N-14

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J+TuGVQ7C4yHvlDsVN4Xt4dtd0gl6idO83gz2lQt2/2AdJXmWFi0oV2aM3/8XHj/ p2+9JTLj+Xd3DPn5JjJ4FQ== 0000891092-01-500630.txt : 20010917 0000891092-01-500630.hdr.sgml : 20010917 ACCESSION NUMBER: 0000891092-01-500630 CONFORMED SUBMISSION TYPE: N-14 8C/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20010914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIYIELD FUND INC CENTRAL INDEX KEY: 0000879361 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-14 8C/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-65242 FILM NUMBER: 1737569 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08543-9011 BUSINESS PHONE: 6092822800 MAIL ADDRESS: STREET 1: PO BOX 9011 STREET 2: C/O MERRILL LYNCH ASSET MANAGEMENT CITY: PRINCETON STATE: NJ ZIP: 08543-9011 N-14 8C/A 1 file001.htm FORM N-14 8C/A N-14

<R>As filed with the Securities and Exchange Commission on September 14, 2001

Securities Act File No. 333-65242</R>
Investment Company Act File No. 811-06435

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

[X]
[ ] <R>Pre-Effective Amendment No. 1</R>
Post-Effective Amendment No.
(Check appropriate box or boxes)

MuniYield Fund, Inc.
(Exact Name of Registrant as Specified in Charter)

(609) 282-2800
(Area Code and Telephone Number)

800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices: Number, Street, City, State, Zip Code)

Terry K. Glenn
MuniYield Fund, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey 08536
Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)

Copies to:

Frank P. Bruno, Esq.
SIDLEY AUSTIN BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557 <R>Philip L. Kirstein, Esq.</R>
FUND ASSET MANAGEMENT, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08543-9011

Approximate Date of Proposed Public Offering: As soon as practicable after the Registration Statement becomes effective under the Securities Act of 1933.

Calculation of Registration Fee Under the Securities Act of 1933

Title of Securities Being Registered Amount being
Registered(1) Proposed
Maximum
Offering
Price
Per Unit(1) Proposed
Maximum
Aggregate
Offering
Price(1) Amount of
Registration
Fee(3)

Common Stock ($.10 par value)

6,356,590

$13.37

$84,987,605.63

$21,246.90

Auction Market Preferred Stock,
Series F ($.10 par value)

    1,720

$25,000

(2)

    $43,000,000

    $10,750

(1) Estimated solely for the purpose of calculating the filing fee.

(2) Represents the liquidation preference of a share of preferred stock after the reorganization.

(3) <R> Previously paid by wire transfer to the designated lockbox of the Securities and Exchange Commission in Pittsburgh, Pennsylvania.</R>

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

MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on October 24, 2001

TO THE STOCKHOLDERS OF

MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.:

NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the “Meeting”) of Merrill Lynch Municipal Strategy Fund, Inc. (“Municipal Strategy”) will be held at the offices of Fund Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey on Wednesday, October 24, 2001 at 9:30 a.m. Eastern time for the following purposes:

(1) To approve or disapprove an Agreement and Plan of Reorganization (the “Agreement and Plan”) contemplating (i) the acquisition of substantially all of the assets and the assumption of substantially all of the liabilities of Municipal Strategy by MuniYield Fund, Inc. (“MuniYield”), in return solely for an equal aggregate value of newly issued shares of common stock of MuniYield and shares of a newly created series of Auction Market Preferred Stock (“AMPS”) of MuniYield to be designated Series F, and (ii) the distribution by Municipal Strategy of the shares of MuniYield common stock to the holders of common stock of Municipal Strategy (plus cash in lieu of fractional shares) and the shares of Series F AMPS of MuniYield to the holders of Series A AMPS of Municipal Strategy. A vote in favor of this proposal also will constitute a vote in favor of the liquidation and dissolution of Municipal Strategy under Maryland corporate law and the termination of Municipal Strategy’s registration under the Investment Company Act of 1940, as amended; and

(2) To transact such other business as properly may come before the Meeting or any adjournment thereof.

The Board of Directors of Municipal Strategy has fixed the close of business on August 27, 2001 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Meeting or any adjournment thereof.

A complete list of the stockholders of Municipal Strategy entitled to vote at the Meeting will be available and open to the examination of any stockholder of Municipal Strategy for any purpose germane to the Meeting during ordinary business hours from and after October 10, 2001, at the offices of Municipal Strategy, 800 Scudders Mill Road, Plainsboro, New Jersey.

You are cordially invited to attend the Meeting. Stockholders who do not expect to attend the Meeting in person are requested to complete, date and sign the enclosed form of proxy and return it promptly in the envelope provided for that purpose. If you have been provided with the opportunity on your proxy card or voting instruction form to provide voting instructions via telephone or the Internet, please take advantage of these prompt and efficient voting options. The enclosed proxy is being solicited on behalf of the Board of Directors of Municipal Strategy.

<R> If you have any questions regarding the enclosed proxy material or need assistance in voting your shares of common stock or shares of AMPS, please contact our proxy solicitor, Georgeson Shareholder at
1-888-856-3062.</R>

By Order of the Board of Directors,

ALICE A. PELLEGRINO
Secretary

Plainsboro, New Jersey
<R>Dated: September 14, 2001</R>

<R>PROXY STATEMENT OF</R>
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
FOR USE AT A SPECIAL MEETING OF STOCKHOLDERS
To Be Held on October 24, 2001

PROSPECTUS OF
MUNIYIELD FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800

This Proxy Statement and Prospectus is furnished to you because you are a stockholder of Merrill Lynch Municipal Strategy Fund, Inc. (“Municipal Strategy”). A special meeting of the stockholders of Municipal Strategy will be held on October 24, 2001 (the “Meeting”) to consider the items listed below and discussed in greater detail in this Proxy Statement and Prospectus. The Board of Directors of Municipal Strategy is requesting the stockholders of Municipal Strategy to submit a proxy to be used at the Meeting to vote the shares held by the stockholder submitting the proxy.

Municipal Strategy has outstanding shares of common stock (“Municipal Strategy Common Stock”), par value $.10 per share, and shares of Auction Market Preferred Stock (“AMPS”), designated Series A (“Municipal Strategy Series A AMPS”), with a par value of $.10 per share and a liquidation preference of $25,000 per share.

Stockholders are being asked to consider the following proposal:

<R> 1. To approve or disapprove an Agreement and Plan of Reorganization between Municipal Strategy and MuniYield Fund, Inc. (“MuniYield”).

2. To transact such other business as may properly come before the Meeting.</R>

The Agreement and Plan of Reorganization that you are being asked to consider involves a transaction that will be referred to in this Proxy Statement and Prospectus as the “Reorganization.” The Reorganization involves the combination of two funds into one. The two funds are:

MuniYield, which will be the surviving fund, and

Municipal Strategy.

MuniYield and Municipal Strategy are sometimes referred to herein collectively as the “Funds” and individually as a “Fund,” as the context requires. The fund resulting from the Reorganization is sometimes referred to herein as the “Combined Fund.”

(continued on next page)

The Securities and Exchange Commission has not approved or disapproved these securities
or passed upon the adequacy of this Proxy Statement and Prospectus.
Any representation to the contrary is a criminal offense.

<R>The date of this Proxy Statement and Prospectus is September 14, 2001.</R>

<R> In the Reorganization, MuniYield will acquire substantially all of the assets and liabilities of Municipal Strategy in return for newly issued shares of common stock of MuniYield (“MuniYield Common Stock”) with a par value of $.10 per share, and shares of a newly created series of AMPS, with a par value of $.10 per share and a liquidation preference of $25,000 per share, to be designated Series F (“MuniYield Series F AMPS”). Municipal Strategy will distribute the MuniYield Common Stock (plus cash in lieu of fractional shares) and MuniYield Series F AMPS received in the Reorganization to its stockholders and will then liquidate and dissolve under Maryland law and terminate its registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”). MuniYield will continue to operate as a registered, non-diversified, closed-end investment company with the investment objective and policies described in this Proxy Statement and Prospectus.

In the Reorganization, MuniYield will issue shares of its common stock to Municipal Strategy based on the net asset value of the assets transferred to MuniYield by Municipal Strategy. These shares will then be distributed by Municipal Strategy to its stockholders based on the net asset value of the shares held by each stockholder just prior to the Reorganization. A holder of Municipal Strategy Common Stock will receive MuniYield Common Stock (plus cash in lieu of fractional shares). A holder of Municipal Strategy Series A AMPS will receive MuniYield Series F AMPS. All references to the Municipal Strategy Common Stock will include shares of common stock representing Dividend Reinvestment Plan shares held in the book deposit accounts of holders of Municipal Strategy Common Stock.</R>

This Proxy Statement and Prospectus serves as a prospectus of MuniYield in connection with the issuance of MuniYield Common Stock and MuniYield Series F AMPS in the Reorganization.

This Proxy Statement and Prospectus sets forth the information about the Funds that stockholders of Municipal Strategy should know before considering the Reorganization and should be retained for future reference. The Board of Directors of Municipal Strategy authorized the solicitation of proxies in connection with the Reorganization solely on the basis of this Proxy Statement and Prospectus and the accompanying documents.

The address of the principal executive offices of MuniYield and Municipal Strategy is 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and the telephone number is 1-609-282-2800.

The MuniYield Common Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “MYD” and may be bought or sold at the then prevailing market price on each day the NYSE is open for trading. Municipal Strategy engages in a continuous offering of Municipal Strategy Common Stock and Municipal Strategy Series A AMPS. Municipal Strategy Common Stock is not listed on any exchange and no secondary market presently exists for Municipal Strategy Common Stock, nor is it currently expected that a secondary market will develop. Municipal Strategy Series A AMPS are not traded on any stock exchange or automated quotation system. Municipal Strategy Series A AMPS can be purchased at an auction or through broker-dealers who maintain a secondary market in the AMPS.

After the Reorganization, MuniYield Common Stock will continue to be listed on the NYSE under the symbol “MYD.” MuniYield Series F AMPS will not be traded on any stock exchange or automated quotation system. MuniYield Series F AMPS will be available for purchase at an auction or through broker-dealers who maintain a secondary market in the AMPS. Reports, proxy materials and other information concerning MuniYield may be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Reports, proxy materials and other information concerning Municipal Strategy may be inspected at its principal executive office.

TABLE OF CONTENTS

<R>		Page
INTRODUCTION		1
SUMMARY		1
	The Reorganization	1
	What Will Be the Result of the Reorganization	1
	Reasons for the Reorganization	2
	Pro Forma Fee Table	3
RISK FACTORS AND SPECIAL CONSIDERATIONS		12
	Trading at a Discount	12
	Secondary Market	12
	Non-Diversified Status	12
	Interest Rate and Credit Risk	12
	High Yield or “Junk” Bonds	13
	Private Activity Bonds	13
	Rating Agency Guidelines	13
	Indexed and Inverse Floating Rate Securities	13
	Options and Futures Transactions	13
	Antitakeover Provisions	14
	Leverage	14
	Portfolio Management and Other Considerations	14
COMPARISON OF THE FUNDS		15
	Financial Highlights	15
	Investment Objectives and Policies	19
	Description of Municipal Bonds	21
	Other Investment Policies	22
	Information Regarding Options and Futures Transactions	23
	Investment Restrictions	26
	Rating Agency Guidelines	27
	Portfolio Composition	28
	Portfolio Transactions	29
	Portfolio Turnover	30
	Net Asset Value	30
	Capital Stock	31
	Preferred Stock	32
	Certain Provisions of the Charters	32
	Management of the Funds	33
	Code of Ethics	36
	Voting Rights	36
	Stockholder Inquiries	37
	Dividends and Distributions	37
	Automatic Dividend Reinvestment Plan	38
	Mutual Fund Investment Option	40
	Liquidation Rights of Holders of AMPS	40
	Tax Rules Applicable to the Funds and Their Stockholders	40
	Tax Treatment of Options and Futures Transactions	43
AGREEMENT AND PLAN OF REORGANIZATION		44
	General	44

</R>

<R>

Procedure

45

Terms of the Agreement and Plan of Reorganization

45

Potential Benefits to Stockholders as a Result of the Reorganization

47

Surrender and Exchange of Stock Certificates

49

Tax Consequences of the Reorganization

49

Capitalization

51

INFORMATION CONCERNING THE MEETING

51

Date, Time and Place of Meeting

51

Solicitation, Revocation and Use of Proxies

51

Record Date and Outstanding Shares

51

Security Ownership of Certain Beneficial Owners and Management

52

Voting Rights and Required Vote

52

Appraisal Rights

52

ADDITIONAL INFORMATION

53

CUSTODIAN

54

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

54

ACCOUNTING SERVICES PROVIDER

54

LEGAL OPINIONS

54

EXPERTS

54

LEGAL PROCEEDINGS

54

STOCKHOLDER PROPOSALS

55

INDEX TO FINANCIAL STATEMENTS

F-1

APPENDIX I: INFORMATION PERTAINING TO EACH FUND
I-1

APPENDIX II: AGREEMENT AND PLAN OF REORGANIZATION

II-1

APPENDIX III: RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER

III-1

</R>

INTRODUCTION

<R> This Proxy Statement and Prospectus is furnished in connection with the solicitation of proxies on behalf of the Board of Directors of Municipal Strategy for use at the Meeting to be held at the offices of Fund Asset Management, L.P. (“FAM”), 800 Scudders Mill Road, Plainsboro, New Jersey on Wednesday, October 24, 2001, at 9:30 a.m., Eastern time. The mailing address for each of the Funds is P.O. Box 9011, Princeton, New Jersey 08543-9011. The approximate mailing date of this Proxy Statement and Prospectus is September 20, 2001. </R>

Any person giving a proxy may revoke it at any time prior to its exercise (1) by executing a superseding proxy, (2) by giving written notice of the revocation to the Secretary of Municipal Strategy at the address indicated above, or (3) by voting in person at the Meeting. All properly executed proxies received prior to the Meeting will be voted at the Meeting in accordance with the instructions marked thereon or otherwise as provided therein. Unless instructions to the contrary are marked, properly executed proxies will be voted “FOR” Item 1 to approve the Agreement and Plan of Reorganization between MuniYield and Municipal Strategy (the “Agreement and Plan”).
<R>

With respect to Item 1, assuming the required quorum is present at the Meeting, approval of the Agreement and Plan will require the affirmative vote of a majority of the outstanding shares of (1) Municipal Strategy Common Stock and Municipal Strategy Series A AMPS, voting together as a single class, and (2) Municipal Strategy Series A AMPS, voting separately as a class. See “Information Concerning the Meeting.”

The Board of Directors of Municipal Strategy has fixed the close of business on August 27, 2001 as the record date (the “Record Date”) for the determination of stockholders entitled to notice of and to vote at the Meeting and at any adjournment thereof. On the Record Date, stockholders of Municipal Strategy will be entitled to one vote for each share of stock held, with no shares of stock having cumulative voting rights. As of the Record Date, Municipal Strategy had outstanding 7,919,993 shares of common stock and 1,720 shares of Series A AMPS. To the knowledge of the management of Municipal Strategy, no person or entity owns beneficially or of record 5% or more of the outstanding shares of capital stock of Municipal Strategy as of the Record Date.</R>

The Board of Directors of Municipal Strategy knows of no business other than that discussed above which will be presented for consideration at the Meeting. If any other matter is properly presented, it is the intention of the persons named in the enclosed proxy to vote in accordance with their best judgment.

This Proxy Statement and Prospectus serves as a prospectus of MuniYield under the Securities Act, in connection with the issuance of shares of MuniYield Common Stock and MuniYield Series F AMPS to Municipal Strategy pursuant to the terms of the Agreement and Plan.

SUMMARY

The following is a summary of certain information contained elsewhere in this Proxy Statement and Prospectus (including documents incorporated by reference) and is qualified in its entirety by reference to the more complete information contained in this Proxy Statement and Prospectus and in the Agreement and Plan attached hereto as Appendix II.

The Reorganization

At separate meetings of the Boards of Directors of Municipal Strategy and MuniYield held on June 7, 2001 and June 20, 2001, respectively, each Board unanimously approved the transaction whereby (i) MuniYield would acquire substantially all of the assets and would assume substantially all of the liabilities of Municipal Strategy, (ii) MuniYield would simultaneously issue to Municipal Strategy shares of MuniYield Common Stock and MuniYield Series F AMPS, (iii) the shares of MuniYield Common Stock would be subsequently distributed to the holders of Municipal Strategy Common Stock (plus cash in lieu of fractional shares), (iv) the shares of MuniYield Series F AMPS would be subsequently distributed to the holders of Municipal Strategy Series A AMPS, and (v) Municipal Strategy would be deregistered and dissolved, as described below.

What Will Be the Result of the Reorganization

If the Agreement and Plan is approved and the Reorganization is completed:

• MuniYield will acquire substantially all of the assets and assume substantially all of the liabilities of Municipal Strategy;

• Stockholders of Municipal Strategy will become stockholders of MuniYield;

• Stockholders of Municipal Strategy Common Stock will receive full shares of MuniYield Common Stock (plus cash in lieu of fractional shares) equal to the aggregate net asset value of the shares of Municipal Strategy Common Stock currently owned by such stockholders; and

• <R>Stockholders of Municipal Strategy Series A AMPS will receive shares of MuniYield Series F AMPS equal to the aggregate liquidation preference of the Municipal Strategy Series A AMPS currently owned by such stockholders.

The Reorganization will be structured as a tax-free transaction for federal tax purposes. Neither Fund will recognize gain or loss in the Reorganization and the stockholders of neither Fund will recognize gain or loss upon the exchange of his or her shares for MuniYield Common Stock or MuniYield Series F AMPS, as applicable, in the Reorganization (except to the extent that a holder of Municipal Strategy Common Stock receives cash representing an interest in fractional shares of MuniYield Common Stock). Stockholders should consult their tax advisers regarding the effect of the Reorganization in light of their individual circumstances.</R>

Reasons for the Reorganization

The Boards of Directors of Municipal Strategy and MuniYield have approved the Agreement and Plan. The Board of Directors of Municipal Strategy recommends that you vote to approve the Agreement and Plan.

Municipal Strategy

<R> The Board of Directors of Municipal Strategy has determined that Municipal Strategy common stockholders are likely to benefit from the Reorganization and believes that the Reorganization is in the best interests of Municipal Strategy and its common stockholders. In addition, the Board of Municipal Strategy has determined, with respect to net asset value, that the interests of existing stockholders will not be diluted as a result of the Reorganization. </R>

In reaching its decision the Board considered a number of factors including the following:

• <R>After the Reorganization, Municipal Strategy common stockholders will be invested in a substantially larger non-diversified, leveraged, closed-end fund with an investment objective and policies substantially similar to Municipal Strategy’s investment objective and policies. As of July 31, 2001 the net assets of Municipal Strategy (including assets attributable to Municipal Strategy Series A AMPS) were approximately $122 million. Assuming that the Reorganization had taken place on July 31, 2001, the Combined Fund (including assets attributable to AMPS) would have had net assets of approximately $896 million; </R>

• After the Reorganization, Municipal Strategy common stockholders should experience lower expenses per share, economies of scale and greater flexibility in portfolio management;

• <R>After the Reorganization, Municipal Strategy common stockholders will benefit from the fact that the Combined Fund will not pay the administrative fee currently paid to FAM by Municipal Strategy; </R>

• After the Reorganization, Municipal Strategy common stockholders will no longer be subject to the expenses associated with Municipal Strategy’s required yearly prospectus updates;

• After the Reorganization, Municipal Strategy common stockholders will no longer be subject to the expenses of conducting quarterly tender offers;

• After the Reorganization, Municipal Strategy common stockholders will no longer be subject to a contingent deferred sales charge (“CDSC”) upon the sale of shares held for less than three years;

• <R>After the Reorganization, Municipal Strategy common stockholders will be able to sell their shares on each day that the NYSE is open for trading at the market price on that day; the market price may be lower or higher than th net asset value of the shares and transactions in shares may be subject to brokerage commission or other charges; and

• After the Reorganization, subject to certain limitations, the stockholders of Municipal Strategy may benefit from the ability of the Combined Fund to use the net realized capital losses of each Fund to offset future net realized capital gains of the Combined Fund, if any. As of July 31, 2001, each Fund had net realized capital losses that may, subject to certain limitations, be shared by the stockholders of the Combined Fund. </R>

MuniYield

<R> Although the pro forma total operating expense ratio of the Combined Fund is not expected to be significantly lower than MuniYield’s current operating expense ratio, MuniYield common stockholders will not be adversely affected by the Reorganization since FAM has agreed to bear all Reorganization expenses attributable to MuniYield and MuniYield may otherwise benefit from an increase in the Combined Fund’s level of net assets.</R>

It is not anticipated that the Reorganization will directly benefit the holders of shares of any series of AMPS of either Fund. However, the Reorganization will not adversely affect the holders of shares of any series of AMPS of either Fund. The expenses of the Reorganization will not be borne by the holders of shares of AMPS of either Fund.

<R> The Board of Directors of MuniYield has determined, with respect to net asset value, that the interests of existing stockholders will not be diluted as a result of the Reorganization. See “Pro Forma Fee Table” below and “Agreement and Plan of Reorganization—Potential Benefits to Stockholders as a Result of the Reorganization.” </R>

If all of the requisite approvals are obtained, it is anticipated that the Reorganization will occur as soon as practicable after such approval, provided that the Funds have obtained prior to that time a favorable opinion of counsel concerning the tax consequences of the Reorganization as set forth in the Agreement and Plan. Under the Agreement and Plan, however, the Board of Directors of either Fund may cause the Reorganization to be postponed or abandoned in certain circumstances should such Board determine that it is in the best interest of the stockholders of that Fund to do so. The Agreement and Plan may be terminated, and the Reorganization abandoned, whether before or after approval by the Municipal Strategy stockholders, at any time prior to the Closing Date (as defined below), (i) by mutual consent of the Boards of Directors of the Funds, or (ii) by the Board of Directors of either Fund, if any condition to that Fund’s obligations has not been fulfilled or waived by such Fund’s Board of Directors.

Pro Forma Fee Table

<R>Fee Table for Common Stockholders of MuniYield,
Municipal Strategy and the Pro Forma Combined Fund
as of April 30, 2001* (Unaudited)(a)</R>

This table illustrates, based on average net assets attributable to common stock, the expenses incurred by each Fund individually and the estimated pro forma expenses to be incurred by the Combined Fund after the Reorganization:

<R>	Actual				Pro Form
	MuniYield		Municipal Strategy		Combined Fund
Common Stockholder Transaction Expenses
Maximum Sales Load (as a percentage of the offering price) imposed on purchases of common stock	None	(b)	None		None	(b)(c)


Dividend Reinvestment and Cash Purchase Plan Fees	None		None		None

Contingent Deferred Sales Charge (as a percentage of original purchase price or net asset value at the time of repurchase)(d)	None		3.0% during the first year, decreasing 1.0% annually thereafter to 0.0% after the third year		None



Annual Expenses (as a percentage of average net assets attributable to common stock for the six months ended April 30, 2001(e))


Investment Advisory Fees(f)	0.75	%	0.76	%	0.75	%
Other Expenses	0.25	%	1.29	%(g)	0.24	%
Total Annual Expenses(h)	1.00	%	2.05	%	0.99	%

<R>

The expenses for the Combined Fund represent the estimated annualized expenses as of April 30, 2001 assuming MuniYield had acquired the assets and assumed the liabilities of Municipal Strategy as of that date.

(a)

No information is presented with respect to AMPS because no Fund’s operating expenses are, and the expenses of the Reorganization will not be, borne by the holders of AMPS of either Fund. Generally, AMPS are sold at a fixed liquidation preference of $25,000 per share and investment return is set at an auction.

(footnotes continued on next page)

(footnotes continued from previous page)

(b) Shares of common stock purchased in the secondary market may be subject to brokerage commissions or other charges.

(c) No sales load will be charged on the issuance of shares in the Reorganization. Shares of common stock are not available for purchase from the Combined Fund but may be purchased through a broker-dealer subject to individually negotiated commission rates.

(d) <R>No CDSC will apply to shares of MuniYield Common Stock issued to Municipal Strategy in the Reorganization, nor will any CDSC be due on shares of Municipal Strategy Common Stock exchanged for shares of MuniYield Common Stock in connection with the Reorganization.</R>

(e) The pro forma annual operating expenses for the Combined Fund are projections for a 12-month period.

(f) <R>Based on average net assets for the six months ended April 30, 2001 of each Fund and the Combined Fund (excluding assets attributable to AMPS). If assets attributable to AMPS are included, the Investment Advisory Fee for each Fund and the Combined Fund would be 0.50% of average net assets.

(g) Includes the administrative fee paid by Municipal Strategy to FAM at the rate of 0.25% of average daily net assets including the proceeds from the issuance of AMPS. </R>

(h) Based on average net assets (excluding assets attributable to AMPS) for the six months ended April 30, 2001 of Municipal Strategy, MuniYield and the Combined Fund and excludes FAM’s voluntary waiver of a portion of the advisory fee and/or reimbursement of certain other expenses with respect to Municipal Strategy. Including such fee waiver and/or expense reimbursement applicable to Municipal Strategy, the Total Annual Expenses for Municipal Strategy would have been 1.90%. If assets attributable to AMPS are included, the Total Annual Expenses for MuniYield, Municipal Strategy (excluding the advisory fee waiver and/or expense reimbursement applicable to Municipal Strategy) and the Combined Fund would be 0.67%, 1.34% and 0.66%, respectively. If assets attributable to AMPS and the above described advisory fee waiver and/or expense reimbursement applicable to Municipal Strategy are included, the Total Annual Expenses for Municipal Strategy would have been 1.24%. It is not anticipated that FAM will waive its advisory fee or reimburse expenses with respect to the Combined Fund on an ongoing basis after the Reorganization.

Examples:

Cumulative Expenses Paid on Shares of Common Stock for the Periods Indicated:


1 Year

3 Years

5 Years

10 Years

An investor would pay the following expenses
on a $1,000 investment assuming (1) the operating
expense ratio for each Fund set forth above and
(2) a 5% annual return throughout the period:

MuniYield

$10

$32

$  55

$122

Municipal Strategy*

$21

$64

$110

$238

Combined Fund**

$10

$32

$  55

$121

* <R>Assumes that the investor is not tendering shares at the end of the period. </R>

** Assumes that the Reorganization had taken place on April 30, 2001.

<R> The foregoing Fee Table and Examples are intended to assist investors in understanding the costs and expenses that a MuniYield or Municipal Strategy stockholder bears directly or indirectly as compared to the costs and expenses that would be borne by such investors taking into account the Reorganization. The Examples set forth above assume that all dividends were reinvested and uses a 5% annual rate of return as mandated by Commission regulations. The Examples should not be considered a representation of past or future expenses or annual rates of return. Actual expenses or annual rates of return may be more or less than those assumed for purposes of the Examples. See “Summary,” “Comparison of the Funds” and “Agreement and Plan of Reorganization—Potential Benefits to Stockholders as a Result of the Reorganization.”</R>

MuniYield

MuniYield was incorporated under the laws of the State of Maryland on September 20, 1991, and commenced operations on November 20, 1991.

MuniYield currently has outstanding common stock and five series of AMPS, designated Series A, Series B, Series C, Series D and Series E (collectively, the “MuniYield AMPS”).

<R>As of July 31, 2001, MuniYield had net assets (including assets attributable to MuniYield AMPS) of approximately $774 million.</R>

Municipal Strategy

Municipal Strategy was incorporated under the laws of the State of Maryland on July 13, 1994, and commenced operations on November 3, 1995.

Municipal Strategy has outstanding common stock and one series of AMPS, designated Series A.

<R>As of July 31, 2001, Municipal Strategy had net assets (including assets attributable to Municipal Strategy Series A AMPS) of approximately $122 million.

Comparison of the Funds		MuniYield	Municipal Strategy
	Fund Structure	Closed-end fund with its common stock listed on the NYSE	Continuously offered closed-end fund

	Liquidity	Common stock trades at market price (which may be higher or lower than net asset value) on the NYSE on each day the NYSE is open for trading	Fund makes quarterly tender offers to purchase its common stock from stockholders at net asset value per share (less any applicable CDSC)

	Purchases and Sales of Common Stock	Investors purchase and sell common stock through a registered broker-dealer on the NYSE, and transactions in shares may be subject to brokerage commissions or other charges	Investors purchase common stock from FAM Distributors, Inc. or from other selected securities dealers or financial intermediaries, and may sell their shares by tendering common stock to the Fund on a quarterly basis </R>

	Investment Objectives and Policies. Each Fund is a non-diversified, leveraged, closed-end, management investment company. The Funds have substantially similar investment objectives and policies. Each Fund seeks to provide stockholders with as high a level of current income exempt from Federal income tax as is consistent with its investment policies.

	<R>Each Fund seeks to achieve its investment objective by investing primarily in a portfolio of long term investment grade municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes (“Municipal Bonds”). Under normal circumstances, at least 80% of each Fund’s total assets will be invested in Municipal Bonds.

	Investment Grade Municipal Obligations. Each Fund generally will invest at least 75% of its total assets in Municipal Bonds that are rated investment grade by Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s (“S&P”) or Fitch, Inc. (“Fitch”). See Appendix III—“Ratings of Municipal Bonds and Commercial Paper.” Each Fund also may buy unrated securities that are considered by FAM to be of comparable quality. </ R>

	High Yield Securities or “Junk” Bonds. Each Fund may invest up to 25% of its total assets in Municipal Bonds rated in lower, non-investment grade categories by Moody’s, S&P or Fitch or in comparable unrated bonds. These so-called “junk” bonds have the potential to generate high current income for shareholders, but also subject each Fund and its shareholders to greater credit and overall market risk. In addition, these bonds are frequently traded only in markets where the number of potential purchasers and sellers, if any, is very limited. See Appendix III—“Ratings of Municipal Bonds and Commercial Paper.”

		Private Activity Bonds. Each Fund may invest in certain tax-exempt securities that are classified as “private activity bonds” that may subject certain investors to a Federal alternative minimum tax.

		Leverage. Each Fund seeks to enhance the yield to its common stockholders by issuing AMPS. See “Risk Factors and Special Considerations—Leverage.”

		<R>Portfolio Maturity. Each Fund intends to invest primarily in long-term Municipal Bonds with maturities of more than ten years. As of July 31, 2001, the weighted average maturity of the portfolio of MuniYield and Municipal Strategy was 18.62 years and 19.52 years, respectively. The average maturity of each Fund’s portfolio securities, and therefore each Fund’s portfolio as a whole, will vary based upon FAM’s assessment of economic and market conditions. See “Comparison of the Funds—Investment Objective and Policies.” </R>

		Capital Stock. Each Fund has outstanding common stock and at least one series of AMPS that are sold principally at auction. The voting and dividend rights of holders of common stock of each Fund are equivalent.

		<R>As of July 31, 2001, (i) the net asset value per share of MuniYield Common Stock was $13.58 and the market price per share was $13.72; and (ii) the net asset value per share of Municipal Strategy Common Stock was $9.32. </R>

		Each series of AMPS of each Fund has a liquidation preference of $25,000 per share plus accumulated but unpaid dividends and is sold principally at auction. See “Comparison of the Funds—Capital Stock.”

		Auctions generally have been held and will be held every seven days for MuniYield Series E AMPS and Municipal Strategy Series A AMPS, and every 28 days for Series A, B, C and D AMPS of MuniYield.

		<R>The auctions for MuniYield Series F AMPS to be issued in the Reorganization will be held every seven days with the same auction and payment dates as the Municipal Strategy Series A AMPS. See “Comparison of the Funds—Capital Stock.” The applicable dividend for a particular dividend period for each series of AMPS of each Fund will be determined by an auction conducted by the auction agent on the business day next preceding the start of that dividend period. The auction agent for each Fund is The Bank of New York (“BONY”). </R>

		The following table provides information about the dividend rates for each series of AMPS of each Fund as of a recent auction date:

<R>	Auction Date	Fund	Dividend Period	Series	Dividend Rate
	September 4, 2001	MuniYield	28 days	A	2.50	%
	August 14, 2001	MuniYield	28 days	B	2.50	%
	August 28, 2001	MuniYield	28 days	C	2.40	%
	August 28, 2001	MuniYield	28 days	D	2.40	%
	September 4, 2001	MuniYield	7 days	E	2.45	%
	August 22, 2001	Municipal Strategy	7 days	A	2.40	%

</R>

Liquidity. MuniYield Common Stock is listed on the NYSE and may be bought or sold at market price on each day the NYSE is open for trading. On any given day, the market price for MuniYield Common Stock on the NYSE may be higher or lower than the net asset value of the MuniYield Common Stock.

<R>Municipal Strategy engages in a continuous offering of Municipal Strategy Common Stock. Municipal Strategy Common Stock is not listed on any exchange and no secondary market presently exists for Municipal Strategy Common Stock, nor is it currently expected that a secondary market will develop. To provide liquidity for stockholders of Municipal Strategy, the Fund’s Board of Directors considers, on a quarterly basis, whether the Fund should make a tender offer for its common stock. In a tender offer, the Fund purchases outstanding Municipal Strategy Common Stock at the Fund’s net asset value (less any applicable CDSC) on the last day of the offer. </R>

Municipal Strategy’s Board of Directors is not required to authorize the making of a tender offer and there can be no assurance that a tender offer will be made during any particular quarter. If a tender offer is not made, stockholders may be unable to sell their shares. Since the inception of Municipal Strategy, however, the Board has authorized a tender offer each quarter.

<R>If the Reorganization is consummated, the tender offer of Municipal Strategy that concluded on August 20, 2001 will have been the Fund’s final tender offer. </R>

Contingent Deferred Sales Charge. Stockholders of MuniYield do not pay any CDSC because the Fund’s common stock trades on the NYSE. If common stockholders of Municipal Strategy sell their stock back to the Fund during a tender offer and they have held those shares for less than three years when the tender offer begins, they may have to pay a CDSC. This charge varies depending on how long a shareholder has owned the tendered shares. The amount of the charge is based on how much the shareholder paid for the tendered shares or their net asset value, whichever amount is less.

<R>Portfolio Management. The investment adviser for each Fund is FAM. Mr. Roberto W. Roffo currently manages the investment portfolio of each Fund and will manage the Combined Fund after the Reorganization. </R>

Advisory and Administrative Fees. FAM is responsible for the management of each Fund’s investment portfolio and for providing administrative services to each Fund.

Pursuant to a separate investment advisory agreement between FAM and each Fund, each Fund pays FAM a monthly advisory fee at the annual rate of 0.50% of each Fund’s average net assets, including proceeds from the issuance of AMPS. The fee paid by MuniYield is computed on average weekly net assets. In comparison, Municipal Strategy’s fee is calculated on average daily net assets.

Municipal Strategy also pays FAM a monthly administrative fee at the annual rate of 0.25% of its average daily net assets, including proceeds from the issuance of AMPS. MuniYield does not pay an administrative fee to FAM and the Combined Fund will not pay a separate administrative fee to FAM.

Since the commencement of operations of Municipal Strategy to the present, FAM has waived a portion of the advisory fee due from Municipal Strategy and/or reimbursed certain other expenses. The fee waiver and/or expense reimbursement with respect to Municipal Strategy is voluntary and may be reduced or discontinued by FAM at any time without notice to stockholders. It is not anticipated that FAM will waive any portion of its advisory fee and/or reimburse expenses with respect to the Combined Fund after the Reorganization. See “Comparison of the Funds—Management of the Funds.”

<R>Overall Expense Ratio. As stated above, since the commencement of operations of Municipal Strategy, FAM has voluntarily waived a portion of its advisory fee and/or reimbursed certain other expenses. </R>

FAM has not waived fees or reimbursed expenses with respect to MuniYield. It is not anticipated that FAM will waive its advisory fee and/or reimburse expenses with respect to the Combined Fund on an ongoing basis.

The table below summarizes the total annualized operating expense ratio for MuniYield, Municipal Strategy (excluding any advisory fee waivers and/or expense reimbursements) and the Combined Fund based on their respective average net assets (excluding assets attributable to AMPS) for the six month period ended April 30, 2001.

Average
Net Assets
(Excluding Assets
Attributable to
AMPS) for the
Six Month
Period Ended
April 30, 2001

Total
Annualized
Operating
Expense Ratio

MuniYield

$507,503,509

1.00

%

Municipal Strategy

$ 81,220,051

2.05

%*

Combined Fund**

$588,723,560

0.99

%

* Including fee waivers and/or expense reimbursements applicable to Municipal Strategy, the total annualized operating expense ratio for Municipal Strategy would have been 1.90%.

** Assumes that the Reorganization had taken place on April 30, 2001.

The table below summarizes the total annualized operating expense ratio for MuniYield, Municipal Strategy (excluding any advisory fee waivers and/or expense reimbursements) and the Combined Fund based on their respective average net assets (including assets attributable to AMPS) for the six month period ended April 30, 2001.

Average Net Assets
(Including Assets
Attributable to
AMPS) for the
Six Month
Period Ended
April 30, 2001

Total
Annualized
Operating
Expense Ratio

MuniYield

$757,503,509

0.67

%

Municipal Strategy

$124,220,051

1.34

%*

Combined Fund**

$881,723,560

0.66

%

* Including fee waivers and/or expense reimbursements applicable to Municipal Strategy, the total annualized operating expense ratio for Municipal Strategy would have been 1.24%.

** Assumes that the Reorganization had taken place on April 30, 2001.

<R>Purchases and Sales of Common Stock and AMPS. Investors typically purchase and sell shares of MuniYield Common Stock at market price through a registered broker-dealer on each day that the NYSE is open for trading, and may incur a brokerage commission or other charge set by the broker-dealer. Alternatively, investors may purchase or sell shares of MuniYield Common Stock through privately negotiated transactions with existing stockholders.

Investors typically can purchase shares of Municipal Strategy Common Stock from FAM Distributors, Inc., other selected securities dealers or other financial intermediaries, including Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”). The Fund offers its common stock on a best efforts basis through such distributors at a price equal to the next determined net asset value per share without a front-end sales charge. Shares are sold subject to certain minimum initial and subsequent purchase requirements.

Municipal Strategy Common Stock is not listed on any exchange and no secondary market presently exists for Municipal Strategy Common Stock, nor is it currently expected that a secondary market will develop. To provide liquidity for stockholders of Municipal Strategy, the Fund’s Board of Directors considers, on a quarterly basis, whether the Fund should make a tender offer for its common stock. See “Liquidity.”

Purchase and sale procedures for the AMPS of each Fund are identical. Such AMPS generally are purchased and sold at separate auctions conducted on a regular basis by BONY, as the auction agent for each Fund’s AMPS (in such capacity, the “Auction Agent”). Unless otherwise permitted by the Funds, existing and potential holders of AMPS may participate in auctions only through their broker-dealers. Broker-dealers submit the orders of their respective customers who are existing and potential holders of AMPS to the Auction Agent. On or prior to each auction date for the AMPS (the business day next preceding the first day of each dividend period), each holder may submit orders to buy, sell or hold AMPS to its broker-dealer.</R>

Outside of these auctions, shares of AMPS may be purchased or sold through broker-dealers for the AMPS in a secondary trading market maintained by the broker-dealers. However, no assurance can be given that a secondary market will develop, or, if it does develop, that it will provide holders with a liquid trading market for the AMPS of either Fund.

<R>Ratings of AMPS. The AMPS of each Fund have been assigned a rating of AAA from S&P and aaa from Moody’s. See “Comparison of the Funds—Rating Agency Guidelines.”
</R>

Portfolio Transactions. The portfolio transactions in which the Funds may engage are substantially similar, as are the procedures for such transactions. See “Comparison of the Funds—Portfolio Transactions.”

Dividends and Distributions. The methods of dividend payment and distributions are identical with respect to the common stock and the AMPS of each Fund. See “Comparison of the Funds—Dividends and Distributions.”

Net Asset Value. MuniYield determines its net asset value per share of common stock as of the close of business on the NYSE (generally, 4:00 p.m., Eastern time) (the “NYSE close of business”) on the last business day of each week. Municipal Strategy determines its net asset value as of the NYSE close of business once daily on each day the NYSE is open for trading.

For purposes of determining the net asset value of a share of common stock of each Fund, the value of the securities held by the Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS of the Fund is divided by the total number of shares of common stock of the Fund outstanding at such time. Expenses, including fees payable to FAM, are accrued daily. See “Comparison of the Funds—Net Asset Value.”

Voting Rights. The corresponding voting rights of the holders of shares of each Fund’s common stock are substantially similar. The corresponding voting rights of the holders of shares of each Fund’s AMPS are also substantially similar. See “Comparison of the Funds—Capital Stock.”

Stockholder Services. An automatic dividend reinvestment plan is available to holders of shares of common stock of each Fund. See “Comparison of the Funds—Automatic Dividend Reinvestment Plan.” Other stockholder services, including the provision of annual and semi-annual reports, are the same for each Fund.

<R>
Outstanding Securities of MuniYield and
Municipal Strategy as of July 31, 2001

Title of Class

Amount
Authorized

Amount
Held By
Fund for
Its Own
Account

Amount
Outstanding
Exclusive of
Amount Shown
in Previous
Column

MuniYield

Common Stock

199,990,000

0

38,560,928

AMPS

  Series A

1,800

0

1,800

  Series B

1,800

0

1,800

  Series C

1,800

0

1,800

  Series D

1,800

0

1,800

  Series E

2,800

0

2,800

Municipal Strategy

Common Stock

199,960,000

0

8,434,658

AMPS

  Series A

8,000

0

1,720

  Series B

8,000

0

0

  Series C

8,000

0

0

  Series D

8,000

0

0

  Series E

8,000

0

0

Tax Considerations

The Funds will receive an opinion of counsel with respect to the Reorganization to the effect that, among other things, neither Fund will recognize gain or loss on the transaction and no stockholder of Municipal Strategy will recognize gain or loss upon the exchange of his or her shares for MuniYield Common Stock or MuniYield Series F AMPS, as applicable, in the Reorganization (except to the extent that a holder of Municipal Strategy Common Stock receives cash representing an interest in fractional shares of MuniYield Common Stock in the Reorganization). The completion of the Reorganization is subject to the receipt of such opinion of counsel.

The Reorganization will not affect the status of MuniYield as a regulated investment company. See “Agreement and Plan of Reorganization—Tax Consequences of the Reorganization.” </R>

RISK FACTORS AND SPECIAL CONSIDERATIONS

<R> The investment objective, policies and restrictions of MuniYield and Municipal Strategy are substantially similar. Each Fund invests primarily in long term municipal obligations, the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income tax (“Municipal Bonds”). Therefore, many of the investment risks associated with an investment in MuniYield are substantially similar to the investment risks associated with an investment in Municipal Strategy. These investment risks will also apply to an investment in the Combined Fund after the Reorganization. The principal difference in risk between MuniYield and Municipal Strategy results from the fact that MuniYield Common Stock trades at market value on the NYSE and shares may trade at prices that may be higher or lower than the net asset value of the shares. Conversely, Municipal Strategy Common Stock is not listed on any exchange and no secondary market presently exists for its common stock, nor is it currently expected that a secondary market will develop. Investors have been able, however, to tender their shares to Municipal Strategy for purchase at net asset value on a quarterly basis.</R>

The risk factors to which an investment in MuniYield is subject are summarized below. It is expected that the Reorganization itself will not adversely affect the rights of holders of shares of common stock or of any series of AMPS of either Fund or create any additional risks.

Except where noted, each Fund is subject to the following risks:

Trading at a Discount

<R> Closed-end funds that are listed on an exchange, such as MuniYield, are subject to the risk that the market price of their common stock may trade at a price that is lower than their net asset value, commonly referred to as “trading at a discount.” Shares may also trade at a price higher than (a “premium above”) net asset value. Each Fund is designed primarily for long-term investors and should not be considered a vehicle for trading purposes.

Municipal Strategy Common Stock is not listed on any exchange and no secondary market presently exists for its common stock, nor is it expected that a secondary market will develop. As long as there is no secondary market for Municipal Strategy Common Stock, the Fund is not subject to the risk that its shares will trade at a discount from net asset value. To provide liquidity to shareholders, the Fund’s Board of Directors considers making tender offers once each quarter to purchase the Fund’s shares (less any applicable CDSC) at net asset value. However, shares of Municipal Strategy Common Stock are less liquid than shares of funds traded on a stock exchange, and shareholders who tender shares of Municipal Strategy Common Stock held for less than three years may pay a CDSC. The Board of Directors of Municipal Strategy is not obligated to authorize any tender offer, and there may be quarters in which no tender offer is made. If the Board does not authorize a tender offer, shareholders may be unable to sell their shares. Since the inception of Municipal Strategy, however, the Board has authorized a tender offer each quarter. The most recent tender offer by Municipal Strategy for its shares of common stock concluded on August 20, 2001. If the Reorganization is consummated, that will have been the Fund’s final tender offer.

Secondary Market For AMPS</R>

Broker-dealers intend to maintain a secondary trading market in the AMPS of each Fund outside of the auctions; however, they have no obligation to do so and there can be no assurance that a secondary market for the AMPS of each Fund will develop or, if it does develop, that it will provide AMPS holders with a liquid trading market. Neither Fund’s AMPS will be registered on any stock exchange or on any automated quotation system. An increase in the level of interest rates likely will have an adverse effect on the secondary market price of the AMPS of each Fund, and a selling stockholder may sell AMPS between auctions at a price per share of less than $25,000.

Non-Diversified Status

Each Fund is registered as a “non-diversified” investment company. This means that each Fund may invest a greater percentage of its assets in the obligations of a single issuer than a diversified investment company. Since either Fund may invest a relatively high percentage of its assets in a limited number of issuers, it may be more exposed to the effects of a single economic, political or regulatory occurrence than a Fund that invests more widely. Even as a non-diversified fund, each Fund must meet the diversification requirements of applicable Federal income tax laws.

Interest Rate and Credit Risk

<R> Each Fund invests primarily in long term Municipal Bonds that 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</R>

<R>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. Credit risk is the risk that the issuer of a security owned by a Fund 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.

High Yield or Junk Bonds

Each Fund may invest up to 25% of its total assets in debt securities commonly known as junk bonds. Investments in high yield securities entail a higher level of credit risk (loss of income and/or principal) than investments in higher rated securities. Securities rated in the lower rating categories are considered to be predominantly speculative with respect to capacity to pay interest and repay principal. Issuers of high yield securities may be highly leveraged and may not have available to them more traditional methods of financing. New issuers also may be inexperienced in managing their debt burden. The issuer’s ability to service its debt obligations may be adversely affected by business developments unique to the issuer, the issuer’s inability to meet specific projected business forecasts or the inability of the issuer to obtain additional financing. High yield securities may be unsecured and may be subordinated to other creditors of the issuer.</R>

Private Activity Bonds

<R> Each Fund may invest in certain tax-exempt securities classified as private activity bonds. These bonds may subject certain investors in a Fund to a Federal alternative minimum tax.</R>

Rating Agency Guidelines

<R> Each Fund has received ratings of AAA from S&P and aaa from Moody’s with respect to its AMPS. In order to maintain these ratings, the Funds are required to maintain portfolio holdings that meet the specified guidelines of such rating agencies. These guidelines may impose asset coverage or portfolio composition requirements that are stricter than those imposed by the Investment Company Act. The Funds do not expect these requirements or guidelines to prevent the investment adviser from managing each Fund’s portfolio in accordance with each Fund’s investment objective and policies. See Appendix III—“Ratings of Municipal Bonds and Commercial Paper.”</R>

The Board of Directors of each Fund, without stockholder approval, may amend, alter or repeal certain definitions or restrictions that have been adopted by a Fund pursuant to the rating agency guidelines, if a Fund receives confirmation from the rating agencies that any such amendment, alteration or repeal would not impair the ratings then assigned to shares of AMPS.

Indexed and Inverse Floating Rate Securities

Each Fund may invest in securities whose potential returns are directly related to changes in an underlying index or interest rate, known as indexed securities. The return on indexed securities will rise when the underlying index or interest rate rises and fall when the index or interest rate falls. Each 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 a Fund to the risks of reduced or eliminated interest payments and losses 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 a 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.

Options and Futures Transactions

<R> Each Fund may engage in certain options and futures transactions to reduce its exposure to interest rate movements. If a Fund incorrectly forecasts market value, interest rates or other factors, that Fund’s performance could suffer. Each Fund also may suffer a loss if the other party to the transaction fails to meet its obligations. The Funds are not required to use hedging and each Fund may choose not to do so. The Funds cannot guarantee that any hedging strategies they use will work.</R>

Antitakeover Provisions

The Articles of Incorporation of each Fund (in each case, a “Charter”) and Maryland law include provisions that could limit the ability of other entities or persons to acquire control of that 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.

Leverage

Issuance of Preferred Stock. Each Fund is leveraged through the issuance of AMPS. The preferred stock may represent up to approximately 35% of a Fund’s capital, including the capital raised by issuing the preferred stock.

<R> The issuance and ongoing expenses of the preferred stock are borne by each of the Funds and reduce the net asset value of that Fund’s common stock. In addition, at times when a Fund is required to allocate taxable income to preferred stockholders, the AMPS may require, and it is expected that the terms of any other preferred stock may also require, that Fund to make an additional distribution to its preferred stockholders (an “Additional Distribution”). The amount of this Additional Distribution approximately equals the tax liability resulting from the allocation and the Additional Distribution.

Risks. The use of leverage creates certain risks for common stockholders, including higher volatility of both the net asset value and the market value of the common stock. Since any decline in the value of a Fund’s investments will affect only the common stockholders, the use of leverage will cause a Fund’s net asset value and market price to decrease more than if the Fund was not leveraged. In addition, fluctuations in dividend rates paid on, and the amount of taxable income allocable to any holder of, AMPS and any other preferred stock will affect the yield to common stockholders. There can be no assurance that the Fund will earn a higher return on its investments than the then current dividend rate (and any Additional Distribution) it pays on the preferred stock.

Under certain conditions, the benefits of leverage to common stockholders will be reduced, and the Fund’s leveraged capital structure could result in a lower rate of return to common stockholders than if the Fund were not leveraged. During times of rising interest rates, the value of the Fund’s portfolio and the net asset value of its shares may decline. The Fund’s leverage structure may exaggerate any such decline. In addition, the Fund may invest in securities that create investment leverage, such as inverse floating obligations, which may further exaggerate any decline.

In an extreme case, a decline in net asset value could affect a Fund’s ability to pay dividends on its 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 “Comparison of the Funds—Tax Rules Applicable to the Funds and Their Stockholders.” However, each Fund intends to take all measures necessary to continue to make common stock dividend payments. If a Fund’s current investment income were not sufficient to meet dividend requirements on either the common stock or the preferred stock, it could be necessary for the Fund to liquidate certain of its investments.</R>

Each Fund has the authority to redeem its AMPS for any reason. 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 a Fund to liquidate a portion of its investments at a time when it may be disadvantageous, in the absence of such extraordinary circumstances, to do so.

Portfolio Management and Other Considerations

<R> The portfolio management strategies of the Funds are substantially similar. In the event of an increase in short term or medium term rates or other changes in market conditions to the point where a Fund’s leverage could adversely affect holders of common stock as noted above, or in anticipation of such changes, each Fund may attempt to shorten the average maturity of its investment portfolio, which would tend to offset the negative impact of leverage on holders of its common stock. Each Fund also may attempt to reduce the degree to which it is leveraged by redeeming AMPS pursuant to the provisions of the applicable Articles Supplementary that establish the rights and preferences of each series of AMPS or otherwise purchasing shares of AMPS. Purchases and sales or redemptions of AMPS, whether on the open market or in negotiated transactions, are subject to limitations under the Investment Company Act. In determining whether or not it is in the best interest of a Fund and its stockholders to redeem or repurchase outstanding preferred stock, its Board of Directors will take into account a variety of factors, including market conditions, the ratio of preferred stock to common stock, and the expenses associated with such redemption or repurchase. If market conditions subsequently change, each Fund may sell previously unissued shares of AMPS or shares of AMPS that the Fund previously issued but later repurchased or redeemed.</R>

Under the Investment Company Act, a Fund is not permitted to issue shares of preferred stock unless immediately after such issuance the net asset value of a Fund’s portfolio 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 and unpaid Additional Distributions). In addition, a Fund is not permitted to declare any cash dividend or other distribution on its common stock unless, at the time of such declaration, the net asset value of a Fund’s portfolio (determined after deducting the amount of such dividend or distribution) is at least 200% of such liquidation value. As of May 31, 2001, MuniYield’s capital structure included 10,000 shares of AMPS representing approximately 33% of the Fund’s capital, and the asset coverage with respect to the AMPS was approximately 302% and Municipal Strategy’s capital structure included 1,720 shares of AMPS representing approximately 36% of the Fund’s capital, and the asset coverage with respect to the AMPS was approximately 276%. To the extent possible, each 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%.

COMPARISON OF THE FUNDS

Financial Highlights

<R>     MuniYield. The financial information in the table below has been audited (except where noted) in conjunction with the annual audit of the financial statements of MuniYield by Deloitte & Touche LLP, independent auditors. The financial information for the six month period ended April 30, 2001 is unaudited and has been provided by FAM. The following per share data and ratios have been derived from information provided in the financial statements of MuniYield.</R>

For the
Six Months
Ended
April 30,
For the Year Ended October 31,
For the
Period
November 29,
1991†† to
October 31,

2001
2000
1999
1998
1997
1996
1995
1994
1993
1992

(Unaudited)

Increase (Decrease) in Net Asset Value:

Per Share Operating
Performance:

Net asset value, beginning of
  period

$13.08

$ 13.21

$ 16.27

$ 16.09

$ 15.68

$ 15.47

$ 14.35

$ 16.80

$14.69

$ 14.18

Investment income —   net

.52

1.09

1.12

1.19

1.24

1.26

1.27

1.29

1.31

1.18

Realized and   unrealized gain
  (loss) on investments
  — net

(.17

)

(.08

)

(2.34

)

.49

.65

.23

1.34

(2.23

)

2.27

.57

Total from investment
  operations

.35

1.01

(1.22

)

1.68

1.89

1.49

2.61

(.94

)

3.58

1.75

Less dividends and
  distributions to   Common
  Stock shareholders:

Investment income   — net

(.43

)

(.87

)

(.95

)

(.97

)

(1.00

)

(1.04

)

(1.00

)

(1.07

)

(1.11

)

(.89

)

Realized gain on
  investments — net

—

—

(.38

)

(.26

)

(.22

)

—

(.22

)

(.23

)

(.16

)

—

In excess of realized   gain on investments   — net

—

—

(.27

)

—

(.01

)

—

—

—

—

—

Total dividends and
   distributions to   Common
  Stock shareholders

(.43

)

(.87

)

(1.60

)

(1.23

)

(1.23

)

(1.04

)

(1.22

)

(1.30

)

(1.27

)

(.89

)

Capital charge resulting from
  issuance of Common Stock

—

—

—

—

—

—

—

—

—

(.02

)

Effect of Preferred   Stock
  activity:††††

  Dividends and      distributions
     to Preferred Stock
    shareholders:

    Investment income
       — net

(.13

)

(.27

)

(.17

)

(.18

)

(.20

)

(.24

)

(.23

)

(.18

)

(.17

)

(.19

)

    Realized gain on
       investments —            net

—

—

(.04

)

(.09

)

(.05

)

—

(.04

)

(.03

)

(.03

)

—

In excess of realized   gain on investments   — net

—

—

(.03

)

—

—

†††††

—

—

—

—

—

Capital charge   resulting from
issuance of Preferred
  Stock

—

—

—

—

—

—

—

—

—

(.14

)

Total effect of   Preferred Stock
  activity

(.13

)

(.27

)

(.24

)

(.27

)

(.25

)

(.24

)

(.27

)

(.21

)

(.20

)

(.33

)

Net asset value, end   of period

$12.87

$ 13.08

$ 13.21

$ 16.27

$ 16.09

$ 15.68

$ 15.47

$ 14.35

$ 16.80

$ 14.69

(table continued on next page)

(table continued from previous page)

<R>

		For the Six Months Ended April 30,		For the Year Ended October 31,																								For the Period November 29, 1991†† to October 31,
		2001		2000				1999			1998			1997			1996			1995			1994			1993		1992
		(Unaudited)
Market price per share, end of period	$	13.45		$	12.625		$	12.875		$	16.875		$	15.875		$	14.875		$	14.375		$	12.125		$	16.75		$	15.125

Total Investment Return:**
Based on market price per share		10.05	%†††		5.26	%		(15.35	)%		14.74	%		15.56	%		10.88	%		29.76	%		(20.94	)%		19.91	%		7.06	%†††

Based on net asset value per share		1.64	%†††		6.28	%		(9.92	)%		9.15	%		11.11	%		8.61	%		18.00	%		(6.71	)%		23.83	%		9.99	%†††

Ratios Based on Average Net Assets of Common Stock:
Total expenses***		1.00	%*		.99	%		.93	%		.89	%		.91	%		—	‡‡		—	‡‡		—	‡‡		—	‡‡		—	‡‡

Total investment income — net***		7.87	%*		8.35	%		7.42	%		7.43	%		7.81	%		—	‡‡		—	‡‡		—	‡‡		—	‡‡		—	‡‡

Amount of dividends to Preferred Stock shareholders		1.91	%*		2.07	%		1.11	%		1.10	%		1.28	%		—	‡‡		—	‡‡		—	‡‡		—	‡‡		—	‡‡

Investment income — net, to Common Stock shareholders		5.96	%*		6.28	%		6.31	%		6.33	%		6.53	%		—	‡‡		—	‡‡		—	‡‡		—	‡‡		—	‡‡

Ratios Based on Total Average Net Assets: ***†
Total expenses, net of reimbursement		.67	%*		.66	%		.65	%		.63	%		.64	%		.64	%		.66	%		.66	%		.64	%		.58	%*

Total expenses		.67	%*		.66	%		.65	%		.63	%		.64	%		.64	%		.66	%		.66	%		.64	%		.65	%*

Total investment income — net		5.27	%*		5.56	%		5.17	%		5.26	%		5.48	%		5.64	%		5.91	%		5.76	%		5.72	%		6.08	%*

Ratios Based on Average Net Assets of Preferred Stock:
Dividends to Preferred Stockshareholders		3.88	%*		4.12	%		2.55	%		2.66	%		3.02	%		—	‡‡		—	‡‡		—	‡‡		—	‡‡		—	‡‡

Supplemental Data:
Net assets, net of Preferred Stock, end of period (in thousands)	$	495,409		$	501,361		$	506,030		$	611,222		$	596,320		$	581,124		$	573,400		$	531,657		$	619,775		$	526,287

Preferred Stock outstanding, end of period (in thousands)	$	250,000			$250,000		$	250,000		$	250,000		$	250,000		$	250,000		$	250,000		$	250,000		$	250,000		$	250,000

Portfolio turnover		36.66	%		103.44	%		78.42	%		91.63	%		111.45	%		96.74	%		52.99	%		44.27	%		25.58	%		66.45	%

Leverage:
Asset coverage per $1,000	$	2,982		$	3,005		$	3,024		$	3,445		$	3,385		$	3,324		$	3,294		$	3,127		$	3,479		$	3,105

Dividends Per Share on Preferred Stock Outstanding: ††††††
Series A — Investment income — net	$	450		$	1,052		$	588		$	694		$	747		$	894		$	887		$	598		$	560		$	680

Series B — Investment income — net	$	542		$	1,009		$	595		$	687		$	751		$	897		$	850		$	733		$	554		$	690

Series C — Investment income — net	$	466		$	1,032		$	687		$	643		$	763		$	998		$	827		$	647		$	566		$	685

Series D — Investment income — net	$	468		$	1,035		$	694			$ 637		$	762		$	888		$	897		$	659		$	556		$	688

Series E — Investment income — net	$	481		$	1,038		$	627		$	656		$	752		$	875		$	759		$	707		$	542		$	688

Annualized.

Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales charges.

***

Do not reflect the effect of dividends to Preferred Stock shareholders.

†

Includes Common and Preferred Stock average net assets.

††

Commencement of operations.

‡‡

Prior to the fiscal year ended October 31, 1997, the Fund only reported ratios with respect to Total Average Net Assets. </R>

(footnotes continued from previous page) <R>

††† Aggregate total investment return.

†††† MuniYield’s Preferred Stock was issued on December 23, 1991.

††††† Amount is less than $.01 per share.

†††††† Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. </R>

<R>     Municipal Strategy. The financial information in the table below has been audited (except where noted) in conjunction with the annual audit of the financial statements of Municipal Strategy by Deloitte & Touche LLP, independent auditors. The financial information for the six month period ended April 30, 2001 is unaudited and has been provided by FAM. The following per share data and ratios have been derived from information provided in the financial statements of Municipal Strategy.

For the Six
Months Ended
April 30,

For the Year Ended October 31,
For the
Period
November 3,
1995†† to
October 31,

2001

2000

1999
1998
1997
1996

(Unaudited)

Increase (Decrease) in Net Asset Value:

Per Share Operating Performance:

Net asset value, beginning of period

$ 8.75

$ 8.89

$   10.96

$   10.87

$   10.17

$ 10.00

Investment income — net

.31

.72

.71

.73

.75

.68

Realized and unrealized gain (loss)
  on investments — net

.10

(.14

)

(1.75

)

.35

.70

.21

Total from investment operations

.41

.58

(1.04

)

1.08

1.45

.89

Less dividends and distributions to
  Common Stock shareholders:

Investment income — net

(.23

)

(.49

)

(.58

)

(.60

)

(.59

)

(.59

)

Realized gain on investments — net

—

†

—

—

(.19

)

—

—

In excess of realized gain on
  investments — net

—

—

(.27

)

—

—

—

Total dividends and distributions to
  Common Stock shareholders

(.23

)

(.49

)

(.85

)

(.79

)

(.59

)

(.59

)

Effect of Preferred Stock activity: ††††

Dividends and distributions to Preferred
  Stock shareholders:

Investment income — net

(.08

)

(.23

)

(.13

)

(.13

)

(.16

)

(.09

)

Realized gain on investments — net

—

†

—

—

(.07

)

—

—

In excess of realized gain on investments — net

—

—

(.05

)
—

—

—

Capital charge resulting from issuance of
  Preferred Stock

—

—

—

—

—

(.04

)

Total effect of Preferred Stock activity

(.08

)

(.23

)

(.18

)

(.20

)

(.16

)

(.13

)

Net asset value, end of period

$8.85

$8.75

$8.89

$10.96

$10.87

$10.17

Total Investment Return:**

Based on net asset value per share

3.73

%†††

4.09

%

(11.94

)%

8.28

%

13.08

%

7.81

%†††

Ratios Based on Average Net Assets of
  Common Stock:

Total expenses, net of reimbursement***

1.90

%*

1.88

%

1.75

%

1.61

%

1.37

%

.68

%*

Total expenses***

2.05

%*

2.04

%

1.90

%

1.80

%

1.83

%

1.60

%*

Total investment income — net***

6.99

%*

8.14

%

6.98

%

6.65

%

7.14

%

6.86

%*

Amount of dividends to Preferred Stock
  shareholders

1.84

%*

2.56

%

1.31

%

1.21

%

1.53

%

.94

%*

Investment income — net, to Common
  Stock shareholders

5.15

%*

5.58

%

5.67

%

5.44

%

5.61

%

5.92

%*

Ratios Based on Total Average Net
  Assets: ***†††††

Total expenses, net of reimbursement

1.24

%*

1.15

%

1.17

%

1.12

%

.96

%

.53

%*

Total expenses

1.34

%*

1.25

%

1.27

%

1.25

%

1.28

%

1.26

%*

Total investment income — net

4.57

%*

4.99

%

4.66

%

4.61

%

5.01

%

5.40

%*

Ratios Based on Average Net Assets of
  Preferred Stock:

Dividends to Preferred Stock shareholders

3.47

%*

4.05

%

2.63

%

2.75

%

3.58

%

3.49

%*

Supplemental Data:

Net assets, net of Preferred Stock,
  end of period (in thousands)

$78,479

$85,394

$102,174

$115,339

$101,463

$83,573

</R>

<R>
(table continued from previous page)


For the Six
Months Ended
April 30,

For the Year Ended October 31,
For the
Period
November 3,
1995†† to
October 31,

2001
2000
1999
1998
1997
1996

(Unaudited)

Preferred Stock outstanding, end of
   period (in thousands)

$43,000

$44,900

$58,000

$48,000

$48,000

$38,000

Portfolio turnover

20.49

%

115.52

%

158.57

%

141.53

%

144.34

%

234.41

%

Leverage:

Asset coverage per $1,000

$  2,825

$  2,902

$  2,762

$  3,403

$  3,114

$  3,199

Dividends Per Share on Preferred Stock
  Outstanding:

Investment income — net

$     431

$    1,015

$     644

$     533

$     897

$     564

</R>

* Annualized.

** Total investment returns exclude the effects of the CDSC, if any. (Municipal Strategy is a continuously offered closed-end fund, the shares of which are offered by the Fund at net asset value. No secondary market exists for the purchase of these shares.) FAM voluntarily waived a portion of its management fee. Without such waiver, the Fund’s performance would have been lower.

*** Do not reflect the effect of dividends to Preferred Stock shareholders.

† <R>Amount is less than $.01 per share.</R>

†† Commencement of operations.

