Municipal Inflation Protected Fund, Inc., et al. – ‘N-2’ on 4/29/05

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Registration Statement of a Closed-End Investment Company   —   Form N-2
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-2         Registration Statement of a Closed-End Investment     85    427K 
                          Company                                                
 2: EX-99.2A    Miscellaneous Exhibit                                  8     27K 
 3: EX-99.2B    Miscellaneous Exhibit                                 18     67K 

N-2   —   Registration Statement of a Closed-End Investment Company
Document Table of Contents

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As filed with the Securities and Exchange Commission on April 29, 2005  
                                        Securities Act File No. 333-__________
                                     Investment Company Act File No. 811-21762
================================================================================

SECURITIES AND EXCHANGE COMMISSION  
Washington, D.C. 20549  
_________________   

FORM N-2  

            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933          /X/
                          Pre-Effective Amendment No.                        / /
                         Post-Effective Amendment No.                        / /
and/or  
REGISTRATION STATEMENT UNDER THE  
                        INVESTMENT COMPANY ACT OF 1940                       /X/
                                 Amendment No.                               / /
_________________   

Municipal Inflation Protected Fund, Inc.  
(Exact Name of Registrant as Specified in Charter)  

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

(Registrant's Telephone Number, including Area Code): (609) 282-2800  
_________________   

Robert C. Doll, Jr. 
Municipal Inflation Protected Fund, Inc.  
800 Scudders Mill Road, Plainsboro, New Jersey 08536  
Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011  
(Name and Address of Agent for Service) 
_________________   

Copies to:  
Andrew J. Donohue, Esq.                           Frank P. Bruno, Esq.
   FUND ASSET MANAGEMENT, L.P.                    SIDLEY AUSTIN BROWN & WOOD LLP
    P.O. Box 9011                                 787 Seventh Avenue
Princeton, New Jersey 08543-9011                  New York, New York 10019-6018 
_________________   

Approximate date of proposed public offering: As soon as practicable  
after the effective date of this Registration Statement.                        

If any securities being registered on this form are to be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act    
of 1933, as amended (the "Securities Act"), other than securities offered in    
connection with dividend or interest reinvestment plans, check the following    
box. |_|                                                                        

                                                        [Enlarge/Download Table]
           CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT                                                                


===================================================================================================================================
                                                                  Proposed Maximum       Proposed Maximum                          
                                             Amount Being        Offering Price Per     Aggregate Offering         Amount of       
 Title of Securities Being Registered     Registered (1) (2)          Unit (1)               Price (1)        Registration Fee (3) 
---------------------------------------- ---------------------- ---------------------- ---------------------- ---------------------
                                                                                                                                   
Common Stock ($.10 par value).........       66,667 shares             $15.00               $1,000,005                $118         
===================================================================================================================================

(1)  Estimated solely for the purpose of calculating the registration fee.      
(2)  Includes 8,695 shares subject to the underwriters' overallotment option.   
(3)  Transmitted prior to the filing date to the designated lockbox of the      
Securities and Exchange Commission at Mellon Bank in Pittsburgh, PA.  

  The Registrant hereby amends this Registration Statement on such date or
dates as may 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 or until the Registration Statement shall    
become effective on such date as the Commission, acting pursuant to said        
Section 8(a), may determine.                                                    

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

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

Subject to Completion 
Preliminary Prospectus dated April 29, 2005 

PROSPECTUS                                                                      
----------                                                                      
____________ Shares 
Municipal Inflation Protected Fund, Inc.  
Common Stock  
_________________   

Municipal Inflation Protected Fund, Inc. is a newly organized,        
non-diversified, closed-end fund. The investment objective of the Fund is to    
provide stockholders with current income excludable from gross income for       
Federal income tax purposes. The Fund seeks to achieve its objective by         
investing, as a fundamental policy, at least 80% of its net assets (including   
assets acquired from the sale of preferred stock), plus the amount of any       
borrowings for investment purposes, in a portfolio of municipal obligations     
the interest on which, in the opinion of bond counsel to the issuer, is         
excludable from gross income for Federal income tax purposes (except that the   
interest may be includable in taxable income for purposes of the Federal        
alternative minimum tax). Under normal market conditions, the Fund expects to   
invest at least 75% of its total assets in municipal obligations that are       
rated investment grade or, if unrated, are considered by the Fund's investment  
adviser to be of comparable quality. The Fund may invest up to 25% of its       
total assets in municipal obligations that are rated below investment grade     
(commonly known as "junk bonds") or, if unrated, are considered by the Fund's   
investment                                                                      
                                                   (continued on following page)

Investing in the Fund's common stock involves certain risks that are  
described in the "Risk Factors and Special Considerations" section beginning    
on page [o] of this prospectus.                                                 

                                                           Per Share   Total (3)
                                                           ---------   ---------
 Public offering price..............................     $15.00        $
 Underwriting discount (1)..........................       $           $
 Proceeds, before expenses, to the Fund (2).........       $           $

   (1)  The Fund has agreed to pay the underwriters $[o] per share of common
       stock as a partial reimbursement of expenses incurred in connection
with the offering. See "Underwriting."                      
 (2)  The Fund's investment adviser has agreed to pay all organizational
       expenses of the Fund. The investment adviser also agreed to pay the
  amount by which the offering costs of the Fund (other than the
      underwriting discount) exceeds $[o] per share of common stock. The
    estimated offering expenses to be incurred by the Fund are $[o].
   (3)  The underwriters also may purchase up to an additional [o] shares at
        the public offering price, less the underwriting discount, within 45
     days from the date of this prospectus to cover overallotments. If
       all such shares are purchased, the total public offering price will
       be $[o], the total underwriting discount will be $[o] and the total
proceeds, before expenses, to the Fund will be $[o].        

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

The shares will be ready for delivery on or about [o], 2005.          

_________________   

_________________   

The date of this prospectus is [o], 2005. 
_________________   

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(continued from previous page)                                                  

adviser to possess similar credit characteristics. The Fund will invest in      
municipal obligations and utilize derivative instruments, such as inflation     
swap agreements and inflation futures, that are structured to provide           
protection against inflation. Under normal market conditions and after the      
initial investment period following this offering (not expected to exceed       
three months), the Fund will invest, as a non-fundamental policy, at least 80%  
of its net assets (including assets acquired from the sale of preferred         
stock), plus the amount of any borrowings for investment purposes, in (i)       
inflation indexed Municipal Bonds and (ii) Municipal Bonds where the Fund has   
entered into certain derivative transactions, such as inflation swap            
agreements and inflation futures, at either the portfolio level or with         
respect to individual Municipal Bonds, in an attempt to provide protection      
against inflation. The Fund may invest in certain tax exempt securities         
classified as "private activity bonds," as discussed within, that may subject   
certain investors in the Fund to an alternative minimum tax. There can be no    
assurance that the Fund's investment objective will be realized.                

   Because the Fund is newly organized, its shares have no history of public
trading. Shares of closed-end investment companies frequently trade at a price  
lower than their net asset value. This is commonly referred to as "trading at   
a discount." The risk may be greater for investors expecting to sell their      
shares in a relatively short period after completion of the public offering.    
The Fund plans to apply to list its shares of common stock on the [o] Stock     
Exchange or another national securities exchange under the symbol "[o]."        

The Fund may leverage through borrowings or the issuance of preferred 
stock or debt securities. Within approximately three months after completion    
of this offering of common stock, the Fund intends to offer shares of           
preferred stock representing approximately 35% of the Fund's total capital, or  
approximately 54% of the Fund's common stock equity, immediately after the      
issuance of such preferred stock. There can be no assurance, however, that      
preferred stock representing such percentage of the Fund's capital will         
actually be issued. The use of preferred stock to leverage the common stock     
can create special risks. There can be no assurance that a leveraging strategy  
will be successful during any period in which it is employed.                   

This prospectus contains information you should know before investing,
including information about risks. Please read it before you invest and keep    
it for future reference.                                                        

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TABLE OF CONTENTS 

                                                                            Page
                                                                            ----
Prospectus Summary............................................................6 
Risk Factors and Special Considerations......................................14 
Fee Table....................................................................17 
The Fund.....................................................................17 
Use of Proceeds..............................................................18 
Investment Objective and Policies............................................18 
Other Investment Policies....................................................28 
Risks and Special Considerations of Leverage.................................32 
Investment Restrictions......................................................33 
Directors and Officers.......................................................33 
Investment Advisory and Management Arrangements..............................33 
Portfolio Transactions.......................................................33 
Dividends and Distributions..................................................33 
Taxes........................................................................33 
Automatic Dividend Reinvestment Plan.........................................33 
Conflicts of Interest........................................................50 
Net Asset Value..............................................................33 
Description of Capital Stock.................................................33 
Custodian....................................................................33 
Underwriting.................................................................33 
Transfer Agent, Dividend Disbursing Agent and Registrar......................33 
Accounting Services Provider.................................................33 
Legal Matters................................................................33 
Independent Registered Public Accounting Firm and Experts....................33 
Additional Information.......................................................33 
Report of Independent Registered Public Accounting Firm......................33 
Appendix A Description of Municipal Bond Ratings............................A-1 
Appendix B Taxable Equivalent Yields For 2005...............................B-1 

_________________   

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

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

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PROSPECTUS SUMMARY  

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

The Fund                        Municipal Inflation Protected Fund, Inc. is a   
                            newly organized, non-diversified, closed-end
fund.           

The Offering                    The Fund is offering [o] shares of common stock 
                          at an initial offering price of $15.00 per
                            share through a group of underwriters led by
                             [o]. You must purchase at least 100 shares of
                             common stock to participate in this offering.
                      The underwriters may purchase up to an
                            additional [o] shares of common stock within
                         45 days of the date of this prospectus to
             cover overallotments, if any.

Investment Objective and        The investment objective of the Fund is to      
Policies                        provide stockholders with current income        
                        excludable from gross income for Federal
                              income tax purposes. The Fund seeks to achieve
                            its objective by investing, as a fundamental
                      policy, at least 80% of its net assets
                           (including assets acquired from the sale of
                        preferred stock), plus the amount of any
                        borrowings for investment purposes, in a
                            portfolio of municipal obligations issued by
                       or on behalf of states, territories and
                        possessions of the United States and the
                        District of Columbia and their political
                            subdivisions, agencies and instrumentalities
                           or other qualifying issuers, such as Puerto
                            Rico, the U.S. Virgin Islands and Guam, each
                              of which pays interest that, in the opinion of
                              bond counsel to the issuer, is excludable from
                            gross income for Federal income tax purposes
                              (except that the interest may be includable in
                          taxable income for purposes of the Federal
                             alternative minimum tax) ("Municipal Bonds").
                           The Fund will invest in Municipal Bonds and
                       utilize derivative instruments, such as
                       inflation swap agreements and inflation
                       futures, that are structured to provide
                          protection against inflation. Under normal
                       market conditions and after the initial
                              investment period following this offering (not
                          expected to exceed three months), the Fund
                            will invest, as a non-fundamental policy, at
                             least 80% of its net assets (including assets
                           acquired from the sale of preferred stock),
                     plus the amount of any borrowings for
                             investment purposes, in (i) inflation indexed
                              Municipal Bonds and (ii) Municipal Bonds where
                            the Fund has entered into certain derivative
                    transactions, such as inflation swap
                           agreements and inflation futures, at either
                      the portfolio level or with respect to
                            individual Municipal Bonds, in an attempt to
                     provide protection against inflation.

                            In general, the Fund does not intend for its
                              investments to earn a large amount of interest
                        income that is not excludable from gross
                              income for Federal income tax purposes (except
                              that the interest may be includable in taxable
                              income for purposes of the Federal alternative
                              minimum tax). However, payments received under
                       certain derivative instruments, such as
                       inflation swap agreements and inflation
                             futures, will result in taxable income to the
                          Fund, either as ordinary income or capital
                           gains, rather than tax-exempt income. There
                              can be no assurance that the Fund's investment
           objective will be realized.

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

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                              Investment Grade Municipal Bonds. Under normal
                             market conditions, the Fund expects to invest
                             at least 75% of its total assets in Municipal
                            Bonds that are rated investment grade by one
                         or more nationally recognized statistical
                         rating agencies (Baa or higher by Moody's
                             Investors Service, Inc. ("Moody's") or BBB or
                            higher by Standard & Poor's ("S&P") or Fitch
                      Ratings ("Fitch")) or in unrated bonds
                             considered by the Investment Adviser to be of
                            comparable quality. In assessing the quality
                          of Municipal Bonds, the Investment Adviser
                            takes into account the nature of any letters
                          of credit or similar credit enhancement to
                             which particular Municipal Bonds are entitled
                         and the creditworthiness of the financial
                     institution that provided such credit
enhancement.    

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

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

                           Inflation Indexed Municipal Bonds. The Fund
                      may invest in Municipal Bonds that are
                        structured to provide protection against
                      inflation. The interest income paid on
                             inflation indexed Municipal Bonds is adjusted
                         to track changes in an official inflation
                             measure, such as the Consumer Price Index for
                             All Urban Consumers, published monthly by the
                      Bureau of Labor Statistics of the U.S.
                         Department of Labor (the "CPI-U"). To the
                            extent the Fund invests in inflation indexed
                          Municipal Bonds, the Fund's return on such
                            Municipal Bonds will be subject to risk with
                      respect to the value of the particular
                          inflation index. The Fund cannot guarantee
                             that investing in inflation indexed Municipal
                    Bonds will eliminate inflation risk.

                         Inflation Swap Transactions and Inflation
                             Futures. The Fund also may utilize derivative
                     instruments, such as over-the-counter
             inflation swap agreements and

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                             exchange traded inflation futures, to provide
                            protection against inflation. Inflation swap
                           agreements are contracts in which one party
                       agrees to pay the cumulative percentage
                             increase in a price index, such as the CPI-U,
                           over the term of the swap (with some lag on
                              the referenced inflation index), and the other
                              pays a compounded fixed rate. The Fund intends
                          to utilize inflation swap agreements where
                             there are no exchanges of cash payments until
                             the maturity of the swap. These are sometimes
                   called zero coupon inflation swaps.

                        Inflation futures are types of financial
                      futures contracts. A financial futures
                              contract obligates the seller of a contract to
                          deliver and the purchaser of a contract to
                      take delivery of the type of financial
                             instrument covered by the contract, or in the
                             case of index-based futures contracts to make
                           and accept a cash settlement, at a specific
                            future time for a specified price. Inflation
                             futures are linked to United States inflation
                           variables or inflation-linked products. The
                              Fund intends to utilize CPI futures, which are
                             an exchange-traded product that allow traders
                            and risk managers to take advantage of their
                              outlook on inflation in the United States. The
                             CPI futures contract represents the inflation
                              on a notional value of $1,000,000 for a period
                              of three calendar months implied by the CPI-U.
                             So, if expected inflation rises, the price of
                           the contract is expected to decrease and if
                              expected inflation goes down, the price of the
                 contract is expected to increase.

                       Inflation swap agreements and inflation
                            futures may be used to protect the net asset
                        value of the Fund's portfolio against an
                          unexpected change in the rate of inflation
                        measured by an inflation index. The Fund
                              cannot guarantee that utilizing inflation swap
                      transactions or inflation futures will
         eliminate inflation risk.

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

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

Risk Factors                    Set forth below is a summary of the main risks  
                              of investing in the Fund's common stock. For a
                              more detailed description of the main risks as
                           well as certain other risks associated with
                         investing in the Fund's common stock, see
"Risk Factors   

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            and Special Considerations."

                                 o Liquidity and Market Price of Shares. The
                        Fund is newly organized and has no
                            operating history or history of public
                              trading. Shares of closed-end funds that
                            trade in a secondary market frequently
                                 trade at a market price that is below their
                              net asset value (commonly referred to as
               "trading at a discount").

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

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

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

                               o Interest Rate and Credit Risk. The Fund
                           invests in Municipal Bonds, which are
                               subject to interest rate and credit risk.
                                Interest rate risk is the risk that prices
                                of Municipal Bonds generally increase when
                              interest rates decline and decrease when
                                 interest rates increase. Credit risk is the
                                risk that the issuer will be unable to pay
                         the interest or principal when due.

                          o Inflation Indexed Municipal Bonds,
                               Inflation Swap Transactions and Inflation
                                 Futures. Inflation indexed Municipal Bonds,
                             inflation swap agreements and inflation
                          futures are designed to provide some
                            protection from long-term inflationary
                           trends. If interest rates rise due to
                              reasons other than inflation, the Fund's
                              use of these instruments may not protect
                                its net asset value to the extent that the
                                increase is not reflected in the inflation
                                measure, which is generally expected to be
                              the CPI-U. The CPI-U is a measurement of
                               the average changes in the cost of living
                          in a fixed market based on goods and
                            services, including components such as
                              housing, food, clothing, transportation,
                                 charges for doctors' and dentists' services
                                 and energy. In calculating the CPI-U, price
                            changes for various items are averaged
                                together with weights that represent their
                         importance in the spending of urban
                                households in the United States. There can
                          be no assurance that such index will
                         accurately measure the real rate of
                          inflation in the prices of goods and
                               services. Additionally, the taxability of
                         payments received in inflation swap
                             transactions and inflation futures will
                      reduce the effectiveness of such
                          transactions as a protection against
inflation.

                                o Inflation/Deflation Risk. Inflation risk
                          is the risk that the value of assets

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                               or income from the Fund's investment will
                              be worth less in the future as inflation
                             decreases the value of money. Deflation
                                 risk is the risk that prices throughout the
                               economy decline over time -- the opposite
                                 of inflation. Deflation may have an adverse
                               effect on the creditworthiness of issuers
                              and may make issuer default more likely,
                                which may result in a decline in the value
              of the Fund's portfolio.

                               o Dividend Risk. Because the Fund intends
                              to invest in inflation indexed Municipal
                                 Bonds and utilize derivative instruments to
                               provide protection against inflation, the
                                 amount of interest income available for the
                            Fund's monthly distributions to common
                                 stockholders may vary over time as a result
                         of fluctuations in inflation rates.
                               Generally, when inflation rates fall, the
                             amount of interest income available for
                              distribution to common stockholders will
                  likewise decrease over time.

                                o Leverage. Leverage involves risks, which
                             can be significant. These risks include
                                 greater volatility in the Fund's yield, net
                             asset value and the market price of the
                            Fund's common stock as discussed below
                               under "Use of Leverage by the Fund--Risks
   of Leverage."

Use of Leverage by the Fund     Issuance of Preferred Stock. The Fund intends to
                      offer shares of preferred stock within
                              approximately three months after completion of
                              this offering. Under current market conditions
                          it is anticipated that the preferred stock
                              will represent approximately 35% of the Fund's
                              total capital, including the capital raised by
                             issuing the preferred stock, or approximately
                            54% of the Fund's common stock equity. There
                            can be no assurance, however, that preferred
                            stock will actually be issued or, if issued,
                             what percentage of the Fund's capital it will
                              represent. Issuing preferred stock will result
                             in the leveraging of the Fund's common stock.
                           Although the Board of Directors has not yet
                           determined the terms of the preferred stock
                             offering, the Fund expects that the preferred
                              stock will pay dividends that will be adjusted
                         over either relatively short term periods
                           (generally seven or 28 days) or medium term
                       periods (up to five years) and that the
                           preferred stock dividend rate will be based
                       upon prevailing interest rates for debt
                       obligations of comparable maturity. The
                             proceeds of the preferred stock offering will
                         be invested in accordance with the Fund's
                         investment objective. The expenses of the
                           preferred stock, which will be borne by the
                            Fund, will reduce the net asset value of the
                            Fund's common stock. During periods when the
                              Fund has preferred stock outstanding, the Fund
                           will pay fees to the Investment Adviser for
                             its services that are higher than if the Fund
                              did not issue preferred stock because the fees
                     will be calculated on the basis of an
                              aggregate of: (i) the Fund's average daily net
                       assets (including any proceeds from the
                              issuance of any preferred stock), and (ii) the
                           proceeds of any outstanding borrowings used
for leverage.   

