain Trust assets in cash and from time to time change the investments of the
assets of the Trust; and to exercise any and all rights, powers and privileges
of ownership or interest in respect of any and all such investments of every
kind and description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more persons,
firms, associations or corporations to exercise any of said rights, powers and
privileges in respect of any of said instruments.

      (iii) to carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary, suitable or proper for
the accomplishment of any purpose or the attainment of any object or the
furtherance of any power hereinbefore set forth, and to do every other act or
thing incidental or appurtenant to or connected with the aforesaid purposes,
objects or powers.

      (b) The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.

      Section 3.3. Legal Title. Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, on such terms as the Trustees may determine. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to have
any right, title or interest in any of the Trust Property, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.

      Section 3.4. Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VII and VIII hereof, to apply to any
such retirement, cancellation or acquisition of Shares any funds or property of
the Trust whether capital or surplus or otherwise, to the full extent now or
hereafter permitted by the laws of the Commonwealth of Massachusetts governing
business corporations.

      Section 3.5. Borrowing Money; Lending Trust Property. The Trustees shall
have power to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the
Trust, to endorse, guarantee, or undertake the performance of any obligation,
contract or engagement of any other Person and to lend Trust property.

      Section 3.6. Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.

      Section 3.7. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.

      Section 3.8. Expenses. The Trustees shall have the power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of the Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees.

      Section 3.9. Manner of Acting; By-Laws. Except as otherwise provided
herein or in the By-Laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of all the Trustees.
The Trustees may adopt By-Laws not inconsistent with this Declaration to provide
for the conduct of the business of the Trust and may amend or repeal such
By-Laws to the extent such power is not reserved to the Shareholders.

      Section 3.10. Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted by any such Person in
such capacity, whether or not constituting negligence, or whether or not the
Trust would have the power to indemnify such Person against such liability; (e)
establish pension, profit sharing, share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) to the extent permitted by law, indemnify any person with whom
the Trust has dealings, including the Investment Adviser, Distributor, Transfer
Agent, and selected dealers, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the fiscal year of the Trust and the method by which its accounts shall
be kept; and (i) adopt a seal for the Trust but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust.

      Section 3.11. Principal Transactions. Except in transactions permitted by
the 1940 Act, or any order of exemption issued by the Commission, the Trustees
shall not, on behalf of the Trust, buy any securities (other than shares) from
or sell any securities (other than Shares) to, or lend any assets of the Trust
to, any Trustee or officer of the Trust or any firm of which any such Trustee or
officer is a member of the Trust or any firm of which any such Trustee or
officer is a member acting as principal, or have any such dealings with the
Investment Adviser, Distributor, or Transfer Agent or with any Interested Person
of such Person; but the Trust may employ any such Person, or firm or company in
which such Person is an Interested Person, as broker, legal counsel, registrar,
transfer agent, dividend disbursing agent or custodian upon customary terms.

      Section 3.12. Trustees and Officers as Shareholders. No officer, Trustee
or Member of the Advisory Board of the Trust, and no member, partner, officer,
director or trustee of the Investment Adviser or of the Distributor, and no
Investment Adviser or Distributor of the Trust, shall take a short position in
the securities issued by the Trust.

                                   ARTICLE IV

              INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT

      Section 4.1. Investment Adviser. Subject to a Majority Shareholder Vote,
the Trustees may in their discretion from time to time enter into one or more
investment advisory or management contracts whereby a party to such contract
shall undertake to furnish the Trust such management, investment advisory,
statistical and research facilities and services, promotional activities, and
such other facilities and services, if any, as the Trustees shall from time to
time consider desirable and all upon such terms and conditions as the Trustees
may in their discretion determine. Notwithstanding any provisions of the
Declaration, the Trustees may delegate to the Investment Adviser authority
(subject to such general or specific instructions as the Trustees may from time
to time adopt) to effect purchases, sales, loans or exchanges of assets of the
Trust on behalf of the Trustees or may authorize any officer, employee or
Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of the Investment Adviser (and all without further action by the
Trustees). Any such purchases, sales, loans or exchanges shall be deemed to have
been authorized by all the Trustees.

      Section 4.2. Distributor. The Trustees may in their discretion from time
to time enter into a contract, providing for the sale of Shares whereby the
Trust may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article IV or
the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer agreements with registered
securities dealers to further the purpose of the distribution of the Shares.

      Section 4.3. Transfer Agent. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract or
contracts whereby the other party to such contract shall undertake to furnish
transfer agency and/or shareholder services to the Trust. The contract or
contracts shall have such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the Declaration or the By-Laws. Such
services may be provided by one or more Persons.

      Section 4.4. Parties to Contract. Any contract of the character described
in Sections 4.1, 4.2 or 4.3 of this Article IV or any Custodian contract, as
described in the By-Laws, may be entered into with any Person, although one or
more of the Trustees or officers of the Trust may be an officer, partner,
director, trustee, shareholder, or member of such other party to the contract,
and no such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship; nor shall any Person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
when entered into was not inconsistent with the provisions of this Article IV or
the By-Laws. The same Person may be the other party to contracts entered into
pursuant to Sections 4.1, 4.2 and 4.3 above or Custodian contracts, and any
individual may be financially interested or otherwise affiliated with Persons
who are parties to any or all of the contracts mentioned in this Section 4.4.

                                    ARTICLE V

                  LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
                               TRUSTEES AND OTHERS

      Section 5.1. No Personal Liability of Shareholders, Trustees, etc. Subject
to Section 5.3, no Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the acts,
obligations or affairs of the Trust. No Trustee, officer, employee or agent of
the Trust shall be subject to any personal liability whatsoever to any Person,
other than the Trust or its Shareholders, in connection with Trust Property or
the affairs of the Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard for his duty to such Person;
and all such Persons shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability, he shall
not, on account thereof, be held to any personal liability. The Trust shall
indemnify and hold each Shareholder harmless from and against all claims and
liabilities to which such Shareholder may become subject by reason of his being
or having been a Shareholder, and shall reimburse such Shareholder for all legal
and other expenses reasonably incurred by him in connection with any such claim
or liability. The rights accruing to a Shareholder under this Section 5.1 shall
not exclude any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to indemnify
or reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.

      Section 5.2. Non-Liability of Trustees, etc. Subject to Section 5.3, no
Trustee, officer, employee or agent of the Trust shall be liable to the Trust,
its Shareholders, or to any Shareholder, Trustee, officer, employee, or agent
thereof for any action or failure to act (including without limitation the
failure to compel in any way any former or acting Trustee to redress any breach
of trust) except for his own bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties.

      Section 5.3. Mandatory Indemnification. (a) Subject to the exceptions and
limitations contained in paragraph (b) below:

      (i) every person who is or has been a Trustee or officer of the Trust
shall be indemnified by the Trust against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;

      (ii) the words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.

      (b) No indemnification shall be provided hereunder to a Trustee or
officer:

      (i) against any liability to the Trust or the Shareholders by reason of a
final adjudication by the court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;

      (ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust;

      (iii) in the event of a settlement involving a payment by a Trustee or
officer or other disposition not involving a final adjudication as provided in
paragraph (b) (i) or (b) (ii) above resulting in a payment by a Trustee or
officer, unless there has been either a determination that such Trustee or
officer did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or by a
reasonable determination, based upon a review of readily available facts (as
opposed to a full trial-type inquiry) that he did not engage in such conduct:

            (A) by vote of a majority of the Disinterested Trustees acting on
      the matter (provided that a majority of the Disinterested Trustees then in
      office act on the matter); or

            (B) by written opinion of independent legal counsel.

      (c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a Person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such
Person. Nothing contained herein shall affect any rights to indemnification to
which personnel other than Trustees and officers may be entitled by contract or
otherwise under law.

      (d) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to indemnification
under this Section 5.3, provided that either:

      (i) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any such
advances; or

      (ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.

      As used in this Section 5.3, a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.

      Section 5.4.  No Bond Required of Trustees.  No Trustee shall be
obligated to give any bond or other security for the performance of any of
his duties hereunder.

      Section 5.5. No Duty of Investigation; Notice in Trust Instruments, etc.
No purchaser, lender, transfer agent or other Person dealing with the Trustees
or any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under the Declaration or in their capacity as
officers, employees or agents of the Trust. Every written obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking made
or issued by the Trustees shall recite that the same is executed or made by them
not individually, but as Trustees under the Declaration, and that the
obligations of any such instrument are not binding upon any of the Trustees or
Shareholders, individually, but bind only the trust estate, and may contain any
further recital which they or he may deem appropriate, but the omission of such
recital shall not operate to bind any of the Trustees or Shareholders
individually. The Trustees shall at all times maintain insurance for the
protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.

      Section 5.6. Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.

                                   ARTICLE VI

                          SHARES OF BENEFICIAL INTEREST

      Section 6.1. Beneficial Interest. The Trustees may, without Shareholder
approval, authorize one or more Classes of Shares with or without par value
(which Classes may be divided into two or more Series), Shares of each such
Class or Series having such preferences, voting powers, terms of redemption, if
any, and special or relative rights or privileges (including conversion rights,
if any) as the Trustees may determine.

As of the Effective Date, the Shares shall be divided into two Classes of
Shares, a Class of an unlimited number of common shares of beneficial interest,
without par value (the "Common Shares") and a Class of an unlimited number of
preferred shares of beneficial interest, without par value (the "Preferred
Shares"). All Shares outstanding as of the Effective Date shall be designated as
Common Shares.

The designations and powers, preferences and rights, and the qualifications,
limitations and restrictions of the Common Shares are as follows and as set
forth elsewhere in this Declaration.

            (a) Subject to the rights of the holders of the Preferred Shares, in
      the event of the termination of the Trust the holders of the Common Shares
      shall be entitled to receive pro rata the net distributable assets of the
      Trust.

            (b) The holders of the Common Shares shall not, as such holders,
      have any right to acquire, purchase or subscribe for any Common Shares or
      securities of the Trust which it may hereafter issue or sell, other than
      such right, if any, as the Trustees in their discretion may determine.

            (c) Subject to the rights of the holders of the Preferred Shares,
      dividends or other distributions, when, as and if declared by the
      Trustees, shall be shared equally by the holders of Common Shares on a
      share for share basis. The Trustees may direct that any dividends or other
      distributions or any portion thereof as declared and distributed shall be
      paid in cash to the holder, or, alternatively, may direct that any such
      dividends be reinvested in full and fractional Shares of the Trust if such
      holder elects to have them reinvested.

            (d) The Trustees may hold as treasury shares (of the same or some
      other Series), reissue for such consideration and on such terms as they
      may determine, or cancel any Common Shares of any Series reacquired by the
      Trust at their discretion from time to time. Shares shall not entitle the
      Shareholder to any title in or to the whole or any part of the Trust.

The designations and powers, preferences and rights, and the qualifications,
limitations and restrictions of the Preferred Shares shall be as set forth in
the Statement relating to the Preferred Shares.

All Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.

      Section 6.2. Rights of Shareholders. The ownership of the Trust Property
of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights in the Declaration specifically set forth. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights, except as the Trustees may determine with respect to any Class
or Series of Shares.

      Section 6.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.

      Section 6.4. Issuance of Shares. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times, and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares. The Trustees may from time to time divide or combine the
Shares into a greater or lesser number without thereby changing their
proportionate beneficial interests in Trust. Contributions to the Trust may be
accepted for whole Shares and/or l/l,000ths of a Share or integral multiples
thereof.

      Section 6.5. Register of Shares. A register shall be kept at the principal
office of the Trust or at an office of the Transfer Agent which shall contain
the names and addresses of the Shareholders and the number of Shares held by
them respectively and a record of all transfers thereof. Such register shall be
conclusive as to who are the holders of each Class and Series of Shares and who
shall be entitled to receive dividends or distributions or otherwise to exercise
or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive
payment of any dividend or distribution, nor to have notice given to him as
herein or in the By-Laws provided, until he has given his address to the
Transfer Agent or such other officer or agent of the Trustees as shall keep the
said register for entry thereon. The Trustees, in their discretion, may
authorize the issuance of Share certificates and promulgate appropriate rules
and regulations as to their use.

      Section 6.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with any certificate or
certificates (if issued) for such Shares and such evidence of the genuineness of
each such execution and authorization and of other matters as may reasonably be
required. Upon such delivery the transfer shall be recorded on the register of
the Trust. Until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer, employee or agent
of the Trust shall be affected by any notice of the proposed transfer.

      Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent; but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.

      Section 6.7. Notices. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.

      Section 6.8. Voting Powers. Subject to the voting power of one or more
Classes or Series of Shares as set forth in this Declaration and in any
Statement, the Shareholders shall have power to vote only (i) for the election
of Trustees or for their removal as provided in Section 2.2 hereof, (ii) with
respect to any investment advisory or management contract as provided in Section
4.1 hereof, (iii) with respect to termination of the Trust as provided in
Section 8.2, (iv) with respect to any amendment of the Declaration to the extent
and as provided in Section 8.3, (v) with respect to any merger, consolidation,
conversion or sale of assets as provided in Sections 8.4, 8.5 and 8.7, (vi) with
respect to incorporation of the Trust to the extent and as provided in Section
8.5, (vii) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the Shareholders, and (viii) with respect to such additional
matters relating to the Trust as may be required by the Declaration, the
By-Laws, any Statement or any registration of the Trust with the Commission (or
any successor agency) or any state, or as the Trustees may consider necessary or
desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote, except as otherwise provided in any Statement and
except that Shares held in the treasury of the Trust shall not be voted.
Notwithstanding any other provision of this Declaration, on any matter submitted
to a vote of Shareholders, all Shares of the Trust then entitled to vote shall,
except as otherwise provided in the By-Laws or any Statement or required by law,
be voted in the aggregate as a single Class without regard to Classes or Series
of Shares. There shall be no cumulative voting in the election of Trustees.
Until Shares of a particular Class or Series are issued, the Trustees may
exercise all rights of Shareholders of such Class or Series and may take any
action required by law, the Declaration, the By-Laws or any Statement to be
taken by Shareholders as to such Class or Series. The By-Laws and any Statement
may include further provisions for Shareholders' votes and meetings and related
matters.

                                   ARTICLE VII

                        DETERMINATION OF NET ASSET VALUE,
                          NET INCOME AND DISTRIBUTIONS

      The Trustees, in their absolute discretion, may prescribe and shall set
forth in the By-Laws, in any Statement, or in a duly adopted vote of the
Trustees such bases and times for determining the per Share net asset value of
the Shares or any Class or Series of Shares or net income, or the declaration
and payment of dividends and distributions, as they may deem necessary or
desirable.

                                  ARTICLE VIII

           DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.

      Section 8.1.  Duration.  The Trust shall continue without limitation of
time but subject to the provisions of this Article VIII.

      Section 8.2. Termination of Trust. (a) Subject to the voting powers of one
or more Classes or Series of Shares as set forth in this Declaration and in any
Statement, the Trust may be terminated (i) by the affirmative vote of the
holders of not less than two-thirds of the Shares outstanding and entitled to
vote at any meeting of Shareholders, or (ii) by an instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by the
holders of not less than two-thirds of such Shares. Upon the termination of the
Trust:

      (i) The Trust shall carry on no business except for the purpose of winding
up its affairs;

      (ii) The Trustees shall proceed to wind up the affairs of the Trust and
all the powers of the Trustees under this Declaration shall continue until the
affairs of the Trust shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the remaining
Trust Property to one or more persons at public or private sale for
consideration which may consist in whole or in part of cash, securities or other
property of any kind, discharge or pay its liabilities, and to do all other acts
appropriate to liquidate its business; provided, that any sale, conveyance,
assignment, exchange, transfer or other disposition of all or substantially all
the Trust Property shall require Shareholder approval in accordance with Section
8.4 hereof; and

      (iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly in cash
and partly in kind, among the Shareholders according to their respective rights
and as required or permitted by the preferences and special or relative rights
and privileges of any Class or Series of Shares.

      (b) After termination of the Trust and distribution to the Shareholders as
herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.

      Section 8.3. Amendment Procedure. (a) Except to the extent that any
Statement or applicable law may require a higher vote or the separate vote of
one or more Classes or Series of Shares, and except as provided in paragraph (c)
of this Section 8.3 this Declaration may be amended by a Majority Shareholder
Vote or by an instrument in writing, without a meeting, signed by a majority of
the Trustees and consented to by the holders of not less than a majority of the
Shares outstanding and entitled to vote. The Trustees may also amend this
Declaration without the vote or consent of Shareholders, to change the name of
the Trust, to supply any omission, to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, to authorize one or more Classes or
Series of Shares or to make any additions and/or changes deemed necessary to
effectuate the designations and powers, preferences and rights, and the
qualifications, limitations and restrictions adopted by the Trustees with
respect to any Class or Series of Shares so authorized pursuant to Article VI of
this Declaration, or if they deem it necessary to conform this Declaration to
the requirements of applicable federal laws or regulations or the requirements
of the regulated investment company provisions of the Internal Revenue Code, but
the Trustees shall not be liable for failing so to do.

      (b) Except to the extent that any Statement or applicable law may require
a higher vote or the separate vote of one or more Classes or Series of Shares,
no amendment may be made under this Section 8.3 which would change any rights
with respect to any Shares by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or consent of the holders of two-thirds
of the Shares outstanding and entitled to vote. Nothing contained in this
Declaration shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, Officers,
employees and agents of the Trust or to permit assessment upon Shareholders.

      (c) No amendment may be made under this Section 8.3 which shall amend,
alter, change or repeal any of the provisions of Sections 8.3, 8.4, 8.6 and 8.7
unless the amendment effecting such amendment, alteration, change or repeal
shall receive the affirmative vote or consent of sixty-six and two-thirds
percent (66 2/3%) of the Shares outstanding and entitled to vote. Such
affirmative vote or consent shall be in addition to the vote or consent of the
holders of Shares otherwise required by law or by the terms of any Class or
Series of preferred stock, whether now or hereafter authorized, or any agreement
between the Trust and any national securities exchange.

      (d) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.

      Section 8.4. Merger, Consolidation and Sale of Assets. The Trust may merge
or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders called
for the purpose by the affirmative vote of the holders of not less than
two-thirds of the Shares outstanding and entitled to vote, or by an instrument
or instruments in writing without a meeting, consented to by the holders of not
less than two-thirds of such Shares, provided, however, that if such merger,
consolidation, sale, lease or exchange is recommended by the Trustees, the vote
or written consent of the holders of a majority of Shares outstanding and
entitled to vote, shall be sufficient authorization; and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to have
been accomplished under and pursuant to the statutes of the Commonwealth of
Massachusetts. Nothing contained herein shall be construed as requiring approval
of shareholder for any sale of assets in the ordinary course of business of the
Trust.

      Section 8.5. Incorporation and Reorganization. With the approval of the
holders of a majority of the Shares outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction, or any other trust,
partnership, association or other organization to take over all of the Trust
Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization in which the Trust holds or is about to acquire shares or any other
interest. Subject to Section 8.4 hereof, the Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, partnerships, associations or other organizations and selling, conveying
or transferring a portion of the Trust Property to such organization or
entities.

      Section 8.6. Conversion. Notwithstanding any other provision of this
Declaration, the conversion of the Trust from a "closed-end company" to an
"open-end company," as those terms are defined in Sections 5(a)(2) and 5(a)(1),
respectively, of the 1940 Act as in effect on June 1, 1986, shall require the
affirmative vote or consent of the holders of sixty-six and two-thirds percent
(66 2/3%) of the Shares of each Class outstanding and entitled to vote. Such
affirmative vote or consent shall be in addition to the vote or consent of the
holders of the Shares otherwise required by law or by the terms of any Class or
Series of preferred stock, whether now or hereafter authorized, or any agreement
between the Trust and any national securities exchange.

      Section 8.7. Certain Transactions. (a) Notwithstanding any other provision
of this Declaration and subject to the exceptions provided in paragraph (d) of
this Section, the types of transactions described in paragraph (c) of this
Section shall require the affirmative vote or consent of the holders of
sixty-six and two-thirds (66 2/3%) of the Shares outstanding and entitled to
vote, when a Principal Shareholder (as defined in paragraph (b) of this Section)
is a party to the transaction. Such affirmative vote or consent shall be in
addition to the vote or consent of the holders of Shares otherwise required by
law or by the terms of any Class or Series of preferred stock, whether now or
hereafter authorized, or any agreement between the Trust and any national
securities exchange.

      (b) The term "Principal Shareholder" shall mean any corporation, person or
other entity which is the beneficial owner, directly or directly, of more than
five percent (5%) of the outstanding Shares and shall include any affiliate or
associate, as such terms are defined in clause (ii) below, of a Principal
Shareholder. For the purposes of this Section, in addition to the Shares which a
corporation, person or other entity beneficially owns directly, (a) any
corporation, person or other entity shall be deemed to be the beneficial owner
of any Shares (i) which it has the right to acquire pursuant to any agreement or
upon exercise of conversion rights or warrants, or otherwise (but excluding
share options granted by the Trust) or (ii) which are beneficially owned,
directly or indirectly (including Shares deemed owned through application of
clause (i) above), by any other corporation, person or entity with which its
"affiliate" or "associate" (as defined below) has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of
Shares, or which is its "affiliate", or "associate" as those terms are defined
in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934 as in effect on December 1, 1986, and (b) the outstanding Shares
shall include Shares deemed owned through application of clauses (i) and (ii)
above but shall not include any other Shares which may be issuable pursuant to
any agreement, or upon exercise of conversion rights or warrants, or otherwise.

      (c) This Section shall apply to the following transactions:

      (i)   The merger or consolidation of the Trust or any subsidiary of the
            Trust with or into any Principal Shareholder.

      (ii)  The issuance of any securities of the Trust to any Principal
            Shareholder for cash.

      (iii) The sale, lease or exchange of all or any substantial part of the
            assets of the Trust to any Principal Shareholder (except assets
            having an aggregate fair market value of less than $1,000,000,
            aggregating for the purpose of such computation all assets sold,
            leased or exchanged in any series of similar transactions within a
            twelve-month period).

      (iv)  The sale, lease or exchange to the Trust or any subsidiary thereof,
            in exchange for securities of the Trust of any assets of any
            Principal Shareholder (except assets having an aggregate fair market
            value of less than $1,000,000, aggregating for the purposes of such
            computation all assets sold, leased or exchanged in any series of
            similar transactions within a twelve-month period).

      (d) The provisions of this Section shall not be applicable to (i) any of
the transactions described in paragraph (c) of this Section if the Board of
Trustees of the Trust shall by resolution have approved a memorandum of
understanding with such Principal Shareholder with respect to and substantially
consistent with such transaction, or (ii) any such transaction with any
corporation of which a majority of the outstanding shares of all classes of
stock normally entitled to vote in elections of directors is owned of record or
beneficially by the Trust and its subsidiaries.

      (e) The Board of Trustees shall have the power and duty to determine for
the purposes of this Section on the basis of information known to the Trust,
whether (i) a corporation, person or entity beneficially owns more than five
percent (5%) of the outstanding Shares, (ii) a corporation, person or entity is
an "affiliate" or "associate" (as defined above) of another, (iii) the assets
being acquired or leased to or by the Trust or any subsidiary thereof,
constitute a substantial part of the assets of the Trust and have an aggregate
fair market value of less than $1,000,000, and (iv) the memorandum of
understanding referred to in paragraph (d) hereof is substantially consistent
with the transaction covered thereby. Any such determination shall be conclusive
and binding for all purposes of this Section.

                                   ARTICLE IX

                             REPORTS TO SHAREHOLDERS

      The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.

                                    ARTICLE X

                                  MISCELLANEOUS

      Section 10.1. Filing. This Declaration and any amendment hereto and any
Statement shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon its filing. A restated Declaration,
integrating into a single instrument all of the provisions of the Declaration
which are then in effect and operative, may be executed from time to time by a
majority of the Trustees and shall, upon filing with the Secretary of the
Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendments thereto.

      Section 10.2. Governing Law. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said State.

      Section 10.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.

      Section 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.

      Section 10.5. Provisions in Conflict with Law or Regulations. (a) The
provisions of the Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code, or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of the
Declaration; provided however, that such determination shall not affect any of
the remaining provisions of the Declaration or render invalid or improper any
action taken or omitted prior to such determination.

      (b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
<PAGE>

      IN WITNESS WHEREOF, the undersigned have executed this instrument as of
this 6th day of November, 2000.



                                          J. Atwood Ives
                                          ---------------------------------
                                          J. Atwood Ives, as
                                          Trustee and not individually

                                          500 Boylston Street
                                          Boston, Massachusetts



                                          Lawrence T. Perera
                                          ---------------------------------
                                          Lawrence T. Perera, as
                                          Trustee and not individually

                                          500 Boylston Street
                                          Boston, Massachusetts



                                          Charles W . Schmidt
                                          ---------------------------------
                                          Charles W . Schmidt, as
                                          Trustee and not individually

                                          500 Boylston Street
                                          Boston, Massachusetts



                                          Arnold D. Scott
                                          ---------------------------------
                                          Arnold D. Scott, as
                                          Trustee and not individually

                                          500 Boylston Street
                                          Boston, Massachusetts



                                          Jeffrey L. Shames
                                          ---------------------------------
                                          Jeffrey L. Shames, as
                                          Trustee and not individually

                                          500 Boylston Street
                                          Boston, Massachusetts



                                          Elaine R. Smith
                                          ---------------------------------
                                          Elaine R. Smith, as
                                          Trustee and not individually

                                          500 Boylston Street
                                          Boston, Massachusetts



                                          William J. Poorvu
                                          ---------------------------------
                                          William J. Poorvu, as
                                          Trustee and not individually

                                          500 Boylston Street
                                          Boston, Massachusetts



                                          David B. Stone
                                          ---------------------------------
                                          David B. Stone, as
                                          Trustee and not individually

                                          500 Boylston Street
                                          Boston, Massachusetts
<PAGE>

                          COMMONWEALTH OF MASSACHUSETTS

SUFFOLK, SS                         BOSTON, MASSACHUSETTS
                                          November 6, 2000

      Then personally appeared the above-named J. Atwood Ives, Lawrence T.
Perera, William J. Poorvu, Charles W . Schmidt, Arnold D. Scott, Jeffrey L.
Shames, Elaine R. Smith and David B. Stone, and who severally acknowledged
the foregoing instrument to be their free act and deed.

                                          Before me,



                                          Kathleen M. White
                                          ------------------------------
                                          Notary Public
                                          My Commission Expires:  July 26, 2007

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(A)(2)
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>STATEMENT CREATING THE MUNICIPAL PREFERRED SHARES
<TEXT>

<PAGE>

                                                                  Exhibit (a)(2)

                           MFS MUNICIPAL INCOME TRUST

                        STATEMENT DATED DECEMBER 4, 2000
                             CREATING TWO SERIES OF
                        MUNICIPAL AUCTION RATE CUMULATIVE
                         PREFERRED SHARES ("STATEMENT")

         WHEREAS the Board of Trustees of MFS Municipal Income Trust (the
"Trust") is expressly empowered pursuant to Section 6.1 of the Trust's
Declaration of Trust to authorize the issuance of shares of the Trust in one or
more classes and series, with such preferences, powers, restrictions,
limitations or qualifications as determined by the Board of Trustees and as set
forth in the resolution or resolutions providing for the issuance of such
preferred shares; and

         WHEREAS the Board of Trustees has determined that it is in the best
interests of the Trust to issue one or more series of preferred shares of the
Trust.

         NOW THEREFORE, the Board of Trustees does hereby authorize the issuance
of two series of preferred shares, without par value, liquidation preference
$25,000 per share plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared), to be designated respectively:
Municipal Auction Rate Cumulative Preferred Shares, Series T and Municipal
Auction Rate Cumulative Preferred Shares, Series TH. The preferences, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption, of the preferred shares are as follows:

                                     PART I
                                   DESIGNATION

         SERIES T: A series of 2,800 preferred shares, without par value,
liquidation preference $25,000 per share plus accumulated but unpaid dividends,
if any, thereon (whether or not earned or declared), is hereby designated
"Municipal Auction Rate Cumulative Preferred Shares, Series T" and is referred
to below as "Series T Municipal Preferred." Each share of Series T Municipal
Preferred shall be issued on ________ __, ____; have an Applicable Rate for its
Initial Rate Period equal to [____]% per annum; have an initial Dividend Payment
Date of Wednesday, ________ __, ____; and have such other preferences,
limitations and relative voting and other rights, in addition to those required
by applicable law or set forth in the Trust's Declaration of Trust, as are set
forth in Part I and Part II of this Statement. Series T Municipal Preferred
shall constitute a separate series of Municipal Preferred of the Trust.

         SERIES TH: A series of 2,800 preferred shares, without par value,
liquidation preference $25,000 per share plus accumulated but unpaid dividends,
if any, thereon (whether or not earned or declared), is hereby designated
"Municipal Auction Rate Cumulative Preferred Shares, Series TH" and is referred
to below as "Series TH Municipal Preferred." Each share of Series TH Municipal
Preferred shall be issued on ________ __, ____; have an Applicable Rate for its
Initial Rate Period equal to [____]% per annum; have an initial Dividend Payment
Date of Friday, ________ __, ____; and have such other preferences, limitations
and relative voting and other rights, in addition to those required by
applicable law or set forth in the Trust's Declaration of Trust, as are set
forth in Part I and Part II of this Statement. Series TH Municipal Preferred
shall constitute a separate series of Municipal Preferred of the Trust.

         The Board of Trustees of the Trust may, in their discretion, authorize
the issuance of one or more additional series of Municipal Preferred and may, in
their discretion, increase the number of shares of any series of Municipal
Preferred so long as such issuance is permitted by paragraph 5 of this Part I of
this Statement.

1. DEFINITIONS. Unless the context or use indicates another or different meaning
or intent, in Part I and Part II of this Statement the following terms have the
following meanings, whether used in the singular or plural:

         "'AA' Composite Commercial Paper Rate," on any date for any Rate Period
of shares of a series of Municipal Preferred, shall mean (i) (A) in the case of
any Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period
Days, the interest equivalent of the 30-day rate; provided, however, that if
such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial
Paper Rate is being used to determine the Applicable Rate for shares of such
series when all of the Outstanding shares of such series are subject to
Submitted Hold Orders, then the interest equivalent of the seven-day rate, and
(B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer than 85 Rate Period Days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the interest
equivalent of the 120-day and 180-day rates; and (7) 162 or more but fewer than
183 Rate Period Days, the interest equivalent of the 180-day rate, in each case
on commercial paper placed on behalf of issuers whose corporate bonds are rated
"AA" by S&P or the equivalent of such rating by S&P or another rating agency, as
made available on a discount basis or otherwise by the Federal Reserve Bank of
New York for the Business Day next preceding such date; or (ii) in the event
that the Federal Reserve Bank of New York does not make available any such rate,
then the arithmetic average of such rates, as quoted on a discount basis or
otherwise, by the Commercial Paper Dealers to the Auction Agent for the close of
business on the Business Day next preceding such date. If any Commercial Paper
Dealer does not quote a rate required to determine the "AA" Composite Commercial
Paper Rate, the "AA" Composite Commercial Paper Rate shall be determined on the
basis of the quotation or quotations furnished by the remaining Commercial Paper
Dealer or Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Trust to provide such rate
or rates not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Trust does not select any such
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by
the remaining Commercial Paper Dealer or Commercial Paper Dealers. For purposes
of this definition, the "interest equivalent" of a rate stated on a discount
basis (a "discount rate") for commercial paper of a given days' maturity shall
be equal to the quotient (rounded upwards to the next higher one-thousandth
(.001) of 1% of (A) the discount rate divided by (B) the difference between (x)
1.00 and (y) a fraction the numerator of which shall be the product of the
discount rate times the number of days in which such commercial paper matures
and the denominator of which shall be 360.

         "Accountant's Confirmation" shall have the meaning specified in
paragraph 7(c) of this Part I of this Statement.

         "Affiliate" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by, in
control of or under common control with the Trust; provided, however, that no
Broker-Dealer controlled by, in control of or under common control with the
Trust shall be deemed to be an Affiliate nor shall any corporation or any Person
controlled by, in control of or under common control with such corporation, one
of the trustees, directors or executive officers of which is a trustee of the
Trust be deemed to be an Affiliate solely because such trustee, director or
executive officer is also a trustee of the Trust.

         "Agent Member" shall mean a member of or participant in the Securities
Depository that will act on behalf of a Bidder.

         "Anticipation Notes" shall mean Tax Anticipation Notes (TANs), Revenue
Anticipation Notes (RANs), Tax and Revenue Anticipation Notes (TRANs), Grant
Anticipation Notes (GANs) that are rated by S&P and Bond Anticipation Notes
(BANs).

         "Applicable Rate" shall have the meaning specified in paragraph 2(e)(i)
of this Part I of this Statement.

         "Auction" shall mean each periodic implementation of the Auction
Procedures.

         "Auction Agency Agreement" shall mean the agreement between the Trust
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for shares of a series of Municipal Preferred so long as the Applicable
Rate for shares of such series is to be based on the results of an Auction.

         "Auction Agent" shall mean the entity appointed as such by a resolution
of the Board of Trustees in accordance with paragraph 6 of Part II of this
Statement.

         "Auction Date," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.

         "Auction Procedures" shall mean the procedures for conducting Auctions
set forth in Part II of this Statement.

         "Available Municipal Preferred" shall have the meaning specified in
paragraph 3(a) of Part II of this Statement.

         "Benchmark Rate" shall have the meaning specified in paragraph 3(c) of
Part II of this Statement.

         "Beneficial Owner" with respect to shares of a series of Municipal
Preferred, 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 such series.

         "Bid" and "Bids" shall have the respective meanings specified in
paragraph 1(a) of Part II of this Statement.

         "Bidder" and "Bidders" shall have the respective meanings specified in
paragraph 1(a) of Part II of this Statement; provided, however, that neither the
Trust nor any affiliate thereof shall be permitted to be a Bidder in an Auction,
except that any Broker-Dealer that is an affiliate of the Trust may be a Bidder
in an Auction, but only if the Orders placed by such Broker-Dealer are not for
its own account.

         "Board of Trustees" shall mean the Board of Trustees of the Trust or
any duly authorized committee thereof.

         "Broker-Dealer" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions required of a Broker-Dealer in
Part II of this Statement, that is a member of, or a participant in, the
Securities Depository or is an affiliate of such member or participant, has been
selected by the Trust and has entered into a Broker-Dealer Agreement that
remains effective.

         "Broker-Dealer Agreement" shall mean an agreement between the Auction
Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow
the procedures specified in Part II of this Statement.

         "Business Day" shall mean a day on which the New York Stock Exchange is
open for trading, and which is neither a Saturday, Sunday nor any other day on
which banks in The City of New York, New York are authorized by law to close.

         "By-laws" means the Amended and Restated By-laws of the Trust, as may
be further amended from time to time.