††† Aggregate total investment return.

†††† Municipal Strategy’s Preferred Stock was initially issued on March 11, 1996.

††††† Includes Common and Preferred Stock average net assets.

<R>Per Share Data for Common Stock (Unaudited)</R>

     MuniYield (Traded on NYSE)
<R>


Market Price**
     Net Asset Value

Premium
(Discount)
to Net
Asset Value

   Quarter Ended*

High

Low

High

Low

High

Low

$

$

$

$

%

%

January 31, 1999

17.187

16.062

16.36

15.40

8.34

2.06

April 30, 1999

16.25

15.187

15.58

15.32

4.37

(1.25

)

July 31, 1999

15.625

14.00

15.35

14.52

1.79

(4.37

)

October 31, 1999

14.188

12.375

14.53

13.02

(1.22

)

(7.42

)

January 31, 2000

13.00

11.25

13.55

12.51

(2.51

)

(12.38

)

April 30, 2000

12.25

11.125

13.24

12.50

(2.50

)

(13.49

)

July 31, 2000

12.625

11.375

13.18

12.49

(3.63

)

(9.58

)

October 31, 2000

13.063

12.25

13.45

13.03

(1.37

)

(7.27

)

January 31, 2001

14.11

12.313

13.46

12.84

6.57

(5.00

)

April 30, 2001

13.94

13.28

13.51

12.87

4.58

(.15

)

July 31, 2001

13.80

13.23

13.58

12.89
6.03 (.38 )

</R>

* Calculations are based on shares of common stock outstanding at the end of each quarter.

** As reported in the consolidated transaction operating system.

<R> As shown above, from November 1, 1998 through July 31, 2001, share prices for MuniYield’s Common Stock have fluctuated between a maximum premium of approximately 8.34% and a maximum discount of approximately (13.49%). Although there is no reason to believe that this pattern should be affected by the Reorganization, it is not possible to predict whether shares of the Combined Fund will trade at a premium above or discount from net asset value following the Reorganization, or what the magnitude of any such premium or discount might be. </R>

Municipal Strategy

<R>
Net Asset Value

Quarter Ended*

High

Low

$

$

January 31, 1999

11.00

10.52

April 30, 1999

10.66

10.48

July 31, 1999

10.55

9.90

October 31, 1999

9.89

8.76

January 31, 2000

9.11

8.39

April 30, 2000

8.89

8.39

July 31, 2000

8.81

8.31

October 31, 2000

8.96

8.71

January 31, 2001

9.22

8.07

April 30, 2001

9.23

8.85

July 31, 2001

9.32

8.85

</R>

* Calculations are based on shares of common stock outstanding at the end of each quarter.

Investment Objectives and Policies

<R> The structure, organization and investment policies of the Funds are substantially similar. Each Fund seeks as high a level of current income exempt from Federal income tax as is consistent with its investment policies. Each Fund’s investment objective is a fundamental policy that may not be changed without a vote of a majority of a Fund’s outstanding voting securities, as defined below under “Investment Restrictions.”

Each Fund seeks to achieve its investment objective by investing primarily in a portfolio of long term, investment grade Municipal Bonds issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities that pay interest which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes. Each Fund at all times, except during interim and temporary periods, will invest at least 80% of its total assets in Municipal Bonds. Each Fund at all times, except during temporary defensive periods, will maintain at least 75% of its total assets in Municipal Bonds that are rated investment grade by a nationally recognized statistical rating organization or, if unrated, are considered to be of comparable quality by FAM. Additionally, each Fund may invest up to 25% of its total assets in Municipal Bonds that are rated below investment grade by a nationally recognized statistical rating organization or are unrated but considered by FAM to be of comparable quality. Neither Fund has established a minimum percentage of assets that must be invested in such lower quality Municipal Bonds. Such lower quality Municipal Bonds are frequently traded only in markets where the number of potential purchasers and sellers, if any, is very limited.</R>

Ordinarily, neither Fund intends to realize significant interest income that is subject to Federal income tax. Each Fund will not invest more than 25% of its total assets (taken at market value) in Municipal Bonds whose issuers are located in the same state. Each Fund may invest all or a portion of its assets in certain tax-exempt securities classified as “private activity bonds” (in general, bonds that benefit non-governmental entities) that may subject certain investors in a Fund to a Federal alternative minimum tax. Each Fund also may invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if a Fund nevertheless believes such securities pay interest or distributions that are exempt from Federal income taxation (“Non-Municipal Tax-Exempt Securities”). Non-Municipal Tax-Exempt Securities may include securities issued by other investment companies that invest in Municipal Bonds, to the extent such investments are permitted by the Investment Company Act. Other Non-Municipal Tax-Exempt Securities could include trust certificates or other instruments evidencing interests in one or more long term Municipal Bonds. Certain Non-Municipal Tax-Exempt Securities may be characterized as derivative instruments. Non-Municipal Tax-Exempt Securities that pay interest exempt from Federal income taxes will be considered “Municipal Bonds” for purposes of each Fund’s investment objective and policies. At times, each Fund may seek to hedge its portfolio through the use of futures transactions and options to reduce volatility in the net asset value of its shares of common stock.

<R> The investment grade Municipal Bonds in which each Fund primarily invests are those Municipal Bonds rated at the date of purchase in the four highest rating categories of S&P, Moody’s or Fitch or, if unrated, are considered to be of comparable quality by FAM. In the case of long term debt, the investment grade rating categories are AAA through BBB for S&P and Fitch, and Aaa through Baa for Moody’s. In the case of short term notes, the investment grade rating categories are SP-l+ through SP-3 for S&P, MIG-1 through MIG-3 for Moody’s</R>

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-3 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,” have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. See Appendix III to this Proxy Statement and Prospectus for a description of S&P’s, Moody’s and Fitch’s ratings of Municipal Bonds. Certain Municipal Bonds may be entitled to the benefit of insurance as well as letters of credit or similar credit enhancements issued by municipal bond issuers or other financial institutions. In such instances, the Board of Directors and FAM will take into account in assessing the quality of such bonds not only the creditworthiness of the issuer of such bonds but also the creditworthiness of the financial institution that provided such insurance or credit enhancement.

<R> As noted above, each Fund may invest up to 25% of its assets in Municipal Bonds that are rated below investment grade or, if unrated, are considered to be of comparable quality by FAM. These high yield bonds are commonly referred to as junk bonds and are regarded as predominantly speculative as to the issuer’s ability to make payments of principal and interest. Consequently, although such bonds can be expected to provide higher yields and be less subject to interest rate fluctuations, they may be subject to greater market price fluctuations and risk of loss of principal than lower yielding, higher rated fixed income securities. Such securities are particularly vulnerable to adverse changes in the issuer’s industry and in general economic conditions. Issuers of high yield bonds may be highly leveraged and may not have available to them more traditional methods of financing. The risk of loss due to default by the issuer is significantly greater for the holders of these bonds because such securities may be unsecured and may be subordinated to other creditors of the issuer. In addition, while the high yield bonds in which the Funds may invest normally will not include securities that, at the time of investment, are in default or the issuers of which are in bankruptcy, there can be no assurance that such events will not occur after a Fund purchases a particular security, in which case that Fund may experience losses and incur costs.</R>

High yield bonds frequently have call or redemption features that permit an issuer to repurchase such bonds from a Fund, which may decrease the net investment income to a Fund and dividends to shareholders in the event that a Fund is required to replace a called security with a lower yielding security. Each Fund may have difficulty disposing of certain high yield bonds because there may be a thin trading market for such securities. Reduced secondary market liquidity may have an adverse impact on market price and each Fund’s ability to dispose of particular issues when necessary to meet that Fund’s liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. In addition, market quotations are generally available on many high yield bond issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales.

Each Fund 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, typically a commercial bank. The VRDOs in which each Fund may invest are tax-exempt obligations, in the opinion of counsel to the issuer, that contain a floating or variable interest rate adjustment formula and an unconditional right of demand on the part of the holder thereof to receive payment of the unpaid principal balance plus accrued interest on a notice period not to exceed seven days. Participating VRDOs provide a Fund with a specified undivided interest (up to 100%) in 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 on a specified number of days’ notice, not to exceed seven days. There is, however, the possibility that because of default or insolvency, the demand feature of VRDOs or Participating VRDOs may not be honored. Each Fund has been advised by its counsel that a Fund should be entitled to treat the income received on Participating VRDOs as interest from tax-exempt obligations.

The average maturity of each Fund’s portfolio securities will vary based upon FAM’s assessment of economic and market conditions. The net asset value of the shares of common stock of closed-end investment companies, such as the Funds, which invest 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 generally can be expected to rise. Conversely, when interest rates rise, the value of a fixed-income portfolio generally can be expected to decline. Prices of longer-term securities generally fluctuate more in response to interest rate changes than do short-term or medium-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 that used by the Funds. See “Risk Factors and Special Considerations—Leverage.”

<R> Each Fund intends to invest primarily in long-term Municipal Bonds with maturities of more than ten years. Also, each Fund may invest in intermediate term Municipal Bonds with maturities of between three years and ten years. Each Fund may invest in short term, tax-exempt securities, short term U.S. Government securities, repurchase agreements or cash. Investments in such short term securities or cash will not exceed 20% of a Fund’s total assets except during interim periods pending investment of the net proceeds of public offerings of that Fund’s securities or in anticipation of the repurchase or redemption of that Fund’s securities and temporary periods when, in the opinion of FAM, prevailing market or economic conditions warrant. The Funds do not ordinarily intend to realize significant interest income not exempt from Federal income taxes.</R>

Each Fund is classified as non-diversified within the meaning of the Investment Company Act, which means that the Funds are not limited by the Investment Company Act in the proportion of their respective assets that they may invest in securities of a single issuer. However, each Fund’s investments will be limited so as to qualify the Fund for the special tax treatment afforded regulated investment companies (“RICs”) under the Federal tax laws. See “Comparison of the Funds—Tax Rules Applicable to the Funds and Their Stockholders.” Requirements for qualification as a RIC include, among others, 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 (other than U.S. Government securities) of a single issuer, and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities (other than U.S. Government securities) of a single issuer. A fund that elects to be classified as “diversified” under the Investment Company Act must satisfy, among other requirements, the foregoing 5% requirement with respect to 75% of its total assets. To the extent that a Fund assumes large positions in the securities of a small number of issuers, that Fund’s yield may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or in the market’s assessment of the issuers.

Description of Municipal Bonds

Municipal Bonds include debt obligations issued to obtain funds for various public purposes, including 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 private activity bonds (“PABs”) are issued by or on behalf of public authorities to finance various privately operated facilities, including airports, public ports, mass commuting facilities, multifamily housing projects, as well as facilities for water supply, gas, electricity, sewage or solid waste disposal. For purposes of this Proxy Statement and Prospectus, such obligations are Municipal Bonds if the interest paid thereon is exempt from Federal income tax even though such bonds may be PABs. Also, for purposes of this Proxy Statement and Prospectus, Non-Municipal Tax-Exempt Securities that pay interest that is exempt from Federal income tax will be considered Municipal Bonds.

The two principal classifications of Municipal Bonds are “general obligation” bonds and “revenue” bonds, which latter category includes PABs and, for bonds issued on or before August 15, 1986, industrial development bonds or “IDBs.” General obligation bonds are secured by the issuer’s pledge of faith, credit and taxing power for the repayment of principal and the payment of interest. Revenue or special obligation 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 source such as from the user of the facility being financed. PABs are in most cases revenue bonds and do not generally constitute the pledge of the credit or taxing power of the issuer of such bonds. The payment of principal and interest when due on revenue bonds depends solely on the ability of the user of the facility financed by the bonds to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. Municipal Bonds may also include “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.

Each Fund may purchase Municipal Bonds classified as PABs. Interest received on certain PABs is treated as an item of “tax preference” for purposes of the Federal alternative minimum tax and may impact the overall tax liability of investors in a Fund. There is no limitation on the percentage of each Fund’s assets that may be invested in Municipal Bonds the interest on which is treated as an item of “tax preference” for purposes of the Federal alternative minimum tax. See “Comparison of the Funds—Tax Rules Applicable to the Funds and Their Stockholders.”

Also included within the general category of Municipal Bonds are certificates of participation (“COPs”) executed and delivered for the benefit of government authorities or entities to finance the acquisition or construction of equipment, land and/or facilities. COPs represent participation interests in a lease, an installment purchase contract or a conditional sales contract (hereinafter collectively referred to as “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 tax power is pledged, a lease obligation frequently is 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 lease property, disposition of such property in the event of foreclosure might prove to be difficult and the proceeds thereof may not be sufficient to pay principal and interest when due on such obligations.

Federal tax legislation has limited the types and volume of bonds qualifying for the Federal income tax exemption of interest. 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 Funds.

Other Investment Policies

Each Fund has adopted certain other policies as set forth below:

Borrowings. Each 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 MuniYield is authorized to borrow moneys in excess of 5% of the value of its total assets for the purpose of repurchasing its own common stock or redeeming shares of preferred stock and Municipal Strategy is authorized to borrow money in amounts of up to 33¹/3% 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. Borrowings by each Fund (commonly known, as with the issuance of preferred stock, as “leveraging”) create an opportunity for greater total return since the Funds will not be required to sell portfolio securities to repurchase or redeem shares but, at the same time, such borrowings increase exposure to capital risk. In addition, borrowed funds are subject to interest costs that may offset or exceed the return earned on the borrowed funds.

When-Issued Securities and Delayed Delivery Transactions. Each Fund may purchase or sell Municipal Bonds on a delayed delivery basis or on a when-issued basis at fixed purchase or sale terms. These transactions arise when securities are purchased or sold by a Fund with payment and delivery taking place in the future. The purchase will be recorded on the date a Fund enters into the commitment, and the value of the obligation will thereafter be reflected in the calculation of that Fund’s net asset value. The value of the obligation on the delivery day may be more or less than its purchase price. A separate account of a Fund will be established with its custodian, consisting of cash, cash equivalents or liquid Municipal Bonds having a market value at all times at least equal to the amount of the commitment.

<R> Indexed and Inverse Floating Obligations. Each Fund may invest in Municipal Bonds (and Non-Municipal Tax-Exempt Securities) yielding a return based on a particular index of value or interest rates. For example, each Fund may invest in Municipal Bonds that pay interest based upon maturity of certain Municipal Bonds (and Non-Municipal Tax-Exempt Securities) and on the value of an index. To the extent a Fund invests in these types of Municipal Bonds, that Fund’s return on such Municipal Bonds will be subject to risk with respect to the value of the particular index including reduced or eliminated interest payments and losses of invested principal. Also, each Fund may invest in so-called “inverse floating obligations” or “residual interest bonds” on which the interest rates typically 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). Each 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 that 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 generally will be more volatile than the market values of fixed rate tax-exempt securities. To seek to limit the volatility of these securities, each Fund may purchase inverse floating obligations with shorter term maturities or limitations on the </R>

extent to which the interest rate may vary. FAM believes that indexed and inverse floating obligations represent a flexible portfolio management instrument for each Fund that allows FAM to vary the degree of investment leverage relatively efficiently under different market conditions.

Call Rights. Each Fund may purchase a Municipal Bond issuer’s right to call all or a portion of such Municipal Bond for mandatory tender for purchase (a “Call Right”). A holder of a Call Right may exercise such right to require a mandatory tender for the purchase of related Municipal Bonds, subject to certain conditions. A Call Right that is not exercised prior to the 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.

Repurchase Agreements. Each Fund may invest in Municipal Bonds and U.S. Government securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer in U.S. Government securities or an affiliate thereof. Under such agreements, the seller 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. A Fund may not invest in repurchase agreements maturing in more than seven days if such investments, together with all other illiquid investments, would exceed 15% of that Fund’s net assets. In the event of default by the seller under a repurchase agreement, a Fund may suffer time delays and incur costs or possible losses in connection with the disposition of the underlying securities. 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.

Information Regarding Options and Futures Transactions

Each Fund may hedge all or a portion of its portfolio investments against fluctuations in interest rates through the use of options and certain financial futures contracts and options thereon. While each Fund’s use of hedging strategies is intended to reduce the volatility of the net asset value of the common stock, the net asset value of the common stock will fluctuate. There can be no assurance that a Fund’s hedging transactions will be effective. In addition, because of the leveraged nature of the common stock, hedging transactions will result in a larger impact on the net asset value of the common stock than would be the case if the common stock were not leveraged. Furthermore, a Fund may only engage in hedging activities from time to time and may not necessarily be engaging in hedging activities when movements in interest rates occur. Neither Fund is required to enter into hedging transactions and each may choose not to do so.

<R> Gains from transactions in options and futures contracts distributed to stockholders are taxable as ordinary income or, in certain circumstances, as long term capital gains to stockholders. See “Comparison of the Funds—Tax Treatment of Options and Futures Transactions.” In addition, in order to obtain ratings of the AMPS from one or more nationally recognized statistical rating organizations, a Fund may be required to limit its use of hedging techniques in accordance with the specified guidelines of such rating organizations. See “Rating Agency Guidelines.”</R>

The following is a description of the options and futures transactions in which each Fund may engage, limitations on the Fund’s use of such transactions and risks associated with these transactions. The investment policies with respect to the hedging transactions of a Fund are not fundamental policies and may be modified by the Board of Directors of that Fund without the approval of that Fund’s stockholders.

<R> Writing Covered Call Options. Each Fund is authorized to write (i.e., sell) covered call options with respect to Municipal Bonds it owns, thereby giving the holder of the option the right to buy the underlying security covered by the option from the Fund at the stated exercise price until the option expires. Each Fund writes only covered call options, which means that so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option. Neither Fund may write covered call options on underlying securities in an amount exceeding 15% of the market value of its total assets.</R>

Each Fund receives a premium from writing a call option, which increases a Fund’s return on the underlying security in the event the option expires unexercised or is closed out at a profit. By writing a call, a Fund limits its opportunity to profit from an increase in the market value of the underlying security above the exercise price of the option for as long as that Fund’s obligation as a writer continues. Covered call options serve as a partial hedge against a decline in the price of the underlying security. Each Fund may engage in closing transactions in order to terminate outstanding options that it has written.

Purchase of Options. Each Fund may purchase put options in connection with its hedging activities. By buying a put, a Fund has a right to sell the underlying security at the exercise price, thus limiting its risk of loss through a decline in the market value of the security until the put expires. The amount of any appreciation in the value of the underlying security will be partially offset by the amount of the premium paid for the put option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction; profit or loss from the sale will depend on whether the amount received is more or less than the premium paid for the put option plus the related transaction costs. A closing sale transaction cancels out a Fund’s position as the purchaser of an option by means of an offsetting sale of an identical option prior to the expiration of the option it has purchased. In certain circumstances, a Fund may purchase call options on securities held in its portfolio on which it has written call options, or on securities which it intends to purchase. Neither Fund will purchase options on securities if, as a result of such purchase, the aggregate cost of all outstanding options on securities held by that Fund would exceed 5% of the market value of that Fund’s total assets.

Financial Futures Contracts and Options. Each Fund is authorized to purchase and sell certain financial futures contracts and options thereon solely for the purposes of hedging its investments in Municipal Bonds against declines in value and hedging against increases in the cost of securities it intends to purchase. 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 financial futures contracts, to make and accept a cash settlement, at a specific future time for a specified price. 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 or options. A purchase of financial futures contracts may provide a hedge against an increase in the cost of securities intended to be purchased, because such appreciation may be offset, in whole or in part, by an increase in the value of the position in the financial futures contracts.

The purchase or sale of a financial 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 equal to approximately 5% of the contract amount must be deposited with the broker. This amount is known as initial margin. Subsequent payments to and from the broker, called variation margin, are made on a daily basis as the price of the financial futures contract fluctuates making the long and short positions in the financial futures contract more or less valuable.

Each Fund may purchase and sell financial futures contracts based on The Bond Buyer Municipal Bond Index, a price-weighted measure of the market value of 40 large tax-exempt issues, and purchase and sell put and call options on such financial futures contracts for the purpose of hedging Municipal Bonds that a Fund holds or anticipates purchasing against adverse changes in interest rates. Each Fund also may purchase and sell financial futures contracts on U.S. Government securities and purchase and sell put and call options on such financial futures contracts for such hedging purposes. 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, GNMA Certificates and three-month U.S. Treasury bills.

Subject to policies adopted by its Board of Directors, each Fund also may engage in transactions in other financial futures contracts, such as financial futures contracts on other municipal bond indices that may become available, if FAM should determine that there is normally sufficient correlation between the prices of such financial futures contracts and the Municipal Bonds in which a Fund invests to make such hedging appropriate.
<R>

Over-The-Counter Options. Each Fund may engage in options and futures transactions on exchanges and in the over-the-counter markets (“OTC options”). In general, exchange-traded contracts are third-party contracts (i.e., performance of the parties’ obligations is guaranteed by an exchange or clearing corporation) with standardized strike prices and expiration dates. OTC option transactions are two-party contracts with price and terms negotiated by the buyer and seller. See “Restrictions on OTC Options” below for information as to restrictions on the use of OTC options.</R>

Restrictions on OTC Options. Each Fund will engage in transactions in OTC options only with banks or dealers that have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. Certain OTC options and assets used to cover OTC options written by the Funds are considered to be illiquid. The illiquidity of such options or assets may prevent a successful sale of such options or assets, result in a delay of sale, or reduce the amount of proceeds that otherwise might be realized.

Risk Factors in Financial Futures Contracts and Options Thereon. Utilization of futures transactions involves the risk of imperfect correlation in movements in the price of financial futures contracts and movements in the price of the security that is the subject of the hedge. If the price of the financial futures contract moves more or less than the price of the security that is the subject of the hedge, a Fund will experience a gain or loss that will not be completely offset by movements in the price of such security. There is a risk of imperfect correlation where the securities underlying financial futures contracts have different maturities, ratings, geographic compositions or other characteristics different from those of the security being hedged. In addition, the correlation may be affected by additions to or deletions from the index that serves as a basis for a financial futures contract. Finally, in the case of financial futures contracts on U.S. Government securities and options on such financial futures contracts, the anticipated correlation of price movements between the U.S. Government securities underlying the futures or options and Municipal Bonds may be adversely affected by economic, political, legislative or other developments which have a disparate impact on the respective markets for such securities.

Under regulations of the Commodity Futures Trading Commission, the futures trading activities described herein will not result in a Fund being deemed a “commodity pool,” as defined under such regulations, provided that such Fund adheres to certain restrictions. In particular, a Fund may purchase and sell financial futures contracts and options thereon (i) for bona fide hedging purposes, without regard to the percentage of that Fund’s assets committed to margin and option premiums, and (ii) for non-hedging purposes, if, immediately thereafter the sum of the amount of initial margin deposits on that Fund’s existing futures positions and option premiums entered into for non-hedging purposes do not exceed 5% of the market value of the liquidation value of that Fund’s portfolio, after taking into account unrealized profits and unrealized losses on any such transactions. Margin deposits may consist of cash or securities acceptable to the broker and the relevant contract market.

When a Fund purchases a financial futures contract, or writes a put option or purchases a call option thereon, it will maintain an amount of cash, cash equivalents (e.g., commercial paper and daily tender adjustable notes) or liquid securities in a segregated account with that Fund’s custodian, 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 financial futures contract, thereby ensuring that the use of such financial futures contract is unleveraged.

Although certain risks are involved in options and futures transactions, FAM believes that, because the Funds will engage in options and futures transactions only for hedging purposes, the options and futures portfolio strategies of the Funds will not subject them to certain risks associated with speculation in options and futures transactions.

The volume of trading in the exchange markets with respect to Municipal Bond options may be limited, and it is impossible to predict the amount of trading interest that may exist in such options. In addition, no assurance can be given that viable exchange markets will continue.

Each Fund intends to enter into options and futures transactions, on an exchange or in the over-the-counter market, only if there appears to be a liquid secondary market for such options or futures. There can be no assurance, however, that a liquid secondary market will exist at any specific time. Thus, it may not be possible to close an option or futures transaction. The inability to close options and futures positions also could have an adverse impact on a Fund’s ability to effectively hedge its portfolio. There is also the risk of loss by a Fund of margin deposits or collateral in the event of bankruptcy of a broker with which that Fund has an open position in an option or financial futures contract.

The liquidity of a secondary market in a financial futures contract may be adversely affected by “daily price fluctuation limits” established by commodity exchanges that limit the amount of fluctuation in a financial 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.

If it is not possible to close a financial futures position entered into by a Fund, that Fund would continue to be required to make daily cash payments of variation margin in the event of adverse price movements. In such a situation, if a Fund has insufficient cash, it may have to sell portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so.

The successful use of these transactions also depends on the ability of FAM to forecast correctly the direction and extent of interest rate movements within a given time frame. To the extent these rates remain stable during the period in which a financial futures contract is held by a Fund or move in a direction opposite to that anticipated, that Fund may realize a loss on the hedging transaction that is not fully or partially offset by an increase in the value of portfolio securities. As a result, a Fund’s total return for such period may be less than if it had not engaged in the hedging transaction. Furthermore, a Fund will only engage in hedging transactions from time to time and may not necessarily be engaging in hedging transactions when movements in interest rates occur.

Investment Restrictions

<R> The Funds have similar investment restrictions. The following are fundamental investment restrictions of MuniYield and may not be changed without the approval of the holders of a majority of the outstanding shares of common stock and the outstanding shares of AMPS and any other preferred stock, voting together as a single class, and a majority of the outstanding shares of AMPS and any other preferred stock, voting separately as a class. These fundamental restrictions will also be the fundamental restrictions of the Combined Fund. (For this purpose and under the Investment Company Act, for the common stock and AMPS voting together as a single class “majority” means the lesser of (i) 67% of the shares of each class of capital stock represented at a meeting at which more than 50% of the outstanding shares of each class of capital stock are represented or (ii) more than 50% of the outstanding shares of each class of capital stock.) For the AMPS voting separately as a single class, “majority” means more than 50% of the outstanding AMPS MuniYield may not:</R>

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

2) Purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization, or by purchase in the open market of securities of closed-end investment companies and only if immediately thereafter not more than 10% of MuniYield’s total assets would be invested in such securities.

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

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

5) Underwrite securities of other issuers except insofar as MuniYield may be deemed an underwriter under the Securities Act in selling portfolio securities.

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

7) Purchase any securities on margin, except that MuniYield 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 MuniYield of initial or variation margin in connection with financial futures contracts and options thereon is not considered the purchase of a security on margin).

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

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

For purposes of restriction (9), the exception for states, municipalities and their political subdivisions applies only to tax-exempt securities issued by such entities.

Municipal Strategy’s fundamental investment restrictions are the same as MuniYield’s fundamental investment restrictions (1), (3), (4), (5), (6) and (9) above. Municipal Strategy is subject to certain non-fundamental investment restrictions set forth below. Two of those restrictions (b. and c.) are similar to restrictions (7) and (8) of MuniYield.

An additional investment restriction adopted by each Fund, which may be changed by the Board of Directors without shareholder approval, provides that neither Fund may mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by such Fund except as may be necessary in connection with borrowings mentioned in investment restriction (4) above or except as may be necessary in connection with transactions in financial futures contracts and options thereon.

Municipal Strategy has also adopted the following additional non-fundamental investment restrictions, which may be changed by its Board of Directors without shareholder approval. These restrictions 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 (iv) the Fund, together with other investment companies having the same investment adviser and companies controlled by such companies, owns not more than 10% of the total outstanding stock of any one closed-end investment company.

b. 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).

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

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

<R> For so long as shares of AMPS are rated by Moody’s, no Fund will change its additional investment restrictions unless it receives written confirmation from Moody’s that engaging in such transactions would not impair the rating then assigned to the shares of AMPS by Moody’s.</R>

FAM and Merrill Lynch are owned and controlled by Merrill Lynch & Co., Inc. (“ML & Co.”). Because of the affiliation of Merrill Lynch with FAM, each 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 Investment Company 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. An exemptive order has been obtained that permits the Funds to effect principal transactions with Merrill Lynch in high quality, short-term, tax-exempt securities subject to conditions set forth in such order.

Rating Agency Guidelines

<R> Each Fund intends that, so long as shares of its AMPS are outstanding, the composition of its portfolio will reflect guidelines established by Moody’s and S&P in connection with a Fund’s receipt of a rating for such shares on or prior to their date of original issue of at least aaa from Moody’s and AAA from S&P. Moody’s and S&P, which are nationally recognized statistical rating organizations, issue ratings for various securities reflecting the perceived creditworthiness of such securities. The guidelines for rating AMPS have been developed by Moody’s and S&P in connection with issuances of asset-backed and similar securities, including debt obligations and variable rate preferred stock, generally on a case-by-case basis through discussions with the issuers of these </R>

securities. The guidelines are designed to ensure that assets underlying outstanding debt or preferred stock will be sufficiently varied and of sufficient quality and amount to justify investment grade ratings. The guidelines do not have the force of law but have been adopted by each Fund in order to satisfy current requirements necessary for Moody’s and S&P to issue the above-described ratings for shares of AMPS, which ratings generally are relied upon by institutional investors in purchasing such securities. The guidelines provide a set of tests for portfolio composition and asset coverage that supplement (and in some cases are more restrictive than) the applicable requirements under the Investment Company Act.

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

For so long as any shares of a Fund’s AMPS are rated by Moody’s or S&P, as the case may be, a Fund’s use of options and financial futures contracts and options thereon will be subject to certain limitations mandated by the rating agencies.

Portfolio Composition

<R> There are differences in concentration among the types of securities held in the portfolio of each Fund. For MuniYield, as of July 31, 2001, approximately 94.2%, 3.3% and 2.5% of its portfolio was invested in revenue bonds, general obligation bonds and cash equivalents, respectively; for Municipal Strategy, approximately 81.0% and 19.0% of its portfolio was invested in revenue bonds and general obligation bonds, respectively.

Although the investment portfolios of the Funds must satisfy the same standards with respect to credit quality, the actual securities owned by each Fund will not be identical. As a result, there are certain differences in the composition of the two investment portfolios. The tables below set forth ratings information as of July 31, 2001 for the Municipal Bonds held by each Fund.</R>

MuniYield

<R>     As of July 31, 2001, approximately 96.9% and 3.1% of the market value of MuniYield’s portfolio was invested in long term municipal obligations and short term municipal obligations, respectively. The following table sets forth certain information with respect to the composition of MuniYield’s long term municipal obligation investment portfolio as of July 31, 2001.


S&P

Moody’s

Number of Issues

Value (in
Thousands)

Percent


   AAA

  Aaa

    62

$339,453

45.0

%

   AA

  Aa

   22

104,103

13.8

   A

  A

    4

48,573

6.4

   BBB

  Baa

  19

127,624

16.9

   NR

  NR

  26

134,946

17.9

Total

133

$754,699

100.0

%

</R>

* Ratings: Using the higher of S&P’s or Moody’s rating on MuniYield’s municipal obligations. S&P’s rating categories may be modified further by a plus (+) or minus (-) in AA, A and BBB ratings. Moody’s rating categories may be modified further by a 1, 2 or 3 in Aa, A and Baa ratings. See Appendix III—“Ratings of Municipal Bonds and Commercial Paper.”

Municipal Strategy

<R> As of July 31, 2001, approximately 96.1% and 3.9% of the market value of Municipal Strategy’s portfolio was invested in long term municipal obligations and short term municipal obligations, respectively. The following table sets forth certain information with respect to the composition of Municipal Strategy’s long term municipal obligation investment portfolio as of July 31, 2001.</R>

   <R>
S&P

Moody’s

Number of Issues

Value (in
Thousands)

Percent


   AAA

  Aaa

25

$  61,473

52.2

%

   AA

  Aa

   9

22,326

19.0

   A

  A

  1

2,638

2.2

   BBB

  Baa

  6

9,625

8.2

   NR

  NR

14

21,616

18.4

Total

55

$117,678

100.0

%

</R>

* Ratings: Using the higher of S&P’s or Moody’s rating on Municipal Strategy’s municipal obligations. S&P’s rating categories may be modified further by a plus (+) or minus (-) in AA, A and BBB ratings. Moody’s rating categories may be modified further by a 1, 2 or 3 in Aa, A and Baa ratings. See Appendix III—“Ratings of Municipal Bonds and Commercial Paper.”

<R>Performance

The table below details for each Fund’s common stock the yield and tax equivalent yield for the 31 days ended May 31, 2001 and the average annual total return for one and five years ended May 31, 2001 and for the period from each Fund’s inception to May 31, 2001.

Average Annual Total Return

Yield—31 days
ended May 31, 2001

Tax Equivalent
Yield—31 days
ended May 31, 2001†

One Year ended
May 31, 2001

Five Years ended
May 31, 2001

Since
Inception to
May 31, 2001

Municipal Strategy

5.27

%

7.27

%

12.26

%

4.91

%

4.52

%*

MuniYield

6.40

%

8.83

%

10.87

%

5.17

%

7.40

%**

† Assumes a 27.5% Federal income tax rate.</R>

* Municipal Strategy commenced operations on November 3, 1995.

** MuniYield commenced operations on November 29, 1991.

Portfolio Transactions

The procedures for engaging in portfolio transactions are the same for each Fund. Subject to policies established by the Board of Directors of each Fund, FAM is primarily responsible for the execution of each Fund’s portfolio transactions. In executing such transactions, FAM seeks to obtain the best results for each Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm involved and the firm’s risk in positioning a block of securities. While FAM generally seeks reasonably competitive commission rates, the Funds do not necessarily pay the lowest commission or spread available.

Neither Fund has any obligation to deal with any broker or dealer in the execution of transactions in portfolio securities. Subject to obtaining the best price and execution, securities firms that provide supplemental investment research to FAM, including Merrill Lynch, may receive orders for transactions by a Fund. Information so received will be in addition to, and not in lieu of, the services required to be performed by FAM under its investment advisory agreements with the Funds, and the expenses of FAM will not be reduced as a result of the receipt of such supplemental research information.

Each Fund invests in securities that are primarily traded in the over-the-counter markets, and each Fund normally deals directly with the dealers who make markets in the securities involved, except in those circumstances where better prices and execution are available elsewhere. Under the Investment Company Act, except as permitted by exemptive order, persons affiliated with a Fund are prohibited from dealing with the Fund as principals in the purchase and sale of securities. Since transactions in the over-the-counter markets usually involve transactions with dealers acting as principals for their own account, the Funds do not deal with affiliated persons, including Merrill Lynch and its affiliates, in connection with such transactions, except that, pursuant to an exemptive order obtained by FAM, a Fund may engage in principal transactions with Merrill Lynch in high quality, short-term, tax-exempt securities. An affiliated person of a Fund may serve as its broker in over-the-counter transactions conducted on an agency basis.

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

The Board of Directors of each Fund has considered the possibility of recapturing for the benefit of the Funds brokerage commissions, dealer spreads and other expenses of possible portfolio transactions, such as underwriting commissions, by conducting portfolio transactions through affiliated entities, including Merrill Lynch. For example, brokerage commissions received by Merrill Lynch could be offset against the investment advisory fees paid by the Fund to FAM. After considering all factors deemed relevant, the Directors of each Fund made a determination not to seek such recapture. The Directors will reconsider this matter from time to time.

Portfolio Turnover

Generally, neither Fund purchases securities for short-term trading profits. However, either Fund may dispose of securities without regard to the time that they have been held when such action, for defensive or other reasons, appears advisable to FAM. (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 a 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 a Fund, and also has certain tax consequences for stockholders. The portfolio turnover rate for each Fund for the periods indicated is set forth below:

For the Six Month Period
Ended April 30, 2001
For the Year Ended
October 31,

(Unaudited) 2000
1999

MuniYield 36.66 % 103.44 % 78.42 %

For the Six Month Period
Ended April 30, 2001
For the Year Ended
October 31,

(Unaudited) 2000
1999

Municipal Strategy 20.49 % 115.52 % 158.57 %

Net Asset Value

MuniYield determines the net asset value per share of its common stock as of the NYSE close of business on the last business day of each week. Municipal Strategy determines its net asset value as of the NYSE close of business once daily on each day the NYSE is open for trading. The NYSE generally closes at 4:00 p.m. Eastern time. For purposes of determining the net asset value of a share of common stock of each Fund, the value of the securities held by a Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS is divided by the total number of shares of common stock outstanding at such time. Expenses, including the fees payable to FAM, are accrued daily.

The Municipal Bonds in which each Fund invests are traded primarily in the over-the-counter markets. In determining net asset value, each Fund uses the valuations of portfolio securities furnished by a pricing service approved by its Board of Directors. The pricing service typically values portfolio securities at the bid price or the yield equivalent when quotations are readily available. Market illiquidity may make it difficult for the Funds to obtain accurate quotations for its holdings of high yield Municipal Bonds. Municipal Bonds for which quotations are not readily available are valued at fair market value on a consistent basis as determined by the pricing service using a matrix system to determine valuations. The procedures of the pricing service and its valuations are reviewed by the officers of each Fund under the general supervision of the Board of Directors of that Fund. The Board of Directors of each Fund has determined in good faith that the use of a pricing service is a fair method of determining the valuation of portfolio securities. Positions in futures contracts are valued at closing prices for such contracts established by the exchange on which they are traded, or if market quotations are not readily available, are valued at fair value on a consistent basis using methods determined in good faith by the Board of Directors of each Fund.

MuniYield determines and makes available for publication weekly the net asset value of its common stock. 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.

Capital Stock

<R> Each Fund has outstanding both common stock and AMPS. The MuniYield Common Stock is listed on the NYSE and may be bought or sold at market price on each day the NYSE is open for trading. The shares of MuniYield Common Stock commenced trading on the NYSE on November 29, 1991. As of July 31, 2001, the net asset value per share of MuniYield Common Stock was $13.58 and the market price per share was $13.72. Municipal Strategy engages in a continuous offering of its common stock and Series A AMPS. Municipal Strategy Common Stock is not listed on any exchange and no secondary market presently exists for Municipal Strategy Common Stock, nor is it currently expected that a secondary market will develop. As of July 31, 2001, the net asset value per share of Municipal Strategy Common Stock was $9.32.</R>

Each Fund is authorized to issue 200,000,000 shares of capital stock, all of which shares initially were classified as common stock. The Board of Directors of each Fund is authorized to classify or reclassify any unissued shares of capital stock by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption. In connection with each Fund’s offering of shares of AMPS, MuniYield reclassified 10,000 shares of unissued capital stock as AMPS (in connection with the Reorganization, MuniYield intends to reclassify an additional 1,720 shares of unissued capital stock as AMPS), and Municipal Strategy reclassified 40,000 shares of unissued capital stock as AMPS.

Common Stock

<R> Holders of each Fund’s common stock are entitled to share equally in dividends declared by a Fund’s Board of Directors payable to holders of the common stock and in the net assets of a Fund available for distribution to holders of the common stock after payment of the preferential amounts payable to holders of any outstanding preferred stock. See “Voting Rights” and “Liquidation Rights of Holders of AMPS.” Holders of a Fund’s common stock do not have preemptive or conversion rights and shares of a Fund’s common stock are not redeemable. The outstanding shares of common stock of each Fund are fully paid and nonassessable.</R>

So long as any shares of a Fund’s AMPS or any other preferred stock are outstanding, holders of that Fund’s common stock will not be entitled to receive any dividends of or other distributions from that Fund unless all accumulated dividends on outstanding shares of that Fund’s AMPS and any other preferred stock have been paid, and unless asset coverage (as defined in the Investment Company Act) with respect to such AMPS and any other preferred stock would be at least 200% after giving effect to such distributions.

The market price for MuniYield Common Stock on the NYSE may be at a premium above or a discount from the net asset value of the MuniYield Common Stock. Conversely, Municipal Strategy engages in a continuous offering of its common stock. In order to provide liquidity for stockholders of Municipal Strategy, the Board of Directors of the Fund considers, on a quarterly basis, whether the Fund should make a tender offer for its common stock. In a tender offer, the Fund purchases outstanding common stock at the Fund’s net asset value (less any applicable CDSC) on the last day of the offer.

<R> The Board of Directors of Municipal Strategy is not required to authorize the making of a tender offer and there can be no assurance that a tender offer will be made during any particular quarter. If a tender offer is not made, stockholders may be unable to sell their shares. Since the inception of Municipal Strategy, however, the Board has authorized a tender offer each quarter. If the Reorganization is completed, the tender offer that concluded on August 20, 2001 will have been the final tender offer by Municipal Strategy for its common stock.</R>

Contingent Deferred Sales Charge

<R> Stockholders of MuniYield do not pay any CDSC because the Fund’s common stock trades on the NYSE. If common stockholders of Municipal Strategy sell their stock back to the Fund during a tender offer and they have held those shares for less than three years when the tender offer begins, they may have to pay a CDSC. This charge varies depending on how long a shareholder has owned the tendered shares. The amount of the charge is based on how much the shareholder paid for the tendered shares or their net asset value, whichever amount is less.</R>

Preferred Stock

MuniYield currently has outstanding five series of AMPS and Municipal Strategy has outstanding one series of AMPS. The AMPS of each Fund have a similar structure. The AMPS of a Fund are shares of preferred stock of that Fund that entitle their holders to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor, at a rate per annum that may vary for the successive dividend periods. The AMPS of each Fund have a liquidation preference of $25,000 per share; the AMPS of the Funds are not traded on any stock exchange or automated quotation system. Each Fund’s AMPS can be purchased at an auction or through broker-dealers who maintain a secondary market in the AMPS.

     Auctions generally have been held and will be held every seven days for Series E AMPS of MuniYield and Municipal Strategy Series A AMPS and every twenty-eight days for Series A, B, C and D AMPS of MuniYield, unless the applicable Fund elects, subject to certain limitations, to have a special dividend period. The following table provides information about the dividend rates for each series of AMPS of each Fund as of a recent auction.
<R>

     Auction Date

Fund

Dividend Period

Series

Dividend Rate

September 4, 2001

MuniYield

28 days

A

2.50

%

August 14, 2001

MuniYield

28 days

B

2.50

%

August 28, 2001

MuniYield

28 days

C

2.40

%

August 28, 2001

MuniYield

28 days

D

2.40

%

September 4, 2001

MuniYield

  7 days

E

2.45

%

August 22, 2001

Municipal Strategy

  7 days

A

2.40

%

</R>

Periodic auctions are conducted for the AMPS of each Fund by the Auction Agent for the Funds. The auctions require the participation of one or more broker-dealers, each of whom enters into an agreement with the Auction Agent. After each auction, the Auction Agent pays a service charge, from funds provided by the issuing Fund, to each broker-dealer, at the annual rate of 0.25% calculated on the basis of the purchase price of shares of the relevant AMPS placed by such broker-dealer at such auction.

Under the Investment Company Act, each Fund is permitted to have outstanding more than one series of preferred stock as long as no single series has priority over another series as to the distribution of assets of the Fund or the payment of dividends. Holders of a Fund’s preferred stock do not have preemptive rights to purchase any shares of AMPS or any other preferred stock that might be issued. The net asset value per share of a Fund’s AMPS equals its liquidation preference plus accumulated dividends per share.

The redemption provisions pertaining to the AMPS of each Fund are substantially similar. It is anticipated that shares of AMPS of each Fund will generally be redeemable at the option of the Fund at a price equal to their liquidation preference of $25,000 plus accumulated but unpaid dividends (whether or not earned or declared) to the date of redemption plus, under certain circumstances, a redemption premium. Shares of AMPS 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 the asset coverage for the AMPS specified by Moody’s and S&P in connection with their issuance of ratings on the AMPS.

Certain Provisions of the Charters

<R> Each Fund’s Charter includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control of a 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 by vote of the holders of at least 66²/3% of the shares entitled to be voted on the matter. A Director elected by all of the holders of capital stock may be removed only by action of such holders, and a Director elected by the holders of AMPS and any other preferred stock may be removed only by action of the holders of AMPS and any other preferred stock.</R>

In addition, the Charter of each Fund requires the favorable vote of the holders of at least 66²/3% of all of a Fund’s shares of capital stock, then entitled to be voted, voting as a single class, to approve, adopt or authorize the following:

• a merger or consolidation or statutory share exchange of the Fund with any other corporation or entity, or

• 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

• 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 all of the votes entitled to be cast by stockholders of the Fund, voting as a single class, is required. Such approval, adoption or authorization of the foregoing also would require the favorable vote of at least a majority of the Fund’s shares of preferred stock then entitled to be voted thereon, including the AMPS, voting as a separate class.

In addition, conversion of a Fund to an open-end investment company would require an amendment to that 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 affirmative vote of the holders of at least 66²/3% of a Fund’s outstanding shares of capital stock (including the AMPS and any other preferred stock) entitled to be voted on the matter, voting as a single class (or a majority of such shares if the amendment was previously approved, adopted or authorized by at least two-thirds of the total number of Directors fixed in accordance with the by-laws), and the affirmative vote of at least a majority of outstanding shares of preferred stock of that Fund (including the AMPS), voting as a separate class. Such a vote also would satisfy a separate requirement in the Investment Company 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 Investment Company 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 no longer would be listed on a stock exchange. Conversion to an open-end investment company would also require redemption of all outstanding shares of preferred stock (including the AMPS) and would require changes in certain of a Fund’s investment policies and restrictions, such as those relating to the issuance of senior securities, the borrowing of money and the purchase of illiquid securities.

The Board of Directors of each Fund has determined that the 66²/3% voting requirements described above, which are greater than the minimum requirements under the Investment Company Act, are in the best interests of stockholders generally. Reference should be made to the Charter of each Fund on file with the Commission for the full text of these provisions.

Management of the Funds

<R> Directors and Officers. The Board of Directors of MuniYield currently consists of six persons, five of whom are not “interested persons,” as defined in the Investment Company Act, of MuniYield. The Board of Directors of Municipal Strategy currently consists of eight persons, seven of whom are not “interested persons” of Municipal Strategy. Terry K. Glenn serves as President and a Director of each Fund. The Directors of each Fund 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 Investment Company Act and under applicable Maryland law. The Funds share some of the same officers. For further information regarding the Directors and officers of each Fund, see Appendix I—“Information Pertaining to Each Fund.”</R>

Roberto W. Roffo currently manages the investment portfolio of each Fund and will manage the Combined Fund after the Reorganization. The portfolio manager is primarily responsible for the day to day management of the applicable Fund’s portfolio. Biographical information about Mr. Roffo is contained in Appendix I to this Proxy Statement and Prospectus.

<R> Advisory and Administrative Arrangements. FAM, which is owned and controlled by ML & Co., serves as the investment adviser for MuniYield and Municipal Strategy pursuant to separate investment advisory agreements that are substantially similar, except for certain provisions in the investment advisory agreement for MuniYield relating to FAM’s provision of administrative services to MuniYield. FAM provides each Fund with the same investment advisory and management services. As of July 2001, FAM and its affiliates had a total of approximately $535.5 billion in investment company and other portfolio assets under management (approximately $24.6 billion of which were invested in municipal securities). This amount includes assets managed for certain affiliates of FAM. FAM was organized as an investment adviser in 1977 and offers </R>

investment advisory services to more than 50 registered investment companies. The principal business address of FAM is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.

Each Fund’s investment advisory agreement with FAM (each, an “Investment Advisory Agreement”) provides that, subject to the supervision of the Board of Directors of each Fund, FAM is responsible for the actual management of each Fund’s portfolio. The responsibility for making decisions to buy, sell or hold a particular security for each Fund rests with FAM, subject to review by the Board of Directors of that Fund.

FAM provides the portfolio management for each Fund. Such portfolio management considers analyses from various sources (including brokerage firms with which each Fund does business), makes the necessary investment decisions, and places orders for transactions accordingly. FAM also is responsible for the performance of certain administrative and management services for each Fund.

For the investment advisory services pursuant to each Fund’s Investment Advisory Agreement, each Fund pays a monthly fee at an annual rate of 0.50% of its average net assets. MuniYield’s average net assets are computed on a weekly basis and Municipal Strategy’s average net assets are computed on a daily basis (i.e., the average weekly or daily value, as applicable, of the total assets of a Fund, including assets acquired from the sale of preferred stock, minus the sum of accrued liabilities of the Fund and accumulated dividends on its shares of preferred stock). For purposes of this calculation, average weekly or daily net assets, as applicable, are determined at the end of each month on the basis of the average net assets of the Fund for each week or day, as applicable during the month. The assets for each weekly period are determined by averaging the net assets at the last business day of a week with the net assets at the last business day of the prior week. The average daily net assets are determined at the end of each month on the basis of the average net assets of Municipal Strategy for each day during the month.

Since the commencement of operations of Municipal Strategy to the present, FAM has waived a portion of its advisory fee and/or reimbursed certain other expenses. The fee waiver and/or expense reimbursement with respect to Municipal Strategy is voluntary and may be reduced or discontinued by FAM at any time without notice to stockholders. After the Reorganization, the Combined Fund is expected to pay FAM a monthly fee at the annual rate of 0.50% of its average weekly net assets, including proceeds from the issuance of AMPS, as described above.

<R> For the fiscal years ended October 31, 1998, 1999 and 2000 and for the six month period ended April 30, 2001, the fees paid by MuniYield to FAM pursuant to the Investment Advisory Agreement were $4,261,373, $4,104,482, $3,743,649 and $1,877,871, respectively (such fees based on average weekly net assets of approximately $854.2 million, $825.2 million, $748.9 million and $757.5 million, respectively). For the fiscal years ended October 31, 1998, 1999 and 2000 and for the six month period ended April 30, 2001, the fees paid by Municipal Strategy to FAM pursuant to the Investment Advisory Agreement were $787,978, $852,812, $746,301 and $307,998, respectively (such fees based on average daily net assets of approximately $158.0 million, $171.0 million, $149.3 million and $124.2 million, respectively). For the fiscal years ended October 31, 1998, 1999 and 2000 and for the six month period ended April 30, 2001, FAM voluntarily waived $204,377, $170,562, $149,260 and $61,600, respectively, of the fees payable by Municipal Strategy pursuant to its Investment Advisory Agreement.</R>

Administrative Services and Fees. Under the terms of the administration agreement between Municipal Strategy and FAM (the “Administration Agreement”), FAM also performs or arranges for the performance of the administrative services (i.e., services other than investment advice and related portfolio activities) necessary for the operation of Municipal Strategy, including administering shareholder accounts and handling shareholder relations. Pursuant to the MuniYield Investment Advisory Agreement, FAM provides similar services for MuniYield.

For administrative services, Municipal Strategy pays FAM a monthly fee at an annual rate of 0.25% of the Fund’s average daily net assets determined in the same manner as the fee payable by the Fund under the Investment Advisory Agreement. FAM may pay a portion of the fee received pursuant to the Administration Agreement to its affiliate, Merrill Lynch, for administrative services rendered in connection with the AMPS or other preferred stock of the Fund. MuniYield does not pay a separate administrative fee to FAM. After the Reorganization, the Combined Fund also will not pay a separate administrative fee to FAM.

<R> For the fiscal years ended October 31, 1998, 1999 and 2000 and for the six month period ended April 30, 2001, the fees paid by Municipal Strategy pursuant to the Administration Agreement were $393,989, $426,406, </R>

<R>$373,150 and $153,999, respectively (such fees based on average daily net assets of approximately $158.0 million, $171.0 million, $149.3 million and $124.2 million, respectively).</R>

Payment of Fund Expenses. Each Fund’s Investment Advisory Agreement obligates FAM to provide investment advisory services and, in the case of MuniYield, administrative services to the Fund. Under MuniYield’s Investment Advisory Agreement, FAM pays all compensation of and furnishes office space for officers and employees of MuniYield connected with investment and economic research, trading and investment management of MuniYield, as well as the compensation of all Directors of MuniYield who are affiliated persons of FAM or any of its affiliates. Under Municipal Strategy’s Investment Advisory Agreement, FAM pays all compensation of officers and employees of the Fund as well as the fees of all Directors who are affiliated persons of ML & Co. or its subsidiaries.

Each 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 printing proxies, listing fees, if any, stock certificates and stockholder reports, charges of the custodian and the transfer agent, dividend disbursing agent and registrar, fees and expenses with respect to the issuance of AMPS, Commission fees, fees and expenses of unaffiliated 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.

Accounting Services. Each Fund entered into a separate agreement with State Street Bank and Trust Company (“State Street”), effective January 1, 2001, pursuant to which State Street provides certain accounting services to each Fund. Each Fund pays a fee for these services. Prior to January 1, 2001, FAM provided accounting services to each Fund and was reimbursed by each Fund in connection with such services. FAM continues to provide certain accounting services to each Fund and MuniYield and Municipal Strategy reimburse FAM for these services.

The table below shows the amounts paid by each Fund to State Street and to FAM for the periods indicated.

MuniYield

Period

Paid to State Street

Paid to FAM

Fiscal year ended October 31, 1998

N/A
$
86,625

Fiscal year ended October 31, 1999

N/A
$
103,026

Fiscal year ended October 31, 2000

N/A
$
115,121

For the six months ended April 30, 2001
$
70,706
*

$
54,031

Municipal Strategy

Period

Paid to State Street

Paid to FAM

Fiscal year ended October 31, 1998

N/A
$
65,847

Fiscal year ended October 31, 1999

N/A
$
55,031

Fiscal year ended October 31, 2000

N/A
$
86,990

For the six months ended April 30, 2001
$
11,318
*

$
8,000

* Represents payments pursuant to the agreement with State Street commencing January 1, 2001.

Duration and Termination of Investment Advisory and Administration Agreements. Unless earlier terminated as described below, the Investment Advisory Agreement between each Fund and FAM will continue from year to year if approved annually (a) by the Board of Directors of the Fund or by a majority of the outstanding shares of a Fund’s Common Stock and AMPS, voting together as a single class, and (b) by a majority of the Directors of a Fund who are not parties to such contract or “interested persons,” as defined in the Investment Company Act, of any such party. The contract is not assignable and it 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. Municipal Strategy’s Administration Agreement is subject to the same duration and termination requirements.

<R> Securities held by a Fund may also be held by, or be appropriate investments for, other funds or investment advisory clients for which FAM or its affiliates act as an adviser. Because of different 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 FAM for a Fund or other funds for which it acts as investment adviser or for 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</R>

by FAM (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.

Code of Ethics

<R> The Board of Directors of each Fund has adopted a Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act that covers each Fund, MLIM, FAM and FAMD. 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 a Fund.</R>

Voting Rights

Voting rights are identical for the holders of shares of each Fund’s common stock. Holders of each Fund’s common stock are entitled to one vote for each share held and will vote with the holders of any outstanding shares of the Fund’s AMPS or other preferred stock on each matter submitted to a vote of holders of common stock, except as set forth below.

Voting rights of the holders of each Fund’s AMPS are identical. Except as otherwise indicated below, and except as otherwise required by applicable law, holders of shares of a Fund’s AMPS will be entitled to one vote per share on each matter submitted to a vote of a Fund’s stockholders and will vote together with the holders of shares of a Fund’s common stock as a single class.

The shares of each Fund’s common stock, AMPS and any other preferred stock do not have cumulative voting rights, which means that the holders of more than 50% of the shares of a Fund’s common stock, AMPS and any other preferred stock voting for the election of Directors can elect all of the Directors standing for election by such holders, and, in such event, the holders of the remaining shares of a Fund’s common stock, AMPS and any other preferred stock will not be able to elect any of such Directors.

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

The affirmative vote of the holders of a majority of the outstanding shares of a Fund’s AMPS, 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, (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, (iii) approve any plan of reorganization adversely affecting such AMPS or (iv) take any action to change a Fund’s investment policies requiring a vote of stockholders under Section 13(a) of the Investment Company Act.

Stockholder Inquiries

Stockholder inquiries with respect to any Fund may be addressed to such Fund by telephone at 1-609-282-2800 or at the address set forth on the cover page of this Proxy Statement and Prospectus.

Dividends and Distributions

The Funds’ current policies with respect to dividends and distributions relating to shares of their common stock are identical. Each Fund intends to distribute substantially all its net investment income monthly to holders of a Fund’s common stock. As long as any preferred stock is outstanding, monthly distributions to holders of a Fund’s common stock normally consist of all or a portion of its net investment income remaining after the payment of dividends (and any Additional Distribution) on the Fund’s AMPS. All net realized long term or short term capital gains, if any, are distributed pro rata at least annually to holders of shares of a Fund’s common stock and AMPS. While any shares of a Fund’s AMPS are outstanding, that Fund may not declare any cash dividend or other distribution on its common stock, unless at the time of such declaration (1) all accumulated dividends on its AMPS, including any Additional Distribution, have been paid, and (2) the net asset value of its portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of the liquidation value of the outstanding shares of AMPS (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 a 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 holders of common stock and AMPS. See “Comparison of the Funds—Tax Rules Applicable to the Funds and Their Stockholders.”

Similarly, the Funds’ current policies with respect to dividends and distributions on shares of their AMPS are identical. The holders of shares of a Fund’s AMPS are entitled to receive, when, as and if declared by the Fund’s Board of Directors, out of funds legally available therefor, cumulative cash dividends on their shares. Dividends on a Fund’s shares of AMPS so declared and payable shall be paid (i) in preference to and in priority over any dividends so declared and payable on that Fund’s common stock, and (ii) to the extent permitted under the Internal Revenue Code of 1986, as amended (the “Code”) and to the extent available, out of net tax-exempt income earned on the Fund’s investments. Dividends for each Fund’s AMPS are paid through The Depository Trust Company (“DTC”) (or a successor securities depository) on each dividend payment date. DTC’s normal procedures now provide for it to distribute dividends in same-day funds to agent members, who in turn are expected to distribute such dividends to the person for whom they are acting as agent in accordance with the instructions of such person. Prior to each dividend payment date, the relevant Fund is required to deposit with the Auction Agent sufficient funds for the payment of such declared dividends. Neither of the Funds intends to establish any reserves for the payment of dividends, and no interest will be payable in respect of any dividend payment or payment on the shares of a Fund’s AMPS which may be in arrears.

<R> Dividends paid by each Fund, to the extent paid from tax-exempt income earned on Municipal Bonds, are exempt from Federal income tax, subject to the possible application of a Federal alternative minimum tax. However, each Fund is required to allocate net capital gains and other income subject to regular Federal income tax, if any, proportionately between shares of its common stock and shares of its AMPS in accordance with the current position of the IRS described herein. See “Comparison of the Funds—Tax Rules Applicable to the Funds and Their Stockholders.” Each Fund notifies the Auction Agent of the amount of any net capital gains or other taxable income to be included in any dividend on shares of AMPS prior to the auction establishing the applicable rate for such dividend. The Auction Agent in turn notifies each broker-dealer whenever it receives any such notice from a Fund, and each broker-dealer then notifies its customers who are holders of the Fund’s AMPS. Each Fund also may include such income in a dividend on shares of its AMPS without giving advance notice thereof if it increases the dividend by an additional amount to offset the tax effect thereof. The amount of taxable income allocable to shares of a Fund’s AMPS will depend upon the amount of such income realized by the Fund and other factors, but generally is not expected to be significant.

For information concerning the manner in which dividends and distributions to holders of each Fund’s common stock may be reinvested automatically in shares of a Fund’s common stock, see “—Automatic Dividend Reinvestment Plan.” Dividends and distributions will be subject to the tax treatment discussed below, whether they are reinvested in shares of a Fund or received in cash.</R>

If a Fund retroactively allocates any net capital gains or other income subject to regular Federal income tax to shares of its AMPS without having given advance notice thereof as described above, which only may happen when such allocation is made as a result of the redemption of all or a portion of the outstanding shares of its AMPS or the liquidation of the Fund, such Fund will make certain payments to holders of shares of its AMPS to which such allocation was made to offset substantially the tax effect thereof. In no other instances will a Fund be required to make payments to holders of shares of its AMPS to offset the tax effect of any reallocation of net capital gains or other taxable income.

Automatic Dividend Reinvestment Plan

<R> Pursuant to each Fund’s Automatic Dividend Reinvestment Plan (each, a “Plan”), unless a holder of a Fund’s common stock is ineligible or elects otherwise, all dividends and distributions are automatically reinvested by either BONY, as agent for MuniYield stockholders in administering the Plan, or Financial Data Services, Inc. (“FDS”), as agent for stockholders of Municipal Strategy in administering the Plan (each, a “Plan Agent”), in additional shares of the applicable Fund’s common stock. Certain provisions of each Plan are different because only MuniYield shares are exchange-listed while Municipal Strategy shares are continuously offered by Municipal Strategy. After the Reorganization, the Combined Fund will use the MuniYield Plan and BONY will be the Plan Agent. 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 a Fund’s dividend reinvestment plan. Holders of a Fund’s common stock who are ineligible or elect not to participate in a Plan receive all 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 BONY or FDS, as applicable, as dividend paying agent. Such stockholders may elect not to participate in a Plan and to receive all distributions of dividends and capital gains in cash by sending written instructions to BONY for MuniYield or by sending written notification or calling (1-800-MER-FUND) to FDS for Municipal Strategy, at the addresses set forth below. Participation in each Plan is completely voluntary and may be terminated or resumed at any time without penalty by written notice if received by the applicable Plan Agent not less than ten days prior to any dividend record date; otherwise, such termination or resumption will be effective with respect to any subsequently declared dividend or capital gains distribution.</R>

The applicable Plan Agent maintains all stockholders’ accounts in a 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 are held by the applicable Plan Agent in non-certificated form in the name of the participant, and each stockholder’s proxy includes those shares purchased or received pursuant to a Plan. The applicable Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held pursuant to a Plan in accordance with the instructions of the participants.

In the case of stockholders such as banks, brokers or nominees that hold shares for others who are the beneficial owners, the applicable Plan Agent will administer a 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 that Plan.

The automatic reinvestment of dividends and distributions does not relieve participants of any Federal, state or local income tax that may be payable (or required to be withheld) on such dividends. See “Comparison of the Funds—Tax Rules Applicable to the Funds and Their Stockholders.”

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

Each Fund reserves the right to amend or terminate its Plan. There is no direct service charge to participants in a Plan; however, each Fund reserves the right to amend its Plan to include a service charge payable by the participants.

MuniYield

Under the MuniYield Plan, whenever MuniYield 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 its Plan receive cash, and participants in the Plan receive the equivalent in shares of the Fund’s 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 MuniYield Common Stock from MuniYield (“newly issued shares”) or (ii) by purchase of outstanding shares of MuniYield Common Stock on the open market (“open-market purchases”), on the NYSE or elsewhere. If on the payment date for the dividend, the net asset value per share of MuniYield Common Stock is equal to or less than the market price per share of MuniYield Common Stock plus estimated brokerage commissions (such condition being referred to herein as “market premium”), the Plan Agent invests the dividend amount in newly issued shares on behalf of the participant. The number of newly issued shares of MuniYield Common Stock to be credited to the participant’s account is determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares are 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 invests the dividend amount in shares acquired on behalf of the participant in open-market purchases.

<R> 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. MuniYield intends to pay monthly income dividends. Therefore, the period during which open-market purchases can be made exists only from the payment date of the dividend through the date before the next “ex-dividend” date, which typically is approximately ten days. If, before the Plan Agent has completed its open-market purchases, the market price of a share of MuniYield 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 MuniYield 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, MuniYield’s 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 ceases making open-market purchases and invests the uninvested portion of the dividend amount in newly-issued shares at the close of business on the last purchase date.

Stockholders participating in the Plan may receive benefits not available to stockholders not participating in the Plan. If the market price (plus commissions) of shares of MuniYield Common Stock is higher than the net asset value of such shares, participants in the Plan receive shares of MuniYield Common Stock at less than they otherwise could purchase them and 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 lower than the net asset value of such shares, 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 of shares at prices below the net asset value. Also, since MuniYield normally does not redeem its shares, the price on resale may be more or less than the net asset value. See “Comparison of the Funds—Tax Rules Applicable to the Funds and Their Stockholders” for a discussion of the tax consequences of the Plans.</R>

Municipal Strategy

<R> Under the Municipal Strategy Plan, Municipal Strategy always issues newly issued shares at net asset value. No CDSC is imposed upon redemption of shares issued as a result of the automatic reinvestment of dividends or capital gains distributions. Prior to the Reorganization, Municipal Strategy stockholders should direct all correspondence to the Plan Agent for Municipal Strategy as follows: Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. After the Reorganization, Municipal Strategy common stockholders will own shares of MuniYield and will be subject to the MuniYield Plan.</R>

After the Reorganization, a holder of shares of Municipal Strategy who has elected to receive dividends in cash will continue to receive dividends in cash; all other holders will have their dividends automatically reinvested in shares of the Combined Fund. However, if a stockholder owns shares in Municipal Strategy and in MuniYield, after the Reorganization, the stockholder’s election with respect to the dividends of MuniYield will control unless the stockholder specifically elects a different option at that time. Following the Reorganization, all correspondence should be directed to the Plan Agent for MuniYield as follows: The Bank of New York, 101 Barclay Street, New York, New York 10286.

Mutual Fund Investment Option

A holder of MuniYield Common Stock, who purchased his or her shares through Merrill Lynch in the initial public offering of MuniYield Common Stock, has the right to reinvest the net proceeds from a sale of such shares in Class A shares of certain eligible Merrill Lynch-sponsored open-end funds at their net asset value, without the imposition of an initial sales charge, if certain conditions are satisfied. A holder of Municipal Strategy Common Stock has an investment option consisting of the right to reinvest the net proceeds from a sale of shares of Municipal Strategy Common Stock in a tender offer by Municipal Strategy in Class D shares of certain eligible Merrill Lynch-sponsored open-end funds at their net asset value, without the imposition of a sales charge, if certain conditions are met. If the Reorganization is consummated, a holder of Municipal Strategy Common Stock will have the same investment option as a holder of MuniYield Common Stock who purchased his or her shares through Merrill Lynch in the initial public offering of MuniYield Common Stock as described above.