                            Potential Benefits of Leverage. Under normal
                           market conditions, the income earned on the
                           Fund's portfolio should exceed the dividend
                       rate the Fund must pay to the preferred
                     stockholders. Thus, the Fund's use of
                     preferred stock should provide common
                          stockholders with a higher yield than they
                             would receive if the Fund were not leveraged,
                           although no assurance can be given that the
                            issuance of preferred stock will result in a
                              higher yield or return to common stockholders.

                              Risks of Leverage. The use of leverage creates
                      certain risks for common stockholders,
                          including the greater likelihood of higher
                             volatility of the Fund's yield, its net asset
                        value and the market price of its common
                             stock. Changes in short term, medium term and
                          long term rates, and their relationship to
                              each other, could negatively impact the Fund's
                              yield, net asset value and market price of the
                            common stock. Furthermore, since any decline
          in the value of the Fund's

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                       investments will affect only the common
                              stockholders, in a declining market the use of
                              leverage will cause the Fund's net asset value
                          to decrease more than it would if the Fund
                              were not leveraged. This decrease in net asset
                             value will likely also cause a decline in the
                              market price for shares of common stock. There
                             can be no assurance that the Fund will earn a
                        higher yield or return on its investment
                             portfolio than the then current dividend rate
                            (and any additional distribution) it pays on
                  the preferred stock. Under certain
                           circumstances, when the Fund is required to
                     allocate taxable income to holders of
                              preferred stock, the Fund anticipates that the
                             terms of the preferred stock will require the
                          Fund to make an additional distribution to
                             such holders in an amount approximately equal
                        to the tax liability resulting from such
                         allocation. Under certain conditions, the
                           benefits of leverage to common stockholders
                             will be reduced or eliminated, and the Fund's
                             leveraged capital structure could result in a
                            lower yield or return to common stockholders
                    than if the Fund were not leveraged.

                              In particular, during times of rising interest
                     rates, the market value of the Fund's
                            portfolio investments and, consequently, the
                              net asset value of its shares may decline. The
                             Fund's leveraging of its portfolio by issuing
                            preferred stock may accentuate the potential
                           decline, since both the cost of issuing the
                            preferred stock and any decline in the value
                       of the portfolio investments (including
                              investments purchased with the proceeds of the
                              preferred stock) will be borne entirely by the
                              holders of the common stock. The Fund also may
                          invest in inverse floating obligations and
                         similar securities that create investment
                          leverage, which may further accentuate any
                          decline. Any investor who purchases shares
                          with borrowed funds may experience an even
greater decline.

                             Distributions. When the Fund issues preferred
                              stock, common stockholders will receive all of
                           the Fund's net income that remains after it
                  pays dividends (and any additional
                        distribution) on the preferred stock and
                              generally will be entitled to a pro rata share
                             of net realized capital gains. If the Fund is
                          liquidated, preferred stockholders will be
                             entitled to receive liquidating distributions
                         before any distribution is made to common
                             stockholders. These liquidating distributions
                           are expected to equal the original purchase
                           price per share of the preferred stock plus
                        any accumulated and unpaid dividends and
         additional distributions.

                           Redemption of Preferred Stock. The Fund may
                              redeem the preferred stock for any reason. For
                           example, the Fund may redeem all or some of
                             the preferred stock if the asset coverage for
                             the preferred stock declines below 200% or in
                    order to maintain the asset coverage
                      guidelines established by a nationally
                           recognized statistical ratings organization
               that rates the preferred stock.

                             Voting Rights. Preferred stockholders, voting
                              as a separate class, will be entitled to elect
                       two of the Fund's Directors. Common and
                            preferred stockholders, voting together as a
                           single class, will be entitled to elect the
                             remaining Directors. If the Fund fails to pay
                           dividends to the preferred stockholders for
                              two full years, the holders of all outstanding
                      shares of preferred stock, voting as a
                         separate class, would then be entitled to
                             elect a majority of the Fund's Directors. The
                     preferred stockholders also will vote
                      separately on certain other matters as
                     required under the Fund's Articles of
                          Incorporation, as amended and supplemented
                              (the "Charter"), the Investment Company Act of
                          1940, as amended (the "1940 Act"), and the
                       General Corporation Law of the State of
                         Maryland. Otherwise, common and preferred
                          stockholders will have equal voting rights
                              (one vote per share) and will vote together as
a single class. 

                              Ratings. Before it offers the preferred stock,
                        the Fund intends to apply to one or more
                         nationally recognized statistical ratings
                organizations for ratings on the

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                         preferred stock. The Fund believes that a
                           rating for the preferred stock will make it
                        easier to market the stock, which should
         reduce the dividend rate.

Listing                         Currently, there is no public market for the    
                            Fund's common stock. However, the Fund plans
                              to apply to list its shares of common stock on
                      the New York Stock Exchange or another
                             national securities exchange under the symbol
"[o]."          

Investment Adviser              The Investment Adviser provides investment      
                           advisory and administrative services to the
                         Fund. For its services, the Fund pays the
                              Investment Adviser a monthly fee at the annual
                        rate of [o]% of an aggregate of: (i) the
                              Fund's average daily net assets (including any
                           proceeds from the issuance of any preferred
                    stock), and (ii) the proceeds of any
                         outstanding borrowings used for leverage.

Dividends and Distributions     The Fund intends to distribute dividends from   
                          its net investment income monthly, and net
                        realized capital gains, if any, at least
                       annually. The Fund expects that it will
                           commence paying dividends within 90 days of
                          the date of this prospectus. Once the Fund
                             issues preferred stock, the monthly dividends
                          to common stockholders will consist of net
                             investment income that remains after the Fund
                      pays dividends on the preferred stock.
                             Currently, in order to maintain a more stable
                          level of monthly dividend distributions to
                            common stockholders, the Fund intends to pay
                              out less than all of its net investment income
                              or pay out accumulated undistributed income in
                              addition to current net investment income. The
                          Fund will distribute net capital gains, if
                             any, at least annually to common stockholders
                              and, after it issues the preferred stock, on a
                      pro rata basis to common and preferred
                          stockholders. The Fund may not declare any
                          cash dividend or other distribution on its
                           common stock unless the preferred stock has
                            asset coverage of at least 200%. If the Fund
                              issues preferred stock representing 35% of its
                            total capital, including that capital raised
                  by issuing the preferred stock, or
                             approximately 54% of its common stock equity,
                            the preferred stock's asset coverage will be
                            approximately 286%. If the Fund's ability to
                         make distributions on its common stock is
                            limited, the Fund may not be able to qualify
                      for taxation as a regulated investment
                    company. This would have adverse tax
                              consequences for stockholders. See "Taxes" for
                           considerations related to the Fund's use of
                         inflation swap transactions and inflation
futures.        

Yield Considerations            The yield on the Fund's common stock will vary  
                          from period to period depending on factors
                            including, but not limited to, the length of
                     the initial investment period, market
                    conditions, the timing of the Fund's
                       investment in portfolio securities, the
                           securities comprising the Fund's portfolio,
                           the ability of the issuers of the portfolio
                              securities to pay interest on such securities,
                           changes in the CPI-U, changes in tax exempt
                           interest rates (which may not change to the
                       same extent or in the same direction as
                       taxable rates) including changes in the
                              relationship between short term rates and long
                        term rates, the amount and timing of the
                           issuance of the Fund's preferred stock, the
                          effects of preferred stock leverage on the
                            common stock discussed above under "--Use of
                        Leverage by the Fund," the timing of the
                         investment of preferred stock proceeds in
                           portfolio securities, the Fund's net assets
                             and its operating expenses. Consequently, the
                             Fund cannot guarantee any particular yield on
                             its shares and the yield for any given period
                         is not an indication or representation of
                        future yields on Fund shares. The Fund's
                             ability to achieve any particular yield level
                        after it commences operations depends on
                         future interest rates, the future rate of
                            inflation and other factors mentioned above,
                             and the initial yield and later yields may be
                              lower. Any statements as to an estimated yield
                    are based on certain assumptions and
                              conditions and are as of the date made, and no
                         guarantee can be given that the Fund will
                        achieve or maintain any particular yield
level.          

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Automatic Dividend              Dividend and capital gains distributions        
Reinvestment Plan               generally are used to purchase additional       
                              shares of the Fund's common stock. However, an
                            investor can choose to receive distributions
                            in cash. Stockholders whose shares of common
                         stock are held in the name of a broker or
                            nominee should contact the broker or nominee
                             to confirm whether the broker or nominee will
                           permit them to participate in the automatic
           dividend reinvestment plan.

Federal Income Taxation         While exempt interest dividends are excluded    
                        from gross income for Federal income tax
                            purposes, they may be subject to the Federal
                  alternative minimum tax in certain
                           circumstances. Distributions of any capital
                          gain or ordinary income will be taxable to
                            stockholders. The Fund may not be a suitable
                       investment for investors subject to the
                            Federal alternative minimum tax or who would
                              become subject to such tax by investing in the
                             Fund. Additionally, the Fund's utilization of
                             derivatives such as inflation swap agreements
                       and inflation futures may result in the
                          receipt of a substantial amount of taxable
                            income in a given year, which will, in turn,
                            result in increased taxable distributions to
          stockholders. See "Taxes."

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RISK FACTORS AND SPECIAL CONSIDERATIONS 

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

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

   Liquidity and Market Price of Shares. The Fund is newly organized and has
no operating history or history of public trading.                              

Shares of closed-end funds that trade in a secondary market frequently
trade at a market price that is below their net asset value. This is commonly   
referred to as "trading at a discount." The risk may be greater for investors   
expecting to sell their shares in a relatively short period after completion    
of the public offering. Accordingly, the Fund is designed primarily for long    
term investors and should not be considered a vehicle for trading purposes.     
Net asset value will be reduced following the offering by the underwriting      
discount and the amount of offering expenses paid by the Fund.                  

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

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

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

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

  Inflation Indexed Municipal Bonds. Inflation indexed Municipal Bonds may
include Municipal Bonds whose interest rate is periodically adjusted according  
to the rate of inflation. An investment in such inflation indexed Municipal     
Bonds involves factors independent of the creditworthiness of the Municipal     
Bond issuer or otherwise not associated with an investment in securities with   
interest determined by reference to a fixed rate, floating rate or other        
index-linked rate. Such factors may include, the volatility of the inflation    
measure, the amount of other securities linked to the inflation measure, the    
level, direction and volatility of interest rates generally, the possibility    
that the inflation measure may be subject to significant changes, that changes  
in the inflation measure may or may not correlate to changes in interest rates  
generally or with changes in other indices and that the resulting interest may  
be greater or less than that payable on other securities of similar             
maturities. In addition, in the event of deflation or a reduction in the rate   
of increase in the inflation measure, the amount of periodic interest payments  
on certain inflation indexed Municipal Bonds will decrease or may be zero. The  
value of the inflation measure may depend on a number of factors, including     
economic, financial and political events over which the Municipal Bond          

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issuer has no control. The historical experience of the inflation measure       
should not be taken as an indication of its performance during the term of the  
inflation indexed bonds. If the index measuring inflation falls, the interest   
payable on these securities will be reduced. If interest rates rise due to      
reasons other than inflation, the Fund's use of inflation indexed Municipal     
Bonds (as well as inflation swaps transactions and inflation futures described  
below) may not protect its net asset value to the extent that the increase is   
not reflected in the inflation measure, which is generally expected to be the   
CPI-U. The CPI-U is a measurement of the average changes in the cost of living  
in a fixed market based on goods and services, including components such as     
housing, food, clothing, transportation, charges for doctors' and dentists'     
services and energy. In calculating the CPI-U, price changes for various items  
are averaged together with weights that represent their importance in the       
spending of urban households in the United States. There can be no assurance    
that such index will accurately measure the real rate of inflation in the       
prices of goods and services. The market for inflation indexed Municipal Bonds  
is relatively new and is still developing. For this reason, the market may, at  
times, have relatively low trading volume, which could result in lower          
liquidity and increased volatility in prices. The value of inflation indexed    
Municipal Bonds is expected to change in response to changes in real interest   
rates. Real interest rates are tied to the relationship between nominal         
interest rates and the rate of inflation. If nominal interest rates increase    
at a faster rate than inflation, real interest rates may rise, leading to a     
decrease in value of inflation indexed Municipal Bonds.                         

Inflation Swap Transactions and Inflation Futures. Inflation swap     
transactions include the risks discussed below under "--Swaps." In addition,    
both inflation swap transactions and inflation futures may not be perfectly     
correlated to the inflation measure or the actual rate of inflation. Inflation  
futures also involve the risks of an emergency closure of the related           
exchange, a temporary halt in the trading of the futures contract, or because   
these are a relatively new type of futures, a lack of liquidity compared to     
other more established futures contracts. The value of inflation swaps and      
inflation futures are expected to change in response to changes in real         
interest rates. Real interest rates are tied to the relationship between        
nominal interest rates and the rate of inflation. If nominal interest rates     
increase at a faster rate than inflation, real interest rates may rise,         
leading to a decrease in value of inflation swaps and inflation futures.        
Additionally, the taxability of payments received in inflation swap             
transactions and inflation futures will reduce the effectiveness of such        
transactions as a protection against inflation and will result in increased     
taxable distributions to stockholders.                                          

Inflation/Deflation Risk. Inflation risk is the risk that the value of
assets or income from the Fund's investment will be worth less in the future    
as inflation decreases the value of money. As inflation increases, the real,    
or inflation adjusted, value of the Fund's common stock and distributions can   
decline and the interest payments on Fund borrowings, if any, may increase or   
the dividend payments on the Fund's preferred stock, if any, may increase.      
Deflation risk is the risk that prices throughout the economy decline over      
time -- the opposite of inflation. Deflation may have an adverse effect on the  
creditworthiness of issuers and may make issuer default more likely, which may  
result in a decline in the value of the Fund's portfolio.                       

Dividend Risk. Because the Fund intends to invest in inflation indexed
Municipal Bonds and utilize derivative instruments to provide protection        
against inflation, the amount of interest income available for the Fund's       
monthly distributions to common stockholders may vary over time as a result of  
fluctuations in inflation rates. Generally, when inflation rates fall, the      
amount of interest income available for distribution to common stockholders     
will likewise decrease over time.                                               

 Leverage Risk. The Fund currently plans to issue preferred stock within
approximately three months after the completion of this offering. Under normal  
market conditions it is anticipated that the preferred stock will represent     
approximately 35% of the Fund's total capital, including the capital raised by  
issuing the preferred stock, or approximately 54% of the Fund's common stock    
equity. There can be no assurance, however, that preferred stock will actually  
be issued, or if issued what percentage of the Fund's capital it will           
represent. Leverage creates certain risks for common stockholders, including    
the greater likelihood of higher volatility of the Fund's yield, the net asset  
value and the market price of the common stock. Leverage also creates the risk  
that the yield or return on shares of the Fund's common stock will be reduced   
or eliminated to the extent the dividends paid on preferred stock and other     
expenses of the preferred stock exceed the yield or return earned by the Fund   
on its investments. Since both the cost of issuing the preferred stock and any  
decline in the value of the Fund's portfolio investments (including             
investments purchased with the proceeds of the preferred stock) will be borne   
entirely by the holders of common stock. The effect of leverage in a declining  
market would result in a greater decrease in the Fund's net asset value, and    
possibly the market price of the common stock, than if the Fund was not         
leveraged. If the Fund is liquidated,                                           

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preferred stockholders will be entitled to receive liquidating distributions    
before any distribution is made to common stockholders.                         

   Set forth below are certain other risks of investing in the Fund's common
stock.                                                                          

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

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

Private Activity Bonds. The Fund may invest in certain tax exempt     
securities classified as "private activity bonds." The Fund's investment in     
these bonds may cause certain investors in the Fund to be subject to the        
Federal alternative minimum tax.                                                

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

Rating Agencies. The Fund may be subject to guidelines of one or more 
nationally recognized statistical ratings organizations that may issue ratings  
for its preferred stock. These guidelines may impose asset coverage or          
portfolio composition requirements that are more stringent than those imposed   
by the 1940 Act and may prohibit or limit the use by the Fund of certain        
portfolio management techniques or investments. The Fund does not expect these  
guidelines to prevent the Investment Adviser from managing the Fund's           
portfolio in accordance with the Fund's investment objective and policies.      

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

   Portfolio Strategies. The Fund may engage in various portfolio strategies
both to seek to increase the return of the Fund and to seek to hedge its        
portfolio against adverse effects from movements in interest rates, the rate    
of inflation and in the securities markets. These strategies include the use    
of derivatives, such as indexed securities, inverse securities, options,        
futures, options on futures, interest rate swap transactions, credit default    
swaps and inflation swaps. Such strategies subject the Fund to the risk that,   
if the Investment Adviser incorrectly forecasts market values, interest rates,  
the rate of inflation or other applicable factors, the Fund's performance       
could suffer. Certain of these strategies, such as the use of inverse           
securities, interest rate swap transactions, credit default swaps and           
inflation swaps may provide investment leverage to the Fund's portfolio and     
result in many of the same risks of leverage to the holders of the Fund's       
common stock as discussed above under "--Leverage." Except in connection with   
its non-fundamental policy of attempting to provide protection against          
inflation, the Fund is not required to use derivatives or other portfolio       
strategies to enhance income or to hedge its portfolio and may choose not to    
do so. There can be no assurance that any of the Fund's portfolio strategies    
will be effective. Some of the derivative strategies that the Fund may use to   
increase income are riskier than its hedging transactions and have speculative  
characteristics. Such strategies do not attempt to limit the Fund's risk of     
loss.                                                                           

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Derivatives Risk. Derivatives are financial contracts or instruments  
whose value depends on, or is derived from, the value of an underlying asset,   
reference rate or index (or relationship between two indices). The Fund may     
invest in a variety of derivative instruments for hedging purposes or to seek   
to enhance its return, such as options, futures contracts and swap agreements.  
The Fund may use derivatives as a substitute for taking a position in an        
underlying security or other asset, as part of a strategy designed to reduce    
exposure to other risks, such as interest rate risk and inflation risk. The     
Fund also may use derivatives to add leverage to the portfolio and/or to hedge  
against increases in the Fund's costs associated with the dividend payments on  
the preferred stock. The Fund's use of derivative instruments involves risks    
different from, and possibly greater than, the risks associated with investing  
directly in securities and other traditional investments. Derivatives are       
subject to a number of risks such as liquidity risk, interest rate risk,        
credit risk, leverage risk and management risk. They also involve the risk of   
mispricing or improper valuation and the risk that changes in the value of the  
derivative may not correlate perfectly with the underlying asset, rate or       
index. If the Fund invests in a derivative instrument it could lose more than   
the principal amount invested. The use of derivatives also may increase the     
amount of taxes payable by stockholders. Also, suitable derivative              
transactions may not be available in all circumstances and there can be no      
assurance that the Fund will engage in these transactions to reduce exposure    
to other risks when that would be beneficial.                                   