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

         "Commercial Paper Dealers" means [Lehman Commercial Paper Incorporated,
Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated] and
such other commercial paper dealer or dealers as the Trust may from time to time
appoint, or, in lieu of any thereof, their respective affiliates or successors.

         "Common Shares" means the common shares of beneficial interest, without
par value, of the Trust.

         "Cure Date" shall have the meaning specified in paragraph 11(b) of this
Part I of this Statement.

         "Date of Original Issue" with respect to shares of a series of
Municipal Preferred, shall mean the date on which the Trust originally issued
such shares.

         "Declaration" shall mean the Amended and Restated Declaration of Trust
dated November 6, 2000 of the Trust, on file with the Secretary of The
Commonwealth of Massachusetts and as hereafter restated or amended from time to
time.

         "Deposit Securities" shall mean cash and Municipal Obligations rated at
least A-1+ or SP-1+ by S&P, except that, for purposes of subparagraph (a)(v) of
paragraph 11 of Part I of this Statement, such Municipal Obligations shall be
considered "Deposit Securities" only if they are also rated P-1, MIG-1 or VMIG-1
by Moody's.

         "Discounted Value," as of any Valuation Date, shall mean, (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) (a) with respect to a
Moody's Eligible Asset that is not currently callable as of such Valuation Date
at the option of the issuer thereof, the quotient of the Market Value thereof
divided by the applicable Moody's Discount Factor, or (b) with respect to a
Moody's Eligible Asset that is currently callable as of such Valuation Date at
the option of the issuer thereof, the quotient of (1) the lesser of the Market
Value or call price thereof, including any call premium, divided by (2) the
applicable Moody's Discount Factor.

         "Dividend Payment Date," with respect to shares of a series of
Municipal Preferred, shall mean any date on which dividends are payable on
shares of such series pursuant to the provisions of paragraph 2(d) of Part I of
this Statement.

         "Dividend Period," with respect to shares of a series of Municipal
Preferred, shall mean the period from and including the Date of Original Issue
of shares of such series to but excluding the initial Dividend Payment Date for
shares of such series and any period thereafter from and including one Dividend
Payment Date for shares of such series to but excluding the next succeeding
Dividend Payment Date for shares of such series; provided, however, that the
Dividend Periods for each of Series T Municipal Preferred and Series TH
Municipal Preferred will never be co-extensive with the Dividend Period of the
other series of Municipal Preferred unless the Trust has received an opinion of
tax counsel that having such co-extensive periods will not affect the
deductibility, for federal income tax purposes, of dividends paid on the
different series of Municipal Preferred.

         "Escrowed Bonds" means Municipal Obligations that (i) have been
determined to be legally defeased in accordance with S&P/Moody's legal
defeasance criteria, (ii) have been determined to be economically defeased in
accordance with S&P's economic defeasance criteria and assigned a rating of AAA
by S&P and a rating of Aaa by Moody's, (iii) are not rated by S&P but have been
determined to be legally defeased by Moody's or not rated by Moody's but have
been determined to be legally defeased by S&P, or (iv) have been determined to
be economically defeased by Moody's and assigned a rating no lower than the
rating that is Moody's equivalent of S&P's AAA rating or have been determined to
be economically defeased by S&P and assigned a rating no lower than the rating
that is S&P's equivalent of Moody's Aaa rating.

         "Existing Holder," with respect to shares of a series of Municipal
Preferred, shall mean a Broker-Dealer (or any such other Person as may be
permitted by the Trust) that is listed on the records of the Auction Agent as a
holder of shares of such series.

         "Failure to Deposit," with respect to shares of a series of Municipal
Preferred, shall mean a failure by the Trust to pay to the Auction Agent, not
later than 12:00 noon, New York City time, (A) on any Dividend Payment Date for
shares of such series, in funds available on such Dividend Payment Date in The
City of New York, New York, the full amount of any dividend (whether or not
earned or declared) to be paid on such Dividend Payment Date on any share of
such series or (B) on any redemption date in funds available on such redemption
date for shares of such series in The City of New York, New York, the Redemption
Price to be paid on such redemption date for any shares of such series after
notice of redemption is mailed pursuant to paragraph 11(c) of Part I of this
Statement; provided, however, that the foregoing clause (B) shall not apply to
the Trust's failure to pay the Redemption Price in respect of shares of
Municipal Preferred when the related Notice of Redemption provides that
redemption of such shares is subject to one or more conditions precedent and any
such condition precedent shall not have been satisfied at the time or times and
in the manner specified in such Notice of Redemption.

         "Federal Tax Rate Increase" shall have the meaning specified in the
definition of "Moody's Volatility Factor."

         "Gross-up Payment" in respect of any dividend means payment to a Holder
of shares of a series of Municipal Preferred of an amount which, giving effect
to the Taxable Allocations made with respect to such dividend, would cause such
Holder's after-tax returns (taking into account both the Taxable Allocations and
the Gross-up Payment) to be equal to the after-tax return the Holder would have
received if no such Taxable Allocations had occurred. Such Gross-up Payment
shall be calculated: (i) without consideration being given to the time value of
money; (ii) assuming that no Holder of shares of Municipal Preferred is subject
to the Federal alternative minimum tax with respect to dividends received from
the Trust; and (iii) assuming that each Holder of shares of Municipal Preferred
is taxable at the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or net capital gain, as applicable, or the maximum
marginal regular Federal corporate income tax rate applicable to ordinary income
or net capital gain, as applicable, whichever is greater, in effect at the time
such Gross-up Payment is made.

         "Holder," with respect to shares of a series of Municipal Preferred,
shall mean the Registered Holder of such shares as the same appears on the
record books of the Trust.

         "Hold Order" and "Hold Orders" shall have the respective meanings
specified in paragraph 1(a) of Part II of this Statement.

         "Independent Accountant" shall mean a nationally recognized accountant,
or firm of accountants, that is, with respect to the Trust, an independent
public accountant or firm of independent public accountants under the Securities
Act of 1933, as amended from time to time.

         "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.

         "Initial Rate Period," with respect to shares of a series of Municipal
Preferred, shall mean the period from and including the Date of Original Issue
for such series to but excluding the initial Dividend Payment Date for such
series.

         "Interest Equivalent" shall mean a yield on a 360-day basis of a
discount basis security which is equal to the yield on an equivalent
interest-bearing security.

         "Inverse Floater" shall mean trust certificates or other instruments
evidencing interests in one or more municipal securities that qualify as S&P
Eligible Assets and Moody's Eligible Assets (and satisfy the issuer and size
requirements of the definition of 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 or original issuance unless the floating rate instrument has only
one reset remaining until maturity.

         "Kenny Index" shall have the meaning set forth under the definition of
"Taxable Equivalent of the Short-Term Municipal Bond Rate."

         "Liquidation Preference," with respect to a given number of shares of
Municipal Preferred, means $25,000 times that number.

         "Market Value" of any asset of the Trust means the market value thereof
determined by the Pricing Services. Market Value of any asset shall include any
interest accrued thereon. The Pricing Services will use current industry
standards to value portfolio securities. The Pricing Services may employ
electronic data processing techniques or a matrix system, or both, to determine
valuations. Futures contracts and options shall be valued at closing prices for
such instruments established by the exchange or board of trade on which they are
traded. Securities for which quotations are not readily available ("Internally
Priced Securities") shall be valued at fair value on a consistent basis using
methods determined in good faith by the Board of Trustees.

         "Maximum Potential Gross-up Payment Liability," as of any Valuation
Date, shall mean the aggregate amount of Gross-up Payments that would be due if
the Trust were to make Taxable Allocations, with respect to any taxable year,
estimated based upon dividends paid and the amount of undistributed realized net
capital gains and other taxable income earned by the Trust, as of the end of the
calendar month immediately preceding such Valuation Date, and assuming such
Gross-up Payments are fully taxable.

         "Maximum Rate," for shares of a series of Municipal Preferred on any
Auction Date for shares of such series, shall mean:

                  (i) in the case of any Auction Date which is not the Auction
         Date immediately prior to the first day of any proposed Special Rate
         Period designated by the Trust pursuant to paragraph 4 of Part I of
         this Statement, the product of (A) the Reference Rate on such Auction
         Date for the next Rate Period of shares of such series and (B) the Rate
         Multiple on such Auction Date, unless shares of such series have or had
         a Special Rate Period (other than a Special Rate Period of 28 Rate
         Period Days or fewer) and an Auction at which Sufficient Clearing Bids
         existed has not yet occurred for a Minimum Rate Period of shares of
         such series after such Special Rate Period, in which case the higher
         of:

                           (A) the dividend rate on shares of such series for
                  the then-ending Rate Period; and

                           (B) the product of (1) the higher of (x) the
                  Reference Rate on such Auction Date for a Rate Period equal in
                  length to the then-ending Rate Period of shares of such
                  series, if such then-ending Rate Period was 364 Rate Period
                  Days or fewer, or the Treasury Note Rate on such Auction Date
                  for a Rate Period equal in length to the then-ending Rate
                  Period of shares of such series, if such then-ending Rate
                  Period was more than 364 Rate Period Days, and (y) the
                  Reference Rate on such Auction Date for a Rate Period equal in
                  length to such Special Rate Period of shares of such series,
                  if such Special Rate Period was 364 Rate Period Days or fewer,
                  or the Treasury Note Rate on such Auction Date for a Rate
                  Period equal in length to such Special Rate Period, if such
                  Special Rate Period was more than 364 Rate Period Days and (2)
                  the Rate Multiple on such Auction Date; or

                  (ii) in the case of any Auction Date which is the Auction Date
         immediately prior to the first day of any proposed Special Rate Period
         designated by the Trust pursuant to paragraph 4 of Part I of this
         Statement, the product of (A) the highest of (1) the Reference Rate on
         such Auction Date for a Rate Period equal in length to the then-ending
         Rate Period of shares of such series, if such then-ending Rate Period
         was 364 Rate Period Days or fewer, or the Treasury Note Rate on such
         Auction Date for a Rate Period equal in length to the then-ending Rate
         Period of shares of such series, if such then-ending Rate Period was
         more than 364 Rate Period Days, (2) the Reference Rate on such Auction
         Date for the Special Rate Period for which the Auction is being held if
         such Special Rate Period is 364 Rate Period Days or fewer or the
         Treasury Note Rate on such Auction Date for the Special Rate Period for
         which the Auction is being held if such Special Rate Period is more
         than 364 Rate Period Days, and (3) the Reference Rate on such Auction
         Date for Minimum Rate Periods and (B) the Rate Multiple on such Auction
         Date.

         "Minimum Rate Period" shall mean any Rate Period consisting of 7 Rate
Period Days.

         "Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.

         "Moody's Discount Factor" shall mean, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the Moody's
Exposure Period, in accordance with the table set forth below:

<TABLE>
<CAPTION>
                                                   Rating Category
                                                   ---------------

Exposure Period         Aaa*     Aa*      A*       Baa*      Other**    (V)MIG-1***    SP-1+****    Unrated*****
- ---------------         ----     ---      --       ----      -------    -----------    ---------    ------------
<S>                     <C>      <C>      <C>      <C>       <C>        <C>            <C>          <C>
7 weeks ...........     151%     159%     166%     173%      187%       136%           148%         225%
8 weeks or less but
greater than seven
weeks .............     154      161      168      176       190        137            149          231
9 weeks or less but
greater than eight
weeks .............     156      163      170      177       192        138            150          240

*     Moody's rating.
**    Municipal Obligations not rated by Moody's but rated BBB by S&P.
***   Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or have a demand feature at par exercisable
      in 30 days and which do not have a long-term rating.
****  Municipal Obligations not rated by Moody's but rated SP-1+ by S&P, which do not mature or have a demand feature
      at par exercisable in 30 days and which do not have a long-term rating.
***** Municipal Obligations rated less than Baa3 by Moody's or less than BBB by S&P or not rated by Moody's or S&P.
</TABLE>

         Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or
have a demand feature at par exercisable in 30 days or less or 125% so long as
such Municipal Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable in 30 days or less and (ii)
no Moody's Discount Factor will be applied to cash or futures, options and
similar instruments (to the extent such securities are Moody's Eligible Assets);
provided, however, that for purposes of determining the Moody's Discount Factor
applicable to a Municipal Obligation, any Municipal Obligation (excluding any
short-term Municipal Obligation) not rated by Moody's but rated by S&P shall be
deemed to have a Moody's rating which is one full rating category lower than its
S&P rating.

         "Moody's Eligible Asset" shall mean trade date cash, futures, options,
U.S. Government Securities (which are valued for the purposes of meeting the
Municipal Preferred Basic Maintenance Amount without application of any discount
factor), inverse floaters that are one time levered, and similar instruments or
a Municipal Obligation that (i) pays interest in cash, (ii) does not have its
Moody's rating, if applicable, suspended by Moody's, (iii) is part of an issue
of Municipal Obligations of at least $10,000,000 (including Escrowed Bonds that
are legally defeased), and (iv) is not subject to a covered call or a covered
put option written by the Trust. These eligible assets are valued or accounted
for on a trade date basis assuming normal settlement for the Municipal Market.
Municipal Obligations issued by any one issuer (excluding escrowed bonds) and
not rated by Moody's or rated lower than Baa3 by Moody's and not rated by S&P or
rated lower than BBB by S&P ("Unrated Moody's Municipal Obligations"), together
with any Municipal Obligations issued by the same issuer and rated BBB by S&P
may comprise no more than 4% of total Moody's Eligible Assets; such BBB-rated
Municipal Obligations and Unrated Moody's Municipal Obligations, if any,
together with any Municipal Obligations issued by the same issuer and rated Baa
by Moody's or A by S&P may comprise no more than 6% of total Moody's Eligible
Assets; such BBB, Baa and A rated Municipal Obligations and Unrated Moody's
Municipal Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated A by Moody's or AA by S&P, may comprise no more than
10% of total Moody's Eligible Assets; and such BBB, Baa, A and AA-rated
Municipal Obligations and Unrated Moody's Municipal Obligations, if any,
together with any Municipal Obligations issued by the same issuer and rated Aa
by Moody's or AAA by S&P, may comprise no more than 20% of total Moody's
Eligible Assets. For purposes of the foregoing sentence, any Municipal
Obligation backed by the guaranty, letter of credit or insurance issued by a
third party shall 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 Municipal
Obligations. Municipal Obligations issued by issuers located within a single
state or territory (excluding escrowed bonds) and not rated by Moody's or rated
lower than Baa3 by Moody's and not rated by S&P or rated lower than BBB by S&P,
together with any Municipal Obligations issued by issuers located within the
same state or territory and rated BBB by S&P may comprise no more than 12% of
total Moody's Eligible Assets; such BBB-rated Municipal Obligations and Unrated
Moody's Municipal Obligations, if any, together with any Municipal Obligations
issued by issuers located within the same state or territory and rated Baa by
Moody's or A by S&P, may comprise no more than 20% of total Moody's Eligible
Assets; such BBB, Baa and A-rated Municipal Obligations and Unrated Moody's
Municipal Obligations, if any, together with any Municipal Obligations issued by
issuers located within the same state or territory and rated A by Moody's or AA
by S&P, may comprise no more than 40% of total Moody's Eligible Assets; and such
BBB, Baa, A and AA-rated Municipal Obligations and Unrated Moody's Municipal
Obligations, if any, together with any Municipal Obligations issued by issuers
located within the same state or territory and rated Aa by Moody's or AAA by
S&P, may comprise no more than 60% of total Moody's Eligible Assets. Municipal
Obligations which are not rated by Moody's or S&P may comprise no more than 40%
of the aggregate Market Value of Moody's Eligible Assets; provided, however,
that if the Market Value of such Municipal Obligations exceeds 40% of the
aggregate Market Value of Moody's Eligible Assets, a portion of such Municipal
Obligations (selected by the Trust) shall not be considered Moody's Eligible
Assets, so that the Market Value of such Municipal Obligations (excluding such
portion) does not exceed 40% of the aggregate Market Value of Moody's Eligible
Assets; provided, however, that no such unrated Municipal Obligation shall be
considered a Moody's Eligible Asset if such Municipal Obligation shall be in
"default", which term shall mean for purposes of this definition, either (a) the
nonpayment by the issuer of interest or principal when due or (b) the
notification of the Trust by the trustee under the underlying indenture or other
governing instrument for such Municipal Obligation that the issuer will fail to
pay when due principal or interest on such Municipal Obligation. For purposes of
applying the foregoing requirements, a Municipal Obligation shall be deemed to
be rated BBB by S&P if rated BBB-, BBB or BBB+ by S&P, and Municipal Obligations
rated MIG-1, VMIG-1 or P-1 or, if not rated by Moody's, rated A-1+/AA or
SP-1+/AA by S&P, shall be considered to have a long-term rating of A. When the
Trust sells a Municipal Obligation and agrees to repurchase such Municipal
Obligation at a future day, such Municipal Obligation shall be valued at its
Discounted Value for purposes of determining Moody's Eligible Assets, and the
amount of the repurchase price of such Municipal Obligation shall be included as
a liability for purposes of calculating the Municipal Preferred Basic
Maintenance Amount. When the Trust purchases a Moody's Eligible Asset and agrees
to sell it at a future date, such Eligible Asset shall be valued at the amount
of cash to be received by the Trust upon such future date, provided that the
counterparty to the transaction has a long-term debt rating of at least A2 and a
short-term debt rating of at least P1 from Moody's and the transaction has a
term of no more than 30 days; otherwise such Eligible Asset shall be valued at
the Discounted Value of such Eligible Asset. For purposes of determining the
aggregate Discounted Value of Moody's Eligible Assets, such aggregate amount
shall be reduced with respect to any futures contracts as set forth in paragraph
10(a) of this Part I.

         Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent it is (i) subject to any material lien,
mortgage, pledge, security interest or security agreement of any kind
(collectively, "Liens"), except for (a) Liens which are being contested in good
faith by appropriate proceedings and which Moody's has indicated to the Trust
will not affect the status of such asset as a Moody's Eligible Asset, (b) Liens
for taxes that are not then due and payable or that can be paid thereafter
without penalty, (c) Liens to secure payment for services rendered or cash
advanced to the Trust by [Massachusetts Financial Services Company], [The Chase
Manhattan Bank] or the Auction Agent and (d) Liens by virtue of any repurchase
agreement or futures contract; or (ii) deposited irrevocably for the payment of
any liabilities for purposes of determine the Municipal Preferred Basic
Maintenance Amount. In addition, an asset will not be considered a Moody's
Eligible Asset if it is an Internally Priced Security (as defined under "Market
Value").

         "Moody's Exposure Period" shall mean the period commencing on a given
Valuation Date and ending 49 days thereafter.

         "Moody's Volatility Factor" shall mean, as of any Valuation Date, (i)
in the case of any Minimum Rate Period, any Special Rate period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or more,
a multiplicative factor equal to 275%, except as otherwise provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period Days, a multiplicative factor equal to
203%; (iii) in the case of any Special Rate Period of more than 35 but fewer
than 43 Rate Period Days, a multiplicative factor equal to 217%; (iv) in the
case of any Special Rate Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative
factor equal to 235%. If, as a result of the enactment of changes to the Code,
the greater of the maximum marginal Federal individual income tax rate
applicable to ordinary income and the maximum marginal Federal corporate income
tax rate applicable to ordinary income will increase, such increase being
rounded up to the next five percentage points (the "Federal Tax Rate Increase"),
until the effective date of such increase, the Moody's Volatility Factor in the
case of any Rate Period described in (i) above in this definition instead shall
be determined by reference to the following table:

                       Federal                  Volatility
                  Tax Rate Increase               Factor
                  -----------------               ------
                         5%                        295%
                        10%                        317%
                        15%                        341%
                        20%                        369%
                        25%                        400%
                        30%                        436%
                        35%                        477%
                        40%                        525%

         "Municipal Obligations" shall mean "Municipal Obligations" as defined
in the Trust's registration statement on Form N-2 as filed with the Securities
and Exchange Commission on July 27, 2000 and November 28, 2000 (the
"Registration Statement").

         "Municipal Preferred" shall mean the Municipal Auction Rate Cumulative
Preferred Shares, Series T and/or Series TH without par value, liquidation
preference $25,000 per share, of the Trust.

         "Municipal Preferred Basic Maintenance Amount," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i) (A) the product of
the number of shares of Municipal Preferred outstanding on such date multiplied
by $25,000 (plus the product of the number of shares of any other series of
Preferred Shares outstanding on such date multiplied by the liquidation
preference of such shares), plus any redemption premium applicable to shares of
Municipal Preferred (or other Preferred Shares) then subject to redemption; (B)
the aggregate amount of dividends that will have accumulated at the respective
Applicable Rates (whether or not earned or declared) to (but not including) the
first respective Dividend Payment Dates for shares of Municipal Preferred
outstanding that follow such Valuation Date (plus the aggregate amount of
dividends, whether or not earned or declared, that will have accumulated in
respect of other outstanding Preferred Shares to, but not including, the first
respective dividend payment dates for such other shares that follow such
Valuation Date); (C) the aggregate amount of dividends that would accumulate on
shares of each series of Municipal Preferred outstanding from such first
respective Dividend Payment Date therefor through the 49th day after such
Valuation Date, at the Maximum Rate (calculated as if such Valuation Date were
the Auction Date for the Rate Period commencing on such Dividend Payment Date)
for a Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, assuming, solely for purposes of the foregoing, that if on such
Valuation Date the Trust shall have delivered a Notice of Special Rate Period to
the Auction Agent pursuant to paragraph 4(d)(i) of this Part I with respect to
shares of such series, such Maximum Rate shall be the higher of (a) the Maximum
Rate for the Special Rate Period of shares of such series to commence on such
Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period of
shares of such series to commence on such Dividend Payment Date, multiplied by
the Volatility Factor applicable to a Minimum Rate Period, or, in the event the
Trust shall have delivered a Notice of Special Rate Period to the Auction Agent
pursuant to paragraph 4(d)(i) of this Part I with respect to shares of such
series designating a Special Rate Period consisting of 49 Rate Period Days or
more, the Volatility Factor applicable to a Special Rate Period of that length
(plus the aggregate amount of dividends that would accumulate at the maximum
dividend rate or rates on any other Preferred Shares outstanding from such
respective dividend payment dates through the 49th day after such Valuation
Date, as established by or pursuant to the respective statements establishing
and fixing the rights and preferences of such other Preferred Shares) (except
that (1) if such Valuation Date occurs at a time when a Failure to Deposit (or,
in the case of Preferred Shares other than Municipal Preferred, a failure
similar to a Failure to Deposit) has occurred that has not been cured, the
dividend for purposes of calculation would accumulate at the current dividend
rate then applicable to the shares in respect of which such failure has occurred
and (2) for those days during the period described in this subparagraph (C) in
respect of which the Applicable Rate in effect immediately prior to such
Dividend Payment Date will remain in effect (or, in the case of the Preferred
Shares other than Municipal Preferred, in respect of which the dividend rate or
rates in effect immediately prior to such respective dividend payment dates will
remain in effect), the dividend for purposes of calculation would accumulate at
such Applicable Rate (or other rate or rates, as the case may be) in respect of
those days); (D) the amount of anticipated expenses of the Trust for the 90 days
subsequent to such Valuation Date; (E) the amount of the Trust's Maximum
Potential Gross-up Payment Liability in respect of shares of Municipal Preferred
(and similar amounts payable in respect of other Preferred Shares pursuant to
provisions similar to those contained in paragraph 3 of Part I of this
Statement) as of such Valuation Date; and (F) any current liabilities as of such
Valuation Date to the extent not reflected in any of (i) (A) through (i)(E)
(including, without limitation, any payables for Municipal Obligations purchased
as of such Valuation Date and any liabilities incurred for the purpose of
clearing securities transactions) less (ii) the value (i.e., for purposes of
current Moody's guidelines, the face value of cash and short-term Municipal
Obligations rated MIG-1, VMIG-1 or P-1, provided in each case that such
securities mature on or prior to the date upon which any of (i) (A) through
(i)(F) become payable, otherwise the Moody's Discounted Value or for purposes of
current S&P guidelines, the face value of cash and short-term municipal
securities rated "A-1+" or "SP-1+" and mature or have a demand feature
exercisable in 30 days or less, provided in each case that such securities
mature on or prior to the date upon which any of (i)(A) through (i)(F) become
payable, otherwise S&P's Discounted Value) of any of the Trust's assets
irrevocably deposited by the Trust for the payment of any of (i) (A) through
(i)(F).

         "Municipal Preferred Basic Maintenance Cure Date," with respect to the
failure by the Trust to satisfy the Municipal Preferred Basic Maintenance Amount
(as required by paragraph 7(a) of Part I of this Statement) as of a given
Valuation Date, shall mean the second Business Day following such Valuation
Date.

         "Municipal Preferred Basic Maintenance Report" shall mean a report
signed by the President, Treasurer, Secretary, Assistant Treasurer or Assistant
Secretary of the Trust which sets forth, as of the related Valuation Date, the
assets of the Trust, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), and the Municipal Preferred Basic Maintenance Amount.

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

         "1940 Act Cure Date," with respect to the failure by the Trust to
maintain the 1940 Act Municipal Preferred Asset Coverage (as required by
paragraph 6 of this Part I of this Statement) as of the last Business Day of
each month, shall mean the last Business Day of the following month.

         "1940 Act Municipal Preferred Asset Coverage" shall mean 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 Trust which are shares of
beneficial interest, including all outstanding shares of Municipal Preferred (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 shares or
stock of a closed-end investment company as a condition of declaring dividends
on its common shares or stock).

         "Notice of Redemption" shall mean any notice with respect to the
redemption of shares of Municipal Preferred pursuant to paragraph 11(c) of this
Part I of this Statement.

         "Notice of Special Rate Period" shall mean any notice with respect to a
Special Rate Period of shares of Municipal Preferred pursuant to paragraph
4(d)(i) of this Part I of this Statement.

         "Order" and "Orders" shall have the respective meanings specified in
paragraph 1(a) of Part II of this Statement.

         "Outstanding" shall mean, as of any Auction Date with respect to shares
of any series of Municipal Preferred, the number of shares of such series
theretofore issued by the Trust except, without duplication, (i) any shares of
such series theretofore canceled or delivered to the Auction Agent for
cancellation or redeemed by the Trust, (ii) any shares of such series as to
which the Trust or any Affiliate thereof shall be an Existing Holder and (iii)
any shares of such series represented by any certificate in lieu of which a new
certificate has been executed and delivered by the Trust.

         "Persons" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.

         "Pricing Services" shall mean those pricing services which are both
designated from time to time by the Board of Trustees and approved from time to
time for use by S&P (the pricing services approved for use by S&P as of the date
of this Statement are Bloomberg, Bridge Information Services, Interactive Data
Corporation, Merrill Lynch Securities Pricing Service, Standard and Poor's, JJ
Kenny (Municipal securities only) and CIBC Wood Gundy (Canadian government and
provincial securities only)).

         "Potential Beneficial Owner," with respect to shares of a series of
Municipal Preferred, shall mean a customer of a Broker-Dealer that is not a
Beneficial Owner of shares of such series but that wishes to purchase shares of
such series, or that is a Beneficial Owner of shares of such series that wishes
to purchase additional shares of such series.

         "Potential Holder," with respect to shares of a series of Municipal
Preferred, shall mean a Broker-Dealer (or any such other person as may be
permitted by the Trust) that is not an Existing Holder of shares of such series
or that is an Existing Holder of shares of such series that wishes to become the
Existing Holder of additional shares of such series.

         "Preferred Shares" shall mean the preferred shares, without par value,
of the Trust, and includes the shares of Municipal Preferred.

         "Quarterly Valuation Date" shall mean the last Business Day of each
January, April, July and October of each year, commencing on January 31, 2001
with respect to Series T Municipal Preferred and Series TH Municipal Preferred.

         "Rate Multiple," for shares of a series of Municipal Preferred on any
Auction Date for shares of such series, shall mean the percentage, determined as
set forth below (depending on whether the Trust has notified the Auction Agent
of its intent to allocate any net capital gain or other income taxable for
Federal income tax purposes to shares of such series prior to the Auction
establishing the Applicable Rate for shares of such series as provided in this
Statement), based on the prevailing rating of shares of such series in effect at
the close of business on the Business Day next preceding such Auction Date:

                                          Applicable             Applicable
                                          Percentage-            Percentage-
                                          No Notification        Notification
                                          ---------------        ------------
         Prevailing Rating
         "aa3"/AA- or higher..............      110%                 150%
         "a3"/A-..........................      125%                 160%
         "baa3"/BBB-......................      150%                 250%
         "ba3"/BB-........................      200%                 275%
         Below "ba3"/BB-..................      250%                 300%

         For purposes of this definition, the "prevailing rating" of shares of a
series of Municipal Preferred shall be (i) "aa3"/AA- or higher if such shares
have a rating of "aa3" or better by Moody's and AA- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (ii) if not "aa3"/AA- or
higher, then "a3"/A- if such shares have a rating of "a3" or better by Moody's
and A- or better by S&P or the equivalent of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected as provided
below, (iii) if not "aa3"/AA- or higher or "a3"/A-, then "baa3"/BBB- if such
shares have a rating of "baa3" or better by Moody's and BBB- or better by S&P or
the equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (iv) if not "aa3"/AA- or
higher, "a3"/A- or "baa3"/BBB-, then "ba3"/BB- if such shares have a rating of
"ba3" or better by Moody's and BB- or better by S&P or the equivalent of such
ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, and (v) if not "aa3"/AA- or higher,
"a3"/A-, "baa3"/BBB-, or "ba3"/BB-, then below "ba3"/BB-; provided, however,
that if such shares are rated by only one rating agency, the prevailing rating
will be determined without reference to the rating of any other rating agency.
The Trust shall take all reasonable action necessary to enable either S&P or
Moody's to provide a rating for shares of Municipal Preferred. If neither S&P
nor Moody's shall make such a rating available, Salomon Smith Barney Inc. or its
successor shall select at least one nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time) to act as a substitute rating agency in respect of
shares of such series of Municipal Preferred, and the Trust shall take all
reasonable action to enable such rating agency to provide a rating for such
shares.

         "Rate Period," with respect to shares of a series of Municipal
Preferred, shall mean the Initial Rate Period of shares of such series and any
Subsequent Rate Period, including any Special Rate Period, of shares of such
series.

         "Rate Period Days," for any Rate Period or Dividend Period, means the
number of days that would constitute such Rate Period or Dividend Period but for
the application of paragraph 2(d) of Part I of this Statement or paragraph 4(b)
of Part I of this Statement.

         "Redemption Price" shall mean the applicable redemption price specified
in paragraph 11(a) or (b) of Part I of this Statement.

         "Reference Rate" shall mean (i) the higher of the Taxable Equivalent of
the Short-Term Municipal Bond Rate and the "AA" Composite Commercial Paper Rate
in the case of Minimum Rate Periods and Special Rate Periods of 28 Rate Period
Days or fewer; (ii) the "AA" Composite Commercial Paper Rate in the case of
Special Rate Periods of more than 28 Rate Period Days but fewer than 183 Rate
Period Days; and (iii) the Treasury Bill Rate in the case of Special Rate
Periods of more than 182 Rate Period Days but fewer than 365 Rate Period Days.

         "Registration Statement" has the meaning specified in the definition of
"Municipal Obligations."

         "S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.

         "S&P Discount Factor" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest S&P Exposure Period set
forth opposite such rating that is the same length as or is longer than the S&P
Exposure Period, in accordance with the table set forth below:

                                     Rating Category
                                     ---------------
Exposure Period      AAA*      AA*      A*      BBB*   Unrated**  Zeros***
- ---------------      ----      ---      --      ----   ---------  --------
45 Business Days..... 190%     195%    210%     250%      220%     572%
25 Business Days..... 170      175     190      230       220      496
10 Business Days..... 155      160     175      215       220      426
  7 Business Days.... 150      155     170      210       220      411
  3 Business Days.... 130      135     150      190       220      388

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

**  S&P Eligible Assets not rated by S&P or rated less than BBB by S&P and
    not rated at least the equivalent of an "A" rating by another nationally
    recognized credit rating agency.

*** Municipal Obligations which are not interest bearing or do not pay
    interest at least semi-annually and that are rated AAA by S&P.

         Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated A-1+ or SP-1+ by S&P and mature or have a demand feature
exercisable within 30 days or less, 120% if such Municipal Obligations are rated
A-1 or SP-1- by S&P and mature or have a demand feature exercisable within 30
days or less, or 125% if such Municipal Obligations are not rated by S&P but are
rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however, that any such
Moody's-rated short-term Municipal Obligations which have demand features
exercisable within 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution with
a short-term rating of at least A-1+ from S&P; (ii) no S&P Discount Factor will
be applied to cash; and (iii) except as set forth in clause (i) above, in the
case of any Municipal Obligation that is not rated by S&P or rated less than BBB
by S&P but qualifies as an S&P Eligible Asset pursuant to clause (iii) of that
definition, such Municipal Obligation will be deemed to have 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 Obligation is placed by such
other nationally recognized credit rating agency. For purposes of the foregoing,
Anticipation Notes rated SP-1+ or, if not rated by S&P, rated MIG-1 or VMIG-1 by
Moody's, which do not mature or have a demand feature at par exercisable in 30
days and which do not have a long-term rating, shall be considered to be
short-term Municipal Obligations. In calculating the Discounted Value of the
Trust's portfolio (1) S&P's Discount Factors will be applied to futures and
Inverse Floaters and (2) a Discount Factor of 388% will be applied to Municipal
Obligations rated AAA by S&P which are not interest bearing or do not pay
interest at least semi-annually.