Liquidation Rights of Holders of AMPS

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

Tax Rules Applicable to the Funds and Their Stockholders

The tax consequences of investing in shares of common stock or AMPS of each Fund are substantially similar. The Funds have elected and qualified since inception for the special tax treatment afforded RICs under the Code. As a result, in any taxable year in which they distribute an amount equal to at least 90% of taxable net income and 90% of tax-exempt net income (see below), the Funds (but not their stockholders) are not subject to Federal income tax to the extent that they distribute their net investment income and net realized capital gains. In all taxable years through the taxable year of the Reorganization, each Fund has distributed substantially all of its income. MuniYield intends to continue to distribute substantially all of its income following the Reorganization.

Each Fund is qualified 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 a Fund’s total assets consists of obligations exempt from Federal income tax (“tax-exempt obligations”) under Section 103(a) of the Code (relating generally to obligations of a state or local governmental unit), that Fund is qualified to pay exempt-interest dividends to its stockholders. Exempt-interest dividends are dividends or any part thereof paid by a Fund which are attributable to interest on tax-exempt obligations and designated by a Fund as exempt-interest dividends in a written notice mailed to stockholders within 60 days after the close of its taxable year. To the extent that the dividends distributed to a Fund’s stockholders are derived from interest income exempt from Federal income tax under Code Section 103(a) and are properly designated as exempt-interest dividends, they are excludable from a stockholder’s gross income for Federal income tax purposes. Exempt-interest dividends are included, however, in determining the portion, if any, of a person’s social security benefits and railroad retirement benefits subject to Federal income taxes. A tax adviser should be consulted with respect to whether exempt-interest dividends retain the exclusion under Code Section 103(a) if a stockholder would be treated as a “substantial user” or “related person” under Code Section 147(a) with respect to property financed with the proceeds from an issue of IDBs or PABs, if any, held by a Fund.

The IRS, in a revenue ruling, held that certain AMPS would be treated as stock for Federal income tax purposes. The terms of the currently outstanding AMPS of each Fund, as well as the MuniYield Series F AMPS to be issued by MuniYield, are substantially similar, but not identical, to the AMPS discussed in the revenue ruling. In the opinion of Sidley Austin Brown & Wood LLP, counsel to the Funds, the shares of each Fund’s currently outstanding AMPS, as well as the MuniYield Series F AMPS to be issued by MuniYield, constitute stock, and distributions with respect to shares of such AMPS (other than distributions in redemption of shares of AMPS subject to Section 302(b) of the Code) will constitute dividends to the extent of current and accumulated earnings and profits as calculated for Federal income tax purposes. Nevertheless, the IRS could take a contrary position, asserting, for example, that the shares of AMPS constitute debt. If this position were upheld, the discussion of the treatment of distributions below would not apply to holders of shares of AMPS. Instead, distributions by each Fund to holders of shares of its AMPS would constitute interest, whether or not they exceeded the earnings and profits of the Fund, would be included in full in the income of the recipient and taxed as ordinary income. Counsel believes that such a position, if asserted by the IRS, would be unlikely to prevail.

To the extent that a 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 taxable ordinary income for Federal income tax purposes. Distributions, if any, from an excess of net long-term capital gains over net short-term capital losses derived from the sale of securities or from certain transactions in futures or options (“capital gain dividends”) are taxable as long-term capital gains for Federal income tax purposes, regardless of the length of time the stockholder has owned Fund shares. Certain categories of capital gains are taxable at different rates for Federal income tax purposes. Generally not later than 60 days after the close of its taxable year, a Fund provides its stockholders with a written notice designating the amounts of any exempt-interest dividends and capital gain dividends, as well as any amount of capital gain dividends in the different categories of capital gain referred to above. Distributions by a Fund, whether from exempt-interest income, ordinary income or capital gains, are not eligible for the dividends received deduction for corporations under the Code.

A loss realized on a sale or exchange of shares of a Fund is disallowed if other Fund shares are acquired (whether under the Automatic Dividend Reinvestment Plan or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.

All or a portion of a 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. Any loss upon the sale or exchange of Fund shares held for six months or less is treated as long-term capital loss to the extent of exempt-interest dividends received by the stockholder. In addition, such loss is disallowed to the extent of any capital gain dividends received by the stockholder. Distributions in excess of a Fund’s earnings and profits first will 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). If a Fund pays a dividend in January which was declared in the previous October, November or December to stockholders of record on a specified date in one of such months, then such dividend is treated for tax purposes as paid by the Fund and received by its stockholders on December 31 of the year in which such dividend was declared.

The IRS has taken the position in a revenue ruling that if a RIC has two or more classes of shares it may designate distributions made to each class in any year as consisting of no more than such class’ proportionate share of particular types of income, including exempt-interest dividends and capital gain dividends. 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 AMPS are outstanding, each Fund designates distributions made to the classes as consisting of particular types of income in accordance with each class’s proportionate share of such income. After the Reorganization, MuniYield will, likewise, so designate distributions with respect to its common stock and its AMPS, Series A, B, C, D, E and F. Each Fund may notify the Auction Agent of the amount of any net capital gains and other taxable income to be included in any dividend on shares of its AMPS prior to the auction establishing the applicable rate for such dividend. Except for the portion of any dividend that a Fund informs the Auction Agent will be treated as capital gains or other taxable income, the dividends paid on the shares of AMPS constitute exempt-interest dividends. Alternatively, each Fund may include such income in a dividend on shares of its AMPS without giving advance notice thereof if it increases the dividend by an additional amount to offset the tax effect thereof. The

amount of net capital gains and ordinary income allocable to shares of a Fund’s AMPS (the “taxable distribution”) depends upon the amount of such gains and income realized by that Fund and the total dividends paid on shares of its common stock and shares of its AMPS during a taxable year, but the taxable distribution generally is not significant.

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

The Code requires a RIC to pay a nondeductible 4% excise tax to the extent it 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 does not apply to the tax-exempt income of RICs, such as the Funds, that pay exempt-interest dividends.

The Code subjects interest received on certain otherwise tax-exempt securities to a Federal alternative minimum tax. The alternative minimum tax applies to interest received on “activity bonds” issued after August 7, 1986. As set forth above, “private activity bonds” are bonds which, although tax-exempt, are used for purposes other than those generally performed by governmental units and which 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 investors in such bonds, including stockholders of the Funds, to an increased Federal alternative minimum tax. Each Fund purchases such “private activity bonds” and reports to stockholders within 60 days after calendar year-end the portion of its dividends declared during the year which constitutes an item of tax preference for 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 a Fund is included in adjusted current earnings, a corporate stockholder may be required to pay a Federal alternative minimum tax on exempt-interest dividends paid by such Fund.

Each Fund may invest in high yield securities or junk bonds. Furthermore, the Funds may also invest in instruments the return on which includes nontraditional features such as indexed principal or interest payments (“nontraditional instruments”). These investments may be subject to special tax rules under which a 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 junk bonds and/or nontraditional instruments could be recharacterized as taxable ordinary income.

If at any time when shares of AMPS are outstanding a Fund does not meet the asset coverage requirements of the Investment Company Act, that Fund will be required to suspend distributions to holders of its common stock until the asset coverage is restored. See “Dividends and Distributions.” This may prevent a Fund from distributing at least 90% of its net investment income and may, therefore, jeopardize that Fund’s qualification for taxation as a RIC. If a Fund were to fail to qualify as a RIC, some or all of the distributions paid by that Fund would be fully taxable to stockholders for Federal income tax purposes. Upon any failure to meet the asset

coverage requirements of the Investment Company Act, a Fund, in its sole discretion, may redeem shares of AMPS in order to maintain or restore the requisite asset coverage and avoid the adverse consequences to that Fund and its stockholders of failing to qualify as a RIC. No assurance can be given, however, that any such action would achieve such objectives.

As noted above, a 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 Funds have issued and that MuniYield contemplates issuing may raise a question as to whether distributions on such preferred stock are “preferential” under the Code and, therefore, not eligible for the dividends paid deduction. Counsel has advised the Funds that the outstanding preferred stock and the preferred stock to be issued by MuniYield will not result in the payment of a preferential dividend. If a Fund ultimately relies solely on a legal opinion when it issues such preferred stock, no assurance can be given that the IRS would agree that dividends on the preferred stock are not preferential. If the IRS successfully disallowed the dividends paid deduction for dividends on the preferred stock, the Funds could be disqualified as RICs. In this case, dividends paid by the Funds on the common stock and the AMPS would not be exempt from Federal income taxes. Additionally, the Funds would be subject to a Federal alternative minimum tax.

Under certain circumstances when a Fund is required to allocate taxable income to the AMPS, it will pay Additional Distributions to holders of shares of AMPS. The Federal income tax consequences of Additional Distributions under existing law are uncertain. The Funds treat and MuniYield intends to continue to treat a holder as receiving a dividend distribution in the amount of any Additional Distribution only as and when such Additional Distribution is paid. An Additional Distribution generally is designated by a Fund as an exempt-interest dividend except as otherwise required by applicable law. However, the IRS may assert that all or part of an Additional Distribution is a taxable dividend either in the taxable year for which the allocation of taxable income is made or in the taxable year in which the Additional Distribution is paid.

The value of shares acquired pursuant to a Fund’s dividend reinvestment plan is generally excluded from gross income to the extent that the cash amount reinvested would be excluded from gross income. If, at a time when a Fund’s shares are trading at a premium over net asset value, MuniYield 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 such 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 a Fund’s dividend reinvestment plan. Thus, stockholders who do not participate in the dividend reinvestment plan of a Fund, as well as dividend reinvestment plan participants, might be required to report as ordinary income a portion of their distributions equal to the allocable share of the discount.

Under certain provisions of the Code, some stockholders may be subject to a withholding tax on certain ordinary income dividends and on capital gain dividends and redemption payments (“backup withholding”). Generally, stockholders subject to backup withholding will be those for whom no taxpayer identification number is on file with a Fund or who, to that 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 stockholder is not otherwise subject to backup withholding.

Ordinary income dividends paid to stockholders who are nonresident aliens or foreign entities are subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident stockholders are urged to consult their own tax advisers concerning the applicability of the United States withholding tax.

The Code provides that every stockholder required to file a tax return must include for information purposes on such return the amount of exempt-interest dividends received from all sources (including the Funds) during the taxable year.

Tax Treatment of Options and Futures Transactions

Each Fund may purchase or sell municipal bond index financial futures contracts and interest rate financial futures contracts on U.S. Government securities. Each Fund may also purchase and write call and put options on such financial futures contracts. In general, unless an election is available to a Fund or an exception applies, such

options and financial futures contracts that are “Section 1256 contracts” will be “marked to market” for Federal income tax purposes at the end of each taxable year (i.e., each such option or financial futures contract will be treated as sold for its fair market value on the last day of the taxable year), and any gain or loss attributable to Section 1256 contracts will be 60% long-term and 40% short-term capital gain or loss. Application of these rules to Section 1256 contracts held by a Fund may alter the timing and character of distributions to stockholders. The mark-to-market rules outlined above, however, will not apply to certain transactions entered into by a Fund solely to reduce the risk of changes in price or interest rates with respect to its investments.

Code Section 1092, which applies to certain “straddles,” may affect the taxation of a Fund’s sales of securities and transactions in financial futures contracts and related options. Under Section 1092, a Fund may be required to postpone recognition for tax purposes of losses incurred in certain sales of securities and certain closing transactions in financial futures contracts or the related options.

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, foreign, state or local tax consequences of an investment in a Fund.

AGREEMENT AND PLAN OF REORGANIZATION

General

Under the Agreement and Plan (attached hereto as Appendix II), MuniYield will acquire substantially all of the assets, and will assume substantially all of the liabilities, of Municipal Strategy in return solely for shares of MuniYield Common Stock and MuniYield Series F AMPS to be issued by MuniYield. The number of full shares of MuniYield Common Stock issued to Municipal Strategy will have an aggregate net asset value equal to the aggregate net asset value of the outstanding shares of Municipal Strategy Common Stock, and the number of shares of MuniYield Series F AMPS issued to Municipal Strategy will have an aggregate liquidation preference and value equal to the aggregate liquidation preference and value of the outstanding shares of Municipal Strategy Series A AMPS. Upon receipt by Municipal Strategy of such shares, Municipal Strategy will (i) distribute the shares of MuniYield Common Stock to the holders of Municipal Strategy Common Stock (plus cash in lieu of fractional shares) in return for their shares of Municipal Strategy Common Stock, and (ii) distribute the shares of MuniYield Series F AMPS to the holders of Municipal Strategy Series A AMPS in return for their shares of Municipal Strategy Series A AMPS. MuniYield will file Articles Supplementary establishing the powers, rights and preferences of the MuniYield Series F AMPS with the State Department of Assessments and Taxation of Maryland (the “Maryland Department”) prior to the closing of the Reorganization. As soon as practicable after the date that the Reorganization takes place (the “Closing Date”), Municipal Strategy will file Articles of Dissolution with the Maryland Department to effect the formal dissolution of such Fund, and will dissolve and deregister as an investment company under the Investment Company Act.

<R> Municipal Strategy will distribute the shares of MuniYield Common Stock (plus cash in lieu of fractional shares) and the shares of MuniYield Series F AMPS received by it pro rata to its holders of record of common stock and AMPS, as applicable, in return for such stockholders’ shares in Municipal Strategy. Such distribution will be accomplished by opening new accounts on the books of MuniYield in the names of the common and preferred stockholders of Municipal Strategy and transferring to those stockholder accounts the MuniYield Common Stock or MuniYield Series F AMPS previously credited on those books to the accounts of Municipal Strategy. Each newly-opened account on the books of MuniYield for the previous holders of Municipal Strategy Common Stock would represent the respective pro rata number of shares of MuniYield Common Stock (rounded down, in the case of fractional shares, to the next largest number of whole shares) due such holder of common stock. No fractional shares of MuniYield Common Stock will be issued. In lieu thereof, MuniYield’s Transfer Agent will aggregate all fractional shares of MuniYield Common Stock and sell the resulting whole shares on the NYSE for the account of all holders of fractional interests, and each such holder will be entitled to the pro rata share of the proceeds from such sale upon surrender of the stock certificates representing shares of Municipal Strategy Common Stock. Similarly, each newly-opened account on the books of MuniYield for the previous holders of Municipal Strategy AMPS would represent the respective pro rata number of shares of MuniYield Series F AMPS due such holder of AMPS. See “Surrender and Exchange of Stock Certificates” for a </R>

description of the procedures to be followed by the stockholders of Municipal Strategy to obtain their MuniYield Common Stock (and cash in lieu of fractional shares, if any). Because AMPS are held in “street name” by DTC, all transfers with respect to AMPS are accomplished by book entry.

<R>Accordingly, as a result of the Reorganization, every holder of Municipal Strategy Common Stock would own shares of MuniYield Common Stock that (except for cash payments received in lieu of fractional shares) would have an aggregate net asset value immediately after the Closing Date equal to the aggregate net asset value of that stockholder’s Municipal Strategy Common Stock immediately prior to the Closing Date. Since the MuniYield Common Stock would be issued at net asset value and the shares of Municipal Strategy Common Stock would be valued at net asset value for the purposes of the exchange, the interests of common stockholders of neither Fund will be diluted as a result of the Reorganization. Similarly, since the MuniYield Series F AMPS would be issued at a liquidation preference and value per share equal to the liquidation preference and value per share of the AMPS of Municipal Strategy, the interests of the AMPS stockholders of neither Fund will be diluted as a result of the Reorganization. However, as a result of the Reorganization, stockholders of both Funds likely will hold a reduced percentage of ownership in the Combined Fund than he or she held in MuniYield or Municipal Strategy.</R>

Procedure

At separate meetings of the Boards of Directors of Municipal Strategy and MuniYield, each Board, including all of the Directors who are not “interested persons” of the applicable Fund, unanimously approved the Agreement and Plan. The Board of Directors of Municipal Strategy, including all of the Directors who are not “interested persons” also approved the submission of such Agreement and Plan to the Municipal Strategy stockholders for approval.

The Board of Directors of MuniYield approved the filing of Articles Supplementary establishing the powers, rights and preferences of the MuniYield Series F AMPS in order that they may be distributed to holders of AMPS of Municipal Strategy as part of the Reorganization.

As a result of such Board approvals, Municipal Strategy has filed this proxy statement with the Commission soliciting a vote of the Municipal Strategy stockholders to approve the Reorganization. The costs of such solicitation will be deducted from the assets of Municipal Strategy as of the Valuation Time as defined below. A special meeting of Municipal Strategy stockholders will be held on October 24, 2001. If the stockholders of Municipal Strategy approve the Reorganization, the Reorganization will take place as soon as practicable after such approval, provided that the Funds have obtained prior to that time an opinion of counsel concerning the tax consequences of the Reorganization as set forth in the Agreement and Plan.

The Board of Directors of Municipal Strategy recommends that the stockholders of Municipal Strategy approve the Agreement and Plan.

Terms of the Agreement and Plan of Reorganization

The following is a summary of the significant terms of the Agreement and Plan. This summary is qualified in its entirety by reference to the Agreement and Plan, attached hereto as Appendix II.

Valuation of Assets and Liabilities. The respective assets of each Fund will be valued on the business day prior to the Closing Date (the “Valuation Date”). The valuation procedures are the same for each Fund: the net asset value per share of the common stock of each Fund will be determined as of the close of business on the NYSE (generally, 4:00 p.m., Eastern time) on the Valuation Date (the “Valuation Time”). For the purpose of determining the net asset value of a share of common stock of each Fund, the value of the securities held by the issuing Fund plus any cash or other assets (including interest accrued but not yet received) minus (i) all liabilities (including accrued expenses) and (ii) the aggregate liquidation value of the outstanding shares of AMPS of the issuing Fund, is divided by the total number of shares of common stock of the issuing Fund outstanding at such time. Daily expenses, including the fees payable to FAM, will accrue on the Valuation Date.

The Municipal Bonds in which each Fund invests are traded primarily in the over-the-counter markets. In determining net asset value on the Valuation Date, each Fund will use the valuations of portfolio securities furnished by a pricing service approved by the Boards of Directors of the Funds. The pricing service typically values portfolio securities at the bid price or the yield equivalent when quotations are readily available. Municipal Bonds for which quotations are not readily available will be valued at fair market value on a consistent basis as

determined by the pricing service using a matrix system to determine valuations. The Boards of Directors of the Funds have determined in good faith that the use of a pricing service is a fair method of determining the valuation of portfolio securities. Positions in financial futures contracts will be valued on the Valuation Date at closing prices for such contracts established by the exchange on which they are traded, or if market quotations are not readily available, will be valued at fair value on a consistent basis using methods determined in good faith by each Board of Directors.

Distribution of MuniYield Common Stock and MuniYield Series F AMPS. On the Closing Date, MuniYield will issue to Municipal Strategy a number of full shares of MuniYield Common Stock the aggregate net asset value of which will equal the aggregate net asset value of shares of Municipal Strategy Common Stock on the Valuation Date. Each holder of Municipal Strategy Common Stock will receive the number of full shares of MuniYield Common Stock (plus cash in lieu of fractional shares) corresponding to his or her proportionate interest in the respective aggregate net asset value of the Municipal Strategy Common Stock.

On the Closing Date, MuniYield also will issue to Municipal Strategy a number of shares of MuniYield Series F AMPS, the aggregate liquidation preference and value of which will equal the aggregate liquidation preference and value of Municipal Strategy Series A AMPS on the Valuation Date. Each holder of Municipal Strategy Series A AMPS will receive the number of shares of MuniYield Series F AMPS corresponding to his or her proportionate interest in the aggregate liquidation preference and value of the Municipal Strategy Series A AMPS. No sales charge or fee of any kind will be charged to stockholders of Municipal Strategy in connection with their receipt of MuniYield Common Stock or MuniYield Series F AMPS in the Reorganization. No CDSC will apply to shares of MuniYield Common Stock issued to Municipal Strategy in the Reorganization, nor will any CDSC be due on the shares of Municipal Strategy Common Stock in connection with the Reorganization. It is anticipated that the auction for MuniYield Series F AMPS will be held on Wednesday. The auction procedures for all of the AMPS are substantially similar. As a result of the Reorganization, the last dividend period for the AMPS of Municipal Strategy prior to the Closing Date will be shorter than the dividend period for such AMPS determined as set forth in the applicable Articles Supplementary.
<R>

Expenses. The expenses of the Reorganization that are directly attributable to Municipal Strategy and the conduct of its business will be deducted from the assets of Municipal Strategy as of the Valuation Time. These expenses are expected to include transfer agent fees, the expenses incurred in preparing, printing and mailing the proxy materials to be used in connection with the Meeting, the expenses related to the solicitation of proxies to be voted at the Meeting and a portion of the expenses incurred in printing the registration statement on Form N-14 of which this Proxy Statement and Prospectus is a part (the “N-14 Registration Statement”). FAM has agreed to bear the expenses of the Reorganization that are directly attributable to MuniYield and the conduct of its business. The expenses attributable to MuniYield include fees, if any, of the rating agencies with respect to the MuniYield Series F AMPS, the costs of printing stock certificates, transfer agent fees, and a portion of the expenses incurred in printing the N-14 Registration Statement. Certain other expenses of the Reorganization, including expenses in connection with obtaining an opinion of counsel as to certain tax matters, the preparation of the Agreement and Plan, legal fees, audit fees and any listing or registration fees, will be borne equally by Municipal Strategy and by FAM, which has agreed to bear such expenses on behalf of MuniYield.

As of July 31, 2001, the expenses of the Reorganization attributable to Municipal Strategy are estimated to be approximately $125,800 and the expenses of the Reorganization attributable to MuniYield are estimated to be approximately $95,400.</R>

Required Approvals. Under the Charter of Municipal Strategy (including Articles Supplementary establishing the powers, rights and preferences of the Municipal Strategy Series A AMPS) and relevant Maryland law, stockholder approval of the Agreement and Plan requires the affirmative vote of stockholders of Municipal Strategy representing more than 50% of the outstanding shares of Municipal Strategy Common Stock and Municipal Strategy Series A AMPS, voting together as a single class, and more than 50% of the outstanding shares of Municipal Strategy Series A AMPS, voting separately as a class.

Deregistration and Dissolution. Following the transfer of the assets and liabilities of Municipal Strategy and the distribution of shares of MuniYield Common Stock and MuniYield Series F AMPS to Municipal Strategy stockholders, in accordance with the foregoing, Municipal Strategy will terminate its registration under the Investment Company Act and its incorporation under Maryland law and will withdraw its authority to do business in any state where it is required to do so.

Amendments and Conditions. The Agreement and Plan may be amended at any time prior to the Closing Date with respect to any of the terms therein. The obligations of each Fund pursuant to the Agreement and Plan are subject to various conditions, including the N-14 Registration Statement being declared effective by the Commission, approval by the stockholders of Municipal Strategy as described above, an opinion of counsel being received with respect to certain tax matters, an opinion of counsel being received as to securities matters and the continuing accuracy of various representations and warranties of the Funds being confirmed by the respective parties.

Postponement, Termination. Under the Agreement and Plan, the Board of Directors of either Fund may cause the Reorganization to be postponed or abandoned under certain circumstances should such Board determine that it is in the best interests of the stockholders of its respective Fund to do so. The Agreement and Plan may be terminated, and the Reorganization abandoned at any time (whether before or after adoption thereof by the stockholders of either Fund) prior to the Closing Date, or the Closing Date may be postponed: (i) by mutual consent of the Boards of Directors of the Funds and (ii) by the Board of Directors of either Fund if any condition to that Fund’s obligations set forth in the Agreement and Plan has not been fulfilled or waived by such Board.

Potential Benefits to Stockholders as a Result of the Reorganization

<R> In approving the Reorganization, the Board of Directors of Municipal Strategy identified certain potential benefits for Municipal Strategy common stockholders that are likely to result from the Reorganization, including, among other things, that (i) Municipal Strategy common stockholders will be invested in a substantially larger non-diversified, leveraged, closed-end fund with an investment objective and investment policies substantially similar to Municipal Strategy’s investment objective and policies, (ii) Municipal Strategy common stockholders will experience lower expenses per share, economies of scale and greater flexibility in portfolio management, (iii) the Combined Fund will not pay the administrative fee currently paid by Municipal Strategy, (iv) Municipal Strategy common stockholders will no longer be subject to the expenses associated with Municipal Strategy’s required yearly prospectus updates, (v) Municipal Strategy common stockholders will no longer be subject to the expenses of conducting quarterly tender offers, (vi) Municipal Strategy common stockholders will no longer be subject to a CDSC that currently applies upon the sale of shares held for less than three years, and (vii) Municipal Strategy common stockholders will be able to sell their shares on each day that the NYSE is open for trading, although any such sales will be made at the then current market price, which may be at a premium above or a discount from the Combined Fund’s net asset value and may be subject to brokerage commissions or other charges. While Municipal Strategy stockholders will no longer be able to tender their shares to the Fund at net asset value (less any applicable CDSC) on a quarterly basis, the Directors believe the potential benefits of the Reorganization make it in the best interests of Municipal Strategy and its stockholders.

The Board of Directors of Municipal Strategy considered, among other things, that Municipal Strategy common stockholders should experience an additional benefit because certain fixed costs, such as the costs of printing stockholder reports, legal expenses, audit fees, mailing costs and other expenses will be spread across a larger asset base, resulting in an expense ratio for the Combined Fund that is lower than Municipal Strategy’s current expense ratio. Due to the larger asset base, the Combined Fund may also experience economies of scale and greater flexibility in portfolio management.</R>

Although the pro forma total operating expense ratio of the Combined Fund is not expected to be significantly lower than MuniYield’s current operating expense ratio, MuniYield common stockholders will not be adversely affected by the Reorganization since FAM has agreed to bear all Reorganization expenses attributable to MuniYield and MuniYield may otherwise benefit from an increase in the Combined Fund’s level of net assets.

The Boards considered the possible risks and costs of combining the Funds, and examined the relative credit strength, maturity characteristics, mix of type and purpose, and yield of the Funds’ portfolios of Municipal Bonds and the costs involved in a transaction such as the Reorganization. The Boards noted the many similarities between the Funds, including their substantially similar investment objectives and investment policies, their use

<R>of substantially the same management personnel and their similar portfolios of Municipal Bonds. The Boards also considered the relative tax positions of the portfolios of the Funds. As of May 31, 2001, each Fund had net realized capital losses that, subject to certain limitations, can be shared by the stockholders of the Combined Fund. Please see “Pro Forma Combined Statement of Assets, Liabilities and Capital.” As a result of the Reorganization and subject to certain limitations, the stockholders of each Fund may benefit from the ability of the Combined Fund to use the net realized capital losses of the Funds to offset future net realized capital gains of the Combined Fund, if any. Based on these factors, among others, the Board of Directors of Municipal Strategy concluded that the Reorganization will potentially benefit the stockholders of Municipal Strategy in that it (i) presents no significant risks that would outweigh the benefits discussed above, (ii) involves minimal costs (including relatively minor legal, accounting and administrative costs) and (iii) does not adversely affect the stockholders of Municipal Strategy Series A AMPS. The Board of Directors of MuniYield concluded that, although the pro forma total operating expense ratio of the Combined Fund is not expected to be significantly lower than MuniYield’s current operating expense ratio, (i) MuniYield common stockholders will not be adversely affected by the Reorganization since (a) FAM has agreed to bear all Reorganization expenses attributable to MuniYield, and (b) MuniYield may otherwise benefit from an increase in the Combined Fund’s level of net assets, and (ii) the Reorganization does not adversely affect the stockholders of MuniYield AMPS.</R>

     In the past, FAM has voluntarily waived a portion of its advisory fee and/or reimbursed certain other expenses with respect to Municipal Strategy. FAM has not waived fees or reimbursed expenses with respect to MuniYield and it is not anticipated that FAM will waive its advisory fee and/or reimburse expenses with respect to the Combined Fund on an ongoing basis. Total annualized operating expense ratios for MuniYield, Municipal Strategy (excluding advisory fee waivers and/or expense reimbursements) and the Combined Fund based on their respective average net assets (excluding assets attributable to AMPS) for the six month period ended April 30, 2001 are summarized below.


Average Net Assets
(Excluding Assets
Attributable to AMPS)
for the Six Month
Period ended
April 30, 2001

Total Annualized Operating
Expense Ratio


MuniYield

$507,503,509

1.00
%

Municipal Strategy

$ 81,220,051

2.05
%*

Combined Fund**

$588,723,560

0.99
%

* Including fee waivers and/or expense reimbursements applicable to Municipal Strategy, the total annualized operating expense ratio for Municipal Strategy would have been 1.90%.

** Assumes that the Reorganization had taken place on April 30, 2001.

     Total annualized operating expense ratios for MuniYield, Municipal Strategy (excluding advisory fee waivers and/or expense reimbursements) and the Combined Fund based on their respective average net assets (including assets attributable to AMPS) for the six month period ended April 30, 2001 are summarized below.


Average Net Assets
(Including Assets
Attributable to AMPS)
for the Six Month
Period ended
April 30, 2001

Total Annualized Operating
Expense Ratio


MuniYield

$757,503,509

0.67
%

Municipal Strategy

$124,220,051

1.34
%*

Combined Fund**

$881,723,560

0.66
%

* Including fee waivers and/or expense reimbursements applicable to Municipal Strategy, the total annualized operating expense ratio for Municipal Strategy would have been 1.24%.

** Assumes that the Reorganization had taken place on April 30, 2001.

<R> MuniYield may otherwise benefit from an increase in its level of net assets. The Combined Fund would have had net assets of approximately $896 million assuming that the Reorganization had taken place on July 31, 2001. A larger asset base should provide benefits in portfolio management. After the Reorganization, the Combined Fund should be able to purchase larger amounts of Municipal Bonds at more favorable prices than either Fund separately and, with this greater purchasing power, request improvements in the terms of the Municipal Bonds (e.g., added indenture provisions covering call protection, sinking funds and audits for the benefit of large holders) prior to purchase.</R>

In approving the Reorganization, the Board of Directors of each Fund determined that the Reorganization is in the best interests of the stockholders of that Fund because the Reorganization presents no significant risks or costs (including legal, accounting and administrative costs) that would outweigh the potential benefits discussed above and because, with respect to net asset value, the interests of existing stockholders of that Fund would not be diluted as a result of the Reorganization.

Surrender and Exchange of Stock Certificates

After the Closing Date, each holder of an outstanding certificate or certificates formerly representing shares of Municipal Strategy Common Stock will be entitled to receive, upon surrender of their certificate or certificates, a certificate or certificates representing the number of shares of MuniYield Common Stock distributable with respect to such holder’s shares of Municipal Strategy Common Stock, together with cash in lieu of any fractional shares of common stock. Promptly after the Closing Date, the transfer agent for MuniYield Common Stock will mail to each holder of certificates formerly representing shares of Municipal Strategy Common Stock a letter of transmittal for use in surrendering their certificates for certificates representing shares of MuniYield Common Stock and cash in lieu of any fractional shares of common stock.

Shares of AMPS are held in “street name” by DTC, and all transfers will be accomplished by book entry. Surrender of physical certificates for AMPS is not required.

If Prior To The Reorganization You Held:

After The Reorganization, You Will Hold:

Municipal Strategy Common Stock

MuniYield Common Stock

Municipal Strategy Series A AMPS

MuniYield Series F AMPS

Please do not send in any stock certificates at this time. Upon consummation of the Reorganization, Municipal Strategy common stockholders will be furnished with instructions for exchanging their stock certificates for MuniYield stock certificates and, if applicable, cash in lieu of fractional shares of MuniYield Common Stock.

From and after the Closing Date, certificates formerly representing shares of Municipal Strategy Common Stock will be deemed for all purposes to evidence ownership of the number of full shares of MuniYield Common Stock distributable with respect to the shares of Municipal Strategy held before the Reorganization as described above and as shown in the table above, provided that, until such stock certificates have been so surrendered, no dividends payable to the holders of record of Municipal Strategy Common Stock as of any date subsequent to the Closing Date will be paid to the holders of such outstanding stock certificates. Dividends payable to holders of record of shares of MuniYield Common Stock, as of any date after the Closing Date and prior to the exchange of certificates by any stockholder of Municipal Strategy, will be paid to such stockholder, without interest, at the time such stockholder surrenders the stock certificates for exchange.

From and after the Closing Date, there will be no transfers on the stock transfer books of Municipal Strategy. If, after the Closing Date, certificates representing shares of Municipal Strategy Common Stock are presented to MuniYield, they will be canceled and exchanged for certificates representing MuniYield Common Stock, and cash in lieu of fractional shares of common stock, if any, distributable with respect to such common stock in the Reorganization.

Tax Consequences of the Reorganization

<R> Summary. MuniYield and Municipal Strategy will receive an opnion of counsel with respect to the Reorganization to the effect that, among other things, neither MuniYield nor Municipal Strategy will recognize a gain or loss on the transaction and Municipal Strategy stockholders will not recognize gain or loss on the transaction (except to the extent Municipal Strategy stockholders receive cash in lieu of fractional shares).

Municipal Strategy has significant net operating losses and other losses. The Combined Fund may be able to use these losses to offset future income of the Combined Fund. However, the Code may apply some restrictions as to the timing and use of these losses, which could reduce their benefit to the Combined Fund.

General. The Reorganization has been structured with the intention that it qualify for Federal income tax purposes as a tax-free reorganization under Section 368(a)(1)(C) of the Code. Each Fund has elected and qualified since inception for the special tax treatment afforded RICs under the Code, and MuniYield intends to continue to so qualify after the Reorganization. The Reorganization is conditioned upon the receipt of an opinion </R>

<R>of counsel that for Federal income tax purposes (i) the transfer of substantially all of its assets by Municipal Strategy to MuniYield in exchange for MuniYield Common Stock and MuniYield Series F AMPS, as described above, will constitute a reorganization within the meaning of Section 368(a)(1)(C) of the Code, and Municipal Strategy and MuniYield each will be deemed a “party” to a reorganization within the meaning of Section 368(b) of the Code; (ii) in accordance with Section 361(a) of the Code, no gain or loss will be recognized to Municipal Strategy as a result of the Reorganization or on the distribution of MuniYield Common Stock and MuniYield Series F AMPS to the respective stockholders of Municipal Strategy under Section 361(c)(1) of the Code; (iii) under Section 1032 of the Code, no gain or loss will be recognized to MuniYield as a result of the Reorganization; (iv) in accordance with Section 354(a)(1) of the Code, no gain or loss will be recognized to the stockholders of Municipal Strategy on their respective receipt of MuniYield Common Stock and MuniYield Series F AMPS in exchange for their corresponding shares of Municipal Strategy Common Stock or AMPS (except to the extent that common stockholders receive cash representing an interest in fractional shares of MuniYield Common Stock in the Reorganization); (v) in accordance with Section 362(b) of the Code, the tax basis of the assets of Municipal Strategy in the hands of MuniYield will be the same as the tax basis of such assets in the hands of Municipal Strategy immediately prior to the consummation of the Reorganization; (vi) in accordance with Section 358 of the Code, immediately after the Reorganization, the tax basis of the MuniYield Common Stock and MuniYield Series F AMPS received by the stockholders of Municipal Strategy in the Reorganization will be equal to the tax basis of the Municipal Strategy Common Stock or AMPS surrendered in exchange; (vii) in accordance with Section 1223 of the Code, a stockholder’s holding period for the MuniYield Common Stock and MuniYield Series F AMPS will be determined by including the period for which such stockholder held the Municipal Strategy Common Stock or AMPS exchanged therefor, provided, that such shares were held as a capital asset; (viii) in accordance with Section 1223 of the Code, MuniYield’s holding period with respect to the assets of Municipal Strategy transferred will include the period for which such assets were held by Municipal Strategy; (ix) the payment of cash to common stockholders of Municipal Strategy in lieu of fractional shares of MuniYield Common Stock will be treated as though the fractional shares were distributed as part of the Reorganization and then redeemed by MuniYield, with the result that such stockholders will have short- or long-term capital gain or loss to the extent that the cash distribution differs from the stockholder’s basis allocable to the MuniYield fractional shares; and (x) the taxable year of Municipal Strategy will end on the effective date of the Reorganization, and pursuant to Section 381(a) of the Code and regulations thereunder, MuniYield will succeed to and take into account, subject to limitation, certain tax attributes of Municipal Strategy, such as earnings and profits, capital loss carryovers and method of accounting.</R>

As noted in the discussion under “Comparison of the Funds—Tax Rules Applicable to the Funds and Their Stockholders,” a Fund must distribute annually at least 90% of its net taxable and tax-exempt income. A distribution will only be counted for this purpose if it qualifies for the dividends paid deduction under the Code. In the opinion of Sidley Austin Brown & Wood LLP, the issuance of MuniYield Series F AMPS pursuant to the Agreement and Plan in addition to the already existing MuniYield Series A, Series B, Series C, Series D and Series E AMPS will not cause distributions on any series of MuniYield AMPS to be treated as preferential dividends ineligible for the dividends paid deduction. It is possible, however, that the IRS may assert that, because there are several series of AMPS, distributions on such shares are preferential under the Code and therefore not eligible for the dividends paid deduction. If the IRS successfully disallowed the dividends paid deduction for dividends on the AMPS, MuniYield could lose the special tax treatment afforded RICs and dividends on the shares of MuniYield Common Stock and MuniYield AMPS would not be exempt from Federal income tax. Additionally, MuniYield would be subject to a Federal alternative minimum tax.

Under Section 381(a) of the Code, MuniYield will succeed to and take into account certain tax attributes of Municipal Strategy, including, but not limited to, earnings and profits, any net operating loss carryovers, any capital loss carryovers and method of accounting. The Code, however, contains special limitations with regard to the use of net operating losses, capital losses and other similar items in the context of certain reorganizations, including tax-free reorganizations pursuant to Section 368(a)(1)(C) of the Code, which could reduce the benefit of these attributes to MuniYield.

Stockholders should consult their tax advisers regarding the effect of the Reorganization in light of their individual circumstances. As the foregoing relates only to Federal income tax consequences, stockholders also should consult their tax advisers as to the foreign, state and local tax consequences of the Reorganization.

Regulated Investment Company Status. The Funds have elected and qualified since inception for taxation as RICs under Sections 851-855 of the Code, and after the Reorganization MuniYield intends to continue to so qualify.

Capitalization

The following table sets forth as of April 30, 2001 (i) the capitalization of MuniYield, (ii) the capitalization of Municipal Strategy, and (iii) the capitalization of the Combined Fund as adjusted to give effect to the Reorganization.

Capitalization of MuniYield, Municipal Strategy,
and the Combined Fund as of April 30, 2001
(unaudited)

MuniYield
Municipal
Strategy
Pro Forma
Adjustment
Combined
Fund
as adjusted(a)

Net Assets:

  Net Assets Attributable to

    Common Stock $ 495,408,940 $ 78,478,891 $(6,833,262 ) $ 567,054,569

  Net Assets Attributable to AMPS $ 250,000,000 $ 43,000,000 $ 293,000,000

Shares Outstanding:

  Common Stock 38,482,330 8,871,713 (2,705,008 ) 44,649,035 (b)

  AMPS

    Series A 1,800 1,720 (1,720 )    1,800

    Series B 1,800 — — 1,800

    Series C 1,800 — — 1,800

    Series D 1,800 — — 1,800

    Series E 2,800 — — 2,800

    Series F — — 1,720 1,720 (b)

Net Asset Value Per Share:

    Common Stock $      12.87 $       8.85 — $      12.70 (c)

    AMPS $     25,000 $    25,000 — $     25,000

(a) <R>The adjusted balances are presented as if the Reorganization had been consummated on April 30, 2001 and are for informational purposes only. Assumes distribution of undistributed net investment income and accrual of estimated Reorganization expenses of approximately $125,800 attributable to Municipal Strategy. FAM has agreed to bear the expenses of the Reorganization attributable to MuniYield. No assurance can be given about how many shares of MuniYield Common Stock will be received by holders of common stock of Municipal Strategy on the Closing Date, and the foregoing should not be relied upon to reflect the number of shares of MuniYield Common Stock that actually will be received on or after such date.

(b) Assumes the issuance of 6,166,705 shares of MuniYield Common Stock and 1,720 shares of Series F AMPS, in return for the net assets of Municipal Strategy. The estimated number of shares issued was based on the net asset value of the Funds, net of distributions, on April 30, 2001.

(c) Net Asset Value per share of common stock net of Reorganization-related expenses of $125,800 attributable to Municipal Strategy and distribution of undistributed net investment income of $6,673,054 for MuniYield and $34,408 for Municipal Strategy.</R>

INFORMATION CONCERNING THE MEETING

Date, Time and Place of Meeting

The Meeting will be held on October 24, 2001 at the offices of Fund Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey at 9:30 a.m., Eastern time.

Solicitation, Revocation and Use of Proxies

A stockholder executing and returning a proxy has the power to revoke it at any time prior to its exercise by executing a superseding proxy or by submitting a notice of revocation to the Secretary of Municipal Strategy or by voting at the Meeting. Although mere attendance at the Meeting will not revoke a proxy, a stockholder present at the Meeting may withdraw his or her proxy and vote in person.

All shares represented by properly executed proxies, unless such proxies previously have been superseded or revoked, will be voted at the Meeting in accordance with the directions on the proxies; if no direction is indicated on a properly executed proxy, such shares will be voted “FOR” the approval of the Agreement and Plan.

It is not anticipated that any other matters will be brought before the Meeting. If, however, any other business is properly brought before the Meeting, proxies will be voted in accordance with the judgment of the persons designated on such proxies.

Record Date and Outstanding Shares
<R>

Only the stockholders of record of shares of Municipal Strategy Common Stock and Municipal Strategy Series A AMPS at the close of business on the Record Date are entitled to vote at the Meeting or any adjournment </R>

<R>

thereof. At the close of business on the Record Date, there were 7,919,993 shares of Municipal Strategy Common Stock outstanding and 1,720 shares of Municipal Strategy Series A AMPS outstanding.</R>

Security Ownership of Certain Beneficial Owners and Management

<R> To the knowledge of the Funds, as of the Record Date, no person or entity owned beneficially or of record 5% or more of the shares of common stock or AMPS of either Fund.</R>

As of the Record Date, the Directors and officers of MuniYield as a group (11 persons) owned an aggregate of less than 1% of the outstanding shares of MuniYield Common Stock and owned no MuniYield AMPS.

On the Record Date, Mr. Forbes, a Director of Municipal Strategy, owned 276 shares of Municipal Strategy Common Stock. As of the Record Date, the Directors and officers of Municipal Strategy as a group (13 persons) owned an aggregate of less than 1% of the outstanding shares of Municipal Strategy Common Stock and owned no Municipal Strategy AMPS.

On the Record Date, Mr. Glenn, a Director and an officer of each Fund, and the other Directors and officers of each Fund owned an aggregate of less than 1% of the outstanding shares of common stock of ML & Co.

Voting Rights and Required Vote

For purposes of this Proxy Statement and Prospectus, each share of Municipal Strategy Common Stock and Municipal Strategy Series A AMPS is entitled to one vote. Approval of the Agreement and Plan requires the approval of the affirmative vote of stockholders representing (i) a majority of the outstanding shares of Municipal Strategy Common Stock and Municipal Strategy Series A AMPS, voting together as a single class, and (ii) a majority of the outstanding shares of Municipal Strategy Series A AMPS, voting separately as a class.

<R> For purposes of the Meeting, a quorum consists of a majority of the outstanding shares of Municipal Strategy’s Common Stock and a majority of the outstanding shares of Municipal Strategy’s Series A AMPS. If, by the time scheduled for the Meeting, a quorum of the applicable Municipal Strategy stockholders is not present, or if a quorum is present but sufficient votes to take action upon the Agreement and Plan are not received from the stockholders of Municipal Strategy, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies from stockholders. Any such adjournment will require the affirmative vote of a majority of the shares of Municipal Strategy present in person or by proxy and entitled to vote at the session of the Meeting to be adjourned. The persons named as proxies will vote in favor of any such adjournment if they determine that adjournment and additional solicitation are reasonable and in the interests of Municipal Strategy’s stockholders. Notice of any such adjournment is not required to be sent to stockholders.</R>

Appraisal Rights

Under Maryland law, since Municipal Strategy Common Stock and Municipal Strategy Series A AMPS are not publicly traded, Municipal Strategy stockholders will be entitled to appraisal rights upon the consummation of the Reorganization.

<R> Under Maryland law, a holder of Municipal Strategy Common Stock or Municipal Strategy Series A AMPS desiring to receive payment of the fair value of his or her stock (an “objecting stockholder”) (i) must file with Municipal Strategy a written objection to the Reorganization at or before the Meeting, (ii) must not vote in favor of the Reorganization (although a vote against the Reorganization is not required), and (iii) must make written demand on MuniYield for payment of his or her stock, stating the number and class of shares for which such stockholder demands payment, within 20 days after the Maryland Department accepts for filing the Articles of Transfer with respect to the Reorganization (MuniYield is required promptly to give written notice to all objecting stockholders of the date that the Articles of Transfer are accepted for record). A vote against the Reorganization will not be sufficient to satisfy the requirement of a written demand described in clause (iii). An objecting stockholder who fails to adhere to this procedure will be bound by the terms of the Reorganization. An objecting stockholder ceases to have any rights of a stockholder except the right to receive fair value for his or her shares and has no right to receive any dividends or distribution payable to such holders on a record date after the close of business on the date on which fair value is to be determined, which, for these purposes, will be the Meeting date. A demand for payment of fair market value may not be withdrawn, except upon the consent of MuniYield. Within 50 days after the Articles of Transfer have been accepted for filing, an objecting stockholder who has not received payment for his or her shares may petition the Circuit Court for Baltimore City located in Maryland for an appraisal to determine the fair value of the stock.</R>

ADDITIONAL INFORMATION

The expenses of preparation, printing and mailing of the enclosed form of proxy, the accompanying Notice and this Proxy Statement and Prospectus that are directly attributable to Municipal Strategy will be borne by Municipal Strategy.

Municipal Strategy likewise will reimburse banks, brokers and others for their reasonable expenses in forwarding proxy solicitation materials to the beneficial owners of shares of Municipal Strategy Common Stock and Municipal Strategy Series A AMPS and certain persons that Municipal Strategy may employ for their reasonable expenses in assisting in the solicitation of proxies from such beneficial owners of shares of capital stock of Municipal Strategy.
<R>

In order to obtain the necessary quorum at the Meeting, supplementary solicitation may be made by mail, telephone, telegraph or personal interview by officers of Municipal Strategy. Municipal Strategy has retained Georgeson Shareholder, 17 State Street, New York, New York 10004 to aid in the solicitation of proxies, at a cost to be borne by Municipal Strategy of approximately $3,000, plus aggregate out-of-pocket expenses of approximately $2,600.

Broker-dealer firms, including Merrill Lynch, holding Municipal Strategy shares in “street name” for the benefit of their customers and clients will request the instructions of such customers and clients on how to vote their shares on each proposal before the Meeting. With respect to shares of Municipal Strategy Common Stock, broker-dealer firms, including Merrill Lynch, will not be permitted to grant voting authority without instructions with respect to the approval of the Agreement and Plan. Shares of Municipal Strategy Series A AMPS held in “street name,” however, may be voted by broker-dealer firms without instructions from the broker-dealer’s customers and clients under certain conditions with respect to the approval of the Agreement and Plan and will be counted for purposes of establishing a quorum of Municipal Strategy stockholders if no instructions are received one business day before the Meeting or, if adjourned, one business day before the day to which the Meeting is adjourned. These conditions include, among others, that (i) at least 30% of the outstanding Municipal Strategy Series A AMPS have voted on the Agreement and Plan, (ii) less than 10% of the outstanding Municipal Strategy Series A AMPS outstanding have voted against the Agreement and Plan, and (iii) holders of Municipal Strategy Common Stock have voted to approve the Agreement and Plan. In such instances, the broker-dealer firm will vote such uninstructed shares of Municipal Strategy Series A AMPS in the same proportion as the votes cast by all holders of Municipal Strategy Series A AMPS who voted on the Agreement and Plan. Municipal Strategy will include shares held of record by broker-dealers as to which such authority has been granted in its tabulation of the total number of shares present for purposes of determining whether the necessary quorum of stockholders of Municipal Strategy exists. Proxies that are returned to Municipal Strategy but that are marked “abstain” or on which a broker-dealer has declined to vote on any proposal (“broker non-votes”) will be counted as present for the purposes of determining a quorum. Abstentions and broker non-votes will not be counted as votes cast. Abstentions and broker non-votes will have the same effect as a vote against the Agreement and Plan. </R>

This Proxy Statement and Prospectus does not contain all of the information set forth in the N-14 Registration Statement and the exhibits relating thereto that MuniYield has filed with the Commission under the Securities Act of 1933, as amended, and the Investment Company Act, to which reference is hereby made.

The Funds are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act and in accordance therewith are required to file reports and other information with the Commission. Reports, proxy statements, registration statements and other information filed by MuniYield and Municipal Strategy can be inspected and copied at the public reference facilities of the Commission in Washington D.C. and at the New York Regional Office of the Commission at Seven World Trade Center, New York, New York, 10048. Copies of such materials also can be obtained by mail from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington D.C. 20549, at prescribed rates. The Commission maintains a web site (http:/www.sec.gov) that contains a prospectus relating to MuniYield Common Stock, dated November 21, 1991, a prospectus relating to MuniYield AMPS dated December 18, 1991, a prospectus relating to Municipal Strategy Common Stock, dated February 27, 2001, a prospectus relating to Municipal Strategy AMPS, dated February 27, 2001, and a statement of additional information relating to Municipal Strategy AMPS, dated February 27, 2001 and other information regarding the Funds. Reports, proxy materials and other information concerning MuniYield may also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.

CUSTODIAN

BONY acts as the custodian for cash and securities of MuniYield and Municipal Strategy and will serve as custodian for the Combined Fund after the Reorganization. The principal business address of BONY in such capacity is 90 Washington Street, New York, New York 10286.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

<R> BONY serves as the transfer agent, dividend disbursing agent and registrar with respect to the MuniYield Common Stock and AMPS and the Municipal Strategy AMPS, pursuant to separate registrar, transfer agency and service agreements with MuniYield and Municipal Strategy. The principal business address of BONY in such capacity is 101 Barclay Street, New York, New York 10286. It is anticipated that BONY will continue to provide these services to the Combined Fund after the Reorganization.

FDS serves as the transfer agent, dividend disbursing agent and registrar with respect to the Municipal Strategy Common Stock, pursuant to a registrar, transfer agency and service agreement with Municipal Strategy. The principal business address of FDS in such capacity is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.</R>

ACCOUNTING SERVICES PROVIDER

State Street provides certain accounting services for MuniYield and Municipal Strategy and will provide the same services to the Combined Fund after the Reorganization. The principal business address of State Street in such capacity is 500 College Road East, Princeton, New Jersey 08540.

LEGAL OPINIONS

Certain legal matters in connection with the Reorganization will be passed upon for the Funds by Sidley Austin Brown & Wood LLP, New York, New York.

EXPERTS

<R> Deloitte & Touche LLP, independent auditors, have audited the financial statements and financial highlights of MuniYield and Municipal Strategy as of October 31, 2000 as set forth in their reports which appear in this Proxy Statement and Prospectus. The financial statements and financial highlights of the Funds are included in reliance upon their reports, given on their authority as experts in accounting and auditing.

Deloitte & Touche LLP will serve as the independent auditors for the Combined Fund after the Reorganization. The principal business address of Deloitte & Touche LLP is Two World Financial Center, New York, New York 10281-1008.</R>

LEGAL PROCEEDINGS

On June 21, 1996, a putative class action titled Jack Green, et al. v. Fund Asset Management, L.P., et al. was filed in the United States District Court for the District of Massachusetts. Among the named defendants in the action are seven of the leveraged closed-end municipal bond funds (including MuniYield) for which FAM serves as the investment adviser. In addition to the named defendants, plaintiffs also purport to assert claims against a defendant class consisting of all other publicly traded, closed-end investment companies for which FAM serves as investment adviser and which, among other things, have issued AMPS. The named plaintiffs, who claim to be investors in the seven named funds, purport to bring the action on behalf of a class consisting of all holders of the common stock of the subject funds.

Plaintiffs claim, among other things, that the registration statements, annual reports and other documents filed by the funds with the Commission were misleading because such documents allegedly failed to disclose that proceeds arising from the issuance of AMPS would be included in a fund’s net assets for the purposes of calculating the investment advisory fee payable to FAM. In addition, plaintiffs allege that a conflict of interest existed because it would always be in the defendants’ interest to keep the funds fully leveraged to maximize the advisory fees and collateral compensation notwithstanding adverse market conditions. Plaintiffs also allege an additional conflict of interest arising from the receipt by such affiliates of underwriting discounts, or other revenues in connection with the sale of the AMPS by the funds. The complaint also attempted to assert claims under Sections 8(e), 34(b), 36(a) and 36(b) of the Investment Company Act and the common law. Plaintiffs seek

<R>unspecified monetary damages as well as injunctive relief. On August 27, 1996, defendants moved to transfer the action to the United States District Court for the District of New Jersey. By order dated June 10, 1997, the District Court Judge granted defendants’ motion. Plaintiff objected to the District Court Judge’s order and moved for reconsideration. By order dated July 16, 1997, the District Court Judge ordered the case transferred to the District of New Jersey.</R>

On September 17, 1997, defendants moved to dismiss plaintiffs’ complaint on the ground that plaintiffs had failed to state a claim upon which relief could be granted. On February 23, 1998, the District Court granted defendants’ motion in substantial part and dismissed plaintiffs’ claims under Sections 8(e), 34(b) and 36(a) of the Investment Company Act with prejudice, but declined to dismiss plaintiffs’ claims under section 36(b) and state law.

On February 4, 1999, defendants moved to dismiss plaintiffs’ state law claims for breach of fiduciary duty and deceit on the ground that they are preempted by Section 36(b) of the Investment Company Act. On June 14, 1999, the District Court granted defendants’ motion and dismissed plaintiffs’ state law claims. At the same time, the District Court granted plaintiffs permission to immediately file an interlocutory appeal to the United States Court of Appeals for the Third Circuit. On March 16, 2001, the Third Circuit reversed the District Court’s decision and reinstated plaintiffs’ state law claims.

On February 5, 2001, while plaintiffs’ appeal before the Third Circuit was still pending, defendants moved in the District Court for summary judgment as to plaintiffs’ remaining federal claim under Section 36(b). On March 16, 2001, plaintiffs cross-moved for partial summary judgment on liability. On June 5, 2001, the District Court granted defendants’ motion for summary judgment, denied plaintiffs’ motion for partial summary judgment, and dismissed the case in its entirety. In doing so, the Court refused to exercise supplemental jurisdiction over plaintiffs’ remaining (and recently reinstated) state law claims.

Plaintiffs have filed a Notice of Appeal seeking review of the District Court’s decision before the U.S. Court of Appeals for the Third Circuit. Defendants believe that the plaintiffs’ allegations are without merit and intend to continue to defend the action vigorously.

FAM has agreed to indemnify the named defendant funds (including MuniYield) for any liabilities or expenses that they may incur in connection with this litigation.

STOCKHOLDER PROPOSALS

A stockholder proposal intended to be presented at any subsequent meeting of stockholders of Municipal Strategy must be received by Municipal Strategy in a reasonable time before Municipal Strategy begins to print and mail the proxy solicitation materials to be used in connection with such meeting in order to be considered in Municipal Strategy’s proxy statement and form of proxy relating to the meeting. Any stockholder who desires to present any proposal at any subsequent meeting of stockholders of Municipal Strategy, without including such proposal in Municipal Strategy’s proxy statement relating to the meeting also must send their written proposal to Municipal Strategy within a reasonable time before the Board of Directors’ solicitation relating to such meeting is to be made. Written proposals should be sent to the Secretary of Municipal Strategy at the offices of Municipal Strategy.

By Order of the Board of Directors,

ALICE A. PELLEGRINO
Secretary

Plainsboro, New Jersey
<R>Dated: September 14, 2001</R>

INDEX TO FINANCIAL STATEMENTS

Page

Audited Financial Statements for MuniYield Fund, Inc.
    for the Year Ended October 31, 2000 F-2



Unaudited Financial Statements for MuniYield Fund, Inc.
    for the Six Months Ended April 30, 2001 F-15

Audited Financial Statements for Merrill Lynch Municipal Strategy Fund, Inc.
    for the Year Ended October 31, 2000 F-27

Unaudited Financial Statements for Merrill Lynch Municipal Strategy Fund, Inc.
    for the Six Months Ended April 30, 2001 F-37

<R>Pro Forma Unaudited Financial Statements for the Combined Fund</R> F-47

F-1

Audited Financial Statements for MuniYield Fund, Inc.
for the Year Ended October 31, 2000

F-2


MuniYield Fund, Inc.,                                           October 31, 2000


INDEPENDENT AUDITORS' REPORT


The Board of Directors and Shareholders,
MuniYield Fund, Inc.:

We have audited the accompanying statement of assets,
liabilities and capital, including the schedule of investments, of
MuniYield Fund, Inc. as of October 31, 2000, the related statement
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at October 31, 2000 by correspondence
with the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniYield Fund, Inc. as of October 31, 2000, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
accounting principles generally accepted in the United States of
America.


Deloitte & Touche LLP
Princeton, New Jersey
December 7, 2000



                                 F-3










MuniYield Fund, Inc.,                                           October 31, 2000

SCHEDULE OF INVESTMENTS                                                                             (in Thousands)

                 S&P      Moody's  Face
STATE          Ratings   Ratings  Amount  Issue                                                                 Value

Alaska--0.7%     NR*     NR*   $  5,050   Valdez, Alaska, Marine Terminal Revenue Refunding Bonds
                                          (Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024            $  5,056

Arizona--2.6%    AAA     Aaa      1,460   Arizona State Wastewater Management Authority, Wastewater
                                          Treatment Financial Assistance Revenue Bonds, Series A,
                                          5.60% due 7/01/2006 (b)(c)                                             1,558
                                          Phoenix, Arizona, IDA, Airport Facility Revenue Refunding
                                          Bonds (America West Airlines Inc. Project), AMT:
                 NR*     B1       8,000      6.25% due 6/01/2019                                                 7,152
                 NR*     B1       5,300      6.30% due 4/01/2023                                                 4,719
                                          Pima County, Arizona, IDA, Industrial Revenue Refunding
                                          Bonds (Tucson Electric Power Company Project):
                 B+      Ba3      4,600      Series B, 6% due 9/01/2029                                          4,169
                 B+      Ba3      2,500      Series C, 6% due 9/01/2029                                          2,266

Colorado--2.9%   NR*     Aaa      4,680   Broomfield, Colorado, COP (Open Space Park and Recreational
                                          Facilities), 5.75% due 12/01/2015 (c)                                  4,891
                                          Denver, Colorado, City and County Airport Revenue Bonds,
                                          AMT, Series D:
                 A       Aaa        700      7.75% due 11/15/2001 (b)                                              737
                 A       A2       8,000      7.75% due 11/15/2013                                                9,542
                 NR*     NR*      5,000   Denver, Colorado, Urban Renewal Authority, Tax Increment
                                          Revenue Bonds (Pavilions), AMT, 7.75% due 9/01/2016                    5,318
                 NR*     NR*        690   Mountain Village Metropolitan District, Colorado, San Miguel
                                          County, GO, Refunding, 7.95% due 12/01/2003                              716
                 NR*     NR*        240   San Miguel County, Colorado (Mountain Village Metropolitan
                                          District), GO, Refunding, 7.95% due 12/01/2003 (b)                       258

Connecticut      BB+     Ba1     35,000   Connecticut State Development Authority, PCR, Refunding
- --4.4%                                    (Connecticut Light and Power Company), Series A, 5.85%
                                          due 9/01/2028                                                         32,811

Florida--1.5%    NR*     NR*     12,000   Hillsborough County, Florida, IDA, Exempt Facilities Revenue
                                          Bonds (National Gypsum), AMT, Series A, 7.125% due 4/01/2030          11,200

Georgia--2.1%    AAA     Aaa     12,140   Atlanta, Georgia, Airport Revenue Refunding Bonds, Series A,
                                          5.875% due 1/01/2016 (h)                                              12,788
                 A1      VMIG1++  3,300   Burke County, Georgia, Development Authority, PCR, Refunding
                                          (Georgia Power Company Plant--Vogtle Project), VRDN, 3rd Series,
                                          4.60% due 9/01/2025 (a)                                                3,300

Idaho--0.4%      AA      NR*      2,655   Idaho Housing Agency, S/F Mortgage Revenue Refunding Bonds,
                                          AMT, Senior Series C-2, 7.15% due 7/01/2023                            2,715

Illinois--4.8%   AAA     Aaa     10,000   Chicago, Illinois, GO, Series A, 6.75% due 1/01/2035 (h)              11,167
                 NR*     Aaa      2,655   Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT,
                                          Series B, 7.625% due 9/01/2027 (f)(g)(l)                               2,970
                 BBB+    Baa1     2,750   Illinois Development Finance Authority, PCR, Refunding
                                          (Illinois Power Company Project), Series A, 7.375% due 7/01/2021       2,945
                 NR*     NR*      2,500   Illinois Educational Facilities Authority, Revenue
                                          Refunding Bonds (Chicago Osteopathic Health System),
                                          7.25% due 11/15/2019 (b)                                               2,970

PORTFOLIO ABBREVIATIONS


To simplify the listings of MuniYield Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the
names of many of the securities according to the list at right.