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

Taxability Risk. The Fund intends to minimize the payment of taxable  
income to stockholders by investing in Municipal Bonds and other tax exempt     
securities in reliance on an opinion of bond counsel to the issuer that the     
interest paid on those securities will be excludable from gross income for      
Federal income tax purposes. Such securities, however, may be determined to     
pay, or to have paid, taxable income subsequent to the Fund's acquisition of    
the securities. In that event, the Internal Revenue Service ("IRS") may demand  
that the Fund pay taxes on the affected interest income, and, if the Fund       
agrees to do so, the Fund's yield on its common stock could be adversely        
affected. A determination that interest on a security held by the Fund is       
includable in gross income for Federal income tax purposes retroactively to     
its date of issue may, likewise, cause a portion of prior distributions         
received by stockholders to be taxable to those stockholders in the year of     
receipt.                                                                        

Additionally, the Fund's utilization of derivatives such as inflation 
swap agreements and inflation futures may result in the receipt of a            
substantial amount of taxable income in a given year, which will, in turn,      
result in increased taxable distributions to stockholders. It will not be       
possible for the Fund to predict how much taxable income these investments      
will generate. The Fund generally intends to treat payments received under      
inflation swap agreements as capital gain, subject to taxation at lower rates   
when distributed to noncorporate stockholders and correspondingly, intends to   
treat any loss on such transactions treated as capital loss. However, this      
treatment is not binding on the IRS or the courts. If the IRS were successful   
in challenging the Fund's treatment of the swap agreements, the payments would  
be treated as ordinary income, subject to a higher tax rate in the hands of     
noncorporate stockholders, and any losses would be ordinary rather than         
capital. Treatment of losses on the swaps as ordinary rather than capital       
would also impact the character of distributions received by stockholders. See  
"Taxes."                                                                        

Suitability. The economic benefit of an investment in the Fund depends
upon many factors beyond the control of the Fund, the Investment Adviser and    
its affiliates. Because of its emphasis on long term Municipal Bonds, the Fund  
should be considered a vehicle for diversification and not as a balanced        
investment program. The                                                         

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suitability for any particular investor of a purchase of shares of the Fund     
will depend upon, among other things, such investor's investment objectives     
and such investor's ability to accept the risks of investing in such            
securities, including the loss of principal.                                    

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

Market Disruption. The terrorist attacks in the United States on      
September 11, 2001 have had a disruptive effect on the securities markets,      
some of which were closed for a four-day period. These terrorist attacks, and   
the continued threat of similar attacks and related events, including U.S.      
military actions in Iraq and continued unrest in the Middle East, have led to   
increased short term market volatility and may have long term effects on U.S.   
and world economies and markets. Similar disruptions of the financial markets   
could adversely impact the market prices of the Fund's portfolio securities,    
interest rates, the rate of inflation, auctions, secondary trading, ratings,    
credit risk, inflation and other factors relating to the Fund's common stock.   
Non-investment grade securities tend to be more volatile than investment grade  
fixed income securities so that these events and other market disruptions may   
have a greater impact on the prices and volatility of non-investment grade      
securities than on investment grade fixed income securities. There can be no    
assurance that these events and other market disruptions will not have other    
material and adverse implications for the non-investment grade securities       
markets.                                                                        

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                                                        [Enlarge/Download Table]
                                   FEE TABLE                                                         


Stockholder Transaction Fees:                                                                        
                                                                                                     
   Maximum Sales Load (as a percentage of offering price)......................................     %
   Offering Expenses Borne by the Fund (as a percentage of offering price)(a)..................     %
   Dividend Reinvestment Plan Fees.............................................................  None
Annual Expenses (as a percentage of net assets attributable to common stock):                        
   Investment Advisory Fee(b)(c)...............................................................     %
   Interest Payments on Borrowed Funds(c)...................................................... 0.00%
   Other Expenses(c)...........................................................................     %
                                                                                                ---- 
     Total Annual Expenses(c)..................................................................     %
                                                                                                ==== 

______________                                                                  
(a)  The Investment Adviser has agreed to pay all of the Fund's organizational  
expenses. Offering costs will be paid by the Fund up to $[o] per share
([o]% of the offering price). The Investment Adviser has agreed to pay
the amount by which the offering costs (other than the sales load)    
  exceeds $[o] per share of common stock ([o]% of the offering price). The
offering costs to be paid by the Fund are not included in the Total   
Annual Expenses shown in the table. Offering costs borne by common    
stockholders will result in a reduction of capital of the Fund        
attributable to common stock. In the event the Fund offers preferred  
   stock in the future, the costs of that offering will be effectively borne
by the common stockholders and result in a reduction of the net asset 
value of the shares of common stock.                                  

(b)  See "Investment Advisory and Management Arrangements."                     

(c)  Assumes leverage by issuing preferred stock in an amount equal to          
   approximately 35% of the Fund's total capital (including amounts obtained
from the leverage), or approximately 54% of the Fund's common stock   
  equity, at a current estimated annual dividend rate of [o]%. If the Fund
does not use leverage, it is estimated that, as a percentage of net   
   assets attributable to common stock, the Investment Advisory Fee would be
  [o]%, Interest Payments on Borrowed Funds would be 0.00%, Other Expenses
 would be [o]% and Total Annual Expenses would be [o]%. No assurance can
 be given that the Fund will leverage its portfolio by issuing preferred
stock or otherwise. See "Risk Factors and Special Considerations --   
Leverage Risk" and "Risks and Special Considerations of Leverage."    

                                                        [Enlarge/Download Table]
EXAMPLE                                                                                                            


                                                               1 Year       3 Years        5 Years      10 Years   
                                                            -----------  -------------  ------------  -------------
                                                                                                                   
An investor would pay the following expenses                                                                       
(including the sales load of $[o] and estimated                                                                    
offering expenses of this offering of $[o])                                                                        
on a $1,000 investment, assuming total annual                                                                      
expenses of [o]% (assuming leverage by issuing                                                                     
preferred stock in an initial amount of                                                                            
approximately 35% of the Fund's total capital                                                                      
(including amounts obtained from the leverage) or                                                                  
approximately 54% of the Fund's common stock                                                                       
equity) and a 5% annual return throughout the periods...... $            $              $            $             

  The Fee Table is intended to assist investors in understanding the costs
and expenses that a stockholder in the Fund will bear directly or indirectly.   
The expenses set forth under "Other Expenses" are based on estimated amounts    
through the end of the Fund's first fiscal year and assumes that the Fund       
issues approximately [o] shares of common stock. If the Fund issues fewer       
shares of common stock, all other things being equal, these expenses would      
increase. The Example set forth above assumes reinvestment of all dividends     
and distributions and utilizes a 5% annual rate of return as mandated by        
Securities and Exchange Commission (the "Commission") regulations. The Example  
should not be considered a representation of future expenses or annual rate of  
return, and actual expenses, leverage amount or annual rate of return may be    
more or less than those assumed for purposes of the Example.                    

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THE FUND  

Municipal Inflation Protected Fund, Inc. (the "Fund") is a newly      
organized, non-diversified, closed-end fund. The Fund was incorporated under    
the laws of the State of Maryland on April 21, 2005, and has registered under   
the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund's     
principal office is located at 800 Scudders Mill Road, Plainsboro, New Jersey   
08536, and its telephone number is (609) 282-2800.                              

The Fund is organized as a closed-end investment company. Closed-end  
investment companies differ from open-end investment companies (commonly        
referred to as mutual funds) in that closed-end investment companies do not     
redeem their securities at the option of the stockholder, whereas open-end      
companies issue securities redeemable at net asset value at any time at the     
option of the stockholder and typically engage in a continuous offering of      
their shares. Accordingly, open-end investment companies are subject to         
continuous asset in-flows and out-flows that can complicate portfolio           
management. However, shares of closed-end investment companies frequently       
trade at a discount to net asset value. They may also, at times, trade at a     
premium to net asset value. The risk that shares will trade at a discount may   
be greater for investors expecting to sell their shares in a relatively short   
period after completion of the public offering.                                 

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

USE OF PROCEEDS 

The net proceeds of this offering will be approximately $[o] (or      
approximately $[o] assuming the underwriters exercise the overallotment option  
in full) after payment of offering expenses estimated to be approximately $[o]  
and the deduction of the underwriting discount. The Investment Adviser has      
agreed to pay the amount by which the offering costs (other than the            
underwriting discount) exceeds $[o] per share of common stock ([o]% of the      
offering price). The Investment Adviser has agreed to pay all of the Fund's     
organizational expenses.                                                        

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

INVESTMENT OBJECTIVE AND POLICIES 

 The Fund's investment objective is to provide stockholders with current
income excludable from gross income for Federal income tax purposes. The Fund   
seeks to achieve its objective by investing at least 80% of its net assets      
(including assets acquired from the sale of preferred stock), plus the amount   
of any borrowings for investment purposes, in a portfolio of municipal          
obligations issued by or on behalf of states, territories and possessions of    
the United States and the District of Columbia and their political              
subdivisions, agencies and instrumentalities or other qualifying issuers, such  
as Puerto Rico, the U.S. Virgin Islands and Guam, each of which pays interest   
that, in the opinion of bond counsel to the issuer, is excludable from gross    
income for Federal income tax purposes (except that the interest may be         
includable in taxable income for purposes of the Federal alternative minimum    
tax) ("Municipal Bonds"). The Fund's investment objective and its policy of     
investing at least 80% of its net assets (including assets acquired from the    
sale of preferred stock), plus the amount of any outstanding borrowings for     
investment purposes, in Municipal Bonds are fundamental policies that may not   
be changed without the approval of a majority of the outstanding voting         
securities of the Fund (as defined in the 1940 Act). There can be no assurance  
that the Fund's investment objective will be realized.                          

The Fund will invest in Municipal Bonds or utilize derivative         
instruments, such as inflation swap agreements and inflation futures, that are  
structured to provide protection against inflation. Under normal market         

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conditions and after the initial investment period following this offering      
(not expected to exceed three months), the Fund will invest, as a               
non-fundamental policy, at least 80% of its net assets (including assets        
acquired from the sale of preferred stock), plus the amount of any borrowings   
for investment purposes, in (i) inflation indexed Municipal Bonds and (ii)      
Municipal Bonds where the Fund has entered into certain derivative              
transactions, such as inflation swap agreements and inflation futures, at       
either the portfolio level or with respect to individual Municipal Bonds, in    
an attempt to provide protection against inflation. See "--Description of       
Municipal Bonds -- Inflation Indexed Municipal Bonds", "-- Options and Certain  
Financial Futures Contracts -- Futures Contracts" and "Other Investment         
Policies -- Inflation Swap Transactions." This is a non-fundamental policy and  
may be changed by the Board of Directors of the Fund provided that the          
stockholders are provided with at least 60 days prior notice of any change as   
required by the rules under the 1940 Act. The Fund cannot guarantee that        
investing in inflation indexed Municipal Bonds or utilizing inflation swap      
transactions or inflation futures will eliminate inflation risk.                

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

 Under normal market conditions, the Fund expects to invest at least 75%
of its total assets in Municipal Bonds that are commonly referred to as         
"investment grade" securities, which are obligations rated at the time of       
purchase within the four highest quality ratings as determined by either        
Moody's Investors Service, Inc. ("Moody's") (currently Aaa, Aa, A and Baa),     
Standard & Poor's ("S&P") (currently AAA, AA, A and BBB) or Fitch Ratings       
("Fitch") (currently AAA, AA, A and BBB). In the case of short term notes, the  
investment grade rating categories are SP-1+ through SP-2 for S&P, MIG-1        
through MIG-3 for Moody's and F-1+ through F-3 for Fitch. In the case of tax    
exempt commercial paper, the investment grade rating categories are A-1+        
through A-3 for S&P, Prime-1 through Prime-3 for Moody's and F-1+ through F-3   
for Fitch. Obligations ranked in the lowest investment grade rating category    
(BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moody's and BBB and F-3  
for Fitch), while considered "investment grade," may have certain speculative   
characteristics. There may be sub-categories or gradations indicating relative  
standing within the rating categories set forth above. If unrated, such         
securities will possess creditworthiness comparable, in the opinion of the      
Investment Adviser, to other obligations in which the Fund may invest. For a    
description of the investment rating categories for Moody's, S&P and Fitch,     
including a description of their speculative characteristics, see Appendix      
A--"Description of Municipal Bond Ratings" to this prospectus. Securities       
rated in the lowest investment grade category may be considered to have         
speculative characteristics.                                                    

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

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

The net asset value of the shares of common stock of a closed-end     
investment company, such as the Fund, which invests primarily in fixed income   
securities, changes as the general levels of interest rates fluctuate. When     
interest rates decline, the value of a fixed income portfolio can be expected   
to increase. Conversely, when interest rates                                    

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rise, the value of a fixed income portfolio can be expected to decrease. Prices 
of longer term securities generally fluctuate more in response to interest      
rate changes than do shorter term securities. These changes in net asset value  
are likely to be greater in the case of a fund having a leveraged capital       
structure, such as the Fund.                                                    

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

The Fund also may invest in variable rate demand obligations ("VRDOs")
and VRDOs in the form of participation interests ("Participating VRDOs") in     
variable rate tax exempt obligations held by a financial institution. See       
"Other Investment Policies -- Temporary Investments." The Fund's hedging        
strategies, which are described in more detail under "-- Options and Certain    
Financial Futures Contracts -- General," are not fundamental policies and may   
be modified by the Board of Directors of the Fund without the approval of the   
Fund's stockholders. The Fund is also authorized to invest in indexed and       
inverse floating obligations for hedging purposes and to enhance income.        

   For temporary periods or to provide liquidity, the Fund has the authority
to invest as much as 20% of its total assets in tax-exempt and taxable money    
market obligations with a maturity of one year or less (such short term         
obligations being referred to herein as "Temporary Investments"). In addition,  
the Fund reserves the right as a defensive measure to invest temporarily a      
greater portion of its assets in Temporary Investments, when, in the opinion    
of the Investment Adviser, prevailing market or financial conditions warrant.   
These investments will yield taxable income. The Fund may also realize taxable  
capital gains.                                                                  

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

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

Additionally, the Fund's utilization of derivatives such as inflation 
swap agreements and inflation futures may result in the receipt of a            
substantial amount of taxable income in a given year, which will, in turn,      
result in increased taxable distributions to stockholders. It will not be       
possible for the Fund to predict how much taxable income these investments      
will generate. The Fund generally intends to treat payments received under      
inflation swap agreements as capital gain, subject to taxation at lower rates   
when distributed to noncorporate stockholders, with any loss on such            
transactions treated as capital loss. However, this treatment is not binding    
on the IRS or the courts. If the IRS were successful in challenging the Fund's  
treatment of the swap agreements, the payments would be treated as ordinary     
income, subject to a higher tax rate in the hands of noncorporate               
stockholders, and any losses would be ordinary rather than capital. Treatment   
of losses on the swaps as ordinary rather than capital also would impact the    
tax character of distributions received by stockholders. See "Taxes."           

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The Fund ordinarily does not intend to realize significant investment 
income not excludable from gross income for Federal income tax purposes.        
Federal tax legislation has limited the types and volume of bonds the interest  
on which qualifies for a Federal income tax exemption. As a result, this        
legislation and legislation that may be enacted in the future may affect the    
availability of Municipal Bonds for investment by the Fund. However, payments   
received by the Fund from derivative transactions, such as inflation futures,   
inflation swap agreements and the other types of swaps, will result in taxable  
income, either as ordinary income or capital gains, rather than tax-exempt      
income, which will increase the amount of taxable distributions received by     
stockholders. See "Taxes."                                                      

Risk Factors and Special Considerations Relating to Municipal Bonds             

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

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

Description of Municipal Bonds                                                  

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

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

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

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

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or entity's control. Accordingly, the capacity of the issuer of a general       
obligation bond as to the timely payment of interest and the repayment of       
principal when due is affected by the issuer's maintenance of its tax base.     

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

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

Moral Obligation Bonds. The Fund also may invest in "moral obligation"
bonds, which are normally issued by special purpose public authorities. If an   
issuer of moral obligation bonds is unable to meet its obligations, the         
repayment of such bonds becomes a moral commitment but not a legal obligation   
of the state or municipality in question.                                       

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

   Inflation Indexed Municipal Bonds. The Fund may invest in Municipal Bonds
that are structured to provide protection against inflation. The interest       
income paid on inflation indexed Municipal Bonds is adjusted to track changes   
in an official inflation measure, such as the Consumer Price Index for All      
Urban Consumers, published monthly by the Bureau of Labor Statistics of the     
U.S. Department of Labor (the "CPI-U"). See "-Description of Municipal Bonds -  
Indexed and Inverse Floating Rate Securities" below. To the extent the Fund     
invests in inflation indexed Municipal Bonds, the Fund's return on such         
Municipal Bonds will be subject to risk with respect to the value of the        
particular inflation index. The Fund cannot guarantee that investing in         
inflation indexed Municipal Bonds will eliminate inflation risk.                

Indexed and Inverse Floating Rate Securities. The Fund may invest in  
Municipal Bonds (and Non- Municipal Tax Exempt Securities) that yield a return  
based on a particular index of value or interest rates. Such Municipal Bonds    
may include inflation indexed Municipal Bonds. For example, the Fund may        
invest in Municipal Bonds that pay interest based on an index of Municipal      
Bond interest rates or on an inflation index such as the CPI-U. The net asset   
value of certain Municipal Bonds, including certain inflation indexed           
Municipal Bonds, also may be based on the value of the index. To the extent     
the Fund invests in these types of Municipal Bonds, the Fund's return on such   
Municipal Bonds will be subject to risk with respect to the value of the        
particular index. Interest payable on the Municipal Bonds may also be based on  
relative changes among particular indices. Also, the Fund                       

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may invest in so called "inverse floating obligations" or "residual interest    
bonds" on which the interest rates vary inversely with a short term floating    
rate (which may be reset periodically by a Dutch auction, a remarketing agent,  
or by reference to a short term tax exempt interest rate index). The Fund may   
purchase synthetically created inverse floating rate bonds evidenced by         
custodial or trust receipts. Generally, income on inverse floating rate bonds   
will decrease when short term interest rates increase, and will increase when   
short term interest rates decrease. Such securities have the effect of          
providing a degree of investment leverage, since they may increase or decrease  
in value in response to changes, as an illustration, in market interest rates   
at a rate which is a multiple (typically two) of the rate at which fixed rate   
long term tax exempt securities increase or decrease in response to such        
changes. As a result, the market values of such securities will generally be    
more volatile than the market values of fixed rate tax exempt securities. To    
seek to limit the volatility of these securities, the Fund may purchase         
inverse floating obligations with shorter-term maturities or which contain      
limitations on the extent to which the interest rate may vary. Certain          
investments in such obligations may be illiquid.                                