         "S&P Eligible Asset" shall mean trade date cash (excluding any cash
irrevocably deposited by the Trust for the payment of any liabilities within the
meaning of Municipal Preferred Basic Maintenance Amount), futures, options,
Inverse Floaters, U.S. Government Securities (which are valued for the purposes
of meeting the Municipal Preferred Basic Maintenance Amount without application
of any discount factor) and similar instruments or a Municipal Obligation owned
by the Trust that (i) is interest bearing and pays interest at least
semi-annually (except as stated in number four (4) below); (ii) is payable with
respect to principal and interest in U.S. Dollars; (iii) in the case of
Anticipation Notes that are Grant Anticipation Notes or Bond Anticipation Notes
be rated by S&P; (iv) is not part of a private placement of Municipal
Obligations (except in the case of Inverse Floaters); (v) is part of an issue of
Municipal Obligations (excluding Escrowed Bonds that are legally defeased) with
an original issue size of at least $20 million or, if of an issue with an
original issue size below $20 million (but in no event below $10 million), is
issued by an issuer with a total of at least $50 million of securities
outstanding; and (vi) is not subject to a covered call or covered put option
written by the Trust. These eligible assets are valued or accounted for on a
trade date basis assuming normal settlement for the Municipal Market. S&P
Eligible Assets shall not include Internally Priced Securities (as defined under
"Market Value"). Solely for purposes of this definition, the term "Municipal
Obligation" means any obligation the interest on which is exempt from regular
Federal income taxation and which is issued by any of the fifty United States,
the District of Columbia or any of the territories of the United States, their
subdivisions, counties, cities, towns, villages, school districts and agencies
(including authorities and special districts created by the states), and
federally sponsored agencies such as local housing authorities. Notwithstanding
the foregoing limitations:

                  (1) Municipal Obligations (excluding Escrowed Bonds) of any
         one issuer or guarantor (excluding bond insurers) shall be considered
         S&P Eligible Assets only to the extent the Market Value of such
         Municipal Obligations does not exceed 10% of the aggregate Market Value
         of S&P Eligible Assets, provided that 2% is added to the applicable S&P
         Discount Factor for every 1% by which the Market Value of such
         Municipal Obligations exceeds 5% of the aggregate Market Value of S&P
         Eligible Assets, and provided that Municipal Obligations (excluding
         Escrowed Bonds) not rated by S&P or rated less than BBB by S&P and not
         rated at least A by another nationally recognized credit rating agency
         of any one issuer or guarantor (excluding bond insurers) shall
         constitute S&P Eligible Assets only to the extent the Market Value of
         such Municipal Obligations does not exceed 5% of the aggregate Market
         Value of S&P Eligible Assets;

                  (2) Municipal Obligations not rated at least BBB or not rated
         by S&P and not rated at least A by another nationally recognized credit
         rating agency shall be considered S&P Eligible Assets only to the
         extent the Market Value of such Municipal Obligations does not exceed
         50% of the aggregate Market Value of S&P Eligible Assets; provided,
         however, that if the Market Value of such Municipal Obligations exceeds
         50% of the aggregate Market Value of S&P Eligible Assets, a portion of
         such Municipal Obligations (selected by the Trust) shall not be
         considered S&P Eligible Assets, so that the Market Value of such
         Municipal Obligations (excluding such portion) does not exceed 50% of
         the aggregate Market Value of S&P Eligible Assets;

                  (3) Long-term Municipal Obligations (excluding Escrowed Bonds)
         issued by issuers in any one state or territory shall be considered S&P
         Eligible Assets only to the extent that the Market Value of such
         Municipal Obligations does not exceed 25% of the aggregate Market Value
         of S&P Eligible Assets; and

                  (4) Municipal Obligations which are not interest bearing or do
         not pay interest at least semi-annually shall be considered S&P
         Eligible Assets if rated AAA by S&P.

         For purposes of determining the aggregate Discounted Value of S&P's
Eligible Assets, such aggregate amount shall be reduced with respect to any
futures contracts as set forth in paragraph 10(a) of this Part I.

         "S&P Exposure Period" shall mean the period commencing on a given
Valuation Date and ending three business days thereafter.

         "S&P Volatility Factor" shall mean, as of any Valuation Date, a
multiplicative factor equal to (i) 305% in the case of any Minimum Rate Period
or any Special Rate Period of 28 Rate Period Days or fewer; (ii) 268% in the
case of any Special Rate Period of more than 28 Rate Period Days but fewer than
183 Rate Period Days; and (iii) 204% in the case of any Special Rate Period of
more than 182 Rate Period Days.

         "Securities Depository" shall mean The Depository Trust Company and its
successors and assigns or any other securities depository selected by the Trust
which agrees to follow the procedures required to be followed by such securities
depository in connection with shares of Municipal Preferred.

         "Sell Order" and "Sell Orders" shall have the respective meanings
specified in paragraph 1(a) of Part II of this Statement.

         "Special Rate Period," with respect to shares of a series of Municipal
Preferred, shall have the meaning specified in paragraph 4(a) of Part I of this
Statement.

         "Special Redemption Provisions" shall have the meaning specified in
paragraph 11(a)(i) of Part I of this Statement.

         "Submission Deadline" shall mean 1:30 P.M., New York City time, on any
Auction Date or such other time on any Auction Date by which Broker-Dealers are
required to submit Orders to the Auction Agent as specified by the Auction Agent
from time to time.

         "Submitted Bid" and "Submitted Bids" shall have the respective meanings
specified in paragraph 3(a) of Part II of this Statement.

         "Submitted Hold Order" and "Submitted Hold Orders" shall have the
respective meanings specified in paragraph 3(a) of Part II of this Statement.

         "Submitted Order" and "Submitted Orders" shall have the respective
meanings specified in paragraph 3(a) of Part II of this Statement.

         "Submitted Sell Order" and "Submitted Sell Orders" shall have the
respective meanings specified in paragraph 3(a) of Part II of this Statement.

         "Subsequent Rate Period," with respect to shares of a series of
Municipal Preferred, shall mean the period from and including the first day
following the Initial Rate Period of shares of such series to but excluding the
next Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to but
excluding the next succeeding Dividend Payment Date for shares of such series;
provided, however, that if any Subsequent Rate Period is also a Special Rate
Period, such term shall mean the period commencing on the first day of such
Special Rate Period and ending on the last day of the last Dividend Period
thereof.

         "Substitute Commercial Paper Dealer" shall mean [CS First Boston or
Morgan Stanley & Co. Incorporated] or their respective affiliates or successors,
if such entity is a commercial paper dealer; provided, however, that none of
such entities shall be a Commercial Paper Dealer.

         "Substitute U.S. Government Securities Dealer" shall mean [CS First
Boston and Merrill Lynch, Pierce, Fenner & Smith Incorporated] or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer; provided, however, that none of such entities shall be a U.S.
Government Securities Dealer.

         "Sufficient Clearing Bids" shall have the meaning specified in
paragraph 3(a) of Part II of this Statement.

         "Taxable Allocation" shall have the meaning specified in paragraph 3 of
Part I of this Statement.

         "Taxable Equivalent of the Short-Term Municipal Bond Rate," on any date
for any Minimum Rate Period or Special Rate Period of 28 Rate Period Days or
fewer, shall mean 90% of the quotient of (A) the per annum rate expressed on an
interest equivalent basis equal to the S&P Kenny 30 day High Grade Index or any
successor index (the "Kenny Index") (provided, however, that any such successor
index must be approved by Moody's (if Moody's is then rating the shares of
Municipal Preferred) and S&P (if S&P is then rating the shares of Municipal
Preferred)), made available for the Business Day immediately preceding such date
but in any event not later than 8:30 A.M., New York City time, on such date by
S&P J.J. Kenny Evaluation Services or any successor thereto, based upon 30-day
yield evaluations at par of short-term bonds the interest on which is excludable
for regular Federal income tax purposes under the Code, of "high grade"
component issuers selected by S&P J.J. Kenny Evaluation Services 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 maximum marginal
regular Federal individual income tax rate applicable to ordinary income or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income (in each case expressed as a decimal), whichever is greater;
provided, however, that if the Kenny Index is not made so available by 8:30
A.M., New York City time, on such date by S&P J.J. Kenny Evaluation Services 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 maximum marginal regular
Federal individual income tax rate applicable to ordinary income or the maximum
marginal regular Federal corporate income tax rate applicable to ordinary income
(in each case expressed as a decimal), whichever is greater.

         "Taxable Income" shall have the meaning specified in paragraph 3(c) of
Part II of this Statement.

         "Treasury Bill" shall mean a direct obligation of the U.S. Government
having a maturity at the time of issuance of 364 days or less.

         "Treasury Bill Rate," on any date for any Rate Period, shall mean (i)
the bond equivalent yield, calculated in accordance with prevailing industry
convention, of the rate on the most recently auctioned Treasury Bill with a
remaining maturity closest to the length of such Rate Period, as quoted in The
Wall Street Journal on such date for the Business Day next preceding such date;
or (ii) in the event that any such rate is not published in The Wall Street
Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry convention, as calculated by reference to the arithmetic
average of the bid price quotations of the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of business on the Business
Day immediately preceding such date obtained from the U.S. Government Securities
Dealers to the Auction Agent.

         "Treasury Note" shall mean a direct obligation of the U.S. Government
having a maturity at the time of issuance of five years or less but more than
364 days.

         "Treasury Note Rate," on any date for any Rate Period, shall mean (i)
the yield on the most recently auctioned Treasury Note with a remaining maturity
closest to the length of such Rate Period, as quoted in The Wall Street Journal
on such date for the Business Day next preceding such date; or (ii) in the event
that any such rate is not published in The Wall Street Journal, then the yield
as calculated by reference to the arithmetic average of the bid price quotations
of the most recently auctioned Treasury Note with a remaining maturity closest
to the length of such Rate Period, as determined by bid price quotations as of
the close of business on the Business Day immediately preceding such date
obtained from the U.S. Government Securities Dealers to the Auction Agent. If
any U.S. Government Securities Dealer does not quote a rate required to
determine the Treasury Bill Rate of the Treasury Note Rate, the Treasury Bill
Rate or the Treasury Note Rate shall be determined on the basis of the quotation
or quotations furnished by the remaining U.S. Government Securities Dealer or
U.S. Government Securities Dealers and any Substitute U.S. Government Securities
Dealers selected by the Trust to provide such rate or rates not being supplied
by any U.S. Government Securities Dealer or U.S. Government Securities Dealers,
as the case may be, or, if the Trust does not select any such Substitute U.S.
Government Securities Dealer or Substitute U.S. Government Securities Dealers,
by the remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.

         "U.S. Government Securities " shall mean bonds or other debt
obligations issued by, or whose principal or interest payments are guaranteed
by, the U.S. government or one of its agencies or instrumentalities. U.S.
Government Securities also include interests in trust or other entities
representing interests in obligations that are issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities.

         "U.S. Government Securities Dealer" shall mean [Lehman Government
Securities Incorporated, Goldman, Sachs & Co., Salomon Smith Barney Inc. and
Morgan Guaranty Trust Company of New York] or their respective affiliates or
successors, if such entity is a U.S. government securities dealer.

         "Valuation Date" shall mean, for purposes of determining whether the
Trust is maintaining the Municipal Preferred Basic Maintenance Amount, each
Business Day.

         "Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Trust, 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.

         "Volatility Factor" shall mean, as of any Valuation Date, the greater
of the Moody's Volatility Factor and the S&P Volatility Factor.

         "Voting Period" shall have the meaning specified in paragraph 5(b) of
this Part I of this Statement.

         "Winning Bid Rate" shall have the meaning specified in paragraph 3(a)
of Part II of this Statement.

         2.  DIVIDENDS.

         (a) RANKING. The shares of a series of Municipal Preferred shall rank
on a parity with each other, with shares of any other series of Municipal
Preferred and with shares of any other series of Preferred Shares as to the
payment of dividends by the Trust.

         (b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of Municipal
Preferred of any series shall be entitled to receive, when, as and if declared
by the Board of Trustees, out of funds legally available therefor in accordance
with the Declaration, this Statement and applicable law, cumulative cash
dividends at the Applicable Rate for shares of such series, determined as set
forth in subparagraph (e) of this paragraph 2, and no more (except to the extent
set forth in paragraph 3 of this Part I), payable on the Dividend Payment Dates
with respect to shares of such series determined pursuant to subparagraph (d) of
this paragraph 2. Holders of shares of Municipal Preferred shall not be entitled
to any dividend, whether payable in cash, property or shares, in excess of full
cumulative dividends, as herein provided, on shares of Municipal Preferred. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on shares of Municipal Preferred which may be
in arrears, and, except to the extent set forth in subparagraph (e)(i) of this
paragraph 2, no additional sum of money shall be payable in respect of any such
arrearage.

         (c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on
shares of Municipal Preferred of any series shall accumulate at the Applicable
Rate for shares of such series from the Date of Original Issue thereof.

         (d) DIVIDEND PAYMENT DATES AND ADJUSTMENTS THEREOF. The Dividend
Payment Dates with respect to shares of a series of Municipal Preferred shall be
Wednesday, ________ __, ____ and each Wednesday thereafter with respect to
shares of Series T Municipal Preferred and Friday, ________ __, ____ and each
Friday thereafter with respect to shares of Series TH Municipal Preferred;
provided, however, that

                  (i) if the Wednesday or Friday, as the case may be, on which
         dividends would otherwise be payable on shares of such series is not a
         Business Day, then such dividends shall be payable on shares of such
         series on the first Business Day that falls after such Wednesday or
         Friday, as the case may be; and

                  (ii) notwithstanding the foregoing provisions of this
         paragraph 2(d), the Trust in its discretion may establish the Dividend
         Payment Dates in respect of any Special Rate Period of shares of a
         series of Municipal Preferred consisting of more than 28 Rate Period
         Days; provided, however, that such dates shall be set forth in the
         Notice of Special Rate Period relating to such Special Rate Period, as
         delivered to the Auction Agent, which Notice of Special Rate Period
         shall be filed with the Secretary of the Trust; and further provided
         that (1) any such Dividend Payment Date shall be a Business Day and (2)
         the last Dividend Payment Date in respect of such Special Rate Period
         shall be the Business Day immediately following the last day thereof,
         as such last day is determined in accordance with subparagraph (b) of
         paragraph 4 of Part I of this Statement.

         (e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS.

                  (i) DIVIDEND RATES. The dividend rate on shares of Municipal
         Preferred of any series during the period from and after the Date of
         Original Issue of shares of such series to and including the last day
         of the Initial Rate Period of shares of such series shall be equal to
         the rate per annum set forth with respect to shares of such series
         under "Designation" in this Part I. For each Subsequent Rate Period of
         shares of such series thereafter, the dividend rate on shares of such
         series shall be equal to the rate per annum that results from an
         Auction for shares of such series on the Auction Date next preceding
         such Subsequent Rate Period; provided, however, that if:

                           (A) an Auction for any such Subsequent Rate Period is
                  not held for any reason other than as described below, the
                  dividend rate on shares of such series for such Subsequent
                  Rate Period will be the Maximum Rate for shares of such series
                  on the Auction Date therefor;

                           (B) any Failure to Deposit shall have occurred with
                  respect to shares of such series during any Rate Period
                  thereof (other than any Special Rate Period consisting of more
                  than 364 Rate Period Days or any Rate Period succeeding any
                  Special Rate Period consisting of more than 364 Rate Period
                  Days during which a Failure to Deposit occurred that has not
                  been cured), but, prior to 12:00 Noon, New York City time, on
                  the third Business Day next succeeding the date on which such
                  Failure to Deposit occurred, such Failure to Deposit shall
                  have been cured in accordance with subparagraph (f) of this
                  paragraph 2, no Auction will be held in respect of shares of
                  such series for the Subsequent Rate Period thereof and the
                  dividend rate for shares of such series for such Subsequent
                  Rate Period will be the Maximum Rate for shares of such series
                  on the Auction Date for such Subsequent Rate Period;

                           (C) any Failure to Deposit shall have occurred with
                  respect to shares of such series during any Rate Period
                  thereof (other than any Special Rate Period consisting of more
                  than 364 Rate Period Days or any Rate Period succeeding any
                  Special Rate Period consisting of more than 364 Rate Period
                  Days during which a Failure to Deposit occurred that has not
                  been cured), and, prior to 12:00 Noon, New York City time, on
                  the third Business Day next succeeding the date on which such
                  Failure to Deposit occurred, such Failure to Deposit shall not
                  have been cured in accordance with subparagraph (f) of this
                  paragraph 2, no Auction will be held in respect of shares of
                  such series for the first Subsequent Rate Period thereof
                  thereafter (or for any Rate Period thereof thereafter to and
                  including the Rate Period during which such Failure to Deposit
                  is cured in accordance with subparagraph (f) of this paragraph
                  2, no later than 12:00 Noon, New York City time, on the fourth
                  Business Day prior to the end of such Rate Period), and the
                  dividend rate for shares of such series for each such
                  Subsequent Rate Period shall be a rate per annum equal to the
                  Maximum Rate for shares of such series on the Auction Date for
                  such Subsequent Rate Period (but with the prevailing rating
                  for shares of such series, for purposes of determining such
                  Maximum Rate, being deemed to be "Below 'ba3'/BB-"); or

                           (D) any Failure to Deposit shall have occurred with
                  respect to shares of such series during a Special Rate Period
                  thereof consisting of more than 364 Rate Period Days, or
                  during any Rate Period thereof succeeding any Special Rate
                  Period consisting of more than 364 Rate Period Days during
                  which a Failure to Deposit occurred that has not been cured,
                  and, prior to 12:00 Noon, New York City time, on the fourth
                  Business Day preceding the Auction Date for the Rate Period
                  subsequent to such Rate Period, such Failure to Deposit shall
                  not have been cured in accordance with subparagraph (f) of
                  this paragraph 2, no Auction will be held in respect of shares
                  of such series for such Subsequent Rate Period (or for any
                  Rate Period thereof thereafter to and including the Rate
                  Period during which such Failure to Deposit is cured in
                  accordance with subparagraph (f) of this paragraph 2, no later
                  than 12:00 Noon, New York City time, on the fourth Business
                  Day prior to the end of such Rate Period), and the dividend
                  rate for shares of such series for each such Subsequent Rate
                  Period shall be a rate per annum equal to the Maximum Rate for
                  shares of such series on the Auction Date for such Subsequent
                  Rate Period (but with the prevailing rating for shares of such
                  series, for purposes of determining such Maximum Rate, being
                  deemed to be "Below 'ba3'/BB-") (the rate per annum of which
                  dividends are payable on shares of a series of Municipal
                  Preferred for any Rate Period thereof being herein referred to
                  as the "Applicable Rate" for shares of such series).

                  (ii) CALCULATION OF DIVIDENDS. The amount of dividends per
         share payable on shares of a series of Municipal Preferred on any date
         on which dividends shall be payable on shares of such series shall be
         computed by multiplying the Applicable Rate for shares of such series
         in effect for such Dividend Period or Dividend Periods or part thereof
         for which dividends have not been paid by a fraction, the numerator of
         which shall be the number of days in such Dividend Period or Dividend
         Periods or part thereof and the denominator of which shall be 365 if
         such Dividend Period consists of 7 Rate Period Days and 360 for all
         other Dividend Periods, and applying the rate obtained against $25,000.

         (f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of Municipal Preferred shall have been cured (if such Failure
to Deposit is not solely due to the willful failure of the Trust to make the
required payments to the Auction Agent) with respect to any Rate Period of
shares of such series if, within the respective time periods described in
subparagraph (e)(i) of this paragraph 2, the Trust shall have paid to the
Auction Agent (A) all accumulated and unpaid dividends on shares of such series
and (B) without duplication, the Redemption Price for shares, if any, of such
series for which Notice of Redemption has been mailed by the Trust pursuant to
paragraph 11(c) of Part I of this Statement; provided, however, that the
foregoing clause (B) shall not apply to the Trust's failure to pay the
Redemption Price in respect of shares of Municipal Preferred when the related
Redemption Notice provides that redemption of such shares is subject to one or
more conditions precedent and any such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.

         (g) DIVIDEND PAYMENTS BY TRUST TO AUCTION AGENT. The Trust shall pay to
the Auction Agent, not later than 12:00 Noon, New York City time, on each
Dividend Payment Date for shares of a series of Municipal Preferred, an
aggregate amount of federal funds or similar same-day funds in The City of New
York, New York, equal to the dividends to be paid to all Holders of shares of
such series on such Dividend Payment Date.

         (h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY TRUST. All moneys
paid to the Auction Agent for the payment of dividends shall be held in trust
for the payment of such dividends by the Auction Agent for the benefit of the
Holders specified in subparagraph (i) of this paragraph 2. Any moneys paid to
the Auction Agent in accordance with the foregoing but not applied by the
Auction Agent to the payment of dividends will, to the extent permitted by law,
be repaid to the Trust at the end of 90 days from the date on which such moneys
were so to have been applied.

         (i) DIVIDENDS PAID TO HOLDERS. Each dividend on shares of Municipal
Preferred shall be paid on the Dividend Payment Date therefor to the Holders
thereof as their names appear on the record books of the Trust on the Business
Day next preceding such Dividend Payment Date.

         (j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID
DIVIDENDS. Any dividend payment made on shares of Municipal Preferred shall
first be credited against the earliest accumulated but unpaid dividends due with
respect to such shares. 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 their names appear on the record books of the Trust on
such date, not exceeding 15 days preceding the payment date thereof, as may be
fixed by the Board of Trustees.

         (k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on
shares of Municipal Preferred shall be designated as exempt-interest dividends
up to the amount of tax-exempt income of the Trust, to the extent permitted by,
and for purposes of, Section 852 of the Code.

         3.  GROSS-UP PAYMENTS.

         Holders of shares of Municipal Preferred shall be entitled to receive,
when, as and if declared by the Board of Trustees, out of funds legally
available therefor in accordance with the Declaration, this Statement and
applicable law, dividends in an amount equal to the aggregate Gross-up Payment
as follows:

         (a) TAXABLE ALLOCATION WITHOUT NOTICE. If, in the case of any Minimum
Rate Period or any Special Rate Period of 28 Rate Period Days or fewer, or in
the case of any other Special Rate Period, the Trust allocates any net capital
gain or other income taxable for Federal income tax purposes to a dividend paid
on shares of Municipal Preferred without having given advance notice thereof to
the Auction Agent as provided in paragraph 5 of Part II of this Statement (such
allocation being referred to herein as a "Taxable Allocation") solely by reason
of the fact that such allocation is made retroactively as a result of the
redemption of all or a portion of the outstanding shares of Municipal Preferred
or the liquidation of the Trust, the Trust shall, prior to the end of the fiscal
year in which such dividend was paid or within 90 days (and generally within 60
days) after the end of the Trust's fiscal year for which a retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent and direct the
Trust's dividend disbursing agent to send such notice with a Gross-up Payment to
each Holder of such shares that was entitled to such dividend payment with
respect to the Municipal Preferred during such fiscal year at such Holder's
address as the same appears or last appeared on the record books of the Trust.
The Trust, 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 Municipal
Preferred), out of funds legally available therefor, an amount equal to the
aggregate Gross-up Payment with respect to all retroactive Taxable Allocations
made to such holder during the fiscal year in question.

If the Trust does not give advance notice of the amount of taxable income to be
included in a dividend on shares of Municipal Preferred in the related Auction,
the Trust may include such taxable income in a dividend on shares of Municipal
Preferred if it increases the dividend by an additional amount calculated as if
such income were a retroactive Taxable Allocation and the additional amount was
a Gross-up Payment. See paragraph 5 of Part II of this Statement.

         (b) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Trust
shall not be required to make Gross-up Payments with respect to any net capital
gain or other taxable income determined by the Internal Revenue Service to be
allocable in a manner different from that allocated by the Trust.

         4.  DESIGNATION OF SPECIAL RATE PERIODS.

         (a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The Trust, at
its option, may designate any succeeding Subsequent Rate Period of shares of a
series of Municipal Preferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in subparagraph (b) of this paragraph 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with subparagraphs (c) and (d)(i) of
this paragraph 4, (B) an Auction for shares of such series shall have been held
on the Auction Date immediately preceding the first day of such proposed Special
Rate Period and Sufficient Clearing Bids for shares of such series shall have
existed in such Auction, and (C) if any Notice of Redemption shall have been
mailed by the Trust pursuant to paragraph 11(c) of this Part I with respect to
any shares of such series, the Redemption Price with respect to such shares
shall have been deposited with the Auction Agent. In the event the Trust wishes
to designate any succeeding Subsequent Rate Period for shares of a series of
Municipal Preferred as a Special Rate Period consisting of more than 28 Rate
Period Days, the Trust shall notify S&P (if S&P is then rating such series) and
Moody's (if Moody's is then rating such series) in advance of the commencement
of such Subsequent Rate Period that the Trust wishes to designate such
Subsequent Rate Period as a Special Rate Period and shall provide S&P (if S&P is
then rating such series) and Moody's (if Moody's is then rating such series)
with such documents as either may request.

         (b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Trust
wishes to designate a Subsequent Rate Period as a Special Rate Period, but the
day following what would otherwise be the last day of such Special Rate Period
is not (a) a Wednesday that is a Business Day in the case of a series of
Municipal Preferred designated as "Series T Municipal Preferred" in this Part I,
or (b) a Friday that is a Business Day in the case of a series of Municipal
Preferred designated as "Series TH Municipal Preferred" in this Part I, then the
Trust shall designate such Subsequent Rate Period as a Special Rate Period
consisting of the period commencing on the first day following the end of the
immediately preceding Rate Period and ending (a) on the first Tuesday that is
followed by a Wednesday that is a Business Day proceeding what would otherwise
be such last day, in the case of Series T Municipal Preferred, or (b) on the
first Thursday that is followed by a Friday that is a Business Day proceeding
what would otherwise be such last day in the case of Series TH Municipal
Preferred.

         (c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Trust proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
Municipal Preferred as a Special Rate Period pursuant to subparagraph (a) of
this paragraph 4, not less than 20 (or such lesser number of days as may be
agreed to from time to time by the Auction Agent) nor more than 30 days prior to
the date the Trust proposes to designate as the first day of such Special Rate
Period (which shall be such day that would otherwise be the first day of a
Minimum Rate Period), notice shall be (i) published or caused to be published by
the Trust in a newspaper of general circulation to the financial community in
The City of New York, New York, which carries financial news, and (ii) mailed by
the Trust by first-class mail, postage prepaid, to the Holders of shares of such
series. Each such notice shall state (A) that the Trust may exercise its option
to designate a succeeding Subsequent Rate Period of shares of such series as a
Special Rate Period, specifying the first day thereof and (B) that the Trust
will, by 11:00 A.M., New York City time, on the second Business Day next
preceding such date (or by such later time or date, or both, as may be agreed to
by the Auction Agent) notify the Auction Agent of either (x) its determination,
subject to certain conditions, to exercise such option, in which case the Trust
shall specify the Special Rate Period designated, or (y) its determination not
to exercise such option.

         (d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York
City time, on the second Business Day next preceding the first day of any
proposed Special Rate Period of shares of a series of Municipal Preferred as to
which notice has been given as set forth in subparagraph (c) of this paragraph 4
(or such later time or date, or both, as may be agreed to by the Auction Agent),
the Trust shall deliver to the Auction Agent either:

                  (i) a notice ("Notice of Special Rate Period") stating (A)
         that the Trust has determined to designate the next succeeding Rate
         Period of shares of such series as a Special Rate Period, specifying
         the same and the first day thereof, (B) the Auction Date immediately
         prior to the first day of such Special Rate Period, (C) that such
         Special Rate Period shall not commence if (1) an Auction for shares of
         such series shall not be held on such Auction Date for any reason or
         (2) an Auction for shares of such series shall be held on such Auction
         Date but Sufficient Clearing Bids for shares of such series shall not
         exist in such Auction, (D) the scheduled Dividend Payment Dates for
         shares of such series during such Special Rate Period and (E) the
         Special Redemption Provisions, if any, applicable to shares of such
         series in respect of such Special Rate Period; such notice to be
         accompanied by a Municipal Preferred Basic Maintenance Report showing
         that, as of the third Business Day next preceding such proposed Special
         Rate Period, Moody's Eligible Assets (if Moody's is then rating such
         series) and S&P Eligible Assets (if S&P is then rating such series)
         each have an aggregate Discounted Value at least equal to the Municipal
         Preferred Basic Maintenance Amount as of such Business Day (assuming
         for purposes of the foregoing calculation that (a) the Maximum Rate is
         the Maximum Rate on such Business Day as if such Business Day were the
         Auction Date for the proposed Special Rate Period, and (b) the Moody's
         Discount Factors applicable to Moody's Eligible Assets are determined
         by reference to the first Exposure Period longer than the Exposure
         Period then applicable to the Trust, as described in the definition of
         Moody's Discount Factor herein); or

                  (ii) a notice stating that the Trust has determined not to
         exercise its option to designate a Special Rate Period of shares of
         such series and that the next succeeding Rate Period of shares of such
         series shall be a Minimum Rate Period.

         (e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Trust
fails to deliver either of the notices described in subparagraphs (d)(i) or
(d)(ii) of this paragraph 4 (and, in the case of the notice described in
subparagraph (d)(i) of this paragraph 4, a Municipal Preferred Basic Maintenance
Report to the effect set forth in such subparagraph (if either Moody's or S&P is
then rating the series in question)) with respect to any designation of any
proposed Special Rate Period to the Auction Agent by 11:00 A.M., New York City
time, on the second Business Day next preceding the first day of such proposed
Special Rate Period (or by such later time or date, or both, as may be agreed to
by the Auction Agent), the Trust shall be deemed to have delivered a notice to
the Auction Agent with respect to such Special Rate Period to the effect set
forth in subparagraph (d)(ii) of this paragraph 4. In the event the Trust
delivers to the Auction Agent a notice described in subparagraph (d)(i) of this
paragraph 4, it shall file a copy of such notice with the Secretary of the
Trust, and the contents of such notice shall be binding on the Trust. In the
event the Trust delivers to the Auction Agent a notice described in subparagraph
(d)(ii) of this paragraph 4, the Trust will provide Moody's (if Moody's is then
rating the series in question) and S&P (if S&P is then rating the series in
question) a copy of such notice.

         5.  VOTING RIGHTS.

         (a) ONE VOTE PER SHARE OF MUNICIPAL PREFERRED. Except as otherwise
provided in the Declaration, this paragraph 5 or as otherwise required by law,
(i) each Holder of shares of Municipal Preferred shall be entitled to one vote
for each share of Municipal Preferred held by such Holder on each matter
submitted to a vote of shareholders of the Trust, and (ii) the holders of
outstanding Preferred Shares, including each share of Municipal Preferred, and
of Common Shares shall vote together as a single class; provided, however, that,
at any meeting of the shareholders of the Trust held for the election of
trustees, the holders of outstanding Preferred Shares, including Municipal
Preferred, represented in person or by proxy at said meeting, shall be entitled,
as a class, to the exclusion of the holders of all other securities and classes
of shares of beneficial interest of the Trust, to elect two trustees of the
Trust, each Preferred Share, including each share of Municipal Preferred,
entitling the holder thereof to one vote. Subject to subparagraph (b) of this
paragraph 5, the holders of outstanding Common Shares and Preferred Shares,
including Municipal Preferred, voting together as a single class, shall elect
the balance of the trustees.

         (b) VOTING FOR ADDITIONAL TRUSTEES.

                  (i) VOTING PERIOD. During any period in which any one or more
         of the conditions described in subparagraphs (A) or (B) of this
         subparagraph (b)(i) shall exist (such period being referred to herein
         as a "Voting Period"), the number of trustees constituting the Board of
         Trustees shall be automatically increased by the smallest number that,
         when added to the two trustees elected exclusively by the holders of
         Preferred Shares, including shares of Municipal Preferred, would
         constitute a majority of the Board of Trustees as so increased by such
         smallest number; and the holders of Preferred Shares, including
         Municipal Preferred, shall be entitled, voting as a class on a
         one-vote-per-share basis (to the exclusion of the holders of all other
         securities and classes of shares of beneficial interest of the Trust),
         to elect such smallest number of additional trustees, together with the
         two trustees that such holders are in any event entitled to elect. A
         Voting Period shall commence:

                           (A) if at the close of business on any dividend
                  payment date accumulated dividends (whether or not earned or
                  declared) on any outstanding Preferred Share, including
                  Municipal Preferred, 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

                           (B) if at any time holders of Preferred Shares are
                  entitled under the 1940 Act to elect a majority of the
                  trustees of the Trust.

Upon the termination of a Voting Period, the voting rights described in this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).

                  (ii) NOTICE OF SPECIAL MEETING. As soon as practicable after
         the accrual of any right of the holders of Preferred Shares to elect
         additional trustees as described in subparagraph (b)(i) of this
         paragraph 5, the Trust shall notify the Auction Agent and the Auction
         Agent shall call a special meeting of such holders, by mailing 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 Trust fails to send such notice to the Auction Agent or
         if the Auction Agent 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 of holders of Preferred Shares held
         during a Voting Period at which trustees are to be elected, such
         holders, voting together as a class (to the exclusion of the holders of
         all other securities and classes of shares of beneficial interest of
         the Trust), shall be entitled to elect the number of trustees
         prescribed in subparagraph (b)(i) of this paragraph 5 on a
         one-vote-per-share basis.

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

                  (iv) TERMS OF OFFICE OF CERTAIN TRUSTEES TO TERMINATE UPON
         TERMINATION OF VOTING PERIOD. Simultaneously with the termination of a
         Voting Period, the term of office of the additional trustees elected by
         the Holders and holders of other Preferred Shares pursuant to
         subparagraph (b)(i) of this paragraph 5 shall terminate, the remaining
         trustees shall constitute the trustees of the Trust and the voting
         rights of the Holders and such other holders to elect additional
         trustees pursuant to subparagraph (b)(i) of this paragraph 5 shall
         cease, subject to the provisions of the last sentence of subparagraph
         (b)(i) of this paragraph 5.

         (c) HOLDERS OF MUNICIPAL PREFERRED TO VOTE ON CERTAIN OTHER MATTERS.

                  (i) INCREASES IN CAPITALIZATION. So long as any shares of
         Municipal Preferred are outstanding, the Trust shall not, without the
         affirmative vote or consent of the Holders of at least a majority of
         the shares of Municipal Preferred outstanding at the time, in person or
         by proxy, either in writing or at a meeting, voting as a separate
         class: (a) authorize, create or issue any class or series of shares
         ranking prior to or on a parity with shares of Municipal Preferred with
         respect to the payment of dividends or the distribution of assets upon
         dissolution, liquidation or winding up of the affairs of the Trust, or
         authorize, create or issue additional shares of any series of Municipal
         Preferred (except that, notwithstanding the foregoing, but subject to
         the provisions of paragraph 10(c) of this Part I, the Board of
         Trustees, without the vote or consent of the Holders of Municipal
         Preferred, may from time to time authorize and create, and the Trust
         may from time to time issue, additional shares of any series of
         Municipal Preferred or classes or series of Preferred Shares ranking on
         a parity with shares of Municipal Preferred with respect to the payment
         of dividends and the distribution of assets upon dissolution,
         liquidation or winding up of the affairs of the Trust; provided,
         however, that if Moody's or S&P is not then rating the shares of
         Municipal Preferred, the aggregate liquidation preference of all
         Preferred Shares of the Trust outstanding after any such issuance,
         exclusive of accumulated and unpaid dividends, may not exceed
         $140,000,000) or (b) amend, alter or repeal the provisions of the
         Declaration, the By-laws, or this Statement, whether by merger,
         consolidation or otherwise, so as to materially affect any preference,
         right or power of such shares of Municipal Preferred or the Holders
         thereof; provided, however, that (i) none of the actions permitted by
         the exception to (a) above will be deemed to affect such preferences,
         rights or powers, (ii) a division of a share of Municipal Preferred
         will be deemed to affect such preferences, rights or powers only if the
         terms of such division adversely affect the Holders of shares of
         Municipal Preferred and (iii) the authorization, creation and issuance
         of classes or series of shares ranking junior to shares of Municipal
         Preferred with respect to the payment of dividends and the distribution
         of assets upon dissolution, liquidation or winding up of the affairs of
         the Trust, will be deemed to affect such preferences, rights or powers
         only if Moody's or S&P is then rating shares of Municipal Preferred and
         such issuance would, at the time thereof, cause the Trust not to
         satisfy the 1940 Act Municipal Preferred Asset Coverage or the
         Municipal Preferred Basic Maintenance Amount. So long as any shares of
         Municipal Preferred are outstanding, the Trust shall not, without the
         affirmative vote or consent of the Holders of at least 66 2/3% of the
         shares of Municipal Preferred outstanding at the time, in person or by
         proxy, either in writing or at a meeting, voting as a separate class,
         file a voluntary application for relief under Federal bankruptcy law or
         any similar application under state law for so long as the Trust is
         solvent and does not foresee becoming insolvent. If any action set
         forth above would adversely affect the rights of one or more series
         (the "Affected Series") of Municipal Preferred in a manner different
         from any other series of Municipal Preferred, the Trust will not
         approve any such action without the affirmative vote or consent of the
         Holders of at least a majority of the shares of each such Affected
         Series outstanding at the time, in person or by proxy, either in
         writing or at a meeting (each such Affected Series voting at a separate
         class).