AMT        Alternative Minimum Tax
             (subject to)
COP        Certificates of Participation
EDA        Economic Development Authority
GO         General Obligation Bonds
HDA        Housing Development Authority
HFA        Housing Finance Agency
IDA        Industrial Development Authority
IDR        Industrial Development Revenue Bonds
INFLOS     Inverse Floating Rate Municipal Bonds
PCR        Pollution Control Revenue Bonds
RITR       Residual Interest Trust Receipts
S/F        Single-Family
VRDN       Variable Rate Demand Notes


                                 F-4










MuniYield Fund, Inc.,                                           October 31, 2000

SCHEDULE OF INVESTMENTS (continued)                                                                 (in Thousands)

                 S&P      Moody's  Face
STATE          Ratings   Ratings  Amount  Issue                                                                 Value

Illinois         A1      VMIG1++ $6,300   Illinois Health Facilities Authority, Revenue Refunding
(concluded)                               Bonds (Resurrection Health), VRDN, Series A, 4.65% due
                                          5/01/2029 (a)(i)                                                    $  6,300
                 AAA     Aaa      8,000   Metropolitan Pier and Exposition Authority, Illinois,
                                          Hospitality Facilities Revenue Bonds (McCormick Place
                                          Convention Center), 7% due 7/01/2026 (m)                               9,467

Indiana--0.4%    BBB     Baa1     3,500   East Chicago, Indiana, Solid Waste Disposal Revenue Bonds
                                          (USG Corporation Project), AMT, 6.375% due 8/01/2029                   3,093

Kentucky--0.5%   NR*     NR*      4,000   Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
                                          (TJ International Project), AMT, 7% due 6/01/2024                      4,085

Louisiana--6.9%  NR*     A3      20,000   Lake Charles, Louisiana, Harbor and Terminal District, Port
                                          Facilities Revenue Refunding Bonds (Trunkline Long Company Project),
                                          7.75% due 8/15/2022                                                   21,375
                 AAA     Aaa     11,100   Louisiana State, GO, Series A, 6% due 5/15/2014 (e)                   11,649
                 BB-     NR*     20,000   Port New Orleans, Louisiana, IDR, Refunding (Continental
                                          Grain Company Project), 6.50% due 1/01/2017                           18,850

Maryland--1.0%   NR*     NR*      7,050   Maryland State Energy Financing Administration, Limited
                                          Obligation Revenue Bonds (Cogeneration--AES Warrior Run),
                                          AMT, 7.40% due 9/01/2019                                               7,141

Massachusetts    AAA     Aa1     10,000   Massachusetts Bay, Massachusetts, Transportation
- --5.7%                                    Authority, Revenue Refunding Bonds (Special Assessment),
                                          Series A, 5.25% due 7/01/2030                                          9,482
                 BBB+    A3       2,500   Massachusetts State Development Finance Agency, Revenue
                                          Refunding Bonds (Boston University), Series P, 5.45% due 5/15/2059     2,297
                 A       NR*     11,030   Massachusetts State Health and Educational Facilities Authority
                                          Revenue Bonds (Schepens Eye Research Project), Series A,
                                          6.50% due 7/01/2028                                                   11,511
                 AAA     Aaa     10,700   Massachusetts State Turnpike Authority, Metropolitan
                                          Highway System Revenue Refunding Bonds, Senior-Series A,
                                          5.125% due 1/01/2023 (e)                                              10,045
                                          Tantasqua, Massachusetts, Regional School District, GO (i):
                 NR*     Aaa      2,575      5% due 8/15/2017                                                    2,476
                 NR*     Aaa      2,575      5% due 8/15/2018                                                    2,458
                 NR*     Aaa      2,575      5% due 8/15/2019                                                    2,445
                 NR*     Aaa      2,315      5% due 8/15/2020                                                    2,187

Michigan--0.9%   AAA     Aaa      2,500   Holly, Michigan, Area School District, GO, Refunding,
                                          4.75% due 5/01/2025 (h)                                                2,179
                 AAA     Aaa      3,100   Michigan State Hospital Finance Authority, Revenue Refunding
                                          Bonds, INFLOS, 7.956% due 2/15/2022 (i)(k)                             3,259
                 A1      VMIG1++  1,400   Royal Oak, Michigan, Hospital Finance Authority, Hospital
                                          Revenue Bonds (William Beaumont Hospital), VRDN, Series J,
                                          4.60% due 1/01/2003 (a)                                                1,400

Minnesota--0.9%  AAA     Aaa      4,980   Minneapolis and Saint Paul, Minnesota, Metropolitan Airports
                                          Commission, Airport Revenue Bonds, Series A, 5.125% due
                                          1/01/2025 (h)                                                          4,694
                 AA+     Aa1      2,465   Minnesota State, HFA, S/F Mortgage Revenue Bonds, AMT,
                                          Series A, 7.05% due 7/01/2022                                          2,500

Mississippi      A       A3      18,000   Lowndes County, Mississippi, Solid Waste Disposal and PCR,
- --3.4%                                    Refunding (Weyerhaeuser Company Project), Series A, 6.80%
                                          due 4/01/2022                                                         20,057
                 BBB-    Ba1      5,650   Mississippi Business Finance Corporation, Mississippi,
                                          PCR, Refunding (System Energy Resources Inc. Project),
                                          5.90% due 5/01/2022                                                    5,236

Missouri--0.6%   AAA     NR*      4,050   Missouri State Housing Development Commission, S/F
                                          Mortgage Revenue Bonds, Homeownership, AMT,
                                          Series B, 7.55% due 9/01/2027 (f)(g)                                   4,288


                                 F-5










MuniYield Fund, Inc.,                                           October 31, 2000

SCHEDULE OF INVESTMENTS (continued)                                                                 (in Thousands)

                 S&P      Moody's  Face
STATE          Ratings   Ratings  Amount  Issue                                                                 Value

Nevada--0.6%     BBB     NR*   $  5,000   Clark County, Nevada, IDR, Refunding (Nevada Power
                                          Company Project), Series C, 5.50% due 10/01/2030                    $  4,179

New Jersey       BBB-    NR*        650   New Jersey EDA, First Mortgage Revenue Bonds,
- --4.7%                                    (Fellowship Village), Series C, 5.50% due
                                          1/01/2028                                                                504
                 NR*     NR*      1,500   New Jersey EDA, Retirement Community Revenue Bonds
                                          (Seabrook Village Inc.), Series A, 8.25% due 11/15/2030                1,452
                                          New Jersey EDA, Special Facility Revenue Bonds
                                          (Continental Airlines Inc. Project), AMT:
                 BB      Ba2     13,000      6.25% due 9/15/2019                                                12,179
                 BB      Ba2      9,400      5.50% due 4/01/2028                                                 7,661
                 BB      Ba2      7,180      6.25% due 9/15/2029                                                 6,573
                 AAA     Aaa      4,450   New Jersey EDA, Water Facilities Revenue Bonds
                                          (New Jersey American Water Company Inc. Project), AMT,
                                          6.50% due 4/01/2022 (h)                                                4,596
                 BBB-    Baa3     3,000   New Jersey Health Care Facilities Financing Authority,
                                          Revenue Refunding Bonds (Saint Elizabeth Hospital Obligation
                                          Group), 6% due 7/01/2027                                               2,594

New Mexico--0.1%                          Farmington, New Mexico, PCR, Refunding (Arizona Public
                                          Service Company), VRDN (a):
                 A1+     P1         200      Series A, 4.60% due 5/01/2024                                         200
                 A1+     P1         500      Series B, 4.60% due 9/01/2024                                         500

New York--24.4%  AAA     Aaa      2,675   Dutchess County, New York, Resource Recovery Agency Revenue
                                          Bonds (Solid Waste System), Series A, 5.25% due 1/01/2011 (e)          2,740
                                          Long Island Power Authority, New York, Electric System
                                          Revenue Bonds, VRDN (a):
                 A1+     VMIG1++    200      Sub-Series 5, 4.60% due 5/01/2033                                     200
                 A1+     VMIG1++  5,500      Sub-Series 6, 4.55% due 5/01/2033                                   5,500
                 NR*     Aaa      5,595   Metropolitan Transportation Authority, New York, Commuter
                                          Facilities Revenue Bonds, RITR, Series 9, 6.10% due
                                          7/01/2006 (b)(h)(k)                                                    6,637
                 NR*     A        5,500   New York City, New York, City IDA, Special Facilities
                                          Revenue Bonds, RITR, AMT, Series RI-5, 7.045% due 1/01/2024 (k)        5,720
                 AAA     Aaa     10,000   New York City, New York, City Municipal Water Finance
                                          Authority, Water and Sewer System Revenue Bonds, Series B,
                                          5.75% due 6/15/2026 (e)                                               10,081
                 A1+     VMIG1++  2,200   New York City, New York, City Municipal Water Finance
                                          Authority, Water and Sewer System Revenue Refunding Bonds,
                                          VRDN, Series G, 4.55% due 6/15/2024 (a)(h)                             2,200
                                          New York City, New York, City Transitional Finance
                                          Authority Revenue Bonds, Future Tax Secured, Series B:
                 AA+     Aa2      6,805      6.25% due 11/15/2017                                                7,357
                 AA+     Aa2      6,405      6.25% due 11/15/2018                                                6,915
                 AA+     Aa2      9,000      4.75% due 11/01/2023                                                7,870
                 AA+     Aa2     10,000      4.75% due 11/15/2023                                                8,743
                                          New York City, New York, GO, Refunding:
                 AAA     Aaa     10,000      Series A, 6.375% due 5/15/2014 (h)                                 11,063
                 AAA     Aaa     10,000      Series A, 6.375% due 5/15/2015 (h)                                 11,015
                 A       A2       1,555      Series B, 7.75% due 2/01/2002 (b)                                   1,641
                 A       A2       1,150      Series B, 7.75% due 2/01/2002 (b)                                   1,214
                 A       Aaa        385   New York City, New York, GO, Series C, Sub-Series C-1,
                                          7.50% due 8/01/2002 (b)                                                  411
                 AAA     Aaa     10,000   New York City, New York, GO, Series H, 5% due 3/15/2029 (h)            9,086
                 AAA     Aaa      5,000   New York State Dormitory Authority Revenue Bonds
                                          (Mental Health Services Facilities Improvement), Series B,
                                          5.125% due 8/15/2021 (e)                                               4,716
                 AAA     Aaa      2,545   New York State Dormitory Authority, Revenue Refunding Bonds
                                          (Hamilton College), 4.75% due 7/01/2017 (e)                            2,323
                                          New York State Dormitory Authority, State University
                                          Educational Facilities Revenue Refunding Bonds, Series 1989 (e):
                 AAA     NR*      7,500      6% due 5/15/2015                                                    8,045
                 AAA     NR*      3,750      6% due 5/15/2016                                                    4,002


                                 F-6










MuniYield Fund, Inc.,                                           October 31, 2000

SCHEDULE OF INVESTMENTS (continued)                                                                 (in Thousands)

                 S&P      Moody's  Face
STATE          Ratings   Ratings  Amount  Issue                                                                 Value

New York         NR*     Aa1   $ 17,575   New York State Environmental Facilities Corporation, PCR,
(concluded)                               Refunding, RITR, Class R, Series 9, 6.992% due 6/15/2014 (k)        $ 18,977
                 AAA     Aaa     10,000   Port Authority of New York and New Jersey, Consolidated
                                          Revenue Bonds, 116th Series, 4.25% due 10/01/2026 (h)                  8,004
                 AAA     Aaa     38,300   Port Authority of New York and New Jersey, Special Obligation
                                          Revenue Bonds (JFK International Air Terminal Project),
                                          AMT, Series 6, 5.75% due 12/01/2025 (e)                               38,675

North Carolina   BBB     Baa3     4,750   North Carolina Eastern Municipal Power Agency, Power
- --0.8%                                    System Revenue Bonds, Series D, 6.75% due 1/01/2026                    4,915
                 AA      Aa2      1,000   North Carolina HFA, Home Ownership Revenue Bonds, AMT,
                                          Series 8-A, 6.20% due 7/01/2016                                        1,034

Ohio--3.6%       NR*     Aa1      2,470   Dublin, Ohio, GO, Refunding and Improvement, Series A,
                                          4.625% due 12/01/2018                                                  2,202
                 NR*     Baa3     5,500   Franklin County, Ohio, Hospital Revenue Bonds (Doctors of
                                          Ohio Health Corp.), Series A, 5.60% due 12/01/2028                     3,597
                 NR*     NR*      2,175   Lucas County, Ohio, Health Care Facility Revenue Refunding
                                          and Improvement Bonds (Sunset Retirement Communities),
                                          Series A, 6.625% due 8/15/2030                                         2,139
                 BBB     Baa1    24,000   Ohio State Solid Waste Disposal Revenue Bonds (USG Corporation
                                          Project), AMT, 5.60% due  8/01/2032                                   18,982

Oklahoma--0.5%   AAA     NR*      3,250   Holdenville, Oklahoma, Industrial Authority, Correctional
                                          Facility Revenue Bonds, 6.70% due 7/01/2006 (b)(j)                     3,584

Oregon--1.7%     AAA     Aaa     14,000   Oregon Health Sciences University Revenue Refunding Bonds,
                                          Series A, 5.16%** due 7/01/2021 (e)                                    4,400
                                          Oregon State Department of Administrative Services,
                                          COP, Series A (c):
                 AAA     Aaa      4,405      6% due 5/01/2015                                                    4,713
                 AAA     Aaa      3,500      6% due 5/01/2016                                                    3,724

Pennsylvania     A       NR*      1,775   Berks County, Pennsylvania, Municipal Authority,
- --8.9%                                    College Revenue Refunding Bonds (Alvernia College Project),
                                          6% due 11/15/2018                                                      1,812
                 AAA     Aaa      5,000   Lehigh County, Pennsylvania, IDA, PCR, Refunding
                                          (Pennsylvania Power and Light Company Project),
                                          Series B, 6.40% due 9/01/2029 (e)                                      5,222
                 AAA     Aaa      9,675   Pennsylvania Convention Center Revenue Refunding Bonds,
                                          Series A, 6.70% due 9/01/2014 (e)                                     10,469
                                          Pennsylvania Economic Development Financing Authority,
                                          Exempt Facilities Revenue Bonds (National Gypsum Company), AMT:
                 NR*     NR*     17,100      Series A, 6.25% due 11/01/2027                                     14,299
                 NR*     NR*      2,000      Series B, 6.125% due 11/01/2027                                     1,644
                 AA+     Aa2      5,145   Pennsylvania HFA, S/F Mortgage Refunding Bonds, AMT,
                                          Series 42, 6.85% due 4/01/2025                                         5,368
                 AAA     Aaa     16,270   Pennsylvania State Higher Educational Facilities Authority,
                                          Health Services Revenue Refunding Bonds (Allegheny
                                          Delaware Valley Obligation), Series C, 5.875% due
                                          11/15/2016 (e)                                                        16,577
                                          Philadelphia, Pennsylvania, Authority for IDR, Refunding,
                                          Commercial Development:
                 NR*     NR*      3,650      (Days Inn), Series B, 6.50% due 10/01/2027                          3,520
                 NR*     NR*      3,000      (Doubletree), Series A, 6.50% due 10/01/2027                        2,893
                                          Philadelphia, Pennsylvania, Hospitals and Higher Education
                                          Facilities Authority, Hospital Revenue Bonds (Children's
                                          Hospital of Philadelphia Project), VRDN (a):
                 A1+     VMIG1++  1,240      4.60% due 3/01/2027                                                 1,240
                 A1+     VMIG1++  4,000      Series A, 4.60% due 3/01/2027                                       4,000

Rhode Island                              Woonsocket, Rhode Island, GO (h):
- --0.3%           NR*     Aaa      1,225      6% due 10/01/2017                                                   1,302
                 NR*     Aaa      1,195      6% due 10/01/2018                                                   1,265

South Carolina   BBB+    Baa1     2,500   Richland County, South Carolina, PCR, Refunding (Union Camp
- --0.3%                                    Corporation Project), Series C, 6.55% due 11/01/2020                   2,517


                                 F-7










MuniYield Fund, Inc.,                                           October 31, 2000

SCHEDULE OF INVESTMENTS (continued)                                                                 (in Thousands)

                 S&P      Moody's  Face
STATE          Ratings   Ratings  Amount  Issue                                                                 Value

South Dakota     BBB+    Baa3  $    900   South Dakota State Health and Educational Facilities
- --0.1%                                    Authority, Revenue Refunding Bonds (Prairie Lakes),
                                          7.25% due 4/01/2022                                                 $    912

Tennessee--1.3%                           Elizabethton, Tennessee, Health and Educational Facilties
                                          Board, Hospital Revenue Refunding and Improvement Bonds,
                                          First Mortgage, Series B (e):
                 AAA     Aaa      2,005      6% due 7/01/2011                                                    2,154
                 AAA     Aaa      2,125      6% due 7/01/2012                                                    2,280
                 AAA     Aaa      2,255      6.25% due 7/01/2013                                                 2,466
                 NR*     NR*      3,000   Hardeman County, Tennessee, Correctional Facilities Corporation
                                          Revenue Bonds, 7.75% due  8/01/2017                                    3,068

Texas--6.6%      BBB-    Baa1     7,700   Dallas-Fort Worth, Texas, International Airport Facility
                                          Improvement Corporation Revenue Bonds (American Airlines Inc.),
                                          AMT, 7.50% due 11/01/2000 (b)                                          7,854
                 AAA     Aaa      5,000   Grapevine-Colleyville, Texas, Independent School District, GO,
                                          Refunding, 5% due 8/15/2029                                            4,481
                                          Gregg County, Texas, Health Facilities Development
                                          Corporation, Hospital Revenue Bonds (Good Shepherd
                                          Medical Center Project):
                 AA      NR*      3,000      6.875% due 10/01/2020                                               3,257
                 AA      NR*      2,000      6.375% due 10/01/2025                                               2,058
                 AA-     Aa3      5,000   Guadalupe-Blanco River Authority, Texas, Sewage and
                                          Solid Waste Disposal Facility Revenue Bonds (E. I. du Pont
                                          de Nemours and Company Project), AMT, 6.40% due 4/01/2026              5,188
                                          Harris County, Texas, Health Facilities Development Corporation,
                                          Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN (a):
                 A1+     NR*      1,100      4.60% due 12/01/2025                                                1,100
                 A1+     NR*        500      4.60% due 12/01/2026                                                  500
                                          Houston, Texas, Airport System, Special Facilities Revenue
                                          Bonds (Continental Airlines Terminal Improvement), AMT:
                 BB      Ba1      5,000      Series B, 6.125% due 7/15/2027                                      4,414
                 BB      Ba1      9,700      Series C, 6.125% due 7/15/2027                                      8,563
                                          Lower Colorado River Authority, Texas, PCR (Samsung Austin
                                          Semiconductor), AMT:
                 BBB-    Baa3     6,500      6.375% due 4/01/2027                                                6,247
                 BBB-    Baa3     4,000      6.95% due 4/01/2030                                                 4,077
                                          San Antonio, Texas, Water Revenue Refunding Bonds:
                 AA-     Aa3      1,000      5.875% due 5/15/2016                                                1,043
                 AA-     Aa3      1,000      5.875% due 5/15/2017                                                1,038

Utah--0.3%       AAA     Aaa      1,545   Utah State Board of Regents Revenue Refunding Bonds (University
                                          of Utah Research Facilities), Series A, 5.50% due 4/01/2018 (e)        1,546
                 AAA     NR*        535   Utah State, HFA, S/F Mortgage Revenue Bonds, AMT,
                                          Senior-Series E-2, 7.15% due 7/01/2024 (d)                               546

Virginia--1.6%   NR*     NR*      8,650   Peninsula Ports Authority, Virginia, Revenue Refunding Bonds
                                          (Port Facility-Zeigler Coal), 6.90% due 5/02/2022 (n)                  2,076
                 NR*     NR*      1,000   Pittsylvania County, Virginia, IDA, Revenue Refunding Bonds,
                                          Exempt-Facility, AMT, Series A, 7.55% due 1/01/2019                    1,017
                                          Pocahontas Parkway Association, Virginia, Toll Road Revenue
                                          Bonds, Senior Series B:
                 BBB-    Baa3     9,100      5.90%** due 8/15/2019                                               2,414
                 BBB-    Baa3    12,840      7.35%** due 8/15/2029                                               1,657
                 AA+     Aa1      5,125   Virginia State, HDA, Commonwealth Mortgage Revenue Bonds,
                                          Series A, 7.10% due 1/01/2025                                          5,280

West Virginia    NR*     NR*      3,000   Upshur County, West Virginia, Solid Waste Disposal
- --0.4%                                    Revenue Bonds (TJ International Project), AMT,
                                          7% due 7/15/2025                                                       3,062

Wisconsin--0.3%  AA      NR*      2,560   Wisconsin State Health and Educational Facilties Authority
                                          Revenue Bonds (Howard Young Medical Center Inc. Project),
                                          5.125% due 8/15/2028                                                   2,198


                                 F-8










MuniYield Fund, Inc.,                                           October 31, 2000

SCHEDULE OF INVESTMENTS (concluded)                                                                 (in Thousands)

                 S&P      Moody's  Face
STATE          Ratings   Ratings  Amount  Issue                                                                 Value

Puerto           NR*     Aaa   $ 12,500   Puerto Rico Commonwealth, Highway and Transportation
Rico--2.2%                                Authority, Transportation Revenue Bonds, Trust Receipts,
                                          Class R, Series B, 7.57% due 7/01/2035 (e)(k)                       $ 13,511
                 NR*     Aaa      2,500   Puerto Rico Electric Power Authority, Power Revenue Bonds,
                                          Trust Receipts, Class R, Series 16 HH, 7.346% due 7/01/2013 (k)        2,817

                 Total Investments (Cost--$740,323)--98.4%                                                     739,537

                 Other Assets Less Liabilities--1.6%                                                            11,824
                                                                                                              --------
                 Net Assets--100.0%                                                                           $751,361
                                                                                                              ========


(a)  The interest rate is subject to change periodically based upon
     prevailing market rates. The interest rate shown is the rate in
     effect at October 31, 2000.
(b)  Prerefunded.
(c)  AMBAC Insured.
(d)  FHA Insured.
(e)  MBIA Insured.
(f)  FNMA Collateralized.
(g)  GNMA Collateralized.
(h)  FGIC Insured.
(i)  FSA Insured.
(j)  Connie Lee Insured.
(k)  The interest rate is subject to change periodically and inversely
     based upon prevailing market rates. The interest rate shown is
     the rate in effect at October 31, 2000.
(l) FHLMC Collateralized.
(m) Escrowed to maturity.
(n)  Non-income producing security.
  *  Not Rated.
 **  Represents a zero coupon bond; the interest rate shown is the
     effective yield at the time of purchase by the Fund.
 ++  Highest short-term rating by Moody's Investors Service, Inc.
     Ratings of issues shown have not been audited by Deloitte &
     Touche LLP.

See Notes to Financial Statements.


                                 F-9










MuniYield Fund, Inc.,                                           October 31, 2000

STATEMENT OF ASSETS, LIABILITIES AND CAPITAL

                    As of October 31, 2000

Assets:             Investments, at value (identified cost--$740,323,387)                                   $739,537,102
                    Receivables:
                      Interest                                                             $ 12,727,541
                      Securities sold                                                           430,724       13,158,265
                                                                                           ------------
                    Prepaid expenses and other assets                                                             87,775
                                                                                                            ------------
                    Total assets                                                                             752,783,142
                                                                                                            ------------

Liabilities:        Payables:
                      Dividends to shareholders                                                 760,012
                      Investment adviser                                                        308,284        1,068,296
                                                                                           ------------
                    Accrued expenses and other liabilities                                                       353,779
                                                                                                            ------------
                    Total liabilities                                                                          1,422,075
                                                                                                            ------------

Net Assets:         Net assets                                                                              $751,361,067
                                                                                                            ============

Capital:            Capital Stock (200,000,000 shares authorized):
                      Preferred Stock, par value $.05 per share (10,000
                      shares of AMPS* issued and outstanding at $25,000
                      per share liquidation preference)                                                     $250,000,000
                      Common Stock, par value $.10 per share (38,317,103
                      shares issued and outstanding)                                       $  3,831,710
                    Paid-in capital in excess of par                                        538,873,283
                    Undistributed investment income--net                                      8,118,528
                    Accumulated realized capital losses on investments--net                (37,655,470)
                    Accumulated distributions in excess of realized
                    capital gains on investments--net                                      (11,020,699)
                    Unrealized depreciation on investments--net                               (786,285)
                                                                                           ------------
                    Total--Equivalent to $13.08 net asset value per
                      share of Common Stock (market price--$12.625)                                          501,361,067
                                                                                                            ------------
                    Total capital                                                                           $751,361,067
                                                                                                            ============

                    *Auction Market Preferred Stock.

                    See Notes to Financial Statements.

STATEMENT OF OPERATIONS

                    For the Year Ended October 31, 2000

Investment          Interest and amortization of premium and discount earned                                $ 46,717,999
Income:

Expenses:           Investment advisory fees                                               $  3,743,649
                    Commission fees                                                             632,528
                    Transfer agent fees                                                         128,681
                    Accounting services                                                         115,121
                    Professional fees                                                            90,310
                    Directors' fees and expenses                                                 52,397
                    Custodian fees                                                               51,831
                    Listing fees                                                                 35,756
                    Printing and shareholder reports                                             32,881
                    Pricing fees                                                                 21,710
                    Other                                                                        53,993
                                                                                           ------------
                    Total expenses                                                                             4,958,857
                                                                                                            ------------
                    Investment income--net                                                                    41,759,142
                                                                                                            ------------

Realized &          Realized loss on investments--net                                                       (37,655,470)
Unrealized          Change in unrealized depreciation on investments--net                                     34,881,965
Gain (Loss) on                                                                                              ------------
Investments--Net:   Net Increase in Net Assets Resulting from Operations                                    $ 38,985,637
                                                                                                            ============

                    See Notes to Financial Statements.


                                 F-10










MuniYield Fund, Inc.,                                           October 31, 2000

STATEMENTS OF CHANGES IN NET ASSETS

                                                                                               For the Year Ended
                                                                                                    October 31,
                    Increase (Decrease) in Net Assets:                                         2000             1999

Operations:         Investment income--net                                                 $ 41,759,142     $ 42,576,230
                    Realized loss on investments--net                                      (37,655,470)        (545,814)
                    Change in unrealized appreciation/depreciation
                    on investments--net                                                      34,881,965     (89,396,899)
                                                                                           ------------     ------------
                    Net increase (decrease) in net assets
                    resulting from operations                                                38,985,637     (47,366,483)
                                                                                           ------------     ------------
Dividends &         Investment income--net:
Distributions to      Common Stock                                                         (33,320,553)     (36,119,916)
Shareholders:         Preferred Stock                                                      (10,334,350)      (6,368,964)
                    Realized gain on investments--net:
                      Common Stock                                                                   --     (14,409,079)
                      Preferred Stock                                                                --      (1,619,668)
                    In excess of realized gain on investments--net:
                      Common Stock                                                                   --      (9,906,186)
                      Preferred Stock                                                                --      (1,113,516)
                                                                                           ------------     ------------
                    Net decrease in net assets resulting from
                    dividends and distributions to shareholders                            (43,654,903)     (69,537,329)
                                                                                           ------------     ------------

Capital Stock       Value of shares issued to Common Stock
Transactions:       shareholders in reinvestment of dividends
                      and distributions                                                              --       11,711,691
                                                                                           ------------     ------------

Net Assets:         Total decrease in net assets                                            (4,669,266)    (105,192,121)
                    Beginning of year                                                       756,030,333      861,222,454
                                                                                           ------------     ------------
                    End of year*                                                           $751,361,067     $756,030,333
                                                                                           ============     ============

                    *Undistributed investment income--net                                  $  8,118,528     $ 10,014,289
                                                                                           ============     ============


                    See Notes to Financial Statements.


                                 F-11










MuniYield Fund, Inc.,                                           October 31, 2000

FINANCIAL HIGHLIGHTS

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

                                                                              For the Year Ended October 31,
                    Increase (Decrease) in Net Asset Value:          2000        1999       1998       1997         1996

Per Share           Net asset value, beginning of year          $   13.21   $   16.27  $   16.09  $   15.68    $   15.47
Operating                                                       ---------   ---------  ---------  ---------    ---------
Performance:        Investment income--net                           1.09        1.12       1.19       1.24         1.26
                    Realized and unrealized gain (loss) on
                    investments--net                                (.08)      (2.34)        .49        .65          .23
                                                                ---------   ---------  ---------  ---------    ---------
                    Total from investment operations                 1.01      (1.22)       1.68       1.89         1.49
                                                                ---------   ---------  ---------  ---------    ---------
                    Less dividends and distributions to
                    Common Stock shareholders:
                      Investment income--net                        (.87)       (.95)      (.97)     (1.00)       (1.04)
                      Realized gain on investments--net                --       (.38)      (.26)      (.22)           --
                      In excess of realized gain on
                      investments--net                                 --       (.27)         --      (.01)           --
                                                                ---------   ---------  ---------  ---------    ---------
                    Total dividends and distributions to
                    Common Stock shareholders                       (.87)      (1.60)     (1.23)     (1.23)       (1.04)
                                                                ---------   ---------  ---------  ---------    ---------
                    Effect of Preferred Stock activity:
                      Dividends and distributions to
                      Preferred Stock shareholders:
                        Investment income--net                      (.27)       (.17)      (.18)      (.20)        (.24)
                        Realized gain on investments--net              --       (.04)      (.09)      (.05)           --
                        In excess of realized gain on
                        investments--net                               --       (.03)         --     --++++           --
                                                                ---------   ---------  ---------  ---------    ---------
                    Total effect of Preferred Stock activity        (.27)       (.24)      (.27)      (.25)        (.24)
                                                                ---------   ---------  ---------  ---------    ---------
                    Net asset value, end of year                $   13.08   $   13.21  $   16.27  $   16.09    $   15.68
                                                                =========   =========  =========  =========    =========
                    Market price per share, end of year         $  12.625   $  12.875  $  16.875  $  15.875    $  14.875
                                                                =========   =========  =========  =========    =========

Total Investment    Based on market price per share                 5.26%    (15.35%)     14.74%     15.56%       10.88%
Return:*                                                        =========   =========  =========  =========    =========
                    Based on net asset value per share              6.28%     (9.92%)      9.15%     11.11%        8.61%
                                                                =========   =========  =========  =========    =========

Ratios Based on     Total expenses**                                 .99%        .93%       .89%       .91%         .92%
Average Net                                                     =========   =========  =========  =========    =========
Assets of           Total investment income--net**                  8.35%       7.42%      7.43%      7.81%        8.06%
Common Stock:                                                   =========   =========  =========  =========    =========
                    Amount of dividends to
                    Preferred Stock shareholders                    2.07%       1.11%      1.10%      1.28%        1.57%
                                                                =========   =========  =========  =========    =========
                    Investment income--net, to
                    Common Stock shareholders                       6.28%       6.31%      6.33%      6.53%        6.49%
                                                                =========   =========  =========  =========    =========

Ratios Based on     Total expenses                                   .66%        .65%       .63%       .64%         .64%
Total Average Net                                               =========   =========  =========  =========    =========
Assets:**++         Total investment income--net                    5.56%       5.17%      5.26%      5.48%        5.64%
                                                                =========   =========  =========  =========    =========

Ratios Based on     Dividends to Preferred Stock shareholders       4.12%       2.55%      2.66%      3.02%        3.63%
Average Net                                                     =========   =========  =========  =========    =========
Assets of
Preferred Stock:

Supplemental        Net assets, net of Preferred Stock,
Data:               end of year (in thousands)                   $501,361    $506,030   $611,222   $596,320     $581,124
                                                                =========   =========  =========  =========    =========
                    Preferred Stock outstanding, end of year
                    (in thousands)                               $250,000    $250,000   $250,000   $250,000     $250,000
                                                                =========   =========  =========  =========    =========
                    Portfolio turnover                            103.44%      78.42%     91.63%    111.45%       96.74%
                                                                =========   =========  =========  =========    =========

Leverage:           Asset coverage per $1,000                    $  3,005    $  3,024   $  3,445   $  3,385     $  3,324
                                                                =========   =========  =========  =========    =========

Dividends           Series A--Investment income--net             $  1,052   $     588  $     694  $     747    $     894
Per Share on                                                    =========   =========  =========  =========    =========
Preferred Stock     Series B--Investment income--net             $  1,009   $     595  $     687  $     751    $     897
Outstanding:                                                    =========   =========  =========  =========    =========
                    Series C--Investment income--net             $  1,032   $     687  $     643  $     763    $     998
                                                                =========   =========  =========  =========    =========
                    Series D--Investment income--net             $  1,035   $     694  $     637  $     762    $     888
                                                                =========   =========  =========  =========    =========
                    Series E--Investment income--net             $  1,038   $     627  $     656  $     752    $     875
                                                                =========   =========  =========  =========    =========

   * Total investment returns based on market value, which can be
     significantly greater or lesser than the net asset value, may
     result in substantially different returns. Total investment
     returns exclude the effects of sales charges.
  ** Do not reflect the effect of dividends to Preferred Stock
     shareholders.
  ++ Includes Common and Preferred Stock average net assets.
++++ Amount is less than $.01 per share.

See Notes to Financial Statements.


                                 F-12










MuniYield Fund, Inc.,                                           October 31, 2000

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies:

MuniYield Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in
conformity with accounting principles generally accepted in the
United States of America, which may require the use of management
accruals and estimates. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly
basis. The Fund's Common Stock is listed on the New York Stock
Exchange under the symbol MYD. The following is a summary of
significant accounting policies followed by the Fund.

(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing price as of the close of such
exchanges. Options written or purchased are valued at the last sale
price in the case of exchange-traded options. In the case of options
traded in the over-counter-market, valuation is the last asked price
(options written) or the last bid price (options purchased).
Securities with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund,
including valuations furnished by a pricing service retained by the
Fund, which may utilize a matrix system for valuations. The pro-
cedures of the pricing service and its valuations are reviewed by
the officers of the fund under the general supervision of the Board
of Directors.

(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. Losses may arise due to
changes in the value of the contract or if the counterparty does not
perform under the contract.

* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.

* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected
as an asset and an equivalent liability. The amount of the liability
is subsequently marked to market to reflect the current market value
of the option written.

When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).

Written and purchased options are non-income producing investments.

(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.

(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.

(e) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for futures transactions.


2. Investment Advisory Agreement and Transactions
with Affiliates:

The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.


                                 F-13










MuniYield Fund, Inc.,                                           October 31, 2000

NOTES TO FINANCIAL STATEMENTS (concluded)

FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of .50% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Stock.

Accounting services are provided to the Fund by FAM at cost.

Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.


3. Investments:

Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 2000 were $747,038,221 and
$762,952,578, respectively.

Net realized losses for the year ended October 31, 2000 and net
unrealized losses as of October 31, 2000 were as follows:

                                     Realized     Unrealized
                                      Losses        Losses

Long-term investments           $(36,233,144)  $   (786,285)
Financial futures contracts       (1,422,326)             --
                                 ------------   ------------
Total                           $(37,655,470)  $   (786,285)
                                 ============   ============

As of October 31, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $786,285 of which $20,839,622 related
to appreciated securities and $21,625,907 related to depreciated
securities. The aggregate cost of investments at October 31, 2000
for Federal income tax purposes was $740,323,387.


4. Capital Stock Transactions:

The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.

Common Stock

Shares issued and outstanding during the year ended October 31, 2000
remained constant and during the year ended October 31, 1999,
increased by 742,979 as a result of dividend reinvestment.

Preferred Stock

Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.05 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yields in effect at October
31, 2000 were as follows: Series A, 4.20%; Series B, 4.20%; Series
C, 4.16%, Series D, 4.20%; and Series E, 4.13%.

Shares issued and outstanding during the years ended October 31,
2000 and October 31, 1999 remained constant.

The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the year ended
October 31, 2000, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $260,297 as commissions.


5. Capital Loss Carryforward:

At October 31, 2000, the Fund had a net capital loss carryforward of
approximately $47,781,000, of which $6,930,000 expires in 2007 and
$40,851,000 expires in 2008. This amount will be available to offset
like amounts of any future taxable gains.


6. Subsequent Event:

On November 8, 2000, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.071400 per share, payable on November 29, 2000 to shareholders
of record as of November 20, 2000.


                                 F-14

Unaudited Financial Statements for MuniYield Fund, Inc.
for the Six Months Ended April 30, 2001

F-15


MuniYield Fund, Inc.,                                   April 30, 2001

SCHEDULE OF INVESTMENTS                                                                                     (in Thousands)

            S&P      Moody's   Face
STATE       Ratings  Ratings  Amount  Issue                                                                         Value

Alaska--0.7%   NR*    NR*   $ 5,050  Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Amerada Hess
                                     Pipeline Corporation), 6.10% due 2/01/2024                                  $  5,014

Arizona--1.7%  AAA    Aaa     1,460  Arizona State Wastewater Management Authority, Wastewater Treatment
                                     Financial Assistance Revenue Bonds, Series A, 5.60% due 7/01/2006 (b)(c)       1,593
                                     Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
                                     (America West Airlines Inc. Project), AMT:
               NR*    B3      8,000    6.25% due 6/01/2019                                                          6,800
               NR*    B3      5,300    6.30% due 4/01/2023                                                          4,465

California     AAA    NR*     4,000  California State, GO, Refunding, 5.75% due 12/01/2011 (e)                      4,366
- --0.6%

Colorado       NR*    Aaa     4,680  Broomfield, Colorado, COP (Open Space Park and Recreational
- --2.9%                               Facilities), 5.75% due 12/01/2015 (c)                                          4,948
                                     Denver, Colorado, City and County Airport Revenue Bonds, AMT,
                                     Series D:
               A      Aaa       700    7.75% due 11/15/2001 (b)                                                       731
               A      A2      8,000    7.75% due 11/15/2013                                                         9,656
               NR*    NR*     5,000  Denver, Colorado, Urban Renewal Authority, Tax Increment
                                     Revenue Bonds (Pavilions), AMT, 7.75% due 9/01/2016                            5,291
                                     Mountain Village Metropolitan District, Colorado, San Miguel
                                     County, GO, Refunding:
               NR*    NR*       690    7.95% due 12/01/2003                                                           716
               NR*    NR*       240    7.95% due 12/01/2003 (b)                                                       259

Connecticut    BBB    Baa2   22,000  Connecticut State Development Authority, PCR, Refunding
- --3.5%                               (Connecticut Light and Power Company), Series A, 5.85% due
                                     9/01/2028                                                                     21,528
               AA     Aa2     4,000  Connecticut State, GO, Refunding, Series C, 5.375% due 12/15/2013              4,210

Florida        NR*    NR*    12,000  Hillsborough County, Florida, IDA, Exempt Facilities Revenue
- --2.9%                               Bonds (National Gypsum), AMT, Series A, 7.125% due 4/01/2030                   6,840
               AAA    Aaa    15,000  Pinellas County, Florida, Housing Authority, Housing Revenue Bonds
                                     (Affordable Housing Program), 4.60% due 12/01/2010 (i)                        15,011

Georgia--1.8%  AAA    Aaa    12,140  Atlanta, Georgia, Airport Revenue Refunding Bonds, Series A, 5.875%
                                     due 1/01/2016 (h)                                                             13,002
               A1     VMIG1++   400  Monroe County, Georgia, Development Authority, PCR, Refunding
                                     (Georgia Power Company Plant--Scherer), VRDN, 4.40% due 9/01/2029 (a)            400

Idaho--0.3%    AA     NR*     2,450  Idaho Housing Agency, S/F Mortgage Revenue Refunding Bonds, AMT,
                                     Senior Series C-2, 7.15% due 7/01/2023                                         2,507

Illinois       AAA    Aaa    10,000  Chicago, Illinois, GO, Series A, 6.75% due 7/01/2010 (b)(h)                   11,757
- --6.2%         NR*    Aaa     2,465  Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT, Series B,
                                     7.625% due 9/01/2027 (f)(g)(l)                                                 2,813
               BBB+   Baa1    2,750  Illinois Development Finance Authority, PCR, Refunding (Illinois
                                     Power Company Project), Series A, 7.375% due 7/01/2021                         2,988

PORTFOLIO ABBREVIATIONS

To simplify the listings of MuniYield Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the
names of many of the securities according to the list at right.

AMT          Alternative Minimum Tax
               (subject to)
COP          Certificates of Participation
DATES        Daily Adjustable Tax-Exempt
               Securities
DRIVERS      Derivative Inverse Tax-Exempt Receipts
EDA          Economic Development Authority
GO           General Obligation Bonds
HDA          Housing Development Authority
HFA          Housing Finance Agency
IDA          Industrial Development Authority
IDR          Industrial Development Revenue Bonds
INFLOS       Inverse Floating Rate Municipal Bonds
PCR          Pollution Control Revenue Bonds
RITR         Residual Interest Trust Receipts
S/F          Single-Family
VRDN         Variable Rate Demand Notes


                                 F-16










MuniYield Fund, Inc.,                                   April 30, 2001

SCHEDULE OF INVESTMENTS (continued)                                                                         (in Thousands)

            S&P      Moody's   Face
STATE       Ratings  Ratings  Amount  Issue                                                                         Value

Illinois       NR*    NR*   $ 2,500  Illinois Educational Facilities Authority, Revenue Refunding Bonds
(concluded)                          (Chicago Osteopathic Health System), 7.25% due 11/15/2019 (b)               $  3,021
                                     Illinois State, GO, First Series (e):
               AAA    Aaa     7,000    5.75% due 12/01/2013                                                         7,495
               AAA    Aaa     7,500    5.75% due 12/01/2014                                                         7,971
               AAA    Aaa     8,000  Metropolitan Pier and Exposition Authority, Illinois, Hospitality
                                     Facilities Revenue Bonds (McCormick Place Convention Center), 7%
                                     due 7/01/2026 (m)                                                              9,839

Indiana        BB-    Ba2     3,500  East Chicago, Indiana, Solid Waste Disposal Revenue Bonds (USG
- --0.2%                               Corporation Project), AMT, 6.375% due 8/01/2029                                1,540

Kentucky       NR*    A3      4,000  Perry County, Kentucky, Solid Waste Disposal Revenue Bonds (TJ
- --0.6%                               International Project), AMT, 7% due 6/01/2024                                  4,165

Louisiana      NR*    A3     20,000  Lake Charles, Louisiana, Harbor and Terminal District, Port
- --7.0%                               Facilities Revenue Refunding Bonds (Trunkline Long Company
                                     Project), 7.75% due 8/15/2022                                                 21,298
               AAA    Aaa    11,100  Louisiana State, GO, Series A, 6% due 5/15/2014 (e)                           11,899
               BB-    NR*    20,000  Port New Orleans, Louisiana, IDR, Refunding (Continental
                                     Grain Company Project), 6.50% due 1/01/2017                                   18,752

Maryland       NR*    NR*     7,050  Maryland State Energy Financing Administration, Limited
- --1.0%                               Obligation Revenue Bonds (Cogeneration-AES Warrior Run), AMT,
                                     7.40% due 9/01/2019                                                            7,257

Massachusetts                        Massachusetts GO, Consolidated Loan:
- --4.5%         AA-    Aa2    14,035    Series B, 5.75% due 6/01/2012                                               15,146
               AA-    Aa2     4,000    Series C, 5.75% due 10/01/2011                                               4,384
               A      NR*    11,030  Massachusetts State Health and Educational Facilities Authority
                                     Revenue Bonds (Schepens Eye Research Project), Series A, 6.50%
                                     due 7/01/2028                                                                 11,390
               NR*    Aaa     2,575  Tantasqua, Massachusetts, Regional School District, GO, 5%
                                     due 8/15/2017 (i)                                                              2,552

Michigan       NR*    P1      4,400  Delta County, Michigan, Economic Development Corporation,
- --1.0%                               Environmental Improvement Revenue Refunding Bonds (Mead-Escanaba
                                     Paper), DATES, Series F, 4.40% due 12/01/2013 (a)                              4,400
               AAA    Aaa     3,100  Michigan State Hospital Finance Authority, Revenue Refunding Bonds,
                                     INFLOS, 8.311% due 2/15/2022 (i)(k)                                            3,294

Minnesota      AA+    Aa1     2,415  Minnesota State, HFA, S/F Mortgage Revenue Bonds, AMT, Series A,
- --0.3%                               7.05% due 7/01/2022                                                            2,448

Mississippi    A      A3     16,800  Lowndes County, Mississippi, Solid Waste Disposal and PCR, Refunding
- --4.1%                                (Weyerhaeuser Company Project), Series A, 6.80% due 4/01/2022                18,646
               AA     Aa3    11,380  Mississippi State, GO, Capital Improvement, 5.75% due 11/01/2014              12,152

Missouri                             Fenton, Missouri, Tax Increment Revenue Refunding and Improvement
- --1.2%                               Bonds (Gravois Bluffs):
               NR*    NR*     1,805    6.75% due 10/01/2015                                                         1,813
               NR*    NR*     2,800    7% due 10/01/2021                                                            2,830
               AAA    NR*     3,725  Missouri State Housing Development Commission, S/F Mortgage Revenue
                                     Bonds, Homeownership, AMT, Series B, 7.55% due 9/01/2027 (f)(g)                3,987

New Jersey--5.4%                       New Jersey EDA, Construction Revenue Bonds, GO (School Facilities),
                                       Series A (c):
               AAA    Aaa     5,000    5.50% due 6/15/2012                                                          5,375
               AAA    Aaa     5,000    5.50% due 6/15/2013                                                          5,366
                                     New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines
                                     Inc. Project), AMT:
               BB     Ba2     2,000    6.25% due 9/15/2019                                                          1,892
               BB     Ba2     8,400    5.50% due 4/01/2028                                                          7,028
               BB     Ba2     5,180    6.25% due 9/15/2029                                                          4,814


                                 F-17










MuniYield Fund, Inc.,                                   April 30, 2001

SCHEDULE OF INVESTMENTS (continued)                                                                         (in Thousands)

            S&P      Moody's   Face
STATE       Ratings  Ratings  Amount  Issue                                                                         Value

New Jersey     BB     Ba2   $ 3,750    7% due 11/15/2030                                                         $  3,800
(concluded)    BB     Ba2     6,750    7.20% due 11/15/2030                                                         6,966
               AAA    Aaa     4,450  New Jersey EDA, Water Facilities Revenue Bonds (New Jersey American
                                     Water Company Inc. Project), AMT, 6.50% due 4/01/2022 (h)                      4,592
               BBB-   Baa3      390  New Jersey Health Care Facilities Financing Authority, Revenue
                                     Refunding Bonds (Saint Elizabeth Hospital Obligation Group), 6%
                                     due 7/01/2027 (e)                                                                323

New York       AAA    Aaa     1,865  Dutchess County, New York, Resource Recovery Agency Revenue
- --22.9%                              Bonds (Solid Waste System), Series A, 5.25% due 1/01/2011 (e)                  1,957
               A1+   VMIG1++  5,000  Long Island Power Authority, New York, Electric System Revenue
                                     Bonds, VRDN, Sub-Series 6, 3.80% due 5/01/2033 (a)                             5,000
               NR*    Aaa     5,595  Metropolitan Transportation Authority, New York, Commuter Facilities
                                     Revenue Bonds, RITR, Series 9, 7.77% due 7/01/2006 (b)(h)(k)                   6,948
               NR*    A       5,500  New York City, New York, City IDA, Special Facilities Revenue
                                     Bonds, RITR, AMT, Series RI-5, 7.295% due 1/01/2024 (k)                        5,879
               AAA    Aaa    10,000  New York City, New York, City Municipal Water Finance Authority,
                                     Water and Sewer System Revenue Bonds, Series B, 5.75% due
                                     6/15/2026 (e)                                                                 10,295
                                     New York City, New York, City Transitional Finance Authority
                                     Revenue Bonds:
               AA+    Aa2     9,000    Future Tax Secured, Series B, 4.75% due 11/01/2023                           8,167
               AA+    Aa2    10,000    Future Tax Secured, Series B, 4.75% due 11/15/2023                           9,069
               AA+    Aa2     2,000    Future Tax Secured, Series C, 4.75% due 5/01/2023                            1,824
               AAA    Aaa    11,765    Series C, 5% due 5/01/2029 (e)                                              11,106
                                     New York City, New York, GO:
               A      A2      4,700    Series B, 5.75% due 8/01/2014                                                5,003
               A      Aaa       385    Series C, Sub-Series C-1, 7.50% due 8/01/2002 (b)                              410
               AAA    Aaa    10,000  New York City, New York, GO, Refunding, Trust Receipts, Series R,
                                     8.272% due 5/15/2014 (h)(k)                                                   12,599
                                     New York State Dormitory Authority, Service Contract Revenue Bonds
                                     (School District Rescue), Series A:
               AA-    NR*     1,410    5.75% due 4/01/2010                                                          1,545
               AA-    NR*     1,145    5.75% due 4/01/2011                                                          1,256
                                     New York State Dormitory Authority, State University Educational
                                     Facilities Revenue Refunding Bonds, Series 1989 (e):
               AAA    NR*     7,500    6% due 5/15/2015                                                             8,203
               AAA    NR*     3,750    6% due 5/15/2016                                                             4,084
               AA+    Aa1    17,575  New York State Environmental Facilities Corporation, PCR, Refunding,
                                     RITR, Class R, Series 9, 7.198% due 6/15/2014 (k)                             19,389
               AA+    Aa1     5,260  New York State Environmental Facilities Corporation, PCR, Refunding,
                                     State Water Revolving Fund (New York City Municipal Water), 5.75%
                                     due 6/15/2012                                                                  5,767
               AAA    Aaa     9,000  Port Authority of New York and New Jersey, Consolidated Revenue
                                     Bonds, 116th Series, 4.25% due 10/01/2026 (h)                                  7,601
               AAA    NR*     4,360  Port Authority of New York and New Jersey Revenue Refunding Bonds,
                                     DRIVERS, AMT, Series 177, 7.67% due 10/15/2032 (e)(k)                          4,887
               AAA    Aaa    38,300  Port Authority of New York and New Jersey, Special Obligation
                                     Revenue Bonds (JFK International Air Terminal Project), AMT,
                                     Series 6, 5.75% due 12/01/2025 (e)                                            39,460

North          BBB    Baa3    4,750  North Carolina Eastern Municipal Power Agency, Power System
Carolina                             Revenue Bonds, Series D, 6.75% due 1/01/2026                                   4,980
- --0.8%         AA     Aa2     1,000  North Carolina HFA, Home Ownership Revenue Bonds, AMT, Series 8-A,
                                     6.20% due 7/01/2016                                                            1,049

Ohio--2.2%                           Cuyahoga County, Ohio, Mortgage Revenue Bonds (West Tech
                                     Apartments Project), AMT (g):
               NR*    Aaa     1,410    5.75% due 9/20/2020                                                          1,422
               NR*    Aaa     2,250    5.85% due 9/20/2030                                                          2,270
               NR*    Aa1     2,000  Dublin, Ohio, GO, Refunding and Improvement, Series A, 4.625%
                                     due 12/01/2018                                                                 1,833


                                 F-18










MuniYield Fund, Inc.,                                   April 30, 2001

SCHEDULE OF INVESTMENTS (continued)                                                                         (in Thousands)

            S&P      Moody's   Face
STATE       Ratings  Ratings  Amount  Issue                                                                         Value

               NR*    NR*   $ 2,175  Lucas County, Ohio, Health Care Facility Revenue Refunding and
                                     Improvement Bonds (Sunset Retirement Communities), Series A, 6.625%
                                     due 8/15/2030                                                               $  2,205
               BBB    Ba2    19,000  Ohio State Solid Waste Disposal Revenue Bonds (USG Corporation
                                     Project), AMT, 5.60% due 8/01/2032                                             8,360

Oklahoma       AAA    NR*     3,250  Holdenville, Oklahoma, Industrial Authority, Correctional
- --0.5%                               Facility Revenue Bonds, 6.70% due 7/01/2006 (b)(j)                             3,666

Oregon--2.7%   AAA    Aaa    14,000  Oregon Health Sciences University Revenue Refunding Bonds, Series A,
                                     5.16%** due 7/01/2021 (e)                                                      4,533
                                     Oregon State Department of Administrative Services, COP, Series A (c):
               AAA    Aaa     4,405    6% due 5/01/2015                                                             4,933
               AAA    Aaa     3,500    6% due 5/01/2016                                                             3,920
               AA     Aa2     7,000  Oregon State, GO, Refunding (Veterans Welfare), Series 80A, 5.70%
                                     due 10/01/2032                                                                 7,104

Pennsylvania   AAA    Aaa     5,000  Lehigh County, Pennsylvania, IDA, PCR, Refunding (Pennsylvania
- --8.8%                               Power and Light Company Project), Series B, 6.40% due 9/01/2029 (e)            5,278
               AAA    Aaa     9,675  Pennsylvania Convention Center Revenue Refunding Bonds, Series A,
                                     6.70% due 9/01/2014 (e)                                                       10,631
                                     Pennsylvania Economic Development Financing Authority, Exempt
                                     Facilities Revenue Bonds (National Gypsum Company), AMT:
               NR*    NR*    17,100    Series A, 6.25% due 11/01/2027                                               8,978
               NR*    NR*     2,000    Series B, 6.125% due 11/01/2027                                              1,030
               AA+    Aa2     5,135  Pennsylvania HFA, S/F Mortgage Refunding Bonds, AMT, Series 42,
                                     6.85% due 4/01/2025                                                            5,383
               AAA    Aaa    16,270  Pennsylvania State Higher Educational Facilities Authority,
                                     Health Services Revenue Refunding Bonds (Allegheny Delaware
                                     Valley Obligation), Series C, 5.875% due 11/15/2016 (e)                       16,865
                                     Philadelphia, Pennsylvania, IDR, Refunding, Authority for
                                     Commercial Development:
               NR*    NR*     3,650    (Days Inn), Series B, 6.50% due 10/01/2027                                   3,550
               NR*    NR*     3,000    (Doubletree), Series A, 6.50% due 10/01/2027                                 2,918
               AAA    Aaa    10,000  Washington County, Pennsylvania, Capital Funding Authority
                                     Revenue Bonds (Capital Projects and Equipment Program), 6.15%
                                     due 12/01/2029 (c)                                                            11,101

Rhode          AAA    Aaa       920  Cranston, Rhode Island, GO, Refunding, 5.25% due 7/01/2015 (e)                   936
Island--1.1%                         Rhode Island State Health and Educational Building Corporation,
                                     Higher Education Revenue Bonds (Roger Williams University):
               AA     NR*     2,750    5.375% due 11/15/2022                                                        2,663
               AA     NR*     2,250    5.50% due 11/15/2030                                                         2,189
                                     Woonsocket, Rhode Island, GO (h):
               NR*    Aaa     1,225    6% due 10/01/2017                                                            1,325
               NR*    Aaa     1,195    6% due 10/01/2018                                                            1,289

South          BBB+   Baa1    2,500  Richland County, South Carolina, PCR, Refunding (Union Camp
Carolina                             Corporation Project), Series C, 6.55% due 11/01/2020                           2,554
- --0.3%

South          BBB+   Baa3      900  South Dakota State Health and Educational Facilities Authority,
Dakota--0.1%                         Revenue Refunding Bonds (Prairie Lakes), 7.25% due 4/01/2022                     912

Tennessee                            Elizabethton, Tennessee, Health and Educational Facilties Board,
- --1.3%                               Hospital Revenue Refunding and Improvement Bonds, First Mortgage,
                                     Series B (e):
               AAA    Aaa     2,005    6% due 7/01/2011                                                             2,193
               AAA    Aaa     2,125    6% due 7/01/2012                                                             2,326
               AAA    Aaa     2,255    6.25% due 7/01/2013                                                          2,514
               NR*    NR*     3,000  Hardeman County, Tennessee, Correctional Facilities Corporation
                                     Revenue Bonds, 7.75% due 8/01/2017                                             2,979


                                 F-19










MuniYield Fund, Inc.,                                   April 30, 2001

SCHEDULE OF INVESTMENTS (continued)                                                                         (in Thousands)

            S&P      Moody's   Face
STATE       Ratings  Ratings  Amount  Issue                                                                         Value

Texas--6.5%    AAA    Aaa   $ 3,515  Denton, Texas, Utility System Revenue Refunding and Improvement
                                     Bonds, 5.125% due 12/01/2018 (c)                                            $  3,414
                                     Gregg County, Texas, Health Facilities Development Corporation,
                                     Hospital Revenue Bonds (Good Shepherd Medical Center Project):
               AA     NR*     3,000    6.875% due 10/01/2020                                                        3,290
               AA     NR*     2,000    6.375% due 10/01/2025                                                        2,102
               AA-    Aa3     5,000  Guadalupe-Blanco River Authority, Texas, Sewage and Solid Waste
                                     Disposal Facility Revenue Bonds (E.I. du Pont de Nemours and
                                     Company Project), AMT, 6.40% due 4/01/2026                                     5,232
                                     Harris County, Texas, Health Facilities Development Corporation,
                                     Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN (a):
               A1+    NR*     6,800    4.35% due 12/01/2025                                                         6,800
               A1+    NR*     2,700    4.50% due 12/01/2026                                                         2,700
                                     Houston, Texas, Airport System, Special Facilities Revenue Bonds
                                     (Continental Airlines Terminal Improvement), AMT:
               BB     Ba1     4,500    Series B, 6.125% due 7/15/2027                                               4,022
               BB     Ba1     1,250    Series C, 6.125% due 7/15/2027                                               1,117
                                     Lower Colorado River Authority, Texas, PCR (Samsung Austin
                                     Semiconductor), AMT:
               BBB-   Baa3    6,200    6.375% due 4/01/2027                                                         6,080
               BBB-   Baa3    4,000    6.95% due 4/01/2030                                                          4,117
                                     San Antonio, Texas, Water Revenue Refunding Bonds:
               AA-    Aa3     1,000    5.875% due 5/15/2016                                                         1,055
               AA-    Aa3     1,000    5.875% due 5/15/2017                                                         1,050
               AAA    Aaa     7,020  Tyler, Texas, Waterworks and Sewer Revenue Bonds, 5.70% due
                                     9/01/2030 (h)                                                                  7,141

Utah--0.3%     AAA    Aaa     1,545  Utah State Board of Regents Revenue Refunding Bonds (University
                                     of Utah Research Facilities), Series A, 5.50% due 4/01/2018 (e)                1,570
               AAA    NR*       510  Utah State, HFA, S/F Mortgage Revenue Bonds, AMT, Senior-Series
                                     E-2, 7.15% due 7/01/2024 (d)                                                     521

Virginia       NR*    NR*     8,650  Peninsula Ports Authority, Virginia, Revenue Refunding Bonds
- --1.9%                               (Port Facility--Zeigler Coal), 6.90% due 5/02/2022 (n)                         3,806
               NR*    NR*     1,000  Pittsylvania County, Virginia, IDA, Revenue Refunding Bonds,
                                     Exempt-Facility, AMT, Series A, 7.55% due 1/01/2019                              941
                                     Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds,
                                     Senior Series B:
               BBB-   Baa3    9,100    5.90%** due 8/15/2019                                                        2,558
               BBB-   Baa3   12,840    7.35%** due 8/15/2029                                                        1,779
               AA+    Aa1     5,125  Virginia State, HDA, Commonwealth Mortgage Revenue Bonds,
                                     Series A, 7.10% due 1/01/2025                                                  5,267

West           NR*    A3      3,000  Upshur County, West Virginia, Solid Waste Disposal Revenue
Virginia                             Bonds (TJ International Project), AMT, 7% due 7/15/2025                        3,146
- --0.4%

Wisconsin      AAA    Aaa     3,585  Wisconsin State, GO, AMT, Series B, 6.20% due 11/01/2026 (e)                   3,721
- --0.7%         AA     NR*     1,385  Wisconsin State Health and Educational Facilties Authority
                                     Revenue Bonds (Howard Young Medical Center Inc. Project), 5.125%
                                     due 8/15/2028                                                                  1,237


                                 F-20










MuniYield Fund, Inc.,                                   April 30, 2001

SCHEDULE OF INVESTMENTS (concluded)                                                                         (in Thousands)

            S&P      Moody's   Face
STATE       Ratings  Ratings  Amount  Issue                                                                         Value

Puerto         AAA    Aaa   $12,500  Puerto Rico Commonwealth, Highway and Transportation Authority,
Rico--2.3%                           Transportation Revenue Bonds, Trust Receipts, Class R, Series B,
                                     7.372% due 7/01/2035 (e)(k)                                                 $ 14,252
               AAA    Aaa     2,500  Puerto Rico Electric Power Authority, Power Revenue Bonds, Trust
                                     Receipts, Class R, Series 16 HH, 7.122% due 7/01/2013 (k)                      2,899


               Total Investments (Cost--$742,398)--98.7%                                                          735,485

               Other Assets Less Liabilities--1.3%                                                                  9,924
                                                                                                                 --------
               Net Assets--100.0%                                                                                $745,409
                                                                                                                 ========



(a)  The interest rate is subject to change periodically based upon
     prevailing market rates. The interest rate shown is the rate in
     effect at April 30, 2001.
(b)  Prerefunded.
(c)  AMBAC Insured.
(d)  FHA Insured.
(e)  MBIA Insured.
(f)  FNMA Collateralized.
(g)  GNMA Collateralized.
(h)  FGIC Insured.
(i)  FSA Insured.
(j)  Connie Lee Insured.
(k)  The interest rate is subject to change periodically and inversely
     based upon prevailing market rates. The interest rate shown is
     the rate in effect at April 30, 2001.
(l)  FHLMC Collateralized.
(m)  Escrowed to maturity.
(n)  Non-income producing security.
  *  Not Rated.
 **  Represents a zero coupon bond; the interest rate shown reflects
     the effective yield at the time of purchase by the Fund.
 ++  Highest short-term rating by Moody's Investors Service, Inc.

See Notes to Financial Statements.


                                 F-21










MuniYield Fund, Inc.,                                   April 30, 2001

STATEMENT OF ASSETS, LIABILITIES AND CAPITAL

                    As of April 30, 2001

Assets:             Investments, at value (identified cost--$742,397,615)                                   $735,484,577
                    Cash                                                                                          36,465
                    Receivables:
                      Interest                                                             $ 13,291,362
                      Securities sold                                                           351,866       13,643,228
                                                                                           ------------
                    Prepaid expenses and other assets                                                             87,775
                                                                                                            ------------
                    Total assets                                                                             749,252,045
                                                                                                            ------------

Liabilities:        Payables:
                      Securities purchased                                                    3,441,463
                      Investment adviser                                                        301,380
                      Dividends to shareholders                                                  45,650        3,788,493
                                                                                           ------------
                    Accrued expenses and other liabilities                                                        54,612
                                                                                                            ------------
                    Total liabilities                                                                          3,843,105
                                                                                                            ------------

Net Assets:         Net assets                                                                              $745,408,940
                                                                                                            ============

Capital:            Capital Stock (200,000,000 shares authorized):
                      Preferred Stock, par value $.05 per share (10,000 shares of
                      AMPS* issued and outstanding at $25,000 per share liquidation
                      preference)                                                                           $250,000,000
                      Common Stock, par value $.10 per share (38,482,330 shares
                      issued and outstanding)                                              $  3,848,233
                    Paid-in capital in excess of par                                        541,046,599
                    Undistributed investment income--net                                      6,673,054
                    Accumulated realized capital losses on investments--net                (38,225,209)
                    Accumulated distributions in excess of realized capital gains
                    on investments--net                                                    (11,020,699)
                    Unrealized depreciation on investments--net                             (6,913,038)
                                                                                           ------------
                    Total--Equivalent to $12.87 net asset value per share of Common
                    Stock (market price--$13.45)                                                             495,408,940
                                                                                                            ------------
                    Total capital                                                                           $745,408,940
                                                                                                            ============

                   *Auction Market Preferred Stock.


                    See Notes to Financial Statements.

STATEMENT OF OPERATIONS

                    For the Six Months Ended April 30, 2001

Investment          Interest and amortization of premium and discount earned                                $ 22,320,219
Income:

Expenses:           Investment advisory fees                                               $  1,877,871
                    Commission fees                                                             307,837
                    Accounting services                                                         124,737
                    Professional fees                                                            41,167
                    Printing and shareholder reports                                             39,868
                    Transfer agent fees                                                          32,517
                    Custodian fees                                                               27,344
                    Directors' fees and expenses                                                 19,946
                    Listing fees                                                                 19,747
                    Pricing fees                                                                 10,949
                    Other                                                                        16,994
                                                                                           ------------
                    Total expenses                                                                             2,518,977
                                                                                                            ------------
                    Investment income--net                                                                    19,801,242
                                                                                                            ------------
Realized &          Realized loss on investments--net                                                          (569,739)
Unrealized          Change in unrealized depreciation on investments--net                                    (6,126,753)
Loss on                                                                                                     ------------
Investments         Net Increase in Net Assets Resulting from Operations                                    $ 13,104,750
- --Net:                                                                                                      ============
                    See Notes to Financial Statements.


                                 F-22










MuniYield Fund, Inc.,                                   April 30, 2001

STATEMENTS OF CHANGES IN NET ASSETS

                                                                                           For the Six        For the
                                                                                           Months Ended      Year Ended
                                                                                            April 30,       October 31,
                    Increase (Decrease) in Net Assets:                                         2001             2000

Operations:         Investment income--net                                                 $ 19,801,242     $ 41,759,142
                    Realized loss on investments--net                                         (569,739)     (37,655,470)
                    Change in unrealized appreciation/depreciation on
                    investments--net                                                        (6,126,753)       34,881,965
                                                                                           ------------     ------------
                    Net increase in net assets resulting from operations                     13,104,750       38,985,637
                                                                                           ------------     ------------

Dividends to        Investment income--net:
Shareholders:         Common Stock                                                         (16,433,634)     (33,320,553)
                      Preferred Stock                                                       (4,813,082)     (10,334,350)
                                                                                           ------------     ------------
                    Net decrease in net assets resulting from dividends to
                    shareholders                                                           (21,246,716)     (43,654,903)
                                                                                           ------------     ------------

Capital Stock       Value of shares issued to Common Stock shareholders
Transactions:       in reinvestment of dividends                                              2,189,839               --
                                                                                           ------------     ------------

Net Assets:         Total decrease in net assets                                            (5,952,127)      (4,669,266)
                    Beginning of period                                                     751,361,067      756,030,333
                                                                                           ------------     ------------

                    End of period*                                                         $745,408,940     $751,361,067
                                                                                           ============     ============

                    *Undistributed investment income--net                                  $  6,673,054     $  8,118,528
                                                                                           ============     ============

                    See Notes to Financial Statements.