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

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

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

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

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

o    The issuers of junk bonds may have a larger amount of outstanding
  debt relative to their assets than issuers of investment grade
      bonds. If the issuer experiences financial difficulties, it may be
unable to                                                   

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

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

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

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

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

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

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

Options and Certain Financial Futures Contracts                                 

  The Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates and may seek to provide protection against       
inflation through the use of options and certain financial futures contracts    
and options thereon. While the Fund's use of these strategies is intended to    
reduce the volatility of the net asset value of the Fund's shares, the net      
asset value of the Fund's shares will fluctuate. There can be no assurance      
that the Fund's hedging transactions will be effective. Except in connection    
with its non-fundamental policy of attempting to provide protection against     
inflation discussed above, the Fund has no obligation to enter into hedging     
transactions and may choose not to do so.                                       

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

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increase in the cost of securities intended to be purchased because such        
appreciation may be offset, in whole or in part, by an increase in the value    
of the position in the futures contracts.                                       

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

   Futures Contracts. A futures contract is an agreement between two parties
to buy and sell a security or, in the case of an index-based futures contract,  
to make and accept a cash settlement for a set price on a future date. A        
majority of transactions in futures contracts, however, do not result in the    
actual delivery of the underlying instrument or cash settlement, but are        
settled through liquidation, i.e., by entering into an offsetting transaction.  
Futures contracts are traded on boards of trade which have been designated      
"contract markets" by the Commodity Futures Trading Commission ("CFTC").        

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

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

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

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

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

   Inflation Futures. The Fund also may utilize inflation futures to provide
protection against inflation. Inflation futures may be used to protect the net  
asset value of the Fund's portfolio against an unexpected change in the rate    
of inflation measured by an inflation index. Inflation futures are linked to    
United States inflation variables or inflation-linked products. The Fund        
intends to utilize CPI futures which are traded on the Chicago Mercantile       
Exchange and allow traders and risk managers to take advantage of their         
outlook on inflation in the United States. The CPI futures contract represents  
the inflation on a notional value of $1,000,000 for a period of three calendar  
months implied by the CPI-U. So, if expected inflation rises, the price of the  
contract is expected to decrease and if                                         

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expected inflation goes down, the price of the contract is expected to          
increase. The Fund cannot guarantee that utilizing inflation futures will       
eliminate inflation risk.                                                       

In addition to the general risk of futures contracts discussed below, 
inflation futures involve the special risks of inflation futures not being      
perfectly correlated to the inflation measure or the actual rate of inflation,  
an emergency closure of the related exchange, a temporary halt in the trading   
of the futures contract, or because these are a relatively new type of          
futures, a lack of liquidity compared to other more established futures         
contracts. Additionally, payments received by the Fund from inflation futures   
will result in taxable income, either as ordinary income or capital gains,      
rather than tax-exempt income, which will increase the amount of taxable        
distributions received by stockholders.                                         

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

  When the Fund intends to purchase Municipal Bonds, the Fund may purchase
futures contracts as a hedge against any increase in the cost of such           
Municipal Bonds resulting from a decrease in interest rates or otherwise, that  
may occur before such purchases can be effected. Subject to the degree of       
correlation between the Municipal Bonds and the futures contracts, subsequent   
increases in the cost of Municipal Bonds should be reflected in the value of    
the futures held by the Fund. As such purchases are made, an equivalent amount  
of futures contracts will be closed out. Due to changing market conditions and  
interest rate forecasts, however, a futures position may be terminated without  
a corresponding purchase of portfolio securities.                               

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

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

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

 The writing of a put option on a futures contract constitutes a partial
hedge against increasing prices of the securities which are deliverable upon    
exercise of the futures contract. If the futures price at expiration is higher  
than                                                                            

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the exercise price, the Fund will retain the full amount of the option premium  
which provides a partial hedge against any increase in the price of Municipal   
Bonds which the Fund intends to purchase.                                       

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

______________  

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

When the Fund purchases a futures contract, or writes a put option or 
purchases a call option thereon, it will maintain an amount of cash, cash       
equivalents (e.g., high grade commercial paper and daily tender adjustable      
notes) or liquid securities in a segregated account, so that the amount so      
segregated plus the amount of initial and variation margin held in the account  
of its broker equals the market value of the futures contracts, thereby         
ensuring that the use of such futures contract is unleveraged. It is not        
anticipated that transactions in futures contracts will have the effect of      
increasing portfolio turnover.                                                  

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

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

The Fund expects to liquidate a majority of the futures contracts it  
enters into through offsetting transactions on the applicable contract market.  
There can be no assurance, however, that a liquid secondary market will exist   
for any particular futures contract at any specific time. Thus, it may not be   
possible to close out a futures position. In the event of adverse price         
movements, the Fund would continue to be required to make daily cash payments   
of variation margin. In such situations, if the Fund has insufficient cash, it  
may be required to sell portfolio securities to meet daily variation margin     
requirements at a time when it may be disadvantageous to do so. The inability   
to close out futures positions also could have an adverse impact on the Fund's  
ability to hedge effectively its investments in Municipal Bonds. The liquidity  
of a secondary market in a futures contract may be                              

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adversely affected by "daily price fluctuation limits" established by           
commodity exchanges which limit the amount of fluctuation in a futures          
contract price during a single trading day. Once the daily limit has been       
reached in the contract, no trades may be entered into at a price beyond the    
limit, thus preventing the liquidation of open futures positions. Prices have   
in the past moved beyond the daily limit on a number of consecutive trading     
days. The Fund will enter into a futures position only if, in the judgment of   
the Investment Adviser, there appears to be an actively traded secondary        
market for such futures contracts.                                              

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

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

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

OTHER INVESTMENT POLICIES 

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

Temporary Investments                                                           

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

Inflation Swap Transactions                                                     

The Fund may enter into inflation swap transactions. Inflation swap   
agreements are contracts in which one party agrees to pay the cumulative        
percentage increase in a price index, such as the CPI-U, over the term of the   
swap (with some lag on the referenced inflation index), and the other pays a    
compounded fixed rate. The Fund intends to                                      

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utilize inflation swap agreements where there are no exchanges of cash          
payments until the maturity of the swap. These are sometimes called zero        
coupon inflation swaps. Inflation swap agreements may be used to protect the    
net asset value of the Fund's portfolio against an unexpected change in the     
rate of inflation measured by an inflation index.                               

Inflation swap agreements entail the risk that a party will default on
its payment obligations to the Fund thereunder. Swap agreements also bear the   
risk that the Fund will not be able to meet its obligation to the               
counterparty. The Fund will enter into inflation swaps on a net basis (i.e.,    
the two payment streams are netted out at maturity with the Fund receiving or   
paying, as the case may be, only the net amount of the two payments). The net   
amount of the excess, if any, of the Fund's obligations over its entitlements   
with respect to each inflation swap will be accrued on a daily basis, and an    
amount of cash or liquid instruments having an aggregate net asset value at     
least equal to the accrued excess will be segregated by the Fund. The value of  
inflation swap agreements are expected to change in response to changes in      
real interest rates. Real interest rates are tied to the relationship between   
nominal interest rates and the rate of inflation. If nominal interest rates     
increase at a faster rate than inflation, real interest rates may rise,         
leading to a decrease in value of an inflation swap agreement. Additionally,    
payments received by the Fund from swap transactions, such as inflation swap    
agreements and the other types of swaps discussed below, will result in         
taxable income, either as ordinary income or capital gains, rather than         
tax-exempt income, which will increase the amount of taxable distributions      
received by stockholders.                                                       

Interest Rate Swap Transactions                                                 

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

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

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

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

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

Credit Default Swap Agreements                                                  

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

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

VRDOs and Participating VRDOs                                                   

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

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

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

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

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

Repurchase Agreements                                                           

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

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

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Lending of Portfolio Securities                                                 

The Fund may lend securities with a value not exceeding 33-1/3% of its
total assets or the limit prescribed by applicable law to banks, brokers and    
other financial institutions. In return, the Fund receives collateral in cash   
or securities issued or guaranteed by the U.S. government, which will be        
maintained at all times in an amount equal to at least 100% of the current      
market value of the loaned securities. The Fund maintains the ability to        
obtain the right to vote or consent on proxy proposals involving material       
events affecting securities loaned. The Fund receives the income on the loaned  
securities. Where the Fund receives securities as collateral, the Fund          
receives a fee for its loans from the borrower and does not receive the income  
on the collateral. Where the Fund receives cash collateral, it may invest such  
collateral and retain the amount earned, net of any amount rebated to the       
borrower. As a result, the Fund's yield may increase. Loans of securities are   
terminable at any time and the borrower, after notice, is required to return    
borrowed securities within the standard time period for settlement of           
securities transactions. The Fund is obligated to return the collateral to the  
borrower at the termination of the loan. The Fund could suffer a loss in the    
event the Fund must return the cash collateral and there are losses on          
investments made with the cash collateral. In the event the borrower defaults   
on any of its obligations with respect to a securities loan, the Fund could     
suffer a loss where there are losses on investments made with the cash          
collateral or, where the value of the securities collateral falls below the     
market value of the borrowed securities. The Fund could also experience delays  
and costs in gaining access to the collateral. The Fund may pay reasonable      
finder's, lending agent, administrative and custodial fees in connection with   
its loans. The Fund has received an exemptive order from the Commission         
permitting it to lend portfolio securities to Merrill Lynch, Pierce, Fenner &   
Smith Incorporated ("Merrill Lynch") or its affiliates and to retain an         
affiliate of the Fund as lending agent. See "Portfolio Transactions." Amounts   
earned under securities lending transactions generally will not be considered   
tax exempt interest.                                                            

Investment in Other Investment Companies                                        

In accordance with the 1940 Act, the Fund may invest up to 10% of its 
total assets in securities of other investment companies. In addition, under    
the 1940 Act the Fund may not own more than 3% of the total outstanding voting  
stock of any investment company and not more than 5% of the value of the        
Fund's total assets may be invested in securities of any investment company.    
The Fund has received an exemptive order from the Commission permitting it to   
invest in affiliated registered money market funds and in an affiliated         
private investment company without regard to such limitations, provided         
however, that in all cases the Fund's aggregate investment of cash in shares    
of such investment companies shall not exceed 25% of the Fund's total assets    
at any time. If the Fund acquires shares in investment companies, stockholders  
would bear both their proportionate share of expenses in the Fund (including    
management and advisory fees) and, indirectly, the expenses of such investment  
companies (including management and advisory fees).                             

Borrowings                                                                      

The Fund is authorized to borrow money in amounts of up to 5% of the  
value of its total assets at the time of such borrowings; provided, however,    
that the Fund is authorized to borrow moneys in amounts of up to 33-1/3% of     
the value of its total assets at the time of such borrowings to finance the     
repurchase of its own common stock pursuant to tender offers or otherwise, to   
redeem or repurchase shares of preferred stock, or for temporary,               
extraordinary or emergency purposes, including the payment of dividends and     
the settlement of securities transactions which otherwise might require         
untimely dispositions of portfolio securities. Borrowings by the Fund           
(commonly known, as with the issuance of preferred stock, as "leveraging")      
create an opportunity for greater total return since, for example, the Fund     
will not be required to sell portfolio securities to repurchase or redeem       
shares but, at the same time, increase exposure to capital risk. See "Risks     
and Special Considerations of Leverage." In addition, borrowed funds are        
subject to interest costs that may offset or exceed the return earned on the    
borrowed funds.                                                                 

RISKS AND SPECIAL CONSIDERATIONS OF LEVERAGE  

Effects of Leverage                                                             

  The Fund currently intends to issue preferred stock within approximately
three months after the completion of this offering. Under current market        
conditions it is anticipated that the preferred stock will represent            

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approximately 35% of the Fund's total capital, including the capital raised by  
issuing the preferred stock, or approximately 54% of the Fund's common stock    
equity. There can be no assurance, however, that preferred stock will actually  
be issued or if issued what percentage of the Fund's capital it will            
represent. Issuing the preferred stock will result in the leveraging of the     
common stock. Although the Fund's Board of Directors has not yet determined     
the terms of the preferred stock offering, the Fund anticipates that the        
preferred stock will pay dividends that will be adjusted over either            
relatively short term periods (generally seven or 28 days) or medium term       
periods (up to five years). The dividend rate will be based upon prevailing     
interest rates for debt obligations of comparable maturity. The proceeds of     
the preferred stock offering will be invested in accordance with the Fund's     
investment objective. The expenses of the preferred stock, which will be borne  
by the Fund, will reduce the net asset value of the common stock.               
Additionally, under certain circumstances, when the Fund is required to         
allocate taxable income to holders of preferred stock, the Fund anticipates     
that the terms of the preferred stock will require the Fund to make an          
additional distribution to such holders in an amount approximately equal to     
the tax liability resulting from such allocation (an "Additional                
Distribution"). Under tax rules, any taxable income received in connection      
with the Fund's derivative transactions, such as the inflation swaps, will      
have to be allocated pro rata between the common stock and any outstanding      
classes of preferred stock. Thus, it is possible that the Fund's receipt of     
taxable income on these transactions will require the Fund to make "Additional  
Distributions" to preferred stockholders, thereby decreasing amounts available  
for distribution to common stockholders. Because under normal market            
conditions, obligations with longer maturities produce higher yields than       
short term and medium term obligations, the yield spread inherent in the        
difference between the short term and medium term rates (and any Additional     
Distribution) paid by the Fund as dividends on the preferred stock and the      
generally longer term rates received by the Fund on its portfolio securities    
may provide holders of common stock with a potentially higher yield.            

The Fund also may borrow money as discussed under "Other Investment   
Policies -- Borrowings."                                                        

The use of leverage, however, involves certain risks to the holders of
common stock. For example, issuance of the preferred stock may result in        
higher volatility of the Fund's yield, net asset value and in the market price  
of the Fund's common stock. In addition, changes in short term, medium term     
and long term rates and their relationship to each other, could negatively      
impact the Fund's yield, net asset value and market price of the Fund's common  
stock. Leverage will allow holders of common stock to realize a higher current  
yield or return than if the Fund were not leveraged as long as the Fund, while  
accounting for its costs and operating expenses, is able to earn higher income  
or return on its investment portfolio than the then current dividend rate paid  
on (and any Additional Distribution) the preferred stock. Similarly, since a    
pro rata portion of the Fund's net realized capital gains are generally         
payable to holders of common stock, the effect of leverage may be to increase   
the amount of such gains distributed to holders of common stock. However,       
short term, medium term and long term interest rates change from time to time,  
as do their relationships to each other (i.e., the slope of the yield curve),   
depending upon such factors as supply and demand forces, monetary and tax       
policies and investor expectations. Changes in any or all of such factors       
could cause the relationship between short term, medium term and long term      
rates to change (i.e., to flatten or to invert the slope of the yield curve)    
so that short term and medium term rates may substantially increase relative    
to the long term obligations in which the Fund may be invested. If short term   
rates were to rise relative to long term rates, the incremental yield pickup    
on the common stock as a result of leverage will be reduced or eliminated       
completely. To the extent that the current dividend rate (and any Additional    
Distribution) paid on the preferred stock approaches the yield or return on     
the Fund's investment portfolio, the benefit of leverage to holders of common   
stock will be decreased. If the current dividend rate (and any Additional       
Distribution) paid on the preferred stock were to exceed the yield or return    
on the Fund's portfolio, holders of common stock would receive a lower yield    
or return than if the Fund were not leveraged. If long term rates rise, the     
value of the Fund's investments (including assets obtained from leverage) may   
decline. Since both the cost of issuing the preferred stock and any decline in  
the value of the Fund's investments (including investments purchased with the   
proceeds from any preferred stock offering) will be borne entirely by holders   
of common stock, the effect of leverage in a declining market would result in   
a greater decrease in the Fund's net asset value and possibly the market price  
of the common stock than if the Fund were not leveraged. If the Fund is         
liquidated, holders of preferred stock will be entitled to receive liquidating  
distributions before any distribution is made to holders of common stock.       

  In an extreme case, a decline in net asset value could affect the Fund's
ability to pay dividends on the common stock. Failure to make such dividend     
payments could adversely affect the Fund's qualification as a regulated         
investment company under the Federal tax laws. See "Taxes." However, the Fund   
intends to take all measures necessary to make common stock dividend payments.  
If the Fund's current investment income is ever                                 

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insufficient to meet dividend payments on either the common stock or the        
preferred stock, the Fund may have to liquidate certain of its investments. In  
addition, the Fund will have the authority to redeem the preferred stock for    
any reason and may redeem all or some of the preferred stock under the          
following circumstances:                                                        

 o    if the asset coverage for the preferred stock declines below 200%,
or                                                          

o    in order to maintain the asset coverage guidelines established by
the nationally recognized statistical rating organization(s)
("NRSRO(s)") that have rated the preferred stock.           

Redemption of the preferred stock or insufficient investment income to
make dividend payments may reduce the net asset value of the common stock and   
require the Fund to liquidate a portion of its investments at a time when it    
may be disadvantageous to do so.                                                

As discussed under "Investment Advisory and Management Arrangements," 
during periods when the Fund has preferred stock outstanding, the fees paid     
the Investment Adviser for investment advisory and management services will be  
higher than if the Fund did not issue preferred stock because the fees paid     
will be calculated on the basis of the aggregate of: (i) the Fund's average     
daily net assets, (including any proceeds from the sale of preferred stock),    
and (ii) the proceeds of any outstanding borrowings used for leverage.          

   Assuming the use of leverage by issuing preferred stock (paying dividends
at a rate that generally will be adjusted every 7 days) in an amount            
representing approximately 35% of the Fund's total capital, including the       
capital raised by issuing the preferred stock, or approximately 54% of the      
Fund's common stock equity, at an annual dividend rate of [o]% payable on such  
preferred stock based on market rates as of a recent date, the annual return    
that the Fund's portfolio must experience (net of expenses) in order to cover   
such dividend payments would be [o]%.                                           

   The following table is designed to illustrate the effect on the return to
a holder of common stock of the leverage obtained by the issuance of preferred  
stock representing approximately 35% of the Fund's total capital, including     
the capital raised by issuing the preferred stock, or approximately 54% of the  
Fund's common stock equity, assuming hypothetical annual returns on the Fund's  
portfolio of minus 10% to plus 10%. As the table shows, leverage generally      
increases the return to stockholders when portfolio return is positive and      
decreases the return when portfolio return is negative. The figures appearing   
in the table are hypothetical and actual returns may be greater or less than    
those appearing in the table.                                                   

                                                        [Enlarge/Download Table]

                                                                                     
Assumed Portfolio Return (net of expenses).............. (10)%   (5)%  0%   5%   10% 
Corresponding Common Stock Return....................... (  )%  (  )%    %    %     %

Leveraging the common stock cannot be fully achieved until preferred  
stock is issued and the proceeds of such offering have been invested in         
accordance with the Fund's investment objective and policies.                   

Portfolio Management and Other Considerations                                   

If short term or medium term rates increase or other changes in market
conditions occur to the point where the Fund's leverage could adversely affect  
holders of common stock as noted above (or in anticipation of such changes),    
the Fund may attempt to shorten the average maturity or duration of its         
investment portfolio in order to offset the negative impact of leverage. The    
Fund also may attempt to reduce the degree to which it is leveraged by          
redeeming preferred stock pursuant to the Fund's Articles Supplementary, which  
establish the rights and preferences of the preferred stock, or otherwise by    
purchasing shares of preferred stock. Purchases and redemptions of preferred    
stock, whether on the open market or in negotiated transactions, are subject    
to limitations under the 1940 Act. In determining whether or not it is in the   
best interest of the Fund and its stockholders to redeem or repurchase          
outstanding preferred stock, the Board of Directors will take into account a    
variety of factors, including the following:                                    

o    market conditions;                                               

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o    the ratio of preferred stock to common stock; and                

o    the expenses associated with such redemption or repurchase.      