                  (ii) 1940 ACT MATTERS. Unless a higher percentage is provided
         for in the Declaration or this Statement, (A) the affirmative vote of
         the Holders of at least a majority of the Preferred Shares, including
         Municipal Preferred, outstanding at the time, voting as a separate
         class, shall be required to approve any conversion of the Trust from a
         closed-end to an open-end investment company and (B) the affirmative
         vote of the Holders of a "majority of the outstanding Preferred
         Shares," including Municipal Preferred, voting as a separate class,
         shall be required to approve any plan of reorganization (as such term
         is used in the 1940 Act) adversely affecting such shares. The
         affirmative vote of the Holders of a "majority of the outstanding
         Preferred Shares," including Municipal Preferred, voting as a separate
         class, shall be required to approve any action not described in the
         first sentence of this paragraph 5(c)(ii) requiring a vote of security
         holders of the Trust under Section 13(a) of the 1940 Act. For purposes
         of the foregoing, "majority of the outstanding Preferred Shares" means
         (i) 67% or more of such shares present at a meeting, if the Holders of
         more than 50% of such shares are present or represented by proxy, or
         (ii) more than 50% of such shares, whichever is less. In the event a
         vote of Holders of Municipal Preferred is required pursuant to the
         provisions of Section 13(a) of the 1940 Act, the Trust shall, not later
         than ten Business Days prior to the date on which such vote is to be
         taken, notify Moody's (if Moody's is then rating the shares of
         Municipal Preferred) and S&P (if S&P is then rating the shares of
         Municipal Preferred) that such vote is to be taken and the nature of
         the action with respect to which such vote is to be taken. The Trust
         shall, not later than ten Business Days after the date on which such
         vote is taken, notify Moody's (if Moody's is then rating the shares of
         Municipal Preferred) and S&P (if S&P is then rating the shares of
         Municipal Preferred) of the results of such vote.

         (d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL. The
Board of Trustees, without the vote or consent of the shareholders of the Trust,
may from time to time amend, alter or repeal any or all of the definitions of
the terms listed below, or any provision of this Statement viewed by Moody's or
S&P as a predicate for any such definition, and any such amendment, alteration
or repeal will not be deemed to affect the preferences, rights or powers of
shares of Municipal Preferred or the Holders thereof; provided, however, that
the Board of Trustees receives written confirmation from Moody's (such
confirmation being required to be obtained only in the event Moody's is rating
the shares of Municipal Preferred and in no event being required to be obtained
in the case of the definitions of (x) Deposit Securities, Discounted Value, and
Other Issues as such terms apply to S&P Eligible Asset and (y) Pricing Services,
S&P Discount Factor, S&P Eligible Asset, S&P Exposure Period, S&P Volatility
Factor) and S&P (such confirmation being required to be obtained only in the
event S&P is rating the shares of Municipal Preferred and in no event being
required to be obtained in the case of the definitions of (x) Discounted Value,
and Other Issues as such terms apply to Moody's Eligible Asset, and (y) Moody's
Discount Factor, Moody's Eligible Asset, Moody's Exposure Period and Moody's
Volatility Factor) that any such amendment, alteration or repeal would not
impair the ratings then assigned by Moody's or S&P, as the case may be, to
shares of Municipal Preferred:

         Deposit Securities                       Escrowed Bonds
         Discounted Value                         Market Value
         Maximum Potential Gross-up Payment       Moody's Exposure Period
              Liability                           Moody's Volatility Factor
         Municipal Preferred Basic Maintenance    1940 Act Cure Date
              Amount
         Municipal Preferred Basic Maintenance    1940 Act Municipal Preferred
              Cure Date                                Asset Coverage
         Municipal Preferred Basic Maintenance    Other Issues
              Report                              Pricing Services
         Moody's Discount Factor                  Quarterly Valuation Date
         Moody's Eligible Asset
                                                  S&P Discount Factor
                                                  S&P Eligible Asset
                                                  S&P Exposure Period
                                                  S&P Volatility Factor
                                                  Valuation Date
                                                  Volatility Factor

         (e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless
otherwise required by law, the By-laws, this Statement or by the Declaration,
the Holders of shares of Municipal Preferred shall not have any relative rights
or preferences or other special rights other than those specifically set forth
herein.

         (f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of shares of
Municipal Preferred shall have no preemptive rights or rights to cumulative
voting.

         (g) VOTING FOR TRUSTEES SOLE REMEDY FOR TRUST'S FAILURE TO PAY
DIVIDENDS. In the event that the Trust fails to pay any dividends on the shares
of Municipal Preferred, the exclusive remedy of the Holders shall be the right
to vote for Trustees pursuant to the provisions of this paragraph 5.

         (h) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of
the Holders to vote on any matter, whether such right is created by the By-laws,
this Statement, by the other provisions of this Statement or the Declaration, by
statute or otherwise, no Holder shall be entitled to vote any share of Municipal
Preferred and no share of Municipal Preferred shall be deemed to be
"outstanding" for the purpose of voting or determining the number of shares
required to constitute a quorum if, prior to or concurrently with the time of
determination of shares entitled to vote or shares deemed outstanding for quorum
purposes, as the case may be, the requisite Notice of Redemption with respect to
such shares shall have been mailed as provided in paragraph 11(c) of this Part I
and the Redemption Price for the redemption of such shares shall have been
deposited in trust with the Auction Agent for that purpose. No shares of
Municipal Preferred held by the Trust or any affiliate of the Trust (except for
shares held by a Broker-Dealer that is an affiliate of the Trust for the account
of its customers) shall have any voting rights or be deemed to be outstanding
for voting or other purposes.

         6.  1940 ACT MUNICIPAL PREFERRED ASSET COVERAGE.

         The Trust shall maintain, as of the last Business Day of each month in
which any share of Municipal Preferred is outstanding, the 1940 Act Municipal
Preferred Asset Coverage.

         7.  MUNICIPAL PREFERRED BASIC MAINTENANCE AMOUNT.

         (a) So long as shares of Municipal Preferred are outstanding, the Trust
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 Municipal Preferred
Basic Maintenance Amount (if S&P is then rating the shares of Municipal
Preferred) and (ii) Moody's Eligible Assets having an aggregate Discounted Value
equal to or greater than the Municipal Preferred Basic Maintenance Amount (if
Moody's is then rating the shares of Municipal Preferred).

         (b) On or before 5:00 P.M., New York City time, on the third Business
Day after a Valuation Date on which the Trust fails to satisfy the Municipal
Preferred Basic Maintenance Amount, and on the third Business Day after the
Municipal Preferred Basic Maintenance Cure Date with respect to such Valuation
Date, the Trust shall complete and deliver to S&P (if S&P is then rating the
shares of Municipal Preferred), Moody's (if Moody's is then rating the shares of
Municipal Preferred) and the Auction Agent (if either S&P or Moody's is then
rating the shares of Municipal Preferred) a Municipal Preferred Basic
Maintenance Report as of the date of such failure or such Municipal Preferred
Basic Maintenance Cure Date, as the case may be, which will be deemed to have
been delivered to the Auction Agent if the Auction Agent receives a copy of
telecopy, telex or other electronic transcription thereof and on the same day
the Trust mails to the Auction Agent for delivery on the next Business Day the
full Municipal Preferred Basic Maintenance Report.

         The Trust shall also deliver a Municipal Preferred Basic Maintenance
Report to the Auction Agent, Moody's (if Moody's is then rating the shares of
Municipal Preferred) and S&P (if S&P is then rating the shares of Municipal
Preferred) as of any Quarterly Valuation Date, in each case on or before the
third Business Day after such day, and S&P, as of any biweekly Valuation Date,
in each case on or before the third Business Day after such day for the first
year. The Trust will also deliver a Municipal Preferred Basic Maintenance Report
to Moody's (if Moody's is then rating the shares of the Municipal Preferred) and
S&P (if S&P is then rating the shares of the Municipal Preferred) if and when
requested by S&P or Moody's for any Valuation Date, on or before the third
Business Day after such request. A failure by the Trust to deliver a Municipal
Preferred Basic Maintenance Report pursuant to the preceding sentence shall be
deemed to be delivery of a Municipal Preferred Basic Maintenance Report
indicating the Discounted Value for all assets of the Trust is less than the
Municipal Preferred Basic Maintenance Amount, as of the relevant Valuation Date.

         (c) Within ten Business Days after the date of delivery of a Municipal
Preferred Basic Maintenance Report in accordance with subparagraph (b) of this
paragraph 7 relating to a Quarterly Valuation Date, the Trust shall cause the
Independent Accountant to confirm in writing to S&P (if S&P is then rating the
shares of Municipal Preferred), Moody's (if Moody's is then rating the shares of
Municipal Preferred) and the Auction Agent (if either S&P or Moody's is then
rating the shares of Municipal Preferred) (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other Municipal Preferred
Basic Maintenance Report, randomly selected by the Independent Accountant, that
was delivered by the Trust during the quarter ending on such Quarterly Valuation
Date); (ii) that, in such Report (and in such randomly selected Report), the
Trust determined in accordance with this paragraph whether the Trust had, at
such Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly-selected Report), S&P Eligible Assets (if S&P is then rating the shares
of Municipal Preferred) of an aggregate Discounted Value at least equal to the
Municipal Preferred Basic Maintenance Amount and Moody's Eligible Assets (if
Moody's is then rating the shares of Municipal Preferred) of an aggregate
Discounted Value at least equal to the Municipal Preferred Basic Maintenance
Amount (such confirmation being herein called the "Accountant's Confirmation");
(iii) the written or published price quotations used in such calculations
conform to such written or published price quotations; and (iv) the eligible
assets held in the issuer's portfolio conform to the definition of "S&P Eligible
Assets."

         (d) Within ten Business Days after the date of delivery of a Municipal
Preferred Basic Maintenance Report in accordance with subparagraph (b) of this
paragraph 7 relating to any Valuation Date on which the Trust failed to satisfy
the Municipal Preferred Basic Maintenance Amount, and relating to the Municipal
Preferred Basic Maintenance Cure Date with respect to such failure to satisfy
the Municipal Preferred Basic Maintenance Amount, the Trust shall cause the
Independent Accountant to provide to S&P (if S&P is then rating the shares of
Municipal Preferred), Moody's (if Moody's is then rating the shares of Municipal
Preferred) and the Auction Agent (if either S&P or Moody's is then rating the
shares of Municipal Preferred) an Accountant's Confirmation as to such Municipal
Preferred Basic Maintenance Report.

         (e) If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the Municipal
Preferred Basic Maintenance Report for a particular Valuation Date for which
such Accountant's Confirmation was required to be delivered, or shows that a
lower aggregate Discounted Value for the aggregate of all S&P Eligible Assets
(if S&P is then rating the shares of Municipal Preferred) or Moody's Eligible
Assets (if Moody's is then rating the shares of Municipal Preferred), as the
case may be, of the Trust was determined by the Independent Accountant, the
calculation or determination made by such Independent Accountant shall be final
and conclusive and shall be binding on the Trust, and the Trust shall
accordingly amend and deliver the Municipal Preferred Basic Maintenance Report
to S&P (if S&P is then rating the shares of Municipal Preferred), Moody's (if
Moody's is then rating the shares of Municipal Preferred) and the Auction Agent
(if either S&P or Moody's is then rating the shares of Municipal Preferred)
promptly following receipt by the Trust of such Accountant's Confirmation.

         (f) On or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of any shares of Municipal Preferred, the
Trust shall complete and deliver to S&P (if S&P is then rating the shares of
Municipal Preferred) and Moody's (if Moody's is then rating the shares of
Municipal Preferred) a Municipal Preferred 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 Trust shall cause the Independent Accountant to
confirm in writing to S&P (if S&P is then rating the shares of Municipal
Preferred) (i) the mathematical accuracy of the calculations reflected in such
Report and (ii) that the Discounted Value of S&P Eligible Assets reflected
thereon equals or exceeds the Municipal Preferred Basic Maintenance Amount
reflected thereon.

         (g) On or before 5:00 p.m., New York City time, on the third Business
Day after either (i) the Trust shall have redeemed Common or Preferred Shares or
(ii) the ratio of the Discounted Value of S&P Eligible Assets or the Discounted
Value of Moody's Eligible Assets to the Municipal Preferred Basic Maintenance
Amount is less than or equal to 110%, the Trust shall complete and deliver to
S&P (if S&P is then rating the shares of Municipal Preferred) or Moody's (if
Moody's is then rating the shares of Municipal Preferred), as the case may be, a
Municipal Preferred Basic Maintenance Report as of the date of either such
event.

         8.  [RESERVED].

         9.  RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.

         (a) DIVIDENDS ON PREFERRED SHARES OTHER THAN MUNICIPAL PREFERRED.
Except as set forth in the next sentence, no dividends shall be declared or paid
or set apart for payment on the shares of any class or series of shares of
beneficial interest of the Trust ranking, as to the payment of dividends, on a
parity with shares of Municipal Preferred for any period unless full cumulative
dividends have been or contemporaneously are declared and paid on the shares of
each series of Municipal Preferred through its most recent Dividend Payment
Date. When dividends are not paid in full upon the shares of each series of
Municipal Preferred through its most recent Dividend Payment Date or upon the
shares of any other class or series of shares of beneficial interest of the
Trust ranking on a parity as to the payment of dividends with shares of
Municipal Preferred through their most recent respective dividend payment dates,
all dividends declared upon shares of Municipal Preferred and any other such
class or series of shares of beneficial interest ranking on a parity as to the
payment of dividends with shares of Municipal Preferred shall be declared pro
rata so that the amount of dividends declared per share on shares of Municipal
Preferred and such other class or series of shares of beneficial interest shall
in all cases bear to each other the same ratio that accumulated dividends per
share on the shares of Municipal Preferred and such other class or series of
shares of beneficial interest bear to each other (for purposes of this sentence,
the amount of dividends declared per share of Municipal Preferred shall be based
on the Applicable Rate for such shares for the Dividend Periods during which
dividends were not paid in full).

         (b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON SHARES
UNDER THE 1940 ACT. The Board of Trustees shall not declare any dividend (except
a dividend payable in Common Shares), or declare any other distribution, upon
the Common Shares, or purchase Common Shares, unless in every such case the
Preferred Shares have, at the time of any such declaration or purchase, an asset
coverage (as defined in and determined pursuant to the 1940 Act) of at least
200% (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
shares or stock of a closed-end investment company as a condition of declaring
dividends on its common shares or stock) after deducting the amount of such
dividend, distribution or purchase price, as the case may be.

         (c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so
long as any share of Municipal Preferred is outstanding, and except as set forth
in subparagraph (a) of this paragraph 9 and paragraph 12(c) of this Part I, (A)
the Trust 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 in
options, warrants or rights to subscribe for or purchase, Common Shares or other
shares, if any, ranking junior to the shares of Municipal Preferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of the Common Shares or any other shares
of the Trust ranking junior to or on a parity with the shares of Municipal
Preferred as to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up, or call for redemption, redeem, purchase
or otherwise acquire for consideration any Common Shares or any other such
junior shares (except by conversion into or exchange for shares of the Trust
ranking junior to the shares of Municipal Preferred as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), or any such parity shares (except by conversion into or exchange
for shares of the Trust ranking junior to or on a parity with Municipal
Preferred as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up), unless (i) full cumulative dividends on
shares of each series of Municipal Preferred through its most recently ended
Dividend Period shall have been paid or shall have been declared and sufficient
funds for the payment thereof deposited with the Auction Agent and (ii) the
Trust has redeemed the full number of shares of Municipal Preferred required to
be redeemed by any provision for mandatory redemption pertaining thereto, and
(B) the Trust 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
in options, warrants or rights to subscribe for or purchase, Common Shares or
other shares, if any, ranking junior to shares of Municipal Preferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of Common Shares or any other shares of
the Trust ranking junior to shares of Municipal Preferred as to the payment of
dividends or the distribution of assets upon dissolution, liquidation or winding
up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Common Shares or any other such junior shares (except by
conversion into or exchange for shares of the Trust ranking junior to shares of
Municipal Preferred as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up), unless immediately after
such transaction the Discounted Value of Moody's Eligible Assets (if Moody's is
then rating the shares of Municipal Preferred) and S&P Eligible Assets (if S&P
is then rating the shares of Municipal Preferred) would each at least equal the
Municipal Preferred Basic Maintenance Amount.

         10.  RATING AGENCY RESTRICTIONS.

         For so long as any shares of Municipal Preferred are outstanding and
Moody's or S&P, or both, are rating such shares, the Trust will not, unless it
has received confirmation from Moody's or S&P, or both, as appropriate, that any
such action would not impair the ratings then assigned by such rating agency to
such shares, engage in any one or more of the following transactions:

         (a) 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 except that the
Trust may purchase or sell futures contracts based on the Bond Buyer Municipal
Bond Index (the "Municipal Index") or United States Treasury Bonds or Notes
("Treasury Bonds") and write, purchase or sell put and call options on such
contracts (collectively, "Hedging Transactions"), subject to the following
limitations:

                  (i) the Trust will not engage in any Hedging Transaction based
         on the Municipal Index (other than transactions which terminate a
         futures contract or option held by the Trust by the Trust's taking an
         opposite position thereto ("Closing Transactions")), which would cause
         the Trust 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 Trust'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 open interest 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 Trust will not engage in any Hedging Transaction
         based on Treasury Bonds (other than Closing Transactions) which would
         cause the Trust 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
         Trust'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 Trust will engage in Closing Transactions to close
         out any outstanding futures contract which the Trust owns or has sold
         or any outstanding option thereon owned by the Trust in the event (A)
         the Trust does not have S&P Eligible Assets or Moody's Eligible Assets,
         as the case may be, with an aggregate Discounted Value equal to or
         greater than the Municipal Preferred Basic Maintenance Amount on two
         consecutive Valuation Dates and (B) the Trust is required to pay
         Variation Margin on the second such Valuation Date;

                  (iv) the Trust 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 Trust holds the securities deliverable under
         such terms; and

                  (v) when the Trust writes a futures contract or option
         thereon, it will either maintain an amount of cash, cash equivalents or
         high grade (rated A or better by S&P or Moody's, as the case may be),
         fixed-income securities in a segregated account with the Trust'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
         Trust'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 Trust 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 Trust has S&P Eligible Assets
or Moody's Eligible Assets, as the case may be, Initial and Variation Margin
will not constitute eligible assets. Segregated Securities will constitute
eligible assets, discounted at the factor equal to the exposure period.

         (b) borrow money, except that the Trust may, without obtaining the
written confirmation described above, borrow money for the purpose of clearing
securities transactions if (i) the Municipal Preferred Basic Maintenance Amount
would continue to be satisfied after giving effect to such borrowing (which
shall mean, for purposes of the calculation of the Municipal Preferred Basic
Maintenance Amount, adding the amount of the liability for such borrowing to the
calculation of the Municipal Preferred Basic Maintenance Amount under
subparagraph (F) under the definition of that term in Part I of this Statement)
and (ii) such borrowing (A) is privately arranged with a bank or other person
and is evidenced by a promissory note or other evidence of indebtedness that is
not intended to be publicly distributed or (B) is for "temporary purposes," is
evidenced by a promissory note or other evidence of indebtedness and is an
amount not exceeding 5 per centum of the value of the total assets of the Trust
at the time of the borrowing; for purposes of the foregoing, "temporary
purposes" means that the borrowing is to be repaid within sixty days and is not
to be extended or renewed;

         (c) issue additional shares of any series of Municipal Preferred or any
class or series of shares ranking prior to or on a parity with shares of
Municipal Preferred with respect to the payment of dividends or the distribution
of assets upon dissolution, liquidation or winding up of the Trust, or reissue
any shares of Municipal Preferred previously purchased or redeemed by the Trust;

         (d) engage in any short sales of securities;

         (e) lend securities;

         (f) merge or consolidate into or with any corporation;

         (g) change the Trust's primary Pricing Services; or

         (h) enter into reverse repurchase agreements.

         11. REDEMPTION.

         (a) OPTIONAL REDEMPTION.

                  (i) Subject to the provisions of subparagraph (v) of this
         subparagraph (a), shares of Municipal Preferred of any series may be
         redeemed, at the option of the Trust, as a whole or from time to time
         in part, on the second Business Day preceding any Dividend Payment Date
         for shares of such series, out of funds legally available therefor, at
         a redemption price per share equal to the sum of $25,000 plus an amount
         equal to accumulated but unpaid dividends thereon (whether or not
         earned or declared) to (but not including) the date fixed for
         redemption; provided, however, that (1) shares of a series of Municipal
         Preferred may not be redeemed in part if after such partial redemption
         fewer than 500 shares of such series remain outstanding; (2) unless
         otherwise provided herein, shares of a series of Municipal Preferred
         are redeemable by the Trust during the Initial Rate Period thereof only
         on the second Business Day next preceding the last Dividend Payment
         Date for such Initial Rate Period; and (3) subject to subparagraph (ii)
         of this paragraph, (a) the Notice of Special Rate Period relating to a
         Special Rate Period of shares of a series of Municipal Preferred, as
         delivered to the Auction Agent and filed with the Secretary of the
         Trust, may provide that shares of such series shall not be redeemable
         during the whole or any part of such Special Rate Period (except as
         provided in subparagraph (iv) of this subparagraph (a)) or shall be
         redeemable during the whole or any part of such Special Rate Period
         only upon payment of such redemption premium or premiums as shall be
         specified therein ("Special Redemption Provisions").

                  (ii) A Notice of Special Rate Period relating to shares of a
         series of Municipal Preferred for a Special Rate Period thereof may
         contain Special Redemption Provisions only if the Trust's Board of
         Trustees, after consultation with the Broker-Dealer or Broker-Dealers
         for such Special Rate Period of shares of such series, determines that
         such Special Redemption Provisions are in the best interest of the
         Trust.

                  (iii) If fewer than all of the outstanding shares of a series
         of Municipal Preferred are to be redeemed pursuant to subparagraph (i)
         of this subparagraph (a), the number of shares of such series to be
         redeemed shall be determined by the Board of Trustees, and such shares
         shall be redeemed pro rata from the Holders of shares of such series in
         proportion to the number of shares of such series held by such Holders.

                  (iv) Subject to the provisions of subparagraph (v) of this
         subparagraph (a), shares of any series of Municipal Preferred may be
         redeemed, at the option of the Trust, as a whole but not in part, out
         of funds legally available therefor, on the first day following any
         Dividend Period thereof included in a Rate Period consisting of more
         than 364 Rate Period Days if, on the date of determination of the
         Applicable Rate for shares of such series for such Rate Period, such
         Applicable Rate equaled or exceeded on such date of determination the
         Treasury Note Rate for such Rate Period, at a redemption price per
         share equal to the sum of $25,000 plus an amount equal to accumulated
         but unpaid dividends thereon (whether or not earned or declared) to
         (but not including) to the date fixed for redemption.

                  (v) The Trust may not on any date mail a Notice of Redemption
         pursuant to subparagraph (c) of this paragraph 11 in respect of a
         redemption contemplated to be effected pursuant to this subparagraph
         (a) unless on such date (a) the Trust 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
         (including any applicable premium) due to Holders of shares of
         Municipal Preferred by reason of the redemption of such shares on such
         redemption date and (b) the Discounted Value of Moody's Eligible Assets
         (if Moody's is then rating the shares of Municipal Preferred) and the
         Discounted Value of S&P Eligible Assets (if S&P is then rating the
         shares of Municipal Preferred) each at least equal the Municipal
         Preferred Basic Maintenance Amount, and would at least equal the
         Municipal Preferred Basic Maintenance Amount immediately subsequent to
         such redemption if such redemption were to occur on such date. For
         purposes of determining in clause (b) of the preceding sentence whether
         the Discounted Value of Moody's Eligible Assets at least equals the
         Municipal Preferred Basic Maintenance Amount, the Moody's Discount
         Factors applicable to Moody's Eligible Assets shall be determined by
         reference to the first Exposure Period longer than the Exposure Period
         then applicable to the Trust, as described in the definition of Moody's
         Discount Factor herein.

         (b) MANDATORY REDEMPTION. The Trust shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Trustees for redemption, certain of the shares of Municipal Preferred,
if the Trust fails to have either Moody's Eligible Assets with a Discounted
Value, or S&P Eligible Assets with a Discounted Value, greater than or equal to
the Municipal Preferred Basic Maintenance Amount or fails to maintain the 1940
Act Municipal Preferred Asset Coverage, in accordance with the requirements of
the rating agency or agencies then rating the shares of Municipal Preferred, and
such failure is not cured on or before the Municipal Preferred Basic Maintenance
Cure Date or the 1940 Act Cure Date, as the case may be (the "Cure Date"). The
number of shares of Municipal Preferred to be redeemed shall be equal to the
lesser of (i) the minimum number of shares of Municipal Preferred, together with
all other Preferred Shares subject to redemption or retirement, the redemption
of which, if deemed to have occurred immediately prior to the opening of
business on the Cure Date, would have resulted in the Trust's having both
Moody's Eligible Assets with a Discounted Value, and S&P Eligible Assets with a
Discounted Value, greater than or equal to the Municipal Preferred Basic
Maintenance Amount or maintaining the 1940 Act Municipal Preferred Asset
Coverage, as the case may be, on such Cure Date (provided, however, that if
there is no such minimum number of shares of Municipal Preferred and other
Preferred Shares the redemption or retirement of which would have had such
result, all shares of Municipal Preferred and Preferred Shares then outstanding
shall be redeemed), and (ii) the maximum number of shares of Municipal
Preferred, together with all other Preferred Shares subject to redemption or
retirement, that can be redeemed out of funds expected to be legally available
therefor in accordance with the Declaration, the By-laws, this Statement and
applicable law. In determining the shares of Municipal Preferred required to be
redeemed in accordance with the foregoing, the Trust shall allocate the number
required to be redeemed to satisfy the Municipal Preferred Basic Maintenance
Amount or the 1940 Act Municipal Preferred Asset Coverage, as the case may be,
pro rata among shares of Municipal Preferred and other Preferred Shares (and,
then pro rata among each series of Municipal Preferred) subject to redemption or
retirement. The Trust shall effect such redemption on the date fixed by the
Trust therefor, which date shall not be earlier than 20 days nor later than 40
days after such Cure Date, except that if the Trust does not have funds legally
available for the redemption of all of the required number of shares of
Municipal Preferred and other Preferred Shares which are subject to redemption
or retirement or the Trust otherwise is unable to effect such redemption on or
prior to 40 days after such Cure Date, the Trust shall redeem those shares of
Municipal Preferred and other Preferred Shares which it was unable to redeem on
the earliest practicable date on which it is able to effect such redemption. If
fewer than all of the outstanding shares of a series of Municipal Preferred are
to be redeemed pursuant to this subparagraph (b), the number of shares of such
series to be redeemed shall be redeemed pro rata from the Holders of shares of
such series in proportion to the number of shares of such series held by such
Holders.

         (c) NOTICE OF REDEMPTION. If the Trust shall determine or be required
to redeem shares of a series of Municipal Preferred pursuant to subparagraph (a)
or (b) of this paragraph 11, it shall mail a Notice of Redemption with respect
to such redemption by first class mail, postage prepaid, to each Holder of the
shares of such series to be redeemed, at such Holder's address as the same
appears on the record books of the Trust on the record date established by the
Board of Trustees. Such Notice of Redemption shall be so mailed not less than 20
nor more than 45 days prior to the date fixed for redemption. Each such Notice
of Redemption shall state: (i) the redemption date; (ii) the number of shares of
Municipal Preferred to be redeemed and the series thereof; (iii) the CUSIP
number for shares of such series; (iv) the Redemption Price; (v) the place or
places where the certificate(s) for such shares (properly endorsed or assigned
for transfer, if the Board of Trustees shall so require and the Notice of
Redemption shall so state) are to be surrendered for payment of the Redemption
Price; (vi) that dividends on the shares to be redeemed will cease to accumulate
on such redemption date; and (vii) the provisions of this paragraph 11 under
which such redemption is made. If fewer than all shares of a series of Municipal
Preferred held by any Holder are to be redeemed, the Notice of Redemption mailed
to such Holder shall also specify the number of shares of such series to be
redeemed from such Holder. The Trust may provide in any Notice of Redemption
relating to an optional redemption contemplated to be effected pursuant to
subparagraph (a) of this paragraph 11 that such redemption is subject to one or
more conditions precedent and that the Trust shall not be required to make such
redemption unless each such condition shall have been satisfied at the time or
times and in the manner specified in such Notice of Redemption.

         (d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the
provisions of subparagraphs (a) or (b) of this paragraph 11, if any dividends on
shares of a series of Municipal Preferred (whether or not earned or declared)
are in arrears, no shares of such series shall be redeemed unless all
outstanding shares of such series are simultaneously redeemed, and the Trust
shall not purchase or otherwise acquire any shares of such series; provided,
however, that the foregoing shall not prevent the purchase or acquisition of all
outstanding shares of such series pursuant to the successful completion of an
otherwise lawful purchase or exchange offer made on the same terms to, and
accepted by, Holders of all outstanding shares of such series.

         (e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor in accordance with the
Declaration, the By-laws, this Statement and applicable law, such redemption
shall be made as soon as practicable to the extent such funds become available.
Failure to redeem shares of Municipal Preferred shall be deemed to exist at any
time after the date specified for redemption in a Notice of Redemption when the
Trust shall have failed, for any reason whatsoever, to deposit in trust with the
Auction Agent the Redemption Price with respect to any shares of which such
Notice of Redemption has been mailed; provided, however, that the foregoing
shall not apply in the case of the Trust's failure to deposit in trust with the
Auction Agent the Redemption Price with respect to any shares where (1) the
Notice of Redemption relating to such redemption provided that such redemption
was subject to one or more conditions precedent and (2) any such condition
precedent shall not have been satisfied at the time or times and in the manner
specified in such Notice of Redemption. Notwithstanding the fact that the Trust
may not have redeemed shares of Municipal Preferred for which a Notice of
Redemption has been mailed, dividends may be declared and paid on shares of
Municipal Preferred and shall include those shares of Municipal Preferred for
which a Notice of Redemption has been mailed.

         (f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY TRUST. All
moneys paid to the Auction Agent for payment of the Redemption Price of shares
of Municipal Preferred called for redemption shall be held in trust by the
Auction Agent for the benefit of Holders of shares so to be redeemed.

         (g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER
OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to
subparagraph (c) of this paragraph 11, upon the deposit with the Auction Agent
(by noon on the Business Day fixed for redemption thereby, in funds available on
that Business Day in The City of New York, New York) of funds sufficient to
redeem the shares of Municipal Preferred that are the subject of such notice,
dividends on such shares shall cease to accumulate and such shares shall no
longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as provided in paragraphs 2(e)(i)
and 3 of this Part I. Upon surrender in accordance with the Notice of Redemption
of the certificates for any shares so redeemed (properly endorsed or assigned
for transfer, if the Board of Trustees shall so require and the Notice of
Redemption shall so state), the Redemption Price shall be paid by the Auction
Agent to the Holders of shares of Municipal Preferred subject to redemption. In
the case that fewer than all of the shares represented by any such certificate
are redeemed, a new certificate shall be issued, representing the unredeemed
shares, without cost to the Holder thereof. The Trust shall be entitled to
receive from the Auction Agent, promptly after the date fixed for redemption,
any cash deposited with the Auction Agent in excess of (i) the aggregate
Redemption Price of the shares of Municipal Preferred called for redemption on
such date and (ii) all other amounts to which Holders of shares of Municipal
Preferred called for redemption may be entitled. Any funds so deposited that are
unclaimed at the end of 90 days from such redemption date shall, to the extent
permitted by law, be repaid to the Trust, after which time the Holders of shares
of Municipal Preferred so called for redemption may look only to the Trust for
payment of the Redemption Price and all other amounts to which they may be
entitled. The Trust shall be entitled to receive, from time to time after the
date fixed for redemption, any interest on the funds so deposited.

         (h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption
pursuant to this paragraph 11, the Trust shall use its best efforts to comply
with all applicable conditions precedent to effecting such redemption under the
1940 Act and any applicable Massachusetts law, but shall effect no redemption
except in accordance with the 1940 Act and any applicable Massachusetts law.

         (i) ONLY WHOLE SHARES OF MUNICIPAL PREFERRED MAY BE REDEEMED. In the
case of any redemption pursuant to this paragraph 11, only whole shares of
Municipal Preferred shall be redeemed, and in the event that any provision of
the Declaration, the By-laws or this Statement would require redemption of a
fractional share, the Auction Agent shall be authorized to round up so that only
whole shares are redeemed.

         12. LIQUIDATION RIGHTS.

         (a) RANKING. The shares of a series of Municipal Preferred shall rank
on a parity with each other, with shares of any other series of Municipal
Preferred and with shares of any other series of Preferred Shares as to the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Trust.

         (b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation
or winding up of the affairs of the Trust, whether voluntary or involuntary, the
Holders of shares of Municipal Preferred then outstanding shall be entitled to
receive and to be paid out of the assets of the Trust available for distribution
to its shareholders, before any payment or distribution shall be made on the
Common Shares or on any other class of shares of the Trust ranking junior to the
Municipal Preferred upon dissolution, liquidation or winding up, an amount equal
to the Liquidation Preference with respect to such shares plus an amount equal
to all dividends thereon (whether or not earned or declared) accumulated but
unpaid to (but not including) the date of final distributions in same-day funds,
together with any payments required to be made pursuant to paragraph 3 of this
Part I in connection with the liquidation of the Trust. After the payment to the
Holders of the shares of Municipal Preferred of the full preferential amounts
provided for in this subparagraph (b), the holders of Municipal Preferred as
such shall have no right or claim to any of the remaining assets of the Trust.