                                 F-23










MuniYield Fund, Inc.,                                   April 30, 2001

FINANCIAL HIGHLIGHTS

The following per share data and ratios have been derived        For the Six
from information provided in the financial statements.           Months Ended
                                                                  April 30,        For the Year Ended October 31,
Increase (Decrease) in Net Asset Value:                              2001       2000       1999        1998       1997

Per Share           Net asset value, beginning of period           $  13.08   $  13.21   $  16.27   $  16.09    $  15.68
Operating                                                          --------   --------   --------   --------    --------
Performance:        Investment income--net                              .52       1.09       1.12       1.19        1.24
                    Realized and unrealized gain (loss) on
                    investments--net                                  (.17)      (.08)     (2.34)        .49         .65
                                                                   --------   --------   --------   --------    --------
                    Total from investment operations                    .35       1.01     (1.22)       1.68        1.89
                                                                   --------   --------   --------   --------    --------
                    Less dividends and distributions to
                    Common Stock shareholders:
                      Investment income--net                          (.43)      (.87)      (.95)      (.97)      (1.00)
                                                                   --------   --------   --------   --------    --------
                      Realized gain on investments--net                  --         --      (.38)      (.26)       (.22)
                      In excess of realized gain on
                      investments--net                                   --         --      (.27)         --       (.01)
                                                                   --------   --------   --------   --------    --------
                    Total dividends and distributions to
                    Common Stock shareholders                         (.43)      (.87)     (1.60)     (1.23)      (1.23)
                                                                   --------   --------   --------   --------    --------
                    Effect of Preferred Stock activity:
                      Dividends and distributions to Preferred
                      Stock shareholders:
                        Investment income--net                        (.13)      (.27)      (.17)      (.18)       (.20)
                        Realized gain on investments--net                --         --      (.04)      (.09)       (.05)
                      In excess of realized gain on
                      investments--net                                   --         --      (.03)         --      --++++
                                                                   --------   --------   --------   --------    --------
                    Total effect of Preferred Stock
                    activity                                          (.13)      (.27)      (.24)      (.27)       (.25)
                                                                   --------   --------   --------   --------    --------
                    Net asset value, end of period                 $  12.87   $  13.08   $  13.21   $  16.27    $  16.09
                                                                   ========   ========   ========   ========    ========
                    Market price per share, end of period          $  13.45   $ 12.625   $ 12.875   $ 16.875    $ 15.875
                                                                   ========   ========   ========   ========    ========

Total Investment    Based on market price per share               10.05%+++      5.26%   (15.35%)     14.74%      15.56%
Return:**                                                          ========   ========   ========   ========    ========
                    Based on net asset value per share             1.64%+++      6.28%    (9.92%)      9.15%      11.11%
                                                                   ========   ========   ========   ========    ========

Ratios Based on     Total expenses***                                1.00%*       .99%       .93%       .89%        .91%
Average Net                                                        ========   ========   ========   ========    ========
Assets of           Total investment income--net***                  7.87%*      8.35%      7.42%      7.43%       7.81%
Common Stock:                                                      ========   ========   ========   ========    ========
                    Amount of dividends to Preferred
                    Stock shareholders                               1.91%*      2.07%      1.11%      1.10%       1.28%
                                                                   ========   ========   ========   ========    ========
                    Investment income--net, to Common
                    Stock shareholders                               5.96%*      6.28%      6.31%      6.33%       6.53%
                                                                   ========   ========   ========   ========    ========

Ratios Based on     Total expenses                                    .67%*       .66%       .65%       .63%        .64%
Total Average Net                                                  ========   ========   ========   ========    ========
Assets:***++        Total investment income--net                     5.27%*      5.56%      5.17%      5.26%       5.48%
                                                                   ========   ========   ========   ========    ========

Ratios Based on     Dividends to Preferred Stock shareholders        3.88%*      4.12%      2.55%      2.66%       3.02%
Average Net                                                        ========   ========   ========   ========    ========
Assets of
Preferred
Stock:

Supplemental        Net assets, net of Preferred Stock, end
Data:               of period (in thousands)                       $495,409  $ 501,361   $506,030   $611,222    $596,320
                                                                   ========   ========   ========   ========    ========
                    Preferred Stock outstanding, end of
                    period (in thousands)                          $250,000   $250,000   $250,000   $250,000    $250,000
                                                                   ========   ========   ========   ========    ========
                    Portfolio turnover                               36.66%    103.44%     78.42%     91.63%     111.45%
                                                                   ========   ========   ========   ========    ========

Leverage:           Asset coverage per $1,000                      $  2,982   $  3,005   $  3,024   $  3,445    $  3,385
                                                                   ========   ========   ========   ========    ========

Dividends           Series A--Investment income--net               $    450   $  1,052   $    588   $    694    $    747
Per Share on                                                       ========   ========   ========   ========    ========
Preferred Stock     Series B--Investment income--net               $    542   $  1,009   $    595   $    687    $    751
Outstanding:                                                       ========   ========   ========   ========    ========
                    Series C--Investment income--net               $    466   $  1,032   $    687   $    643    $    763
                                                                   ========   ========   ========   ========    ========
                    Series D--Investment income--net               $    468   $  1,035   $    694   $    637    $    762
                                                                   ========   ========   ========   ========    ========
                    Series E--Investment income--net               $    481   $  1,038   $    627   $    656    $    752
                                                                   ========   ========   ========   ========    ========

   * Annualized.

  ** Total investment returns based on market value, which can be significantly
     greater or lesser than the net asset value, may result in substantially
     different returns. Total investment returns exclude the effects of sales
     charges.

 *** Do not reflect the effect of dividends to Preferred Stock shareholders.

  ++ Includes Common and Preferred Stock average net assets.

++++ Amount is less than $.01 per share.

 +++ Aggregate total investment return.

See Notes to Financial Statements.


                                      F-24










MuniYield Fund, Inc.,                                   April 30, 2001

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies:

MuniYield Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in
conformity with accounting principles generally accepted in the
United States of America, which may require the use of management
accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal, recurring nature.The Fund
determines and makes available for publication the net asset value
of its Common Stock on a weekly basis. The Fund's Common Stock is
listed on the New York Stock Exchange under the symbol MYD. The
following is a summary of significant accounting policies followed
by the Fund.

(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing price as of the close of such
exchanges. Options written or purchased are valued at the last sale
price in the case of exchange-traded options. In the case of options
traded in the over-counter-market, valuation is the last asked price
(options written) or the last bid price (options purchased).
Securities with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund,
including valuations furnished by a pricing service retained by the
Fund, which may utilize 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 Board
of Directors.

(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. Losses may arise due to
changes in the value of the contract or if the counterparty does not
perform under the contract.

* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.

* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.

When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).

Written and purchased options are non-income producing investments.

(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.

(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Interest
income is recognized on the accrual basis. The Fund will adopt the
provisions to amortize all premiums and discounts on debt securities
effective November 1, 2001, as now required under the new AICPA
Audit and Accounting Guide for Investment Companies. The cumulative
effect of this accounting change will have no impact on the total
net assets of the Fund. The impact of this accounting change has not
been determined, but will result in an adjustment to the cost of
securities and a corresponding adjustment to net unrealized
appreciation/depreciation, based on debt securities held as of
October 31, 2001.

(e) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for futures transactions.

2. Investment Advisory Agreement and Transactions with
Affiliates:

The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.

FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a


                                      F-25










MuniYield Fund, Inc., April 30, 2001

NOTES TO FINANCIAL STATEMENTS

monthly fee at an annual rate of .50% of the Fund's average weekly net
assets, including proceeds from the issuance of Preferred Stock.

Prior to January 1, 2001, FAM provided accounting services to the
Fund at its cost and the Fund reimbursed FAM for these services. FAM
continues to provide certain accounting services to the Fund. The
Fund reimburses FAM at its cost for such services. For the six
months ended April 30, 2001, the Fund reimbursed FAM an aggregate of
$54,031 for the above-described services. The Fund entered into an
agreement with State Street Bank and Trust Company ("State Street"),
effective January 1, 2001, pursuant to which State Street provides
certain accounting services to the Fund. The Fund pays a fee for
these services.

Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.


3. Investments:

Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 2001 were $272,292,509 and
$263,056,593, respectively.

Net realized gains (losses) for the six months ended April 30, 2001
and net unrealized losses as of April 30, 2001 were as follows:

                                     Realized     Unrealized
                                  Gains (Losses)    Losses

Long-term investments            $     83,349   $ (6,913,038)
Financial futures contracts          (653,088)            --
                                 ------------   ------------
Total                            $   (569,739)  $ (6,913,038)
                                 ============   ============


As of April 30, 2001, net unrealized depreciation for Federal income
tax purposes aggregated $6,913,038, of which $27,184,243 related to
appreciated securities and $34,097,281 related to depreciated
securities. The aggregate cost of investments at April 30, 2001 for
Federal income tax purposes was $742,397,615.

4. Capital Stock Transactions:

The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.

Common Stock

Shares issued and outstanding during the six months ended April 30,
2001 increased by 165,227 as a result of dividend reinvestment and
during the year ended October 31, 2000, remained constant.

Preferred Stock

Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.05 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yields in effect at April
30, 2001 were as follows: Series A, 3.60%; Series B, 3.40%; Series
C, 3.80%, Series D, 3.80%; and Series E, 3.40%.

Shares issued and outstanding during the six months ended April 30,
2001 and during the year ended October 31, 2000 remained constant.

The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the six months ended
April 30, 2001, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
an affiliate of FAM, earned $139,830 as commissions.

5. Capital Loss Carryforward:

At October 31, 2000, the Fund had a net capital loss carryforward of
approximately $47,781,000, of which $6,930,000 expires in 2007 and
$40,851,000 expires in 2008. This amount will be available to offset
like amounts of any future taxable gains.

6. Subsequent Event:

On May 8, 2001, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.071400 per share, payable on May 30, 2001 to shareholders of
record as of May 16, 2001.


                                 F-26

Audited Financial Statements for Merrill Lynch Municipal Strategy Fund, Inc.
for the Year Ended October 31, 2000

F-27


Merrill Lynch Strategy Fund, Inc.                               October 31, 2000

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders,
Merrill Lynch Municipal Strategy Fund, Inc.:

We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of Merrill Lynch
Municipal Strategy Fund, Inc. as of October 31, 2000, the related
statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the four-year
period then ended and the period November 3, 1995 (commencement of
operations) to October 31, 1996. These financial statements and the
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at October 31, 2000 by
correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Municipal Strategy Fund, Inc. as of October 31, 2000,
the results of its operations, the changes in its net assets, and
the financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the
United States of America.

Deloitte & Touche LLP
Princeton, New Jersey
December 5, 2000


                                 F-28







Merrill Lynch Strategy Fund, Inc.                               October 31, 2000

SCHEDULE OF INVESTMENTS                                                                             (in Thousands)

                 S&P       Moody's    Face
STATE            Ratings   Ratings   Amount   Issue                                                          Value

Arizona--2.5%                                 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding
                                              Bonds (America West Airlines Inc. Project), AMT:
                   NR*      B1      $ 2,000      6.25% due 6/01/2019                                        $  1,788
                   NR*      B1        1,600      6.30% due 4/01/2023                                           1,425

California--8.2%   AAA      Aaa       8,000   California State University and Colleges, Student Union
                                              Revenue Bonds (Chico), Series B, 4.375% due 11/01/2028 (a)       6,642
                   AAA      Aaa       1,560   Centinela Valley, California, Union High School
                                              District, GO, Series A, 5.875% due 8/01/2024 (a)                 1,629
                                              Los Angeles County, California, Schools Regionalized
                                              Business Services, COP, Pooled Financing, Series A (c):
                   AAA      Aaa       1,430      5.90%** due 8/01/2019                                           505
                   AAA      Aaa       2,510      6%** due 8/01/2029                                              490
                   NR*      Aa3       1,250   Sacramento County, California, Sanitation District
                                              Financing Authority, Revenue Refunding Bonds, Trust Receipts,
                                              Class R, Series A, 7.829% due 12/01/2019 (e)                     1,368

Colorado--6.1%     NR*      Aaa       4,430   Broomfield, Colorado, Open Space Park and Recreational
                                              Facilities, COP, 5.75% due 12/01/2014 (c)                        4,655
                   AA       Aa2       1,500   Colorado HFA, Revenue Refunding Bonds (S/F Program),
                                              AMT, Series D-2, 6.90% due 4/01/2029                             1,653
                   NR*      NR*       1,500   Denver, Colorado, Urban Renewal Authority, Tax Increment
                                              Revenue Bonds (Pavilions), AMT, 7.75% due 9/01/2016              1,595

Connecticut--2.5%  NR*      NR*         750   Connecticut State Development Authority, IDR
                                              (AFCO Cargo BDL-LLC Project), AMT, 7.35% due 4/01/2010             761
                   NR*      Aaa       2,175   Connecticut State Special Tax Obligation Revenue Bonds,
                                              RIB, Series 372, 7.59% due 12/01/2017 (b)(e)                     2,446

Florida--1.8%      A1+      VMIG1++     200   Martin County, Florida, PCR, Refunding (Florida Power &
                                              Light Company Project), VRDN, 4.65% due 7/15/2022 (g)              200
                   NR*      B1        2,260   Palm Bay, Florida, Lease Revenue Refunding Bonds
                                              (Florida Education and Research Foundation Project),
                                              Series A, 6.85% due 9/01/2013                                    2,098

Georgia--2.5%      AAA      Aa2       3,250   Georgia State, HFA, S/F Mortgage Revenue
                                              Refunding Bonds, Series A, Sub-Series A-1, 6.125%
                                              due 12/01/2015 (h)                                               3,298

Illinois--4.1%     NR*      NR*         910   Beardstown, Illinois, IDR (Jefferson Smurfit Corp.
                                              Project), 8% due 10/01/2016                                        949
                   AAA      Aaa       3,285   Illinois Development Finance Authority Revenue Bonds
                                              (Presbyterian Home Lake Project), Series B, 6.30%
                                              due 9/01/2022 (d)                                                3,421
                   NR*      Ba3       1,250   Illinois Health Facilities Authority Revenue Bonds
                                              (Holy Cross Hospital Project), 6.70% due 3/01/2014               1,064

Indiana--2.2%      BBB      Baa1      3,000   Indiana State Development Finance Authority,
                                              Environmental Revenue Refunding and Improvement Bonds
                                              (USX Corporation Project), 6.15% due 7/15/2022                   2,862

Louisiana--2.9%    BB-      NR*       4,000   Port New Orleans, Louisiana, IDR, Refunding
                                              (Continental Grain Company Project), 6.50%
                                              due 1/01/2017                                                    3,770

Portfolio Abbreviations

To simplify the listings of Merrill Lynch Municipal Strategy Fund,
Inc.'s portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list below and at right.

AMT    Alternative Minimum Tax (subject to)
COP    Certificates of Participation
EDA    Economic Development Authority
GO     General Obligation Bonds
HFA    Housing Finance Agency
IDA    Industrial Development Authority
IDR    Industrial Development Revenue Bonds
PCR    Pollution Control Revenue Bonds
RIB    Residual Interest Bonds
RITR   Residual Interest Trust Receipts
S/F    Single-Family
VRDN   Variable Rate Demand Notes


                                 F-29










Merrill Lynch Strategy Fund, Inc.                               October 31, 2000

SCHEDULE OF INVESTMENTS (continued)                                                                  (in Thousands)

                 S&P       Moody's    Face
STATE            Ratings   Ratings   Amount   Issue                                                          Value

Maryland--2.3%     NR*      NR*     $ 3,000   Maryland State Energy Financing Administration,
                                              Limited Obligation Revenue Bonds (Cogeneration-AES
                                              Warrior Run), AMT, 7.40% due 9/01/2019                        $  3,039

Massachusetts      AAA      Aa1       1,600   Massachusetts Bay, Massachusetts, Transportation
- --6.4%                                        Authority, Revenue Refunding Bonds (Special Assessment),
                                              Series A, 5.25% due 7/01/2030                                    1,517
                   A        NR*       2,000   Massachusetts State Health and Educational Facilities
                                              Authority Revenue Bonds (Schepens Eye Research Project),
                                              Series A, 6.50% due 7/01/2028                                    2,087
                   AAA      Aaa       5,000   Massachusetts State Turnpike Authority, Metropolitan
                                              Highway System, Revenue Refunding Bonds, Senior-Series A,
                                              5.125% due 1/01/2023 (a)                                         4,694

Mississippi--2.2%  BBB-     Ba1       3,150   Mississippi Business Finance Corporation, Mississippi,
                                              PCR, Refunding (System Energy Resources Inc. Project),
                                              5.875% due 4/01/2022                                             2,890

New Jersey--0.3%   BBB-     Baa3        500   New Jersey Health Care Facilities Financing Authority,
                                              Revenue Refunding Bonds (St. Elizabeth Hospital
                                              Obligation Group), 6% due 7/01/2014                                459

New York--19.4%    NR*      Aaa       3,000   New York City, New York, City Municipal Water Finance
                                              Authority, Water and Sewer System Revenue Bonds, RITR,
                                              Series 11, 7.07% due 6/15/2026 (d)(e)                            3,090
                   AAA      Aaa       2,320   New York City, New York, City Municipal Water Finance
                                              Authority, Water and Sewer System Revenue Refunding Bonds,
                                              Series A, 5.125% due 6/15/2022 (c)                               2,180
                   AA+      Aa2       4,300   New York City, New York, City Transitional Finance
                                              Authority Revenue Bonds, Series A, 5.125% due 8/15/2021          4,056
                                              New York City, New York, GO, Refunding, Series G:
                   AAA      Aaa       2,090      5.75% due 2/01/2014 (a)                                       2,171
                   AAA      Aaa       2,000      5.75% due 2/01/2014 (b)                                       2,078
                   AAA      NR*       3,300   New York State Dormitory Authority, Revenue Refunding
                                              Bonds (City University--Third Generation Resources),
                                              Series 2, 5% due 7/01/2028 (d)                                   3,003
                                              New York State Thruway Authority, Highway and Bridge
                                              Trust Fund Revenue Bonds, Series A (d):
                   AAA      Aaa       2,850      6% due 4/01/2015                                              3,055
                   AAA      Aaa       2,625      6% due 4/01/2016                                              2,800
                   AAA      Aaa       2,850   Port Authority of New York and New Jersey, Special
                                              Obligation Revenue Bonds (JFK International Air Terminal
                                              Project), AMT, Series 6, 5.75% due 12/01/2025 (a)                2,878

North Carolina     AA       Aa2       1,795   North Carolina, HFA, S/F Revenue Bonds, Series II,
- --1.4%                                        6.20% due 3/01/2016 (h)                                          1,828

Ohio--1.5%         NR*      Baa3      3,000   Franklin County, Ohio, Hospital Revenue Bonds
                                              (Doctors of Ohio Health Corp.), Series A,
                                              5.60% due 12/01/2028                                             1,962

Oklahoma--2.7%     AAA      NR*       1,650   Holdenville, Oklahoma, Industrial Authority, Correctional
                                              Facility Revenue Bonds, 6.60% due 7/01/2006 (f)(i)               1,817
                   A1+      VMIG1++   1,700   Oklahoma State Industries Authority, Revenue Refunding
                                              Bonds (Integris Baptist), VRDN, Series B, 4.60% due
                                              8/15/2029 (a)(g)                                                 1,700

Pennsylvania       AAA      Aaa       4,200   Delaware River Port Authority of Pennsylvania and
- --6.5%                                        New Jersey Revenue Bonds, 5.75% due 1/01/2015 (d)                4,391
                                              Pennsylvania Economic Development Financing Authority,
                                              Exempt Facilities Revenue Bonds (National Gypsum
                                              Company), AMT:
                   NR*      NR*       1,750      Series A, 6.25% due 11/01/2027                                1,463
                   NR*      NR*       2,000      Series B, 6.125% due 11/01/2027                               1,644
                   NR*      NR*       1,000   Philadelphia, Pennsylvania, Authority for IDR, Refunding,
                                              Commercial Development (Doubletree), Series A, 6.50%
                                              due 10/01/2027                                                     964
South Carolina     AAA      Aaa       1,000   Fairfield County, South Carolina, PCR (South Carolina
- --0.8%                                        Electric and Gas), 6.50% due 9/01/2014 (a)                       1,056


                                 F-30










Merrill Lynch Strategy Fund, Inc.                               October 31, 2000

SCHEDULE OF INVESTMENTS (continued)                                                                  (in Thousands)

                 S&P       Moody's    Face
STATE            Ratings   Ratings   Amount   Issue                                                          Value

Tennessee--1.3%    NR*      NR*     $ 1,610   Hardeman County, Tennessee, Correctional Facilities
                                              Corporation Revenue Bonds, 7.75% due 8/01/2017                $  1,646

Texas--3.8%        AAA      Aaa       3,000   Grapevine-Colleyville, Texas, Independent School
                                              District, GO, Refunding, 5% due 8/15/2029                        2,689
                                              Harris County, Texas, Health Facilities Development
                                              Corporation, Hospital Revenue Refunding Bonds
                                              (Methodist Hospital), VRDN (g):
                   A1+      NR*         100      4.60% due 12/01/2025                                            100
                   A1+      NR*         100      4.60% due 12/01/2026                                            100
                   BBB-     Baa3      2,000   Lower Colorado River Authority, Texas, PCR (Samsung
                                              Austin Semiconductor), AMT, 6.95% due 4/01/2030                  2,038

Utah--0.0%         NR*      NR*       1,000   Tooele County, Utah, PCR, Refunding (Laidlaw Environmental),
                                              AMT, Series A, 7.55% due 7/01/2027 (j)                              38

Virginia--6.2%     AAA      Aaa       5,000   Fairfax County, Virginia, EDA, Resource Recovery Revenue
                                              Refunding Bonds, AMT, Series A, 6.10% due 2/01/2011 (c)          5,447
                   NR*      NR*       1,750   Peninsula Ports Authority, Virginia, Revenue Refunding
                                              Bonds (Port Facility-Zeigler Coal), 6.90% due 5/02/2022 (j)        420
                                              Pocahontas Parkway Association, Virginia, Toll Road
                                              Revenue Bonds:
                   NR*      Ba1       6,200      First Tier, Sub-Series C, 6.25%** due 8/15/2031                 607
                   BBB-     Baa3     11,960      Senior Series B, 5.95%** due 8/15/2029                        1,543

Washington--1.0%   AAA      Aaa       1,500   Grant County, Washington, Public Utility District
                                              No. 002, Electric Revenue Bonds, Series G, 4.75%
                                              due 1/01/2017 (a)                                                1,368

Wisconsin--2.9%    NR*      Aaa       3,675   Milwaukee County, Wisconsin, Airport Revenue Bonds,
                                              AMT, Series A, 6% due 12/01/2019 (b)                             3,784

Wyoming--2.5%      NR*      P1          700   Uinta County, Wyoming, PCR, Refunding (Chevron USA Inc.
                                              Project), VRDN, 4.55% due 8/15/2020 (g)                            700
                   AA       NR*       2,500   Wyoming Student Loan Corporation, Student Loan
                                              Revenue Refunding Bonds, Series A, 6.20% due 6/01/2024           2,607

Puerto Rico        NR*      Aaa       2,500   Puerto Rico Commonwealth, Highway and Transportation
- --4.6%                                        Authority, Transportation Revenue Bonds, Trust Receipts,
                                              Class R, Series B, 7.57% due 7/01/2035 (a)(e)                    2,702
                   AAA      Aaa       2,000   Puerto Rico Electric Power Authority, Power Revenue
                                              Refunding Bonds, Series EE, 4.75% due 7/01/2024 (a)              1,809
                   AAA      Aaa       1,530   Puerto Rico Public Buildings Authority Revenue Bonds
                                              (Government Facilities), Series B, 5% due 7/01/2027 (c)          1,438

                   Total Investments (Cost--$132,774)--98.6%                                                 128,477

                   Other Assets Less Liabilities--1.4%                                                         1,817
                                                                                                            --------
                   Net Assets--100.0%                                                                       $130,294
                                                                                                            ========

(a)  MBIA Insured.
(b)  FGIC Insured.
(c)  AMBAC Insured.
(d)  FSA Insured.
(e)  The interest rate is subject to change periodically and inversely
     based upon prevailing market rates. The interest rate shown is
     the rate in effect at October 31, 2000.
(f)  Connie Lee Insured.
(g)  The interest rate is subject to change periodically based upon
     prevailing market rates. The interest rate shown is the rate in
     effect at October 31, 2000.
(h)  FHA Insured.
(i)  Prerefunded.
(j)  Non-income producing security.
  *  Not Rated.
 **  Represents a zero coupon bond; the interest rate shown is the
     effective yield at the time of purchase by the Fund.
 ++  Highest short-term rating by Moody's Investors Service, Inc.
     Ratings of issues shown have not been audited by Deloitte &
     Touche LLP.

See Notes to Financial Statements.


                                 F-31










Merrill Lynch Strategy Fund, Inc.                               October 31, 2000

STATEMENT OF ASSETS, LIABILITIES AND CAPITAL

                    As of October 31, 2000

Assets:             Investments, at value (identified cost--$132,774,079)                                   $128,477,014
                    Cash                                                                                         119,565
                    Receivables:
                      Interest                                                             $  2,001,369
                      Capital shares sold                                                       126,212        2,127,581
                                                                                           ------------
                    Deferred organization expenses                                                                   341
                    Prepaid registration fees and other assets                                                    37,442
                                                                                                            ------------
                    Total assets                                                                             130,761,943
                                                                                                            ------------
Liabilities:        Payables:
                      Dividends to shareholders                                                 163,418
                      Investment advisory fees                                                   46,730
                      Administration fees                                                        29,206          239,354
                                                                                           ------------
                    Accrued expenses and other liabilities                                                       228,591
                                                                                                            ------------
                    Total liabilities                                                                            467,945
                                                                                                            ------------

Net Assets:         Net assets                                                                              $130,293,998
                                                                                                            ============

Capital:            Capital Stock (200,000,000 shares authorized):
                      Preferred Stock, par value $.10 per share (2,480 shares of
                      AMPS* issued and 1,796 shares outstanding at $25,000 per
                      share liquidation preference)                                                         $ 44,900,000
                      Common Stock, par value $.10 per share (9,755,788 shares
                      issued and outstanding)                                              $    975,579
                    Paid-in capital in excess of par                                        101,119,137
                    Undistributed investment income--net                                            642
                    Accumulated realized capital losses on investments--net                 (8,998,265)
                    Accumulated distributions in excess of realized capital
                    gains on investments--net                                               (3,406,030)
                    Unrealized depreciation on investments--net                             (4,297,065)
                                                                                           ------------
                    Total--Equivalent to $8.75 net asset value per
                    share of Common Stock                                                                     85,393,998
                                                                                                            ------------
                    Total capital                                                                           $130,293,998
                                                                                                            ============

                    *Auction Market Preferred Stock.

                     See Notes to Financial Statements.

STATEMENT OF OPERATIONS

                    For the Year Ended October 31, 2000

Investment          Interest and amortization of premium and discount earned                                $  9,185,175
Income:

Expenses:           Investment advisory fees                                               $    746,301
                    Administrative fees                                                         373,150
                    Commission fees                                                             147,134
                    Professional fees                                                           131,037
                    Transfer agent fees                                                         120,507
                    Printing and shareholder reports                                             91,453
                    Accounting services                                                          86,990
                    Amortization of organization expenses                                        62,304
                    Directors' fees and expenses                                                 31,324
                    Custodian fees                                                               13,403
                    Registration fees                                                            13,001
                    Pricing fees                                                                  8,091
                    Other                                                                        45,816
                                                                                           ------------
                    Total expenses before reimbursement                                       1,870,511
                    Reimbursement of expenses                                                 (149,260)
                                                                                           ------------
                    Total expenses after reimbursement                                                         1,721,251
                                                                                                            ------------
                    Investment income--net                                                                     7,463,924
                                                                                                            ------------

Realized &          Realized loss on investments--net                                                        (7,857,686)
Unrealized          Change in unrealized depreciation on investments--net                                      6,239,229
Gain (Loss) on                                                                                              ------------
Investments--Net:   Net Increase in Net Assets Resulting from Operations                                    $  5,845,467
                                                                                                            ============

                    See Notes to Financial Statements.


                                 F-32










Merrill Lynch Strategy Fund, Inc.                               October 31, 2000

STATEMENTS OF CHANGES IN NET ASSETS
                                                                                                 For the Year
                                                                                                 Ended October 31,
                    Increase (Decrease) in Net Assets:                                          2000            1999

Operations:         Investment income--net                                                 $  7,463,924     $  7,955,477
                    Realized loss on investments--net                                       (7,857,686)      (3,963,881)
                    Change in unrealized appreciation/depreciation
                    on investments--net                                                       6,239,229     (16,190,234)
                                                                                           ------------     ------------
                    Net increase (decrease) in net assets resulting
                    from operations                                                           5,845,467     (12,198,638)
                                                                                           ------------     ------------
Dividends &         Investment income--net:
Distributions to      Common Stock                                                          (5,136,655)      (6,440,369)
Shareholders:         Preferred Stock                                                       (2,346,958)      (1,494,777)
                    In excess of realized gain on investments--net:
                      Common Stock                                                                   --      (2,910,041)
                      Preferred Stock                                                                --        (495,989)
                                                                                           ------------     ------------
                    Net decrease in net assets resulting from dividends
                    and distributions to shareholders                                       (7,483,613)     (11,341,176)
                                                                                           ------------     ------------

Capital Stock       Net increase (decrease) in Preferred Stock transactions                (13,100,000)       10,000,000
Transactions:       Net increase (decrease) in Common Stock transactions                   (15,141,666)       10,374,468
                                                                                           ------------     ------------
                    Net increase (decrease)in net assets derived from
                    capital stock transactions                                             (28,241,666)       20,374,468
                                                                                           ------------     ------------

Net Assets:         Total decrease in net assets                                           (29,879,812)      (3,165,346)
                    Beginning of year                                                       160,173,810      163,339,156
                                                                                           ------------     ------------
                    End of year*                                                           $130,293,998     $160,173,810
                                                                                           ============     ============

                    *Undistributed investment income--net                                  $        642     $     20,331
                                                                                           ============     ============

                    See Notes to Financial Statements.


                                 F-33










Merrill Lynch Strategy Fund, Inc.                               October 31, 2000

FINANCIAL HIGHLIGHTS

                                                                                                                For the
                                                                                                                  Period
The following per share data and ratios have been derived                                                       Nov. 3,
from information provided in the financial statements.                                                        1995++ to
                                                                         For the Year Ended October 31,         Oct. 31,
Increase (Decrease) in Net Asset Value:                            2000       1999       1998        1997        1996

Per Share           Net asset value, beginning of period         $   8.89   $  10.96   $  10.87    $  10.17     $  10.00
Operating                                                        --------   --------   --------    --------     --------
Performance:        Investment income--net                            .72        .71        .73         .75          .68
                    Realized and unrealized gain (loss)
                    on investments--net                             (.14)     (1.75)        .35         .70          .21
                                                                 --------   --------   --------    --------     --------
                    Total from investment operations                  .58     (1.04)       1.08        1.45          .89
                                                                 --------   --------   --------    --------     --------
                    Less dividends and distributions to
                    Common Stock shareholders:
                      Investment income--net                        (.49)      (.58)      (.60)       (.59)        (.59)
                      Realized gain on investments--net                --         --      (.19)          --           --
                      In excess of realized gain on
                      investments--net                                 --      (.27)         --          --           --
                                                                 --------   --------   --------    --------     --------
                    Total dividends and distributions to
                    Common Stock shareholders                       (.49)      (.85)      (.79)       (.59)        (.59)
                                                                 --------   --------   --------    --------     --------
                    Effect of Preferred Stock activity:++++
                      Dividends and distributions to
                      Preferred Stock shareholders:
                          Investment income--net                    (.23)      (.13)      (.13)       (.16)        (.09)
                          Realized gain on investments--net            --         --      (.07)          --           --
                          In excess of realized gain on
                          investments--net                             --      (.05)         --          --           --
                      Capital charge resulting from issuance
                      of Preferred Stock                               --         --         --          --        (.04)
                                                                 --------   --------   --------    --------     --------
                    Total effect of Preferred Stock activity        (.23)      (.18)      (.20)       (.16)        (.13)
                                                                 --------   --------   --------    --------     --------
                    Net asset value, end of period               $   8.75   $   8.89   $  10.96    $  10.87     $  10.17
                                                                 ========   ========   ========    ========     ========

Total Investment    Based on net asset value per share              4.09%   (11.94%)      8.28%      13.08%     7.81%+++
Return:**                                                        ========   ========   ========    ========     ========

Ratios Based on     Total expenses, net of reimbursement***         1.88%      1.75%      1.61%       1.37%        .68%*
Average Net                                                      ========   ========   ========    ========     ========
Assets of           Total expenses***                               2.04%      1.90%      1.80%       1.83%       1.60%*
Common Stock:                                                    ========   ========   ========    ========     ========
                    Total investment income--net***                 8.14%      6.98%      6.65%       7.14%       6.86%*
                                                                 ========   ========   ========    ========     ========
                    Amount of dividends to Preferred
                    Stock shareholders                              2.56%      1.31%      1.21%       1.53%        .94%*
                                                                 ========   ========   ========    ========     ========
                    Investment income--net, to
                    Common Stock shareholders                       5.58%      5.67%      5.44%       5.61%       5.92%*
                                                                 ========   ========   ========    ========     ========

Ratios Based on     Total expenses, net of reimbursement            1.15%      1.17%      1.12%        .96%        .53%*
Total Average                                                    ========   ========   ========    ========     ========
Net                 Total expenses                                  1.25%      1.27%      1.25%       1.28%       1.26%*
Assets:***++++++                                                 ========   ========   ========    ========     ========
                    Total investment income--net                    4.99%      4.66%      4.61%       5.01%       5.40%*
                                                                 ========   ========   ========    ========     ========

Ratios Based on     Dividends to Preferred Stock Shareholders       4.05%      2.63%      2.75%       3.58%       3.49%*
Average Net                                                      ========   ========   ========    ========     ========
Assets of
Preferred Stock:

Supplemental        Net assets, net of Preferred Stock,
Data:               end of period (in thousands)                 $ 85,394   $102,174   $115,339    $101,463     $ 83,573
                                                                 ========   ========   ========    ========     ========
                    Preferred Stock outstanding,
                    end of period (in thousands)                 $ 44,900   $ 58,000   $ 48,000    $ 48,000     $ 38,000
                                                                 ========   ========   ========    ========     ========
                    Portfolio turnover                            115.52%    158.57%    141.53%     144.34%      234.41%
                                                                 ========   ========   ========    ========     ========

Leverage:           Asset coverage per $1,000                    $  2,902   $  2,762   $  3,403    $  3,114     $  3,199
                                                                 ========   ========   ========    ========     ========

Dividends Per       Investment income--net                       $  1,015   $    644    $   533    $    897     $    564
Share On                                                         ========   ========   ========    ========     ========
Preferred Stock
Outstanding:

     * Annualized.
    ** Total investment returns exclude the effects of the contingent
       deferred sales charge, if any. The Fund is a continuously
       offered, closed-end fund, the shares of which are offered at
       net asset value. Therefore, no separate market exists. The
       Fund's Investment Adviser voluntarily waived a portion of its
       management fee. Without such waiver, the Fund's performance
       would have been lower.
   *** Do not reflect the effect of dividends to Preferred Stock
       shareholders.
    ++ Commencement of operations.
  ++++ The Fund's Preferred Stock was initially issued on March 11,
       1996.
++++++ Includes Common and Preferred Stock average net assets.
   +++ Aggregate total investment return.

See Notes to Financial Statements.


                                 F-34










Merrill Lynch Strategy Fund, Inc.                               October 31, 2000

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies:

Merrill Lynch Municipal Strategy Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
continuously offered, non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in
conformity with accounting principles generally accepted in the
United States of America, which may require the use of management
accruals and estimates. The following is a summary of significant
accounting policies followed by the Fund.

(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter markets and are valued at the last available bid
price in the over-the-counter market or on the basis of yield
equivalents as obtained from one or more dealers that make markets
in the securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their settlement prices
as of the close of such exchanges. Options written or purchased are
valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-counter-market,
valuation is the last asked price (options written) or the last bid
price (options purchased). Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. 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 Board of
Directors of the Fund, including valuations furnished by a pricing
service retained by the Fund, which may utilize 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 Board of Directors.

(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. Losses may arise due to
changes in the value of the contract or if the counterparty does not
perform under the contract.

* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.

* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.

When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).

Written and purchased options are non-income producing investments.

(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.

(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.

(e) Deferred organization and prepaid registration fees--Deferred
organization expenses are amortized on a straight-line basis over a
period not exceeding five years. Prepaid registration fees are
charged to expense as the related shares are issued.

(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions.


                                 F-35










Merrill Lynch Strategy Fund, Inc.                               October 31, 2000

NOTES TO FINANCIAL STATEMENTS

2. Investment Advisory Agreement and Transactions
with Affiliates:

The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.

FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of .50% of
the Fund's average daily net assets, including proceeds from the
issuance of Preferred Stock. For the year ended October 31, 2000,
FAM earned fees of $746,301, of which $149,260 was waived.

The Fund also has entered into an Administrative Services Agreement
with FAM whereby FAM will receive a fee equal to an annual rate of
 .25% of the Fund's average daily net assets, in return for the
performance of administrative services (other than investment advice
and related portfolio activities) necessary for the operation of the
Fund.

For the year ended October 31, 2000, FAM Distributors Inc. ("FAMD"),
which is a wholly-owned subsidiary of Merrill Lynch Group, Inc.,
earned early withdrawal charges of $115,842 relating to the tender
of the Fund's shares.

Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.

Accounting services are provided to the Fund by FAM.

Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, FDS, FAMD, and/or ML & Co.

3. Investments:

Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 2000 were $159,580,282 and
$181,935,000, respectively.

Net realized losses for the year ended October 31, 2000 and net
unrealized losses as of October 31, 2000, were as follows:

                                     Realized     Unrealized
                                     Losses         Losses

Long-term investments            $ (7,857,686) $  (4,297,065)
                                 ------------  -------------
Total                            $ (7,857,686) $  (4,297,065)
                                 ============  =============

As of October 31, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $4,311,900, of which $2,270,143
related to appreciated securities and $6,582,043 related to
depreciated securities. The aggregate cost of investments at October
31, 2000 for Federal income tax purposes was $132,788,914.


4. Capital Stock Transactions:

The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.

Transactions in Common Stock were as follows:

For the Year Ended                                  Dollar
October 31, 2000                      Shares        Amount

Shares sold                           630,905  $   5,502,348
Shares issued to shareholders
in reinvestment of dividends          179,287      1,561,399
                                 ------------  -------------
Total issued                          810,192      7,063,747
Shares tendered                   (2,553,660)   (22,205,413)
                                 ------------  -------------
Net decrease                      (1,743,468) $ (15,141,666)
                                 ============  =============


For the Year Ended                                  Dollar
October 31, 1999                      Shares        Amount

Shares sold                         2,518,676 $  26,054,342
Shares issued to shareholders
in reinvestment of dividends
and distributions                     295,128      3,036,851
                                 ------------  -------------
Total issued                        2,813,804     29,091,193
Shares tendered                   (1,838,103)   (18,716,725)
                                 ------------  -------------
Net increase                          975,701 $  10,374,468
                                 ============  =============

Preferred Stock

Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.10 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yield in effect at October
31, 2000 was 3.50%.

In connection with the offering of AMPS, the Board of Directors
reclassified 40,000 shares of unissued capital stock as AMPS. AMPS
shares outstanding during the year ended October 31, 2000 decreased
by 524 as a result of shares retired and during the year ended
October 31, 1999 increased by 400 as a result of shares sold.

The Fund pays commissions to certain broker dealers at the end of
each auction at an annual rate ranging from .25% to 1.00%,
calculated on the proceeds of each auction. For the year ended
October 31, 2000, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $127,823 as commissions.

5. Capital Loss Carryforward:

At October 31, 2000, the Fund had a net capital loss carry-forward
of approximately $12,294,000, of which $4,320,000 expires in 2007
and $7,974,000 expires in 2008. This amount will be available to
offset like amounts of any future taxable gains.


                                 F-36

Unaudited Financial Statements for Merrill Lynch Municipal Strategy Fund, Inc.
for the Six Months Ended April 30, 2001

F-37




Merrill Lynch Municipal Strategy Fund, Inc.,                      April 30, 2001

SCHEDULE OF INVESTMENTS                                                                            (in Thousands)

                S&P        Moody's   Face
STATE           Ratings    Ratings   Amount   Issue                                                           Value

Alabama--0.3%                                 Columbia, Alabama, IDB, PCR, Refunding
                                              (Alabama Power Company Project), VRDN (g):
                  A1       VMIG1++   $   300      Series A, 4.50% due 5/01/2022                               $    300
                  A1       VMIG1++       100      Series E, 4.45% due 10/01/2022                                   100

Arizona--2.5%                                 Phoenix, Arizona, IDA, Airport Facility
                                              Revenue Refunding Bonds (America West Airlines
                                              Inc. Project), AMT:
                  NR*      B3          2,000      6.25% due 6/01/2019                                            1,700
                  NR*      B3          1,600      6.30% due 4/01/2023                                            1,348

California--5.4%  AAA      Aaa         3,000  California State University and Colleges, Student
                                              Union Revenue Bonds (Chico), Series B,
                                              4.375% due 11/01/2028 (a)                                          2,493
                  AAA      Aaa         1,560  Centinela Valley, California, Union High School
                                              District, GO, Series A, 5.875% due 8/01/2024 (a)                   1,645
                                              Los Angeles County, California, Schools Regionalized
                                              Business Services, COP, Pooled
                                              Financing, Series A (c):
                  AAA      Aaa         1,430      5.90%** due 8/01/2019                                            518
                  AAA      Aaa         2,510      6%** due 8/01/2029                                               498
                  AA       Aa3         1,250  Sacramento County, California, Sanitation District
                                              Financing Authority, Revenue Refunding Bonds, Trust Receipts,
                                              Class R, Series A, 7.597% due 12/01/2019 (e)                       1,389

Colorado--6.6%    NR*      Aaa         4,430  Broomfield, Colorado, Open Space Park and Recreational
                                              Facilities, COP, 5.75% due 12/01/2014 (c)                          4,715
                  AA       Aa2         1,500  Colorado HFA, Revenue Refunding Bonds (S/F Program),
                                              AMT, Series D-2, 6.90% due 4/01/2029                               1,668
                  NR*      NR*         1,500  Denver, Colorado, Urban Renewal Authority, Tax Increment
                                              Revenue Bonds (Pavilions), AMT, 7.75% due 9/01/2016                1,587

Connecticut--     NR*      NR*           725  Connecticut State Development Authority, IDR (AFCO Cargo
2.7%                                          BDL-LLC Project), AMT, 7.35% due 4/01/2010                           733
                  NR*      Aaa         2,175  Connecticut State Special Tax Obligation Revenue Bonds,
                                              RIB, Series 372, 7.78% due 12/01/2017 (b)(e)                       2,526

Florida--8.2%                                 Florida State Turnpike Authority, Turnpike Revenue Bonds
                                              (Department of Transportation), Series B:
                  AA-      Aa3         1,755      5.25% due 7/01/2021                                            1,744
                  AA-      Aa3         1,850      5.25% due 7/01/2022                                            1,836
                  A1+      VMIG1++       200  Martin County, Florida, PCR, Refunding (Florida Power &
                                              Light Company Project), VRDN, 4.55% due 7/15/2022 (g)                200
                  NR*      B1          2,260  Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
                                              Education and Research Foundation Project), Series A,
                                              6.85% due 9/01/2013                                                2,019
                  AAA      Aaa         4,200  Pinellas County, Florida, Housing Authority, Housing
                                              Revenue Bonds (Affordable Housing Program), 4.60% due
                                              12/01/2010 (d)                                                     4,203

Georgia--2.7%     AAA      Aa2         3,250  Georgia State, HFA, S/F Mortgage Revenue Refunding
                                              Bonds, Series A, Sub-Series A-1, 6.125%
                                              due 12/01/2015 (h)                                                 3,328

Portfolio Abbreviations

To simplify the listings of Merrill Lynch Municipal Strategy Fund,
Inc.'s portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list below and at right.

ACES SM    Adjustable Convertible Extendible Securities
AMT        Alternative Minimum Tax (subject to)
COP        Certificates of Participation
EDA        Economic Development Authority
GO         General Obligation Bonds
HFA        Housing Finance Agency
IDA        Industrial Development Authority
IDB        Industrial Development Board
IDR        Industrial Development Revenue Bonds
M/F        Multi-Family
PCR        Pollution Control Revenue Bonds
RIB        Residual Interest Bonds
RITR       Residual Interest Trust Receipts
S/F        Single-Family
VRDN       Variable Rate Demand Notes


                                 F-38










Merrill Lynch Municipal Strategy Fund, Inc.,                      April 30, 2001

SCHEDULE OF INVESTMENTS (continued)                                                                (in Thousands)

                S&P        Moody's   Face
STATE           Ratings    Ratings   Amount   Issue                                                           Value

Illinois--4.5%    NR*      NR*       $   910  Beardstown, Illinois, IDR (Jefferson Smurfit Corp.
                                              Project), 8% due 10/01/2016                                     $    936
                  AAA      Aaa         3,285  Illinois Development Finance Authority Revenue Bonds
                                              (Presbyterian Home Lake Project), Series B, 6.30% due
                                              9/01/2022 (d)                                                      3,466
                  NR*      Ba3         1,250  Illinois Health Facilities Authority Revenue Bonds
                                              (Holy Cross Hospital Project), 6.70% due 3/01/2014                 1,044

Indiana--0.8%     A1+      VMIG1++     1,000  Princeton, Indiana, PCR, Refunding (PSI Energy Incorporated
                                              Project), VRDN, 4.35% due 4/01/2022 (g)                            1,000

Louisiana--3.3%   NR*      VMIG1++       200  Louisiana State Offshore Terminal Authority, Deepwater
                                              Port Revenue Refunding Bonds (First Stage A-Loop Inc.),
                                              ACES, 4.50% due 9/01/2006 (g)                                        200
                  BB-      NR*         4,000  Port New Orleans, Louisiana, IDR, Refunding (Continental
                                              Grain Company Project), 6.50% due 1/01/2017                        3,750

Maryland--2.5%    NR*      NR*         3,000  Maryland State Energy Financing Administration,
                                              Limited Obligation Revenue Bonds (Cogeneration-AES
                                              Warrior Run), AMT, 7.40% due 9/01/2019                             3,088

Massachusetts--   A        NR*         2,000  Massachusetts State Health and Educational
1.7%                                          Facilities Authority Revenue Bonds (Schepens
                                              Eye Research Project), Series A, 6.50% due 7/01/2028               2,065

Minnesota--0.8%   NR*      Aa3         1,000  Minneapolis, Minnesota, M/F Housing Revenue Bonds
                                              (Gaar Scott Loft Project), AMT, 5.95% due 5/01/2030                1,010

Mississippi--3.8% BBB-     Ba1         3,150  Mississippi Business Finance Corporation, Mississippi,
                                              PCR, Refunding (System Energy Resources Inc. Project),
                                              5.875% due 4/01/2022                                               2,853
                  NR*      P1          1,800  Perry County, Mississippi, PCR, Refunding (Leaf River
                                              Forest Project), VRDN, 4.50% due 3/01/2002 (g)                     1,800

New York--20.1%   NR*      Aaa         3,000  New York City, New York, City Municipal Water Finance
                                              Authority, Water and Sewer System Revenue Bonds, RITR,
                                              Series 11, 7.32% due 6/15/2026 (d)(e)                              3,216
                  AA+      Aa2         5,000  New York City, New York, City Transitional Finance
                                              Authority Revenue Bonds, Future Tax
                                              Secured, Series B, 4.75% due 11/01/2023                            4,537
                                              New York City, New York, GO, Refunding, Series G:
                  AAA      Aaa         2,090      5.75% due 2/01/2014 (a)                                        2,199
                  AAA      Aaa         2,000      5.75% due 2/01/2014 (b)                                        2,105
                  AAA      Aaa         3,240  New York State Dormitory Authority, Revenue Refunding
                                              Bonds (Mental Health Services Facilities Improvement),
                                              Series D, 5.25% due 8/15/2011 (a)                                  3,392
                                              New York State Thruway Authority, Highway and Bridge
                                              Trust Fund Revenue Bonds, Series A (d):
                  AAA      Aaa         2,850      6% due 4/01/2015                                               3,114
                  AAA      Aaa         2,625      6% due 4/01/2016                                               2,857
                  AAA      Aaa         2,850  Port Authority of New York and New Jersey, Special Obligation
                                              Revenue Bonds (JFK International Air Terminal Project),
                                              AMT, Series 6, 5.75% due 12/01/2025 (a)                            2,936

North             AA       Aa2         1,795  North Carolina HFA, S/F Revenue Bonds, Series II, 6.20%
Carolina--1.6%                                due 3/01/2016 (h)                                                  1,878

Ohio--1.9%                                    Bowling Green State University, Ohio, General Receipt
                                              Revenue Bonds (b):
                  AAA      Aaa         1,125      5.75% due 6/01/2013                                            1,211
                  AAA      Aaa         1,040      5.75% due 6/01/2014                                            1,111

Oklahoma--1.5%    AAA      NR*         1,650  Holdenville, Oklahoma, Industrial Authority,
                                              Correctional Facility Revenue Bonds, 6.6% due
                                              7/01/2006 (f)(i)                                                   1,859

Pennsylvania--    AAA      Aaa         4,200  Delaware River Port Authority of Pennsylvania and
6.1%                                          New Jersey Revenue Bonds, 5.75% due 1/01/2015 (d)                  4,474


                                 F-39










Merrill Lynch Municipal Strategy Fund, Inc.,                      April 30, 2001

SCHEDULE OF INVESTMENTS (continued)                                                                (in Thousands)

                S&P        Moody's   Face
STATE           Ratings    Ratings   Amount   Issue                                                           Value

Pennsylvania                                  Pennsylvania Economic Development Financing Authority, Exempt
(concluded)                                   Facilities Revenue Bonds (National Gypsum Company), AMT:
                  NR*      NR*       $ 1,750      Series A, 6.25% due 11/01/2027                              $    919
                  NR*      NR*         2,000      Series B, 6.125% due 11/01/2027                                1,030
                  NR*      NR*         1,000  Philadelphia, Pennsylvania, Authority for IDR, Refunding,
                                              Commercial Development (Doubletree), Series A, 6.50%
                                              due 10/01/2027                                                       973

South             AAA      Aaa         1,000  Fairfield County, South Carolina, PCR (South Carolina
Carolina--0.9%                                Electric and Gas), 6.50% due 9/01/2014 (a)                         1,060

Tennessee--1.3%   NR*      NR*         1,610  Hardeman County, Tennessee, Correctional Facilities
                                              Corporation Revenue Bonds, 7.75% due 8/01/2017                     1,599

Texas--2.5%       AAA      Aaa         1,000  Denton, Texas, Utility System Revenue Refunding and
                                              Improvement Bonds, 5.125% due 12/01/2017 (c)                         978
                  BBB-     Baa3        2,000  Lower Colorado River Authority, Texas, PCR (Samsung
                                              Austin Semiconductor), AMT, 6.95% due 4/01/2030                    2,058

Utah--0.0%        NR*      NR*         1,000  Tooele County, Utah, PCR, Refunding (Laidlaw Environmental),
                                              AMT, Series A, 7.55% due 7/01/2027 (j)                                28

Virginia--7.1%    AAA      Aaa         5,000  Fairfax County, Virginia, EDA, Resource Recovery Revenue
                                              Refunding Bonds, AMT, Series A, 6.10% due 2/01/2011 (c)            5,557
                  NR*      NR*         1,750  Peninsula Ports Authority, Virginia, Revenue Refunding Bonds
                                              (Port Facility-Zeigler Coal), 6.90% due 5/02/2022 (j)                770
                                              Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:
                  NR*      Ba1         6,200      First Tier, Sub-Series C, 6.25%** due 8/15/2031                  636
                  BBB-     Baa3       11,960      Senior Series B, 5.95%** due 8/15/2029                         1,657

Washington--2.8%  AAA      Aaa         2,000  Clark County, Washington, Sewer Revenue Refunding Bonds,
                                              Series B, 5.25% due 12/01/2015 (c)                                 2,053
                  AAA      Aaa         1,500  Grant County, Washington, Public Utility District
                                              No. 002, Electric Revenue Bonds, Series G,
                                              4.75% due 1/01/2017 (a)                                            1,385

Wisconsin--3.2%   NR*      Aaa         3,675  Milwaukee County, Wisconsin, Airport Revenue Bonds, AMT,
                                              Series A, 6% due 12/01/2019 (b)                                    3,849

Wyoming--2.1%     AA       NR*         2,500  Wyoming Student Loan Corporation, Student Loan Revenue
                                              Refunding Bonds, Series A, 6.20% due 6/01/2024                     2,594

Puerto Rico--     AAA      Aaa         2,500  Puerto Rico Commonwealth, Highway and Transportation
2.4%                                          Authority, Transportation Revenue Bonds, Trust Receipts,
                                              Class R, Series B, 7.372% due 7/01/2035 (a)(e)                     2,850

                  Total Investments (Cost--$124,022)--99.3%                                                    120,647

                  Other Assets Less Liabilities--0.7%                                                              832
                                                                                                              --------
                  Net Assets--100.0%                                                                          $121,479
                                                                                                              ========

(a)  MBIA Insured.
(b)  FGIC Insured.
(c)  AMBAC Insured.
(d)  FSA Insured.
(e)  The interest rate is subject to change periodically and inversely
     based upon prevailing market rates. The interest rate shown is
     the rate in effect at April 30, 2001.
(f)  Connie Lee Insured.
(g)  The interest rate is subject to change periodically based upon
     prevailing market rates. The interest rate shown is the rate in
     effect at April 30, 2001.
(h)  FHA Insured.
(i)  Prerefunded.
(j)  Non-income producing security.
  *  Not Rated.
 **  Represents a zero coupon bond; the interest rate shown reflects
     the effective yield at the time of purchase by the Fund.
 ++  Highest short-term rating by Moody's Investors Service, Inc.

See Notes to Financial Statements.


                                 F-40










Merrill Lynch Municipal Strategy Fund, Inc.,                      April 30, 2001

STATEMENT OF ASSETS, LIABILITIES AND CAPITAL

                    As of April 30, 2001

Assets:             Investments, at value (identified cost--$124,022,285)                                   $120,646,530
                    Cash                                                                                          23,957
                    Interest receivable                                                                        2,023,863
                    Deferred organization expenses                                                                   174
                    Prepaid registration fees and other assets                                                    37,610
                                                                                                            ------------
                    Total assets                                                                             122,732,134
                                                                                                            ------------

Liabilities:        Payables:
                      Securities purchased                                                 $    985,299
                      Dividends to shareholders                                                 118,957
                      Investment advisory fees                                                   39,029
                      Administration fees                                                        24,393        1,167,678
                                                                                           ------------
                    Accrued expenses and other liabilities                                                        85,565
                                                                                                            ------------
                    Total liabilities                                                                          1,253,243
                                                                                                            ------------

Net Assets:         Net assets                                                                              $121,478,891
                                                                                                            ============

Capital:            Capital Stock (200,000,000 shares authorized):
                      Preferred Stock, par value $.10 per share (1,720 shares of
                      Series A AMPS* issued and outstanding
                      at $25,000 per share liquidation preference)                                          $ 43,000,000
                      Common Stock, par value $.10 per share (8,871,713
                      shares issued and outstanding)                                       $    887,171
                    Paid-in capital in excess of par                                         93,476,958
                    Undistributed investment income--net                                         34,408
                    Accumulated realized capital losses on investments--net                 (9,137,861)
                    Accumulated distributions in excess of realized
                    capital gains on investments--net                                       (3,406,030)
                    Unrealized depreciation on investments--net                             (3,375,755)
                                                                                           ------------
                    Total--Equivalent to $8.85 net asset value per
                    share of Common Stock                                                                     78,478,891
                                                                                                            ------------
                    Total capital                                                                           $121,478,891
                                                                                                            ============

*    Auction Market Preferred Stock.

See Notes to Financial Statements.

STATEMENT OF OPERATIONS

                    For the Six Months Ended April 30, 2001

Investment          Interest and amortization of premium and discount earned                                $  3,577,635
Income:

Expenses:           Investment advisory fees                                               $    307,998
                    Administrative fees                                                         153,999
                    Professional fees                                                            89,206
                    Commission fees                                                              72,014
                    Transfer agent fees                                                          68,207
                    Printing and shareholder reports                                             33,953
                    Registration fees                                                            24,210
                    Accounting services                                                          19,318
                    Directors' fees and expenses                                                 18,366
                    Custodian fees                                                                7,075
                    Pricing fees                                                                  4,151
                    Amortization of organization expenses                                           167
                    Other                                                                        26,765
                                                                                           ------------
                    Total expenses before reimbursement                                         825,429
                    Reimbursement of expenses                                                  (61,600)
                                                                                           ------------
                    Total expenses after reimbursement                                                           763,829
                                                                                                            ------------
                    Investment income--net                                                                     2,813,806
                                                                                                            ------------

Realized &          Realized loss on investments--net                                                          (104,019)
Unrealized          Change in unrealized depreciation on investments--net                                        921,310
Gain (Loss) on                                                                                              ------------
Investments--Net:   Net Increase in Net Assets Resulting from Operations                                    $  3,631,097
                                                                                                            ============

                    See Notes to Financial Statements.


                                 F-41










Merrill Lynch Municipal Strategy Fund, Inc.,                      April 30, 2001

STATEMENTS OF CHANGES IN NET ASSETS

                                                                                            For the Six       For the
                                                                                           Months Ended      Year Ended
                                                                                              April 30,      October 31,
                    Increase (Decrease) in Net Assets:                                          2001             2000

Operations:         Investment income--net                                                 $  2,813,806     $  7,463,924
                    Realized loss on investments--net                                         (104,019)      (7,857,686)
                    Change in unrealized appreciation/depreciation on investments--net          921,310        6,239,229
                                                                                           ------------     ------------
                    Net increase in net assets resulting from operations                      3,631,097        5,845,467
                                                                                           ------------     ------------

Dividends &         Investment income--net:
Distributions to      Common Stock                                                          (2,038,726)      (5,136,655)
Shareholders:         Preferred Stock                                                         (741,314)      (2,346,958)
                    Realized gain on investments--net:
                      Common Stock                                                             (24,431)               --
                      Preferred Stock                                                          (11,146)               --
                                                                                           ------------     ------------
                    Net decrease in net assets resulting from dividends
                    and distributions to shareholders                                       (2,815,617)      (7,483,613)
                                                                                           ------------     ------------

Capital Stock       Net decrease in Preferred Stock transactions                            (1,900,000)     (13,100,000)
Transactions:       Net decrease in Common Stock transactions                               (7,730,587)     (15,141,666)
                                                                                           ------------     ------------
                    Net decreasein net assets derived from capital stock transactions       (9,630,587)     (28,241,666)
                                                                                           ------------     ------------

Net Assets:         Total decrease in net assets                                            (8,815,107)     (29,879,812)
                    Beginning of period                                                     130,293,998      160,173,810
                                                                                           ------------     ------------
                    End of period*                                                         $121,478,891     $130,293,998
                                                                                           ============     ============

                    *Undistributed investment income--net                                  $     34,408     $        642
                                                                                           ============     ============


                    See Notes to Financial Statements.


                                 F-42










Merrill Lynch Municipal Strategy Fund, Inc.,                      April 30, 2001

FINANCIAL HIGHLIGHTS

                                                                      For the
The following per share data and ratios have been derived            Six Months
from information provided in the financial statements.                 Ended               For the Year Ended
                                                                      April 30,               October 31,
Increase (Decrease) in Net Asset Value:                                 2001        2000     1999       1998      1997

Per Share           Net asset value, beginning of period              $   8.75   $   8.89  $  10.96  $  10.87   $  10.17
Operating                                                             --------   --------  --------  --------   --------
Performance:        Investment income--net                                 .31        .72       .71       .73        .75
                    Realized and unrealized gain (loss) on
                    investments--net                                       .10      (.14)    (1.75)       .35        .70
                                                                      --------   --------  --------  --------   --------
                    Total from investment operations                       .41        .58    (1.04)      1.08       1.45
                                                                      --------   --------  --------  --------   --------
                    Less dividends and distributions to
                    Common Stock shareholders:
                      Investment income--net                             (.23)      (.49)     (.58)     (.60)      (.59)
                      Realized gain on investments--net                   --++         --        --     (.19)         --
                      In excess of realized gain on
                      investments--net                                      --         --     (.27)        --         --
                                                                      --------   --------  --------  --------   --------
                    Total dividends and distributions to
                    Common Stock shareholders                            (.23)      (.49)     (.85)     (.79)      (.59)
                                                                      --------   --------  --------  --------   --------
                    Effect of Preferred Stock activity:
                      Dividends and distributions to
                      Preferred Stock shareholders:
                          Investment income--net                         (.08)      (.23)     (.13)     (.13)      (.16)
                          Realized gain on investments--net               --++         --        --     (.07)         --
                          In excess of realized gain
                          on investments--net                               --         --     (.05)        --         --
                                                                      --------   --------  --------  --------   --------
                    Total effect of Preferred Stock activity             (.08)      (.23)     (.18)     (.20)      (.16)
                                                                      --------   --------  --------  --------   --------
                    Net asset value, end of period                    $   8.85   $   8.75  $   8.89  $  10.96   $  10.87
                                                                      ========   ========  ========  ========   ========

Total Investment    Based on net asset value per share                3.73%+++      4.09%  (11.94%)     8.28%     13.08%
Return:**                                                             ========   ========  ========  ========   ========

Ratios Based on     Total expenses, net of reimbursement***             1.90%*      1.88%     1.75%     1.61%      1.37%
Average Net                                                           ========   ========  ========  ========   ========
Assets of           Total expenses***                                   2.05%*      2.04%     1.90%     1.80%      1.83%
Common Stock:                                                         ========   ========  ========  ========   ========
                    Total investment income--net***                     6.99%*      8.14%     6.98%     6.65%      7.14%
                                                                      ========   ========  ========  ========   ========
                    Amount of dividends to Preferred Stock
                    shareholders                                        1.84%*      2.56%     1.31%     1.21%      1.53%
                                                                      ========   ========  ========  ========   ========
                    Investment income--net, to Common Stock
                    shareholders                                        5.15%*      5.58%     5.67%     5.44%      5.61%
                                                                      ========   ========  ========  ========   ========

Ratios Based on     Total expenses, net of reimbursement                1.24%*      1.15%     1.17%     1.12%       .96%
Total Average                                                         ========   ========  ========  ========   ========
Net Assets:***++++  Total expenses                                      1.34%*      1.25%     1.27%     1.25%      1.28%
                                                                      ========   ========  ========  ========   ========
                    Total investment income--net                        4.57%*      4.99%     4.66%     4.61%      5.01%
                                                                      ========   ========  ========  ========   ========

Ratios Based on     Dividends to Preferred Stock Shareholders           3.47%*      4.05%     2.63%     2.75%      3.58%
Average Net                                                           ========   ========  ========  ========   ========
Assets of
Preferred Stock:

Supplemental        Net assets, net of Preferred Stock,
Data:               end of period (in thousands)                      $ 78,479   $ 85,394  $102,174  $115,339   $101,463
                                                                      ========   ========  ========  ========   ========
                    Preferred Stock outstanding,
                    end of period (in thousands)                      $ 43,000   $ 44,900  $ 58,000  $ 48,000   $ 48,000
                                                                      ========   ========  ========  ========   ========
                    Portfolio turnover                                  20.49%    115.52%   158.57%   141.53%    144.34%
                                                                      ========   ========  ========  ========   ========
Leverage:           Asset coverage per $1,000                         $  2,825   $  2,902  $  2,762  $  3,403   $  3,114
                                                                      ========   ========  ========  ========   ========

Dividends Per       Investment income--net                            $    431   $  1,015  $    644   $   533   $    897
Share On                                                              ========   ========  ========  ========   ========
Preferred Stock
Outstanding:

   * Annualized.
  ** Total investment returns exclude the effects of the contingent
     deferred sales charge, if any. The Fund is a continuously
     offered, closed-end fund, the shares of which are offered at net
     asset value. Therefore, no separate market exists. The Fund's
     Investment Adviser voluntarily waived a portion of its management
     fee. Without such waiver, the Fund's performance would have been
     lower.
 *** Do not reflect the effect of dividends to Preferred Stock
     shareholders.
  ++ Amount is less than $.01 per share.
++++ Includes Common and Preferred Stock average net assets.
 +++ Aggregate total investment return.

     See Notes to Financial Statements.


                                 F-43










Merrill Lynch Municipal Strategy Fund, Inc.,                      April 30, 2001

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies:

Merrill Lynch Municipal Strategy Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
continuously offered, non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in
conformity with accounting principles generally accepted in the
United States of America, which may require the use of management
accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal, recurring nature. The
following is a summary of significant accounting policies followed
by the Fund.

(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter markets and are valued at the last available bid
price in the over-the-counter market or on the basis of yield
equivalents as obtained from one or more dealers that make markets
in the securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their settlement prices
as of the close of such exchanges. Options written or purchased are
valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-counter-market,
valuation is the last asked price (options written) or the last bid
price (options purchased). Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. 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 Board of
Directors of the Fund, including valuations furnished by a pricing
service retained by the Fund, which may utilize 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 Board of Directors.

(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. Losses may arise due to
changes in the value of the contract or if the counterparty does not
perform under the contract.

* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.

* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.

When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).

Written and purchased options are non-income producing investments.

(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.

(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Interest
income is recognized on the accrual basis. The Fund will adopt the
provisions to amortize all premiums and discounts on debt securities
effective November 1, 2001, as now required under the new AICPA
Audit and Accounting Guide for Investment Companies. The cumulative
effect of this accounting change will have no impact on the total
net assets of the Fund. The impact of this accounting change has not
been determined, but will result in an adjustment to the cost of
securities and a corresponding adjustment to net unrealized
appreciation/depreciation, based on debt securities held as of
October 31, 2001.

(e) Deferred organization and prepaid registration fees--Deferred
organization expenses are amortized on a


                                 F-44










Merrill Lynch Municipal Strategy Fund, Inc.,                      April 30, 2001

NOTES TO FINANCIAL STATEMENTS (continued)

straight-line basis over a period not exceeding five years. Prepaid
registration fees are charged to expense as the related shares are
issued.

(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions.

2. Investment Advisory Agreement and Transactions with
Affiliates:

The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.

FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of .50% of
the Fund's average daily net assets, including proceeds from the
issuance of Preferred Stock. For the six months ended April 30,
2001, FAM earned fees of $307,998, of which $61,600 was waived.

The Fund also has entered into an Administrative Services Agreement
with FAM whereby FAM will receive a fee equal to an annual rate of
 .25% of the Fund's average daily net assets, in return for the
performance of administrative services (other than investment advice
and related portfolio activities) necessary for the operation of the
Fund.