If market conditions subsequently change, the Fund may sell previously
unissued shares of preferred stock or shares of preferred stock that the Fund   
had issued but later repurchased or redeemed. The Fund will incur additional    
expenses in connection with the subsequent registration and sale of preferred   
stock.                                                                          

  The Fund intends to apply for ratings of the preferred stock from one or
more NRSRO(s). In order to obtain these ratings, the Fund may be required to    
maintain portfolio holdings that meet the specified guidelines of such          
organizations. These guidelines may impose asset coverage requirements that     
are more stringent than those imposed by the 1940 Act. The Fund does not        
anticipate that these guidelines will impede the Investment Adviser from        
managing the Fund's portfolio in accordance with the Fund's investment          
objective and policies. Ratings on preferred stock issued by the Fund should    
not be confused with ratings on the obligations held by the Fund.               

Under the 1940 Act, the Fund is not permitted to issue shares of      
preferred stock unless immediately after such issuance the Fund has an asset    
coverage of at least 200% of the liquidation value of the outstanding           
preferred stock (expected to equal the original purchase price of the           
outstanding shares of preferred stock plus any accumulated and unpaid           
dividends thereon and any accumulated and unpaid Additional Distribution). In   
addition, the Fund is not permitted to declare any dividend (except a dividend  
payable in common stock of the Fund) or other distribution on its common stock  
unless, at the time of such declaration, the Fund has an asset coverage         
(determined after deducting the amount of such dividend or distribution) of at  
least 200% of the liquidation value of the outstanding preferred stock. Under   
the Fund's proposed capital structure, assuming the sale of shares of           
preferred stock representing approximately 35% of the Fund's capital, the Fund  
asset coverage immediately after the issuance of the preferred stock is         
expected to be approximately 286% of the liquidation value of the Fund's        
preferred stock. To the extent possible, the Fund intends to purchase or        
redeem shares of preferred stock from time to time to maintain asset coverage   
of preferred stock of at least 200%.                                            

   The Fund may in the future employ new or additional investment strategies
and hedging instruments if those strategies and instruments are consistent      
with the Fund's investment objective and are permissible under applicable       
regulations governing the Fund.                                                 

INVESTMENT RESTRICTIONS 

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

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

        2. Purchase or sell real estate, commodities or commodity contracts;
except that to the extent permitted by applicable law, the Fund may   
invest in securities directly or indirectly secured by real estate or 
interests therein or issued by entities that invest in real estate or 
 interests therein, and the Fund may purchase and sell financial futures
contracts and options thereon.                                        

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

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

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    5. Make loans to other persons, except (i) the Fund shall not be
deemed to be making a loan to the extent that the Fund purchases      
Municipal Bonds or other debt instruments or enters into repurchase   
agreements or any similar instruments and (ii) the Fund may lend its  
 portfolio securities in an amount not in excess of 33-1/3% of its total
  assets, taken at market value, provided that such loans shall be made in
accordance with the guidelines set forth in this prospectus.          

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

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

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

  b. Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund   
except as may be necessary in connection with borrowings mentioned in 
investment restriction (3) above or except as may be necessary in     
   connection with transactions described under "Other Investment Policies."

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

     d. Change its policy of investing, under normal circumstances, at
 least 80% of its net assets (including assets acquired from the sale of
preferred stock), plus the amount of any borrowings for investment    
purposes, in (i) inflation indexed Municipal Bonds and (ii) Municipal 
Bonds where the Fund has entered into certain derivative transactions,
such as inflation swap agreements and inflation futures, at either the
portfolio level or with respect to individual Municipal Bonds, in an  
   attempt to provide protection against inflation, unless the Fund provides
its stockholders with at least 60 days prior written notice.          

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

  The Fund is classified as non-diversified within the meaning of the 1940
Act, which means that the Fund is not limited by the 1940 Act in the            
proportion of its assets that it may invest in securities of a single issuer.   
As a non-diversified fund, the Fund's investments are limited, however, in      
order to allow the Fund to continue to qualify as a regulated investment        
company under the Internal Revenue Code of 1986, as amended (the "Code"). See   
"Taxes." To qualify, the Fund complies with certain requirements, including     
limiting its investments so that at the close of each quarter of the taxable    
year (i) not more than 25% of the market value of the Fund's total assets will  
be invested in the securities of a single issuer or qualified publicly traded   
partnership as defined in the Code and (ii) with respect to 50% of the market   
value of its total assets, not more than 5% of the market value of its total    
assets will be invested in the securities of a single issuer and the Fund will  
not own more than 10% of the outstanding voting securities of a single issuer.  
For purposes of this restriction, the Fund will regard each state and each      
political subdivision, agency or instrumentality of such state and each         
multi-state agency of which such state is a member and each public authority    
which issues securities on behalf of a private entity as a separate issuer,     
except that if the security is backed only by the assets and revenues of a      
non-government entity then the entity with the ultimate responsibility for the  

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payment of interest and principal may be regarded as the sole issuer. These     
tax-related limitations may be changed by the Board of Directors of the Fund    
to the extent necessary to comply with changes in the Federal tax               
requirements. A fund that elects to be classified as "diversified" under the    
1940 Act must satisfy the foregoing 5% and 10% requirements with respect to     
75% of its total assets.                                                        

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

DIRECTORS AND OFFICERS  

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

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

Each non-interested Director is also a member of the Fund's Nominating
Committee (the "Nominating Committee"). The principal responsibilities of the   
Nominating Committee are to identify individuals qualified to serve as          
non-interested Directors of the Fund and to recommend its nominees for          
consideration by the full Board. While the Nominating Committee is solely       
responsible for the selection and nomination of the Fund's non-interested       
Directors, the Nominating Committee may consider nominations for the office of  
the Director made by Fund stockholders in such manner as it deems appropriate.  
Fund stockholders who wish to recommend a nominee should send nominations to    
the Secretary of the Fund that include biographical information and set forth   
the qualifications of the proposed nominee. The Nominating Committee has not    
met since the incorporation of the Fund.                                        

Biographical Information                                                        

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

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                                                                                  Number of                      
                                           Term of                                 MLIM/FAM                      
                           Position(s)  Office** and                             Advised Funds                   
                            Held with     Length of    Principal Occupation(s)   and Portfolios       Public     
 Name, Address* and Age     the Fund     Time Served   During Past Five Years      Overseen        Directorships 
------------------------  ------------  -------------  -----------------------  ----------------  ---------------
                                                                                                                 

                                           [TO BE PROVIDED BY AMENDMENT]                                         


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

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

                                                        [Enlarge/Download Table]


                                                                                  Number of                      
                                           Term of                                 MLIM/FAM-                     
                           Position(s)  Office** and                             Advised Funds                   
                            Held with     Length of    Principal Occupation(s)   and Portfolios       Public     
 Name, Address# and Age     the Fund     Time Served   During Past Five Years      Overseen        Directorships 
------------------------  ------------  -------------  -----------------------  ----------------  ---------------
                                                                                                                 

                                           [TO BE PROVIDED BY AMENDMENT]                                         


______________                                                                  

# The address of each officer is P.O. Box 9011, Princeton, New Jersey   
08543-9011.                                                         

* Mr. [o] is an "interested person," as defined in the 1940 Act, of the 
Fund based on his current and former positions with the Investment  
  Adviser, MLIM, FAM Distributors, Inc. ("FAMD"), Princeton Services and
Princeton Administrators, L.P.                                      

** Elected by and serves at the pleasure of the Board of Directors of the 
Fund.                                                               

**** As Director, Mr. [o] serves until his successor is elected and qualified,
   until December 31 of the year in which he turns 72, or until his death,
   resignation, or removal as provided in the Fund's by-laws or charter or
by statute.                                                         

 In the event that the Fund issues preferred stock, holders of shares of
preferred stock, voting as a separate class, will be entitled to elect two of   
the Fund's Directors, and the remaining Directors will be elected by all        
holders of capital stock, voting as a single class. See "Description of         
Capital Stock."                                                                 

Share Ownership                                                                 

 Information relating to each Director's share ownership in the Fund and
in all registered funds in the Merrill Lynch family of funds that are overseen  
by the respective Director ("Supervised Merrill Lynch Funds") as of December    
31, 2003 is set forth in the chart below.                                       

                                                        [Enlarge/Download Table]

                                                                 Aggregate Dollar Range   
                                                                    of Securities in      
                                   Aggregate Dollar Range              Supervised         
Name                               of Equity in the Fund          Merrill Lynch Funds*    
----                           -----------------------------  ----------------------------
                                                                                          
Interested Directors:                                                                     
                               [TO BE PROVIDED BY AMENDMENT]                              

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Non-interested Directors:                                                                 
                               [TO BE PROVIDED BY AMENDMENT]                              

As of the date of this prospectus, the Investment Adviser owned all of
the outstanding shares of common stock of the Fund; none of the Directors and   
officers of the Fund owned outstanding shares of the Fund. As of the date of    
this prospectus, none of the non-interested Directors of the Fund nor any of    
their immediate family members owned beneficially or of record any securities   
in ML & Co.                                                                     

Compensation of Directors                                                       

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

   The Fund pays each non-interested Director a combined fee for services on
the Board and the Committee of $[o] per year, $[o] per in person Board meeting  
attended and $[o] per in person Committee meeting attended. The Fund pays the   
Chairman of the Committee an additional fee of $[o] per year. The Fund          
reimburses each non-interested Director for his or her out-of-pocket expenses   
relating to attendance at Board and Committee meetings.                         

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

                                                        [Enlarge/Download Table]

                                                                      Pension or                                   
                                                                      Retirement      Estimated       Aggregate    
                                                                       Benefits        Annual       Compensation   
                                                                       Accrued        Benefits      From Fund and  
                                         Position    Compensation     as Part of        Upon       other MLIM/FAM  
Name of Director                        with Fund     from Fund      Fund Expense    Retirement     Advised Funds  
-------------------------------------  -----------  --------------  --------------  ------------  -----------------
                                                                                                                   

                                           [TO BE PROVIDED BY AMENDMENT]                                           

______________                                                                  
* Chairman of the Committee.                                                    

INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS 

The Investment Adviser, which is owned and controlled by ML & Co., a  
financial services holding company and the parent of Merrill Lynch, provides    
the Fund with investment advisory and administrative services. The Investment   
Adviser acts as the investment adviser to more than 100 registered investment   
companies and offers investment advisory services to individuals and            
institutional accounts. As of [o], 2005, the Investment Adviser and its         
affiliates, including MLIM, had a total of approximately $[o] billion in        
investment company and other portfolio assets under management, including       
approximately $[o] billion in fixed income assets. This amount includes assets  
managed by certain affiliates of the Investment Adviser. The Investment         
Adviser is a limited partnership, the partners of which are ML & Co. and        
Princeton Services. The principal business address of the Investment Adviser    
is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.                        

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

The portfolio manager primarily responsible for the Fund's day-to-day 
management is [o]. [o] has been a [o] of the Investment Adviser since [o] and   
has [o] years of experience investing in Municipal Bonds. The Fund's            

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portfolio manager will consider analyses from various sources, make the         
necessary investment decisions, and place orders for transactions accordingly.  
The Fund is also assisted by [o] research analysts with an average of [o]       
years of experience. The Investment Adviser will also be responsible for the    
performance of certain management services for the Fund.                        

 For its services, the Fund pays the Investment Adviser a monthly fee at
the annual rate of [o]% of an aggregate of: (i) the Fund's average daily net    
assets, and (ii) the proceeds of any outstanding borrowings used for leverage   
("average daily net assets" means the average daily value of the total assets   
of the Fund, including the amount obtained from leverage and any proceeds from  
the issuance of preferred stock, minus the sum of (i) accrued liabilities of    
the Fund, (ii) any accrued and unpaid interest on outstanding borrowings and    
(iii) accumulated dividends on shares of preferred stock). For purposes of      
this calculation, average daily net assets is determined at the end of each     
month on the basis of the average net assets of the Fund for each day during    
the month. It is understood that the liquidation preference of any outstanding  
preferred stock (other than accumulated dividends) is not considered a          
liability in determining the Fund's average daily net assets.                   

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

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

Initial Approval of Investment Advisory Agreement                               

[TO BE PROVIDED BY AMENDMENT] 

Portfolio Manager Information                                                   

The Fund is managed by [o].                                           

                                                        [Enlarge/Download Table]
Other Funds and Accounts Managed by Portfolio Manager                                                                 


----------------------------------------------------------------------------------------------------------------------
                                 Number of Other Accounts Managed and       Number of Accounts and Assets for Which   
                                        Assets by Account Type                 Advisory Fee is Performance-Based      
------------------------------ ------------------------------------------ --------------------------------------------
 Name of Investment Adviser     Registered     Other Pooled   Other        Registered     Other Pooled       Other    
    and Portfolio Manager       Investment      Investment     accounts    Investment      Investment      accounts   
                                 Companies       Vehicles                   Companies       Vehicles                  
------------------------------ -------------- --------------- ----------- -------------- ---------------- ------------
                                                                                                                      
Fund Asset Management, L.P.                                                                                           
------------------------------ -------------- --------------- ----------- -------------- ---------------- ------------

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

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

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

Fund Ownership                                                                  

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

       ----------------------------- ---------------------------
     Portfolio Manager              Dollar Range
       ----------------------------- ---------------------------

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

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

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

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

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

Portfolio Manager Compensation                                                  

Portfolio Manager Compensation                                        

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

Compensation Program                                                  

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

Base Salary                                                           

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

Performance-Based Compensation                                        

MLIM believes that the best interests of investors are served by      
recruiting and retaining exceptional asset management talent and managing       
their compensation within a consistent and disciplined framework that           
emphasizes pay for performance in the context of an intensely competitive       
market for talent. To that end, MLIM and its affiliates portfolio manager       
incentive compensation is derived based on portfolio managers' performance of   
the products they manage, investment performance relative to appropriate        
competitors or benchmarks over 1-, 3- and 5-year performance periods,           
performance relative to peers, external market conditions and year over year    
performance. In addition, portfolio managers' compensation can be based on      
MLIM's investment performance, financial results of MLIM, expense control,      
profit margins, strategic planning and implementation, quality of client        
service, market share, corporate reputation, capital allocation, compliance     
and risk control, leadership, workforce diversity, technology and innovation.   
MLIM and its affiliates also consider the extent to which individuals           
exemplify and foster ML & Co.'s principles of client focus, respect for the     
individual, teamwork, responsible citizenship and integrity. All factors are    
considered collectively by MLIM management.                                     

Cash Bonus                                                            

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

Stock Bonus                                                           

   A portion of the dollar value of the total annual performance-based bonus
is paid in restricted shares of ML & Co. stock. Paying a portion of annual      
bonuses in stock puts compensation earned by a portfolio manager for a given    
year "at risk" based on the company's ability to sustain and improve its        
performance over future periods.                                                

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   The ultimate value of stock bonuses is dependent on future ML & Co. stock
price performance. As such, the stock bonus aligns each portfolio manager's     
financial interests with those of the ML & Co. shareholders and encourages a    
balance between short-term goals and long-term strategic objectives.            

Management strongly believes that providing a significant portion of  
competitive performance-based compensation in stock is in the best interests    
of investors and shareholders. This approach ensures that portfolio managers    
participate as shareholders in both the "downside risk" and "upside             
opportunity" of the company's performance. Portfolio managers therefore have a  
direct incentive to protect ML & Co.'s reputation for integrity.                

Other Benefits                                                        

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

Potential Material Conflicts of Interest                                        

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

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

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

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

Code of Ethics                                                                  

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

Proxy Voting Procedures                                                         

The Fund's Board of Directors has delegated to the Investment Adviser 
authority to vote all proxies relating to the Fund's portfolio securities. The  
Investment Adviser has adopted policies and procedures ("Proxy Voting           
Procedures") with respect to the voting of proxies related to the portfolio     
securities held in the account of one or more of its clients, including the     
Fund. Pursuant to these Proxy Voting Procedures, the Investment Adviser's       
primary objective when voting proxies is to make proxy voting decisions solely  
in the best interests of the Fund and                                           

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its stockholders, and to act in a manner that the Investment Adviser believes   
is most likely to enhance the economic value of the securities held by the      
Fund. The Proxy Voting Procedures are designed to ensure that the Investment    
Adviser considers the interests of its clients, including the Fund, and not     
the interests of the Investment Adviser, when voting proxies and that real (or  
perceived) material conflicts that may arise between the Investment Adviser's   
interest and those of the Investment Adviser's clients are properly addressed   
and resolved.                                                                   

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

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

To assist the Investment Adviser in voting proxies, the Committee has 
retained Institutional Shareholder Services ("ISS"). ISS is an independent      
adviser that specializes in providing a variety of fiduciary-level              
proxy-related services to institutional investment managers, plan sponsors,     
custodians, consultants, and other institutional investors. The services        
provided to the Investment Adviser by ISS include in-depth research, voting     
recommendations (although the Investment Adviser is not obligated to follow     
such recommendations), vote execution, and recordkeeping. ISS will also assist  
the Fund in fulfilling its reporting and recordkeeping obligations under the    
1940 Act.                                                                       

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

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

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

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

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

o    Proposals related to the composition of the Board of Directors of
     issuers other than investment companies. As a general matter, the
       Committee believes that a company's Board of Directors (rather than
       stockholders) is most likely to have access to important, nonpublic
    information regarding a company's business and prospects, and is
 therefore best-positioned to set corporate policy and oversee
      management. The Committee, therefore, believes that the foundation
of good corporate governance is the election of qualified,  
independent corporate directors who are likely to diligently
     represent the interests of stockholders and oversee management of
      the corporation in a manner that will seek to maximize stockholder
     value over time. In individual cases, the Committee may look at a
nominee's history of representing stockholder interests as a
   director of other companies or other factors, to the extent the
Committee deems relevant.                                   

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

  o    Proposals related to management compensation and employee benefits.
       As a general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive     

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     compensation, but believes that compensation matters are normally
  best determined by an issuer's board of directors, rather than
      stockholders. Proposals to "micro-manage" an issuer's compensation
 practices or to set arbitrary restrictions on compensation or
benefits will, therefore, generally not be supported.       

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

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

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

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

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

  Information about how the Fund votes proxies relating to securities held
in the Fund's portfolio during each 12-month period ending June 30 thereafter   
will be available without charge commencing no later than the following         
September 1: (1) at www.mutualfunds.ml.com and (2) on the Commission's website  
at http://www.sec.gov.                                                          

PORTFOLIO TRANSACTIONS  

   Subject to policies established by the Board of Directors, the Investment
Adviser is primarily responsible for the execution of the Fund's portfolio      
transactions and the allocation of brokerage. The Fund has no obligation to     
deal with any dealer or group of dealers in the execution of transactions in    
portfolio securities of the Fund. Where possible, the Fund deals directly with  
the dealers who make a market in the securities involved except in those        
circumstances where better prices and execution are available elsewhere. It is  
the policy of the Fund to obtain the best results in conducting portfolio       
transactions for the Fund, taking into account such factors as price            
(including the applicable dealer spread or commission), the size, type and      
difficulty of the transaction involved, the firm's general execution and        
operations facilities and the firm's risk in positioning the securities         
involved. The cost of portfolio securities transactions of the Fund primarily   
consists of dealer or underwriter spreads and brokerage commissions. While      
reasonable competitive spreads or commissions are sought, the Fund will not     
necessarily be paying the lowest spread or commission available on any          
particular transaction.                                                         

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

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such supplemental information. Supplemental investment research obtained from   
such dealers might be used by the Investment Adviser in servicing all of its    
accounts and such research might not be used by the Investment Adviser in       
connection with the Fund.                                                       

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

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

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

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

 The Fund has received an exemptive order from the Commission permitting
it to lend portfolio securities to Merrill Lynch or its affiliates. Pursuant    
to that order, the Fund also has retained an affiliated entity of the           
Investment Adviser as the securities lending agent (the "lending agent") for a  
fee, including a fee based on a share of the returns on investment of cash      
collateral. In connection with securities lending activities, the lending       
agent may, on behalf of the Fund, invest cash collateral received by the Fund   
for such loans in, among other things, a private investment company managed by  
the lending agent or in registered money market funds advised by the            
Investment Adviser or its affiliates. Pursuant to the same order, the Fund may  
invest its uninvested cash in registered money market funds advised by the      
Investment Adviser or its affiliates, or in a private investment company        
managed by the lending agent. If the Fund acquires shares in either the         
private investment company or an affiliated money market fund, stockholders     
would bear both their proportionate share of the Fund's expenses and,           
indirectly, the expenses of such other entities. However, in accordance with    
the exemptive order, the investment adviser to the private investment company   
will not charge any advisory fees with respect to shares purchased by the       
Fund. Such shares also will not be subject to a sales load, redemption fee,     
distribution fee or service fee, or, in the case of the shares of an            
affiliated money market fund, the payment of any such sales load, redemption    
fee, distribution fee or service fee will be offset by the Investment           
Adviser's waiver of a portion of its advisory fee.                              