         (c) PRO RATA DISTRIBUTIONS. In the event the assets of the Trust
available for distribution to the Holders of shares of Municipal Preferred upon
any dissolution, liquidation, or winding up of the affairs of the Trust, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such Holders are entitled pursuant to subparagraph (b) of this paragraph
12, no such distribution shall be made on account of any shares of any other
class or series of Preferred Shares ranking on a parity with the shares of
Municipal Preferred with respect to the distribution of assets upon such
dissolution, liquidation or winding up unless proportionate distributive amounts
shall be paid on account of the shares of Municipal Preferred, ratably, in
proportion to the full distributable amounts for which holders of all such
parity shares are respectively entitled upon such dissolution, liquidation or
winding up.

         (d) RIGHTS OF JUNIOR SHARES. Subject to the rights of the holders of
shares of any series or class or classes of shares ranking on a parity with the
shares of Municipal Preferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust, after
payment shall have been made in full to the Holders of the shares of Municipal
Preferred as provided in subparagraph (b) of this paragraph 12, but not prior
thereto, any other series or class or classes of shares ranking junior to the
shares of Municipal Preferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust shall,
subject to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, and
the Holders of the shares of Municipal Preferred shall not be entitled to share
therein.

         (e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of
all or substantially all of the property or business of the Trust, nor the
merger or consolidation of the Trust into or with any trust, corporation or
other entity nor the merger or consolidation of any trust, corporation or other
entity into or with the Trust shall be a dissolution, liquidation or winding up,
whether voluntary or involuntary, for the purposes of this paragraph 12.

         13. MISCELLANEOUS.

(a) AMENDMENT OF THIS STATEMENT TO ADD ADDITIONAL SERIES. Subject to the
provisions of subparagraph (c) of paragraph 10 of this Part I, the Board of
Trustees may, by resolution duly adopted, without shareholder approval (except
as otherwise provided by this Statement or required by applicable law), amend
this Statement to (1) reflect any amendment hereto which the Board of Trustees
is entitled to adopt pursuant to the terms of this Statement without shareholder
approval or (2) add additional series of Municipal Preferred or additional
shares of a series of Municipal Preferred (and terms relating thereto) to the
series and shares of Municipal Preferred theretofore described thereon. Each
such additional series and all such additional shares shall be governed by the
terms of this Statement.

         (b) [RESERVED]

         (c) NO FRACTIONAL SHARES. No fractional shares of Municipal Preferred
shall be issued.

         (d) STATUS OF SHARES OF MUNICIPAL PREFERRED REDEEMED, EXCHANGED OR
OTHERWISE ACQUIRED BY THE TRUST. Shares of Municipal Preferred which are
redeemed, exchanged or otherwise acquired by the Trust shall return to the
status of authorized and unissued Preferred Shares without designation as to
series.

         (e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by
applicable law, the Board of Trustees may interpret, adjust or amend the
provisions of this Statement to resolve any inconsistency or ambiguity or to
remedy any formal defect, and may amend this Statement with respect to any
series of Municipal Preferred prior to this issuance of shares of such series.

         (f) HEADINGS NOT DETERMINATIVE. The headings contained in this
Statement are for convenience of reference only and shall not affect the meaning
or interpretation of this Statement.

         (g) NOTICES. All notices or communications, unless otherwise specified
in this Statement, shall be sufficiently given if in writing and delivered in
person or mailed by first-class mail, postage prepaid.

                                     PART II
                               AUCTION PROCEDURES

         1.  ORDERS.

         (a) Prior to the Submission Deadline on each Auction Date for shares of
a series of Municipal Preferred:

                  (i) each Beneficial Owner of shares of such series may submit
         to its Broker-Dealer by telephone or otherwise information as to:

                           (A) the number of Outstanding shares, if any, of such
                  series held by such Beneficial Owner which such Beneficial
                  Owner desires to continue to hold without regard to the
                  Applicable Rate for shares of such series for the next
                  succeeding Rate Period of such shares;

                           (B) the number of Outstanding shares, if any, of such
                  series held by such Beneficial Owner which such Beneficial
                  Owner offers to sell if the Applicable Rate for shares of such
                  series for the next succeeding Rate Period of shares of such
                  series shall be less than the rate per annum specified by such
                  Beneficial Owner; and/or

                           (C) the number of Outstanding shares, if any, of such
                  series held by such Beneficial Owner which such Beneficial
                  Owner offers to sell without regard to the Applicable Rate for
                  shares of such series for the next succeeding Rate Period of
                  shares of such series; and

                  (ii) one or more Broker-Dealers, using lists of Potential
         Beneficial Owners, shall in good faith for the purpose of conducting a
         competitive Auction in a commercially reasonable manner, contact
         Potential Beneficial Owners (by telephone or otherwise), including
         Persons that are not Beneficial Owners, on such lists to determine the
         number of shares, if any, of such series which each such Potential
         Beneficial Owner offers to purchase if the Applicable Rate for shares
         of such series for the next succeeding Rate Period of shares of such
         series shall not be less than the rate per annum specified by such
         Potential Beneficial Owner.

For purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent,
of information referred to in clause (i)(A), (i)(B), (i)(C), or (ii) of this
subparagraph (a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the
Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this subparagraph (a) is hereinafter referred to as a "Hold Order" and
collectively as "Hold Orders"; an Order containing the information referred to
in clause (i)(B) or (ii) of this subparagraph (a) is hereinafter referred to as
a "Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this subparagraph (a) is hereinafter referred to
as a "Sell Order" and collectively as "Sell Orders."

         (b)      (i) A Bid by a Beneficial Owner or an Existing Holder of
shares of a series of Municipal Preferred subject to an Auction on any Auction
Date shall constitute an irrevocable offer to sell:

                           (A) the number of Outstanding shares of such series
                  specified in such Bid if the Applicable Rate for shares of
                  such series determined on such Auction Date shall be less than
                  the rate specified therein;

                           (B) such number or a lesser number of Outstanding
                  shares of such series to be determined as set forth in
                  paragraph 4(a)(iv) of this Part II if the Applicable Rate for
                  shares of such series determined on such Auction Date shall be
                  equal to the rate specified therein; or

                           (C) the number of Outstanding shares of such series
                  specified in such Bid if the rate specified therein shall be
                  higher than the Maximum Rate for shares of such series, or
                  such number or a lesser number of Outstanding shares of such
                  series to be determined as set forth in paragraph 4(b)(iii) of
                  this Part II if the rate specified therein shall be higher
                  than the Maximum Rate for shares of such series and Sufficient
                  Clearing Bids for shares of such series do not exist.

                  (ii) A Sell Order by a Beneficial Owner or an Existing Holder
         of shares of a series of Municipal Preferred subject to an Auction on
         any Auction Date shall constitute an irrevocable offer to sell:

                           (A) the number of Outstanding shares of such series
         specified in such Sell Order; or

                           (B) such number or a lesser number of Outstanding
                  shares of such series as set forth in paragraph 4(b)(iii) of
                  this Part II if Sufficient Clearing Bids for shares of such
                  series do not exist;

         provided, however, that a Broker-Dealer that is an Existing Holder with
         respect to shares of a series of Municipal Preferred shall not be
         liable to any Person for failing to sell such shares pursuant to a Sell
         Order described in the proviso to paragraph 2(c) of this Part II if (1)
         such shares were transferred by the Beneficial Owner thereof without
         compliance by such Beneficial Owner or its transferee Broker-Dealer (or
         other transferee person, if permitted by the Trust) with the provisions
         of paragraph 7 of this Part II or (2) such Broker-Dealer has informed
         the Auction Agent pursuant to the terms of its Broker-Dealer Agreement
         that, according to such Broker-Dealer's records, such Broker-Dealer
         believes it is not the Existing Holder of such shares.

                  (iii) A Bid by a Potential Beneficial Holder or a Potential
         Holder of shares of a series of Municipal Preferred subject to an
         Auction on any Auction Date shall constitute an irrevocable offer to
         purchase:

                           (A) the number of Outstanding shares of such series
                  specified in such Bid if the Applicable Rate for shares of
                  such series determined on such Auction Date shall be higher
                  than the rate specified therein; or

                           (B) such number or a lesser number of Outstanding
                  shares of such series as set forth in paragraph 4(a)(v) of
                  this Part II if the Applicable Rate for shares of such series
                  determined on such Auction Date shall be equal to the rate
                  specified therein.

         (c) No Order for any number of shares of Municipal Preferred other than
whole shares shall be valid.

         2.  SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.

         (a) Each Broker-Dealer shall submit in writing or over the internet to
the Auction Agent prior to the Submission Deadline on each Auction Date all
Orders for shares of Municipal Preferred of a series subject to an Auction on
such Auction Date obtained by such Broker-Dealer, designating itself (unless
otherwise permitted by the Trust) 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 shall specify with respect to each Order for
such shares:

                  (i)  the name of the Bidder placing such Order (which shall
         be the Broker-Dealer unless otherwise permitted by the Trust);

                  (ii) the aggregate number of shares of such series that are
         the subject of such Order;

                  (iii) to the extent that such Bidder is an Existing Holder of
         shares of such series:

                           (A) the number of shares, if any, of such series
                  subject to any Hold Order of such Existing Holder;

                           (B) the number of shares, if any, of such series
                  subject to any Bid of such Existing Holder and the rate
                  specified in such Bid; and

                           (C) the number of shares, if any, of such series
                  subject to any Sell Order of such Existing Holder; and

                  (iv) to the extent such Bidder is a Potential Holder of shares
         of such series, the rate and number of shares of such series specified
         in such Potential Holder's Bid.

         (b) If any rate 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%.

         (c) If an Order or Orders covering all of the Outstanding shares of
Municipal Preferred of a series held by any Existing Holder is not submitted to
the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem
a Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; provided,
however, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Rate
Period consisting of more than 28 Rate Period Days, the Auction Agent shall deem
a Sell Order to have been submitted by or on behalf of such Existing Holder
covering the number of outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.

         (d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
shares of Municipal Preferred of a series subject to an Auction held by such
Existing Holder, such Orders shall be considered valid in the following order of
priority:

                  (i) all Hold Orders for shares of such series shall be
         considered valid, but only up to and including in the aggregate the
         number of Outstanding shares of such series held by such Existing
         Holder, and if the number of shares of such series subject to such Hold
         Orders exceeds the number of Outstanding shares of such series held by
         such Existing Holder, the number of shares subject to each such Hold
         Order shall be reduced pro rata to cover the number of Outstanding
         shares of such series held by such Existing Holder;

                  (ii) (A) any Bid for shares of such series shall be considered
                  valid up to and including the excess of the number of
                  Outstanding shares of such series held by such Existing Holder
                  over the number of shares of such series subject to any Hold
                  Orders referred to in clause (i) above;

                           (B) subject to subclause (A), if more than one Bid of
                  an Existing Holder for shares of such series is submitted to
                  the Auction Agent with the same rate and the number of
                  Outstanding shares of such series subject to such Bids is
                  greater than such excess, such Bids shall be considered valid
                  up to and including the amount of such excess, and the number
                  of shares of such series subject to each Bid with the same
                  rate shall be reduced pro rata to cover the number of shares
                  of such series equal to such excess;

                           (C) subject to subclauses (A) and (B), if more than
                  one Bid of an Existing Holder for shares of such series is
                  submitted to the Auction Agent with different rates, such Bids
                  shall be considered valid in the ascending order of their
                  respective rates up to and including the amount of such
                  excess; and

                           (D) in any such event, the number, if any, of such
                  Outstanding shares of such series subject to any portion of
                  Bids considered not valid in whole or in part under this
                  clause (ii) shall be treated as the subject of a Bid for
                  shares of such series by or on behalf of a Potential Holder at
                  the rate therein specified; and

                  (iii) all Sell Orders for shares of such series shall be
         considered valid up to and including the excess of the number of
         Outstanding shares of such series held by such Existing Holder over the
         sum of shares of such series subject to valid Hold Orders referred to
         in clause (i) above and valid Bids referred to in clause (ii) above.

         (e) If more than one Bid for one or more shares of a series of
Municipal Preferred is submitted to the Auction Agent by or on behalf of any
Potential Holder, each such Bid submitted shall be a separate Bid with the rate
and number of shares therein specified.

         (f) 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.

         3.  DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE.

         (a) Not earlier than the Submission Deadline on each Auction Date for
shares of a series of Municipal Preferred, the Auction Agent shall assemble all
valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (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 collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:

                  (i) the excess of the number of Outstanding shares of such
         series over the number of Outstanding shares of such series subject to
         Submitted Hold Orders (such excess being hereinafter referred to as the
         "Available Municipal Preferred" of such series);

                  (ii) from the Submitted Orders for shares of such series
         whether:

                           (A) the number of Outstanding shares of such series
                  subject to Submitted Bids of Potential Holders specifying one
                  or more rates equal to or lower than the Maximum Rate for
                  shares of such series;

                  exceeds or is equal to the sum of:

                           (B) the number of Outstanding shares of such series
                  subject to Submitted Bids of Existing Holders specifying one
                  or more rates higher than the Maximum Rate for shares of such
                  series; and

                           (C) the number of Outstanding shares of such series
                  subject to Submitted Sell Orders

                  (in the event such excess or such equality exists (other than
                  because the number of shares of such series in subclauses (B)
                  and (C) above is zero because all of the Outstanding shares of
                  such series are subject to Submitted Hold Orders), such
                  Submitted Bids in subclause (A) above being hereinafter
                  referred to collectively as "Sufficient Clearing Bids" for
                  shares of such series); and

                  (iii) if Sufficient Clearing Bids for shares of such series
         exist, the lowest rate specified in such Submitted Bids (the "Winning
         Bid Rate" for shares of such series) which if:

                           (A) (I) each such Submitted Bid of Existing Holders
                  specifying such lowest rate and (II) all other such Submitted
                  Bids of Existing Holders specifying lower rates were rejected,
                  thus entitling such Existing Holders to continue to hold the
                  shares of such series that are subject to such Submitted Bids;
                  and

                           (B) (I) each such Submitted Bid of Potential Holders
                  specifying such lowest rate and (II) all other such Submitted
                  Bids of Potential Holders specifying lower rates were
                  accepted;

         would result in such Existing Holders described in subclause (A) above
         continuing to hold an aggregate number of Outstanding shares of such
         series which, when added to the number of Outstanding shares of such
         series to be purchased by such Potential Holders described in subclause
         (B) above, would equal not less than the Available Municipal Preferred
         of such series.

         (b) Promptly after the Auction Agent has made the determinations
pursuant to subparagraph (a) of this paragraph 3, the Auction Agent shall advise
the Trust of the Maximum Rate for shares of the series of Municipal Preferred
for which an Auction is being held on the Auction Date and, based on such
determination, the Applicable Rate for shares of such series for the next
succeeding Rate Period thereof as follows:

                  (i) if Sufficient Clearing Bids for shares of such series
         exist, that the Applicable Rate for all shares of such series for the
         next succeeding Rate Period thereof shall be equal to the Winning Bid
         Rate for shares of such series so determined;

                  (ii) if Sufficient Clearing Bids for shares of such series do
         not exist (other than because all of the Outstanding shares of such
         series are subject to Submitted Hold Orders), that the Applicable Rate
         for all shares of such series for the next succeeding Rate Period
         thereof shall be equal to the Maximum Rate for shares of such series;
         or

                  (iii) if all of the Outstanding shares of such series are
         subject to Submitted Hold Orders, that the Applicable Rate for all
         shares of such series for the next succeeding Rate Period thereof shall
         be as set forth in subparagraph (c) of this paragraph 3.

         (c) For purposes of subparagraph (b)(iii) of this paragraph 3, the
Applicable Rate for shares of such series for the next succeeding Rate Period of
shares of such series shall be equal to the lesser of the Kenny Index (if such
Rate Period consists of fewer than 183 Rate Period Days) or the product of (A)
(I) the "AA" Composite Commercial Paper Rate on such Auction Date for such Rate
Period, if such Rate Period consists of fewer than 183 Rate Period Days; (II)
the Treasury Bill Rate on such Auction Date for such Rate Period, if such Rate
Period consists of more than 182 but fewer than 365 Rate Period Days; or (III)
the Treasury Note Rate on such Auction Date for such Rate Period, if such Rate
Period is more than 364 Rate Period Days (the rate described in the foregoing
clause (A)(I), (II) or (III), as applicable, being referred to herein as the
"Benchmark Rate") and (B) 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater; provided, however, that if the Trust has notified the
Auction Agent of its intent to allocate to shares of such series in such Rate
Period any net capital gains or other income taxable for Federal income tax
purposes ("Taxable Income"), the Applicable Rate for shares of such series for
such Rate Period will be (i) if the Taxable Yield Rate (as defined below) is
greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the Taxable
Yield Rate is less than or equal to the Benchmark Rate, then the rate equal to
the sum of (x) the lesser of the Kenny Index (if such Rate Period consists of
fewer than 183 Rate Period Days) or the product of the Benchmark Rate multiplied
by the factor set forth in the preceding clause (B) and (y) the product of the
maximum marginal regular Federal individual income tax rate applicable to
ordinary income or the maximum marginal regular Federal corporate income tax
applicable to ordinary income, whichever is greater, multiplied by the Taxable
Yield Rate. For purposes of the foregoing, "Taxable Yield Rate" means the rate
determined by (a) dividing the amount of Taxable Income available for
distribution per such share of Municipal Preferred by the number of days in the
Dividend Period in respect of which such Taxable Income is contemplated to be
distributed, (b) multiplying the amount determined in (a) above by 365 (in the
case of a Dividend Period of 7 Rate Period Days) or 360 (in the case of any
other Dividend Period), and (c) dividing the amount determined in (b) above by
$25,000.

         4.  ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL
ORDERS AND ALLOCATION OF SHARES. Existing Holders shall continue to hold the
shares of Municipal Preferred that are subject to Submitted Hold Orders, and,
based on the determinations made pursuant to subparagraph (a) of paragraph 3 of
this Part II, the Submitted Bids and Submitted Sell Orders shall be accepted or
rejected by the Auction Agent and the Auction Agent shall take such other action
as set forth below:

         (a) If Sufficient Clearing Bids for shares of a series of Municipal
Preferred have been made, all Submitted Sell Orders with respect to shares of
such series shall be accepted and, subject to the provisions of subparagraphs
(d) and (e) of this paragraph 4, Submitted Bids with respect to shares of such
series shall be accepted or rejected as follows in the following order of
priority and all other Submitted Bids with respect to shares of such series
shall be rejected:

                  (i) Existing Holders' Submitted Bids for shares of such series
         specifying any rate that is higher than the Winning Bid Rate for shares
         of such series shall be accepted, thus requiring each such Existing
         Holder to sell the shares of Municipal Preferred subject to such
         Submitted Bids;

                  (ii) Existing Holders' Submitted Bids for shares of such
         series specifying any rate that is lower than the Winning Bid Rate for
         shares of such series shall be rejected, thus entitling each such
         Existing Holder to continue to hold the shares of Municipal Preferred
         subject to such Submitted Bids;

                  (iii) Potential Holders' Submitted Bids for shares of such
         series specifying any rate that is lower than the Winning Bid Rate for
         shares of such series shall be accepted;

                  (iv) Existing Holders' Submitted Bids for shares of such
         series specifying a rate that is equal to the Winning Bid Rate for
         shares of such series shall be rejected, thus entitling such Existing
         Holder to continue to hold the share of Municipal Preferred subject to
         such Submitted Bid, unless the number of Outstanding shares of
         Municipal Preferred subject to all such Submitted Bids shall be greater
         than the number of shares of Municipal Preferred ("remaining shares")
         in the excess of the Available Municipal Preferred of such series over
         the number of shares of Municipal Preferred subject to Submitted Bids
         described in clauses (ii) and (iii) of this subparagraph (a), in which
         event such Submitted Bid of such Existing Holder shall be rejected in
         part, and such Existing Holder shall be entitled to continue to hold
         shares of Municipal Preferred subject to such Submitted Bid, but only
         in an amount equal to the number of shares of Municipal Preferred of
         such series obtained by multiplying the number of remaining shares by a
         fraction, the numerator of which shall be the number of Outstanding
         shares of Municipal Preferred held by such Existing Holder subject to
         such Submitted Bid and the denominator of which shall be the aggregate
         number of Outstanding shares of Municipal Preferred subject to such
         Submitted Bids made by all such Existing Holders that specified a rate
         equal to the Winning Bid Rate for shares of such series; and

                  (v) Potential Holder's Submitted Bids for shares of such
         series specifying a rate that is equal to the Winning Bid Rate of
         Shares of such series shall be accepted but only in an amount equal to
         the number of shares of such series obtained by multiplying the number
         of shares in the excess of the Available Municipal Preferred of such
         series over the number of shares of Municipal Preferred subject to
         Submitted Bids described in clauses (ii) through (iv) of this
         subparagraph (a) by a fraction, the numerator of which shall be the
         number of Outstanding shares of Municipal Preferred subject to such
         Submitted Bids and the denominator of which shall be the aggregate
         number of Outstanding shares of Municipal Preferred subject to such
         Submitted Bids made by all such Potential Holders that specified a rate
         equal to the Winning Bid Rate for shares of such series.

         (b) If Sufficient Clearing Bids for shares of a series of Municipal
Preferred have not been made (other than because all of the Outstanding shares
of such series are subject to Submitted Hold Orders), subject to the provisions
of subparagraph (d) of this paragraph 4, Submitted Orders for shares of such
series shall be accepted or rejected as follows in the following order of
priority and all other Submitted Bids for shares of such series shall be
rejected:

                  (i) Existing Holders' Submitted Bids for shares of such series
         specifying any rate that is equal to or lower than the Maximum Rate for
         shares of such series shall be rejected, thus entitling such Existing
         Holders to continue to hold the shares of Municipal Preferred subject
         to such Submitted Bids;

                  (ii) Potential Holders' Submitted Bids for shares of such
         series specifying any rate that is equal to or lower than the Maximum
         Rate for shares of such series shall be accepted; and

                  (iii) Existing Holder's Submitted Bids for shares of such
         series specifying any rate that is higher than the Maximum Rate for
         shares of such series and the Submitted Sell Orders for shares of such
         series of each Existing Holder shall be accepted, thus entitling each
         Existing Holder that submitted or on whose behalf was submitted any
         such Submitted Bid or Submitted Sell Order to sell the shares of such
         series subject to such Submitted Bid or Submitted Sell Order, but in
         both cases only in an amount equal to the number of shares of such
         series obtained by multiplying the number of shares of such series
         subject to Submitted Bids described in clause (ii) of this subparagraph
         (b) by a fraction, the numerator of which shall be the number of
         Outstanding shares of such series held by such Existing Holder subject
         to such Submitted Bid or Submitted Sell Order and the denominator of
         which shall be the aggregate number of Outstanding shares of such
         series subject to all such Submitted Bids and Submitted Sell Orders.

         (c) If all of the Outstanding shares of a series of Municipal Preferred
are subject to Submitted Hold Orders, all Submitted Bids for shares of such
series shall be rejected.

         (d) If, as a result of the procedures described in clause (iv) or (v)
of subparagraph (a) or clause (iii) of subparagraph (b) of this paragraph 4, 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 a series of
Municipal Preferred on any Auction Date, the Auction Agent shall, in such manner
as it shall determine in its sole discretion, round up or down the number of
shares of Municipal Preferred of such series to be purchased or sold by any
Existing Holder or Potential Holder on such Auction Date as a result of such
procedures so that the number of shares so purchased or sold by each Existing
Holder or Potential Holder on such Auction Date shall be whole shares of
Municipal Preferred.

         (e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this paragraph 4, any Potential Holder would be entitled or
required to purchase less than a whole share of series of Municipal Preferred on
any Auction Date, the Auction Agent shall, in such manner as it shall determine
in its sole discretion, allocate shares of Municipal Preferred of such series
for purchase among Potential Holders so that only whole shares of Municipal
Preferred of such series are purchased on such Auction Date as a result of such
procedures by any Potential Holder, even if such allocation results in one or
more Potential Holders not purchasing shares of Municipal Preferred of such
series on such Auction Date.

         (f) Based on the results of each Auction for shares of a series of
Municipal Preferred, the Auction Agent shall determine the aggregate number of
shares of such series to be purchased and the aggregate number of shares of such
series to be sold by Potential Holders and Existing Holders and, with respect to
each Potential Holder and Existing Holder, to the extent that such aggregate
number of shares to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing Holder(s) they
shall deliver, or from which other Potential Holder(s) or Existing Holder(s)
they shall receive, as the case may be, shares of Municipal Preferred of such
series. Notwithstanding any provision of the Auction Procedures or the
Settlement Procedures to the contrary, in the event an Existing Holder or
Beneficial Owner of shares of a series of Municipal Preferred with respect to
whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that
was accepted in whole or in part, or submitted or is deemed to have submitted a
Sell Order for such shares that was accepted in whole or in part, fails to
instruct its Agent Member to deliver such shares against payment therefor,
partial deliveries of shares of Municipal Preferred that have been made in
respect of Potential Holders' or Potential Beneficial Owners' Submitted Bids for
shares of such series that have been accepted in whole or in part shall
constitute good delivery to such Potential Holders and Potential Beneficial
Owners.

         (g) Neither the Trust nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver shares of Municipal Preferred of
any series or to pay for shares of Municipal Preferred of any series sold or
purchased pursuant to the Auction Procedures or otherwise.

         5.  NOTIFICATION OF ALLOCATIONS. Except as noted below, whenever the
Trust intends to include any net capital gain or other income taxable for
Federal income tax purposes in any dividend on shares of Municipal Preferred,
the Trust shall, in the case of a Minimum Rate Period or a Special Rate Period
of 28 Rate Period Days or fewer, and may, in the case of any other Special Rate
Period, notify the Auction Agent of the amount to be so included not later than
the Dividend Payment Date next preceding the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Trust, it will be required in turn to notify
each Broker-Dealer, who, on or prior to such Auction Date, in accordance with
its Broker-Dealer Agreement, will be required to notify its Beneficial Owners
and Potential Beneficial Owners of shares of Municipal Preferred believed by it
to be interested in submitting an Order in the Auction to be held on such
Auction Date. The Trust may also include such net capital gain or other income
taxable for federal income tax purposes in a dividend on shares of Municipal
Preferred without giving advance notice if the dividend is increased by a
Gross-up Payment. The Trust must 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.

         6.  AUCTION AGENT. For so long as any shares of Municipal Preferred are
outstanding, the Auction Agent, duly appointed by the Trust to so act, shall be
in each case a commercial bank, trust company or other financial institution
independent of the Trust and its affiliates (which however, may engage or have
engaged in business transactions with the Trust or its affiliates) and at no
time shall the Trust or any of its affiliates act as the Auction Agent in
connection with the Auction Procedures. If the Auction Agent resigns or for any
reason its appointment is terminated during any period that any shares of
Municipal Preferred are outstanding, the Board of Trustees shall use its best
efforts promptly thereafter to appoint another qualified commercial bank, trust
company or financial institution to act as the Auction Agent. The Auction
Agent's registry of Existing Holders of shares of a series of Municipal
Preferred shall be conclusive and binding on the Broker-Dealers. A Broker-Dealer
may inquire of the Auction Agent between 3:00 p.m. on the Business Day preceding
an Auction for shares of a series of Municipal Preferred and 9:30 a.m. on the
Auction Date for such Auction to ascertain the number of shares of a series in
respect of which the Auction Agent has determined such Broker-Dealer to be an
Existing Holder. If such Broker-Dealer believes it is the Existing Holder of
fewer shares of such series than specified by the Auction Agent in response to
such Broker-Dealer's inquiry, such Broker-Dealer may so inform the Auction Agent
of that belief. Such Broker-Dealer shall not, in its capacity as Existing Holder
of shares of such series, submit Orders in such Auction in respect of shares of
such series covering in the aggregate more than the number of shares of such
series specified by the Auction Agent in response to such Broker-Dealer's
inquiry.

         7.  TRANSFER OF SHARES OF MUNICIPAL PREFERRED. Unless otherwise
permitted by the Trust, a Beneficial Owner or an Existing Holder may sell,
transfer or otherwise dispose of shares of Municipal Preferred only in whole
shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in
accordance with the procedures described in this Part II or to a Broker-Dealer;
provided, however, that (a) a sale, transfer or other disposition of shares of
Municipal Preferred from a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer as the holder of such shares to that Broker-Dealer
or another customer of that Broker-Dealer shall not be deemed to be a sale,
transfer or other disposition for purposes of this paragraph 7 if such
Broker-Dealer remains the Existing Holder of the shares so sold, transferred or
disposed of immediately after such sale, transfer or disposition and (b) in the
case of all transfers other than pursuant to Auctions, the Broker-Dealer (or
other Person, if permitted by the Trust) to whom such transfer is made shall
advise the Auction Agent of such transfer.

         8.  GLOBAL CERTIFICATE. Prior to the commencement of a Voting Period,
(i) all of the shares of a series of Municipal Preferred outstanding from time
to time shall be represented by one global certificate registered in the name of
the Securities Depository or its nominee and (ii) no registration of transfer of
shares of a series of Municipal Preferred shall be made on the books of the
Trust to any Person other than the Securities Depository or its nominee.
<PAGE>

                           MFS MUNICIPAL INCOME TRUST

                                   CERTIFICATE

         The undersigned hereby certifies that he is the Assistant Clerk and
Assistant Secretary of MFS Municipal Income Trust, a business trust organized
and existing under the laws of The Commonwealth of Massachusetts (the "Trust"),
that annexed hereto is the Statement creating two series of municipal auction
rate cumulative preferred shares, dated December 4, 2000, and establishing the
powers, qualifications, rights and preferences of the Municipal Auction Rate
Cumulative Preferred Shares, Series T and Series TH of the Trust, which
Statement has been adopted by the Board of Trustees of the Trust in a manner
provided in the Trust's Declaration of Trust.

Dated this ___ day of December, 2000.


                                        James R. Bordewick, Jr.
                                        ---------------------------------------
                                        Assistant Clerk and Assistant Secretary

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(H)
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>FORM OF UNDERWRITING AGREE./SALOMON SMITH BARNEY
<TEXT>

<PAGE>
                                                                    Exhibit (h)


                   Auction Rate Cumulative Preferred Shares


                           MFS MUNICIPAL INCOME TRUST

                             2,800 Shares, Series T

                             2,800 Shares, Series TH


                   Liquidation Preference $25,000 Per Share

                         FORM OF UNDERWRITING AGREEMENT

                                                             December [4], 2000

SALOMON SMITH BARNEY INC.
      388 Greenwich Street
      New York, New York 10013

Ladies and Gentlemen:

            MFS Municipal Income Trust, a Massachusetts business trust (the
"Trust"), proposes, upon the terms and conditions set forth herein, to issue and
sell an aggregate of 2,800 shares of its Auction Rate Cumulative Preferred
Shares, Series T and 2,800 shares of its Auction Rate Cumulative Preferred
Shares, Series TH, each with a liquidation preference of $25,000 per share (the
shares of Auction Rate Cumulative Preferred Shares to be sold hereby are
referred to herein, collectively, as the "Shares"). The Shares will be
authorized by, and subject to the terms and conditions of, the Statement
creating the Shares (the "Statement") in the form filed as an exhibit to the
Registration Statement referred to in Section 1 of this agreement. The Trust and
its investment adviser, Massachusetts Financial Services Company (the
"Adviser"), wish to confirm as follows their agreement with Salomon Smith Barney
Inc. (the "Underwriters"), in connection with the purchase of the Shares by the
Underwriters.

            Collectively, the Investment Advisory Agreement dated as of November
6, 1986 between the Trust and the Adviser ("the "Investment Management
Agreement"), the Master Administrative Services Agreement dated as of March 1,
1997 between the Trust and the Adviser, the Custodian Agreement dated as of
February 19, 1998 between the Trust and State Street Bank and Trust Company, the
Transfer Agency, Registrar and Dividend Paying Agency Agreement dated as of
_____ between the Trust and MFS Service Center, Inc. and the Auction Agency
Agreement dated as of December [4], 2000 between the Trust and Bankers Trust
Company are hereinafter referred to as the "Trust Agreements." This Underwriting
Agreement is hereinafter referred to as the "Agreement."

            1. Registration Statement and Prospectus. The Trust has prepared in
conformity with the provisions of the Securities Act of 1933, as amended (the
"1933 Act"), the Investment Company Act of 1940, as amended (the "1940 Act"),
and the rules and regulations of the Securities and Exchange Commission (the
"Commission") promulgated under the 1933 Act (the "1933 Act Rules and
Regulations") and the 1940 Act (the "1940 Act Rules and Regulations" and,
together with the 1933 Act Rules and Regulations, the "Rules and Regulations") a
registration statement on Form N-2, as amended by _____________ (File Nos.
333-42364 and 811-4841), under the 1933 Act and the 1940 Act (the "registration
statement"), including a prospectus relating to the Shares, and has filed the
registration statement and prospectus in accordance with the 1933 Act and the
1940 Act. The Trust also has filed a notification of registration of the Trust
as an investment company under the 1940 Act on Form N-8A (the "1940 Act
Notification"). The term "Registration Statement" as used in this Agreement
means the registration statement (including all financial schedules and
exhibits), as amended at the time it becomes effective under the 1933 Act or, if
the registration statement became effective under the 1933 Act prior to the
execution of this Agreement, as amended or supplemented at the time it became
effective, prior to the execution of this Agreement. If it is contemplated, at
the time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed under the 1933 Act and must be declared
effective before the offering of the Shares may commence, the term "Registration
Statement" as used in this Agreement means the registration statement as amended
by said post-effective amendment. If the Trust has filed an abbreviated
registration statement to register an additional amount of Shares pursuant to
Rule 462(b) under the 1933 Act (the "Rule 462 Registration Statement"), then any
reference herein to the term "Registration Statement" shall include such Rule
462 Registration Statement. The term "Prospectus" as used in this Agreement
means the prospectus and statement of additional information in the forms
included in the Registration Statement or, if the prospectus and statement of
additional information included in the Registration Statement omit information
in reliance on Rule 430A under the 1933 Act Rules and Regulations and such
information is included in a prospectus and statement of additional information
filed with the Commission pursuant to Rule 497(h) under the 1933 Act, the term
"Prospectus" as used in this Agreement means the prospectus and statement of
additional information in the forms included in the Registration Statement as
supplemented by the addition of the information contained in the prospectus
filed with the Commission pursuant to Rule 497(h). The term "Prepricing
Prospectus" as used in this Agreement means the prospectus and statement of
additional information subject to completion in the forms included in the
registration statement at the time of filing of amendment no. ___ to the
registration statement with the Commission on ________ __, 2000, and as such
prospectus and statement of additional information shall have been amended from
time to time prior to the date of the Prospectus, together with any other
prospectus and statement of additional information relating to the Trust other
than the Prospectus approved in writing by or directly or indirectly prepared by
the Trust or the Adviser; it being understood that the definition of Prepricing
Prospectus above shall not include any Prepricing Prospectus prepared by the
Underwriters unless approved in writing by the Trust or Adviser. The terms
"Registration Statement," "Prospectus" and "Prepricing Prospectus" shall also
include any financial statements incorporated by reference therein.