For the six months ended April 30, 2001, FAM Distributors Inc.
("FAMD"), which is a wholly-owned subsidiary of Merrill Lynch Group,
Inc., earned early withdrawal charges of $32,525 relating to the
tender of the Fund's shares.

Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.

Prior to January 1, 2001, FAM provided accounting services to the
Fund at its cost and the Fund reimbursed FAM for these services. FAM
continues to provide certain accounting services to the Fund. The
Fund reimburses FAM at its cost for such services. For the six
months ended April 30, 2001, the Fund reimbursed FAM an aggregate of
$8,000 for the above-described services. The Fund entered into an
agreement with State Street Bank and Trust Company ("State Street"),
effective January 1, 2001, pursuant to which State Street provides
certain accounting services to the Fund. The Fund pays a fee for
these services.

Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, FDS, FAMD, and/or ML & Co.

3. Investments:

Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 2001 were $24,326,774 and
$33,878,549, respectively.

Net realized losses for the six months ended April 30, 2001 and net
unrealized losses as of April 30, 2001, were as follows:

                                     Realized     Unrealized
                                     Losses         Losses

Long-term investments             $   (56,523)  $ (3,375,755)
Financial futures contracts           (47,496)            --
                                  -----------   ------------
Total                             $  (104,019)  $ (3,375,755)
                                  ===========   ============

As of April 30, 2001, net unrealized depreciation for Federal income
tax purposes aggregated $3,375,755, of which $3,105,564 related to
appreciated securities and $6,481,319 related to depreciated
securities. The aggregate cost of investments at April 30, 2001 for
Federal income tax purposes was $124,022,285.

4. Capital Stock Transactions:

The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.

Transactions in Common Stock were as follows:


For the Six Months Ended                            Dollar
April 30, 2001                        Shares        Amount

Shares sold                           171,952   $  1,552,383
Shares issued to shareholders
in reinvestment of dividends
and distributions                      63,090        569,354
                                 ------------   ------------
Total issued                          235,042      2,121,737
Shares tendered                   (1,119,117)    (9,852,324)
                                 ------------   ------------
Net decrease                        (884,075)  $ (7,730,587)
                                 ============   ============


For the Year Ended                                  Dollar
October 31, 2000                      Shares        Amount

Shares sold                           630,905  $   5,502,348
Shares issued to shareholders
in reinvestment of dividends          179,287      1,561,399
                                 ------------   ------------
Total issued                          810,192      7,063,747
Shares tendered                   (2,553,660)   (22,205,413)
                                 ------------   ------------
Net decrease                      (1,743,468) $ (15,141,666)
                                 ============   ============


                                 F-45










Merrill Lynch Municipal Strategy Fund, Inc.,                      April 30, 2001

NOTES TO FINANCIAL STATEMENTS (concluded)

Preferred Stock

Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.10 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yield in effect at April
30, 2001 was 3.50%.

In connection with the offering of AMPS, the Board of Directors
reclassified 40,000 shares of unissued capital stock as AMPS. AMPS
shares outstanding during the six months ended April 30, 2001 and
during the year ended October 31, 2000 decreased by 76 and 524
shares, respectively, as a result of shares retired.

The Fund pays commissions to certain broker dealers at the end of
each auction at an annual rate ranging from .25% to 1.00%,
calculated on the proceeds of each auction. For the six months ended
April 30, 2001, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
an affiliate of FAM, earned $42,498 as commissions.

5. Capital Loss Carryforward:

At October 31, 2000, the Fund had a net capital loss carryforward of
approximately $12,294,000, of which $4,320,000 expires in 2007 and
$7,974,000 expires in 2008. This amount will be available to offset
like amounts of any future taxable gains.


                                 F-46

<R>Pro Forma Unaudited Financial Statements for
the Combined Fund</R>

F-47

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited)

(in Thousands)

Value

State     S&P
Ratings Moody’s
Ratings Face
Amount         MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

Alabama — 0.0% Columbia, Alabama, IDB, PCR, Refunding (Alabama Power Company Project), VRDN(a):

A1 VMIG1† $     300    Series A, 4.50% due 5/01/2022 $     — $     300 $     300

A1 VMIG1† 100    Series E, 4.45% due 10/01/2022 — 100 100

Alaska — 1.0% NR* NR* 5,050 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 5,014 — 5,014

Arizona — 1.9% AAA Aaa 1,460 Arizona State Wastwater Management Authority, Wastewater Treatment Financial Assistance Revenue Bonds, Series A, 5.60% due 7/01/2006(b)(c) 1,593 — 1,593

Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds (America West Airlines Inc. Project), AMT:

NR* B3 10,000    6.25% due 6/01/2019 6,800 1,700 8,500

NR* B3 6,900    6.30% due 4/01/2023 4,465 1,348 5,813

California — 1.3%
AAA NR* 4,000 California State, GO, Refunding, 5.75% due 12/01/2011(e) 4,366 — 4,366

AAA Aaa 3,000 California State University and Colleges, Student Union Revenue Bonds (Chico), Series B, 4.375% due 11/01/2028(e) — 2,493 2,493

AAA Aaa 1,560 Centinela Valley, California, Union High School District, GO, Series A, 5.875% due 8/01/2024(e) — 1,645 1,645

Los Angeles County, California, Schools Regionalized Business Services, COP, Pooled Financing, Series A(c):

AAA Aaa 1,430    5.90%** due 8/01/2019 — 518 518

AAA Aaa 2,510    6%** due 8/01/2029 — 498 498

AA Aa3 1,250 Sacramento County, California, Sanitation District Financing Authority Revenue Refunding Bonds, Trust Receipts, Class R, Series A, 7.597% due 12/01/2019(k) — 1,389 1,389

Colorado — 3.4% NR* Aaa 9,110 Broomfield, Colorado, COP (Open Space Park and Recreational Facilities), 5.75% due 12/01/2015(c) 4,948 4,715 9,663

AA Aa2 1,500 Colorado HFA Revenue Refunding Bonds (S/F Program), AMT, Series D-2, 6.90% due 4/01/2029 — 1,668 1,668

Denver, Colorado, City and County Airport Revenue Bonds, AMT, Series D:

A Aaa 700    7.75% due 11/15/2001(b) 731 — 731

A A2 8,000    7.75% due 11/15/2013 9,656 — 9,656

NR* NR* $6,500 Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue Bonds (Pavilions), AMT, 7.75% due 9/01/2016 5,291 $1,587 6,878

</R>

F-48

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited) (continued)

(in Thousands)

Value

State     S&P
Ratings Moody’s
Ratings Face
Amount         MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

Colorado — 3.4% NR* NR* $     690 Mountain Village Metropolitan District, Colorado, San Miguel County, GO, Refunding, 7.95% due 12/01/2003 $            716 $            — $          716

NR* NR* 240 San Miguel County, Colorado (Mountain Village Metropolitan District), GO, Refunding, 7.95% due 12/01/2003(b) 259 — 259

Connecticut — 3.4% NR* NR* 725 Connecticut State Development Authority, IDR (AFCO Cargo BDL-LLC Project), AMT, 7.35% due 4/01/2010 — 733 733

BBB Baa2 22,000 Connecticut State Development Authority, PCR, Refunding (Connecticut Light and Power Company), Series A, 5.85% due 9/01/2028 21,528 — 21,528

AA Aa2 4,000 Connecticut State, GO, Refunding, Series C, 5.375% due 12/15/2013 4,210 — 4,210

NR* Aaa 2,175 Connecticut State Special Tax Obligation Revenue Bonds, RIB, Series 372, 7.78% due 12/01/2017(h)(k) — 2,526 2,526

Florida — 3.7% Florida State Turnpike Authority, Turnpike Revenue Bonds (Department of Transportation), Series B:

AA- Aa3 1,755    5.25% due 7/01/2021 — 1,744 1,744

AA- Aa3 1,850    5.25% due 7/01/2022 — 1,836 1,836

NR* NR* 12,000 Hillsborough County, Florida, IDA, Exempt Facilities Revenue Bonds (National Gypsum), AMT, Series A, 7.125% due 4/01/2030 6,840 — 6,840

A1+ VMIG1† 200 Martin County, Florida, PCR, Refunding (Florida Power & Light Company Project), VRDN, 4.55% due 7/15/2022(a) — 200 200

NR* B1 2,260 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida Education and Research Foundation Project), Series A, 6.85% due 9/01/2013 — 2,019 2,019

AAA Aaa 19,200 Pinellas County, Florida, Housing Authority, Housing Revenue Bonds (Affordable Housing Program), 4.60% due 12/01/2010(i) 15,011 4,203 19,214

Georgia — 1.9% AAA Aaa 12,140 Atlanta, Georgia, Airport Revenue Refunding Bonds, Series A, 5.875% due 1/01/2016(h) 13,002 — 13,002

AAA Aa2 3,250 Georgia State HFA, S/F Mortgage Revenue Refunding Bonds, Series A, Sub-Series A-1, 6.125% due 12/01/2015(d) — 3,328 3,328

</R>

F-49

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited) (continued)

(in Thousands)

Value

State     S&P
Ratings Moody’s
Ratings Face
Amount         MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

Georgia — 1.9% A1 VMIG1† $     400 Monroe County, Georgia, Development Authority, PCR, Refunding (Georgia Power Company Plant-Scherer), VRDN, 4.40% due 9/01/2029(a) $            400 $               — $       400

Idaho — 0.0% AA NR* 2,450 Idaho Housing Agency, S/F Mortgage Revenue Refunding Bonds, AMT, Senior Series C-2, 7.15% due 7/01/2023 2,507 — 2,507

Illinois — 5.9% NR* NR* 910 Beardstown, Illinois, IDR (Jefferson Smurfit Corp. Project), 8% due 10/01/2016 — 936 936

AAA Aaa 10,000 Chicago, Illinois, GO, Series A, 6.75% due 7/01/2010(b)(h) 11,757 — 11,757

NR* Aaa 2,465 Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT, Series B, 7.625% due 9/01/2027(f)(g)(l) 2,813 — 2,813

BBB+ Baa1 2,750 Illinois Development Finance Authority, PCR, Refunding (Illinois Power Company Project), Series A, 7.375% due 7/01/2021 2,988 — 2,988

AAA Aaa 3,285 Illinois Development Finance Authority Revenue Bonds (Presbyterian Home Lake Project), Series B, 6.30% due 9/01/2022(i) — 3,466 3,466

NR* NR* 2,500 Illinois Educational Facilities Authority Revenue Refunding Bonds (Chicago OsteopathicHealth System), 7.25% due 11/15/2019(b) 3,021 — 3,021

NR* Ba3 1,250 Illinois Health Facilities Authority Revenue Bonds (Holy Cross Hospital Project), 6.70% due 3/01/2014 — 1,044 1,044

Illinois State, GO, First Series(e):

AAA Aaa 7,000    5.75% due 12/01/2013 7,495 — 7,495

AAA Aaa 7,500    5.75% due 12/01/2014 7,971 — 7,971

AAA Aaa 8,000 Metropolitan Pier and Exposition Authority, Illinois, Hospitality Facilities Revenue Bonds (McCormick Place Convention Center), 7% due 7/01/2026(m) 9,839 — 9,839

Indiana — 0.0% BB- Ba2 3,500 East Chicago, Indiana, Solid Waste Disposal Revenue Bonds (USG Corporation Project), AMT, 6.375% due 8/01/2029 1,540 — 1,540

A1+ VMIG1† 1,000 Princeton, Indiana, PCR, Refunding (PSI Energy Incorporated Project), VRDN, 4.35% due 4/01/2022(a) — 1,000 1,000

Kentucky — 1.0% NR* A3 4,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds (TJ International Project), AMT, 7% due 6/01/2024 4,165 — 4,165

</R>

F-50

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited) (continued)

(in Thousands)

Value

State     S&P
Ratings Moody’s
Ratings Face
Amount         MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

Louisiana — 6.5% NR* A3 $20,000 Lake Charles, Louisiana, Harbor and Terminal District, Port Facilities Revenue Refunding Bonds (Trunkline Long Company Project), 7.75% due 8/15/2022 $       21,298 $              — $       21,298

NR* VMIG1† 200 Louisiana State Offshore Terminal Authority, Deepwater Port Revenue Refunding Bonds (First Stage A-Loop Inc.), ACES, 4.50% due 9/01/2006(a) — 200 200

AAA Aaa 11,100 Louisiana State, GO, Series A, 6% due 5/15/2014(e) 11,899 — 11,899

BB- NR* 24,000 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain Company Project), 6.50% due 1/01/2017 18,752 3,750 22,502

Maryland — 1.2% NR* NR* 10,050 Maryland State Energy Financing Administration, Limited Obligation Revenue Bonds (Cogeneration- AES Warrior Run), AMT, 7.40% due 9/01/2019 7,257 3,088 10,345

Massachusetts — 4.1% AA- Aa2 4,000 Massachusetts State, Consolidated Loan, GO, Series C, 5.75% due 10/01/2011 4,384 — 4,384

AA- Aa2 14,035 Massachusetts State, GO, Consolidated Loan, Series B, 5.75% due 6/01/2012 15,146 — 15,146

A NR* 13,030 Massachusetts State Health and Educational Facilities Authority Revenue Bonds (Schepens Eye Research Project), Series A, 6.50% due 7/01/2028 11,390 2,065 13,455

NR* Aaa 2,575 Tantasqua, Massachusetts, Regional School District, GO, 5% due 8/15/2017(i) 2,552 — 2,552

Michigan — 1.0% NR* P1 4,400 Delta County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (Mead- Escanaba Paper), DATES, Series F, 4.40% due 12/01/2013(a) 4,400 — 4,400

AAA Aaa 3,100 Michigan State Hospital Finance Authority Revenue Refunding Bonds, INFLOS, 8.311% due 2/15/2022(i)(k) 3,294 — 3,294

Minnesota — 0.0% NR* Aa3 1,000 Minneapolis, Minnesota, M/F Housing Revenue Bonds (Gaar Scott Loft Project), AMT, 5.95% due 5/01/2030 — 1,010 1,010

AA+ Aa1 2,415 Minnesota State, HFA, S/F Mortgage Revenue Bonds, AMT, Series A, 7.05% due 7/01/2022 2,448 — 2,448

Mississippi — 4.1% A A3 16,800 Lowndes County, Mississippi, Solid Waste Disposal and PCR, Refunding (Weyerhaeuser Company Project), Series A, 6.80% due 4/01/2022 18,646 — 18,646

</R>

F-51

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited) (continued)

(in Thousands)

Value

State     S&P
Ratings Moody’s
Ratings Face
Amount         MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

Mississippi — 4.1% BBB- Ba1 $    3,150 Mississippi Business Finance Corporation, Mississippi, PCR, Refunding (System Energy Resources Inc. Project), 5.875% due 4/01/2022 $          — $       2,853 $     2,853

AA Aa3 11,380 Mississippi State, GO, Capital Improvement, 5.75% due 11/01/2014 12,152 — 12,152

NR* P1 1,800 Perry County, Mississippi, PCR, Refunding (Leaf River Forest Project), VRDN, 4.50% due 3/01/2002(a) — 1,800 1,800

Missouri — 1.0% Fenton, Missouri, Tax Increment Revenue Refunding and Improvement Bonds (Gravois Bluffs):

NR* NR* 1,805    6.75% due 10/01/2015 1,813 — 1,813

NR* NR* 2,800    7% due 10/01/2021 2,830 — 2,830

AAA NR* 3,725 Missouri State Housing Development Commission, S/F Mortgage Revenue Bonds, Homeownership, AMT, Series B, 7.55% due 9/01/2027(f)(g) 3,987 — 3,987

New Jersey — 4.6% New Jersey EDA, Construction Revenue Bonds, GO (School Facilities), Series A(c):

AAA Aaa 5,000    5.50% due 6/15/2012 5,375 — 5,375

AAA Aaa 5,000    5.50% due 6/15/2013 5,366 — 5,366

New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines Inc. Project), AMT:

BB Ba2 2,000    6.25% due 9/15/2019 1,892 — 1,892

BB Ba2 8,400    5.50% due 4/01/2028 7,028 — 7,028

BB Ba2 5,180    6.25% due 9/15/2029 4,814 — 4,814

BB Ba2 3,750    7% due 11/15/2030 3,800 — 3,800

BB Ba2 6,750    7.20% due 11/15/2030 6,966 — 6,966

AAA Aaa 4,450 New Jersey EDA, Water Facilities Revenue Bonds (New Jersey American Water Company Inc. Project), AMT, 6.50% due 4/01/2022(h) 4,592 — 4,592

BBB- Baa3 390 New Jersey Health Care Facilities Financing Authority Revenue Refunding Bonds (Saint Elizabeth Hospital Obligation Group), 6% due 7/01/2027(e) 323 — 323

New York — 22.5% AAA Aaa 1,865 Dutchess County, New York, Resource Recovery Agency Revenue Bonds (Solid Waste System), Series A, 5.25% due 1/01/2011(e) 1,957 — 1,957

A1+ VMIG1† 5,000 Long Island Power Authority, New York, Electric System Revenue Bonds, VRDN, Sub-Series 6, 3.80% due 5/01/2033(a) 5,000 — 5,000

NR* Aaa 5,595 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds, RITR, Series 9, 7.77% due 7/01/2006(b)(h)(k) 6,948 — 6,948

</R>

F-52

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited) (continued)

(in Thousands)

Value

State     S&P
Ratings Moody’s
Ratings Face
Amount         MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

New York — 22.5% NR* A $    5,500 New York City, New York, City IDA, Special Facilities Revenue Bonds, RITR, AMT, Series RI-5, 7.295% due 1/01/2024(k) $       5,879 $              — $         5,879

AAA Aaa 10,000 New York City, New York, City Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, Series B, 5.75% due 6/15/2026(e) 10,295 — 10,295

NR* Aaa 3,000 New York City, New York, City Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, RITR, Series 11, 7.32% due 6/15/2026(i)(k) — 3,216 3,216

New York City, New York, City Transitional Finance Authority Revenue Bonds:

AA+ Aa2 14,000    Future Tax Secured, Series B,
    4.75% due 11/01/2023 8,167 4,537 12,704

AA+ Aa2 10,000    Future Tax Secured, Series B,
    4.75% due 11/15/2023 9,069 — 9,069

AA+ Aa2 2,000    Future Tax Secured, Series C,
    4.75% due 5/01/2023 1,824 — 1,824

AAA Aaa 11,765    Series C, 5% due 5/01/2029(e) 11,106 — 11,106

New York City, New York, GO:

A A2 4,700    Series B, 5.75% due 8/01/2014 5,003 — 5,003

A Aaa 385    Series C, Sub-Series C-1,
    7.50% due 8/01/2002(b) 410 — 410

New York City, New York, GO, Refunding, Series G:

AAA Aaa 2,090    5.75% due 2/01/2014(e) — 2,199 2,199

AAA Aaa 2,000    5.75% due 2/01/2014(h) — 2,105 2,105

AAA Aaa 10,000 New York City, New York, GO, Refunding, Trust Receipts, Series R, 8.272% due 5/15/2014(h)(k) 12,599 — 12,599

AAA Aaa 3,240 New York State Dormitory Authority Revenue Refunding Bonds (Mental Health Services Facilities Improvement), Series D, 5.25% due 8/15/2011(e) — 3,392 3,392

New York State Dormitory Authority, Service Contract Revenue Bonds (School District Rescue), Series A:

NR* NR* 1,410    5.75% due 4/01/2010 1,545 — 1,545

NR* NR* 1,145    5.75% due 4/01/2011 1,256 — 1,256

New York State Dormitory Authority, State University Educational Facilities Revenue Refunding Bonds, Series 1989(e):

AAA NR* 7,500    6% due 5/15/2015 8,203 — 8,203

AAA NR* 3,750    6% due 5/15/2016 4,084 — 4,084

AA+ Aa1 17,575 New York State Environmental Facilities Corporation, PCR, Refunding, RITR, Class R, Series 9, 7.198% due 6/15/2014(k) 19,389 — 19,389

</R>

F-53

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited) (continued)

(in Thousands)

Value

State                                                 S&P
Ratings Moody’s
Ratings Face
Amount                                                MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

New York — 22.5% AA+ Aa1 $     5,260 New York State Environmental Facilities Corporation, PCR, Refunding, State Water Revolving Fund (New York City Municipal Water), 5.75% due 6/15/2012 $        5,767 $            — $      5,767

New York State Thruway Authority, Highway and Bridge Trust Fund Revenue Bonds, Series A(i):

AAA Aaa 2,850    6% due 4/01/2015 — 3,114 3,114

AAA Aaa 2,625    6% due 4/01/2016 — 2,857 2,857

AAA Aaa 9,000 Port Authority of New York and New Jersey, Consolidated Revenue Bonds, 116th Series, 4.25% due 10/01/2026(h) 7,601 — 7,601

AAA NR* 4,360 Port Authority of New York and New Jersey Revenue Refunding Bonds, DRIVERS, AMT, Series 177, 7.67% due 10/15/2032(e) 4,887 — 4,887

AAA Aaa 41,150 Port Authority of New York and New Jersey, Special Obligation Revenue Bonds (JFK International Air Terminal Project), AMT, Series 6, 5.75% due 12/01/2025(e) 39,460 2,936 42,396

North Carolina — 1.0% BBB Baa3 4,750 North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds, Series D, 6.75% due 1/01/2026 4,980 — 4,980

AA Aa2 1,000 North Carolina HFA, Home Ownership Revenue Bonds, AMT, Series 8-A, 6.20% due 7/01/2016 1,049 — 1,049

AA Aa2 1,795 North Carolina, HFA, S/F Revenue Bonds, Series II, 6.20% due 3/01/2016(d) — 1,878 1,878

Ohio — 2.1% Bowling Green State University, Ohio, General Receipt Revenue Bonds(h):

AAA Aaa 1,125    5.75% due 6/01/2013 — 1,211 1,211

AAA Aaa 1,040    5.75% due 6/01/2014 — 1,111 1,111

Cuyahoga County, Ohio, Mortgage Revenue Bonds (West Tech Apartments Project), AMT(g):

NR* Aaa 1,410    5.75% due 9/20/2020 1,422 — 1,422

NR* Aaa 2,250    5.85% due 9/20/2030 2,270 — 2,270

NR* Aa1 2,000 Dublin, Ohio, GO, Refunding and Improvement, Series A, 4.625% due 12/01/2018 1,833 — 1,833

NR* NR* 2,175 Lucas County, Ohio, Health Care Facility Revenue Refunding and Improvemt Bonds (Sunset Retirement Communities), Series A, 6.625% due 8/15/2030 2,205 — 2,205

BBB B2 19,000 Ohio State Solid Waste Disposal Revenue Bonds (USG Corporation Project), AMT, 5.60% due 8/01/2032 8,360 — 8,360

</R>

F-54

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited) (continued)

(in Thousands)

Value

State                                                 S&P
Ratings Moody’s
Ratings Face
Amount                                                MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

Oklahoma — 1.0% Holdenville, Oklahoma, Industrial Authority, Correctional Facility Revenue Bonds(b)(j):

AAA NR* $   1,650    6.60% due 7/01/2006 $           — $       1,859 $        1,859

AAA NR* 3,250    6.70% due 7/01/2006 3,666 — 3,666

Oregon — 2.4% AAA Aaa 14,000 Oregon Health Sciences University Revenue Refunding Bonds, Series A, 5.16%** due 7/01/2021(e) 4,533 — 4,533

Oregon State Department of Administrative Services, COP, Series A(c):

AAA Aaa 4,405    6% due 5/01/2015 4,933 — 4,933

AAA Aaa 3,500    6% due 5/01/2016 3,920 — 3,920

AA Aa2 $7,000 Oregon State, GO, Refunding (Veterans Welfare), Series 80A, 5.70% due 10/01/2032 7,104 — 7,104

Pennsylvania — 8.5% AAA Aaa 4,200 Delaware River Port Authority of Pennsylvania and New Jersey Revenue Bonds, 5.75% due 1/01/2015(i) — 4,474 4,474

AAA Aaa 5,000 Lehigh County, Pennsylvania, IDA, PCR, Refunding (Pennsylvania Power and Light Company Project), Series B, 6.40% due 9/01/2029(e) 5,278 — 5,278

AAA Aaa 9,675 Pennsylvania Convention Center Revenue Refunding Bonds, Series A, 6.70% due 9/01/2014(e) 10,631 — 10,631

Pennsylvania Economic Development Financing Authority, Exempt Facilities Revenue Bonds (National Gypsum Company), AMT:

NR* NR* 18,850    Series A, 6.25% due 11/01/2027 8,978 919 9,897

NR* NR* 4,000    Series B, 6.125% due 11/01/2027 1,030 1,030 2,060

AA+ Aa2 5,135 Pennsylvania HFA, S/F Mortgage Refunding Bonds, AMT, Series 42, 6.85% due 4/01/2025 5,383 — 5,383

AAA Aaa 16,270 Pennsylvania State Higher Educational Facilities Authority, Health Services Revenue Refunding Bonds (Allegheny Delaware Valley Obligation), Series C, 5.875% due 11/15/2016(e) 16,865 — 16,865

Philadelphia, Pennsylvania, Authority for IDR, Refunding, Commercial Development:

NR* NR* 3,650    (Days Inn), Series B,
    6.50% due 10/01/2027 3,550 — 3,550

NR* NR* 4,000    (Doubletree), Series A,
    6.50% due 10/01/2027 2,918 973 3,891

AAA Aaa 10,000 Washington County, Pennsylvania, Capital Funding Authority Revenue Bonds (Capital Projects and Equipment Program), 6.15% due 12/01/2029(c) 11,101 — 11,101

Rhode Island — 1.0% AAA Aaa 920 Cranston, Rhode Island, GO, Refunding, 5.25% due 7/01/2015(e) 936 — 936

</R>

F-55

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited) (continued)

(in Thousands)

Value

State                                                 S&P
Ratings Moody’s
Ratings Face
Amount                                                MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

Rhode Island — 1.0% Rhode Island State Health and Educational Building Corporation, Higher Education Revenue Bonds (Roger Williams University):

AA NR* $     2,750    5.375% due 11/15/2022 $      2,663 $         — $      2,663

AA NR* 2,250    5.50% due 11/15/2030 2,189 — 2,189

Woonsocket, Rhode Island, GO(h):

NR* Aaa 1,225    6% due 10/01/2017 1,325 — 1,325

NR* Aaa 1,195    6% due 10/01/2018 1,289 — 1,289

South Carolina — 1.0% AAA Aaa 1,000 Fairfield County, South Carolina, PCR (South Carolina Electric and Gas), 6.50% due 9/01/2014(e) — 1,060 1,060

BBB+ Baa1 2,500 Richland County, South Carolina, PCR, Refunding (Union Camp Corporation Project), Series C, 6.55% due 11/01/2020 2,554 — 2,554

South Dakota — 0.0% BBB+ Baa3 900 South Dakota State Health and Educational Facilities Authority Revenue Refunding Bonds (Prairie Lakes), 7.25% due 4/01/2022 912 — 912

Tennessee — 1.4% Elizabethton, Tennessee, Health and Educational Facilties Board, Hospital Revenue Refunding and Improvement Bonds, First Mortgage, Series B(e):

AAA Aaa 2,005    6% due 7/01/2011 2,193 — 2,193

AAA Aaa 2,125    6% due 7/01/2012 2,326 — 2,326

AAA Aaa 2,255    6.25% due 7/01/2013 2,514 — 2,514

NR* NR* 4,610 Hardeman County, Tennessee, Correctional Facilities Corporation Revenue Bonds, 7.75% due 8/01/2017 2,979 1,599 4,578

Texas — 5.9% Denton, Texas, Utility System Revenue Refunding and Improvement Bonds(c):

AAA Aaa 1,000    5.125% due 12/01/2017 — 978 978

AAA Aaa 3,515    5.125% due 12/01/2018 3,414 — 3,414

Gregg County, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds (Good Shepherd Medical Center Project):

AA NR* 3,000    6.875% due 10/01/2020 3,290 — 3,290

AA NR* 2,000    6.375% due 10/01/2025 2,102 — 2,102

AA- Aa3 5,000 Guadalupe-Blanco River Authority, Texas, Sewage and Solid Waste Disposal Facility Revenue Bonds (E. I. du Pont de Nemours and Company Project), AMT, 6.40% due 4/01/2026 5,232 — 5,232

Harris County, Texas, Health Facilities Development Corporation, Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN(a):

A1+ NR* 6,800    4.35% due 12/01/2025 6,800 — 6,800

A1+ NR* 2,700    4.50% due 12/01/2026 2,700 — 2,700

</R>

F-56

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited) (continued)

(in Thousands)

Value

State                                                 S&P
Ratings Moody’s
Ratings Face
Amount                                                MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

Texas — 5.9% Houston, Texas, Airport System, Special Facilities Revenue Bonds (Continental Airlines Terminal Improvement), AMT:

BB Ba1 $     4,500    Series B, 6.125% due 7/15/2027 $      4,022 $           — $       4,022

BB Ba1 1,250    Series C, 6.125% due 7/15/2027 1,117 — 1,117

Lower Colorado River Authority, Texas, PCR (Samsung Austin Semiconductor), AMT:

BBB- Baa3 6,200    6.375% due 4/01/2027 6,080 — 6,080

BBB- Baa3 6,000    6.95% due 4/01/2030 4,117 2,058 6,175

San Antonio, Texas, Water Revenue Refunding Bonds:

AA- Aa3 1,000    5.875% due 5/15/2016 1,055 — 1,055

AA- Aa3 1,000    5.875% due 5/15/2017 1,050 — 1,050

AAA Aaa 7,020 Tyler, Texas, Waterworks and Sewer Revenue Bonds, 5.70% due 9/01/2030(h) 7,141 — 7,141

Utah — 0.0% AAA Aaa 1,545 Utah State Board of Regents Revenue Refunding Bonds (University of Utah Research Facilities), Series A, 5.50% due 4/01/2018(e) 1,570 — 1,570

AAA NR* 510 Utah State, HFA, S/F Mortgage Revenue Bonds, AMT, Senior-Series E-2, 7.15% due 7/01/2024(d) 521 — 521

NR* NR* 1,000 Tooele County, Utah, PCR, Refunding (Laidlaw Environmental), AMT, Series A, 7.55% due 7/01/2027(n) — 28 28

Virginia — 2.7% AAA Aaa 5,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue Refunding Bonds, AMT, Series A, 6.10% due 2/01/2011(c) — 5,557 5,557

NR* NR* 10,400 Peninsula Ports Authority, Virginia, Revenue Refunding Bonds (Port Facility-Zeigler Coal), 6.90% due 5/02/2022(n) 3,806 770 4,576

NR* NR* 1,000 Pittsylvania County, Virginia, IDA Revenue Refunding Bonds, Exempt-Facility, AMT, Series A, 7.55% due 1/01/2019 941 — 941

Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:

NR* Ba1 6,200    First Tier, Sub-Series C,
    6.25%** due 8/15/2031 — 636 636

BBB- Baa3 11,960    Senior Series B,
    5.95%** due 8/15/2029 — 1,657 1,657

Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds, Senior Series B:

BBB- Baa3 9,100    5.90%** due 8/15/2019 2,558 — 2,558

BBB- Baa3 12,840    7.35%** due 8/15/2029 1,779 — 1,779

AA+ Aa1 5,125 Virginia State HDA, Commonwealth Mortgage Revenue Bonds, Series A, 7.10% due 1/01/2025 5,267 — 5,267

</R>

F-57

<R>COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001 (Unaudited) (concluded)

(in Thousands)

Value

State                                                 S&P
Ratings Moody’s
Ratings Face
Amount                                                MuniYield
Fund    Municipal
Strategy
Fund Pro Forma for
Combined
Fund

Washington — 0.0% AAA Aaa $     2,000 Clark County, Washington, Sewer Revenue Refunding Bonds, Series B, 5.25% due 12/01/2015(c) $          — $       2,053 $     2,053

AAA Aaa 1,500 Grant County, Washington, Public Utility District No. 002, Electric Revenue Bonds, Series G, 4.75% due 1/01/2017(e) — 1,385 1,385

West Virginia — 0.0% NR* A3 3,000 Upshur County, West Virginia, Solid Waste Disposal Revenue Bonds (TJ International Project), AMT, 7% due 7/15/2025 3,146 — 3,146

Wisconsin — 1.0% NR* Aaa 3,675 Milwaukee County, Wisconsin, Airport Revenue Bonds, AMT, Series A, 6% due 12/01/2019(h) — 3,849 3,849

AAA Aaa 3,585 Wisconsin State, GO, AMT, Series B, 6.20% due 11/01/2026(e) 3,721 — 3,721

AA NR* 1,385 Wisconsin State Health and Educational Facilties Authority Revenue Bonds (Howard Young Medical Center Inc. Project), 5.125% due 8/15/2028 1,237 — 1,237

Wyoming — 0.0% AA NR* 2,500 Wyoming Student Loan Corporation, Student Loan Revenue Refunding Bonds, Series A, 6.20% due 6/01/2024 — 2,594 2,594

Puerto Rico — 2.3% AAA Aaa 15,000 Puerto Rico Commonwealth, Highway and Transportation Authority, Transportation Revenue Bonds, Trust Receipts, Class R, Series B, 7.372% due 7/01/2035(e)(k) 14,252 2,850 17,102

AAA Aaa 2,500 Puerto Rico Electric Power Authority, Power Revenue Bonds, Trust Receipts, Class R, Series 16 HH, 7.122% due 7/01/2013(k) 2,899 — 2,899

Total Investments
    (Cost — $866,420) — 98.8% 735,485 120,647 856,132

Other Assets
    Less Liabilities — 1.2% 9,924 832 3,923 ††

Net Assets — 100.0% $745,409 $121,479 $860,055 ††

(a) The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2001.

(b) Prerefunded.

(c) AMBAC Insured.

(d) FHA Insured.

(e) MBIA Insured.

(f) FNMA Collateralized.

(g) GNMA Collateralized.

(h) FGIC Insured.

(i) FSA Insured.

(j) Connie Lee Insured.

(k) The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2001.

(footnotes continued on next page)

</R>

F-58

<R>(footnotes continued from previous page)

(l) FHLMC Collateralized.

(m) Escrowed to maturity.

(n) Non-income producing security.

* Not Rated.

** Represents a zero coupon bond; the interest rate shown reflects the effective yield at the time of purchase by the Fund.

† Highest short-term rating by Moody's Investors Service, Inc.

†† Amounts reflect Pro Forma adjustment to the Statement of Assets, Liabilities and Capital.

See Notes to Financial Statements

Portfolio Abbreviations

To simplify the listings of the Funds portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list below.

ACES^SM Adjustable Convertible Extendible Securities

AMT Alternative Minimum Tax (subject to)

COP Certificates of Participation

DATES Daily Adjustable Tax-Exempt Securities

DRIVERS Derivative Inverse Tax-Exempt Receipts

EDA Economic Development Authority

GO General Obligation Bonds

HDA Housing Development Authority

HFA Housing Finance Agency

IDA Industrial Development Authority

IDB Industrial Development Bonds

IDR Industrial Development Revenue Bonds

INFLOS Inverse Floating Rate Municipal Bonds

M/F Multi-Family

PCR Pollution Control Revenue Bonds

RIB Residual Interest Bonds

RITR Residual Interest Trust Receipts

S/F Single-Family

VRDN Variable Rate Demand Notes

</R>

F-59

<R> PRO FORMA COMBINED STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
FOR MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
As of April 30, 2001
(Unaudited)

     The following unaudited Pro Forma Combined Statement of Assets, Liabilities and Capital has been derived from the Statement of Assets, Liabilities and Capital of MuniYield Fund, Inc. (“MuniYield”) and the Statement of Assets, Liabilities and Capital of Merrill Lynch Municipal Strategy Fund, Inc. (“Municipal Strategy”), each at April 30, 2001 and such information has been adjusted to give effect to the Reorganization as if the Reorganization had occurred on April 30, 2001. The Pro Forma Combined Statement of Assets, Liabilities and Capital is presented for informational purposes only and does not purport to be indicative of the financial condition that actually would have resulted if the Reorganization had been consummated on April 30, 2001. This Pro Forma Combined Statement of Assets, Liabilities and Capital should be read in conjunction with the Funds’ financial statements and related notes thereto which are included in this Proxy Statement and Prospectus.

MuniYield
Fund
Municipal
Strategy
Fund
Adjustments
Pro Forma
for
Combined
Fund

Assets:

Investments, at value* $735,484,577 $120,646,530 $856,131,107

Cash 36,465 23,957 60,422

Receivables:

   Interest 13,291,362 2,023,863 15,315,225

   Securities sold 351,866 — 351,866

Deferred organization expenses — 174 174

Prepaid expenses and other assets 87,775 37,610 125,385

Total assets 749,252,045 122,732,134 871,984,179

Liabilities:

Payables:

   Securities purchased 3,441,463 985,299 4,426,762

   Investment adviser 301,380 39,029 340,409

   Dividends to shareholders 45,650 118,957 $6,707,462 6,872,069

   Administration fees — 24,393 24,393

Accrued expenses and other liabilities 54,612 85,565 125,800 (1) 265,977

Total liabilities 3,843,105 1,253,243 6,833,262 11,929,610

Net Assets $745,408,940 $121,478,891 $(6,833,262 ) $860,054,569

Capital:

Capital Stock (200,000,000
      shares authorized)

      Preferred Stock***, shares of AMPS**
          issued and outstanding† at $25,000 per
          share liquidation preference $250,000,000 $ 43,000,000 $293,000,000

      Common Stock, par value $.10 per share
          issued and outstanding†† 3,848,233 887,171 $ (270,501 ) 4,464,903

Paid-in capital in excess of par 541,046,599 93,476,958 144,701 634,668,258

Undistributed investment income — net 6,673,054 34,408 (6,707,462 ) —

Accumulated realized capital losses on
      investments — net (38,225,209 ) (9,137,861 ) (47,363,070 )

Accumulated distributions in excess of
      realized capital gains on investments — net (11,020,699 ) (3,406,030 ) (14,426,729 )

Unrealized depreciation on investments — net (6,913,038 ) (3,375,755 ) (10,288,793 )

Total capital $745,408,940 $121,478,891 $(6,833,262 ) $860,054,569

Net asset value per Common Share $         12.87 $          8.85 $         12.70

      *     Identified Cost $742,397,615 $124,022,285 $866,419,900

      †     Shares issued and outstanding 10,000 1,720 11,720

    ††     Shares issued and outstanding 38,482,330 8,871,713 (2,705,008 ) 44,649,035

** Auction Market Preferred Stock

*** Shares of MuniYield AMPS Series A, B, C, D and E have a par value of $.05; shares of Municipal Strategy AMPS Series A have a par value of $.10.

(1) Reflects the charge for estimated Reorganization expenses of $125,800 attributable to Municipal Strategy. The estimated Reorganization expenses of $95,400 attributable to MuniYield will be paid by Fund Asset Management, L.P. (“FAM”).

See Notes to Financial Statements.</R>

F-60

<R>PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
For the Six Months Ended April 30, 2001
(Unaudited)

     The following unaudited Pro Forma Combined Statement of Operations has been derived from the Statement of Operations of the respective Funds as of April 30, 2001 and such information has been adjusted to give effect to the Reorganization as if the Reorganization had occurred at the beginning of the period. The Pro Forma Combined Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that actually would have resulted if the Reorganization had been consummated at the beginning of the period nor which may result from future operations. This Pro Forma Combined Statement of Operations should be read in conjunction with the Funds’ financial statements and related notes thereto which are included in this Proxy Statement and Prospectus.

MuniYield
Fund
Municipal
Strategy
Fund
Adjustments
Pro Forma
for
Combined
Fund(2)

Investment Income:

Interest and amortization of premium
    and discount earned $22,320,219 $3,577,635 $25,897,854

Expenses:

Investment advisory fees 1,877,871 307,998 $              — 2,185,869

Commission fees 307,837 72,014 — 379,851

Administrative fees — 153,999 (153,999 )(1) —

Accounting services 124,737 19,318 (11,455 )(1) 132,600

Professional fees 41,167 89,206 (89,206 )(1) 41,167

Transfer agent fees 32,517 68,207 (62,482 )(1) 38,242

Printing and shareholder reports 39,868 33,953 (44,371 )(1) 29,450

Trustees fees and expenses 19,946 18,366 (18,366 )(1) 19,946

Custodian fees 27,344 7,075 (3,485 )(1) 30,934

Registration fees — 24,210 (24,210 )(1) —

Listing fees 19,747 — — 19,747

Pricing fees 10,949 4,151 (3,600 )(1) 11,500

Amortization of organization expenses — 167 (167 )(1) —

Other 16,994 26,765 (25,389 )(1) 18,370

Total expenses before reimbursement 2,518,977 825,429 (436,730 ) 2,907,676

Reimbursement of expenses 0 (61,600 ) 61,600 (3) 0

Total expenses after reimbursement 2,518,977 763,829 (375,130 ) 2,907,676

Investment income — net 19,801,242 2,813,806 375,130 22,990,178

Realized & Unrealized Gain (Loss) on
    Investments — Net

Realized loss on investments — net (569,739 ) (104,019 ) — (673,758 )

Change in unrealized appreciation/depreciation
    on investments — net (6,126,753 ) 921,310 — (5,205,443 )

Net Increase in Net Assets Resulting
    from Operations $13,104,750 $3,631,097 $        375,130 $17,110,977

(1) Reflects anticipated savings as a result of the Reorganization through fewer audits and consolidation of printing, accounting and other services and excludes non-recurring organization expenses attributable to Municipal Strategy.

(2) This Pro Forma Combined Statement of Operations excludes non-recurring estimated Reorganization expenses of $125,800 attributable to Municipal Strategy. The estimated Reorganization expenses of $95,400 attributable to MuniYield will be paid by FAM.

(3) Since commencement of operations of Municipal Strategy to the present, FAM has waived a portion of the advisory fee and/or reimbursed certain other expenses. The fee waiver and/or expense reimbursement is voluntary and may be reduced or discontinued by FAM at any time without notice to stockholders. It is not anticipated that FAM will waive any portion of its advisory fee or reimburse expenses with respect to the Combined Fund after the Reorganization.

See Notes to Financial Statements.</R>

F-61

<R>PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR MUNIYIELD FUND, INC. AND
MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.
For the Year Ended October 31, 2000
(Unaudited)

     The following unaudited Pro Forma Combined Statement of Operations has been derived from the Statements of Operations of the respective Funds for the year ended October 31, 2000 and such information has been adjusted to give effect to the Reorganization as if the Reorganization had occurred at the beginning of the fiscal year. The Pro Forma Combined Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that actually would have resulted if the Reorganization had been consummated at the beginning of the fiscal year nor which may result from future operations. The Pro Forma Combined Statement of Operations should be read in conjunction with the Funds’ financial statements and related notes thereto which are included in this Proxy Statement and Prospectus.

MuniYield
Fund
Municipal
Strategy
Fund
Adjustments
Pro Forma
for
Combined
Fund(2)

Investment Income:

Interest and amortization of premium
    and discount earned $ 46,717,999 $ 9,185,175 $ 55,903,174

Expenses:

Investment advisory fees 3,743,649 746,301 — 4,489,950

Commission fees 632,528 147,134 — 779,662

Administrative fees — 373,150 (373,150 )(1) —

Accounting services 115,121 86,990 (1,485 )(1) 200,626

Professional fees 90,310 131,037 (131,037 )(1) 90,310

Transfer agent fees 128,681 120,507 (73,588 )(1) 175,600

Printing and shareholder reports 32,881 91,453 (79,334 )(1) 45,000

Trustees fees and expenses 52,397 31,324 (31,324 )(1) 52,397

Custodian fees 51,831 13,403 (4,558 )(1) 60,676

Registration fees — 13,001 (13,001 )(1) —

Listing fees 35,756 — — 35,756

Pricing fees 21,710 8,091 (7,801 )(1) 22,000

Amortization of organization expenses — 62,304 (62,304 )(1) —

Other 53,993 45,816 (39,809 )(1) 60,000

Total expenses before reimbursement 4,958,857 1,870,511 (817,391 ) 6,011,977

Reimbursement of expenses — (149,260 ) 149,260 (3) 0

Total expenses after reimbursement 4,958,857 1,721,251 (668,131 ) 6,011,977

Investment income — net 41,759,142 7,463,924 668,131 49,891,197

Realized & Unrealized Gain (Loss) on
    Investments — Net

Realized loss on investments — net (37,655,470 ) (7,857,686 ) — (45,513,156 )

Change in unrealized appreciation
    on investments — net 34,881,965 6,239,229 — 41,121,194

Net Increase in Net Assets Resulting
    from Operations $ 38,985,637 $ 5,845,467 $         668,131 $ 45,499,235

(1) Reflects anticipated savings as a result of the Reorganization through fewer audits and consolidation of printing, accounting and other services and excludes non-recurring organization expenses attributable to Municipal Strategy.

(2) This Pro Forma Combined Statement of Operations excludes non-recurring estimated Reorganization expenses of $125,800 attributable to Municipal Strategy. The estimated Reorganization expenses of $95,400 attributable to MuniYield will be paid by FAM.

(3) Since commencement of operations of Municipal Strategy to the present, FAM has waived a portion of the advisory fee and/or reimbursed certain other expenses. The fee waiver and/or expense reimbursement is voluntary and may be reduced or discontinued by FAM at any time without notice to stockholders. It is not anticipated that FAM will waive any portion of its advisory fee or reimburse expenses with respect to the Combined Fund after the Reorganization.

See Notes to Financial Statements.</R>

F-62

<R>MUNIYIELD FUND, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

1. Significant Accounting Policies:

MuniYield Fund, Inc. (the “Fund,” which term as used herein shall refer to MuniYield Fund, Inc. after giving effect to the Reorganization with Merrill Lynch Municipal Strategy Fund, Inc. (“Municipal Strategy”) is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal, recurring nature.The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund’s Common Stock is listed on the New York Stock Exchange under the symbol MYD. The following is a summary of significant accounting policies followed by the Fund.

(a) Valuation of investments — Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund’s pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing price as of the close of such exchanges. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter-market, valuation is the last asked price (options written) or the last bid price (options purchased). Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at their fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize 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 Board of Directors.

(b) Derivative financial instruments — The Fund may engage in various portfolio investment strategies to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract.

• Financial futures contracts — The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed

• Options — The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written.

When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received).

Written and purchased options are non-income producing investments.

(c) Income taxes — It is the Fund’s policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required.</R>

F-63

<R> (d) Security transactions and investment income — Security transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. The Fund will adopt the provisions to amortize all premiums and discounts on debt securities effective November 1, 2001, as now required under the new AICPA Audit and Accounting Guide for Investment Companies. The cumulative effect of this accounting change will have no impact on the total net assets of the Fund. The impact of this accounting change has not been determined, but will result in an adjustment to the cost of securities and a corresponding adjustment to net unrealized appreciation/depreciation, based on debt securities held as of October 31, 2001.

(e) Deferred organization and prepaid registration fees — Deferred organization expenses are amortized on a straight-line basis over a period not exceeding five years. Prepaid registration fees are charged to expense as the related shares are issued.

(f) Dividends and distributions — Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. Distributions in excess of realized capital gains are due primarily to differing tax treatments for futures transactions.

2. Investment Advisory Agreement and Transactions with Affiliates:

The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. (“FAM”). The general partner of FAM is Princeton Services, Inc. (“PSI”), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“ML & Co.”), which is the limited partner.

FAM is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of .50% of the Fund’s average weekly net assets, including proceeds from the issuance of Preferred Stock.

For the six months ended April 30, 2001, FAM Distributors Inc. (“FAMD”), which is a wholly-owned subsidiary of Merrill Lynch Group, Inc., earned early withdrawal charges of $32,525 relating to the tender of Municipal Strategy shares.

Prior to January 1, 2001, FAM provided accounting services to the Fund at its cost and the Fund reimbursed FAM for these services. FAM continues to provide certain accounting services to the Fund. The Fund reimburses FAM at its cost for such services. For the fiscal year ended October 31, 2000 and the six month period ended April 30, 2001, the Fund reimbursed FAM an aggregate of $115,121 and $54,031, respectively, for the above described services. For the fiscal year ended October 31, 2001 and the six month period ended April 30, 2001, Municipal Strategy reimbursed FAM an aggregate of $86,990 and $8,000, respectively, for the above described services. The Fund entered into an agreement with State Street Bank and Trust Company (“State Street”), effective January 1, 2001, pursuant to which State Street provides certain accounting services to the Fund. For the six month period ended April 30, 2001, MuniYield paid State Street $70,706 and Municipal Strategy paid State Street $11,318 for these services.

Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co.</R>

F-64

APPENDIX I

INFORMATION PERTAINING TO EACH FUND

General Information Pertaining to Each Fund

Fund
    Defined Term
Used in Appendix I
Fiscal
Year End
State of
Incorporation
Meeting
Time

MuniYield Fund, Inc. MuniYield 10/31 Maryland N/A

Merrill Lynch Municipal Strategy
   Fund, Inc. Municipal Strategy 10/31 Maryland 9:30 a.m.

<R>

Shares of Capital Stock Outstanding
as of the Record Date

Fund
Common Stock
AMPS

MuniYield 38,598,832 10,000

Municipal Strategy   7,919,993   1,720

</R>

Information Pertaining to Directors of MuniYield

<R>Set forth in the table below is information regarding meetings of the Board of Directors and Audit Committee held and the aggregate fees and expenses paid by MuniYield to non-interested Directors during the most recently completed fiscal year.</R>

Board of Directors
Audit Committee

Fund
# Meetings
Held*
Annual Fee
($)**
Per Meeting
Fee ($)***
# Meetings
Held*
Per Meeting
Fee ($)***

Aggregate
Fees and
Expenses ($)

MuniYield 4 227 1,491 4 114 52,397

* Includes meetings held via teleconferencing equipment.

** <R>Each non-interested Director receives an aggregate annual retainer of $100,000 for his or her services to all registered investment companies advised by Fund Asset Management, L.P. (“FAM”) and its affiliate, Merrill Lynch Investment Managers, L.P. (“MLIM”) (“Affiliate-Advised Funds”). The portion of the annual retainer allocated to each Affiliate-Advised Fund is determined quarterly based on the relative net assets of each fund.</R>

*** The fee is payable for each meeting attended in person. A fee is not paid for telephonic meetings. The annual per meeting fees paid to each non-interested Director aggregate $60,000 for all Affiliate-Advised Funds for which the Director serves and are allocated equally among those funds.

Set forth in the table below is information regarding compensation paid by MuniYield to the non-interested Directors during the most recently completed fiscal year.

Fund
Bodurtha
London
May
Perold
Ramo

MuniYield* $7,142 $7,142 $7,142 $7,142 $13,779

* No pension or retirement benefits are accrued as part of the expenses of MuniYield.

<R>Set forth in the table below is information regarding the aggregate compensation paid by all of the Affiliate-Advised Funds, including MuniYield, to the non-interested Directors for the year ended December 31, 2000.</R>

Name of MuniYield Director
Aggregate Compensation from Affiliate-Advised
Funds Paid to Directors($)*

James H. Bodurtha $132,250

Herbert I. London $132,250

Joseph L. May $132,250

Andre F. Perold $132,250

Roberta Cooper Ramo $169,000

* The Directors serve on the boards of Affiliate-Advised Funds as follows: Mr. Bodurtha (30 registered investment companies consisting of 42 portfolios); Mr. London (30 registered investment companies consisting of 42 portfolios); Mr. May (30 registered investment companies consisting of 42 portfolios); Mr. Perold (30 registered investment companies consisting of 42 portfolios); and Ms. Ramo (30 registered investment companies consisting of 42 portfolios).

I-1

Information Pertaining to Directors of Municipal Strategy

<R>Set forth in the table below is information regarding meetings of the Board of Directors and the Nominating and Oversight Committee (the “Audit Committee”) held and the aggregate fees and expenses paid by Municipal Strategy to non-interested Directors during the most recently completed fiscal year.

Board of Directors
Audit Committee

Fund
# Meetings
Held*
Annual Fee
($)**
Per
Meeting
Fee ($)†
# Meetings
Held*
Per
Meeting
Fee ($)***†

Aggregate
Fees and
Expenses

Municipal Strategy 4 4,400 200 4 200 $31,324

* Includes meetings held via teleconferencing equipment.

** The Annual Fee is the combined fee for the Board of Directors and the Audit Committee.</R>

*** The Co-Chairmen of the Audit Committee each receive an additional annual fee of $1,000.

† The fee is payable for each meeting attended in person. A fee is not paid for telephonic meetings.

Set forth in the table below is information regarding compensation paid by Municipal Strategy to the non-interested Directors during the most recently completed fiscal year.

<R>

Fund
Forbes††
Montgomery
Reilly††
Ryan
Suddarth†
West
Zinbarg†

Municipal Strategy* $5,900 $5,400 $5,900 $5,400 $1,275 $5,400 $1,275

</R>

* No pension or retirement benefits are accrued as part of the expenses of Municipal Strategy.

† Mr. Suddarth and Mr. Zinbarg were elected Directors of the Fund on July 10, 2000.

†† <R>Effective July 2000, Mr. Forbes and Mr. Reilly are Co-Chairmen of the Audit Committee, each receiving $500 annually for serving in such position.</R>

Set forth in the table below is information regarding the aggregate compensation paid by all Affiliate-Advised Funds, including Municipal Strategy, to the non-interested Directors for the year ended December 31, 2000.

Name of Municipal Strategy Director
Aggregate Compensation from Affiliate-Advised
Funds Paid to Directors($)(*)

Ronald W. Forbes** $295,008

Cynthia A. Montgomery $264,008

Charles C. Reilly $352,050

Kevin A. Ryan $264,008

Roscoe S. Suddarth $193,977

Richard R. West $373,000

Edward D. Zinbarg $242,435

* The Directors serve on the boards of Affiliate-Advised Funds as follows: Mr. Forbes (51 registered investment companies consisting of 58 portfolios); Ms. Montgomery (51 registered investment companies consisting of 58 portfolios); Mr. Reilly (51 registered investment companies consisting of 58 portfolios); Mr. Ryan (51 registered investment companies consisting of 58 portfolios); Mr. Suddarth (51 registered investment companies consisting of 58 portfolios); Mr. West (66 registered investment companies consisting of 72 portfolios); and Mr. Zinbarg (51 registered investment companies consisting of 58 portfolios).

** On the Record Date, Mr. Forbes owned 276 shares of Municipal Strategy Common Stock.

Information Pertaining to Directors of MuniYield and Municipal Strategy

Director Since

Name, Address and Biography

Age
MuniYield
Municipal
Strategy

James H. Bodurtha

57

1995

N/A

36 Popponesset Road, Cotuit, Massachusetts 02635. Director and Executive Vice President, The China Business Group, Inc. since 1996; Chairman and Chief Executive Officer, China Enterprise Management Corporation from 1993 to 1996; Chairman, Berkshire Corporation since 1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993.

Ronald W. Forbes

60

N/A

1996

1400 Washington Avenue, Albany, New York 12222. Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000 and Professor thereof from 1989 to 2000; International Consultant, Urban Institute, Washington, D.C. since 1999.

I-2

Director Since

Name, Address and Biography

Age
MuniYield
Municipal
Strategy

<R>

Terry K. Glenn

60

1999

1999

P.O. Box 9011, Princeton, New Jersey 08543-9011. Chairman (Americas Region) since 2001, and Executive Vice President of FAM and MLIM (which terms as used herein include their corporate predecessors) since 1983; President, Merrill Lynch Mutual Funds since 1999; President of FAM Distributors, Inc. (“FAMD”) since 1986 and Director thereof since 1991; Executive Vice President and Director of Princeton Services, Inc. (“Princeton Services”) since 1993; President of Princeton Administrators, L.P. (“Princeton Administrators”) since 1988; Director of Financial Data Services, Inc. (“FDS”) since 1985.

Herbert I. London

62

1991

N/A

2 Washington Square Village, New York, New York 10012. John M. Olin Professor of Humanities, New York University since 1993 and Professor since 1980; President, Hudson Institute since 1997 and Trustee thereof since 1980; Dean, Gallatin Division of New York University from 1976 to 1993; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Director, Damon Corp. from 1991 to 1995; Overseer, Center for Naval Analyses from 1983 to 1993; Limited Partner, Hypertech LP since 1996.

Joseph L. May

71

1991

N/A

424 Church Street, Suite 2000, Nashville, Tennessee 37219. Attorney in private practice since 1984; President, May and Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983; Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May Corporation (personal holding company) from 1972 to 1983; Director, Signal Apparel Co. from 1972 to 1989.

Cynthia A. Montgomery

49

N/A

1996

Harvard Business School, Soldiers Field Road, Boston, Massachusetts 02163. Professor, Harvard Business School since 1989; Associate Professor, J.L. Kellogg Graduate School of Management, Northwestern University from 1985 to 1989; Assistant Professor, Graduate School of Business Administration, The University of Michigan from 1979 to 1985; Director UnumProvident Corporation since 1990 and Director of NewellRubbermaid Inc. since 1995.

André F. Perold

48

1991

N/A

Morgan Hall, Soldiers Field, Boston, Massachusetts 02163. Harvard Business School: George Gund Professor of Finance and Banking since 2000, Finance Area Chair since 1996, Sylvan C. Coleman Professor of Financial Management from 1993 to 2000; Trustee, The Common Fund since 1989; Director, Genbel Securities Limited and Gensec Bank since 1999; Director, Gensec Asset Management since 2000; Director, Bulldogresearch.com since 2000; Director, Stockback.com since 2000; Director, Quantec Limited from 1991 to 1999; Director, TIBCO from 1994 to 1996.

</R>

I-3

Director Since

Name, Address and Biography

Age
MuniYield
Municipal
Strategy

<R>

Roberta Cooper Ramo

59

1999

N/A

P.O. Box 2168, 500 Fourth Street, N.W., Albuquerque, New Mexico 87103. Shareholder, Modrall, Sperling, Roehl, Harris & Sisk, P.A. since 1993; President, American Bar Association from 1995 to 1996 and Member of the Board of Governors thereof from 1994 to 1997; Partner, Poole, Kelly & Ramo, Attorneys at Law, P.C. from 1977 to 1993; Director, Coopers, Inc. since 1999; Director of ECMC Group since 2001; Director, United New Mexico Bank (now Wells Fargo) from 1983 to 1988; Director, First National Bank of New Mexico (now First Security) from 1975 to 1976.

Charles C. Reilly

70

N/A

1996

9 Hampton Harbor Road, Hampton Bays, New York 11946. Self-employed financial consultant since 1990; President and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct Professor, Columbia University Graduate School of Business from 1990 to 1991; Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to 1990; Partner, Small Cities Cable Television from 1986 to 1997.

Kevin A. Ryan

68

N/A

1996

127 Commonwealth Avenue, Chestnut Hill, Massachusetts 02467. Founder and currently Director Emeritus of The Boston University Center for the Advancement of Ethics and Character and Director thereof from 1989 until 1999; Professor from 1982 to 1999 and currently Professor Emeritus of Education at Boston University; formerly taught on the faculties of The University of Chicago, Stanford University and Ohio State University.

Roscoe S. Suddarth

66

N/A

2000

7403 MacKenzie Court, Bethesda, Maryland 20817. President, Middle East Institute, from 1995 to 2001; Foreign Service Officer, United States Foreign Service, from 1961 to 1995; Career Minister, from 1989 to 1995; U.S. Ambassador to the Hashemite Kingdom of Jordan, from 1987 to 1990; Deputy Inspector General, U.S. Department of State, from 1991 to 1994

Richard R. West

63

N/A

1996

Box 604, Genoa, Nevada 89411. Professor of Finance since 1984, Dean from 1984 to 1993, and currently Dean Emeritus of New York University, Leonard N. Stern School of Business Administration; Director of Bowne & Co., Inc. (financial printers), Vornado Realty Trust, Inc. (real estate holding company) and Alexander’s Inc. (real estate company).

Edward D. Zinbarg

66

N/A

2000

5 Hardwell Road, Short Hills, New Jersey 07078-2117. Self-employed financial consultant since 1994; Executive Vice President of The Prudential Insurance Company of America from 1988 to 1994; former Director of Prudential Reinsurance Company and former Trustee of the Prudential Foundation.

</R>

I-4

Information Pertaining to Officers of MuniYield and Municipal Strategy

Set forth in the table below is information about the officers of MuniYield and Municipal Strategy.

<R>

Officer Since

Name, Address and Biography*

Age

Office
MuniYield
Municipal Strategy

Terry K. Glenn

60

President

1991**

1995**

Chairman (Americas Region) since 2001, and Executive Vice President of MLIM and FAM since 1983; President, Merrill Lynch Mutual Funds since 1999; President of FAMD since 1986 and Director thereof since 1991; Executive Vice President and Director of Princeton Services since 1993; President of Princeton Administrators since 1988; Director of FDS since 1985.

Vincent R. Giordano

57

Senior Vice
President

1991

1995

Managing Director of MLIM since 2001; Senior Vice President of FAM and MLIM from 1984 to 2000; Senior Vice President of Princeton Services since 1993.

Kenneth A. Jacob

50

Vice President

1991

1995

First Vice President of MLIM since 1997; Vice President of MLIM from 1984 to 1997; Vice President of FAM since 1984.

Donald C. Burke

41

Vice President;
Treasurer

1993
1999

1995
1999

First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999; Senior Vice President and Treasurer of Princeton Services since 1999; Vice President of FAMD since 1999; Vice President of MLIM from 1990 to 1997; Director of Taxation of MLIM since 1990.

John M. Loffredo, CFA

37

Vice President

N/A

1997

First Vice President of MLIM since 1997; Vice President of MLIM from 1991 to 1997.

Roberto W. Roffo

35

Vice President

2000

2000

Vice President of MLIM since 1996 and a Portfolio Manager thereof since 1992.

Alice A. Pellegrino

41

Secretary

1999

2001

Vice President of MLIM since 1999; Attorney associated with MLIM since 1997; Associate with Kirkpatrick & Lockhart LLP from 1992

</R>

* The address of each officer is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.

** Mr. Glenn was elected President of each Fund in 1999. Prior to that he served as Executive Vice President of each Fund.

I-5

APPENDIX II

AGREEMENT AND PLAN OF REORGANIZATION

<R> THIS AGREEMENT AND PLAN OF REORGANIZATION (this “Agreement”) is made as of the 13th day of September, 2001, by and between Merrill Lynch Municipal Strategy Fund, Inc., a Maryland corporation (“Municipal Strategy”), and MuniYield Fund, Inc., a Maryland corporation (“MuniYield”). Municipal Strategy and MuniYield are sometimes referred to herein collectively as the “Funds” and individually as a “Fund,” as the context requires.

PLAN OF REORGANIZATION</R>

The reorganization will constitute the following:

(1) the acquisition by MuniYield of substantially all of the assets, and the assumption by MuniYield of substantially all of the liabilities of Municipal Strategy in return solely for an equal aggregate value of newly issued full shares of (A) common stock, with a par value of $0.10 per share, of MuniYield (“MuniYield Common Stock”) and (B) auction market preferred stock (“AMPS”) of MuniYield, with a par value of $0.10 per share and a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared), designated Series F (“MuniYield Series F AMPS”), and

<R>(2) the subsequent distribution by Municipal Strategy to Municipal Strategy stockholders of (A) all of the shares of MuniYield Common Stock received by Municipal Strategy in return for Municipal Strategy stockholders’ shares of common stock, with a par value of $0.10 per share, including shares of common stock of Municipal Strategy representing the Dividend Reinvestment Plan (“DRIP”) shares held in the book deposit accounts of the holders of common stock of Municipal Strategy (“Municipal Strategy Common Stock”) (plus cash in lieu of fractional shares), and (B) all of the shares of MuniYield Series F AMPS received by Municipal Strategy in return for Municipal Strategy stockholders’ shares of AMPS, with a par value of $0.10 per share and a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared), designated Series A (“Municipal Strategy AMPS”);</R>

all upon and subject to the terms hereinafter set forth (collectively, the “Reorganization”).

In the course of the Reorganization, MuniYield Common Stock and MuniYield Series F AMPS will be distributed to the stockholders of Municipal Strategy as follows:

(1) each holder of Municipal Strategy Common Stock will be entitled to receive a number of full shares of MuniYield Common Stock, plus cash in lieu of fractional shares, equal to the aggregate net asset value of Municipal Strategy Common Stock owned by such stockholder on the Closing Date (as defined in Section 7(a) below); and (2) each holder of Municipal Strategy AMPS will be entitled to receive a number of shares of MuniYield Series F AMPS equal to the aggregate liquidation preference (and aggregate value) of the Municipal Strategy AMPS owned by such stockholder on the Closing Date.

It is intended that the Reorganization described in this Agreement shall be a reorganization within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the “Code”), and any successor provision.

Prior to the Closing Date, Municipal Strategy shall declare a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to its stockholders all of its net investment company taxable income to and including the Closing Date, if any (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized to and including the Closing Date. In this regard and in connection with the Reorganization, the last dividend period for the Municipal Strategy AMPS prior to the Closing Date may be shorter than the dividend period for such AMPS determined as set forth in the Articles Supplementary to Municipal Strategy’s Articles of Incorporation establishing the powers, rights and preferences of the Municipal Strategy AMPS.