Securities held by the Fund may also be held by, or be appropriate    
investments for, other funds or investment advisory clients for which the       
Investment Adviser or its affiliates act as an adviser. Because of different    

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investment objectives or other factors, a particular security may be bought     
for an advisory client when other clients are selling the same security. If     
purchases or sales of securities by the Investment Adviser for the Fund or      
other funds for which it acts as investment adviser or for other advisory       
clients arise for consideration at or about the same time, transactions in      
such securities will be made, insofar as feasible, for the respective funds     
and clients in a manner deemed equitable to all. Transactions effected by the   
Investment Adviser (or its affiliates) on behalf of more than one of its        
clients during the same period may increase the demand for securities being     
purchased or the supply of securities being sold, causing an adverse effect on  
price.                                                                          

Portfolio Turnover                                                              

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

DIVIDENDS AND DISTRIBUTIONS 

 The Fund intends to distribute dividends from its net investment income
monthly to holders of common stock. It is expected that the Fund will commence  
paying dividends to holders of common stock within approximately 90 days of     
the date of this prospectus. From and after issuance of the preferred stock,    
monthly dividends to holders of common stock normally will consist of net       
investment income remaining after the payment of dividends (and any Additional  
Distributions) on the preferred stock. The Fund currently intends either to     
pay out less than the entire amount of net investment income earned in any      
particular period or pay out such accumulated undistributed income in addition  
to net investment income earned in other periods in order to permit the Fund    
to maintain a more stable level of dividend distributions. As a result, the     
dividend paid by the Fund to holders of common stock for any particular period  
may be more or less than the amount of net investment income earned by the      
Fund during such period. The Fund is not required to attempt to maintain a      
more stable level of distributions to stockholders and may choose not to do     
so. For Federal tax purposes, the Fund is required to distribute substantially  
all of its net investment income for each calendar year. All net realized       
capital gains, if any, will be distributed pro rata at least annually to        
holders of common stock and any preferred stock. While any shares of preferred  
stock are outstanding, the Fund may not declare any cash dividend or other      
distribution on its common stock, unless at the time of such declaration, (i)   
all accumulated preferred stock dividends, including any Additional             
Distribution, have been paid, and (ii) the net asset value of the Fund's        
portfolio (determined after deducting the amount of such dividend or other      
distribution) is at least 200% of the liquidation value of the outstanding      
preferred stock (expected to equal the original purchase price of the           
outstanding shares of preferred stock plus any accumulated and unpaid           
dividends thereon and any accumulated but unpaid Additional Distribution). If   
the Fund's ability to make distributions on its common stock is limited, such   
limitation could under certain circumstances impair the ability of the Fund to  
maintain its qualification for taxation as a regulated investment company,      
which would have adverse tax consequences for stockholders. See "Taxes."        

   See "Automatic Dividend Reinvestment Plan" for information concerning the
manner in which dividends and distributions to holders of common stock may be   
automatically reinvested in shares of common stock of the Fund. Dividends and   
distributions may be taxable to stockholders under certain circumstances as     
discussed below, whether they are reinvested in shares of the Fund or received  
in cash.                                                                        

The yield on the Fund's common stock will vary from period to period  
depending on factors including, but not limited to, the length of the initial   
investment period, market conditions, the ability of the issuer of the          
portfolio securities to pay interest on such securities, the timing of the      
Fund's investment in portfolio securities, the securities comprising the        
Fund's portfolio, changes in the CPI-U, changes in tax exempt interest rates    
(which may not change to the same extent or in the same direction as taxable    
rates) including changes in the relationship between short term rates and long  
term rates, the amount and timing of the issuance of the Fund's preferred       
stock, the effects of                                                           

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preferred stock leverage on the common stock discussed above under "Risks and   
Special Considerations of Leverage," the timing of the investment of preferred  
stock proceeds in portfolio securities, the Fund's net assets and its           
operating expenses. Consequently, the Fund cannot guarantee any particular      
yield on its shares and the yield for any given period is not an indication or  
representation of future yields on Fund shares.                                 

TAXES 

General                                                                         

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

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

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

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

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will provide its stockholders with a written notice designating the amounts of  
any exempt-interest dividends and capital gain dividends.                       

 The Fund's utilization of derivatives such as inflation swap agreements
and inflation futures may result in the receipt of a substantial amount of      
taxable income in a given year, which will, in turn, result in increased        
taxable distributions to stockholders. It will not be possible for the Fund to  
predict how much taxable income these investments will generate. The Fund       
generally intends to treat payments received under inflation swap agreements    
as capital gain, subject to taxation at lower rates when distributed to         
noncorporate stockholders and correspondingly, intends to treat any loss on     
such transactions treated as capital loss. However, this treatment is not       
binding on the IRS or the courts. If the IRS were successful in challenging     
the Fund's treatment of the swap agreements, the payments would be treated as   
ordinary income, subject to a higher tax rate in the hands of noncorporate      
stockholders, and any losses would be ordinary rather than capital. If the      
losses are treated as ordinary rather than capital certain tax rules will       
operate to recharacterize a portion of exempt-interest dividends previously     
distributed to stockholders as taxable ordinary income. Thus, treatment of      
gains and losses on the inflation swap agreements as ordinary generally would   
have the effect of increasing distributions of taxable ordinary income to       
stockholders.                                                                   

All or a portion of the Fund's gain from the sale or redemption of tax
exempt obligations purchased at a market discount will be treated as ordinary   
income rather than capital gain. This rule may increase the amount of ordinary  
income dividends received by stockholders. Distributions in excess of the       
Fund's earnings and profits will first reduce the adjusted tax basis of a       
holder's shares and, after such adjusted tax basis is reduced to zero, will     
constitute capital gains to such holder (assuming the shares are held as a      
capital asset). The sale or exchange of common stock normally will result in    
capital gain or loss to the holders of common stock who hold their shares as    
capital assets. Generally, a stockholder's gain or loss will be long-term       
capital gain or loss if the shares have been held for more than one year.       

No loss will be allowed on the sale of common stock if the stockholder
purchases other common stock of the Fund (whether through reinvestment or       
distributions or otherwise) or the stockholder acquires or enters into a        
contract or an option to acquire shares that are substantially identical to     
common stock of the Fund within a period of 61 days beginning 30 days before    
and ending 30 days after such sale or exchange. If disallowed, the loss will    
be reflected in an adjustment to the basis of the shares acquired. Any loss     
upon the sale or exchange of Fund shares held for six months or less will be    
disallowed to the extent of any exempt-interest dividends received by the       
stockholder. In addition, any such loss that is not disallowed under the rule   
stated above will be treated as long term capital loss to the extent of any     
capital gain dividends received by the stockholder.                             

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

   Prior to purchasing the Fund's common stock, an investor should carefully
consider the impact of dividends which are expected to be or have been          
declared, but not paid. Any dividend declared shortly after a purchase of the   
Fund's common stock prior to the record date will have the effect of reducing   
the per share net asset value by the per share amount of the dividend. If the   
Fund pays a dividend in January that was declared in the previous October,      
November or December to stockholders of record on a specified date in one of    
such months, then such dividend will be treated for tax purposes as being paid  
by the Fund and received by its stockholders on December 31 of the year in      
which such dividend was declared.                                               

The Internal Revenue Service ("Service") has taken the position in a  
revenue ruling that if a RIC has two or more classes of shares, it may          
designate distributions made to each class in any year as consisting of no      
more than such class's proportionate share of particular types of income,       
including exempt-interest income and net long term capital gains. A class's     
proportionate share of a particular type of income is determined according to   
the percentage of total dividends paid by the RIC during such year that was     
paid to such class. Consequently, when common stock and one or more series of   
preferred stock are outstanding, the Fund intends to designate distributions    
made to the classes as consisting of particular types of income in accordance   
with each class's proportionate share of such income. Thus, the Fund will       
designate dividends paid as exempt-interest dividends in a manner that          
allocates such                                                                  

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dividends among the holders of common stock and any outstanding preferred       
stock in proportion to the total dividends paid to each class during the        
taxable year, or otherwise as required by applicable law. Capital gain          
dividends and other taxable income will similarly be allocated among the        
classes in proportion to the total dividends paid to each class during the      
taxable year, or otherwise as required by applicable law. When capital gain or  
other taxable income is allocated to holders of preferred stock pursuant to     
the allocation rules described above, the terms of the preferred stock may      
require the Fund to make an Additional Distribution to compensate such holders  
for the tax liability resulting from such allocation. The Fund's receipt of     
taxable income on its inflation swap and/or other derivative transactions,      
likewise, may require the Fund to make "Additional Distributions" to preferred  
stockholders, thereby decreasing amounts available for distribution to common   
stockholders.                                                                   

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

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

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

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

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

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requirements, however, may cause the interest on such securities to be          
includable in gross income for Federal income tax purposes retroactive to       
their date of issue.                                                            

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

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

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

   The value of shares acquired pursuant to the Fund's dividend reinvestment
plan will generally be excluded from gross income to the extent that the cash   
amount reinvested would be excluded from gross income. If, when the Fund's      
shares are trading at a premium over net asset value, the Fund issues shares    
pursuant to the dividend reinvestment plan that have a greater fair market      
value than the amount of cash reinvested, it is possible that all or a portion  
of such discount (which may not exceed 5% of the fair market value of the       
Fund's shares) could be viewed as a taxable distribution. If the discount is    
viewed as a taxable distribution, it is also possible that the taxable          
character of this discount would be allocable to all of the stockholders,       
including stockholders who do not participate in the dividend reinvestment      
plan. Thus, stockholders who do not participate in the dividend reinvestment    
plan, as well as dividend reinvestment plan participants, might be required to  
report as ordinary income a portion of their distributions equal to their       
allocable share of the discount.                                                

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

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subject to backup withholding. Backup withholding is not an additional tax.     
Any amount withheld generally may be allowed as a refund or a credit against a  
stockholder's Federal income tax liability provided that the required           
information is timely forwarded to the IRS.                                     

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

State and Local Taxes                                                           

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

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

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

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

AUTOMATIC DIVIDEND REINVESTMENT PLAN  

   Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"),
unless a stockholder is ineligible or elects otherwise, all dividend and        
capital gains distributions are automatically reinvested by [o], as agent for   
stockholders in administering the Plan (the "Plan Agent"), in additional        
shares of common stock of the Fund. Stockholders whose shares are held in the   
name of a broker or nominee should contact such broker or nominee to confirm    
that they are eligible to participate in the Plan. Stockholders who are         
ineligible or who elect not to participate in the Plan will receive all         
dividends and distributions in cash paid by check mailed directly to the        
stockholder of record (or, if the shares are held in street or other nominee    
name, then to such nominee) by [o], as dividend paying agent. Such              
stockholders may elect not to participate in the Plan and to receive all        
distributions of dividends and capital gains in cash by sending written         
instructions to [o], as dividend paying agent, at the address set forth below.  
Participation in the Plan is completely voluntary and may be terminated or      
resumed at any time without penalty by written notice if received by the Plan   
Agent not less than ten days prior to any dividend record date; otherwise,      
such termination will be effective with respect to any subsequently declared    
dividend or capital gains distribution.                                         

  Whenever the Fund declares an ordinary income dividend or a capital gain
dividend (collectively referred to as "dividends") payable either in shares or  
in cash, non-participants in the Plan will receive cash, and participants in    
the Plan will receive the equivalent in shares of common stock. The shares are  
acquired by the Plan Agent for the participant's account, depending upon the    
circumstances described below, either (i) through receipt of additional         
unissued but authorized shares of common stock from the Fund ("newly issued     
shares") or (ii) by purchase of outstanding shares of common stock on the open  
market ("open-market purchases") on the NYSE or elsewhere. If, on the dividend  
payment date, the net asset value per share of the common stock is equal to or  
less than the market price per share of the common stock plus estimated         
brokerage commissions (such condition being referred to herein as "market       
premium"), the Plan Agent will invest the dividend amount in newly issued       
shares on behalf of the participant. The number of newly issued shares of       
common stock to be credited to the participant's account will be determined by  
dividing the dollar amount of the dividend by the net asset value per share on  
the date the shares are                                                         

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issued, provided that the maximum discount from the then current market price   
per share on the date of issuance may not exceed 5%. If on the dividend         
payment date the net asset value per share is greater than the market value     
(such condition being referred to herein as "market discount"), the Plan Agent  
will invest the dividend amount in shares acquired on behalf of the             
participant in open-market purchases.                                           

  In the event of a market discount on the dividend payment date, the Plan
Agent has until the last business day before the next date on which the shares  
trade on an "ex-dividend" basis or in no event more than 30 days after the      
dividend payment date (the "last purchase date") to invest the dividend amount  
in shares acquired in open-market purchases. It is contemplated that the Fund   
will pay monthly income dividends. Therefore, the period during which           
open-market purchases can be made will exist only from the payment date on the  
dividend through the date before the next "ex-dividend" date, which typically   
will be approximately ten days. If, before the Plan Agent has completed its     
open-market purchases, the market price of a share of common stock exceeds the  
net asset value per share, the average per share purchase price paid by the     
Plan Agent may exceed the net asset value of the Fund's shares, resulting in    
the acquisition of fewer shares than if the dividend had been paid in newly     
issued shares on the dividend payment date. Because of the foregoing            
difficulty with respect to open-market purchases, the Plan provides that if     
the Plan Agent is unable to invest the full dividend amount in open-market      
purchases during the purchase period or if the market discount shifts to a      
market premium during the purchase period, the Plan Agent will cease making     
open-market purchases and will invest the uninvested portion of the dividend    
amount in newly issued shares at the close of business on the last purchase     
date.                                                                           

The Plan Agent maintains all stockholders' accounts in the Plan and   
furnishes written confirmation of all transactions in the account, including    
information needed by stockholders for tax records. Shares in the account of    
each Plan participant will be held by the Plan Agent in non-certificated form   
in the name of the participant, and each stockholder's proxy will include       
those shares purchased or received pursuant to the Plan. The Plan Agent will    
forward all proxy solicitation materials to participants and vote proxies for   
shares held pursuant to the Plan in accordance with the instructions of the     
participants.                                                                   

   In the case of stockholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Agent will            
administer the Plan on the basis of the number of shares certified from time    
to time by the record stockholders as representing the total amount registered  
in the record stockholder's name and held for the account of beneficial owners  
who are to participate in the Plan.                                             

   There will be no brokerage charges with respect to shares issued directly
by the Fund as a result of dividends or capital gains distributions payable     
either in shares or in cash. However, each participant will pay a pro rata      
share of brokerage commissions incurred with respect to the Plan Agent's        
open-market purchases in connection with the reinvestment of dividends.         

The automatic reinvestment of dividends and distributions will not    
relieve participants of any Federal, state or local income tax that may be      
payable (or required to be withheld) on such dividends. See "Taxes."            

   Stockholders participating in the Plan may receive benefits not available
to stockholders not participating in the Plan. If the market price plus         
commissions of the Fund's shares is higher than the net asset value,            
participants in the Plan will receive shares of the Fund at less than they      
could otherwise purchase them and will have shares with a cash value greater    
than the value of any cash distribution they would have received on their       
shares. If the market price plus commissions is below the net asset value,      
participants receive distributions of shares with a net asset value greater     
than the value of any cash distribution they would have received on their       
shares. However, there may be insufficient shares available in the market to    
make distributions in shares at prices below the net asset value. Also, since   
the Fund does not redeem its shares, the price on resale may be more or less    
than the net asset value.                                                       

Experience under the Plan may indicate that changes are desirable.    
Accordingly, the Fund reserves the right to amend or terminate the Plan. There  
is no direct service charge to participants in the Plan; however, the Fund      
reserves the right to amend the Plan to include a service charge payable by     
the participants.                                                               

All correspondence concerning the Plan should be directed to the Plan 
Agent at [o].                                                                   

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CONFLICTS OF INTEREST 

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

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

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

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

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

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

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

The Investment Adviser may enter into transactions and invest in      
securities and instruments on behalf of the Fund in which customers of Merrill  
Lynch (or, to the extent permitted by the SEC, Merrill Lynch) serve as the      

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

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

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

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

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

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

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

NET ASSET VALUE 

Net asset value per share of common stock is determined Monday through
Friday as of the close of business on the NYSE (generally, the NYSE closes at   
4:00 p.m., Eastern time), on each business day during which the NYSE is open    
for trading. For purposes of determining the net asset value of a share of      
common stock, the value of the securities held by the Fund plus any cash or     
other assets (including interest accrued but not yet received)                  

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minus all liabilities (including accrued expenses) and the aggregate            
liquidation value of any outstanding shares of preferred stock is divided by    
the total number of shares of common stock outstanding at such time. Expenses,  
including the fees payable to the Investment Adviser, are accrued daily.        

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

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

DESCRIPTION OF CAPITAL STOCK  

  The Fund is authorized to issue 200,000,000 shares of capital stock, par
value $.10 per share, all of which shares initially are classified as common    
stock. The Board of Directors is authorized, however, to classify and           
reclassify any unissued shares of capital stock into one or more additional or  
other classes or series as may be established from time to time by setting or   
changing in any one or more respects the designations, preferences, conversion  
or other rights, voting powers, restrictions, limitations as to dividends,      
qualifications or terms or conditions of redemption of such shares of stock     
and pursuant to such classification or reclassification to increase or          
decrease the number of authorized shares of any existing class or series. The   
Fund may reclassify an amount of unissued common stock as preferred stock and   
at that time offer shares of preferred stock. See "Risks and Special            
Considerations of Leverage."                                                    

Common Stock                                                                    

 Shares of common stock, when issued and outstanding, will be fully paid
and non-assessable. Stockholders are entitled to share pro rata in the net      
assets of the Fund available for distribution to stockholders upon liquidation  
of the Fund. Stockholders are entitled to one vote for each share held.         

In the event that the Fund issues preferred stock and so long as any  
shares of the Fund's preferred stock are outstanding, holders of common stock   
will not be entitled to receive any net income of or other distributions from   
the Fund unless all accumulated dividends on preferred stock have been paid,    
and unless asset coverage (as defined in the 1940 Act) with respect to          
preferred stock would be at least 200% after giving effect to such              
distributions. See "Risks and Special Considerations of Leverage."              