            The Trust has furnished you with copies of such registration
statement, each amendment to such registration statement filed with the
Commission and each Prepricing Prospectus.

            2. Agreements to Sell and Purchase. The Trust hereby agrees, subject
to all the terms and conditions set forth herein, to issue and sell to the
Underwriters and, upon the basis of the representations, warranties and
agreements of the Trust and the Adviser herein contained and subject to all the
terms and conditions set forth herein, the Underwriters agree to purchase from
the Trust, at a purchase price of $_______ per Share, the number of shares of
each series of Auction Rate Cumulative Preferred Shares set forth opposite the
name of each Underwriter in Schedule I hereto.

            3. Terms of Public Offering. The Trust and the Adviser have been
advised by the Underwriters that the Underwriters propose to make a public
offering of the Shares as soon after the Registration Statement and this
Agreement have become effective as in the Underwriters' judgment is advisable
and initially to offer the Shares upon the terms set forth in the Prospectus.

            4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Shares shall be made at the office of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, NY 10017, at 9:30
A.M., New York City time, on ________ __, 2000 (the "Closing Date"). The place
of closing for the Shares and the Closing Date may be varied by agreement
between you and the Trust.

            Certificates for the Shares shall be registered in such names and in
such denominations as the Underwriters shall request prior to 9:30 A.M., New
York City time, on the second business day preceding the Closing Date. Such
certificates shall be made available to the Underwriters in New York City for
inspection not later than 9:30 A.M., New York City time, on the business day
next preceding the Closing Date. The certificates evidencing the Shares shall be
delivered to the Underwriters on the Closing Date, through the facilities of The
Depository Trust Company, against payment of the purchase price therefor in
immediately available funds.

            5. Agreements of the Trust and the Adviser. The Trust and the
Adviser, jointly and severally, agree with the Underwriters as follows:

            (a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective under the 1933 Act before the offering of the Shares
may commence, the Trust will endeavor to cause the Registration Statement or
such post-effective amendment to become effective under the 1933 Act as soon as
possible and will advise the Underwriters promptly and, if requested by the
Underwriters, will confirm such advice in writing when the Registration
Statement or such post-effective amendment has become effective.

            (b) The Trust will advise the Underwriters promptly and, if
requested by the Underwriters, will confirm such advice in writing:

                  (i) of any request made by the Commission for amendment of or
            a supplement to the Registration Statement, any Prepricing
            Prospectus or the Prospectus (or any amendment or supplement to any
            of the foregoing) or for additional information,

                  (ii) of the issuance by the Commission, the National
            Association of Securities Dealers, Inc. (the "NASD"), any state
            securities commission, any national securities exchange, any
            arbitrator, any court or any other governmental, regulatory,
            self-regulatory or administrative agency or any official of any
            order suspending the effectiveness of the Registration Statement,
            prohibiting or suspending the use of the Prospectus or any
            Prepricing Prospectus, or any sales material (as hereinafter
            defined), of any notice pursuant to Section 8(e) of the 1940 Act, of
            the suspension of qualification of the Shares for offering or sale
            in any jurisdiction, or the initiation of any proceeding for any
            such purposes,

                  (iii) of receipt by the Trust, the Adviser, any affiliate of
            the Trust or the Adviser or any representative or attorney of the
            Trust or the Adviser of any other material communication from the
            Commission, the NASD, any state securities commission, any national
            securities exchange, any arbitrator, any court or any other
            governmental, regulatory, self-regulatory or administrative agency
            or any official relating to the Trust (if such communication
            relating to the Trust is received by such person within three years
            after the date of this Agreement), the Registration Statement, the
            1940 Act Notification, the Prospectus, any Prepricing Prospectus,
            any sales material (as herein defined) (or any amendment or
            supplement to any of the foregoing) or this Agreement or any of the
            Trust Agreements and

                  (iv) within the period of time referred to in paragraph (f)
            below, of any material adverse change in the condition (financial or
            other), business, prospects, properties, net assets or results of
            operations of the Trust or the Adviser or of the happening of any
            other event which makes any statement of a material fact made in the
            Registration Statement or the Prospectus, or any Prepricing
            Prospectus or any sales materials (as herein defined) (or any
            amendment or supplement to any of the foregoing) untrue or which
            requires the making of any additions to or changes in the
            Registration Statement or the Prospectus, or any Prepricing
            Prospectus or any sales materials (as herein defined) (or any
            amendment or supplement to any of the foregoing) in order to state a
            material fact required by the 1933 Act, the 1940 Act or the Rules
            and Regulations to be stated therein or necessary in order to make
            the statements therein (in the case of the Prospectus, in light of
            the circumstances under which they were made), not misleading or of
            the necessity to amend or supplement the Registration Statement, the
            Prospectus, or any Prepricing Prospectus or any sales material (as
            herein defined) (or any amendment or supplement to any of the
            foregoing) to comply with the 1933 Act, the 1940 Act, the Rules and
            Regulations or any other law or order of any court or regulatory
            body.

                  If at any time the Commission, the NASD, any state securities
            commission, any national securities exchange, any arbitrator, any
            court or any other governmental, regulatory, self-regulatory or
            administrative agency or any official shall issue any order
            suspending the effectiveness of the Registration Statement,
            prohibiting or suspending the use of the Prospectus or any sales
            material (as herein defined) (or any amendment or supplement to any
            of the foregoing) or suspending the qualification of the Shares for
            offering or sale in any jurisdiction, the Trust will make every
            reasonable effort to obtain the withdrawal of such order at the
            earliest possible time.

            (c) The Trust will furnish to you, without charge, three signed
copies of the Registration Statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits
thereto, and will also furnish to you, without charge, such number of conformed
copies of the Registration Statement as originally filed and of each amendment
thereto, but without exhibits, as you may request.

            (d) The Trust will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus, or any sales
material (as herein defined), of which you shall not previously have been
advised or to which you shall reasonably object after being so advised or (ii)
so long as, in the opinion of counsel for the Underwriters, a Prospectus is
required by the 1933 Act to be delivered in connection with sales by the
Underwriters or any dealer, file any information, documents or reports pursuant
to the Securities Exchange Act of 1934, as amended (the "1934 Act"), without
delivering a copy of such information, documents or reports to you prior to or
concurrently with such filing.

            (e) Prior to the execution and delivery of this Agreement, the Trust
has delivered to you, without charge, in such quantities as you have requested,
copies of each form of the Prepricing Prospectus. The Trust consents to the use,
in accordance with the provisions of the 1933 Act and with the state securities
or blue sky laws of the jurisdictions in which the Shares are offered by the
Underwriters and by dealers, prior to the date of the Prospectus, of each
Prepricing Prospectus so furnished by the Trust.

            (f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the 1933 Act to be
delivered in connection with sales by the Underwriters or any dealer, the Trust
will expeditiously deliver to the Underwriters and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto) as
the Underwriters may reasonably request. The Trust consents to the use of the
Prospectus (and of any amendment or supplement thereto) in accordance with the
provisions of the 1933 Act and with the state securities or blue sky laws of the
jurisdictions in which the Shares are offered by the Underwriters and by all
dealers to whom Shares may be sold, both in connection with the offering and
sale of the Shares and for such period of time thereafter as the Prospectus is
required by the 1933 Act to be delivered in connection with sales by the
Underwriters or any dealer. If during such period of time any event shall occur
that in the judgment of the Trust or in the opinion of counsel for the
Underwriters is required to be set forth in the Registration Statement or the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein (in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading, or if it
is necessary to supplement or amend the Registration Statement or the Prospectus
to comply with the 1933 Act, the 1940 Act, the Rules and Regulations or any
other federal law, rule or regulation, or any state securities or blue sky
disclosure laws, rules or regulations, the Trust will forthwith prepare and,
subject to the provisions of paragraph (d) above, promptly file with the
Commission an appropriate supplement or amendment thereto, and will
expeditiously furnish to the Underwriters and dealers, without charge, a
reasonable number of copies thereof. In the event that the Trust and the
Underwriters agree that the Registration Statement or the Prospectus should be
amended or supplemented, the Trust, if requested by the Underwriters, will
promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.

            (g) The Trust will make generally available to its security holders
an earnings statement, which need not be audited, covering a twelve-month period
ending not later than 19 months after the effective date of the Registration
Statement as soon as practicable after the end of such period, which earnings
statement shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule
158 of the 1933 Act Rules and Regulations.

            (h) During the period of five years hereafter, the Trust will
furnish to you (i) as soon as available, a copy of each report of the Trust
mailed to stockholders or filed with the Commission or furnished to the New York
Stock Exchange (the "NYSE") other than reports on Form N-SAR, and (ii) from time
to time such other information concerning the Trust as the Underwriters may
reasonably request.

            (i) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than by notice given by
the Underwriters terminating this Agreement pursuant to Section 12 hereof) or if
this Agreement shall be terminated by the Underwriters because of any failure or
refusal on the part of the Trust or the Adviser to comply with the terms or
fulfill any of the conditions of this Agreement, the Trust and the Adviser,
jointly and severally, agree to reimburse the Underwriters for all out-of-pocket
expenses (including reasonable fees and expenses of counsel for the
Underwriters) incurred by the Underwriters in connection herewith.

            (j) The Trust will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set forth in the
Prospectus and in such a manner as to comply with the investment objectives,
policies and restrictions of the Trust as described in the Prospectus.

            (k) The Trust will timely file the requisite copies of the
Prospectus with the Commission pursuant to Rule 497(c) or Rule 497(h) of the
1933 Act Rules and Regulations, whichever is applicable or, if applicable, will
timely file the certification permitted by Rule 497(j) of the 1933 Act Rules and
Regulations and will advise the Underwriters of the time and manner of such
filing.

            (l) Except as provided in this Agreement, the Trust will not sell,
contract to sell, or otherwise dispose of any senior securities (as defined in
the 1940 Act) of the Trust, or grant any options or warrants to purchase senior
securities of the Trust, for a period of 180 days after the date of the
Prospectus, without the prior written consent of the Underwriters. For avoidance
of doubt, the foregoing sentence shall not apply to [(i)] the Shares to be sold
hereunder [or (ii) transactions as contemplated in the Registration Statement
undertaken in the normal course of the Trust's business].

            (m) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, neither the Trust nor the Adviser has taken, nor will
it take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
any securities issued by the Trust to facilitate the sale or resale of the
Shares.

            (n) The Trust will use its best efforts to cause the Shares, prior
to the Closing Date, to be assigned a rating of 'aaa' by Moody's Investors
Service, Inc. ("Moody's") and 'AAA' by Standard & Poor's Corporation ("S&P").

            (o) The Trust and the Adviser will use their best efforts to perform
all of the agreements required of them and discharge all conditions to closing
as set forth in this Agreement.

            6. Representations and Warranties of the Trust and the Adviser. The
Trust and the Adviser, jointly and severally, represent and warrant to the
Underwriters that:

            (a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 497 of the 1933 Act Rules and Regulations, complied
when so filed in all material respects with the provisions of the 1933 Act, the
1940 Act and the Rules and Regulations. The Commission has not issued any order
preventing or suspending the use of any Prepricing Prospectus.

            (b) The registration statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 497 of the 1933
Act Rules and Regulations and the 1940 Act Notification when originally filed
with the Commission and any amendment or supplement thereto when filed with the
Commission, complied or will comply in all material respects with the provisions
of the 1933 Act, the 1940 Act and the Rules and Regulations and did not or will
not at any such times 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, except that this representation and warranty
does not apply to statements in or omissions from the registration statement or
the Prospectus made in reliance upon and in conformity with information relating
to the Underwriters furnished to the Trust in writing by or on behalf of the
Underwriters expressly for use therein.

            (c) All the outstanding common shares of beneficial interest of the
Trust have been duly authorized and validly issued, are fully paid and
nonassessable and are free of any preemptive or similar rights; the Shares have
been duly authorized and, when issued and delivered to the Underwriters against
payment therefor in accordance with the terms hereof, will be validly issued,
fully paid and nonassessable and free of any preemptive or similar rights and
will conform to the description thereof in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them); and the
capitalization of the Trust conforms to the description thereof in the
Registration Statement and the Prospectus (and any amendment or supplement to
either of them).

            (d) The Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts with full power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus (and any amendment
or supplement to either of them), and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial or
other), business, prospects, properties, net assets or results of operations of
the Trust; and the Trust has no subsidiaries.

            (e) There are no legal or governmental proceedings pending or, to
the knowledge of the Trust, threatened, against the Trust, or to which the Trust
or any of its properties is subject, that are required to be described in the
Registration Statement or the Prospectus (and any amendment or supplement to
either of them) but are not described as required, and there are no agreements,
contracts, indentures, leases or other instruments that are required to be
described in the Registration Statement or the Prospectus (and any amendment or
supplement to either of them) or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the 1933 Act, the 1940
Act or the Rules and Regulations.

            (f) The Trust is not in violation of its Declaration of Trust (the
"Declaration"), or bylaws (the "Bylaws"), or other organizational documents or
of any law, ordinance, administrative or governmental rule or regulation
applicable to the Trust or of any decree of the Commission, the NASD, any state
securities commission, any national securities exchange, any arbitrator, any
court or governmental agency, body or official having jurisdiction over the
Trust, or in default in any material respect in the performance of any
obligation, agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any material agreement, indenture, lease or
other instrument to which the Trust is a party or by which it or any of its
properties may be bound.

            (g) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement or any of the Trust Agreements by the
Trust, nor the consummation by the Trust of the transactions contemplated hereby
or thereby (A) requires any consent, approval, authorization or other order of
or registration or filing with, the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except such as may have been obtained prior to the date hereof and
such as may be required for compliance with the state securities or blue sky
laws of various jurisdictions which have been or will be effected in accordance
with this Agreement) or conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the Declaration, the Bylaws or other
organizational documents of the Trust or (B) conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, any agreement,
indenture, lease or other instrument to which the Trust is a party or by which
it or any of its properties may be bound, or violates or will violate any
statute, law, regulation or judgment, injunction, order or decree applicable to
the Trust or any of its properties, or will result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Trust
pursuant to the terms of any agreement or instrument to which it is a party or
by which it may be bound or to which any of its property or assets is subject.
The Trust is not subject to any order of any court or of any arbitrator,
governmental authority or administrative agency [that would prohibit it from
entering into this Agreement, carrying out its duties hereunder or issuing the
Shares].

            (h) The accountants, Deloitte & Touche LLP, who have certified or
shall certify the financial statements included or incorporated by reference in
the Registration Statement and the Prospectus (or any amendment or supplement to
either of them) are independent public accountants as required by the 1933 Act,
the 1940 Act and the Rules and Regulations.

            (i) The financial statements, together with related schedules and
notes, included or incorporated by reference in the Registration Statement and
the Prospectus (and any amendment or supplement to either of them), present
fairly the financial position, results of operations and changes in financial
position of the Trust on the basis stated or incorporated by reference in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data included
in the Registration Statement and the Prospectus (and any amendment or
supplement to either of them) are accurately presented and prepared on a basis
consistent with such financial statements and the books and records of the
Trust.

            (j) The execution and delivery of, and the performance by the Trust
of its obligations under, this Agreement and the Trust Agreements have been duly
and validly authorized by the Trust, and this Agreement and the Trust Agreements
have been duly executed and delivered by the Trust and assuming due
authorization, execution and delivery by the other parties thereto, constitute
the valid and legally binding agreements of the Trust, enforceable against the
Trust in accordance with their terms (subject to the qualification that the
enforceability of the Trust's obligations thereunder may be limited by
bankruptcy, insolvency, reorganization, moratorium, and similar laws of general
applicability relating to or affecting creditors' rights, and to general
principles of equity regardless of whether enforceability is considered in a
proceeding in equity or at law), except as rights to indemnity and contribution
hereunder and thereunder may be limited by federal or state securities laws.

            (k) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
the Trust has not incurred any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to the Trust, and there has not been any change in the capitalization,
or material increase in the short-term debt or long-term debt, of the Trust, or
any material adverse change, or any development involving or which may
reasonably be expected to involve, a prospective material adverse change, in the
condition (financial or other), business, prospects, properties, net assets or
results of operations of the Trust, whether or not arising in the ordinary
course of business (a "Material Adverse Effect").

            (l) The Trust has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) 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, the Prepricing
Prospectus, the Prospectus or other materials, if any, permitted by the 1933
Act, the 1940 Act or the Rules and Regulations.

            (m)(i) The Trust has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment or supplement thereto), subject
to such qualifications as may be set forth in the Prospectus; (ii) the Trust has
fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other material
impairment of the rights of the Trust under any such permit, subject in each
case to such qualification as may be set forth in the Prospectus (and any
amendment or supplement thereto); and, (iii) except as described in the
Prospectus (and any amendment or supplement thereto), none of such permits
contains any restriction that is materially burdensome to the Trust, except
where the failure of (i), (ii) or (iii) to be accurate would not, individually
or in the aggregate, have a Material Adverse Effect on the Trust.

            (n) The Trust maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization and with the
applicable requirements of the 1940 Act, the 1940 Act Rules and Regulations and
the Internal Revenue Code of 1986, as amended (the "Code"); (ii) 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 1940 Act and the 1940 Act Rules and Regulations; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.

            (o) To the Trust's knowledge, neither the Trust nor any employee or
agent of the Trust has made any payment of funds of the Trust or received or
retained any funds, which payment, receipt or retention of funds is of a
character required to be disclosed in the Prospectus.

            (p) The Trust has filed all tax returns required to be filed, which
returns are complete and correct in all material respects, and the Trust is not
in material default in the payment of any taxes which were payable pursuant to
said returns or any assessments with respect thereto.

            (q) No holder of any security of the Trust has any right to require
registration of common shares of beneficial interest or any other security of
the Trust because of the filing of the registration statement or consummation of
the transactions contemplated by this Agreement.

            (r) The Trust, subject to the registration statement having been
declared effective and the filing of the Prospectus under Rule 497 under the
1933 Act Rules and Regulations, has taken all required action under the 1933
Act, the 1940 Act and the Rules and Regulations to make the public offering and
consummate the sale of the Shares as contemplated by this Agreement.

            (s) The conduct by the Trust of its business (as described in the
Prospectus) does not require it to be the owner, possessor or licensee of any
patents, patent licenses, trademarks, service marks or trade names which it does
not own, possess or license.

            (t) The Trust is registered under the 1940 Act as a closed-end
non-diversified management investment company and the 1940 Act Notification has
been duly filed with the Commission and, at the time of filing thereof and any
amendment or supplement thereto, conformed in all material respects with all
applicable provisions of the 1940 Act and the Rules and Regulations. The Trust
is, and at all times through the completion of the transactions contemplated
hereby, will be, in compliance in all material respects with the terms and
conditions of the 1933 Act and the 1940 Act. No person is serving or acting as
an officer, director or investment adviser of the Trust except in accordance
with the provisions of the 1940 Act and the 1940 Act 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").

            (u) Except as stated in this Agreement and in the Prospectus (and
any amendment or supplement thereto), the Trust has not taken, nor will it take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
securities issued by the Trust to facilitate the sale or resale of the Shares,
and the Trust is not aware of any such action taken or to be taken by any
affiliates of the Trust.

            (v) The Trust has filed in a timely manner each document or report
required to be filed by it pursuant to the 1934 Act and the rules and
regulations of the Commission promulgated thereunder (the "1934 Act Rules and
Regulations"); each such document or report at the time it was filed conformed
to the requirements of the 1934 Act and the 1934 Act Rules and Regulations; and
none of such documents or reports contained an untrue statement of any material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.

            (w) All advertising, sales literature or other promotional material
(including "prospectus wrappers," "broker kits," "road show slides" and "road
show scripts") authorized in writing by or prepared by the Trust or the Adviser
for use in connection with the offering and sale of the Shares (collectively,
"sales material") complied and comply in all material respects with the
applicable requirements of the 1933 Act, the 1940 Act, the Rules and Regulations
and the rules and interpretations of the NASD and no such sales material
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

            (x) Each of the Trust Agreements and the Trust's and the Adviser's
obligations under this Agreement and each of the Trust Agreements comply in all
material respects with all applicable provisions of the 1940 Act, the 1940 Act
Rules and Regulations, the Advisers Act and the Advisers Act Rules and
Regulations.

            (y) The Shares have been, or prior to the Closing Date will be,
assigned a rating of 'aaa' by Moody's and 'AAA' by S&P.

            (z) As required by Subchapter M of the Code, the Trust is currently
in compliance with the requirements to qualify as a regulated investment company
under the Code.

            (aa) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), no director of
the Trust is an "interested person" (as defined in the 1940 Act) of the Trust or
an "affiliated person" (as defined in the 1940 Act) of any Underwriter.

            7. Representations and Warranties of the Adviser. The Adviser
represents and warrants to the Underwriters as follows:

            (a) The Adviser is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them), and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or to qualify does not have a material adverse effect on the
condition (financial or other), business, prospects, properties, net assets or
results of operations of the Adviser or its subsidiaries [set forth in Schedule
II hereto] or on the ability of the Adviser to perform its obligations under
this Agreement and the Investment Management Agreement.

            (b) The Adviser is duly registered with the Commission as an
investment adviser under the Advisers Act and is not prohibited by the Advisers
Act, the Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules
and Regulations from acting under the Investment Management Agreement for the
Trust as contemplated by the Prospectus (or any amendment or supplement
thereto). There does not exist any proceeding or any facts or circumstances the
existence of which could lead to any proceeding which might adversely affect the
registration of the Adviser with the Commission.

            (c) There are no legal or governmental proceedings pending or, to
the knowledge of the Adviser, threatened against the Adviser, or to which the
Adviser or any of its material properties is subject, that are required to be
described in the Registration Statement or the Prospectus (or any amendment or
supplement to either of them) but are not described as required or that may
reasonably be expected to involve a prospective material adverse change, in the
condition (financial or other), business, prospects, properties, net assets or
results of operations of the Adviser or on the ability of the Adviser to perform
its obligations under this Agreement and the Investment Management Agreement.

            (d) Neither the execution, delivery or performance of this Agreement
or the Investment Management Agreement by the Adviser, nor the consummation by
the Adviser of the transactions contemplated hereby or thereby (A) requires the
Adviser to obtain any consent, approval, authorization or other order of or
registration or filing with, the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court,
regulatory body, administrative agency or other governmental body, agency or
official or conflicts or will conflict with or constitutes or will constitute a
breach of or a default under, the certificate of incorporation or by-laws, or
other organizational documents, of the Adviser or (B) conflicts or will conflict
with or constitutes or will constitute a breach of or a default under, any
agreement, indenture, lease or other instrument to which the Adviser is a party
or by which it or any of its properties may be bound, or violates or will
violate any statute, law, regulation or filing or judgment, injunction, order or
decree applicable to the Adviser or any of its properties or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Adviser pursuant to the terms of any agreement or instrument to
which it is a party or by which it may be bound or to which any of the property
or assets of the Adviser is subject. The Adviser is not subject to any order of
any court or of any arbitrator, governmental authority or administrative agency
[that would prohibit it from entering into this Agreement or carrying out its
duties hereunder].

            (e) The execution and delivery of, and the performance by the
Adviser of its obligations under, this Agreement and the Investment Management
Agreement have been duly and validly authorized by the Adviser, and this
Agreement and the Investment Management Agreement have been duly executed and
delivered by the Adviser and assuming due authorization, execution and delivery
by the other parties thereto, each constitutes the valid and legally binding
agreement of the Adviser, enforceable against the Adviser in accordance with its
terms (subject to the qualification that the enforceability of the Adviser's
obligations thereunder may be limited by bankruptcy, insolvency, reorganization,
moratorium, and similar laws of general applicability relating to or affecting
creditors' rights, and to general principles of equity regardless of whether
enforceability is considered in a proceeding in equity or at law), except as
rights to indemnity and contribution hereunder may be limited by federal or
state securities laws.

            (f) The description of the Adviser in the Registration Statement and
the Prospectus (and any amendment or supplement thereto) complied and comply in
all material respects with the provisions of the 1933 Act, the 1940 Act, the
Advisers Act, the Rules and Regulations and the Advisers Act 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 (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading.

            (g) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
the Adviser has not incurred any liability or obligation, direct or contingent,
or entered into any transaction, not in the ordinary course of business, that is
material to the Adviser or the Trust and that is required to be disclosed in the
Registration Statement or the Prospectus and there has not been any material
adverse change, or any development involving or which may reasonably be expected
to involve, a prospective material adverse change, in the condition (financial
or other), business, prospects, properties, net assets or results of operations
of the Adviser, whether or not arising in the ordinary course of business, or
which, in each case, could have a material adverse effect on the ability of the
Adviser to perform its obligations under this Agreement and the Investment
Management Agreement.

            (h)(i) The Adviser has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment thereto); (ii) the Adviser has
fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other material
impairment of the rights of the Adviser under any such permit; and, (iii) except
as described in the Prospectus (and any amendment or supplement thereto), none
of such permits contains any restriction that is materially burdensome to the
Adviser, except where the failure of (i), (ii) or (iii) to be accurate would
not, individually or in the aggregate, have a Material Adverse Effect on the
Adviser.

            8. Indemnification and Contribution. (a) The Trust and the Adviser,
jointly and severally, agree to indemnify and hold harmless each of the
Underwriters and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation), joint or several, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Prepricing Prospectus or in the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to any Underwriter
furnished in writing to the Trust or the Adviser by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the 1933
Act and the 1933 Act Rules and Regulations, and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained in
such Prepricing Prospectus was corrected in the Prospectus, provided that the
Trust has delivered the Prospectus to the several Underwriters in requisite
quantity on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which the Trust or the
Adviser may otherwise have.

            (b) Any party that proposes to assert the right to be indemnified
under this Section 8 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 8, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission to so notify such indemnifying party (i) will
not relieve it from any liability that it may have to any indemnified party
under the foregoing provision of this Section 8 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the indemnifying party and (ii) will not, in any event, relieve such
indemnifying party from any other obligation (other than pursuant to the
foregoing provision of this Section 8) it may have under this Agreement. If any
action, suit or proceeding shall be brought against any Underwriter or any
person controlling any Underwriter in respect of which indemnity may be sought
against the Trust or the Adviser, such Underwriter or such controlling person
shall promptly notify the Trust or the Adviser, and the Trust or the Adviser
[may, at its option and upon notice to the Underwriters,] assume the defense
thereof, including the employment of counsel and payment of all fees and
expenses. Such Underwriter or any such controlling person shall have the right
to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Underwriter or such controlling person unless
(i) the Trust or the Adviser has agreed in writing to pay such fees and
expenses, (ii) the Trust and the Adviser have failed to assume the defense and
employ counsel, or (iii) the named parties to any such action, suit or
proceeding (including any impleaded parties) include both such Underwriter or
such controlling person and the Trust or the Adviser and such Underwriter or
such controlling person shall have been advised by its counsel that
representation of such indemnified party and the Trust or the Adviser by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the Trust and the Adviser shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the Trust and the Adviser
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by the Underwriters, and that all such fees and expenses shall be
reimbursed as they are incurred. The Trust and the Adviser shall not be liable
for any settlement of any such action, suit or proceeding effected without their
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
Trust and the Adviser agree to indemnify and hold harmless any Underwriter, to
the extent provided in the preceding paragraph, and any such controlling person
from and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.

            (c) Each Underwriter agrees to indemnify and hold harmless the Trust
and the Adviser, their directors, trustees, any officers who sign the
Registration Statement, and any person who controls the Trust or the Adviser
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act,
to the same extent as the foregoing indemnity from the Trust and the Adviser to
each Underwriter, but only with respect to information relating to such
Underwriter furnished in writing by or on behalf of such Underwriter expressly
for use in the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto. If any action, suit or
proceeding shall be brought against the Trust or the Adviser, any of their
directors, any such officer, or any such controlling person based on the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto, and in respect of which indemnity may be sought
against any Underwriter pursuant to this paragraph (c), such Underwriter shall
have the rights and duties given to the Trust and the Adviser by paragraph (b)
above (except that if the Trust or the Adviser shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the Trust
and the Adviser, their directors, trustees, any such officer, and any such
controlling person shall have the rights and duties given to the Underwriters by
paragraph (b) above. The foregoing indemnity agreement shall be in addition to
any liability which the Underwriters may otherwise have.

            (d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or reasonable expenses
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Trust and the Adviser on the one hand (treated jointly for this
purpose as one person) and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above 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 Trust and the Adviser on the one hand (treated jointly for this
purpose as one person) and the Underwriters on the other in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Trust and the Adviser on the one hand
(treated jointly for this purpose as one person) and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Trust bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Trust and the Adviser on the one hand (treated jointly for
this purpose as one person) and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Trust and the Adviser on
the one hand (treated jointly for this purpose as one person) or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action against such party in respect of which a
claim for contribution may be made under this Section 8(d), notify such party or
parties from whom contribution may be sought, but the omission so to notify (i)
will not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have under this Section 8(d), unless such
omission results in the forfeiture of substantive rights or defenses by the
party or parties from whom contribution is being sought and (ii) will not, in
any event, relieve the party or parties from whom contribution may be sought
from any other obligation (other than pursuant to this Section 8(d)) it or they
may have under this Agreement. Except for a settlement entered into pursuant to
the last sentence of Section 8(b) hereof, no party will be liable for
contribution with respect to any action or claim settled without its written
consent (which consent shall not be unreasonably withheld).

            (e) The Trust, the Adviser and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in paragraph
(d) above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 8 are several
in proportion to the respective numbers of Shares set forth opposite their names
in Schedule I hereto (or such numbers of Shares increased as set forth in
Section 11 hereof) and not joint.

            (f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.

            (g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Trust and the Adviser set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Trust, the Adviser, their directors or
officers, or any person controlling the Trust or the Adviser, (ii) acceptance of
any Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter or any person controlling any
Underwriter, or to the Trust, the Adviser, their directors or officers, or any
person controlling the Trust or the Adviser, shall be entitled to the benefits
of the indemnity, contribution, and reimbursement agreements contained in this
Section 8.

            [(h) Notwithstanding any other provisions in this Section 8, no
party shall be entitled to the benefit of any provision under this Agreement
which protects or purports to protect such person against any liability to the
Trust or its security holders to which such person would otherwise be subject by
reason of such person's willful misfeasance, bad faith, or gross negligence, in
the performance of such person's duties hereunder, or by reason of such person's
reckless disregard of such person's obligations and duties hereunder.]

            9. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase the Shares hereunder are subject to the
following conditions:

            (a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
registration statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by the
Underwriters, and all filings, if any, required by Rules 497 and 430A under the
1933 Act and the 1933 Act Rules and Regulations shall have been timely made; no
stop order suspending the effectiveness of the Registration Statement or order
pursuant to Section 8(e) of the 1940 Act shall have been issued and no
proceeding for those purposes shall have been instituted or, to the knowledge of
the Trust, the Adviser or the Underwriters, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been complied
with to the Underwriters' satisfaction.

            (b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change or any development involving a prospective
change in or affecting the condition (financial or other), business, prospects,
properties, net assets, or results of operations of the Trust or the Adviser not
contemplated by the Prospectus, which in the Underwriters' opinion would
materially and adversely affect the market for the Shares, or (ii) any event or
development relating to or involving the Trust or the Adviser or any officer or
director of the Trust or the Adviser which makes any statement made in the
Prospectus untrue or which, in the opinion of the Trust and its counsel or the
Underwriters and their counsel, requires the making of any addition to or change
in the Prospectus in order to state a material fact required by the 1933 Act,
the 1940 Act or the Rules and Regulations or any other law to be stated therein
or necessary in order to make the statements therein not misleading, if amending
or supplementing the Prospectus to reflect such event or development would, in
the Underwriters' opinion, materially adversely affect the market for the
Shares.

            (c) The Trust shall have furnished to you a report showing
compliance with the asset coverage requirements of the 1940 Act and a Municipal
Preferred Basic Maintenance Report (as defined in the Statement), each dated the
Closing Date and in form and substance satisfactory to you. Each such report may
use portfolio holdings and valuations as of the close of business of any day not
more than six business days preceding the Closing Date, provided, however, that
the Trust represents in such report that its total net assets as of the Closing
Date have not declined by 5% or more from such valuation date.