Articles Supplementary to MuniYield’s Articles of Incorporation establishing the powers, rights and preferences of the MuniYield Series F AMPS will have been filed with the State Department of Assessments and Taxation of Maryland (the “Maryland Department”) prior to the Closing Date.

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As promptly as practicable after the consummation of the Reorganization, Municipal Strategy shall be dissolved in accordance with the laws of the State of Maryland and will terminate its registration under the Investment Company Act of 1940, as amended (the “1940 Act”).

<R>AGREEMENT</R>

In order to consummate the Reorganization and in consideration of the promises and the covenants and agreements hereinafter set forth, and intending to be legally bound, each Fund hereby agrees as follows:

1. Representations and Warranties of MuniYield.

MuniYield represents and warrants to, and agrees with, Municipal Strategy that:

(a) MuniYield is a corporation duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland, and has the power to own all of its assets and to carry out this Agreement. MuniYield has all necessary Federal, state and local authorizations to carry on its business as it is now being conducted and to carry out this Agreement.

<R> (b) MuniYield is duly registered under the 1940 Act as a non-diversified, closed-end management investment company (File No. 811-06435), and such registration has not been revoked or rescinded and is in full force and effect. MuniYield has elected and qualified at all times since its inception for the special tax treatment afforded regulated investment companies (“RICs”) under Sections 851-855 of the Code and intends to continue to so qualify until consummation of the Reorganization and thereafter.

(c) Municipal Strategy has been furnished with MuniYield’s Annual Report to Stockholders for the fiscal year ended October 31, 2000, and the audited financial statements appearing therein, having been audited by Deloitte & Touche LLP, independent auditors, fairly present the financial position of MuniYield as of the respective dates indicated, in conformity with accounting principles generally accepted in the United States of America.

(d) Municipal Strategy has been furnished with MuniYield’s Semi-Annual Report to Stockholders for the period ended April 30, 2001, and the unaudited financial statements appearing therein, fairly present the financial position of MuniYield as of the respective dates indicated, in conformity with accounting principles generally accepted in the United States of America.</R>

(e) An unaudited statement of assets, liabilities and capital of MuniYield and an unaudited schedule of investments of MuniYield, each as of the Valuation Time (as defined in Section 3(d) of this Agreement), will be furnished to Municipal Strategy, at or prior to the Closing Date for the purpose of determining the number of shares of MuniYield Common Stock and MuniYield Series F AMPS to be issued pursuant to Section 4 of this Agreement; each will fairly present the financial position of MuniYield as of the Valuation Time in conformity with generally accepted accounting principles applied on a consistent basis.

(f) MuniYield has full power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement have been duly authorized by all necessary action of its Board of Directors, and this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto.

(g) There are no material legal, administrative or other proceedings pending or, to the knowledge of MuniYield, threatened against it which assert liability on the part of MuniYield or which materially affect its financial condition or its ability to consummate the Reorganization. MuniYield is not charged with or, to the best of its knowledge, threatened with any violation or investigation of any possible violation of any provisions of any Federal, state or local law or regulation or administrative ruling relating to any aspect of its business.

(h) MuniYield is not obligated under any provision of its Articles of Incorporation, as amended, or its by-laws, as amended, or a party to any contract or other commitment or obligation, and is not subject to any order or decree which would be violated by its execution of or performance under this Agreement, except insofar as the Funds have mutually agreed to amend such contract or other commitment or obligation to cure any potential violation as a condition precedent to the Reorganization.

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(i) There are no material contracts outstanding to which MuniYield is a party that have not been disclosed in the N-14 Registration Statement (as defined in subsection (l) below) or will not otherwise be disclosed to Municipal Strategy prior to the Valuation Time.

(j) MuniYield has no known liabilities of a material amount, contingent or otherwise, other than those shown on its statements of assets, liabilities and capital referred to above, those incurred in the ordinary course of its business as an investment company since April 30, 2001; and those incurred in connection with the Reorganization. As of the Valuation Time, MuniYield will advise Municipal Strategy in writing of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued as of such time.

(k) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by MuniYield of the Reorganization, except such as may be required under the Securities Act of 1933, as amended (the “1933 Act”), the Securities Exchange Act of 1934, as amended (the “1934 Act”) and the 1940 Act or state securities laws (which term as used herein shall include the laws of the District of Columbia and Puerto Rico).

(l) The registration statement filed by MuniYield on Form N-14 which includes the proxy statement of Municipal Strategy with respect to the transactions contemplated herein and the prospectus of MuniYield relating to the MuniYield Common Stock and MuniYield Series F AMPS to be issued pursuant to this Agreement (the “Proxy Statement and Prospectus”), and any supplement or amendment thereto or to the documents therein (as amended or supplemented, the “N-14 Registration Statement”), on its effective date, at the time of the stockholder’s meeting of Municipal Strategy referred to in Section 6(a) of this Agreement and at the Closing Date, insofar as it relates to MuniYield (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the Proxy Statement and Prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection only shall apply to statements in or omissions from the N-14 Registration Statement made in reliance upon and in conformity with information furnished by MuniYield for use in the N-14 Registration Statement as provided in Section 6(e) of this Agreement.

<R> (m) MuniYield is authorized to issue 200,000,000 shares of capital stock, of which 1,800 shares have been designated as Series A AMPS, 1,800 shares have been designated as Series B AMPS, 1,800 shares have been designated as Series C AMPS, 1,800 shares have been designated as Series D AMPS and 2,800 shares have been designated as Series E AMPS (the Series A AMPS of MuniYield, the Series B AMPS of MuniYield, the Series C AMPS of MuniYield, the Series D AMPS of MuniYield and the Series E AMPS of MuniYield being collectively referred to herein as the “MuniYield AMPS”), each with a par value of $0.05, and 199,990,000 shares have been designated as common stock, par value $0.10 per share; each outstanding share of which is fully paid and nonassessable and has full voting rights.</R>

(n) The shares of MuniYield Common Stock and MuniYield Series F AMPS to be issued to Municipal Strategy pursuant to this Agreement will have been duly authorized and, when issued and delivered pursuant to this Agreement, will be legally and validly issued and will be fully paid and nonassessable and will have full voting rights, and no stockholder of MuniYield will have any preemptive right of subscription or purchase in respect thereof.

(o) At or prior to the Closing Date, the MuniYield Common Stock to be transferred to Municipal Strategy for distribution to the stockholders of Municipal Strategy on the Closing Date will be duly qualified for offering to the public in all states of the United States in which the sale of shares of Municipal Strategy presently are qualified, and there will be a sufficient number of such shares registered under the 1933 Act and, as may be necessary, with each pertinent state securities commission to permit the transfers contemplated by this Agreement to be consummated.

<R>(p) At or prior to the Closing Date, the shares of MuniYield Series F AMPS to be transferred to Municipal Strategy on the Closing Date will be duly qualified for offering to the public in all states of the United States in which the sale of Municipal Strategy AMPS presently are qualified, and there are a sufficient number of MuniYield Series F AMPS registered under the 1933 Act and, as may be necessary, with each pertinent state securities commission to permit the transfers contemplated by this Agreement to be consummated.</R>

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(q) At or prior to the Closing Date, MuniYield will have obtained any and all regulatory, Director and stockholder approvals necessary to issue the MuniYield Common Stock and MuniYield Series F AMPS to Municipal Strategy.

2. Representations and Warranties of Municipal Strategy.

Municipal Strategy represents and warrants to, and agrees with, MuniYield that:

(a) Municipal Strategy is a corporation duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland, and has the power to own all of its assets and to carry out this Agreement. Municipal Strategy has all necessary Federal, state and local authorizations to carry on its business as it is now being conducted and to carry out this Agreement.

<R> (b) Municipal Strategy is duly registered under the 1940 Act as a continuously offered, non-diversified, closed-end management investment company (File No. 811-07203), and such registration has not been revoked or rescinded and is in full force and effect. Municipal Strategy has elected and qualified at all times since its inception for the special tax treatment afforded RICs under Sections 851-855 of the Code and intends to continue to so qualify through its taxable year ending upon liquidation.</R>

(c) As used in this Agreement, the term “Municipal Strategy Investments” shall mean (i) the investments of Municipal Strategy shown on the schedule of its investments as of the Valuation Time furnished to MuniYield; and (ii) all other assets owned by Municipal Strategy or liabilities incurred as of the Valuation Time.

(d) Municipal Strategy has full power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action of its Board of Directors and this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto.

(e) MuniYield has been furnished with Municipal Strategy’s Annual Report to Stockholders for the fiscal year ended October 31, 2000, and the audited financial statements appearing therein, having been audited by Deloitte & Touche LLP, independent auditors, fairly present the financial position of Municipal Strategy as of the respective dates indicated, in conformity with accounting principles generally accepted in the United States of America applied on a consistent basis.

(f) MuniYield has been furnished with Municipal Strategy’s Semi-Annual Report to Stockholders for the period ended April 30, 2001 and the unaudited financial statements appearing therein, fairly present the financial position of Municipal Strategy as of the respective dates indicated, in conformity with accounting principles generally accepted in the United States of America.

(g) An unaudited statement of assets, liabilities and capital of Municipal Strategy and an unaudited schedule of investments of Municipal Strategy, each as of the Valuation Time, will be furnished to MuniYield at or prior to the Closing Date for the purpose of determining the number of shares of MuniYield Common Stock and MuniYield Series F AMPS to be issued to Municipal Strategy pursuant to Section 4 of this Agreement; each will fairly present the financial position of Municipal Strategy as of the Valuation Time in conformity with generally accepted accounting principles applied on a consistent basis.

(h) There are no material legal, administrative or other proceedings pending or, to the knowledge of Municipal Strategy, threatened against it which assert liability on the part of Municipal Strategy or which materially affect its financial condition or its ability to consummate the Reorganization. Municipal Strategy is not charged with or, to the best of its knowledge, threatened with any violation or investigation of any possible violation of any provisions of any Federal, state or local law or regulation or administrative ruling relating to any aspect of its business.

(i) There are no material contracts outstanding to which Municipal Strategy is a party that have not been disclosed in the N-14 Registration Statement or will not otherwise be disclosed to MuniYield prior to the Valuation Time.

(j) Municipal Strategy is not obligated under any provision of its Articles of Incorporation, as amended, or its by-laws, as amended, or a party to any contract or other commitment or obligation, and is not subject to any order or decree which would be violated by its execution of or performance under this Agreement, except insofar as the Funds have mutually agreed to amend such contract or other commitment or obligation to cure any potential violation as a condition precedent to the Reorganization.

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(k) Municipal Strategy has no known liabilities of a material amount, contingent or otherwise, other than those shown on its statements of assets, liabilities and capital referred to above, those incurred in the ordinary course of its business as an investment company since April 30, 2001 and those incurred in connection with the Reorganization. As of the Valuation Time, Municipal Strategy will advise MuniYield in writing of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued as of such time.

(l) Municipal Strategy has filed, or has obtained extensions to file, all Federal, state and local tax returns which are required to be filed by it, and has paid or has obtained extensions to pay, all Federal, state and local taxes shown on said returns to be due and owing and all assessments received by it, up to and including the taxable year in which the Closing Date occurs. All tax liabilities of Municipal Strategy have been adequately provided for on its books, and no tax deficiency or liability of Municipal Strategy has been asserted and no question with respect thereto has been raised by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid, up to and including the taxable year in which the Closing Date occurs.

(m) At both the Valuation Time and the Closing Date, Municipal Strategy will have full right, power and authority to sell, assign, transfer and deliver the Municipal Strategy Investments. At the Closing Date, subject only to the obligation to deliver the Municipal Strategy Investments as contemplated by this Agreement, Municipal Strategy will have good and marketable title to all of the Municipal Strategy Investments, and MuniYield will acquire all of the Municipal Strategy Investments free and clear of any encumbrances, liens or security interests and without any restrictions upon the transfer thereof (except those imposed by the Federal or state securities laws and those imperfections of title or encumbrances as do not materially detract from the value or use of the Municipal Strategy Investments or materially affect title thereto).

(n) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by Municipal Strategy of the Reorganization, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act or state securities laws.

(o) The N-14 Registration Statement, on its effective date, at the time of the stockholder’s meeting of Municipal Strategy referred to in Section 6(a) of this Agreement and on the Closing Date, insofar as it relates to Municipal Strategy (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder, and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the Proxy Statement and Prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall apply only to statements in or omissions from the N-14 Registration Statement made in reliance upon and in conformity with information furnished by Municipal Strategy for use in the N-14 Registration Statement as provided in Section 6(e) of this Agreement.

(p) Municipal Strategy is authorized to issue 200,000,000 shares of capital stock, of which 8,000 shares have been designated as Series A AMPS, 8,000 shares have been designated as Series B AMPS, 8,000 shares have been designated as Series C AMPS, 8,000 shares have been designated as Series D AMPS, 8,000 shares have been designated as Series E AMPS and 199,960,000 shares have been designated as common stock, par value $.10 per share; each outstanding share of which is fully paid and nonassessable and has full voting rights. Series A AMPS are the only issued and outstanding AMPS of Municipal Strategy.

(q) All of the issued and outstanding shares of Municipal Strategy Common Stock and Municipal Strategy AMPS were offered for sale and sold in conformity with all applicable Federal and state securities laws.

(r) The books and records of Municipal Strategy made available to MuniYield and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of Municipal Strategy.

(s) Municipal Strategy will not sell or otherwise dispose of any of the shares of MuniYield Common Stock or MuniYield Series F AMPS to be received in the Reorganization, except in distribution to the stockholders of Municipal Strategy, as provided in Section 3 of this Agreement.

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3. The Reorganization.

(a) Subject to receiving the requisite approvals of the stockholders of each Fund, and to the other terms and conditions contained herein, Municipal Strategy agrees to convey, transfer and deliver to MuniYield and MuniYield agrees to acquire from Municipal Strategy on the Closing Date, all of the Municipal Strategy Investments (including interest accrued as of the Valuation Time on debt instruments) and assume substantially all of the liabilities of Municipal Strategy in return solely for that number of full shares of MuniYield Common Stock and MuniYield Series F AMPS provided in Section 4 of this Agreement.

Pursuant to this Agreement, as soon as practicable after the Closing Date Municipal Strategy will distribute all of the full shares of MuniYield Common Stock (plus cash in lieu of fractional shares) and MuniYield Series F AMPS received by it to its stockholders in return for their shares of Municipal Strategy Common Stock and Municipal Strategy AMPS, respectively. Such distributions shall be accomplished by the opening of stockholder accounts on the stock ledger records of MuniYield in the amounts due the stockholders of Municipal Strategy based on their holdings in Municipal Strategy as of the Valuation Time.

<R> (b) Prior to the Closing Date, Municipal Strategy shall declare a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to its stockholders all of its net investment company taxable income to and including the Closing Date, if any (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized to and including the Closing Date. In this regard and in connection with the Reorganization, the last dividend period for Municipal Strategy AMPS prior to the Closing Date may be shorter than the dividend period for such AMPS determined as set forth in the Articles Supplementary.</R>

(c) Municipal Strategy will pay or cause to be paid to MuniYield any interest Municipal Strategy receives on or after the Closing Date with respect to any of the Municipal Strategy Investments transferred to MuniYield hereunder.

<R> (d) The Valuation Time shall be 4:00 p.m., Eastern time, on November 9, 2001, or such earlier or later day and time as may be mutually agreed upon in writing (the “Valuation Time”).

(e) Recourse for liabilities assumed from Municipal Strategy by MuniYield in the Reorganization will be limited to the net assets of Municipal Strategy acquired by MuniYield. The known liabilities of Municipal Strategy, as of the Valuation Time, shall be confirmed in writing to MuniYield pursuant to Section 2(k) of this Agreement.</R>

(f) The Funds will jointly file Articles of Transfer with the Maryland Department and any other such instrument as may be required by the State of Maryland to effect the transfer of the Municipal Strategy Investments.

(g) Municipal Strategy will be dissolved following the Closing Date by filing Articles of Dissolution with the Maryland Department.

(h) MuniYield will file with the Maryland Department Articles Supplementary to its Articles of Incorporation establishing the powers, rights and preferences of the MuniYield Series F AMPS prior to the closing of the Reorganization.

(i) As promptly as practicable after the liquidation of Municipal Strategy pursuant to the Reorganization, Municipal Strategy shall terminate its registration under the 1940 Act.

4. Issuance and Valuation of MuniYield Common Stock and MuniYield Series F AMPS in the Reorganization.

<R>Full shares of MuniYield Common Stock and MuniYield Series F AMPS of an aggregate net asset value or liquidation preference, as the case may be, equal (to the nearest one ten thousandth of one cent) to the value of the assets of Municipal Strategy acquired by MuniYield in the Reorganization determined as hereinafter provided, reduced by the amount of liabilities of Municipal Strategy assumed by MuniYield in the Reorganization, shall be issued by MuniYield to Municipal Strategy in return for such assets of Municipal Strategy. MuniYield will issue to Municipal Strategy (a) a number of shares of MuniYield Common Stock the aggregate net asset value of which will equal the aggregate net asset value of the shares of Municipal Strategy Common Stock, determined as set forth below, and (b) a number of shares of MuniYield Series F AMPS, the aggregate liquidation preference and value of which will equal the aggregate liquidation preference and value of Municipal Strategy AMPS, determined as set forth below.</R>

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<R>The net asset value of each Fund and the liquidation preference and value of the AMPS of each Fund shall be determined as of the Valuation Time in accordance with the procedures described in the N-14 Registration Statement filed by MuniYield in connection with the Reorganization and no formula will be used to adjust the net asset value so determined of either Fund to take into account differences in realized and unrealized gains and losses. Values in all cases shall be determined as of the Valuation Time. The value of the Municipal Strategy Investments to be transferred to MuniYield shall be determined by MuniYield pursuant to the procedures utilized by MuniYield in valuing its own assets and determining its own liabilities for purposes of the Reorganization. Such valuation and determination shall be made by MuniYield in cooperation with Municipal Strategy and shall be confirmed in writing by MuniYield to Municipal Strategy. The net asset value per share of the MuniYield Common Stock and the liquidation preference and value per share of the MuniYield Series F AMPS shall be determined in accordance with such procedures and MuniYield shall certify the computations involved. For purposes of determining the net asset value of a share of Common Stock of each Fund, the value of the securities held by the Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS of that Fund is divided by the total number of shares of Common Stock of that Fund outstanding at such time.</R>

MuniYield shall issue to Municipal Strategy separate certificates or share deposit receipts for the MuniYield Common Stock and the MuniYield Series F AMPS, each registered in the name of Municipal Strategy. Municipal Strategy then shall distribute the MuniYield Common Stock and the MuniYield Series F AMPS to the holders of Municipal Strategy Common Stock and Municipal Strategy AMPS by redelivering the certificates or share deposit receipts evidencing ownership of (i) the MuniYield Common Stock to The Bank of New York (“BONY”), as the transfer agent and registrar for the MuniYield Common Stock for distribution to the holders of Municipal Strategy Common Stock on the basis of such holder’s proportionate interest in the aggregate net asset value of the Common Stock of Municipal Strategy and (ii) the MuniYield Series F AMPS to BONY as the transfer agent and registrar for the MuniYield Series F AMPS for distribution to the holders of Municipal Strategy AMPS on the basis of such holder’s proportionate interest in the aggregate liquidation preference and value of Municipal Strategy AMPS. With respect to any Municipal Strategy stockholder holding certificates evidencing ownership of either Municipal Strategy Common Stock or Municipal Strategy AMPS as of the Closing Date, and subject to MuniYield being informed thereof in writing by Municipal Strategy, MuniYield will not permit such stockholder to receive new certificates evidencing ownership of the MuniYield Common Stock or MuniYield Series F AMPS, exchange MuniYield Common Stock or MuniYield Series F AMPS credited to such stockholder’s account for shares of other investment companies managed by Fund Asset Management, L.P. (“FAM”) or any of its affiliates, or pledge or redeem such MuniYield Common Stock or MuniYield Series F AMPS, in any case, until notified by Municipal Strategy or its agent that such stockholder has surrendered his or her outstanding certificates evidencing ownership of Municipal Strategy Common Stock or, in the event of lost certificates, posted adequate bond. Municipal Strategy, at its own expense, will request its stockholders to surrender their outstanding certificates evidencing ownership of Municipal Strategy Common Stock or post adequate bond therefor.

Dividends payable to holders of record of shares of MuniYield Common Stock and MuniYield Series F AMPS, as of any date after the Closing Date and prior to the receipt of certificates in connection with the Reorganization by any stockholder of Municipal Strategy, shall be payable to such stockholder without interest; however, such dividends shall not be paid unless and until such stockholder surrenders the stock certificates representing shares of common stock or AMPS of Municipal Strategy, as the case may be, in return for shares of common stock or AMPS of MuniYield, as the case may be.

No fractional shares of MuniYield Common Stock will be issued to holders of Municipal Strategy Common Stock. In lieu thereof, MuniYield’s transfer agent, BONY, will aggregate all fractional shares of MuniYield Common Stock and sell the resulting full shares on the New York Stock Exchange at the current market price for shares of MuniYield Common Stock for the account of all holders of fractional interests, and each such holder will receive such holder’s pro rata share of the proceeds of such sale upon surrender of such holder’s certificates representing Municipal Strategy Common Stock.

5. Payment of Expenses.
<R>

(a) The expenses of the Reorganization that are directly attributable to Municipal Strategy and the conduct of its business will be deducted from the assets of Municipal Strategy as of the Valuation Time. These expenses are expected to include transfer agent fees, the expenses incurred in preparing, printing and mailing the proxy materials to be utilized in connection with the special meeting of the stockholders of Municipal Strategy to consider the Reorganization, the expenses related to the solicitation of proxies to be voted at that meeting and a </R>

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<R>

portion of the expenses of printing the N-14 Registration Statement. FAM has agreed to bear the expenses of the Reorganization that are directly attributable to MuniYield and the conduct of its business. The expenses attributable to MuniYield include fees, if any, of the rating agencies with respect to MuniYield Series F AMPS, the costs of printing stock certificates, transfer agent fees and a portion of the expenses incurred in printing the N-14 Registration Statement. Certain other expenses of the Reorganization, including expenses in connection with obtaining an opinion of counsel as to certain tax matters, the preparation of this Agreement, legal fees, audit fees and any listing or registration fees, will be borne equally by Municipal Strategy and FAM, which has agreed to bear such expenses on behalf of MuniYield.</R>

(b) If for any reason the Reorganization is not consummated, no party shall be liable to any other party for any damages resulting therefrom, including, without limitation, consequential damages.

6. Covenants of the Funds.

(a) Municipal Strategy agrees to hold a special meeting of its stockholders as soon as is practicable after the effective date of the N-14 Registration Statement for the purpose of considering the Reorganization as described in this Agreement.

(b) Each Fund covenants to operate its business as presently conducted between the date hereof and the Closing Date.

(c) Municipal Strategy agrees that following the consummation of the Reorganization, it will dissolve in accordance with the laws of the State of Maryland and any other applicable law, it will not make any distributions of any shares of MuniYield Common Stock and MuniYield Series F AMPS, as applicable, other than to its respective stockholders and without first paying or adequately providing for the payment of all of its respective liabilities not assumed by MuniYield, if any, and on and after the Closing Date it shall not conduct any business except in connection with its dissolution.

(d) Municipal Strategy undertakes that if the Reorganization is consummated, it will file an application pursuant to Section 8(f) of the 1940 Act for an order declaring that Municipal Strategy has ceased to be a registered investment company.

(e) MuniYield will file the N-14 Registration Statement with the Securities and Exchange Commission (the “Commission”) and will use its best efforts to provide that the N-14 Registration Statement becomes effective as promptly as practicable. Each Fund agrees to cooperate fully with the other, and each will furnish to the other the information relating to itself to be set forth in the N-14 Registration Statement as required by the 1933 Act, the 1934 Act, the 1940 Act, and the rules and regulations thereunder and the state securities laws.

(f) MuniYield has no plan or intention to sell or otherwise dispose of the Municipal Strategy Investments, except for dispositions made in the ordinary course of business.

<R>(g) Each Fund agrees that by the Closing Date all of its Federal and other tax returns and reports required to be filed on or before such date shall have been filed and all taxes shown as due on said returns either have been paid or adequate liability reserves have been provided for the payment of such taxes. In connection with this covenant, the Funds agree to cooperate with each other in filing any tax return, amended return or claim for refund, determining a liability for taxes or a right to a refund of taxes or participating in or conducting any audit or other proceeding in respect of taxes. MuniYield agrees to retain for a period of ten (10) years following the Closing Date all returns, schedules and work papers and all material records or other documents relating to tax matters of Municipal Strategy for such Fund’s taxable period first ending after the Closing Date and for all prior taxable periods. Any information obtained under this subsection shall be kept confidential except as otherwise may be necessary in connection with the filing of returns or claims for refund or in conducting an audit or other proceeding. After the Closing Date, Municipal Strategy shall prepare, or cause its agents to prepare, any Federal, state or local tax returns, including any Forms 1099, required to be filed by such Fund with respect to its final taxable year ending with its complete liquidation and for any prior periods or taxable years and further shall cause such tax returns and Forms 1099 to be duly filed with the appropriate taxing authorities. Notwithstanding the aforementioned provisions of this subsection, any expenses incurred by Municipal Strategy (other than for payment of taxes) in connection with the preparation and filing of said tax returns and Forms 1099 after the Closing Date shall be borne by such Fund to the extent such expenses have been accrued by such Fund in the ordinary course without regard to the Reorganization; any excess expenses shall be borne by FAM at the time such tax returns and Forms 1099 are prepared.</R>

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(h) Municipal Strategy agrees to mail to its stockholders of record entitled to vote at the special meeting of its stockholders at which action is to be considered regarding this Agreement, in sufficient time to comply with requirements as to notice thereof, a combined proxy statement and prospectus which complies in all material respects with the applicable provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules and regulations, respectively, thereunder.

(i) Following the consummation of the Reorganization, MuniYield will stay in existence and continue its business as a non-diversified, closed-end management investment company registered under the 1940 Act.

7. Closing Date.

<R> (a) Delivery of the assets of Municipal Strategy to be transferred and the shares of MuniYield Common Stock and MuniYield Series F AMPS to be issued as provided in this Agreement, shall be made at the offices of Sidley Austin Brown & Wood LLP, 875 Third Avenue, New York, New York 10022, at 10:00 a.m. on the next full business day following the Valuation Time, or at such other place, time and date agreed to by the Funds, the date and time upon which such delivery is to take place being referred to herein as the “Closing Date.” To the extent that any Municipal Strategy Investments, for any reason, are not transferable on the Closing Date, Municipal Strategy shall cause such Municipal Strategy Investments to be transferred to MuniYield’s account with BONY at the earliest practicable date thereafter.

(b) Municipal Strategy will deliver to MuniYield on the Closing Date confirmations or other adequate evidence as to the tax basis of each of its respective Municipal Strategy Investments delivered to MuniYield hereunder, certified by Deloitte & Touche LLP.</R>

(c) As soon as practicable after the close of business on the Closing Date, Municipal Strategy shall deliver to MuniYield a list of the names and addresses of all of the stockholders of record of Municipal Strategy on the Closing Date and the number of shares of Municipal Strategy Common Stock and AMPS owned by each such stockholder, certified to the best of their knowledge and belief by the transfer agent for Municipal Strategy or by its President.

8. Conditions of Municipal Strategy.

The obligations of Municipal Strategy hereunder shall be subject to the following conditions:

<R> (a) That this Agreement shall have been adopted, and the Reorganization shall have been approved, by the affirmative vote of (i) the Board of Directors of MuniYield, and (ii) at least two-thirds of the members of the Board of Directors of Municipal Strategy, and by the affirmative vote of (A) a majority of the shares of Municipal Strategy Common Stock and Municipal Strategy AMPS, voting together as a single class, and (B) a majority of the shares of Municipal Strategy AMPS, voting separately as a class, in each case issued and outstanding and entitled to vote thereon. MuniYield shall have delivered to Municipal Strategy a copy of the resolution approving this Agreement adopted by such Fund’s Board of Directors.</R>

(b) That Municipal Strategy shall have received from MuniYield a statement of assets, liabilities and capital, with values determined as provided in Section 4 of this Agreement, together with a schedule of such Fund’s investments, all as of the Valuation Time, certified on MuniYield’s behalf by its President (or any Vice President) and its Treasurer, and a certificate signed by MuniYield’s President (or any Vice President) and its Treasurer, dated as of the Closing Date, certifying that as of the Valuation Time and as of the Closing Date there has been no material adverse change in the financial position of MuniYield since the date of such Fund’s most recent Annual or Semi-Annual Report, as applicable, other than changes in its portfolio securities since that date or changes in the market value of its portfolio securities.

(c) That MuniYield shall have furnished to Municipal Strategy a certificate signed by MuniYield’s President (or any Vice President) and its Treasurer, dated as of the Closing Date, certifying that, as of the Valuation Time and as of the Closing Date all representations and warranties of MuniYield made in this Agreement are true and correct in all material respects with the same effect as if made at and as of such dates, and that MuniYield has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied at or prior to each of such dates.

(d) That there shall not be any material litigation pending with respect to the matters contemplated by this Agreement.

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<R> (e) That Municipal Strategy shall have received an opinion of Sidley Austin Brown & Wood LLP, as counsel to the Funds, in form and substance satisfactory to Municipal Strategy and dated the Closing Date, to the effect that (i) each Fund is a corporation duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland; (ii) the shares of MuniYield Common Stock and MuniYield Series F AMPS to be issued pursuant to this Agreement are duly authorized and, upon delivery, will be validly issued and outstanding and fully paid and nonassessable by MuniYield, and no stockholder of MuniYield has any preemptive right to subscription or purchase in respect thereof (pursuant to the Articles of Incorporation or the by-laws of MuniYield or the state law of Maryland, or to the best of such counsel’s knowledge, otherwise); (iii) this Agreement has been duly authorized, executed and delivered by the Funds, and represents a valid and binding contract, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws pertaining to the enforcement of creditors’ rights generally and court decisions with respect thereto; provided, such counsel shall express no opinion with respect to the application of equitable principles in any proceeding, whether at law or in equity and, provided further, that such counsel shall express no opinion with respect to the indemnification and contribution provisions set forth in this Agreement; (iv) the execution and delivery of this Agreement does not, and the consummation of the Reorganization will not, violate any material provisions of Maryland law or the Articles of Incorporation, as amended, the by-laws, as amended, or any agreement (known to such counsel) to which either Fund is a party or by which a Fund is bound, except insofar as the parties have agreed to amend such provision as a condition precedent to the Reorganization; (v) Municipal Strategy has the power to sell, assign, transfer and deliver the assets transferred by it hereunder and, upon consummation of the Reorganization in accordance with the terms of this Agreement, Municipal Strategy will have duly transferred such assets and liabilities in accordance with this Agreement; (vi) to the best of such counsel’s knowledge, no consent, approval, authorization or order of any United States federal or Maryland state court or governmental authority is required for the consummation by the Funds of the Reorganization, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and the published rules and regulations of the Commission thereunder and under Maryland law and such as may be required under state securities laws; (vii) the N-14 Registration Statement has become effective under the 1933 Act, no stop order suspending the effectiveness of the N-14 Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the 1933 Act, and the N-14 Registration Statement, and each amendment or supplement thereto, as of their respective effective dates, appear on their face to be appropriately responsive in all material respects to the requirements of the 1933 Act, the 1934 Act and the 1940 Act and the published rules and regulations of the Commission thereunder; (viii) the descriptions in the N-14 Registration Statement of statutes, legal and governmental proceedings and contracts and other documents are accurate and fairly present the information required to be shown; (ix) the information in the Proxy Statement and Prospectus under “Comparison of the Funds—Tax Rules Applicable to the Funds and their Stockholders” and “Agreement and Plan of Reorganization—Tax Consequences of the Reorganization,” to the extent that it constitutes matters of law, summaries of legal matters or legal conclusions, has been reviewed by such counsel and is correct in all material respects as of the date of the Proxy Statement and Prospectus; (x) such counsel does not know of any statutes, legal or governmental proceedings or contracts or other documents related to the Reorganization of a character required to be described in the N-14 Registration Statement which are not described therein or, if required to be filed, filed as required; (xi) neither Fund, to the knowledge of such counsel, is required to qualify to do business as a foreign corporation in any jurisdiction except as may be required by state securities laws, and except where it has so qualified or the failure so to qualify would not have a material adverse effect on the Fund or its respective stockholders; (xii) except as disclosed in the N-14 Registration Statement, such counsel does not have actual knowledge of any material suit, action or legal or administrative proceeding pending or threatened against the Fund, the unfavorable outcome of which would materially and adversely affect the Fund; (xiii) all corporate actions required to be taken by the Funds to authorize this Agreement and to effect the Reorganization have been duly authorized on the part of the Funds; and (xiv) such opinion is solely for the benefit of the Funds and their respective Directors and officers. Such opinion also shall state that (A) while such counsel cannot make any representation as to the accuracy or completeness of statements of fact in the N-14 Registration Statement or any amendment or supplement thereto, nothing has come to their attention that would lead them to believe that, on the respective effective dates of the N-14 Registration Statement and any amendment or supplement thereto, (1) the N-14 Registration Statement or any amendment or supplement thereto contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (2) the prospectus included in the N-14 Registration Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (B) such</R>

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counsel does not express any opinion or belief as to the financial statements or other financial or statistical data relating to either Fund contained or incorporated by reference in the N-14 Registration Statement. In giving the opinion set forth above, Sidley Austin Brown & Wood LLP may state that it is relying on certificates of officers of the Funds with regard to matters of fact and certain certificates and written statements of governmental officials with respect to the organization and good standing of the Funds.

<R> (f) That Municipal Strategy shall have received an opinion of Sidley Austin Brown & Wood LLP, to the effect that for Federal income tax purposes (i) the transfer by Municipal Strategy of substantially all of its assets to MuniYield in exchange solely for shares of MuniYield Common Stock and MuniYield Series F AMPS, as provided in this Agreement, will constitute a reorganization within the meaning of Section 368(a)(1)(C) of the Code, and Municipal Strategy and MuniYield will each be deemed to be a “party” to a reorganization within the meaning of Section 368(b); (ii) in accordance with Section 361(a) of the Code, no gain or loss will be recognized to Municipal Strategy as a result of the asset transfer solely in exchange for shares of MuniYield Common Stock and MuniYield Series F AMPS or on the distribution of MuniYield Common Stock and MuniYield Series F AMPS to stockholders of Municipal Strategy under Section 361(c)(1); (iii) under Section 1032 of the Code, no gain or loss will be recognized to MuniYield on the receipt of assets of Municipal Strategy in exchange for its shares; (iv) in accordance with Section 354(a)(1) of the Code, no gain or loss will be recognized to the stockholders of Municipal Strategy on their respective receipt of shares of MuniYield Common Stock and MuniYield Series F AMPS in exchange for their shares of Municipal Strategy (except to the extent that Municipal Strategy common stockholders receive cash representing an interest in fractional shares of MuniYield Common Stock in the Reorganization); (v) in accordance with Section 362(b) of the Code, the tax basis of Municipal Strategy’s assets in the hands of MuniYield will be the same as the tax basis of such assets in the hands of Municipal Strategy immediately prior to the consummation of the Reorganization; (vi) in accordance with Section 358 of the Code, immediately after the Reorganization, the tax basis of the shares of MuniYield Common Stock and MuniYield Series F AMPS received by the stockholders of Municipal Strategy in the Reorganization will be equal to the tax basis of the shares of Municipal Strategy surrendered in exchange; (vii) in accordance with Section 1223 of the Code, a stockholder’s holding period for the shares of MuniYield will be determined by including the period for which such stockholder held the Municipal Strategy shares exchanged therefor, provided, that such shares were held as a capital asset; (viii) in accordance with Section 1223 of the Code, MuniYield’s holding period with respect to Municipal Strategy’s assets transferred will include the period for which such assets were held by Municipal Strategy; (ix) the payment of cash to common stockholders of Municipal Strategy in lieu of fractional shares of MuniYield Common Stock will be treated as though the fractional shares were distributed as part of the Reorganization and then redeemed by MuniYield, with the result that such stockholders will have short- or long-term capital gain or loss to the extent that the cash distribution differs from the stockholder’s basis allocable to the MuniYield fractional shares; and (x) the taxable year of Municipal Strategy will end on the effective date of the Reorganization, and pursuant to Section 381(a) of the Code and regulations thereunder, MuniYield will succeed to and take into account, subject to limitation, certain tax attributes of Municipal Strategy, such as earnings and profits, capital loss carryovers and method of accounting.

(g) That all proceedings taken by MuniYield and its counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to Municipal Strategy and its counsel.</R>

(h) That the N-14 Registration Statement shall have become effective under the 1933 Act, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of MuniYield, be contemplated by the Commission.

<R>(i) That Municipal Strategy shall have received from Deloitte & Touche LLP a letter dated within three days prior to the effective date of the N-14 Registration Statement and a similar letter dated within five days prior to the Closing Date, in form and substance satisfactory to Municipal Strategy, to the effect that (i) they are independent public accountants with respect to MuniYield within the meaning of the 1933 Act and the applicable published rules and regulations thereunder; (ii) in their opinion, the financial statements and supplementary information of MuniYield included or incorporated by reference in the N-14 Registration Statement and reported on by them comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder; (iii) on the basis of limited procedures agreed upon by the Funds and described in such letter (but not an examination in accordance with generally accepted auditing standards) consisting of a reading of any unaudited interim financial statements and unaudited supplementary information of MuniYield included in the N-14 Registration Statement, and inquiries of certain officials of MuniYield responsible for financial and accounting matters, nothing came to their attention that caused them to</R>

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believe that (a) such unaudited financial statements and related unaudited supplementary information do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder, (b) such unaudited financial statements are not fairly presented in conformity with generally accepted accounting principles, applied on a basis substantially consistent with that of the audited financial statements, or (c) such unaudited supplementary information is not fairly stated in all material respects in relation to the unaudited financial statements taken as a whole; and (iv) on the basis of limited procedures agreed upon by the Funds and described in such letter (but not an examination in accordance with generally accepted auditing standards), the information relating to MuniYield appearing in the N-14 Registration Statement, which information is expressed in dollars (or percentages derived from such dollars) (with the exception of performance comparisons, if any), if any, has been obtained from the accounting records of MuniYield or from schedules prepared by officials of MuniYield having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom.

(j) That the Commission shall not have issued an unfavorable advisory report under Section 25(b) of the 1940 Act, nor instituted or threatened to institute any proceeding seeking to enjoin consummation of the Reorganization under Section 25(c) of the 1940 Act, and no other legal, administrative or other proceeding shall be instituted or threatened which would materially affect the financial condition of MuniYield or would prohibit the Reorganization.

(k) That Municipal Strategy shall have received from the Commission such orders or interpretations as Sidley Austin Brown & Wood LLP, as counsel to Municipal Strategy, deems reasonably necessary or desirable under the 1933 Act and the 1940 Act in connection with the Reorganization, provided, that such counsel shall have requested such orders as promptly as practicable, and all such orders shall be in full force and effect.

9. Conditions of MuniYield.

The obligations of MuniYield hereunder shall be subject to the following conditions:

(a) That this Agreement shall have been adopted, and the Reorganization shall have been approved, by the Board of Directors of each of the Funds and by the stockholders of Municipal Strategy as set forth in Section 8(a); and that Municipal Strategy shall have delivered to MuniYield a copy of the resolution approving this Agreement adopted by such Fund’s Board of Directors, and a certificate setting forth the vote of the stockholders of Municipal Strategy obtained at the special meeting of its stockholders, certified by its Secretary.

(b) That Municipal Strategy shall have furnished to MuniYield a statement of its assets, liabilities and capital, with values determined as provided in Section 4 of this Agreement, together with a schedule of investments with their respective dates of acquisition and tax costs, all as of the Valuation Time, certified on such Fund’s behalf by its President (or any Vice President) and its Treasurer, and a certificate signed by such Fund’s President (or any Vice President) and its Treasurer, dated as of the Closing Date, certifying that as of the Valuation Time and as of the Closing Date there has been no material adverse change in the financial position of Municipal Strategy since the date of such Fund’s most recent Annual Report or Semi-Annual Report, as applicable, other than changes in the Municipal Strategy Investments since that date or changes in the market value of the Municipal Strategy Investments.

(c) That Municipal Strategy shall have furnished to MuniYield a certificate signed by such Fund’s President (or any Vice President) and its Treasurer, dated the Closing Date, certifying that as of the Valuation Time and as of the Closing Date all representations and warranties of Municipal Strategy made in this Agreement are true and correct in all material respects with the same effect as if made at and as of such dates and Municipal Strategy has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied at or prior to such dates.

<R> (d) That Municipal Strategy shall have delivered to MuniYield a letter from Deloitte & Touche LLP, dated the Closing Date, stating that such firm has performed a limited review of the Federal, state and local income tax returns of Municipal Strategy for the period ended October 31, 2000 (which returns originally were prepared and filed by Municipal Strategy), and that based on such limited review, nothing came to their attention which caused them to believe that such returns did not properly reflect, in all material respects, the Federal, state and local income taxes of Municipal Strategy for the period covered thereby; and that for the period from November 1, 2000, to and including the Closing Date and for any taxable year of Municipal Strategy ending upon the liquidation of Municipal Strategy, such firm has performed a limited review to ascertain the amount of applicable Federal, state and local taxes, and has determined that either such amount has been paid or reserves have been</R>

II-12

established for payment of such taxes, this review to be based on unaudited financial data; and that based on such limited review, nothing has come to their attention which caused them to believe that the taxes paid or reserves set aside for payment of such taxes were not adequate in all material respects for the satisfaction of Federal, state and local taxes for the period from November 1, 2000, to and including the Closing Date and for any taxable year of Municipal Strategy, ending upon the liquidation of such Fund or that such Fund would not qualify as a regulated investment company for Federal income tax purposes for the tax years in question.

(e) That there shall not be any material litigation pending with respect to the matters contemplated by this Agreement.

<R> (f) That MuniYield shall have received an opinion of Sidley Austin Brown & Wood LLP, as counsel to the Funds, in form and substance satisfactory to MuniYield and dated the Closing Date, with respect to the matters specified in Section 8(e) of this Agreement and such other matters as MuniYield reasonably may deem necessary or desirable.

(g) That MuniYield shall have received an opinion of Sidley Austin Brown & Wood LLP with respect to the matters specified in Section 8(f) of this Agreement.</R>

(h) That MuniYield shall have received from Deloitte & Touche LLP a letter dated within three days prior to the effective date of the N-14 Registration Statement and a similar letter dated within five days prior to the Closing Date, in form and substance satisfactory to MuniYield, to the effect that (i) they are independent public accountants with respect to Municipal Strategy within the meaning of the 1933 Act and the applicable published rules and regulations thereunder; (ii) in their opinion, the financial statements and supplementary information of Municipal Strategy included or incorporated by reference in the N-14 Registration Statement and reported on by them (if applicable) comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder; (iii) on the basis of limited procedures agreed upon by the Funds and described in such letter (but not an examination in accordance with generally accepted auditing standards) consisting of a reading of any unaudited interim financial statements and unaudited supplementary information of Municipal Strategy included in the N-14 Registration Statement, and inquiries of certain officials of Municipal Strategy responsible for financial and accounting matters, nothing came to their attention that caused them to believe that (a) such unaudited financial statements and related unaudited supplementary information do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder, (b) such unaudited financial statements are not fairly presented in conformity with generally accepted accounting principles, or (c) such unaudited supplementary information is not fairly stated in all material respects in relation to the unaudited financial statements taken as a whole; and (iv) on the basis of limited procedures agreed upon by the Funds and described in such letter (but not an examination in accordance with generally accepted auditing standards), the information relating to Municipal Strategy appearing in the N-14 Registration Statement, which information is expressed in dollars (or percentages derived from such dollars) (with the exception of performance comparisons, if any), if any, has been obtained from the accounting records of Municipal Strategy or from schedules prepared by officials of Municipal Strategy having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom.

(i) That the Municipal Strategy Investments to be transferred to MuniYield shall not include any assets or liabilities which MuniYield, by reason of charter limitations or otherwise, may not properly acquire or assume.

(j) That the N-14 Registration Statement shall have become effective under the 1933 Act and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of Municipal Strategy, be contemplated by the Commission.

(k) That the Commission shall not have issued an unfavorable advisory report under Section 25(b) of the 1940 Act, nor instituted or threatened to institute any proceeding seeking to enjoin consummation of the Reorganization under Section 25(c) of the 1940 Act, and no other legal, administrative or other proceeding shall be instituted or threatened which would materially affect the financial condition of Municipal Strategy or would prohibit the Reorganization.

(l) That MuniYield shall have received from the Commission such orders or interpretations as Sidley Austin Brown & Wood LLP, as counsel to MuniYield, deems reasonably necessary or desirable under the 1933 Act and the 1940 Act in connection with the Reorganization, provided, that such counsel shall have requested such orders as promptly as practicable, and all such orders shall be in full force and effect.

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<R>(m) That all proceedings taken by Municipal Strategy and its counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to MuniYield and its counsel.</R>

(n) That prior to the Closing Date, Municipal Strategy shall have declared a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to its stockholders all of its net investment company taxable income for the period to and including the Closing Date, if any (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized to and including the Closing Date. In this regard, the last dividend period for Municipal Strategy AMPS may be shorter than the dividend period for such AMPS determined as set forth in the applicable Articles Supplementary.

10. Termination, Postponement and Waivers.

(a) Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated and the Reorganization abandoned at any time (whether before or after adoption thereof by the stockholders of the Funds) prior to the Closing Date, or the Closing Date may be postponed, (i) by mutual consent of the Boards of Directors of the Funds, (ii) by the Board of Directors of Municipal Strategy if any condition of Municipal Strategy’s obligations set forth in Section 8 of this Agreement has not been fulfilled or waived by such Board; or (iii) by the Board of Directors of MuniYield if any condition of MuniYield’s obligations set forth in Section 9 of this Agreement has not been fulfilled or waived by such Board.

(b) If the transactions contemplated by this Agreement have not been consummated by June 30, 2002, this Agreement automatically shall terminate on that date, unless a later date is mutually agreed to by the Boards of Directors of the Funds.

(c) In the event of termination of this Agreement pursuant to the provisions hereof, the same shall become void and have no further effect, and there shall not be any liability on the part of either Fund or persons who are their directors, trustees, officers, agents or stockholders in respect of this Agreement.

(d) At any time prior to the Closing Date, any of the terms or conditions of this Agreement may be waived by the Board of Directors of either Fund (whichever is entitled to the benefit thereof), if, in the judgment of such Board after consultation with its counsel, such action or waiver will not have a material adverse effect on the benefits intended under this Agreement to the stockholders of their respective Fund, on behalf of which such action is taken. In addition, the Boards of Directors of the Funds have delegated to FAM the ability to make non-material changes to the transaction if it deems it to be in the best interests of the Funds to do so.

(e) The respective representations and warranties contained in Sections 1 and 2 of this Agreement shall expire with, and be terminated by, the consummation of the Reorganization, and no Fund nor any of its officers, directors, trustees, agents or stockholders shall have any liability with respect to such representations or warranties after the Closing Date. This provision shall not protect any officer, director, trustee, agent or stockholder of either Fund against any liability to the entity for which that officer, director, trustee, agent or stockholder so acts or to its stockholders, to which that officer, director, trustee, agent or stockholder otherwise would be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties in the conduct of such office.

(f) If any order or orders of the Commission with respect to this Agreement shall be issued prior to the Closing Date and shall impose any terms or conditions which are determined by action of the Boards of Directors of the Funds to be acceptable, such terms and conditions shall be binding as if a part of this Agreement without further vote or approval of the stockholders of Municipal Strategy, unless such terms and conditions shall result in a change in the method of computing the number of shares of MuniYield Common Stock and MuniYield Series F AMPS to be issued to Municipal Strategy, as applicable, in which event, unless such terms and conditions shall have been included in the proxy solicitation materials furnished to the stockholders of Municipal Strategy prior to the meeting at which the Reorganization shall have been approved, this Agreement shall not be consummated and shall terminate unless Municipal Strategy promptly shall call a special meeting of stockholders at which such conditions so imposed shall be submitted for approval.

11. Indemnification.

(a) Municipal Strategy hereby agrees to indemnify and hold MuniYield harmless from all loss, liability and expenses (including reasonable counsel fees and expenses in connection with the contest of any claim), as incurred, which MuniYield may incur or sustain by reason of the fact that (i) MuniYield shall be required to pay any corporate obligation of Municipal Strategy, whether consisting of tax deficiencies or otherwise, based upon

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a claim or claims against Municipal Strategy which were omitted or not fairly reflected in the financial statements to be delivered to MuniYield in connection with the Reorganization; (ii) any representations or warranties made by Municipal Strategy in this Agreement should prove to be false or erroneous in any material respect; (iii) any covenant of Municipal Strategy has been breached in any material respect; or (iv) any claim is made alleging that (a) the N-14 Registration Statement included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (b) the Proxy Statement and Prospectus delivered to the stockholders of Municipal Strategy and forming a part of the N-14 Registration Statement included any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except with respect to (iv)(a) and (b) herein insofar as such claim is based on written information furnished to Municipal Strategy by MuniYield.

(b) MuniYield hereby agrees to indemnify and hold Municipal Strategy harmless from all loss, liability and expenses (including reasonable counsel fees and expenses in connection with the contest of any claim), as incurred, which Municipal Strategy may incur or sustain by reason of the fact that (i) any representations or warranties made by MuniYield in this Agreement should prove false or erroneous in any material respect, (ii) any covenant of MuniYield has been breached in any material respect, or (iii) any claim is made alleging that (a) the N-14 Registration Statement included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (b) the Proxy Statement and Prospectus delivered to stockholders of Municipal Strategy and forming a part of the N-14 Registration Statement included any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except with respect to (iii)(a) and (b) herein insofar as such claim is based on written information furnished to MuniYield by Municipal Strategy.

(c) In the event that any claim is made against MuniYield in respect of which indemnity may be sought by MuniYield from Municipal Strategy under Section 11(a) of this Agreement, or in the event that any claim is made against Municipal Strategy in respect of which indemnity may be sought by Municipal Strategy from MuniYield under Section 11(b) of this Agreement, then the party seeking indemnification (the “Indemnified Party”), with reasonable promptness and before payment of such claim, shall give written notice of such claim to the other party (the “Indemnifying Party”). If no objection as to the validity of the claim is made in writing to the Indemnified Party by the Indemnifying Party within thirty (30) days after the giving of notice hereunder, then the Indemnified Party may pay such claim and shall be entitled to reimbursement therefor, pursuant to this Agreement. If, prior to the termination of such thirty-day period, objection in writing as to the validity of such claim is made to the Indemnified Party, the Indemnified Party shall withhold payment thereof until the validity of such claim is established (i) to the satisfaction of the Indemnifying Party, or (ii) by a final determination of a court of competent jurisdiction, whereupon the Indemnified Party may pay such claim and shall be entitled to reimbursement thereof, pursuant to this Agreement, or (iii) with respect to any tax claims, within seven (7) calendar days following the earlier of (A) an agreement between MuniYield and Municipal Strategy that an indemnity amount is payable, (B) an assessment of a tax by a taxing authority, or (C) a “determination” as defined in Section 1313(a) of the Code. For purposes of this Section 11, the term “assessment” shall have the same meaning as used in Chapter 63 of the Code and Treasury Regulations thereunder, or any comparable provision under the laws of the appropriate taxing authority. In the event of any objection by the Indemnifying Party, the Indemnifying Party promptly shall investigate the claim, and if it is not satisfied with the validity thereof, the Indemnifying Party shall conduct the defense against such claim. All costs and expenses incurred by the Indemnifying Party in connection with such investigation and defense of such claim shall be borne by it. These indemnification provisions are in addition to, and not in limitation of, any other rights the parties may have under applicable law.

12. Other Matters.

(a) Pursuant to Rule 145 under the 1933 Act, and in connection with the issuance of any shares to any person who at the time of the Reorganization is, to its knowledge, an affiliate of a party to the Reorganization pursuant to Rule 145(c), MuniYield will cause to be affixed upon the certificate(s) issued to such person (if any) a legend as follows:

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THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO MUNIYIELD FUND, INC. (OR ITS STATUTORY SUCCESSOR), OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT REQUIRED.

and, further, that stop transfer instructions will be issued to MuniYield’s transfer agent with respect to such shares. Municipal Strategy will provide MuniYield on the Closing Date with the name of any stockholder of Municipal Strategy who is to the knowledge of Municipal Strategy an affiliate of Municipal Strategy on such date.

(b) All covenants, agreements, representations and warranties made under this Agreement and any certificates delivered pursuant to this Agreement shall be deemed to have been material and relied upon by each of the parties, notwithstanding any investigation made by them or on their behalf.

(c) Any notice, report or demand required or permitted by any provision of this Agreement shall be in writing and shall be made by hand delivery, prepaid certified mail or overnight service, addressed to either Fund, at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Attn: Terry K. Glenn, President.

(d) This Agreement supersedes all previous correspondence and oral communications between the parties regarding the Reorganization, constitutes the only understanding with respect to the Reorganization, may not be changed except by a letter of agreement signed by each party and shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said state.

(e) Copies of the Articles of Incorporation, as amended, and Articles Supplementary, as amended, of each Fund are on file with the Maryland Department and notice is hereby given that this instrument is executed on behalf of the Directors of each Fund.

     This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original but all such counterparts together shall constitute but one instrument.

<R>

                                                                  MUNIYIELD FUND, INC.

BY:            /s/ TERRY K. GLENN

Name: Terry K. Glenn

Title: President

ATTEST:

/s/ ALICE A. PELLEGRINO

SECRETARY

                                                                  MERRILL LYNCH MUNICIPAL STRATEGY FUND, INC.

BY:            /s/ TERRY K. GLENN

Name: Terry K. Glenn

Title: President

ATTEST:

/s/ ALICE A. PELLEGRINO

SECRETARY </R>

II-16

APPENDIX III

RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER

Description of Moody’s Investors Service, Inc.’s (“Moody’s”)
Municipal Bond Ratings

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

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

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

Baa Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payment 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: Those bonds in the Aa, A to Baa, Ba and B groups which Moody’s believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1.

Short-term Notes: The three ratings of Moody’s for short-term notes are MIG-1/VMIG-1, MIG-2/ VMIG-2 and MIG-3/VMIG-3; MIG-1/VMIG-1 denotes “best quality...strong protection by established cash flows”; MIG-2/VMIG-2 denotes “high quality” with ample margins of protection; MIG-3/ VMIG-3 notes are of “favorable quality... but... lacking the undeniable strength of the preceding grades.”

III-1

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 related supporting institutions) have a superior ability for repayment of short-term promissory obligations. Prime-1 repayment ability will often be evidenced by the following characteristics: leading market positions in well established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings 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 related 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 related supporting institutions) have a acceptable ability for repayment of short-term promissory obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in 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.

<R>Description of Standard & Poor’s (“Standard & Poor’s”) Municipal Debt Ratings</R>

A Standard & Poor’s municipal debt 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 financial program. It takes into consideration the creditworthiness of guarantors, insurers or other forms of credit enhancement on the obligation.

The debt 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 ratings are based on current information furnished by the issuer or obtained by Standard & Poor’s from other sources Standard & Poor’s considers reliable. Standard & Poor’s does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or for sources other circumstances.

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

I. Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;

II. Nature of and provisions of the obligation; and

III. Protection afforded by, 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.

AAA Debt rated “AAA” has the highest rating assigned by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.

AA Debt rated “AA” differs from the highest rated obligations only in small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.

A Debt 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 Debt 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.

III-2

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

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

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

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 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
<R>

A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high for issues designated “A-1.”</R>

A-3 Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.

B Issues rated “B” are regarded as having only speculative capacity for timely payment.

C This rating is assigned to short-term debt obligations with a doubtful capacity for payment.

D Debt 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.

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.

Description of Standard & Poor’s Short-Term Issue Credit Ratings

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.

III-3

SP-3 Speculative capacity to pay principal and interest.

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 <R>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 the 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.</R>

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

r 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.

Description of Fitch, Inc.’s (“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 that have the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk.

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

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

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

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

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

III-4

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.

NR: Indicates that Fitch does not rate the specific issue.

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

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

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

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

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.

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.

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.

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

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

III-5

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 municipal 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-4 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.

III-6

PART C
OTHER INFORMATION

Item 15. Indemnification.

Section 2-418 of the General Corporation Law of the State of Maryland, Article VI of the Registrant’s By-Laws, filed as Exhibit 2 hereto, and the Investment Advisory Agreement, a form of which is filed as Exhibit 6 hereto, provide for indemnification.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “1933 Act”), may be provided to directors, officers and controlling persons of the Registrant, 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.

Reference is made to (i) Section 6 of the Purchase Agreement relating to the Registrant’s Common Stock, a form of which is filed as Exhibit 7(a) hereto, and (ii) Section 7 of the Purchase Agreement relating to the Registrant’s Auction Market Preferred Stock (“AMPS”), a form of which is filed as Exhibit 7(b) hereto, for provisions relating to the indemnification of the underwriter.

Item 16. Exhibits.<R>

1 (a) — Articles of Incorporation of the Registrant, dated September 20, 1991.(a)

(b) — Articles of Amendment to the Articles of Incorporation of the Registrant, dated November 15, 1991.(a)

(c) — Articles Supplementary creating the Registrant’s Five Series of AMPS.

(d) — Articles of Amendment to Articles Supplementary creating the Registrant’s Five Series of AMPS, dated November 13, 1992.(a)

(e) — Articles of Amendment to Articles Supplementary creating the Registrant’s Five Series of AMPS, dated November 30, 1994.

(f) — Articles of Amendment to Articles Supplementary creating the Registrant’s Five Series of AMPS, dated November 30, 1994.(a)

(g) — Articles of Amendment to Articles Supplementary creating the Registrant’s Five Series of AMPS, dated June 23, 1999.(a)

(h) — Form of Articles Supplementary creating the Registrant’s Series F AMPS.(c)

2 — By-Laws of the Registrant.(a)

3 — Not applicable.

4 — Form of Agreement and Plan of Reorganization among the Registrant and Merrill Lynch Municipal Strategy Fund, Inc. (“Municipal Strategy”) (included as Appendix II to the Proxy Statement and Prospectus contained in this Registration Statement).

5 (a) — Copies of instruments defining the rights of stockholders, including the relevant portions of the Articles of Incorporation and the By-Laws of the Registrant.(b)

(b) — Form of specimen certificate for the common stock of the Registrant.

(c) — Form of specimen certificate for the AMPS of the Registrant.

6 — Investment Advisory Agreement between Registrant and Fund Asset Management, L.P. (“FAM”).(a)

7 (a) — Form of Purchase Agreement for the common stock of the Registrant.

(b) — Form of Purchase Agreement for the AMPS of the Registrant.

(c) — Form of Merrill Lynch Standard Dealer Agreement.

8 — Not applicable.</R>

C-1

<R>

9 — Custodian Contract between the Registrant and The Bank of New York (“BONY”).

10 — Form of Terms and Conditions of Amended Automatic Dividend Reinvestment Plan.(a)

11 — Opinion and Consent of Sidley Austin Brown & Wood LLP, counsel for the Registrant.

12 — Opinion of Sidley Austin Brown & Wood LLP, relating to certain tax matters.(d)

13 (a) — Form of Registrar, Transfer Agency and Service Agreement between the Registrant and BONY.

(b) — Form of Auction Agent Agreement between the Registrant and BONY.

(c) — Form of Agreement of Resignation, Appointment and Acceptance between the Registrant, IBJ Whitehall Bank & Trust Company and BONY.

(d) — Form of Broker-Dealer Agreement.

(e) — Form of Letter of Representations.

14 (a) — Consent of Deloitte & Touche LLP, independent auditors for the Registrant.

14 (b) — Consent of Deloitte & Touche LLP, independent auditors for Municipal Strategy.

15 — Not applicable.

16 — Power of Attorney.(e).

17 — Not applicable.

(a) Refiled on July 17, 2001 as an Exhibit to the Registrant’s Registration Statement on Form N-14 (File No. 333-65242) (the “N-14 Registration Statement”) pursuant to Electronic Data Gathering, Analysis and Retrieval (EDGAR) requirements.</R>

(b) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6), Article VII, Article VIII, Article X, Article XI, Article XII and Article XIII of the Registrant’s Articles of Incorporation, filed as Exhibit 1(a) hereto, to Article II, Article III (sections 1, 2, 3, 5 and 17), Article VI, Article VII, Article XII, Article XIII and Article XIV of the Registrant’s By-Laws, filed as Exhibit 2 hereto, and to the Form of Articles Supplementary relating to the Registrant’s Five Series of AMPS, filed as Exhibit 1(c) hereto. Reference is also made to the Form of Articles Supplementary relating to the Registrant’s Series F AMPS, filed as Exhibit 1(h) hereto.

(c) <R>Filed on July 17, 2001 as an Exhibit to the N-14 Registration Statement.

(d) To be filed by post-effective amendment to the N-14 Registration Statement.

(e) Included on the signature page of the N-14 Registration Statement filed on July 17, 2001 and incorporated herein by reference.</R>

Item 17. Undertakings.

(1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through use of a prospectus which is part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as amended, the reoffering prospectus will contain information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by other items of the applicable form.

(2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, as amended, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of securities at that time shall be deemed to be the initial bona fide offering of them.

(3) The Registrant undertakes to file, by post-effective amendment, an opinion of counsel as to certain tax matters within a reasonable time after receipt of such opinion.

C-2

SIGNATURES

<R>As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant, in the Township of Plainsboro and State of New Jersey, on the 14th day of September, 2001.</R>

MUNIYIELD FUND, INC.

(Registrant)

<R>

By: /s/ TERRY K. GLENN

(Terry K. Glenn, President)

As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signatures
Title
Date

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

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

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

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

JOSEPH L. MAY*
(Joseph L. May) Director

ANDRÉ F. PEROLD*
(André F. Perold) Director

ROBERTA COOPER RAMO*
(Roberta Cooper Ramo) Director

*By: /s/ TERRY K. GLENN
(Terry K. Glenn, Attorney-in-Fact) September 14, 2001

</R>

C-3

INDEX TO EXHIBITS

Exhibit
Number
Description <R>

1 (c) — Articles Supplementary creating the Registrant’s Five Series of AMPS.

1 (e) — Articles of Amendment to Articles Supplementary creating the Registrant’s Five Series of AMPS, dated November 30, 1994.

5 (b) — Form of specimen certificate for the common stock of the Registrant.

5 (c) — Form of specimen certificate for the AMPS.

7 (a) — Form of Purchase Agreement for the common stock of the Registrant.

7 (b) — Form of Purchase Agreement for the AMPS of the Registrant.

7 (c) — Form of Merrill Lynch Standard Dealer Agreement.

9 — Form of Custody Agreement between the Registrant and BONY.

11 — Opinion and Consent of Sidley Austin Brown & Wood LLP, counsel for the Registrant.

13 (a) — Form of Registrar, Transfer Agency and Service Agreement between the Registrant and BONY.

13 (b) — Form of Auction Agent Agreement between the Registrant and BONY.

13 (c) — Form of Agreement of Resignation, Appointment and Acceptance between the Registrant, IBJ Whitehall Bank & Trust Company and BONY.

13 (d) — Form of Broker-Dealer Agreement.

13 (e) — Form of Letter of Representations.

14 (a) — Consent of Deloitte & Touche LLP, independent auditors for the Registrant.