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

The Investment Adviser provided the initial capital for the Fund by   
purchasing [o] shares of common stock of the Fund for $[o]. As of the date of   
this prospectus, the Investment Adviser owned 100% of the outstanding           

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shares of common stock of the Fund. The Investment Adviser may be deemed to     
control the Fund until such time as it owns less than 25% of the outstanding    
shares of the Fund.                                                             

Preferred Stock                                                                 

It is anticipated that the Fund's shares of preferred stock will be   
issued in one or more series, with rights as determined by the Board of         
Directors, by action of the Board of Directors without the approval of the      
holders of common stock. Under the 1940 Act, the Fund is permitted to have      
outstanding more than one series of preferred stock so long as no single        
series has a priority over another series as to the distribution of assets of   
the Fund or the payment of dividends. Holders of common stock have no           
preemptive right to purchase any shares of preferred stock that might be        
issued. It is anticipated that the net asset value per share of the preferred   
stock will equal its original purchase price per share plus accumulated         
dividends per share.                                                            

  The Fund's Board of Directors has declared its intention to authorize an
offering of shares of preferred stock (representing approximately 35% of the    
Fund's total capital immediately after the issuance of such preferred stock or  
approximately 54% of the Fund's common stock equity) within approximately       
three months after completion of the offering of common stock, subject to       
market conditions and to the Board's continuing to believe that leveraging the  
Fund's capital structure through the issuance of preferred stock is likely to   
achieve the benefits to the holders of common stock described in the            
prospectus. Although the terms of the preferred stock, including its dividend   
rate, voting rights, liquidation preference and redemption provisions will be   
determined by the Board of Directors (subject to applicable law and the Fund's  
Charter), the initial series of preferred stock will be structured to carry     
either a relatively short term dividend rate, in which case periodic            
redetermination of the dividend rate will be made at relatively short           
intervals (generally 7 days), or a medium term dividend rate, in which case     
periodic redetermination of the dividend rate will be made at intervals of up   
to five years. In either case, such redetermination of the dividend rate will   
be made through an auction or remarketing procedure. The Board also has         
indicated that it is likely that the liquidation preference, voting rights and  
redemption provisions of the preferred stock will be as stated below.           

Liquidation Preference. In the event of any voluntary or involuntary  
liquidation, dissolution or winding up of the Fund, the holders of shares of    
preferred stock will be entitled to receive a preferential liquidating          
distribution (expected to equal the original purchase price per share plus an   
amount equal to accumulated and unpaid dividends to the liquidation date,       
whether or not earned or declared) before any distribution of assets is made    
to holders of common stock. After payment of the full amount of the             
liquidating distribution to which they are entitled, the preferred              
stockholders will not be entitled to any further participation in any           
distribution of assets by the Fund. A consolidation or merger of the Fund with  
or into any other corporation or corporations or a sale of all or               
substantially all of the assets of the Fund will not be deemed to be a          
liquidation, dissolution or winding up of the Fund.                             

Voting Rights. Except as otherwise indicated in this prospectus and   
except as otherwise required by applicable law, holders of shares of preferred  
stock will have equal voting rights with holders of shares of common stock      
(one vote per share) and will vote together with holders of common stock as a   
single class.                                                                   

In connection with the election of the Fund's Directors, holders of   
shares of preferred stock, voting as a separate class, will be entitled to      
elect two of the Fund's Directors, and the remaining Directors will be elected  
by all holders of capital stock, voting as a single class. So long as any       
preferred stock is outstanding, the Fund will have not less than five           
Directors. If at any time dividends on shares of the Fund's preferred stock     
shall be unpaid in an amount equal to two full years' dividends thereon, the    
holders of all outstanding shares of preferred stock, voting as a separate      
class, will be entitled to elect a majority of the Fund's directors until all   
dividends in default have been paid or declared and set apart for payment.      

The affirmative vote of the holders of a majority of the outstanding  
shares of the preferred stock, voting as a separate class, will be required to  
(i) authorize, create or issue any class or series of stock ranking prior to    
any series of preferred stock with respect to payment of dividends or the       
distribution of assets on liquidation or (ii) amend, alter or repeal the        
provisions of the Charter, whether by merger, consolidation or otherwise, so    
as to adversely affect any of the contract rights expressly set forth in the    
Charter of holders of preferred stock.                                          

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 Redemption Provisions. It is anticipated that shares of preferred stock
will generally be redeemable at the option of the Fund at a price equal to      
their liquidation preference plus accumulated but unpaid dividends to the date  
of redemption plus, under certain circumstances, a redemption premium. Shares   
of preferred stock will also be subject to mandatory redemption at a price      
equal to their liquidation preference plus accumulated but unpaid dividends to  
the date of redemption upon the occurrence of certain specified events, such    
as the failure of the Fund to maintain asset coverage requirements for the      
preferred stock specified by the rating agencies that issue ratings on the      
preferred stock.                                                                

Certain Provisions of the Charter and By-laws                                   

The Fund's Charter includes provisions that could have the effect of  
limiting the ability of other entities or persons to acquire control of the     
Fund or to change the composition of its Board of Directors and could have the  
effect of depriving stockholders of an opportunity to sell their shares at a    
premium over prevailing market prices by discouraging a third party from        
seeking to obtain control of the Fund. A Director may be removed from office    
with or without cause but only by vote of the holders of at least 66-2/3% of    
the shares entitled to vote in an election to fill that directorship.           

   In addition, the Charter requires the favorable vote of the holders of at
least 66-2/3% of the Fund's shares to approve, adopt or authorize the           
following:                                                                      

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

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

o    a liquidation or dissolution of the Fund;                        

unless such action has been approved, adopted or authorized by the affirmative  
vote of at least two-thirds of the total number of Directors fixed in           
accordance with the By-laws, in which case the affirmative vote of a majority   
of the Fund's shares of capital stock is required. Following any issuance of    
preferred stock by the Fund, it is anticipated that the approval, adoption or   
authorization of the foregoing also would require the favorable vote of a       
majority of the Fund's shares of preferred stock then entitled to be voted,     
voting as a separate class.                                                     

In addition, conversion of the Fund to an open-end investment company 
would require an amendment to the Fund's Charter. The amendment would have to   
be declared advisable by the Board of Directors prior to its submission to      
stockholders. Such an amendment would require the favorable vote of the         
holders of at least 66-2/3% of the Fund's outstanding shares of capital stock   
(including any preferred stock) entitled to be voted on the matter, voting as   
a single class (or a majority of such shares if the amendment was previously    
approved, adopted or authorized by two-thirds of the total number of Directors  
fixed in accordance with the By-laws), and, assuming preferred stock is         
issued, the affirmative vote of a majority of outstanding shares of preferred   
stock of the Fund, voting as a separate class. Such a vote also would satisfy   
a separate requirement in the 1940 Act that the change be approved by the       
stockholders. Stockholders of an open-end investment company may require the    
company to redeem their shares of common stock at any time (except in certain   
circumstances as authorized by or under the 1940 Act) at their net asset        
value, less such redemption charge, if any, as might be in effect at the time   
of a redemption. All redemptions will be made in cash. If the Fund is           
converted to an open-end investment company, it could be required to liquidate  
portfolio securities to meet requests for redemption, and the common stock      
would no longer be listed on a stock exchange.                                  

 Conversion to an open-end investment company would also require changes
in certain of the Fund's investment policies and restrictions, such as those    
relating to the borrowing of money and the purchase of illiquid securities.     

The Charter and By-laws provide that the Board of Directors has the   
power, to the exclusion of stockholders, to make, alter or repeal any of the    
By-laws (except for any By-law specified not to be amended or repealed by the   
Board), subject to the requirements of the 1940 Act. Neither this provision of  
the Charter, nor any of                                                         

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the foregoing provisions of the Charter requiring the affirmative vote of       
66-2/3% of shares of capital stock of the Fund, can be amended or repealed      
except by the vote of such required number of shares.                           

The Board of Directors has determined that the 66-2/3% voting         
requirements described above, which are greater than the minimum requirements   
under Maryland law or the 1940 Act, are in the best interests of stockholders   
generally. Reference should be made to the Charter on file with the Commission  
for the full text of these provisions.                                          

  The Fund's By-laws generally require that advance notice be given to the
Fund in the event a stockholder desires to nominate a person for election to    
the Board of Directors or to transact any other business at an annual meeting   
of stockholders. With respect to an annual meeting following the first annual   
meeting of stockholders, notice of any such nomination or business must be      
delivered to or received at the principal executive offices of the Fund not     
less than 60 calendar days nor more than 90 calendar days prior to the          
anniversary date of the prior year's annual meeting (subject to certain         
exceptions). In the case of the first annual meeting of stockholders, the       
notice must be given no later than the tenth calendar day following the day     
upon which public disclosure of the date of the meeting is first made. Any      
notice by a stockholder must be accompanied by certain information as provided  
in the By-laws.                                                                 

CUSTODIAN 

  The Fund's securities and cash are held under a custodian agreement with
[o], [o].                                                                       

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UNDERWRITING  

The Fund intends to offer the shares through the underwriters. [o] is 
acting as representative of the underwriters named below. Subject to the terms  
and conditions contained in a purchase agreement between the Fund and the       
Investment Adviser and the underwriters, the Fund has agreed to sell to the     
underwriters, and each underwriter listed below severally has agreed to         
purchase from the Fund, the number of shares listed opposite their names        
below.                                                                          

                                                                   Number of
                        Underwriter                                 Shares

                                                                     ___________
Total........................................................     
                                                                     ===========

  The underwriters have agreed to purchase all of the shares sold pursuant
to the purchase agreement if any of these shares are purchased. If an           
underwriter defaults, the purchase agreement provides that the purchase         
commitments of the nondefaulting underwriters may be increased or the purchase  
agreement may be terminated.                                                    

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

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

Commissions and Discounts                                                       

The underwriters have advised the Fund that they propose initially to 
offer the shares to the public at the initial public offering price on the      
cover page of this prospectus and to dealers at that price less a concession    
not in excess of $[o] per share. The underwriters may allow, and the dealers    
may reallow, a discount not in excess of $.10 per share to other dealers.       
There is a sales charge or underwriting discount of $[o] per share, which is    
equal to [o]% of the initial public offering price per share. After the         
initial public offering, the public offering price, concession and discount     
may be changed. Investors must pay for the shares of common stock purchased in  
the offering on or before [o], 2005.                                            

The following table shows the public offering price, underwriting     
discount and proceeds before expenses to the Fund. The information assumes      
either no exercise or full exercise by the underwriters of their overallotment  
option.                                                                         

                                                        [Enlarge/Download Table]

                                                   Per Share        Without Option      With Option  
                                               -----------------  ------------------  ---------------
                                                                                                     
Public offering price.........................      $15.00           $                   $           
Underwriting discount ........................         $             $                   $           
Proceeds, before expenses, to the Fund........         $             $                   $           

The expenses of the offering, excluding underwriting discount, are    
estimated at $[o] and are payable by the Fund. To the extent that the Fund's    
offering costs do not exceed $[o] per share of common stock, the Fund has       
agreed to pay the underwriters up to $[o] per share of common stock as a        
partial reimbursement of expenses incurred in connection with the offering.     
However, in no event will the Fund pay offering costs (other than the           
underwriting discount) in excess of $[o] per share of common stock. The         
Investment Adviser or an affiliate will pay                                     

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the amount by which the offering costs (other than the underwriting discount)   
exceeds $[o] per share of common stock. The Investment Adviser has agreed to    
pay all of the Fund's organizational expenses.                                  

Overallotment Option                                                            

The Fund has granted the underwriters an option to purchase up to [o] 
additional shares at the public offering price less the underwriting discount.  
The underwriters may exercise the option from time to time for 45 days from     
the date of this prospectus solely to cover any overallotments. If the          
underwriters exercise this option, each will be obligated, subject to           
conditions contained in the purchase agreement, to purchase a number of         
additional shares proportionate to that underwriter's initial amount reflected  
in the above table.                                                             

Price Stabilization, Short Positions and Penalty Bids                           

 Until the distribution of the shares is completed, Commission rules may
limit the underwriters and selling group members from bidding for and           
purchasing the Fund's shares. However, the representatives may engage in        
transactions that stabilize the price of the shares, such as bids or purchases  
to peg, fix or maintain that price.                                             

 If the underwriters create a short position in the shares in connection
with the offering, i.e., if they sell more shares than are listed on the cover  
of this prospectus, the representative may reduce that short position by        
purchasing shares in the open market. The representative also may elect to      
reduce any short position by exercising all or part of the overallotment        
option described above. Purchases of the shares to stabilize its price or to    
reduce a short position may cause the price of the shares to be higher than it  
might be in the absence of such purchases.                                      

The representative also may impose a penalty bid on underwriters and  
selling group members. This means that if the representative purchases shares   
in the open market to reduce the underwriters' short position or to stabilize   
the price of such shares, it may reclaim the amount of the selling concession   
from the underwriters and selling group members who sold those shares. The      
imposition of a penalty bid also may affect the price of the shares in that it  
discourages resales of those shares.                                            

  Neither the Fund nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the              
transactions described above may have on the price of the shares. In addition,  
neither the Fund nor any of the underwriters makes any representation that the  
representative will engage in such transactions or that such transactions,      
once commenced, will not be discontinued without notice.                        

Stock Exchange Listing                                                          

 Prior to this offering, there has been no public market for the shares.
The Fund plans to apply to list its shares of common stock on the NYSE or       
another national securities exchange under the symbol "[o]," subject to         
official notice of issuance. In order to meet the requirements for listing,     
the underwriters have undertaken to sell lots of 100 or more shares to a        
minimum of 2,000 beneficial owners.                                             

Other Relationships                                                             

As additional compensation for its acting as lead underwriter in the  
initial public offering of the Fund's common stock, the Investment Adviser      
(and not the Fund) has agreed to pay a fee from its own resources to [o]        
quarterly at the annual rate of [o]% of an aggregate of: (i) the Fund's         
average daily net assets (including proceeds from the issuance of any           
preferred stock), and (ii) the proceeds of any outstanding borrowings used for  
leverage, during the continuance of the Investment Advisory Agreement. In       
addition to acting as lead underwriter in the initial public offering of the    
Fund's common stock, [o] has agreed to provide, upon request, certain           
after-market services to the Investment Adviser designed to maintain the        
visibility of the Fund and to provide relevant information, studies or reports  
regarding the Fund and the closed-end investment company industry on an         
as-needed basis. The total amount of these additional payments to [o] will not  
exceed [o]% of the total price to the public of the shares of common stock      
sold in this offering.                                                          

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 The total amount of the additional compensation to [o] described above,
plus the amount paid by the Fund as the $[o] per share partial reimbursement    
to the underwriters and as payment of certain expenses of counsel to the        
underwriters, will not exceed 4.5% of the total price to the public of the      
common stock sold in this offering. The sum total of all compensation to        
underwriters in connection with this public offering of shares of common        
stock, including sales load and all forms of additional compensation to         
underwriters, will be limited to 9.0% of the total price to the public of the   
shares of common stock sold in this offering.                                   

   The Fund anticipates that [o] and the other underwriters may from time to
time act as brokers in connection with the execution of its portfolio           
transactions, and after they have ceased to be underwriters, the Fund           
anticipates that underwriters other than [o] may from time to time act as       
dealers in connection with the execution of portfolio transactions. See         
"Portfolio Transactions." [o] is an affiliate of the Investment Adviser.        

The address of [o] is [o].                                            

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR 

The transfer agent, dividend disbursing agent and registrar for the   
shares of common stock of the Fund is [o].                                      

ACCOUNTING SERVICES PROVIDER  

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

LEGAL MATTERS 

Certain legal matters in connection with the shares of common stock   
offered hereby are passed on for the Fund by Sidley Austin Brown & Wood LLP,    
New York, New York. Certain legal matters will be passed on for the             
underwriters by [o], New York, New York. [o] may rely on the opinion of Sidley  
Austin Brown & Wood LLP as to certain matters of Maryland law.                  

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND EXPERTS 

[o], independent registered public accounting firm, have audited the  
statement of assets and liabilities of the Fund as of [o] which is included in  
this prospectus and Registration Statement. The statement of assets and         
liabilities is included in reliance upon their report, which is also included   
in this prospectus and in the Registration Statement, given on their authority  
as experts in accounting and auditing.                                          

ADDITIONAL INFORMATION  

 The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith is required   
to file reports, proxy statements and other information with the Commission.    
Any such reports and other information, including the Fund's Code of Ethics,    
can be inspected and copied at the public reference facilities of the           
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,   
D.C. 20549. Information on the operation of such public reference facilities    
may be obtained by calling the Commission at 1-202-942-8090. Copies of such     
materials can be obtained from the public reference section of the Commission   
by writing at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed     
rates, or by electronic request at publicinfo@sec.gov. The Commission           
maintains a Web site at http://www.sec.gov containing reports and information   
statements and other information regarding registrants, including the Fund,     
that file electronically with the Commission. Reports, proxy statements and     
other information concerning the Fund can also be inspected at the offices of   
the [o] Stock Exchange, [o].                                                    

Additional information regarding the Fund is contained in the         
Registration Statement on Form N-2, including amendments, exhibits and          
schedules thereto, relating to such shares filed by the Fund with the           
Commission in Washington, D.C. This prospectus does not contain all of the      
information set forth in the                                                    

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

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the Board of Directors and Stockholder,                                      
Municipal Inflation Protected Fund, Inc.:                                       

We have audited the accompanying statement of assets and liabilities of         
Municipal Inflation Protected Fund, Inc. as of [o]. This statement of assets    
and liabilities is the responsibility of the Fund's management. Our             
responsibility is to express an opinion on this statement of assets and         
liabilities based on our audit.                                                 

We conducted our audit in accordance with auditing standards generally          
accepted in the United States. Those standards require that we plan and         
perform the audit to obtain reasonable assurance about whether the statement    
of assets and liabilities is free of material misstatement. An audit includes   
examining, on a test basis, evidence supporting the amounts and disclosures in  
the statement of assets and liabilities. An audit also includes assessing the   
accounting principles used and significant estimates made by management, as     
well as evaluating the overall statement of assets and liabilities              
presentation. We believe that our audit provides a reasonable basis for our     
opinion.                                                                        

In our opinion, the statement of assets and liabilities referred to above       
presents fairly, in all material respects, the financial position of Municipal  
Inflation Protected Fund, Inc. at [o] in conformity with accounting principles  
generally accepted in the United States.                                        

[o], 2005                                                                       

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MUNICIPAL INFLATION PROTECTED FUND, INC.  

STATEMENT OF ASSETS AND LIABILITIES 

[o], 2005 

                                                        [Enlarge/Download Table]

ASSETS                                                                                                             
                                                                                                                   
   Cash.................................................................................................. $        
   Deferred offering costs (Note 1)...................................................................... _________
       Total assets......................................................................................          