            (d) The Underwriters shall have received on the Closing Date an
opinion of Bingham Dana LLP, counsel for the Trust, dated the Closing Date and
addressed to you, in form and substance satisfactory to you and to the effect
that:


                  (i) The Trust is a business trust validly existing under the
            laws of The Commonwealth of Massachusetts with power and authority
            as such a trust to own, lease and operate its properties and to
            conduct its business as described in the Registration Statement and
            the Prospectus;

                  (ii) The authorized shares of beneficial interest of the Trust
            are as set forth under the caption "Capitalization at April 30,
            2000" in the Prospectus; and the shares of beneficial interest of
            the Trust conform in all material respects as to legal matters to
            the description thereof contained in the Prospectus under the
            captions "Description of Municipal Preferred" and "Description of
            Common Stock";

                  (iii) The Shares have been duly authorized and, when issued
            and delivered to the Underwriters against payment therefor in
            accordance with the terms hereof, will be validly issued, fully paid
            and nonassessable and free of any preemptive, or to the best
            knowledge of such counsel after reasonable inquiry, similar rights
            that entitle or will entitle any person to acquire any Shares upon
            the issuance thereof by the Trust, and will conform to the
            description thereof contained in the Prospectus under the caption
            "Description of Municipal Preferred";

                  (iv) The form of certificates for the Shares conforms to the
            requirements of Massachusetts law;

                  (v) The Registration Statement is effective under the 1933 Act
            and the 1940 Act and, to the best knowledge of such counsel after
            reasonable inquiry, no stop order suspending the effectiveness of
            the Registration Statement or order pursuant to Section 8(e) of the
            1940 Act relating to the Trust has been issued and no proceedings
            for that purpose are pending before or threatened by the Commission;
            and any required filing of the Prospectus pursuant to Rule 497 of
            the 1933 Act Rules and Regulations has been made in accordance with
            Rule 497;

                  (vi) The Trust has power and authority to enter into this
            Agreement and each of the Trust Agreements and to issue, sell and
            deliver the Shares to the Underwriters as provided herein, and this
            Agreement and each of the Trust Agreements have been duly
            authorized, executed and delivered by the Trust and, assuming due
            authorization, execution and delivery by the other parties thereto,
            each Trust Agreement is a valid, legal and binding agreement of the
            Trust, enforceable against the Trust in accordance with its terms,
            except as enforcement of rights to indemnity and contribution
            hereunder may be limited by Federal or state securities laws or
            principles of public policy and subject to the qualification that
            the enforceability of the Trust's obligations hereunder may be
            limited by bankruptcy, fraudulent conveyance, insolvency,
            reorganization, moratorium, and other laws relating to or affecting
            creditors' rights generally and by general equitable principles;

                  (vii) Neither the issuance and sale of the Shares, the
            execution, delivery or performance of this Agreement and the Trust
            Agreements by the Trust, nor consummation by the Trust of the
            transactions contemplated hereby and the Trust Agreements conflicts
            or will conflict with or constitutes or will constitute a breach of,
            or a default under, the Declaration or Bylaws, or other
            organizational documents, of the Trust or any agreement, indenture,
            lease or other instrument to which the Trust is a party or by which
            it or any of its properties is bound that is an exhibit to the
            Registration Statement, or will result in the creation or imposition
            of any lien, charge or encumbrance upon any property or assets of
            the Trust, nor will any such action result in any violation of any
            existing law or regulation (assuming compliance with all applicable
            state securities or blue sky laws), judgment, injunction, order or
            decree that is applicable to the Trust or any of its properties and
            that is known to such counsel;

                  (viii) To the best knowledge of such counsel no consent,
            approval, authorization or other order of, or registration or filing
            by the Trust with the Commission, the NASD, any national securities
            exchange, or, to the best of such counsel's knowledge, any
            arbitrator, any court, regulatory body, administrative agency or
            other governmental body, agency, or official is required on the part
            of the Trust (except such as may have been obtained prior to the
            date hereof and such as may be required for compliance with NASD
            requirements and with the state securities or blue sky laws of
            various jurisdictions) for the issuance and sale of the Shares to
            the Underwriters as contemplated by this Agreement, the execution,
            delivery and performance by the Trust of this Agreement and the
            Trust Agreements or the consummation of the transactions
            contemplated hereby and thereby;

                  (ix) The Registration Statement and Prospectus (except for the
            financial statements and the notes thereto and the schedules and
            other financial and statistical data contained or referred to
            therein, as to which such counsel need not express any opinion)
            comply as to form in all material respects with the requirements of
            the 1933 Act, the 1940 Act, and the Rules and Regulations;

                  (x) To the best knowledge of such counsel after reasonable
            inquiry (but without a search of the dockets of any court,
            administrative body or filing office in any jurisdiction), (A) other
            than as described or contemplated in the Registration Statement or
            Prospectus, there are no legal or governmental proceedings pending
            or threatened against the Trust, or to which the Trust or any of its
            properties is subject, which are required to be described in the
            Registration Statement or Prospectus and (B) there are no
            agreements, contracts, indentures, leases or other instruments that
            are required to be described in the Registration Statement or the
            Prospectus that are not described as required;

                  (xi) The Trust is duly registered with the Commission under
            the 1940 Act as a closed-end, non-diversified management investment
            company; the provisions of the Declaration and Bylaws comply as to
            form in all material respects with the applicable provisions of the
            1940 Act and the 1940 Act Rules and Regulations; and the provisions
            of the Declaration and Bylaws and the investment policies and
            restrictions described in the Registration Statement and the
            Prospectus under the captions "Investment Objective and Policies"
            (in the Prospectus) comply in all material respects with the
            requirements of the 1940 Act;

                  (xii) The Trust has full power and authority to own its
            properties and to conduct business as now being conducted, as
            described in the Prospectus;

                  (xiii) Such counsel shall also state that, while they have not
            themselves checked the accuracy and completeness of or otherwise
            verified, and are not passing upon and assume no responsibility for
            the accuracy or completeness of, the statements contained in the
            Registration Statement or the Prospectus, except to the limited
            extent stated in paragraphs (ii) and (xi) above, in the course of
            their review and discussion of the contents of the Registration
            Statement and Prospectus with certain officers and employees of the
            Trust and its independent accountants, no facts have come to their
            attention which cause them to believe that the Registration
            Statement (except as to any financial statements, including the
            notes and schedules thereto, or other financial data contained or
            referred to in the Registration Statement as to which they express
            no belief), as of its effective date, 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 contained
            therein not misleading or that the Prospectus (except as to any
            financial statements, including the notes and schedules thereto, or
            other financial data contained or referred to in the Prospectus, as
            to which they express no belief), as of its issue date and as of the
            Closing Date, 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 contained therein, in the light of
            the circumstances under which they were made, not misleading.

                  (xiv) Such counsel may also state that they do not express any
            opinion concerning any law other than the law of The Commonwealth of
            Massachusetts and the federal law of the United States.

            (e) The Underwriters shall have received on the Closing Date an
opinion of James Bordewick, Jr., Associate General Counsel of the Adviser, dated
the Closing Date and addressed to you, in form and substance satisfactory to you
and to the effect that:

                  (i) The Adviser is a corporation duly incorporated and validly
            existing in good standing under the laws of the State of Delaware
            with full corporate power and authority to own, lease and operate
            its properties and to conduct its business as described in the
            Registration Statement and the Prospectus;

                  (ii) The Adviser is duly registered with the Commission as an
            investment adviser under the Advisers Act and is not prohibited by
            the Advisers Act, the Advisers Act Rules and Regulations, the 1940
            Act or the 1940 Act Rules and Regulations from acting under the
            Investment Management Agreement for the Trust as contemplated by the
            Prospectus;

                  (iii) This Agreement and the Investment Management Agreement
            have been duly authorized, executed and delivered by the Adviser and
            the Investment Management Agreement is a valid and binding agreement
            of the Adviser, enforceable against the Adviser in accordance with
            its terms except as enforcement of rights to indemnity and
            contribution hereunder may be limited by Federal or state securities
            laws or principles of public policy and subject to the qualification
            that the enforceability of the Adviser's obligations hereunder may
            be limited by bankruptcy, fraudulent conveyance, insolvency,
            reorganization, moratorium, and other laws relating to or affecting
            creditors' rights generally and by general equitable principles;

                  (iv) Neither the execution, delivery or performance of this
            Agreement by the Adviser, compliance by the Adviser with the
            provisions hereof nor consummation by the Adviser of the
            transactions contemplated hereby conflicts or will conflict with, or
            constitutes or will constitute a breach of or default under, the
            articles of incorporation or bylaws, or other organizational
            documents, of the Adviser or any agreement, indenture, lease or
            other instrument to which the Adviser is a party or by which it or
            any of its properties is bound that is known to such counsel after
            reasonable inquiry, or will result in the creation or imposition of
            any lien, charge or encumbrance upon any property or assets of the
            Adviser, nor will any such action result in any violation of any
            existing law, regulation (assuming compliance with state securities
            and blue sky laws), ruling, judgment, injunction, order or decree
            known to such counsel after reasonable inquiry, applicable to the
            Adviser or any of its properties;

                  (v) No consent, approval, authorization or other order of, or
            registration or filing with, the Commission, the NASD, any national
            securities exchange, any arbitrator, any court, regulatory body,
            administrative agency or other governmental body, agency, or
            official (except such as may have been obtained prior to the date
            hereof and such as may be required for compliance with state
            securities or blue sky laws) is required on the part of the Adviser
            for the execution, delivery and performance by it of this Agreement
            and the Trust Agreements to which it is a party or the consummation
            by it of the transactions contemplated hereby and thereby;

                  (vi) To the knowledge of such counsel, there are no legal or
            governmental proceedings pending or threatened against the Adviser
            or any of its material properties which are required to be described
            in the Registration Statement or the Prospectus but are not
            described as required;

                  (vii) Such counsel shall also state that, to the best
            knowledge of such counsel, the description of the Adviser contained
            in the Registration Statement, as of its effective date, does 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 contained therein not misleading or that the description
            of the Adviser contained in the Prospectus, as of its issue date and
            as of the Closing Date, does 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 contained therein, in
            the light of the circumstances under which they were made, not
            misleading.

            (f) The Underwriters shall have received on the Closing Date an
opinion of Simpson Thacher & Bartlett, counsel for the Underwriters, dated the
Closing Date and addressed to you, with respect to such matters as you may
reasonably request.

            (g) The Underwriters shall have received letters addressed to you,
dated the date hereof and the Closing Date, from Deloitte & Touche LLP,
independent certified public accountants, substantially in the forms heretofore
approved by you.

            (h)(i) No order suspending the effectiveness of the registration
statement or the Registration Statement or prohibiting or suspending the use of
the Prospectus (or any amendment or supplement thereto) or any Prepricing
Prospectus or any sales material shall have been issued and no proceedings for
such purpose or for the purpose of commencing an enforcement action against the
Trust, the Adviser or, with respect to the transactions contemplated by the
Prospectus (or any amendment or supplement thereto) and this Agreement, the
Underwriters, may be pending before or, to the knowledge of the Trust, the
Adviser or the Underwriters or in the reasonable view of counsel to the
Underwriters, shall be threatened or contemplated by the Commission at or prior
to the Closing Date and that any request for additional information on the part
of the Commission (to be included in the Registration Statement, the Prospectus
or otherwise) be complied with to the satisfaction of the Underwriters; (ii)
there shall not have been any change in the shares of beneficial interest of the
Trust nor any material increase in the short-term or long-term debt of the Trust
(other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus (or any amendment
or supplement thereto); (iii) there shall not have been, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), except as may
otherwise be stated in the Registration Statement and Prospectus (or any
amendment or supplement thereto), any material adverse change in the condition
(financial or other), business, prospects, properties, net assets or results of
operations of the Trust or the Adviser; (iv) the Trust shall not have any
liabilities or obligations, direct or contingent (whether or not in the ordinary
course of business), that are material to the Trust, other than those reflected
in the Registration Statement or the Prospectus (or any amendment or supplement
to either of them); and (v) all the representations and warranties of the Trust
and the Adviser contained in this Agreement shall be true and correct on and as
of the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and the Underwriters shall have received a certificate of the
Trust and the Adviser, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of each of the Trust and the Adviser (or
such other officers as are acceptable to the Underwriters), to the effect set
forth in this Section 9(h) and in Section 9(i) hereof.

            (i) That neither the Trust nor the Adviser shall have failed at or
prior to the Closing Date to have performed or complied in all material respects
with any of its agreements herein contained and required to be performed or
complied with by it hereunder at or prior to the Closing Date.


            (j) The Trust shall have delivered and the Underwriters shall have
received evidence satisfactory to the Underwriters that each series of Shares
are rated 'aaa' by Moody's and AAA by S&P as of the Closing Date, and there
shall not have been given any notice of any intended or potential downgrading,
or of any review for a potential downgrading, in the rating accorded to the
shares of each series of the Shares by Moody's or S&P.

            (k) The Trust and the Adviser shall have furnished or caused to be
furnished to you such further certificates and documents as you shall have
reasonably requested.

            All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Underwriters and the Underwriters'
counsel.

            Any certificate or document signed by any officer of the Trust or
the Adviser and delivered to the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Trust or the
Adviser to the Underwriters as to the statements made therein.

            10. Expenses. The Trust agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus and
each amendment or supplement to any of them (including, without limitation, the
filing fees prescribed by the 1933 Act, the 1940 Act and the Rules and
Regulations); (ii) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and packaging) of such
copies of the Registration Statement, each Prepricing Prospectus, the
Prospectus, any sales material and all amendments or supplements to any of them
as may be reasonably requested for use in connection with the offering and sale
of the Shares; (iii) the preparation, printing, authentication, issuance and
delivery of certificates for the Shares, including any stamp taxes in connection
with the original issuance and sale of the Shares; (iv) the reproduction and
delivery of this Agreement, any dealer agreements, the preliminary blue sky
memorandum and all other agreements or documents reproduced and delivered in
connection with the offering of the Shares; (v) the reasonable fees, expenses
and disbursements of counsel for the Underwriters relating to the preparation,
reproduction, and delivery of the preliminary blue sky memorandum; (vi) fees
paid to Moody's and S&P; (vii) the transportation and other expenses incurred by
or on behalf of Trust representatives in connection with presentations to
prospective purchasers of the Shares; and (viii) the fees and expenses of the
Trust's accountants and the fees and expenses of counsel for the Trust and of
the transfer agent [provided, that (a) the Trust, the Adviser and the
Underwriters shall pay their own costs and expenses in attending any information
meeting relating to the Trust, (b) the Underwriters shall pay the costs and
expenses of any sales material prepared by it in connection with the public
offering of the Shares, (c) the Underwriters shall pay the costs and expenses of
any "tombstone" advertisements, and (d) except as provided in this Section and
in Section 5 hereof, the Underwriters shall pay their own costs and expenses,
including the fees and expenses of their counsel.]

            11. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the Trust,
by notifying the Underwriters, or by the Underwriters, by notifying the Trust.

            If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Shares which the Underwriters are
obligated to purchase on the Closing Date, each non-defaulting Underwriter shall
be obligated, severally, in the proportion which the number of Shares set forth
opposite its name in Schedule I hereto bears to the aggregate number of Shares
set forth opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify, to purchase the Shares which such defaulting
Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If
any one or more of the Underwriters shall fail or refuse to purchase Shares
which it or they are obligated to purchase on the Closing Date and the aggregate
number of Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Shares which the Underwriters are obligated
to purchase on the Closing Date and arrangements satisfactory to you and the
Trust for the purchase of such Shares by one or more non-defaulting Underwriters
or other party or parties approved by you and the Trust are not made within 36
hours after such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter, the Trust or the Adviser. In any such
case which does not result in termination of this Agreement, either you or the
Trust shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Trust,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.

            Any notice under this Section 11 may be given by telegram, telecopy
or telephone but shall be subsequently confirmed by letter.

            12. Termination of Agreement. This Agreement shall be subject to
termination in the Underwriters' absolute discretion, without liability on the
part of any Underwriter to the Trust or the Adviser, by notice to the Trust or
the Adviser, if prior to the Closing Date (i) trading in the Shares or the
Trust's common shares of beneficial interest or securities generally on the NYSE
shall have been suspended or materially limited or minimum prices shall have
been established on the NYSE, (ii) a general moratorium on commercial banking
activities in New York shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war, or
other international or domestic calamity, crisis or change in political,
financial or economic conditions, the effect of which on the financial markets
of the United States is to make it, in your judgment, impracticable or
inadvisable to commence or continue the offering of the Shares at the offering
price to the public set forth on the cover page of the Prospectus or to enforce
contracts for the resale of the Shares by the Underwriters. Notice of such
termination may be given to the Trust by telegram, telecopy or telephone and
shall be subsequently confirmed by letter.

            13. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page and the statements in the
________, ________ and _________ paragraphs under the caption "Underwriting" in
any Prepricing Prospectus and in the Prospectus, constitute the only information
furnished by or on behalf of the Underwriters through you as such information is
referred to in Sections 6(b) and 8 hereof.

            14. Miscellaneous. Except as otherwise provided in Sections 5, 11
and 12 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Trust or the Adviser, at the
office of the Trust at 500 Boylston Street, Boston, Massachusetts 02116,
Attention: _____________; or (ii) if to the Underwriters, to Salomon Smith
Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager,
Investment Banking Division.

            This Agreement has been and is made solely for the benefit of the
Underwriters, the Trust, the Adviser, their directors and officers, and the
other controlling persons referred to in Section 8 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from the Underwriters of any of the Shares in his
status as such purchaser.

            15. Applicable Law; Counterparts. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.

            This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.

            A copy of the document establishing the Trust is filed with the
Secretary of The Commonwealth of Massachusetts. This Agreement is executed by
officers not as individuals and is not binding upon any of the Trustees,
officers, or shareholders of the Trust individually but only upon the assets of
the Trust.
<PAGE>

            Please confirm that the foregoing correctly sets forth the agreement
among the Trust, the Adviser and the several Underwriters.


                                        Very truly yours,


                                        MFS MUNICIPAL INCOME TRUST


                                        By:
                                            -------------------------------


                                        MASSACHUSETTS FINANCIAL SERVICES
                                        COMPANY


                                        By:
                                            -------------------------------


Confirmed as of the date first above mentioned.

SALOMON SMITH BARNEY INC.





By:
    -------------------------------
    Director
<PAGE>

                                   SCHEDULE I

                           MFS MUNICIPAL INCOME TRUST

                                               Number of
                                               Shares of
                                             each of Series
                Underwriter                    and Series
                -----------                  --------------

Salomon Smith Barney Inc. .................     2,800   T
                                                ---------

                                                2,800   TH
                                                ----------
<PAGE>

                                   SCHEDULE II

                           MFS MUNICIPAL INCOME TRUST
            SUBSIDIARIES OF MASSACHUSETTS FINANCIAL SERVICES COMPANY

MFS Investment Management K.K.

MFS Fund Distributors, Inc.

MFS Service Center, Inc.

MFS Institutional Advisors, Inc.

MFS International Ltd.

MFS Investment Management (LUX) S.A.

MFS Original Research Partners, LLC

Vertex Investment Management, Inc.

MFS Retirement Services, Inc.

MFS Heritage Trust Company

MFS Institutional Advisors (Australia) Ltd.

MFS Original Research Advisors, LLC

MFS International (U.K.) Limited

MFS International S.C. Lida (Brazil)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(K)(1)
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>FORM OF AUCTIN AGENT AGREEMENT/BANKERS TRUST
<TEXT>

<PAGE>

                                                                  Exhibit (k)(1)

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

                                     FORM OF
                             AUCTION AGENT AGREEMENT

                                     between

                           MFS MUNICIPAL INCOME TRUST

                                       and

                              BANKERS TRUST COMPANY

                          Dated as of December 4, 2000

                                   Relating to

                            AUCTION PREFERRED SHARES

                                       of

                           MFS MUNICIPAL INCOME TRUST

================================================================================
<PAGE>

                                TABLE OF CONTENTS
TABLE OF CONTENTS
I.   DEFINITIONS AND RULES OF CONSTRUCTION. ................................. 1
       1.1. Terms Defined by Reference to the Statement...................... 1
       1.2. Terms Defined Herein. ........................................... 1
       1.3. Rules of Construction. .......................................... 2
II. THE AUCTION. ............................................................ 3
       2.1. Purpose; Incorporation by Reference of Auction Procedures and
            Settlement Procedures. .......................................... 3
       2.2. Preparation for Each Auction; Maintenance of Registry of
            Existing Holders. ............................................... 3
       2.3. Auction Schedule. ............................................... 7
       2.4. Notice of Auction Results. ...................................... 8
       2.5. Broker-Dealers. ................................................. 8
       2.6. Ownership of Shares of APS and Submission of Bids by the Trust
            and its Affiliates. ............................................. 9
       2.7. Access to and Maintenance of Auction Records..................... 9
III. THE AUCTION AGENT AS PAYING AGENT...................................... 10
       3.1. The Paying Agent. .............................................. 10
       3.2. The Trust's Notices to the Paying Agent. ....................... 10
       3.3. The Trust to Provide Funds for Dividends, Redemptions and
            Gross-up Payments. ............................................. 10
       3.4. Disbursing Dividends, Redemption Price and Gross-up Payments.... 11
IV.  THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR. ..................... 11
       4.1. Original Issue of Stock Certificates. .......................... 11
       4.2. Registration of Transfer or Exchange of Shares. ................ 12
       4.3. Removal of Legend............................................... 12
       4.4. Lost, Stolen or Destroyed Stock Certificates. .................. 12
       4.5. Disposition of Canceled Certificates; Record Retention.......... 13
       4.6. Stock Register. ................................................ 13
       4.7. Return of Funds. ............................................... 13
V.   REPRESENTATIONS AND WARRANTIES. ....................................... 14
       5.1. Representations and Warranties of the Trust..................... 14
       5.2. Representations and Warranties of the Auction Agent. ........... 15
VI.  THE AUCTION AGENT...................................................... 15
       6.1. Duties and Responsibilities. ................................... 15
       6.2. Rights of the Auction Agent. ................................... 15
       6.3. Auction Agent's Disclaimer. .................................... 16
       6.4. Compensation, Expenses and Indemnification. .................... 16
VII. MISCELLANEOUS. ........................................................ 18
       7.1. Term of Agreement. ............................................. 18
       7.2. Communications. ................................................ 18
       7.3. Entire Agreement. .............................................. 19
       7.4. Benefits. ...................................................... 19
       7.5. Amendment; Waiver. ............................................. 19
       7.6. Successors and Assigns. ........................................ 20
       7.7. Severability. .................................................. 20
       7.8. Execution in Counterparts. ..................................... 20
       7.9. Governing Law................................................... 20
       7.10. Limitation of Liability. ...................................... 20
AUCTION AGENT, REGISTRAR AND PAYING AGENT CORE SERVICES PROVIDED ...........  1
<PAGE>

         THIS AUCTION AGENT AGREEMENT, dated as of December 4, 2000, is between
MFS MUNICIPAL INCOME TRUST, a Massachusetts business trust (the "Trust"), and
BANKERS TRUST COMPANY, a New York banking corporation.

         The Trust proposes to issue 5,600 preferred shares of beneficial
interest, without par value, liquidation preference $25,000 per share ("APS"),
pursuant to the Trust's Amended and Restated Declaration of Trust, dated as of
November 6, 2000 (as may be further amended from time to time, the
"Declaration") and the Statement (as defined below). The Trust desires that
Bankers Trust Company perform certain duties as agent in connection with each
Auction of shares of APS (in such capacity, the "Auction Agent"), and as the
transfer agent, registrar, dividend disbursing agent and redemption agent with
respect to the shares of APS (in such capacity, the "Paying Agent"), upon the
terms and conditions of this Agreement, and the Trust hereby appoints Bankers
Trust Company 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 Trust and the Auction Agent agree as follows:

                    I. DEFINITIONS AND RULES OF CONSTRUCTION.

1.1.     Terms Defined by Reference to the Statement.

         Capitalized terms not defined herein shall have the respective meanings
specified in the Statement.

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 made known to the Auction Agent
to be controlled by, in control of, or under common control with, the Trust 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) "Auction" shall have the meaning specified in Section 2.1 hereof.

         (d) "Auction Procedures" shall mean the Auction Procedures that are set
forth in Part II of the Statement.

         (e) "Authorized Officer" shall mean each Managing Director, Vice
President, Assistant Vice President and Associate of the Auction Agent and every
other officer or employee of the Auction Agent designated as an "Authorized
Officer" for purposes hereof in a communication to the Trust.

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

         (g) "Closing" shall mean the time of delivery of the APS to the
underwriters of the APS and the payment for the APS.

         (h) "Holder" shall be a holder of record of one or more shares of APS,
listed as such in the stock register maintained by the Paying Agent pursuant to
Section 4.6 hereof.

         (i) "Settlement Procedures" shall mean the Settlement Procedures
attached as Exhibit A to the Broker-Dealer Agreement.

         (j) "Statement" shall mean the Statement dated December 4, 2000,
creating and establishing the powers, preferences and rights of the APS, as
amended to the date hereof.

         (k) "Trust Officer" shall mean the Chairman, the President, the
Secretary, the Treasurer, the Assistant Secretary and each Assistant Treasurer
of the Trust and every other officer or employee of the Trust designated as a
"Trust Officer" for purposes hereof in a notice from the Trust to the Auction
Agent.

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.

                                II. THE AUCTION.

2.1.     Purpose; Incorporation by Reference of Auction
         Procedures and Settlement Procedures.

         (a) The Statement provides that the Applicable Rate on shares of each
series of APS, as the case may be, for each Subsequent Rate Period shall, under
certain conditions, be the rate per annum that a bank or trust company appointed
by the Trust advises results from implementation of the Auction Procedures for
such series. The Board of Trustees of the Trust has adopted a resolution
appointing Bankers Trust Company as Auction Agent for purposes of the Auction
Procedures for each series of APS. 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 each series of APS for each
Subsequent Rate Period thereof for which the Applicable Rate is to be determined
by an auction. 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.

2.2.     Preparation for Each Auction; Maintenance
         of Registry of Existing Holders.

         (a) Pursuant to Section 2.5 hereof, the Trust shall not designate any
Person to act as a Broker-Dealer without the prior written approval of the
Auction Agent (which approval shall not be withheld unreasonably). As of the
date hereof, the Trust shall provide the Auction Agent with a list of the
Broker-Dealers previously approved by the Auction Agent 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 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 APS. 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 Trust 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 Trust 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.

         (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 (vi)
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 Part I, Section 4 of the Statement
concerning Special Rate Periods and the notification of a Special Rate Period
will be followed by the Trust 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) Except as otherwise provided in Part I, Section 3 and/or Part
II, Section 5 of the Statement, whenever the Trust intends to include any net
capital gain or other income taxable for Federal income tax purposes in any
dividend on shares of APS, the Trust shall, in the case of a Minimum Rate Period
or Special Rate Period of 28 Rate Period Days or fewer, and may, in the case of
any other Special Rate Period, notify the Auction Agent of the amount to be so
included as provided in Part II, Section 5 of the Statement. Whenever the
Auction Agent receives such notice from the Trust, it will notify each
Broker-Dealer in turn, who, on or prior to such Auction Date, in accordance with
its Broker-Dealer Agreement, will notify its 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 Trust may also include such net
capital gain or other income taxable for federal income tax purposes in a
dividend on shares of APS without giving advance notice if the dividend is
increased by a Gross-up Payment. Whenever the Trust includes any Gross-up
Payment as provided in Part I, Section 3 of the Statement, the Trust will notify
the Auction Agent of such additional amounts to be so included in such dividend
as provided in Part II, Section 5 of the Statement. Whenever the Auction Agent
receives such notice from the Trust, in turn it will notify the Securities
Depository and each Broker-Dealer, who, on or prior to the applicable Dividend
Payment Date will notify its Beneficial Owners.

              (ii) If the Trust makes a retroactive Taxable Allocation, the
Trust, will provide notice thereof to the Auction Agent as provided in Part I,
Section 3 of the Statement. The Trust, 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), out of funds legally available therefor, a cash amount equal to
the aggregate Gross-up Payments with respect to all retroactive Taxable
Allocations made to such Holders during the fiscal year in question.

         (e) (i) On each Auction Date, the Auction Agent shall determine the
Reference Rate and the Maximum Rate. If the Reference Rate is not quoted on an
interest basis but is quoted on a discount basis, the Auction Agent shall
convert the quoted rate to an Interest Equivalent, as set forth in Part I,
Section 1 of the Statement; or, 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 Trust as to the
method of such conversion. Not later than 9:30 A.M. on each Auction Date, the
Auction Agent shall notify the Trust and the Broker-Dealers of the Reference
Rate so determined and of the Maximum Rate.

              (ii) If the Reference Rate is the applicable "AA" Composite
Commercial Paper Rate and such rate is to be based on rates supplied by
Commercial Paper Dealers and one or more of the Commercial Paper Dealers shall
not provide a quotation for the determination of the applicable "AA" Composite
Commercial Paper Rate, the Auction Agent immediately shall notify the Trust so
that the Trust can determine whether to select a Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers to provide the quotation or
quotations not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers. The Trust promptly shall advise the Auction Agent of any such
selection. If the Trust does not select any such Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers, then the rates shall be supplied
by the remaining Commercial Paper Dealer or Commercial Paper Dealers.

              (iii) If, after the date of this Agreement, there is any change in
the prevailing rating of APS by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc. (or substitute or successor rating agencies), thereby
resulting in any change in the Rate Multiple, the Trust shall notify the Auction
Agent in writing of such change in the Rate Multiple prior to 9:00 A.M. on the
Auction Date for APS next succeeding such change. The Rate Multiple for the APS
on the date of this Agreement is 110%. The Auction Agent shall be entitled to
rely on the last Rate Multiple of which it has received notice from the Trust
(or, in the absence of such notice, the Percentage set forth in the preceding
sentence) in determining the Maximum Rate as set forth in Section 2.2(e)(i)
hereof.

         (f) (i) The Auction Agent shall maintain a current registry of the
Existing Holders of the shares of APS for purposes of each Auction. The Trust
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 APS, 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 APS to another
Person.

              (ii) In the event of any partial redemption of APS, upon notice by
the Trust 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,
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 APS of each such
Existing Holder, if any, to be redeemed by the Trust, 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 APS shown in the Auction Agent's registry of Existing Holders.

              (iii) The Auction Agent shall register a transfer of the ownership
of shares of APS from an Existing Holder to another Existing Holder, or to
another Person if permitted by the Trust, 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 by 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 APS if
the Auction Agent has been notified in writing, in a notice substantially in the
form of Exhibit D to the Broker-Dealer Agreement, by the Agent Member or the
Broker Dealer of any Person that (i) purchased any shares of APS and the seller
failed to deliver such shares or (ii) sold any shares of APS and the purchaser
failed to make payment to such Person upon delivery to the purchaser of such
shares.

         (g) The Auction Agent may 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 APS. 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 Trust, provided that
the Auction Agent reserves the right to disclose any such information if it is
advised by its counsel that its failure to do so would be unlawful.

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 Trust, 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 Trust and the
                                Broker-Dealers of the Reference Rate and the
                                Maximum Rate as set forth in Section 2.2(e)(i)
                                hereof.

         9:30 A.M. - 1:30 P.M.  Auction Agent assembles information communicated
                                to it by Broker-Dealers as provided in Part II,
                                Section 2(a) of the Statement. Submission
                                Deadline is 1:30 P.M.

         Not earlier than       Auction  Agent makes  determinations  pursuant
         1:30 P.M.              to Part II,  Section 3(a) of the Statement.

         By approximately       Auction  Agent  advises  the Trust of the
         3:00 P.M.              results of the Auction as provided in Part II,
                                Section 3(b) of the Statement.

                                Submitted Bids and Submitted Sell Orders are
                                accepted and rejected in whole or in part and
                                shares of APS allocated as provided in Part II,
                                Section 4 of the Statement.

                                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, internet transmission
or through the Auction Agent's Auction Processing System as set forth in
Paragraph (a) of the Settlement Procedures.

2.5.     Broker-Dealers.

         (a) On the Business Day next succeeding each Auction Date for any
series of APS, the Trust shall pay to the Auction Agent an amount in cash equal
to the aggregate fees payable to the Broker-Dealers for such series pursuant to
Section 3.5 of the Broker-Dealer Agreements for such series. The Auction Agent
shall apply such moneys as set forth in Section 3.5 of each such Broker-Dealer
Agreement.

         (b) The Trust shall not designate any Person to act as a Broker-
Dealer, or permit an Existing Holder or a Potential Beneficial Owner to
participate in Auctions through any Person other than a Broker-Dealer, without
the prior written approval of the Auction Agent, which approval shall not be
withheld unreasonably. The Trust may designate an Affiliate or Salomon Smith
Barney Inc. 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 Trust.

         (d) Subject to Section 2.5 (b) hereof, the Auction Agent from time to
time shall enter into such Broker-Dealer Agreements as the Trust shall request.

         (e) The Auction Agent shall maintain a list of Broker-Dealers.

2.6.     Ownership of Shares of APS and Submission of Bids by the Trust and its
         Affiliates.

         Neither the Trust nor any Affiliate of the Trust may submit any Sell
Order or Bid, directly or indirectly, in any Auction, except that an Affiliate
of the Trust that is a Broker-Dealer may submit a Sell Order or Bid on behalf of
a Beneficial Owner or a Potential Beneficial Owner. The Trust shall notify the
Auction Agent if the Trust or, to the best of the Trust's knowledge, any
Affiliate of the Trust becomes a Beneficial Owner of any shares of APS. Any
shares of APS redeemed, purchased or otherwise acquired (i) by the Trust 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 Trust). 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 Trust, its agents, independent
public accountants and counsel, access at reasonable times during normal
business hours to review and make extracts or copies (at the Trust'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 Trust 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 Trust to maintain such records for such longer
period not in excess of four years, then for such longer period), and such
records, in reasonable detail, shall accurately and fairly reflect the actions
taken by the Auction Agent hereunder. The Trust 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 Trust 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 potential liability, unless,
in the case of subsection (ii), the Broker-Dealer shall have offered
indemnification satisfactory to the Trust. 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
potential liability, unless, in the case of subsection (ii), the Broker-Dealer
shall have offered indemnification satisfactory to such agent, accountant or
counsel.

                     III. THE AUCTION AGENT AS PAYING AGENT.

3.1.     The Paying Agent.

         The Board of Trustees of the Trust has adopted a resolution appointing
Bankers Trust Company as transfer agent, registrar, dividend disbursing agent
and redemption agent for the Trust in connection with any shares of APS (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 Statement which are specified herein with respect to the shares of APS
and as set forth in this Section 3.

3.2.     The Trust's Notices to the Paying Agent.

         Whenever any shares of APS are to be redeemed, the Trust promptly shall
deliver to the Paying Agent a Notice of Redemption, which will be mailed by the
Trust to each Holder as provided in Part I, Section 11 of the Statement. The
Paying Agent shall have no responsibility to confirm or verify the accuracy of
any such Notice.

3.3.     The Trust to Provide Funds for Dividends,
         Redemptions and Gross-up Payments.

         (a) Not later than noon on each Dividend Payment Date, the Trust 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 Trust shall give a Notice of Redemption, then by noon of the
date fixed for redemption, the Trust 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 APS called for redemption and shall give the Paying
Agent irrevocable instructions and authority to pay the redemption price to the
Holders of shares of APS called for redemption upon surrender of the certificate
or certificates therefor.

         (c) If the Trust provides notice to the Auction Agent of a retroactive
Taxable Allocation, the Trust, within 30 days after such notice is given and by
noon of the date fixed for payment of a Gross-up Payment, shall deposit in trust
with the Paying Agent an aggregate amount of federal funds or similar same-day
funds equal to such Gross-up Payment and shall give the Paying Agent irrevocable
instructions and authority to pay the Gross-up Payment to Holders (or former
Holders) entitled thereto.

3.4.     Disbursing Dividends, Redemption Price
         and Gross-up Payments.

         After receipt of the federal funds or similar same-day funds and
instructions from the Trust described in Sections 3.3(a), (b) and (c) 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 APS,
(ii) on any date fixed for redemption, the redemption price of any shares of APS
called for redemption, in each case after receipt of the necessary funds from
the Trust with which to pay such dividends or Redemption Price and (iii) on the
date fixed for payment of a Gross-up Payment such Gross-up Payment. The amount
of dividends for any Dividend Period to be paid by the Paying Agent to Holders
will be determined by the Trust as set forth in Part I, Section 2 of the
Statement. The redemption price to be paid by the Paying Agent to the Holders of
any shares of APS called for redemption will be determined as set forth in Part
I, Section 11 of the Statement. The amount of Gross-up Payments to be paid by
the Paying Agent in the event of a Taxable Allocation or a retroactive Taxable
Allocation to Holders will be determined by the Trust pursuant to Part I,
Section 3 of the Statement. The Trust shall notify the Paying Agent in writing
of a decision to redeem any shares of APS on or prior to the date specified in
Section 3.2 above, and such notice by the Trust to the Paying Agent shall
contain the information required to be stated in a Notice of Redemption required
to be mailed by the Trust 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.

              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 APS, one certificate for
each series, if any, of APS shall be issued by the Trust and registered in the
name of Cede & Co., as nominee of the Securities Depository, and countersigned
by the Paying Agent. The Trust will give the Auction Agent prior written notice
and instruction as to the issuance and redemption of APS.

4.2.     Registration of Transfer or Exchange of Shares.

         Except as provided in this Section 4.2, the shares of each series of
APS, if any, 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 Trust 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 APS, if any, at the
Trust'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. If the certificate or
certificates for shares of APS are not held by the Securities Depository or its
nominee, payments upon transfer of shares in an Auction shall be made in federal
funds or similar same-day funds to the Auction Agent against delivery of
certificates therefor.

4.3.     Removal of Legend.

         Any request for removal of a legend indicating a restriction on
transfer from a certificate evidencing shares of APS 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 Trust 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 Trust and
by the Paying Agent, subject at all times to provisions of law, the Statement of
the Trust governing such matters and resolutions adopted by the Trust 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 Trust 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 Trust to the Paying Agent that such
issuance will comply with provisions of applicable law and the Statement and
resolutions of the Trust.

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 Trust, shall afford to the Trust, its agents and
counsel access at reasonable times during normal business hours to review and
make extracts or copies (at the Trust's sole cost and expense) of such
certificates and accompanying documentation. Upon request by the Trust at any
time after the expiration of this two-year period, the Paying Agent shall
deliver to the Trust the canceled certificates and accompanying documentation.
The Trust 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.
Thereafter, such records shall not be destroyed by the Trust without the
approval of the Paying Agent, which approval shall not be withheld unreasonably,
but will be safely stored for possible future reference.

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 Trust in the possession of the Paying Agent, the Paying Agent will notify
the Trust and secure instructions as to permitting or refusing such inspection.
The Paying Agent reserves the right, however, to exhibit the stock register or
other records to any person in case it is advised by its counsel that its
failure to do so would (i) be unlawful or (ii) expose it to liability, unless
the Trust shall have offered indemnification satisfactory to the Paying Agent.

4.7.     Return of Funds.

         Any funds deposited with the Paying Agent by the Trust for any reason
under this Agreement, including for the payment of dividends or the redemption
of APS, that remain with the Paying Agent after ninety days shall be repaid to
the Trust, together with interest, if any, upon written request by the Trust.

                       V. REPRESENTATIONS AND WARRANTIES.

5.1.     Representations and Warranties of the Trust.

         The Trust represents and warrants to the Auction Agent that:

                  (i) the Trust is duly organized and is validly existing as a
business trust in good standing under the laws of The Commonwealth of
Massachusetts, and has full power to execute and deliver this Agreement and to
authorize, create and issue the shares of APS;

                  (ii) the Trust is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as a
closed-end, non-diversified, management investment company;

                  (iii) this Agreement has been duly and validly authorized,
executed and delivered by the Trust and constitutes the legal, valid and binding
obligation of the Trust, enforceable against the Trust 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
APS comply with all applicable laws of The Commonwealth of Massachusetts;

                  (v) the shares of APS have been duly and validly authorized by
the Trust and, upon completion of the initial sale of the shares of APS and
receipt of payment therefor, will be validly issued, fully paid and
nonassessable;

                  (vi) at the time of the offering of the shares of APS, 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 APS, except such action as required by applicable
state securities 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 APS 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 Declaration or the Statement, any law or
regulation applicable to the Trust, any order or decree of any court or public
authority having jurisdiction over the Trust, or any mortgage, indenture,
contract, agreement or undertaking to which the Trust is a party or by which it
is bound; and

                  (viii) no taxes are payable upon or in respect of the
execution of this Agreement or will be payable upon or in respect of the
issuance of the shares of APS.

5.2.     Representations and Warranties of the Auction Agent.

         The Auction Agent represents and warrants to the Trust 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 Trust hereunder
and owes no fiduciary duties to any Person except as provided by this Agreement.

         (b) The Auction Agent undertakes to perform such duties and only such
duties as are set forth specifically in this Agreement, including those duties
set forth in Schedule I hereto, and no implied covenants or obligations shall be
read into this Agreement against the Auction Agent.

         (c) In the absence of bad faith 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.

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 in
good faith by it to be genuine. The Auction Agent shall not be liable for acting
upon any telephone communication authorized hereby which the Auction Agent
reasonably believes in good faith to have been given by the Trust or by a
Broker-Dealer. The Auction Agent may record telephone communications with the
Trust or with the Broker-Dealers or with both.

         (b) The Auction Agent may consult with counsel of its choice reasonably
acceptable to the Trust, 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.

         (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 APS except that
the Auction Agent hereby represents that this Agreement has been duly
authorized, executed and delivered by the Auction Agent and constitutes a legal
and binding obligation of the Auction Agent.

6.4.     Compensation, Expenses and Indemnification.

         (a) The Trust shall pay to the Auction Agent from time to time
reasonable compensation for all services rendered by it under this Agreement and
under the Broker-Dealer Agreements as shall be set forth in a separate writing
signed by the Trust and the Auction Agent, subject to adjustments if the APS 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 Trust shall reimburse the Auction Agent upon its request for
the reasonable compensation, expenses and disbursements of its counsel, except
any expense, disbursement or advance attributable to its negligence or bad
faith.

         (c) The Trust shall indemnify the Auction Agent for, and hold it
harmless against, any loss, liability or expense incurred without negligence or
bad faith 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 bad faith.

         (d) The Auction Agent shall, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against the Trust under this Section 6.4, notify the Trust of the
commencement of such action, enclosing a copy of all papers served, but the
omission to so notify the Trust (i) will not relieve the Trust from any
liability that it may have to the Auction Agent under the foregoing provision of
this Section 6.4 unless, and only to the extent that, such omission results in
the forfeiture of substantive rights or defenses by the Trust and (ii) will not,
in any event, relieve the Trust from any other obligation (other than pursuant
to the foregoing provision of this Section 6.4) it may have under this
Agreement. If any action, suit or proceeding shall be brought against the
Auction Agent in respect of which indemnity may be sought against the Trust,
such Auction Agent or such controlling person shall promptly notify the Trust,
and the Trust may, at its option and upon notice to the Auction Agent assume the
defense thereof, including the employment of counsel and payment of all fees and
expenses. The Auction Agent shall have the right to employ separate counsel in
any such action, suit or proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of the Auction
Agent unless (i) the Trust has agreed in writing to pay such fees and expenses,
(ii) the Trust has failed to assume the defense and employ counsel, or (iii) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both the Auction Agent and the Trust and the Auction Agent
shall have been advised by its counsel reasonably acceptable to the Trust that
representation of the Auction Agent and the Trust by the same counsel would be
inappropriate under applicable standards of professional conduct (whether or not
such representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the Trust shall not
have the right to assume the defense of such action, suit or proceeding on
behalf of the Auction Agent). The Trust shall not be liable for any settlement
of any such action, suit or proceeding effected without its written consent, but
if settled with such written consent, or if there be a final judgment for the
plaintiff in any such action, suit or proceeding, the Trust agrees to indemnify
and hold harmless the Auction Agent, to the extent provided in the preceding
paragraph against any loss, claim, damage, liability or expense by reason of
such settlement or judgment.

                               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 Trust may terminate this
Agreement at any time by so notifying the Auction Agent, provided that if any
APS remain outstanding the Trust 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 Trust 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 APS
remain outstanding, the Trust 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 Trust and the Auction Agent under this Agreement shall
cease upon termination of this Agreement. The Trust's representations,
warranties, covenants and obligations to the Auction Agent under Sections 5.1
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 Trust's request, deliver promptly to the Trust
copies of all books and records maintained by it in connection with its duties
hereunder, and (iii) at the request of the Trust, transfer promptly to the Trust
or to any successor auction agent any funds deposited by the Trust 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.

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 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 Trust, addressed to:          500 Boylston Street
                                            Boston, MA 02116
                                            Attention: Treasurer
                                            Telecopier No.: (617) 954-_____
                                            Telephone No.: (617) 954-5000

    If to the Auction Agent, addressed to:  Bankers Trust Company
                                            Corporate Trust and Agency Group
                                            Four Albany Street
                                            New York, NY 10006
                                            Attention: Auction Rate Securities
                                            Telecopier No.: (212) 250-6215
                                            Telephone No.: (212) 250-6850


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 Trust by a Trust 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 Trust, 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 Trust shall notify the Auction Agent of any change in the Statement
prior to the effective date of any such change.

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

7.6.     Successors and Assigns.

         This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Trust 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.

7.10.  Limitation of Liability.

         The names "MFS Municipal Income Trust" and "Trustees of the MFS
Municipal Income Trust" refer, respectively, to the Trust and the Trustees of
the Trust, as trustees but not individually or personally, acting from time to
time under the Declaration, which is hereby referred to and a copy of which is
on file at the office of the Secretary of The Commonwealth of Massachusetts and
the principal office of the Trust. The obligations of "MFS Municipal Income
Trust" entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents of the Trust are made not individually, but in such
capacities, and are not binding upon any of the Trustees, officers, holders of
shares of beneficial interest of the Trust or representatives of the Trustees
personally, but bind only the Trust assets, and all persons dealing with the
Trust must look solely to the Trust property for the enforcement of any claims
against the Trust.
<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.


                               MFS MUNICIPAL INCOME TRUST



                               By:________________________________
                                  Title:


                               BANKERS TRUST COMPANY



                               By:________________________________
                                  Title:
<PAGE>
                                                                      SCHEDULE I
                              BANKERS TRUST COMPANY

                    AUCTION AGENT, REGISTRAR AND PAYING AGENT
                             CORE SERVICES PROVIDED

AUCTION AGENT:

    o   Setup of all accounts, ticklers, procedures
    o   Calculation of the minimum and maximum rates prior to auction
    o   Notification of auction parameters to all applicable parties in interest
    o   Receipt and compilation of bids from participating broker-dealers
    o   Determination of winning auction rate
    o   Determination and notification of receipt and delivery instructions to
        broker-dealers for the movement of shares between brokers resulting from
        the auction
    o   Communication of auction results to MFS Municipal Income Trust (the
        "Trust"), the custodian for the Trust, The Depository Trust Company
        ("DTC") and the broker-dealers participating in the auction process via
        phone, fax, e-mail or internet web (contingent on web access being live
        and in production)
    o   Providing reports as requested, including standard reports (pre-auction
        position, bid analysis, issue summary, post auction holder positions,
        dealer reports, commission summary) as well as customized reports*

        *Reports can be customized and some variation is allowed in reference to
        the above. Otherwise, if reporting responsibilities change
        significantly, fees charged will be reviewed, and based on the appraisal
        of service, re-negotiated with the client.

    o   Publication of auction calendar to the Trust and broker-dealers
    o   Release of winning rate information to the Trust, participating
        broker-dealers and information service (e.g., Bloomberg)

PAYING AGENT:

    o   Calculation, collection and remittance of dividend payments to DTC
    o   Calculation, collection and remittance of service fee payments to
        participating broker-dealers
    o   Calculation, collection and remittance of principal payments to DTC
    o   Collection and remittance of capital gains payments to DTC
    o   Collection and remittance of gross up payments to DTC
    o   Reconciliation of all accounts

REGISTRAR:

    o   Maintenance of shareholder registrar and broker-dealer position listings
    o   Processing of transfer requests received by participating broker-dealers
        to modify position changes that occur outside the auction process

OTHER:

    o   Negotiation of documents
    o   Respond to inquiries received from various parties including the Trust,
        the custodian for the Trust, broker-dealers and DTC
    o   Preparation of notifications to the auction participants in accordance
        with receipt of notice from the Trust of special events including
        capital gains, redemptions and special rate periods
    o   Monitoring and ongoing maintenance of Broker-Dealer Agreements
    o   Dedicated Account Administration and ongoing Relationship Management
    o   Provision of 1099 related information received from the Trust to the
        broker-dealers
    o   Promptly inform Broker-Dealers that taxable income will be included in a
        dividend, if applicable

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(K)(2)
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>FORM OF BROKER-DEALER AGREEMENT/BANKERS TRUST
<TEXT>

<PAGE>

                                                                  Exhibit (k)(2)

                             BROKER-DEALER AGREEMENT

                                     between

                              BANKERS TRUST COMPANY

                                       and

                                    [BROKER]

                          Dated as of ________ __, 2000

                                   Relating to

                            AUCTION PREFERRED SHARES

                                       of

                           MFS MUNICIPAL INCOME TRUST

<PAGE>

         BROKER-DEALER AGREEMENT dated as of ________ __, 2000, between BANKERS
TRUST COMPANY, a New York banking corporation (the "Auction Agent") (not in its
individual capacity, but solely as agent of MFS Municipal Income Trust, a
Massachusetts business trust (the "Trust"), pursuant to authority granted to it
in the Auction Agency Agreement dated as of December 4, 2000, between the Trust
and the Auction Agent (the "Auction Agency Agreement")) and [BROKER] (together
with its successors and assigns, "BD").

         The Trust proposes to issue 5,600 preferred shares of beneficial
interest, without par value, liquidation preference $25,000 per share,
designated Auction Preferred Shares (the "APS"), pursuant to the Statement (as
defined below).

         The Statement provides that the Applicable Rate on shares of each
series of APS, as the case may be, for each Subsequent Rate Period shall, under
certain conditions, be the rate per annum that a bank or trust company appointed
by the Trust advises results from implementation of the Auction Procedures (as
defined below) for such series. The Board of Trustees of the Trust has adopted a
resolution appointing Bankers Trust Company as Auction Agent for purposes of the
Auction Procedures for each series of APS, and pursuant to Section 2.5 of the
Auction Agency Agreement, the Trust has requested and directed the Auction Agent
to execute and deliver this Agreement.

         The Auction Procedures require the participation of one or more
Broker-Dealers.

         NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:

I.  DEFINITIONS AND RULES OF CONSTRUCTION.

         1.1. Terms Defined by Reference to the Statement.

Capitalized terms not defined herein shall have the respective meanings
specified in the Statement of the Trust.

         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)  "Auction" shall have the meaning specified in Section 3.1 hereof.

         (b)  "Auction Procedures" shall mean the Auction Procedures that are
set forth in Part II of the Statement.

         (c) "Authorized Officer" shall mean each Managing Director, Vice
President, Assistant Vice President and Associate of the Auction Agent and every
other officer or employee of the Auction Agent designated as an "Authorized
Officer" for purposes of this Agreement in a communication to BD.

         (d) "BD Officer" shall mean each officer or employee of BD designated
as a "BD Officer" for purposes of this Agreement in a communication to the
Auction Agent.

         (e) "Broker-Dealer Agreement" shall mean this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.

         (f) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit A.

         (g) "Statement" shall mean the Statement dated December 4, 2000,
creating and establishing the powers, preferences and rights of the APS, as
amended to the date hereof.

         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.

II.  NOTIFICATION OF DIVIDEND PERIOD AND ADVANCE NOTICE OF ALLOCATION OF
     TAXABLE INCOME.

         2.1. The provisions contained in Part I, Section 4 of the Statement
concerning the notification of a Special Rate Period will be followed by the
Auction Agent and BD, and the provisions contained therein are incorporated
herein by reference in their entirety and shall be deemed to be a part of this
Agreement to the same extent as if such provisions were set forth fully herein.

         2.2. Except as otherwise provided in Part I, Section 3 and/or Part II,
Section 5 of the Statement, whenever the Trust intends to include any net
capital gain or other income taxable for Federal income tax purposes in any
dividend on shares of APS, the Trust shall, in the case of a Minimum Rate Period
or Special Rate Period of 28 Rate Period Days or fewer, and may, in the case of
any other Special Rate Period, notify the Auction Agent of the amount to be so
included as provided in Part II, Section 5 of the Statement. Whenever the
Auction Agent receives such notice from the Trust, it will notify each
Broker-Dealer in turn, who, on or prior to such Auction Date, in accordance with
its Broker-Dealer Agreement, will notify its 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 Trust may also include such net
capital gain or other income taxable for federal income tax purposes in a
dividend on shares of Municipal Preferred without giving advance notice if the
dividend is increased by a Gross-up Payment. Whenever the Trust includes any
Gross-up Payment as provided in Part I, Section 3 of the Statement, the Trust
will notify the Auction Agent of such additional amounts to be so included in
such dividend as provided in Part II, Section 5 of the Statement. Whenever the
Auction Agent receives such notice from the Trust, in turn it will notify the
Securities Depository and each Broker-Dealer, who, on or prior to the applicable
Dividend Payment Date, in accordance with its Broker-Dealer Agreement, will
notify its Beneficial Owners.

III.  THE AUCTION.

         3.1. Purpose; Incorporation by Reference of Auction Procedures and
Settlement.

         (a) The provisions of the Auction Procedures will be followed by the
Auction Agent for the purpose of determining the Applicable Rate for any
subsequent Rate Period of any series of APS for which the Applicable Rate is to
be determined by an auction. Each periodic operation of such procedures is
hereinafter referred to as an "Auction."

         (b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part of this Agreement to the same extent as if such
provisions were set forth fully herein.

         (c) BD agrees to act as, and assumes the obligations of and limitations
and restrictions placed upon, a Broker-Dealer under this Agreement. BD
understands that other Persons meeting the requirements specified in the
definition of "Broker-Dealer" contained in Part I, Section 1 of the Statement
may execute a Broker-Dealer Agreement and participate as Broker-Dealers in
Auctions.

         (d) BD and other Broker-Dealers may participate in Auctions for their
own accounts. However, the Trust, by notice to BD and all other Broker-Dealers,
may prohibit all Broker-Dealers from submitting Bids in Auctions for their own
accounts, provided that Broker-Dealers may continue to submit Hold Orders and
Sell Orders.

3.2.  Preparation for Each Auction.

         (a) Not later than 9:30 A.M. on each Auction Date for the APS, the
Auction Agent shall advise BD by telephone of the Reference Rate and the Maximum
Rate in effect on such Auction Date.

         (b) The Auction Agent from time to time may request BD to provide it
with a list of the respective customers BD believes are Beneficial Owners of
shares of APS. BD shall comply with any such request, and the Auction Agent
shall keep confidential any such information, including information received as
to the identity of Bidders in any Auction, and shall not disclose any such
information so provided to any Person other than the Trust; and such information
shall not be used by the Auction Agent or its officers, employees, agents or
representatives for any purpose other than such purposes as are described
herein. The Auction Agent shall transmit any list of customers BD believes are
Beneficial Owners of shares of APS and information related thereto only to its
officers, employees, agents or representatives who need to know such information
for the purposes of acting in accordance with this Agreement, and the Auction
Agent shall prevent the transmission of such information to others and shall
cause its officers, employees, agents and representatives to abide by the
foregoing confidentiality restrictions; provided, however, that the Auction
Agent shall have no responsibility or liability for the actions of any of its
officers, employees, agents or representatives after they have left the employ
of the Auction Agent.

3.3.  Auction Schedule; Method of Submission of Orders.

         (a) The Trust and the Auction Agent shall conduct Auctions for APS in
accordance with the schedule set forth below. Such schedule may be changed at
any time by the Auction Agent with the consent of the Trust, which consent shall
not be withheld unreasonably. The Auction Agent shall give notice of any such
change to BD. Such notice shall be received prior to the first Auction Date on
which any such change shall be effective.


Time                          Event
- ----                          -----

By  9:30 A.M.                 Auction Agent advises the Trust and Broker-Dealers
                              of the Reference Rate and the Maximum Rate as set
                              forth in Section 3.2(a) hereof.

9:30 A.M. - 1:30 P.M.         Auction Agent assembles information communicated
                              to it by Broker-Dealers as provided in Part II,
                              Section 2(a) of the Statement. Submission Deadline
                              is 1:30 P.M.

Not earlier than 1:30 P.M.    Auction Agent makes determinations pursuant to
                              Part II, Section 3(a) of the Statement.

By approximately 3:00 P.M.    Auction Agent advises the Trust of the results of
                              the Auction as provided in Part II, Section 3(b)
                              of the Statement.

                              Submitted Bids and Submitted Sell Orders are
                              accepted and rejected in whole or in part and
                              shares of APS are allocated as provided in Part
                              II, Section 4 of the Statement.

                              Auction Agent gives notice of the Auction results
                              as set forth in Section 3.4(a) hereof.

         (b) BD agrees to maintain a list of Potential Beneficial Owners and to
contact the Potential Beneficial Owners on such list on or prior to each Auction
Date for the purposes set forth in Part II of the Statement.

         (c) BD shall submit Orders to the Auction Agent in writing or via the
internet in substantially the form attached hereto as Exhibit B. BD shall submit
separate Orders to the Auction Agent for each Potential Beneficial Owner or
Beneficial Owner on whose behalf BD is submitting an Order and shall not net or
aggregate the Orders of Potential Beneficial Owners or Beneficial Owners on
whose behalf BD is submitting Orders.

         (d) BD shall deliver to the Auction Agent (i) a written notice,
substantially in the form attached hereto as Exhibit C, of transfers of shares
of APS, made through BD by an Existing Holder to another Person other than
pursuant to an Auction, and (ii) a written notice, substantially in the form
attached hereto as Exhibit D, of the failure of shares of APS to be transferred
to or by any Person that purchased or sold shares of APS through BD pursuant to
an Auction. The Auction Agent is not required to accept any notice delivered
pursuant to the terms of the foregoing sentence with respect to an Auction
unless it is received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding the applicable Auction Date.

3.4.  Notice of Auction Results.

         (a) On each Auction Date, the Auction Agent shall notify BD by
telephone as set forth in paragraph (a) of the Settlement Procedures. On the
Business Day next succeeding such Auction Date, the Auction Agent shall notify
BD in writing of the disposition of all Orders submitted by BD in the Auction
held on such Auction Date.

         (b) BD shall notify each Beneficial Owner, Potential Beneficial Owner,
Existing Holder or Potential Holder on whose behalf BD has submitted an Order as
set forth in paragraph (b) of the Settlement Procedures, and take such other
action as is required of BD pursuant to the Settlement Procedures.

         If any Beneficial Owner or Existing Holder selling shares of APS in an
Auction fails to deliver such shares, the BD or any Person that was to have
purchased shares of APS in such Auction may deliver to such Person a number of
whole shares of APS 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 APS to be so
delivered shall be determined by such BD. Delivery of such lesser number of
shares shall constitute good delivery. Upon the occurrence of any such failure
to deliver shares, such BD shall deliver to the Auction Agent the notice
required by Section 3.3(d)(ii) hereof. Notwithstanding the foregoing terms of
this Section 3.4(b), any delivery or non-delivery of shares of APS which
represents any departure from the results of an Auction, as determined by the
Auction Agent, shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or nondelivery in accordance with the terms
of Section 3.3(d) hereof. The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 3.4(b).

3.5.  Service Charge to Be Paid to BD.

         On the Business Day next succeeding each Auction Date for any series of
APS, the Auction Agent shall pay to BD from moneys received from the Trust an
amount equal to: (a) (i) in the case of any Auction Date immediately preceding a
Rate Period of 364 Rate Period Days or fewer, 1/4 of 1%, or (ii) in the case of
any Auction Date immediately preceding a Rate Period of such series consisting
of more than 364 Rate Period Days, such percentage as may be agreed upon by such
Trust and BD with respect to such Rate Period, times (b) a fraction, the
numerator of which is the number of Rate Period Days in the Rate Period therefor
beginning on such Business Day and the denominator of which is 365 if such Rate
Period consists of 7 Rate Period Days and 360 for all other Rate Periods, times
(c) $25,000 times (d) the sum of (i) the aggregate number of shares of such
series placed by BD in such Auction that were (A) the subject of Submitted Bids
of Existing Holders submitted by BD and continued to be held as a result of such
submission and (B) the subject of Submitted Bids of Potential Holders submitted
by BD and purchased as a result of such submission plus (ii) the aggregate
number of shares of such series subject to valid Hold Orders (determined in
accordance with paragraph (d) of Part II, Section 2 of the Statement) submitted
to the Auction Agent by BD plus (iii) the number of shares of APS deemed to be
subject to Hold Orders of Existing Holders pursuant to Part II, Section 2(c) of
the Statement of such Trust that were acquired by BD for its own account or were
acquired by BD for its customers who are Beneficial Owners.

         For purposes of subclause (d)(iii) of the foregoing paragraph, if any
Beneficial Owner who acquired shares of APS through BD transfers those shares to
another Person other than pursuant to an Auction, then the Broker-Dealer for the
shares so transferred shall continue to be BD, provided, however, that if the
transfer was effected by, or if the transferee is, a Broker-Dealer other than
BD, then such Broker-Dealer shall be the Broker-Dealer for such shares.

IV.  THE AUCTION AGENT.

4.1.  Duties and Responsibilities.

         (a) The Auction Agent is acting solely as agent for the Trust hereunder
and owes no fiduciary duties to any other Person 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 bad faith 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.

4.2.  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 by this Agreement
and any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document believed
by it to be genuine. The Auction Agent shall not be liable for acting upon any
telephone communication authorized by this Agreement which the Auction Agent
believes in good faith to have been given by the Trust or by BD. The Auction
Agent may record telephone communications with BD.

         (b) The Auction Agent may consult with counsel of its own choice, and
the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.

         (c) The Auction Agent shall not be required to advance, expend or risk
its own funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder.

         (d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys.

         4.3. Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement or the APS
except that Auction Agent hereby represents that this Agreement has been duly
authorized, created and delivered by the Auction Agent and constitutes a legal
and binding obligation of the Auction Agent.

V.  MISCELLANEOUS.

         5.1. Termination. Any party may terminate this Agreement at any time
upon five days' prior written notice to the other party; provided, however, that
if BD is Salomon Smith Barney Inc., neither BD nor the Auction Agent may
terminate this Agreement without first obtaining the prior written consent of
the Trust to such termination, which consent shall not be withheld unreasonably.

         5.2.  Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.

         (a) BD is, and shall remain for the term of this Agreement, a member
of, or a participant in, the Securities Depository (or an affiliate of such a
member or participant).

         (b) BD represents that it (or if BD does not act as Agent Member, one
of its affiliates) shall make all dividend payments on the APS available in
same-day funds on each Dividend Payment Date to customers that use BD (or its
affiliate) as Agent Member.

         5.3.  Agent Member.  At the date hereof, BD is a participant of the
Securities Depository.

         5.4. Communications. Except for (i) communications authorized to be
made by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy, internet or similar
writing) and shall be given to such party at its address or telecopier number
set forth below:


If to BD,                  ________
addressed to:              ________
                           ________
                           ________

                           Attention: ________
                           Telecopier No.: ________
                           Telephone No.: ________
                           E-Mail: _______________

If to the Auction          Bankers Trust Company
Agent, addressed to:       Corporate Trust and Agency Group
                           Four Albany Street
                           New York, NY 10006

                           Attention: Auction Rate Securities
                           Telecopier No.: (212) 250-6215
                           Telephone No.: (212) 250-6850
                           E-Mail: kimberly.mastorovich@db.com

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 BD by a BD Officer and on behalf of
the Auction Agent by an Authorized Officer. BD may record telephone
communications with the Auction Agent.

         5.5. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.

         5.6. Benefits. Nothing in this Agreement, express or implied, shall
give to any person, other than the Trust, the Auction Agent and BD and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim under this Agreement.

         5.7.  Amendment; Waiver.

         (a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged.

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

         5.8. Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of BD and the Auction Agent. This Agreement may not be
assigned by either party hereto absent the prior written consent of the other
party; provided, however, that this Agreement may be assigned by the Auction
Agent to a successor Auction Agent selected by the Trust without the consent of
BD.

         5.9. Severability. If any clause, provision or section of this
Agreement shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any remaining clause, provision or section hereof.

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

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

<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.

                                          BANKERS TRUST COMPANY


                                          By:________________________________
                                             Title:


                                          [NAME OF BROKER]


                                          By:________________________________
                                             Title:
<PAGE>

                                    EXHIBIT A

                              SETTLEMENT PROCEDURES



             [Included as Appendix D to the Statement of Additional
                           Information of the Trust]
<PAGE>

                                    EXHIBIT B

                              BANKERS TRUST COMPANY
                                AUCTION BID FORM

Submit To:     Bankers Trust Company                 Issue: MFS Municipal
               Corporate Trust and Agency Group      Income Trust
               Four Albany Street
               New York, NY 10006
               Attention: Auction Rate Securities
               Telecopier No.: (212) 250-6215
               Telephone No.: (212) 250-6850


The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:

Name of Bidder:________________________________

                                BENEFICIAL OWNER

Shares now held___________________________           HOLD_____________________
                                                     BID at rate of___________
                                                     SELL_____________________

                           POTENTIAL BENEFICIAL OWNER

                                     # of shares bid ___________
                                     BID at rate of  ___________ Notes:

(1) If submitting more than one Bid for one Bidder, use additional Auction Bid
Forms.

(2) If one or more Bids covering in the aggregate more than the number of
outstanding shares held by any Beneficial Owner are submitted, such bid shall be
considered valid in the order of priority set forth in the Auction Procedures on
the above issue.

(3) A Hold or Sell Order may be placed only by a Beneficial Owner covering a
number of shares not greater than the number of shares currently held.

(4) Potential Beneficial Owners may make only Bids, each of which must specify a
rate. If more than one Bid is submitted on behalf of any Potential Beneficial
Owner, each Bid submitted shall be a separate Bid with the rate specified.

(5) Bids may contain no more than three figures to the right of the decimal
point (.001 of 1 %). Fractions will not be accepted.

NAME OF BROKER-DEALER ____________________________________

Authorized Signature  ____________________________________
<PAGE>

                                    EXHIBIT C

                    (Note: To be used only for transfers made
                       other than pursuant to an Auction)

TRANSFER FORM

Re: MFS Municipal Income Trust
         Auction Preferred Shares

We are (check one):

[ ]  the Existing Holder named below;

[ ]  the Broker-Dealer for such Existing Holder; or

[ ]  the Agent Member for such Existing Holder.

     We hereby notify you that such Beneficial Owner has transferred ___________
APS to________________.


                                 ---------------------------------------------
                                 (Name of Existing Holder)

                                 ---------------------------------------------
                                  (Name of Broker-Dealer)

                                 ---------------------------------------------
                                  (Name of Agent Member)


                                 By: -----------------------------------------
                                 Printed Name:
                                 Title:
<PAGE>

                                    EXHIBIT D

                 (Note: To be used only for failures to deliver
                        APS sold pursuant to an Auction)

                         NOTICE OF A FAILURE TO DELIVER

Complete either I or II


         I. We are a Broker-Dealer for _________________________ (the
"Purchaser"), which purchased _______ shares of APS of MFS Municipal Income
Trust in the Auction held on ___________________ from the seller of such shares.

         II. We are a Broker-Dealer for _________________________ (the
"Seller"), which sold _________ shares of APS of MFS Municipal Income Trust, in
the Auction held on ___________________ to the Purchaser of such shares.

         We hereby notify you that (check one):

         ________ the Seller failed to deliver such shares to the Purchaser

         ________ the Purchaser failed to make payment to the Seller upon
                  delivery of such shares




                               Name:__________________________________________
                                  (Name of Broker-Dealer)

                               By:____________________________________________
                                  Printed Name:
                                  Title:

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(L)
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>OPINION AND CONSENT OF BINGHAM DANA LLP
<TEXT>

<PAGE>

                                                                       Exhibit l

                                Bingham Dana LLP
                               150 Federal Street
                           Boston, Massachusetts 02110

                                November 28, 2000


MFS Municipal Income Trust
500 Boylston Street
Boston, MA  02116

Ladies and Gentlemen:

         We have acted as counsel to MFS Municipal Income Trust (the "Trust") in
connection with the Registration Statement of the Trust on Form N-2 under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 333-42364), and
Amendment No. 10 to the Registration Statement of the Trust on Form N-2 under
the Investment Company Act of 1940, as amended (the "1940 Act") (File No.
811-4841), as filed on July 27, 2000 ("Amendment No. 10"), and Pre-Effective
Amendment No. 1 to the Registration Statement of the Trust on Form N-2 under the
1933 Act and Amendment No. 11 to the Registration Statement of the Trust on Form
N-2 under the 1940 Act, as filed on November 28, 2000 (together with Amendment
No. 10, the "Registration Statement"), relating to the proposed sale of an
aggregate of 2,800 Municipal Auction Rate Cumulative Preferred Shares, Series T,
and an aggregate of 2,800 Municipal Auction Rate Cumulative Preferred Shares,
Series TH, each with a liquidation preference of $25,000 per share plus
accumulated but unpaid dividends, if any, thereon (whether or not earned or
declared) (the "Preferred Shares").

         In connection with this opinion, we have examined the following
described documents:

         (a) the Registration Statement;

         (b) a certificate of the Secretary of State of the Commonwealth of
Massachusetts as to the existence of the Trust;

         (c) copies, certified by the Secretary of State of the Commonwealth of
Massachusetts, of the Trust's Declaration of Trust and of all amendments thereto
on file in the office of the Secretary of State; and

         (d) the Statement Creating Two Series of Municipal Auction Rate
Cumulative Preferred Shares (the "Statement") of the Trust dated November 21,
2000.

         (e) a certificate executed by James R. Bordewick, Jr., the Assistant
Secretary of the Trust, certifying as to, and attaching copies of, the Trust's
Declaration of Trust and By-Laws, the Statement, and certain votes of the
Trustees and shareholders of the Trust authorizing the issuance of the Preferred
Shares.

         In such examination, we have assumed the genuineness of all signatures,
the conformity to the originals of all of the documents reviewed by us as
copies, the authenticity and completeness of all documents reviewed by us in
original or copy form and the legal competence of each individual executing any
document.

         This opinion is based entirely on our review of the documents listed
above. We have made no other review or investigation of any kind whatsoever, and
we have assumed, without independent inquiry, the accuracy of the information
set forth in such documents.

         This opinion is limited solely to the laws of the Commonwealth of
Massachusetts (other than the Massachusetts Uniform Securities Act, as to which
we express no opinion) as applied by courts in such Commonwealth to the extent
such laws may apply to or govern the matters covered by this opinion.

         We understand that all of the foregoing assumptions and limitations are
acceptable to you.

         Based upon and subject to the foregoing, please be advised that it is
our opinion that the Preferred Shares, when issued and sold in accordance with
the Registration Statement, the Trust's Declaration of Trust and By-laws and the
Statement, will be legally issued, fully paid and non-assessable, except that,
as set forth in the Registration Statement, shareholders of the Fund may under
certain circumstances be held personally liable for the Trust's obligations.

         We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

                                                     Very truly yours,

                                                     Bingham Dana LLP

                                                     BINGHAM DANA LLP

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(N)
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>

<PAGE>
                                                                     Exhibit (n)

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Pre-Effective Amendment
No. 1 under the Securities Act of 1933 and Post-Effective Amendment No. 11 under
the Investment Company Act of 1940 to Registration No. 811-4841 of MFS Municipal
Income Trust, of our report appearing in the annual report to shareholders for
the year ended October 31, 1999, dated December 9, 1999, of MFS Municipal Income
Trust, and to the references to us under the headings "Financial Highlights" and
"Experts" in the Prospectus and "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information, both of which are part
of such Registration Statement.

DELOITTE & TOUCHE, LLP
- ------------------------
Deloitte & Touche LLP

Boston, Massachusetts
November 28, 2000

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