LIABILITIES:                                                                                                       
   Liabilities and accrued expenses (Note 1)............................................................. _________
NET ASSETS:.............................................................................................. $        
                                                                                                           ========

NET ASSETS CONSIST OF:                                                                                             
   Common Stock, par value $.10 per share; 200,000,000 shares authorized;                                          
     issued and outstanding (Note 1)..................................................................... $        

Paid-in Capital in excess of par......................................................................... _________
Net Assets-Equivalent to $         net asset value per share based on                                              
          shares of capital stock outstanding (Note 1)................................................... $        
                                                                                                           ========

NOTES TO STATEMENT OF ASSETS AND LIABILITIES  

Note 1.  Organization                                                           

   The Fund was incorporated under the laws of the State of Maryland on [o],
2005 and is registered under the Investment Company Act of 1940, as amended,    
as a closed-end, non-diversified management investment company and has had no   
operations other than the sale to Fund Asset Management, L.P. (the "Investment  
Adviser") of an aggregate of [o] shares for $[o] on [o], 2005. The General      
Partner of the Investment Adviser is an indirect wholly-owned subsidiary of     
Merrill Lynch & Co., Inc. Certain officers and/or directors of the Fund are     
officers of the Investment Adviser.                                             

The Investment Adviser, on behalf of the Fund, will incur organization
costs estimated at $[o]. The Investment Adviser also has agreed to pay the      
amount by which the offering costs of the Fund (other than the underwriting     
discount) exceeds $[o] per share of common stock. Direct offering costs         
relating to the public offering of the Fund's shares will be charged to         
capital at the time of issuance of shares.                                      

Note 2. Investment Advisory Arrangements                                        

The Fund has engaged the Investment Adviser to provide investment     
advisory and management services to the Fund. The Investment Adviser will       
receive a monthly fee for advisory and management services at an annual rate    
of [o]% the Fund's total capital, including the capital raised by issuing the   
preferred stock, or approximately 54% of the Fund's common stock equity, [o]%   
of an aggregate of: (i) the Fund's average daily net assets (including any      
proceeds from the sale of preferred stock), and (ii) the proceeds of any        
outstanding borrowings used for leverage.                                       

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Note 3. Federal Income Taxes                                                    

The Fund intends to qualify as a "regulated investment company" and as
such (and by complying with the applicable provisions of the Internal Revenue   
Code of 1986, as amended) will not be subject to Federal income tax on taxable  
income (including realized capital gains) that is distributed to stockholders.  

Note 4. Accounting Principles                                                   

  The Fund's statement of assets and liabilities is prepared in conformity
with accounting principles generally accepted in the United States, which may   
require the use of management accruals and estimates. Actual results may        
differ from these estimates.                                                    

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APPENDIX A  
DESCRIPTION OF MUNICIPAL BOND RATINGS 

Description of Moody's Investors Service, Inc.'s ("Moody's") Bond Ratings       

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

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

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

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

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

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

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

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

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

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

A-1   

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

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

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

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

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

Description of Moody's Commercial Paper Ratings                                 

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

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

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

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

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

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

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

   The issue credit rating is not a recommendation to purchase, sell or hold
a financial obligation, inasmuch as it does not comment as to market price or   
suitability for a particular investor.                                          

The issue credit ratings are based on current information furnished by
the obligors or obtained by Standard & Poor's from other sources Standard &     
Poor's considers reliable. Standard & Poor's does not perform an audit in       
connection with any rating and may, on occasion, rely on unaudited financial    
information. The ratings may be                                                 

A-2   

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changed, suspended, or withdrawn as a result of changes in, or unavailability   
of, such information, or based on other circumstances.                          

  The issue credit ratings are based, in varying degrees, on the following
considerations:                                                                 

 I. Likelihood of payment--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with    
the terms of the obligation;                                                    

II. Nature of and provisions of the obligation;                       

  III. Protection afforded to, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of  
bankruptcy and other laws affecting creditors' rights.                          

Long Term Issue Credit Ratings                                                  

AAA  An obligation rated "AAA" has the highest rating assigned by Standard &    
Poor's. Capacity to meet its financial commitment on the obligation is
extremely strong.                                                     

AA   An obligation rated "AA" differs from the highest rated issues only in     
  small degree. The Obligor's capacity to meet its financial commitment on
the obligation is very strong.                                        

A    An obligation rated "A" is somewhat more susceptible to the adverse        
  effects of changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its  
financial commitment on the obligation is still strong.               

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

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

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

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

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

*    Continuance of the ratings is contingent upon Standard & Poor's receipt    
of an executed copy of the escrow agreement or closing documentation  
confirming investments and cash flows.                                

A-3   

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r    This symbol is attached to the ratings of instruments with significant     
noncredit risks. It highlights risks to principal or volatility of    
expected returns which are not addressed in the credit rating.        

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

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

Description of Standard & Poor's Commercial Paper Ratings                       

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

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

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

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

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

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

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

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

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

A-4   

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

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

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

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

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

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

Note rating symbols are as follows:                                   

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

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

SP-3 Speculative capacity to pay principal and interest.                        

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

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

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

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

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

A-5   

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

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

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

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

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

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

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

Description of Fitch's Speculative Grade Bond Ratings                           

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

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

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

B    Bonds are considered highly speculative. While bonds in this class are     
   currently meeting debt service requirements, the probability of continued
 timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic    
activity throughout the life of the issue.                            

A-6   

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CCC  Bonds have certain identifiable characteristics which, if not remedied,    
may lead to default. The ability to meet obligations requires an      
advantageous business and economic environment.                       

CC   Bonds are minimally protected. Default in payment of interest and/or       
principal seems probable over time.                                   

C    Bonds are in imminent default in payment of interest or principal.         

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

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

Description of Fitch's Short term Ratings                                       

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

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

Fitch short term ratings are as follows:                              

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

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

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

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

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

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

LOC  The symbol "LOC" indicates that the rating is based on a letter of credit  
issued by a commercial bank.                                          

NR   Indicates that Fitch does not rate the specific issue.                     

A-7   

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Conditional       A conditional rating is premised on the successful            
           completion of a project or the occurrence of a specific
event.                                      

Suspended         A rating is suspended when Fitch deems the amount of          
              information available from the issuer to be inadequate for
rating purposes.                            

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

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

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

A-8   

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APPENDIX B  

                                                        [Enlarge/Download Table]
                      TAXABLE EQUIVALENT YIELDS FOR 2005                                                             


             Taxable Income*                                               A Tax Exempt Yield of                     
-----------------------------------------           -----------------------------------------------------------------
                                            2005                                                                     
                                           Federal                                                                   
                                             Tax                                                                     
Single Return            Joint Return      Bracket    4.00%     4.50%      5.00%       5.50%      6.00%      6.50%   
-------------------  -------------------- --------- --------- --------- ----------- ----------- --------- -----------
                                                                                                                     
                                                                      is equal to a taxable yield of                 
$29,700-$71,950       $59,400-$119,950     25.00%   5.33%     6.00%        6.67%       7.33%      8.00%      8.67%   
$71,951-$150,150      $119,951-$182,800    28.00%   5.56%     6.25%        6.94%       7.64%      8.33%      9.03%   
$150,151-$326,450     $182,801-$326,450    33.00%   5.97%     6.72%        7.46%       8.21%      8.96%      9.70%   
Over $326,450         Over $326,450        35.00%   6.15%     6.92%        7.69%       8.46%      9.23%      10.00%  

______________                                                                  
*    An investor's marginal tax rates may exceed the rates shown in the above   
table due to the reduction, or possible elimination, of the personal  
exemption deduction for high-income taxpayers and an overall limit on 
itemized deductions. Income also may be subject to certain state and  
 local taxes. For investors who pay Federal alternative minimum tax, tax
  exempt yields may be equivalent to lower taxable yields than those shown
   above. The tax rates shown above do not apply to corporate taxpayers. The
tax characteristics of the Fund are described more fully elsewhere in 
   this prospectus. Consult your tax adviser for further details. This chart
   is for illustrative purposes only and cannot be taken as an indication of
anticipated Fund performance.                                         

B-1 

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

Through and including [o], 2005 (the 25th day after the date of this  
prospectus), all dealers effecting transactions in these securities, whether    
or not participating in this offering, may be required to deliver a             
prospectus. This is in addition to the dealers' obligation to deliver a         
prospectus when acting as underwriters and with respect to their unsold         
allotments or subscriptions.                                                    

______________ Shares 

Municipal Inflation Protected Fund, Inc.  

Common Stock  

_______________________ 

P R O S P E C T U S 
_______________________ 

                                    [o], 2005           Code #_______-__________

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PART C. OTHER INFORMATION 

ITEM 25. Financial Statements And Exhibits.                                     

(1)        Financial Statements                                       

       Report of Independent Registered Public Accounting Firm

    Statement of Assets and Liabilities as of [o], 2005.

Exhibits                                                              

Exhibits                                            Description           

(a) -- Articles of Incorporation of the Registrant.                 
(b) -- By-Laws of the Registrant.                                   
(c) -- Not applicable.                                              
(d)(1) -- Portions of the Articles of Incorporation and By-Laws of the    
             Registrant defining the rights of holders of shares of common stock
of the Registrant.(a)                                 
(d)(2) -  Form of specimen certificate for shares of common stock of the  
Registrant.*                                          
(e) -  Form of Dividend Reinvestment Plan.*                         
(f) -  Not applicable.                                              
   (g) -  Form of Investment Advisory Agreement between the Registrant and
           Fund Asset Management, L.P. ("FAM" or the "Investment Adviser").*
(h)(1) -- Form of Purchase Agreement between the Registrant and the       
Investment Adviser and [o].*                          
(h)(2) -- Form of [o] Standard Dealer Agreement.*                         
(h)(3) -- Form of Master Agreement Among Underwriters.*                   
(i) -- Not applicable.                                              
(j) -- Form of Custodian Contract between the Registrant and [o].*  
  (k)(l) -- Form of Registrar, Transfer Agency, Dividend Disbursing Agency and
           Shareholder Servicing Agency Agreement between the Registrant and
[o].*                                                 
(k)(2) -- Form of Administrative Services Agreement between the           
    Registrant and State Street Bank and Trust Company ("State
Street").(b)                                          
(k)(3) -- Form of Additional Compensation Agreement between FAM and [o].* 
(l) -- Opinion and Consent of Sidley Austin Brown & Wood LLP.*      
(m) -- Not applicable.                                              
    (n) -- Consent of [o], independent registered public accounting firm for
the Registrant.*                                      
(o) -- Not applicable.                                              
(p) -- Certificate of FAM.*                                         
(q) -- Not applicable.                                              
(r) -- Code of Ethics.(c)                                           
___________________________________________________                             

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

(b)  Incorporated by reference to Exhibit 8(d) to Post-Effective Amendment No.  
1 to the Registration Statement on Form N-1A of Merrill Lynch Focus   
Twenty Fund, Inc. (File No. 333-89775) filed on March 20, 2001.       

(c)  Incorporated by reference to Exhibit 15 to Pre-Effective Amendment No. 1   
to the Registration Statement on Form N-1A of Merrill Lynch Inflation 
Protected Fund (File No. 33-110936), filed on January 22, 2004.       
*    To be provided by Amendment.                                               

C-1   

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ITEM 26. Marketing Arrangements.                                                

See Exhibits (h)(1), (h)(2) and (h)(3).                               

ITEM 27. Other Expenses of Issuance and Distribution.                           

 The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:          

Registration fees                                           $*                  
[o] Stock Exchange listings fee                             *                   
Printing (other than stock certificates)                    *                   
Engraving and printing stock certificates                   *                   
Legal fees and expenses                                     *                   
Accounting fees and expenses                                *                   
NASD fees                                                   *                   
Underwriters expense reimbursement                          *                   
Miscellaneous                                               *                   
Total                                                       $*                  
______________                                                                  
*  To be provided by amendment                                                  

ITEM 28. Persons Controlled by or Under Common Control with Registrant.         

   The information in the prospectus under the captions "Investment Advisory
and Management Arrangements" and "Description of Capital Stock--Common Stock"   
and in Note 1 to the Statement of Assets and Liabilities is incorporated        
herein by reference.                                                            

ITEM 29. Number of Holders of Securities.                                       

  There will be one record holder of the Common Stock, par value $0.10 per
share, as of the effective date of this Registration Statement.                 

ITEM 30. Indemnification.                                                       

  Reference is made to Section 2-418 of the General Corporation Law of the
State of Maryland, Article V of the Registrant's Articles of Incorporation,     
Article VI of the Registrant's By-Laws and Section 6 of the Purchase            
Agreement, which provide for indemnification.                                   

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

Each officer and director of the Registrant claiming indemnification  
within the scope of Article VI of the By-laws shall be entitled to advances     
from the Registrant for payment of the reasonable expenses incurred by him or   
her in connection with proceedings to which he or she is a party in the manner  
and to the full extent permitted under                                          

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the Maryland General Corporation Law; provided, however, that the person        
seeking indemnification shall provide to the Registrant a written affirmation   
of his or her good faith belief that the standard of conduct necessary for the  
indemnification by the Registrant has been met and a written undertaking to     
repay any such advance, if it ultimately should be determined that the          
standard of conduct has not been met, and provided further that at least one    
of the following additional conditions is met: (i) the person seeking           
indemnification shall provide a security in form and amount acceptable to the   
Registrant for his or her undertaking; (ii) the Registrant is insured against   
losses arising by reason of the advance; or (iii) a majority of a quorum of     
non-party independent directors, or independent legal counsel in a written      
opinion shall determine, based on a review of facts readily available to the    
Registrant at the time the advance is proposed to be made, that there is        
reason to believe that the person seeking indemnification will ultimately be    
found to be entitled to indemnification.                                        

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

 In Section 6 of the Purchase Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify Merrill Lynch and each       
person, if any, who controls Merrill Lynch within the meaning of the            
Securities Act of 1933 (the "1933 Act") against certain types of civil          
liabilities arising in connection with the Registration Statement or            
Prospectus.                                                                     

   Insofar as indemnification for liabilities arising under the 1933 Act may
be provided to directors, officers and controlling persons of the Registrant    
and Merrill Lynch, pursuant to the foregoing provisions or otherwise, the       
Registrant has been advised that, in the opinion of the Securities and          
Exchange Commission, such indemnification is against public policy as           
expressed in the 1933 Act and is, therefore, unenforceable. In the event that   
a claim for indemnification against such liabilities (other than the payment    
by the Registrant of expenses incurred or paid by a director, officer or        
controlling person of the Registrant in connection with any successful defense  
of any action, suit or proceeding) is asserted by such director, officer or     
controlling person in connection with the securities being registered, the      
Registrant will, unless in the opinion of its counsel the matter has been       
settled by controlling precedent, submit to a court of appropriate              
jurisdiction the question whether such indemnification by it is against public  
policy as expressed in the 1933 Act and will be governed by the final           
adjudication of such issue.                                                     

ITEM 31. Business And Other Connections Of The Investment Adviser.              

FAM acts as the investment adviser for a number of affiliated open-end
and closed-end registered investment companies.                                 

 Merrill Lynch Investment Managers, L.P. ("MLIM") acts as the investment
adviser for a number of affiliated open-end and closed-end registered           
investment companies, and also as sub-adviser to certain other portfolios.      

  The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill      
Lynch Funds for Institutions Series is One Financial Center, 23rd Floor,        
Boston, Massachusetts 02111-2665.                                               

The address of the Investment Adviser, MLIM, Princeton Services, Inc. 
("Princeton Services") and Princeton Administrators, L.P. ("Princeton           
Administrators") is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The   
address of FAM Distributors, Inc., ("FAMD") is P.O. Box 9081, Princeton, New    
Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith         
Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is    
World Financial Center, North Tower, 250 Vesey Street, New York, New York       
10080. The address of the Fund's transfer agent, [o] is [o].                    

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Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or            
employment of a substantial nature in which each such person or entity has      
been engaged for the past two fiscal years for his, her or its own account or   
in the capacity of director, officer, employee, partner or Director. Mr. Burke  
is Vice President and Treasurer of all or substantially all of the investment   
companies advised by FAM or its affiliates, and Mr. Doll is an officer of one   
or more such companies.                                                         

                                                        [Enlarge/Download Table]

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

Princeton Services   General Partner           General Partner of MLIM                                          

Robert C. Doll, Jr.  President                 President of MLIM; Co-Head (Americas Region) of MLIM from        
                                               2000 to 2004; Director of Princeton Services; Chief Investment   
                                               Officer of OppenheimerFunds, Inc. in 1999 and Executive Vice     
                                               President thereof from 1991 to 1999                              

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

Andrew J. Donohue    General Counsel           First Vice President and General Counsel of MLIM; Senior Vice    
                                               President and Director of Princeton Services; President and      
                                               Director of FAMD                                                 

Alice A. Pellegrino  Secretary                 Secretary of MLIM, Princeton Services and FAMD                   

ITEM 32.  Location of Account and Records.                                      

All accounts, books and other documents required to be maintained by  
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules  
promulgated thereunder are maintained at the offices of the Registrant (800     
Scudders Mill Road, Plainsboro, New Jersey 08536), its investment adviser (800  
Scudders Mill Road, Plainsboro, New Jersey 08536), and its custodian and        
transfer agent.                                                                 

ITEM 33.  Management Services.                                                  

Not applicable.                                                       

ITEM 34.  Undertakings.                                                         

(1) The Registrant undertakes to suspend the offering of the shares of
common stock covered hereby until it amends its prospectus contained herein if  
(1) subsequent to the effective date of this Registration Statement, its net    
asset value per share of common stock declines more than 10% from its net       
asset value per share of common stock as of the effective date of this          
Registration Statement, or (2) its net asset value per share of common stock    
increases to an amount greater than its net proceeds as stated in the           
prospectus contained herein.                                                    

(2) Not applicable.                                                   

(3) Not applicable.                                                   

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(4) Not applicable.                                                   

(5) The Registrant undertakes that:                                   

     (a) For purposes of determining any liability under the 1933 Act,
   the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the
  form of prospectus filed by the registrant pursuant to Rule 497(h) under
   the 1933 Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.                                

        (b) For the purpose of determining any liability under the 1933 Act,
   each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities  
 offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.               

(c) Not applicable.                                         

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SIGNATURES  

Pursuant to the requirements of the Securities Act of 1933 and the    
Investment Company Act of 1940, the Registrant has duly caused this             
Registration Statement to be signed on its behalf by the undersigned,           
thereunto duly authorized, in the Township of Plainsboro, and State of New      
Jersey, on the 28th day of April, 2005.                                         

                                      Municipal Inflation Protected Fund, Inc.
                              (Registrant)

                       By:  /s/ Brian D. Stewart
                                       -----------------------------------------
                           (Brian D. Stewart, President)

Each person whose signature appears below hereby authorizes Bradley J.
Lucido, Alice A. Pellegrino and Brian D. Stewart, or any of them, as            
attorney-in-fact, to sign on his behalf, individually and in each capacity      
stated below, any amendments to this Registration Statement (including any      
Post-Effective Amendments) and to file the same, with all exhibits thereto,     
with the Securities and Exchange Commission.                                    

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

                                                        [Enlarge/Download Table]


      Signatures                             Title                           Date     
                                                                                      
 /s/ Brian D. Stewart     President (Principal Executive Officer) and   April 28, 2005
 --------------------                       Director                                  
  (Brian D. Stewart)                                                                  

 /s/ Bradley J. Lucido   Treasurer (Principal Financial and Accounting  April 28, 2005
 ---------------------               Officer) and Director                            
  (Bradley J. Lucido)                                                                 

/s/ Alice A. Pellegrino                     Director                    April 28, 2005
-----------------------                                                               
 (Alice A. Pellegrino)                                                                

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Exhibit Index 

(a) -- Articles of Incorporation of the Registrant.                             
(b) -- By-laws of the Registrant.                                               

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘N-2’ Filing		Date		First		Last			Other Filings
Filed on:		4/29/05		1		2			N-8A
		4/28/05		84
		4/21/05		20
		12/31/04		41
		1/22/04		79
		12/31/03		40
		9/11/01		18
		3/20/01		79
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