14 (b) — Consent of Deloitte & Touche LLP, independent auditors for Municipal Stragegy.</R>

EX-1.C 3 file002.txt ARTICLES SUPPLEMENTARY Exhibit 1(c) MUNIYIELD FUND, INC. Articles Supplementary creating five series of Auction Market Preferred Stock(R) MUNIYIELD FUND, INC., a Maryland corporation having its principal Maryland office in the City of Baltimore (the "Corporation"), certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to Authority expressly vested in the Board of Directors of the Corporation by article fifth of its Charter, the Board of Directors has reclassified 5,000 authorized and unissued shares of common stock of the Corporation as preferred stock of the Corporation had has authorized the issuance of five series of preferred stock, par value $.10 per share, liquidation preference $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) thereon, to be designated respectively: Auction Market Preferred Stock, Series A; Auction Market Preferred Stock, Series B; Auction Market Preferred Stock, Series C; Auction Market Preferred Stock, Series D; and Auction Market Preferred Stock, Series E. SECOND: The preferences, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the shares of each such series of preferred stock are as follows: - ---------- (R) Registered trademark of Merrill Lynch & Co., Inc. 1 DESIGNATION SERIES A: A series of 900 shares of preferred stock, par value $.10 per share, liquidation preference $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) thereon, is hereby designated "Auction Market Preferred Stock, Series A." Each share of Auction Market Preferred Stock, Series A (sometimes referred to herein as "Series A AMPS") shall be issued on a date to be determined by the Board of Directors of the Corporation; have an Initial Dividend Rate and Initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Directors of the Corporation; and have such other preferences, voting powers, limitations as to dividends, qualifications and terms and conditions of redemption as are set forth in these Articles Supplementary. The Auction Market Preferred Stock, Series A shall constitute a separate series of preferred stock of the Corporation, and each share of Auction Market Preferred Stock, Series A shall be identical. SERIES B: A series of 900 shares of preferred stock, par value $.10 per share, liquidation preference $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) thereon, is hereby designated "Auction Market Preferred Stock, Series B." Each share of Auction Market Preferred Stock, Series B (sometimes referred to herein as "Series B AMPS") shall be issued on a date to be determined by the Board of Directors of the Corporation; have an Initial Dividend Rate and Initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Directors of the Corporation; and have such other preferences, voting powers, limitations as to dividends, qualifications and terms and conditions of redemption as are set forth in these Articles Supplementary. The Auction Market Preferred Stock, Series B shall constitute a separate series 2 of preferred stock of the Corporation, and each share of Auction Market Preferred Stock, Series B shall be identical. SERIES C: A series of 900 shares of preferred stock, par value $.10 per share, liquidation preference $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) thereon, is hereby designated "Auction Market Preferred Stock, Series C." Each share of Auction Market Preferred Stock, Series C (sometimes referred to herein as "Series C AMPS") shall be issued on a date to be determined by the Board of Directors of the Corporation; have an Initial Dividend Rate and Initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Directors of the Corporation; and have such other preferences, voting powers, limitations as to dividends, qualifications and terms and conditions of redemption as are set forth in these Articles Supplementary. The Auction Market Preferred Stock, Series C shall constitute a separate series of preferred stock of the Corporation, and each share of Auction Market Preferred Stock, Series C shall be identical. SERIES D: A series of 900 shares of preferred stock, par value $.10 per share, liquidation preference $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) thereon, is hereby designated "Auction Market Preferred Stock, Series D." Each share of Auction Market Preferred Stock, Series D (sometimes referred to herein as "Series D AMPS") shall be issued on a date to be determined by the Board of Directors of the Corporation; have an Initial Dividend Rate and Initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Directors of the Corporation; and have such other preferences, voting powers, limitations as to dividends, qualifications and terms and conditions of redemption as are set forth in these Articles 3 Supplementary. The Auction Market Preferred Stock, Series D shall constitute a separate series of preferred stock of the Corporation, and each share of Auction Market Preferred Stock, Series D shall be identical. SERIES E: A series of 1,400 shares of preferred stock, par value $.10 per share, liquidation preference $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) thereon, is hereby designated "Auction Market Preferred Stock, Series E." Each share of Auction Market Preferred Stock, Series E (sometimes referred to herein as "Series E AMPS") shall be issued on a date to be determined by the Board of Directors of the Corporation; have an Initial Dividend Rate and Initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Directors of the Corporation; and have such other preferences, voting powers, limitations as to dividends, qualifications and terms and conditions of redemption as are set forth in these Articles Supplementary. The Auction Market Preferred Stock, Series E shall constitute a separate series of preferred stock of the Corporation, and each share of Auction Market Preferred Stock, Series E shall be identical. 1. Definitions. Unless the context or use indicates another or different meaning or intent, in these Articles Supplementary the following terms have the following meanings, whether used in the singular or plural: "'AA' Composite Commercial Paper Rate," on any date of determination, means (i) the Interest Equivalent of the rate on commercial paper placed on behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's or the equivalent of such rating by another nationally recognized rating agency, as such rate is made available on a discount basis or otherwise by the Federal Reserve Bank of New York for the Business Day immediately 4 preceding such date, or (ii) in the event that the Federal Reserve Bank of New York does not make available such a rate, then the arithmetic average of the Interest Equivalent of the rate on commercial paper placed on behalf of such issuers, as quoted on a discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith Incorporated or its successors that are Commercial Paper Dealers, to the Auction Agent for the close of business on the Business Day immediately preceding such date. If one of the Commercial Paper Dealers does not quote a rate required to determine the "AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate will be determined on the basis of the quotation or quotations furnished by any Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers selected by the Corporation to provide such rate or rates not being supplied by the Commercial Paper Dealer. If the number of Dividend Period Days shall be (i) 7 or more but fewer than 49 days, such rate shall be the Interest Equivalent on the 30-day rate on such commercial paper; (ii) 49 or more but fewer than 70 days, such rate shall be the Interest Equivalent of the 60-day rate on such commercial paper; (iii) 70 or more days but fewer than 85 days, such rate shall be the arithmetic average of the Interest Equivalent on the 60-day and 90-day rates on such commercial paper; (iv) 85 or more days but fewer than 99 days, such rate shall be the Interest Equivalent of the 90-day rate on such commercial paper; (v) 99 or more days but fewer than 120 days, such rate shall be the arithmetic average of the Interest Equivalent of the 90-day and 120-day rates on such commercial paper; (vi) 120 or more days but fewer than 141 days, such rate shall be the Interest Equivalent of the 120-day rate on such commercial paper; (vii) 141 or more days but fewer than 162 days, such rate shall be the arithmetic average of the Interest Equivalent of the 120-day and 180-day rates on such commercial paper; and (viii) 162 or more days but fewer than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on such commercial paper. 5 "Accountant's Confirmation" has the meaning set forth in paragraph 7(c) of these Articles Supplementary. "Additional Dividend" has the meaning set forth in paragraph 2(e) of these Articles Supplementary. "Adviser" means the Corporation's investment adviser which initially shall be Fund Asset Management, Inc. "Affiliate" shall mean any Person, other than Merrill Lynch, Pierce, Fenner & Smith Incorporated or its successors, known to the Auction Agent to be controlled by, in control of, or under common control with, the Corporation. "Agent Member" means a member of the Securities Depository that will act on behalf of an Existing Holder of one or more shares of AMPS or a Potential Holder that is identified as such in such holder's Purchaser's Letter. "AMPS" means, as the case may be, the Auction Market Preferred Stock, Series A; Auction Market Preferred Stock, Series B; Auction Market Preferred Stock, Series C; Auction Market Preferred Stock, Series D; or Auction Market Preferred Stock, Series E of the Corporation. "AMPS Basic Maintenance Amount," as of any Valuation Date, means the dollar amount equal to (i) the sum of (A) the product of the number of shares of AMPS of all series and Other AMPS Outstanding on such Valuation Date multiplied by the sum of (a) $50,000 and (b) any applicable redemption premium attributable to the designation of a Premium Call Period; (B) the aggregate amount of cash dividends (whether or not earned or declared) that will have accumulated for each share of AMPS and Other AMPS Outstanding, in each case (but not including) the end of the current Dividend Period Date therefor that follows such Valuation Date; (C) 6 the aggregate amount of cash dividends that would accumulate at the then current Maximum Applicable Rate on any shares of AMPS and AMPS Outstanding from the end of such Dividend Period through the 49th day after such Valuation Date, multiplied by the larger of the potential dividend rate increase factors (currently 304%) determined from time to time by Moody's and S&P (except that if such Valuation Rate occurs during a Non-Payment Period, the cash dividend for purposes of calculation would accumulate at the then current Non-Payment Period Rate); (D) the amount of anticipated expenses of the Corporation for the 90 days subsequent to such Valuation Date; (E) the amount of the Corporation's Maximum Potential Additional Dividend Liability as of such Valuation Date; and (F) any current liabilities as of such Valuation Date to the extent not reflected in any of (i)(A) through (i)(E) (including, without limitation, and immediately upon determination, any amounts due and payable by the Corporation pursuant to repurchase agreements and any payables for Municipal Bonds purchased as of such Valuation Date) less (ii) the sum of (A) the lesser of (1) the aggregate of (a) the book value of receivables for Municipal Bonds sold as of or prior to such Valuation Date if such receivables are due within five business days of such Valuation Date, and if the trades which generated such receivables are (x) settled through clearing house firms with respect to which the Corporation has received prior written authorization from Moody's or (y) with counterparties having a Moody's long-term debt rating of at least Baa3, and (b) the Discounted Value Municipal Bonds sold as of or prior to such Valuation Date which generated receivables calculated using the Moody's Discount Factor applicable to such Municipal Bonds, if such receivables are due within five business days of such Valuation Date but do not comply with either of conditions (x) or (y) of the preceding clause (a) and (2) the Discounted Value of such Municipal Bonds calculated using the higher of the S&P Discount Factor and the Moody's 7 Discount Factor applicable to such Municipal Bonds and (B) the Discounted Value of any of the Corporation's assets irrevocably deposited by the Corporation for the payment of the amount needed to redeem shares of AMPS subject to redemption or any of (i)(B) through (i)(F). "AMPS Basic Maintenance Cure Date," with respect to the failure by the Corporation to satisfy the AMPS Basic Maintenance Amount (as required by paragraph 7(a) of these Articles Supplementary) as of a given Valuation Date, means the sixth Business Day following such Valuation Date. "AMPS Basic Maintenance Report" means a report signed by any of the President, Treasurer, any Senior Vice President or any Vice President of the Corporation which sets forth, as of the related Valuation Date, the assets of the Corporation, the Market Value and the Discounted Value thereof (seriatim and in aggregate), and the AMPS Basic Maintenance Amount. "Applicable Percentage" has the meaning set forth in paragraph 11(a)(vii) of these Articles Supplementary. "Applicable Rate" means the rate per annum at which cash dividends are payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period. "Auction" means a periodic operation of the Auction Procedures. "Auction Agent" means IBJ Schroder Bank & Trust Company unless and until another commercial bank, trust company or other financial institution appointed by a resolution of the Board of Directors of the Corporation or a duly authorized committee thereof enters into an agreement with the Corporation to follow the Auction Procedures for the purpose of determining the Applicable Rate and to act as transfer agent, registrar, dividend disbursing agent and redemption agent for the AMPS and Other AMPS. 8 "Auction Procedures" means the procedures for conducting Auctions set forth in paragraph 11 of these Articles Supplementary. "Broker-Dealer" shall mean any broker-dealer, or other entity permitted by law to perform the functions required of a Broker-Dealer in paragraph 11 of these Articles Supplementary, that has been selected by the Corporation and has entered into a Broker-Dealer Agreement with the Auction Agent that remains effective. "Broker-Dealer Agreement" shall mean an agreement between the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the procedures specified in paragraph 11 of these Articles Supplementary. "Business Day" means a day on which the New York Stock Exchange, Inc. is open for trading and which is not a Saturday, Sunday or other day on which banks in The City of New York are authorized or obligated by law to close. "Charter" means the Articles of Incorporation, as amended and supplemented (including these Articles Supplementary), of the Corporation on file in the State Department of Assessments and Taxation of Maryland. "Code" means the Internal Revenue Code of 1986, as amended. "Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and such other commercial paper dealer or dealers as the Corporation may from time to time appoint, or, in lieu of any thereof, their respective affiliates or successors. "Common Stock" means the common stock, par value $.10 per share, of the Corporation. "Corporation" means MuniYield Fund, Inc., a Maryland corporation. "Date of Original Issue" means, with respect to any share of AMPS or Other AMPS, the date on which the Corporation originally issues such share. 9 "Deposit Securities" means cash and Municipal Bonds rated at least AAA, A-1+ or SP-1+ by S&P. "Discounted Value" means (i) with respect to an S&P Eligible Asset, the quotient of the Market Value thereof divided by the applicable S&P Discount Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and the quotient of the Market Value thereof divided by the applicable Moody's Discount Factor. "Dividend Coverage Amount," as of any Valuation Date, means (i) the aggregate amount of cash dividends that will accumulate on all shares of outstanding AMPS and Other AMPS, in each case to (but not including) the next Dividend Payment Date therefor that follows such Valuation Date plus (ii) the aggregate amount of all liabilities existing on such Valuation Date which are payable on or prior to such next Dividend Payment Date less (iii) the combined Market Value of Deposit Securities irrevocably deposited with the Auction Agent for the payment of cash dividends on all shares of AMPS and Other AMPS. "Dividend Coverage Assets," as of any Valuation Date, means, in the case of shares of AMPS and Other AMPS, Deposit Securities with maturity or tender payment dates not later in each case than the Dividend Payment Date therefor that follows such Valuation Date. "Dividend Payment Date," with respect to AMPS, has the meaning set forth in paragraph 2(b)(i) of these Articles Supplementary and, with respect to Other AMPS, has the equivalent meaning. "Dividend Period" means the Initial Dividend Period, any 7-day Dividend Period, any 28-day Dividend Period and any Special Dividend Period. "Existing Holder" means a Person who has signed a Purchaser's Letter and is listed as the holder of record of shares of AMPS in the Stock Books. 10 "Forward Commitment" has the meaning set forth in paragraph 9(c) of these Articles Supplementary. "Holder" means a Person identified as a holder of record of shares of AMPS in the Stock Register. "Independent Accountant" means a nationally recognized accountant, or firm of accountants, that is, with respect to the Corporation, an independent public accountant or firm of independent public accountants under the Securities Act of 1933, as amended. "Initial Dividend Payment Date" means the Initial Dividend Payment Date as determined by the Board of Directors of the Corporation with respect to each Series of AMPS or Other AMPS, as the case may be. "Initial Dividend Period," with respect to each Series of AMPS, has the meaning set forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to Other AMPS, has the equivalent meaning. "Initial Dividend Rate," with respect to each series of AMPS, means the rate per annum applicable to the Initial Dividend Period for such series of AMPS and, with respect to other AMPS, has the equivalent meaning. "Initial Margin" means the amount of cash or securities deposited with a broker as a margin payment at the time of purchase or sale of a futures contract. "Interest Equivalent" means a yield on a 360-day basis of a discount basis security which is equal to the yield on an equivalent interest-bearing security. "Long Term Dividend Period" means a Special Dividend Period consisting of a specified period of whole years not greater than five years. 11 "Mandatory Redemption Price" means $50,000 per share of AMPS plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) to the date fixed for redemption and excluding Additional Dividends. "Market Value" of any asset of the Corporation shall be the market value thereof determined by the Pricing Service. Market Value of any asset shall include any interest accrued thereon. The Pricing Service shall value portfolio securities at the quoted bid prices or the mean between the quoted bid and asked price or the yield equivalent when quotations are not readily available. Securities for which quotations are not readily available shall be valued at fair value as determined by the Pricing Service using methods which include consideration of: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating; indications as to value from dealers; and general market conditions. The Pricing Service may employ electronic data processing techniques and/or a matrix system to determine valuations. In the event the Pricing Service is unable to value a security, the security shall be valued at the lower of two dealer bids obtained by the Corporation, at least one of which shall be in writing. Futures contracts and options are valued at closing prices for such instruments established by the exchange or board of trade on which they are traded, or if market quotations are not readily available, are valued at fair value on a consistent basis using methods determined in good faith by the Board of Directors. "Maximum Applicable Rate," with respect to AMPS, has the meaning set forth in paragraph 11(a)(vii) of these Articles Supplementary and, with respect to Other AMPS, has the equivalent meaning. "Maximum Potential Additional Dividend Liability," as of any Valuation Date, means the aggregate amount of Additional Dividends that would be due if the Corporation were to 12 make Retroactive Taxable Allocations, with respect to any fiscal year, estimated based upon dividends paid and the amount of undistributed realized net capital gains and other taxable income earned by the Corporation, as of the end of the calendar month immediately preceding such Valuation Date and assuming such Additional Dividends are fully taxable. "Minimum Liquidity Level" means, as of any Valuation Date, an aggregate Market Value of the Corporation's Dividend Coverage Assets not less than the Dividend Coverage Amount. "Moody's" means Moody's Investors Service, Inc. or its successors. "Moody's Discount Factor" means, for purposes of determining the Discounted Value of any Municipal Bond which constitutes a Moody's Eligible Asset, the percentage determined by reference to (a) the rating by Moody's or S&P on such Bond and (b) the Moody's Exposure Period, in accordance with the table set forth below:
Rating Category ----------------------------------------------------- Moody's Exposure Period Aaa* Aa* A* Baa* Other** ----------------------- ---- --- -- ---- ------- 7 weeks or less................................... 151% 159% 168% 202% 229% 8 weeks or less but greater than seven weeks...... 154 164 173 205 235 9 weeks or less but greater than eight weeks...... 158 169 179 209 242
- ---------- * Moody's rating. ** Municipal Bonds not rated by Moody's but rated BBB-, BBB or BBB+ S&P. Notwithstanding the foregoing, (i) the Moody's Discount Factor for short-term Municipal Bonds will be 115%, so long as such Municipal Bonds are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at par exercisable in 30 days or less, or 125% if such Bonds are not rated by Moody's but are rated A-1+ or SP-1+ or AA by S&P, and (ii) no Moody's Discount Factor will be applied to cash or to Receivables for Municipal Bonds Sold. "Receivables for Municipal Bonds Sold," for purposes of calculating Moody's Eligible Assets as of any Valuation Date, means no more than the aggregate of the following: (i) the book value of receivables for Municipal Bonds sold as of or prior to such Valuation Date if such receivables 13 are due within five business days of such Valuation Date, and if the trades which generated such receivables are (x) settled through clearing house firms with respect to which the Corporation has received prior written authorization from Moody's or (y) with counterparties having a Moody's long-term debt rating of at least Baa3; and (ii) the Moody's Discounted Value of Municipal Bonds sold as of or prior to such Valuation Date which generated receivables, if such receivables are due within five business days of such Valuation Date but do not comply with either of conditions (x) or (y) of the preceding clause (i). "Moody's Eligible Asset" means cash, Receivables for Municipal Bonds sold (as defined for purposes of calculating Moody's Eligible Assets) or a Municipal Bond that (i) pays interest in cash, (ii) is publicly rated Baa or higher by Moody's or, if not rated by Moody's but rated by S&P, is rated at least BBB- by S&P (provided that, for purposes of determining the Moody's Discount Factor applicable to any such S&P-rated Municipal Bond, such Municipal Bond (excluding any short-term Municipal Bond) will be deemed to have a Moody's rating which is one full rating category lower than its S&P rating), (iii) does not have its Moody's rating suspended by Moody's, and (iv) is part of an issue of Municipal Bonds of at least $10,000,000. In addition, Municipal Bonds in the Corporation's portfolio must be within the following diversification requirements in order to be included within Moody's Eligible Assets: Maximum or Minimum Maximum Territory Issue Size Underlying Concentration Rating ($ Millions) Obligor (%)(1) (%)(1) ------ ------------ -------------- ------------- Aaa.................. 10 100 100 Aa................... 10 20 60 A.................... 10 10 40 Baa.................. 10 6 20 Other(2)............. 10 4 12 14 - ------------- (1) The referenced percentages represent maximum cumulative totals for the related rating category and each lower rating category. (2) Municipal Bonds not rated by Moody's but rated BBB-, BBB or BBB+ by S&P. For purposes of the maximum underlying obligor requirement described above, any Municipal Bond backed by the guaranty, letter of credit or insurance issued by a third party will be deemed to be issued by such third party if the issuance of such third party credit is the sole determinant of the rating on such Bond. Municipal Bonds subject to a repurchase agreement that obligates the Corporation to repurchase such Municipal Bonds will constitute Moody's Eligible Assets to the extent they satisfy Moody's current guidelines. Cash receivable by the Corporation pursuant to a repurchase agreement that obligates a third party to repurchase Municipal Bonds from the Corporation will only constitute Moody's Eligible Assets if the long-term debt of such third party is rated at least A2 by Moody's and such agreement has a term of 30 days or less. Notwithstanding the foregoing, an asset will not be considered a Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to any material lien, mortgage, pledge, security interest or security agreement of any kind,(iii) held for the purchase of a security pursuant to a Forward Commitment or (iv) irrevocably deposited by the Corporation for the payment of dividends or redemption. "Moody's Exposure Period" means a period that is the same length or longer than the number of days used in calculating the cash dividend component of the AMPS Basic Maintenance Amount and shall initially be the period commencing on a given Valuation Date and ending 49 days thereafter. "Moody's Hedging Transaction" has the meaning set forth in paragraph 9(b) of these Articles Supplementary. 15 "Municipal Bonds" means "Municipal Bonds" as defined in the Corporation's Registration Statement on Form N-2 (File No. 33-43264) on file with the Securities and Exchange Commission, as such Registration Statement may be amended from time to time. "Municipal Index" has the meaning set forth in paragraph 9(a) of these Articles Supplementary. "1940 Act" means the Investment Company Act of 1940, as amended from time to time. "1940 Act AMPS Asset Coverage" means asset coverage, as defined in section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Corporation which are stock, including all outstanding shares of AMPS and Other Amps (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of paying dividends on its common stock). "1940 Act Cure Date," with respect to the failure by the Corporation to maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of these Articles Supplementary) as of the last Business Day of each month, means the last Business Day of the following month. "Non-Call Period" has the meaning set forth under the definition of "Specific Redemption Provisions". "Non-Payment Period" means, with respect to each series of AMPS, any period commencing on and including the day on which the Corporation shall fail to (i) declare, prior to the close of business on the second Business Day preceding any Dividend Payment Date, for payment on or (to the extent permitted by paragraph 2(c)(i) of these Articles Supplementary) within three Business Days after such Dividend Payment Date to the Holders as of 12:00 noon, New York City time, on the Business Day preceding such Dividend Payment Date, the full 16 amount of any dividend on shares of AMPS payable on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in same-day funds, with the Auction Agent by 12:00 noon, New York City time, (A) on such Dividend Payment Date the full amount of any cash dividend on such shares payable (if declared) on such Dividend Payment Date or (B) on any redemption date for any shares of AMPS called for redemption, the Mandatory Redemption Price per share of such AMPS or, in the case of an optional redemption, the Optional Redemption Price per share, and ending on and including the Business Day on which, by 12:00 noon, New York City time, all unpaid cash dividends and unpaid redemption prices shall have been so deposited or shall have otherwise been made available to Holders in same-day funds; provided that, a Non-Payment Period shall not end unless the Corporation shall have given at least five days' but no more than 30 days' written notice of such deposit or availability to the Auction Agent, all Existing Holders (at their addresses appearing in the Stock Books) and the Securities Depository. Notwithstanding the foregoing, the failure by the Corporation to deposit funds as provided for by clauses (ii)(A) or (ii)(B) above within three Business Days after any Dividend Payment Date or redemption date, as the case may be, in each case to the extent contemplated by paragraph 2(c)(i) of these Articles Supplementary, shall not constitute a "Non-Payment Period." "Non-Payment Period Rate" means, initially, 200% of the applicable Reference Rate (or 275% of such rate if the Corporation has provided notification to the Auction Agent prior to the Auction establishing the Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net capital gains or other taxable income will be included in such dividend on shares of AMPS), provided that the Board of Directors of the Corporation shall have the authority to adjust, modify, alter or change from time to time the initial Non-Payment Period Rate if the Board of Directors of the Corporation determines and Moody's and S&P (and any Substitute Rating 17 Agency in lieu of Moody's or S&P in the event either of such parties shall not rate the AMPS) advise the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings on the AMPS. "Normal Dividend Payment Date" has the meaning set forth in paragraph 2(b)(1) of these Articles Supplementary. "Notice of Redemption" means any notice with respect to the redemption of shares of AMPS pursuant to paragraph 4 of these Articles Supplementary. "Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii) of these Articles Supplementary. "Notice of Special Dividend Period" has the meaning set forth in paragraph 2(c)(iii) of these Articles Supplementary. "Optional Redemption Price" shall mean $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) to the date fixed for redemption and excluding Additional Dividends plus any applicable redemption premium attributable to the designation of a Premium Call Period. "Other AMPS" means the auction rate preferred stock of the Corporation, other than the AMPS. "Outstanding" means, as of any date (i) with respect to AMPS, shares of AMPS theretofore issued by the Corporation except, without duplication, (A) any shares of AMPS theretofore cancelled or delivered to the Auction Agent for cancellation, or redeemed by the Corporation, or as to which a Notice of Redemption shall have been given and moneys shall have been deposited in trust by the Corporation pursuant to paragraph 4(c) and (B) any shares of AMPS as to which the Corporation or any Affiliate thereof shall be an Existing Holder, provided 18 that shares of AMPS held by an Affiliate shall be deemed outstanding for purposes of calculating the AMPS Basic Maintenance Amount and (ii) with respect to shares of other Preferred Stock, has the equivalent meaning. "Parity Stock" means the AMPS and each other outstanding series of Preferred Stock the holders of which, together with the holders of the AMPS, shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to the full respective preferential amounts to which they are entitled, without preference or priority one over the other. "Person" shall mean and include an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof. "Potential Holder" shall mean any Person, including any Existing Holder, (A) who shall have executed a Purchaser's Letter and (B) who may be interested in acquiring shares of AMPS (or, in the case of an Existing Holder, additional shares of AMPS). "Preferred Stock" means the preferred stock of the Corporation, and includes AMPS and Other AMPS. "Premium Call Period" has the meaning set forth under the definition of "Specific Redemption Provisions". "Pricing Services" shall mean J.J. Kenney or any pricing service designated by the Board of Directors of the Corporation provided the Corporation obtains written assurance from S&P and Moody's that such designation will not impair the rating then assigned by S&P and Moody's to the AMPS. 19 "Purchaser's Letter" means a letter addressed to the Corporation, the Auction Agent and a Broker-Dealer in which a Person agrees, among other things, to offer to purchase, purchase, offer to sell and/or sell shares of AMPS as set forth in paragraph 11 of these Articles Supplementary. "Quarterly Valuation Date" means the last Business Day of each fiscal quarter of the Corporation in each fiscal year of the Corporation, commencing January 31, 1992. "Receivables for Municipal Bonds Sold" has the meaning set forth under the definition of S&P Discount Factor. "Reference Rate" means: (i) with respect to a Dividend Period or a Short Term Dividend Period having fewer than 183 days, the applicable "AA" Composite Commercial Paper Rate, (ii) with respect to any Short Term Dividend Period having 183 or more but fewer than 364 days, the applicable U.S. Treasury Bill Rate and (iii) with respect to any Long Term Dividend Period, the applicable U.S. Treasury Note Rate. "Request for Special Dividend Period" has the meaning set forth in paragraph 2(c)(iii) of these Articles Supplementary. "Response" has the meaning set forth in paragraph 2(c)(iii) of these Articles Supplementary. "Retroactive Taxable Allocation" has the meaning set forth in paragraph 2(e) of these Articles Supplementary. "Right," with respect to AMPS, has the meaning set forth in paragraph 2(e) of these Articles Supplementary and, with respect to Other AMPS, has the equivalent meaning. "S&P" means Standard & Poor's Corporation or its successors. 20 "S&P Discount Factor" means, for purposes of determining the Discounted Value of any Municipal Bond which constitutes an S&P Eligible Asset, the percentage determined by reference to (a) the rating by S&P or Moody's on such Bond and (b) the S&P Exposure Period, in accordance with the tables set forth below: Rating Category ----------------------------------------------- S&P Exposure Period AAA* AA* A* BBB* - ------------------- ---- --- -- ---- 40 Business Days 190% 195% 210% 250% 22 Business Days 170 175 190 230 10 Business Days 155 160 175 215 7 Business Days 150 155 170 210 3 Business Days 130 135 150 190 - ---------- * S&P rating. Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term Municipal Bonds will be 115%, so long as such Municipal Bonds are rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable in 30 days or less, or 125% if such Municipal Bonds are not rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however, that if such short-term Municipal Bonds are backed by any letter of credit, liquidity facility or guarantee from a bank or other financial institution, such bank or institution must have a short-term rating of at least A-1+ from S&P; and further provided that such short-term Municipal Bonds rated by Moody's but not rated by S&P may comprise no more than 50% of short-term Municipal Bonds that qualify as S&P Eligible Assets and (ii) no S&P Discount Factor will be applied to cash or to Receivables for Municipal Bonds Sold. "Receivables for Municipal Bonds Sold," for purposes of calculating S&P's Eligible Assets as of any Valuation Date, means the book value of receivables for Municipal Bonds Sold as of or prior to such Valuation Date if such receivables are due within five business days of such Valuation Date. 21 "S&P Eligible Asset" means cash, Receivables for Municipal Bonds Sold (as defined for purposes of calculating S&P Eligible Assets) or a Municipal Bond that (i) is issued by any of the 50 states, the territories and their subdivisions, counties, cities, towns, villages, and school districts, agencies, such as authorities and special districts created by the states, and certain federally sponsored agencies such as local housing authorities (payments made on these bonds are exempt from regular federal income taxes and are generally exempt from state and local taxes in the state of issuance), (ii) is interest bearing and pays interest at least semi-annually; (iii) is payable with respect to principal and interest in United States Dollars; (iv) is publicly rated BBB or higher by S&P or, if not rated by S&P but rated by Moody's, is rated at least A by Moody's (provided that such Moody's-rated Municipal Bonds will be included in S&P Eligible Assets only to the extent the Market Value of such Municipal Bonds does not exceed 50% of the aggregate Market Value of the S&P Eligible Assets; and further provided that, for purposes of determining the S&P Discount Factor applicable to any such Moody's-rated Municipal Bond, such Municipal Bond will be deemed to have an S&P rating which is one full rating category lower than its Moody's rating); (v) is not subject to a covered to call or covered put option written by the Corporation; (vi) is not part of a private placement of Municipal Bonds; and (vii) is part of an issue of Municipal Bonds with an original issue size of at least $20 million or, if of an issue with an original issue size below $20 million (but in no event below $10 million), is issued by an issuer with a total of at least $50 million of securities outstanding. Notwithstanding the foregoing: (1) Municipal Bonds of any one issuer or guarantor (excluding bond insurers) will be considered S&P Eligible Assets only to the extent the Market Value of such Municipal Bonds does not exceed 10% of the Aggregate Market Value of the S&P 22 Eligible Assets, provided that 2% is added to the applicable S&P Discount Factor for every 1% by which the Market Value of such Municipal Bonds exceeds 5% of the aggregate Market Value of the S&P Eligible Assets; (2) Municipal Bonds guaranteed or insured by any one bond insurer will be considered S&P Eligible Assets only to the extent the fair market value of such Municipal Bonds does not exceed 25% of the aggregate Market Value of the S&P Eligible Assets; and (3) Municipal Bonds issued by issuers in any one state or territory will be considered S&P Eligible Assets only to the extent the Market Value of such Municipal Bonds does not exceed 20% of the aggregate Market Value of S&P Eligible Assets. "S&P Exposure Period" means the maximum period of time following a Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure Date, that the Corporation has under these Articles Supplementary to cure any failure to maintain, as of such Valuation Date, the Discounted Value for its portfolio at least equal to the AMPS Basic Maintenance Amount (as described in paragraph 7(a) of these Articles Supplementary). "S&P Hedging Transactions" has the meaning set forth in paragraph 9(a) of these Articles Supplementary. "Securities Depository" means The Depository Trust Company or any successor company or other entities elected by the Corporation as securities depository for the shares of AMPS that agrees to follow the procedures required to be followed by such securities depository in connection with the shares of AMPS. "Service" means the United States Internal Revenue Service. 23 "7-Day Dividend Period" means, with respect to Series E AMPS, a Dividend Period consisting of seven days. "Short Term Dividend Period" means a Dividend Period consisting of a specified number of days (other than 28 in the case of Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS and other than seven in the case of Series E AMPS), evenly divisible by seven and not fewer than seven or more than 364. "Special Dividend Period" means a Dividend Period consisting of (i) a specified number of days (other than 28 in the case of Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS and other than seven in the case of Series E AMPS), evenly divisible by seven, and not fewer than seven nor more than 364 or (ii) a specified number of whole years not greater than five years (in each case subject to adjustment as provided in paragraph 2 (b) (i)). "Specific Redemption Provisions" means, with respect to a Special Dividend Period either, or any combination of, (i) a period (a "Non-Call Period") determined by the Board of Director of the Corporation, after consultation with the Auction Agent and the Broker-Dealers, during which the shares of AMPS subject to such Dividend Period shall not be subject to redemption at the option of the Corporation and (ii) a period (a "Premium Call Period"), consisting of a number of whole years and determined by the Board of Directors of the Corporation, after consultation with the Auction Agent and the Broker-Dealers, during each year of which the shares of AMPS subject to such Dividend Period shall be redeemable at the Corporation's option at a price per share equal to $50,000 plus accumulated but unpaid dividends plus a premium expressed as a percentage of $50,000, as determined by the Board of Directors of the Corporation after consultation with the Auction Agent and the Broker-Dealers. 24 "Stock Books" means the books maintained by the Auction Agent setting forth at all times a current list, as determined by the Auction Agent, of Existing Holders of the AMPS. "Stock Register" means the register of Holders maintained on behalf of the Corporation by the Auction Agent in its capacity as transfer agent and registrar for the AMPS. "Subsequent Dividend Period," with respect to AMPS, has the meaning set forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to Other AMPS, has the equivalent meaning. "Substitute Commercial Paper Dealers" means such Substitute Commercial Paper Dealer or Dealers as the Corporation may from time to time appoint or, in lieu of any thereof, their respective affiliates or successors. "Substitute Rating Agency" and "Substitute Rating Agencies" mean a nationally recognized statistical rating organization or two nationally recognized statistical rating organizations, respectively, selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors, after consultation with the Corporation, to act as the substitute rating agency or substitute rating agencies, as the case may be, to determine the credit ratings of the shares of AMPS. "Treasury Bonds" shall have the meaning set forth in paragraph 9(a) of these Articles Supplementary. "28-day Dividend Period" means with respect to Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS a Dividend Period consisting of 28 days. "U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent of the rate on the actively traded Treasury Bill with a maturity most nearly comparable to the length of the related Dividend Period, as such rate is made available on a discount basis or otherwise by the Federal 25 Reserve Bank of New York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report for such Business Day, or (ii) if such yield as so calculated is not available, the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on any date means the Interest Equivalent of the yield as calculated by reference to the arithmetic average of the bid price quotations of the actively traded Treasury Bill with a maturity most nearly comparable to the length of the related Dividend Period, as determined by bid price quotations as of any time on the Business Day immediately preceding such date, obtained from at least three recognized primary U.S. Government securities dealers selected by the Auction Agent. "U.S. Treasury Note Rate" on any date means (i) the yield as calculated by reference to the bid price quotation of the actively traded, current coupon Treasury Note with a maturity most nearly comparable to the length of the related Dividend Period, as such bid price quotation is published on the Business Day immediately preceding such date by the Federal Reserve Bank of New York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report for such Business Day, or (ii) if such yield as so calculated is not available, the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on any date means the yield as calculated by reference to the arithmetic average of the bid price quotations of the actively traded, current coupon Treasury Note with a maturity most nearly comparable to the length of the related Dividend Period, as determined by the bid-price quotations as of any time on the Business Day immediately preceding such date, obtained from at least three recognized primary U.S. Government securities dealers selected by the Auction Agent. "Valuation Date" means, for purposes of determining whether the Corporation is maintaining the AMPS Basic Maintenance Amount and the Minimum Liquidity Level, each Business Day commencing with the Date of Original Issue. 26 "Variation Margin" means, in connection with an outstanding futures contract owned or sold by the Corporation, the amount of cash or securities paid to or received from a broker (subsequent to the Initial Margin payment) from time to time as the price of such futures contract fluctuates. (b) The foregoing definitions of Accountants Confirmation, AMPS Basic Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic Maintenance Report, Deposit Securities, Discounted Value, Dividend Coverage Amount, Dividend Coverage Assets, Independent Accountants, Initial Margin, Market Value, Minimum Liquidity Level, Moody's Discount Factor, Moody's Eligible Asset, Moody's Exposure Period, Moody's Hedging Transactions, S&P Discount Factor, S&P Eligible Asset, S&P Exposure Period, S&P Hedging Transactions, Valuation Date and Variation Margin have been determined by the Board of Directors of the Corporation in order to obtain a "aaa" rating from Moody's and a AAA rating from S&P on the AMPS on their Date of Original Issue; and the Board of Directors of the Corporation shall have the authority to adjust, modify, alter or change from time to time the foregoing definitions and the restrictions and guidelines set forth thereunder if Moody's and S&P or any Substitute Rating Agency advises the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings on the AMPS. 2. Dividends. (a) The Holders shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation, out of funds legally available therefor, cumulative dividends each consisting of (i) cash at the Applicable Rate and (ii) a Right to receive cash as set forth in paragraph 2(e) below, and no more, payable on the respective dates set forth below. Dividends on the shares of AMPS so declared and payable shall be paid (i) in preference to and 27 in priority over any dividends declared and payable on the Common Stock, and (ii) to the extent permitted under the Code and to the extent available, out of net tax-exempt income earned on the Corporation's investments. To the extent permitted under the Code, dividends on shares of AMPS will be designated as exempt-interest dividends. For the purposes of this section, the term "net tax-exempt income" shall exclude capital gains of the Corporation. (b) (i) Cash dividends on shares of AMPS shall accumulate from the Date of Original Issue and shall be payable, when, as and if declared by the Board of Directors commencing on the Initial Dividend Payment Date with respect to each series of AMPS. Following the initial Dividend Payment Date for each series of AMPS, dividends on such series of AMPS will be payable, at the option of the Corporation, either (i) with respect to any 7-day Dividend Period, any 28-day Dividend Period and any Short Term Dividend Period of 91 or fewer days on the day next succeeding the last day thereof, (ii) with respect to any Short Term Dividend Period of more than 91 and fewer than 365 days, on the 92nd day thereof, the 183rd day thereof, if any, the 274th day thereof, if any, and on the day next succeeding the last day thereof and (iii) with respect to any Long Term Dividend Period, quarterly on the first day of each January, April, July and October during such Long Term Dividend Period and on the day next succeeding the last day thereof (each such date referred to in clause (i), (ii) or (iii) being herein referred to as a "Normal Dividend Payment Date"), except that (i) if such Normal Dividend Payment Date is not a Business Day, then the Dividend Payment Date shall be the next succeeding date if both such dates following the Normal Dividend Payment Date are Business Days, or (ii) if the date following such Normal Dividend Payment Date is not a Business Day, then the Dividend Payment Date will be the date next preceding such Normal Dividend Payment Date if both such date and such Normal Dividend Payment Date are Business Days or (iii) if 28 such Normal Dividend Payment Date and either the preceding date or the succeeding date are not Business Days, then the Dividend Payment Date shall be the first Business Day next preceding such Normal Dividend Payment Date that is next succeeded by a Business Day. Although any particular Dividend Payment Date may not occur on the originally scheduled date because of the exceptions discussed above, the next succeeding Dividend Payment Date, subject to such exceptions, will occur on the next following originally scheduled date. If for any reason a Dividend Payment Date cannot be fixed as described above, then the Board of Directors shall fix the Dividend Payment Date. The Initial Dividend Period, 7-day Dividend Periods, 28-day Dividend Periods and Special Dividend Periods are hereinafter sometimes referred to as Dividend Periods. Each dividend payment date determined as provided above is hereinafter referred to as a "Dividend Payment Date." (ii) Each dividend shall be paid to the Holders as they appear in the Stock Register as of 12:00 noon, New York City time, on the Business Day preceding the Dividend Payment Date. Dividends in arrears for any past Dividend Period may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the Holders as they appear on the Stock Register on a date, not exceeding 15 days prior to the payment date therefor, as may be fixed by the Board of Directors of the Corporation. (c) (i) During the period from and including the Date of Original Issue to but excluding the Initial Dividend Payment Date (the "Initial Dividend Period"), the Applicable Rate shall be the Initial Dividend Rate. Commencing on the Initial Dividend Payment Date, the Applicable Rate for each subsequent dividend period (hereinafter referred to as a "Subsequent Dividend Period"), which Subsequent Dividend Period shall commence on and include a Dividend Payment Date and shall end on and include the calendar day prior to the next Dividend 29 Payment Date, shall be equal to the rate per annum that results from implementation of the Auction Procedures. The Applicable Dividend Rate for each Dividend Period commencing during a Non-Payment Period shall be equal to the Non-Payment Period Rate; and each Dividend Period, commencing after the first day of, and during, a Non-Payment Period shall be a 28-day Dividend Period in the case of Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS and a 7-day Dividend Period in the case of Series E AMPS, provided that if the preceding Dividend Period for Series A AMPS, Series B AMPS, Series C AMPS or Series D AMPS is a Special Dividend Period of less than 28 days, the Dividend Period commencing during a Non-Payment Period will be the same length as such preceding Dividend Period. Except in the case of the willful failure of the Corporation to pay a Dividend on a Dividend Payment Date or to redeem any shares of AMPS on the date set for such redemption, any amount of any dividend due on any Dividend Payment Date (if, prior to the close of business on the second Business Day preceding such Dividend Payment Date, the Corporation has declared such dividend payable on such Dividend Payment Date to the Holders of such shares of AMPS as of 12:00 noon, New York City time, on the Business Day preceding such Dividend Payment Date) or redemption price with respect to any shares of AMPS not paid to such Holders when due may be paid to such Holders in the same form of funds by 12:00 noon, New York City time, on any of the first three Business Days after such Dividend Payment Date or due date, as the case may be, provided that, such amount is accompanied by a late charge calculated for such period of non-payment at the Non-Payment Period Rate applied to the amount of such non-payment based on the actual number of days comprising such period divided by 365. In the case of a willful failure of the Corporation to pay a dividend on a Dividend Payment Date or to redeem any shares of AMPS on 30 the date set for such redemption, the preceding sentence shall not apply and the Applicable Dividend Rate for the Dividend Period commencing during the Non-Payment Period resulting from such failure shall be the Non-Payment Period Rate. For the purposes of the foregoing, payment to a person in same-day funds on any Business Day at any time shall be considered equivalent to payment to such person in New York Clearing House (next-day) funds at the same time on the preceding Business Day, and any payment made after 12:00 noon, New York City time, on any Business Day shall be considered to have been made instead in the same form of funds and to the same person before 12:00 noon, New York City time, on the next Business Day. (ii) The amount of cash dividends per share of AMPS payable (if declared) on each Dividend Payment Date of each 7-day Dividend Period, 28-day Dividend Period and Short Term Dividend Period shall be computed by multiplying the Applicable Rate for such Dividend Period by a fraction, the numerator of which will be the number of days in such Dividend Period such share was outstanding and the denominator of which will be 365, multiplying the amount so obtained by $50,000, and rounding the amount so obtained to the nearest cent. During any Long Term Dividend Period, the amount of dividends per share payable on any Dividend Payment Date shall be computed on the basis of a year consisting of twelve 30-day months. (iii) With respect to each Dividend Period that is a Special Dividend Period, the Corporation may, at its sole option and to the extent permitted by law, by telephonic and written notice (a "Request for Special Dividend Period") to the Auction Agent and to each Broker-Dealer, request that the next succeeding Dividend Period for a series of AMPS be a number of days (other than 28 in the case of Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS and other than seven in the case of Series E AMPS) evenly divisible by seven, and not fewer than seven or more than 364 in the case of a Short Term Dividend Period or 31 a number of whole years not greater than five years in the case of a Long Term Dividend Period, specified in such notice, provided that for any Auction occurring after the initial Auction, the Corporation may not give a Request for Special Dividend Period (and any such request shall be null and void) unless the Corporation has received written confirmation from S&P that such action would not impair the ratings then assigned to the AMPS by S&P and unless Sufficient Clearing Bids were made in the last occurring Auction and unless full cumulative dividends, any amounts due with respect to redemptions, and any Additional Dividends payable prior to such date have been paid in full. Such Request for Special Dividend Period, in the case of a Short Term Dividend Period, shall be given on or prior to the fourth day but not more than seven days prior to an Auction Date for a series of AMPS and, in the case of a Long Term Dividend Period, shall be given on or prior to the 14th day but not more than 28 days prior to an Auction Date for the AMPS. Upon receiving such Request for Special Dividend Period, the Broker-Dealer(s) shall jointly determine whether, given the factors set forth below, it is advisable that the Corporation issue a Notice of Special Dividend Period for the series of AMPS as contemplated by such Request for Special Dividend Period and the Optional Redemption Price of the AMPS during such Special Dividend Period and the Specific Redemption Provisions and shall give the Corporation and the Auction Agent written notice (a "Response") of such determination by no later than the third day prior to such Auction Date. In making such determination the Broker-Dealer(s) will consider (1) existing short-term and long-term market rates and indices of such short-term and long-term rates, (2) existing market supply and demand for short-term and long-term securities, (3) existing yield curves for short-term and long-term securities comparable to the AMPS, (4) industry and financial conditions which may affect the AMPS, (5) the investment objective of the Corporation, and (6) the Dividend Periods and dividend rates at 32 which current and potential beneficial holders of the AMPS would remain or become beneficial holders. If the Broker-Dealer(s) shall not give the Corporation and the Auction Agent a Response by such third day or if the Response states that given the factors set forth above it is not advisable that the Corporation give a Notice of Special Dividend Period for the series of AMPS, the Corporation may not give a Notice of Special Dividend Period in respect of such Request for Special Dividend Period. In the event the Response indicates that it is advisable that the corporation give a Notice of Special Dividend Period for the series of AMPS, the Corporation may by no later than the second day prior to such Auction Date give a notice (a "Notice of Special Dividend Period") to the Auction Agent, the Securities Depository and each Broker-Dealer which notice will specify (i) the duration of the Special Dividend Period, (ii) the Optional Redemption Price as specified in the related Response and (iii) the Specific Redemption Provisions, if any, as specified in the related Response. The Corporation shall not give a Notice of Special Dividend Period and, if the Corporation has given a Notice of Special Dividend Period, the Corporation is required to give telephonic and written notice (a "Notice of Revocation") to the Auction Agent, each Broker-Dealer, and the Securities Depository on or prior to the Business Day prior to the relevant Auction Date if (x) either the 1940 Act AMPS Coverage is not satisfied or the Corporation shall fail to maintain S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value at least equal to the AMPS Basic Maintenance Amount, in each case on each of the two Valuation Dates immediately preceding the Business Day prior to the relevant Auction Date on an actual basis and on a pro forma basis giving effect to the proposed Special Dividend Period (using as a pro forma dividend rate with respect to such Special Dividend Period the dividend rate which the Broker-Dealers shall advise the Corporation is an approximately equal rate for securities similar to the AMPS 33 with an equal dividend period), provided that, in calculating the aggregate Discounted Value of Moody's Eligible Assets for this purpose, the Moody's Collateral Period shall be deemed to be one week longer, (y) sufficient funds for the payment of dividends payable on the immediately succeeding Dividend Payment Date have not been irrevocably deposited with the Auction Agent by the close of business on the third Business Day preceding the related Auction Date or (z) the Broker-Dealers) jointly advise the Corporation that after consideration of the factors listed above they have concluded that it is advisable to give a Notice of Revocation. If the Corporation is prohibited from giving a Notice of Special Dividend Period as a result of any of the factors enumerated in clause (x), (y) or (z) of the prior sentence or if the Corporation gives a Notice of Revocation with respect to a Notice of Special Dividend Period for any series of AMPS, the next succeeding Dividend Period for that series will be a 28-day Dividend Period in the case of Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS, and a 7-day Dividend Period in the case of Series E AMPS, provided that if the then current Dividend Period for Series A AMPS, Series B AMPS, Series C AMPS or Series D AMPS is a Special Dividend Period of less than 28 days, the next succeeding Dividend Period for such series of AMPS will be the same length as such current Dividend Period. In addition, in the event Sufficient Clearing Bids are not made in the applicable Auction or such Auction is not held for any reason, such next succeeding Dividend Period will be a 28-day Dividend Period (in the case of Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS) or a 7-day Dividend Period (in the case of Series E AMPS) and the Corporation may not again give a Notice of Special Dividend Period for the AMPS (and any such attempted notice shall be null and void) until Sufficient Clearing Bids have been made in an Auction with respect to a 28-day Dividend Period (in the case of Series A 34 AMPS, Series B AMPS, Series C AMPS and Series D AMPS) or a 7-day Dividend Period (in the case of Series E AMPS). (d) (i) Holders shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends and applicable late charge, as herein provided, on the shares of AMPS (except for Additional Dividends as provided in paragraph 2(e) hereof). Except for the late charge payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment on the shares of AMPS that may be in arrears. (ii) For so long as any share of AMPS is Outstanding, the Corporation shall not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Stock or other stock, if any, ranking junior to the shares of AMPS as to dividends or upon liquidation) in respect of the Common Stock or any other stock of the Corporation ranking junior to or on a parity with the shares of AMPS as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any shares of the Common Stock or any other such junior stock (except by conversion into or exchange for stock of the Corporation ranking junior to the shares of AMPS as to dividends and upon liquidation) or any other such Parity Stock (except by conversion into or exchange for stock of the Corporation ranking junior to or on a parity with the shares of AMPS as to dividends and upon liquidation), unless (A) immediately after such transaction, the Corporation shall have S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount and the Corporation shall maintain the 1940 Act AMPS Asset Coverage, (B) full cumulative dividends on shares of AMPS and shares of Other AMPS 35 due on or prior to the date of the transaction have been declared and paid or shall have been declared and sufficient funds for the payment thereof deposited with the Auction Agent, (C) any additional Dividend required to be paid under paragraph 2(e) below on or before the date of such declaration or payment has been paid and (D) the Corporation has redeemed-the full number of shares of AMPS required to be redeemed by any provision for mandatory redemption contained herein. (e) Each dividend shall consist of (i) cash at the Applicable Dividend Rate and (ii) an uncertificated right (a "Right") to receive an Additional Dividend (as defined below). Each Right shall thereafter be independent of the Share or Shares of AMPS on which the dividend was paid. The Corporation shall cause to be maintained a record of each Right received by the respective Holders. A Right may not be transferred other than by operation of law. If the Corporation retroactively allocates any net capital gains or other taxable income to shares of AMPS without having given advance notice thereof to the Auction Agent as described in paragraph 2(f) hereof solely by reason of the fact that such allocation is made as a result of the redemption of all or a portion of the outstanding shares of AMPS or the liquidation of the Corporation (the amount of such allocation referred to herein as a "Retroactive Taxable Allocation"), the corporation will, within 90 days (and generally within 60 days) after the end of the Corporation's fiscal year for which a Retroactive Taxable Allocation is made, provide notice thereof to the Auction Agent and to each holder of a Right applicable to such shares of AMPS (initially Cede & Co. as nominee of the Depository Trust Company) during such fiscal year at such holder's address as the same appears or last appeared on the stock books of the corporation. The corporation will, within 30 days after such notice is given to the Auction Agent, pay to the Auction Agent (who will then distribute to such holders of Rights), out of funds legally available 36 therefor, an amount equal to the aggregate Additional Dividend with respect to all Retroactive Taxable Allocations made to such holders during the fiscal year in question. An "Additional Dividend" means payment to a present or former holder of shares of Amps of an amount which, when taken together with the aggregate amount of Retroactive Taxable Allocations made to such holder with respect to the fiscal year in question, would cause such holder's dividends in dollars from the aggregate of both the Retroactive Taxable Allocations and the Additional Dividend to be equal to the dollar amount of the dividends which would have been received by such holder if the amount of the aggregate Retroactive Taxable Allocations would have been excludable from the gross income of such holder. Such Additional Dividend shall be calculated (i) without consideration being given to the time value of money; (ii) assuming that no holder of shares of AMPS is subject to the Federal alternative minimum tax with respect to dividends received from the Corporation; and (iii) assuming that each Retroactive Taxable Allocation would be taxable in the hands of each holder of shares of AMPS at the maximum marginal regular Federal income tax rate applicable to individuals or corporations, whichever is greater, in effect during the-fiscal year in question. (f) Whenever the Corporation intends to include any net capital gains or other taxable income in any dividend on shares of AMPS, the Corporation will notify the Auction Agent of the amount to be so included at least five Business Days prior to the Auction Date on which the Applicable Rate for such dividend is to be established. (g) No fractional shares of AMPS shall be issued. 3. Liquidation Rights. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the Holders shall be entitled to receive, out of the assets of the Corporation available for distribution to shareholders, before any distribution or 37 payment is made upon any Common Stock or any other capital stock ranking junior in right of payment upon liquidation to the AMPS, the sum of $50,000 per share plus accumulated but unpaid dividends (whether or not earned or declared) thereon to date of distribution, and after such payment the holders of AMPS will be entitled to no other payments other than Additional Dividends as provided in paragraph 2(e) hereof. If upon any liquidation, dissolution or winding up of the corporation, the amounts payable with respect to the AMPS and any other outstanding class or series of Preferred Stock of the Corporation ranking on a parity with the AMPS as to payment upon liquidation are not paid in full, the Holders and the holders of such other class or series will share ratably in any such distribution of assets in proportion to the respective preferential amounts-to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the Holders will not be entitled to any further participation in any distribution of assets by the Corporation except for any Additional Dividends. A consolidation, merger or statutory share exchange of the Corporation with or into any other corporation or entity or a sale, whether for cash, shares of stock, securities or properties, of all or substantially all or any part of the Assets of the Corporation shall not be deemed or construed to se a liquidation, dissolution or winding up of the Corporation. 4. Redemption. (a) Shares of AMPS shall be redeemable by the Corporation as provided below: (i) To the extent permitted under the 1940 Act and Maryland law, upon giving a Notice of Redemption, the Corporation at its option may redeem shares of AMPS, in whole or in part, out of funds legally available therefor, at the Optional Redemption Price per share, on any Dividend Payment Date; provided that no share of AMPS may be redeemed at the option of the Corporation during a Non-Call Period to 38 which such share is subject. In addition, holders of AMPS which are redeemed shall be entitled to receive Additional Dividends to the extent provided herein. The Corporation may not give a Notice of Redemption relating to an optional redemption as described in this paragraph 4(a)(i) unless, at the time of giving such Notice of Redemption, the Corporation has available Deposit Securities with maturity or tender dates not later than the day preceding the applicable redemption date and having a value not less than the amount due to Holders by reason of the redemption of their shares of AMPS on such redemption date. (ii) The Corporation shall redeem, out of funds legally available therefor, at the Mandatory Redemption Price per share, shares of AMPS to the extent permitted under the 1940 Act and Maryland law, on a date fixed by the Board of Directors, if the Corporation fails to maintain S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount as provided in paragraph 7(a) or to satisfy the 1940 Act AMPS Asset Coverage as provided in paragraph 6 and such failure is not cured on or before the AMPS Basic Maintenance Cure Date or the 1940 Act Cure Date (herein respectively referred to as a "Cure Date"), as the case may be. In addition, holders of AMPS so redeemed shall be entitled to receive Additional Dividends to the extent provided herein. The number of shares of AMPS to be redeemed shall be equal to the lesser of (i) the minimum number of shares of AMPS the redemption of which, if deemed to have occurred immediately prior to the opening of business on the Cure Date, together with all shares of other Preferred Stock subject to redemption or retirement, would result in the Corporation having S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value 39 equal to or greater than the AMPS Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the case may be, on such Cure Date (provided that, if there is no such minimum number of shares of AMPS and shares of other Preferred Stock the redemption of which would have such result, all shares of AMPS and shares of other Preferred Stock then Outstanding shall be redeemed), and (ii) the maximum number of shares of AMPS, together with all shares of other Preferred Stock subject to redemption or retirement, that can be redeemed out of funds expected to be legally available therefor on such redemption date. In determining the number of shares of AMPS required to be redeemed in accordance with the foregoing, the Corporation shall allocate the number required to be redeemed which would result in the Corporation having S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the case may be, pro rata among shares of AMPS of all series, Other AMPS and other Preferred Stock subject to redemption pursuant to provisions similar to those contained in this paragraph 4(a)(ii); provided that, shares of AMPS which may not be redeemed at the option of the Corporation due to the designation of a Non-Call Period applicable to such shares (A) will be subject to mandatory redemption only to the extent that other shares are not available to satisfy the number of shares required to be redeemed and (B) will be selected for redemption in an ascending order of outstanding number of days in the Non-Call Period (with shares with the lowest number of days to be redeemed first) and by lot in the event of shares having an equal number of days in such Non-Call Period. The Corporation shall effect such redemption on a Business Day which is not later than 35 days after such Cure Date, except that if the Corporation does not have 40 funds legally available for the redemption of all of the required number of shares of AMPS and shares of other Preferred Stock which are subject to mandatory redemption or the Corporation otherwise is unable to effect such redemption on or prior to 35 days after such Cure Date, the Corporation shall redeem those shares of AMPS which it is unable to redeem on the earliest practicable date on which it is able to effect such redemption out of funds legally available therefor. (b) Notwithstanding any other provision of this paragraph 4, no shares of AMPS may be redeemed pursuant to paragraph 4(a)(i) of these Articles Supplementary (i) unless all dividends in arrears on all remaining outstanding shares of Parity Stock shall have been or are being contemporaneously paid or declared and set apart for payment and (ii) if redemption thereof would result in the Corporation's failure to maintain Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount. In the event that less than all the outstanding shares of a series of AMPS are to be redeemed and there is more than one Holder, the shares of that series of AMPS to be redeemed shall be selected by lot or such other method as the Corporation shall deems fair and equitable. (c) Whenever shares of AMPS are to be redeemed, the Corporation, not less than 10 nor more than 30 days prior to the date fixed for redemption, shall mail a notice ("Notice of Redemption") by first-class mail, postage prepaid, to each Holder of shares of AMPS to be redeemed and to the Auction Agent. The Corporation shall cause the Notice of Redemption to also be published in the eastern and national editions of The Wall Street Journal. The Notice of Redemption shall set forth (i) the redemption date, (ii) the amount of the redemption price, (iii) the aggregate number of shares of AMPS of such series to be redeemed, (iv) the place or places where shares of AMPS of such series are to be surrendered for payment of the redemption price, 41 (v) a statement that dividends on the shares to the redeemed shall cease to accumulate on such redemption date (except that holders may be entitled to Additional Dividends) and (vi) the provision of these Articles Supplementary pursuant to which such shares are being redeemed. No defect in the Notice of Redemption or in the mailing or publication thereof shall affect the validity of the redemption proceedings, except as required by applicable law. If the Notice of Redemption shall have been given as aforesaid and, concurrently or thereafter, the Corporation shall have deposited in trust with the Auction Agent a cash amount equal to the redemption payment for the shares of AMPS as to which such Notice of Redemption has seen given with irrevocable instructions and authority to pay the redemption price to the Holders of such shares, then upon the date of such deposit or, if no such deposit is made, then upon such date fixed for redemption (unless the Corporation shall default in making the redemption payment), all rights of the Holders of such shares as shareholders of the Corporation by reason of the ownership of such shares will cease and terminate (except their right to receive the redemption price in respect thereof and any Additional Dividends, but without interest), and such shares shall no longer be deemed outstanding. The Corporation shall be entitled to receive, from time to time, from the Auction Agent the interest, if any, on such moneys deposited with it and the Holders of any shares so redeemed shall have no claim to any of such interest. In case the Holder of any shares, so called for redemption shall not claim the redemption payment for his shares within one year after the date of redemption, the Auction Agent shall, upon demand, pay over to the Corporation such amount remaining on deposit and the Auction Agent shall thereupon be relieved of all responsibility to the Holder of such shares called for redemption and such Holder thereafter shall look only to the Corporation for the redemption payment. 42 5. Voting Rights. (a) General. Except as otherwise provided in the Charter or By-Laws, each Holder of shares of AMPS shall be entitled to-one vote for each share held on each matter submitted to a vote of shareholders of the Corporation, and the holders of outstanding shares of Preferred Stock, including AMPS, and of shares of Common Stock shall vote together as a single class; provided that, at any meeting of the shareholders of the Corporation held for the election of directors, the holders of outstanding shares of Preferred stock, including AMPS, shall be entitled, as a class, to the exclusion of the holders of all other securities and classes of capital stock of the Corporation, to elect two directors of the Corporation. Subject to paragraph 5(b) hereof, the holders of outstanding shares of capital stock of the Corporation, including the holders of outstanding shares of Preferred Stock, including AMPS, voting as a single class, shall elect the balance of the directors. (b) Right to Elect-Majority of Board of Directors. During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number of directors constituting the Board of Directors shall be automatically increased by the smallest number that, when added to the two directors elected exclusively the holders of shares of Preferred Stock, would constitute a majority of the Board of Directors as so increased by such smallest number; and the holders of shares of Preferred Stock shall be entitled, voting separately as one class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), to elect such smallest number additional directors, together with the two directors that such holders are in any event entitled to elect. A Voting Period shall commence: (i) if at any time accumulated dividends (whether or not earned or declared, and whether or not funds are then legally available in an amount sufficient therefor) on 43 the outstanding shares of AMPS equal to at least two full years' dividends shall be due and unpaid and sufficient cash or specified securities shall not have been deposited with the Auction Agent for the payment of such accumulated dividends; or (ii) if at any time holders of any other shares of Preferred Stock are entitled to elect a majority of the directors of the Corporation under the 1940 Act. Upon the termination of a Voting Period, the voting rights described in this paragraph 5(b), shall cease, subject always, however, to the reverting of such voting rights in the Holders upon the further occurrence of any of the events described in paragraph 5(b). (c) Right to Vote with Respect to Certain Other Matters. So long as any shares of AMPS are outstanding, the Corporation shall not, without the affirmative vote of the holders of a majority of the shares of Preferred Stock Outstanding at the time, voting separately as one class: (i) authorize, create or issue, or increase the authorized or issued amount of, any class or series of stock ranking prior to or on a parity with any series of Preferred Stock with respect to payment of dividends or distribution of assets on liquidation, or increase the authorized amount of AMPS or any other Preferred Stock, or (ii) amend, alter or repeal the provisions of the Charter, whether by merger, consolidation or otherwise, so as to adversely affect any of the contract rights expressly set forth in the Charter of holders of shares of AMPS or any other Preferred Stock. To the extent permitted under the 1940 Act, in the event shares of more than one series of AMPS are outstanding, the Corporation shall not approve any of the actions set forth in clause (i) or (ii) which adversely affects the contract rights expressly set forth in the Charter of a Holder of shares of a series of AMPS differently than those of a Holder of shares of any other series of AMPS without the affirmative vote of the holders of at least a majority of the shares of AMPS of each series adversely affected and outstanding at such time (each such adversely affected series voting 44 separately as a class). The Corporation shall notify Moody's and S&P 10 Business Days prior to any such vote described in clause (i) or (ii). Unless a higher percentage is provided for under the Charter, the affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock, including AMPS, voting together as a single class, will be required to approve any plan of reorganization (including bankruptcy proceedings) adversely affecting such shares or any action requiring a vote of security holders under Section 13(a) of the 1940 Act. The class-vote of holders of shares of Preferred Stock, including AMPS, described above will in each case be in addition to a separate vote of the site percentage of shares of Common Stock and shares of Preferred Stock, including AMPS, voting together as a single class necessary to authorize the action in question. (d) Voting Procedures. (i) As soon as practicable after the accrual of any right of the holders of shares of Preferred Stock to elect additional directors as described in paragraph 5(b) above, the Corporation shall call a special meeting of such holders and instruct the Auction Agent to mail a notice of such special meeting to such holders, such meeting to be held not less than 10 nor more than 20 days after the date of mailing of such notice. If the Corporation fails to send such notice to the Auction Agent or if the Auction Agent does not call such a special meeting, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting held during a Voting Period, such Holders, voting together as a class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), shall be 45 entitled to elect the number of directors prescribed in paragraph 5(b) above. At any such meeting or adjournment thereof in the absence of a quorum, a majority of such holders present in person or by proxy shall have the power to adjourn the meeting without notice, other than by an announcement at the meeting, to a date not more than 120 days after the original record date. (ii) For purposes of determining any rights of the Holders to vote on any matter or the number of shares required to constitute a quorum, whether such right is created by these Articles Supplementary, by the other provisions of the Charter, by statute or otherwise, a share of AMPS which is not Outstanding shall not be counted. (iii) The terms of office of all persons who are directors of the Corporation at the time of a special meeting of Holders and holders of other Preferred Stock to elect directors shall continue, notwithstanding the election at such meeting by the Holders and such other holders of the number of directors that they are entitled to elect, and the persons so elected by the Holders and such other holders, together with the two incumbent directors elected by the Holders and such other holders of Preferred Stock and the remaining incumbent directors elected by the holders of the Common Stock and Preferred Stock, shall constitute the duly elected directors of the Corporation. (iv) Simultaneously with the expiration of a Voting Period, the terms of office of the additional directors elected by the Holders and holders of other Preferred Stock pursuant to paragraph 5(b) above shall terminate, the remaining directors shall constitute the directors of the Corporation and the voting rights of the Holders and such other holders to elect additional directors pursuant to paragraph 5(b) above shall cease, subject to the provisions of the last sentence of paragraph 5(b)(ii). 46 (e) Exclusive Remedy. Unless otherwise required by law, the Holders of shares of AMPS shall not have any rights or preferences other than those specifically set forth herein. The Holders of shares of AMPS shall have no preemptive rights or rights to cumulative voting. In the event that the Corporation fails to pay any dividends on the shares of AMPS, the exclusive remedy of the Holders shall be the right to vote for directors pursuant to the provisions of this paragraph 5. (f) Notification to S&P and Moody's. In the event a vote of Holders of AMPS is required pursuant to the provisions of Section 13 (a) of the 1940 Act, the Corporation shall, not later than ten business days prior to the date on which such vote is to be taken, notify S&P and Moody's that such vote is to be taken and the nature of the action with respect to which such vote is to be taken. 6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as of the last Business Day of each month in which any share of AMPS is outstanding, the 1940 Act AMPS Asset Coverage. 7. AMPS Basic Maintenance Amount. (a) The Corporation shall maintain, on each Valuation Date, and shall verify to its satisfaction that it is maintaining on such Valuation Date, (i) S&P Eligible Assets having an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount and (i) Moody's Eligible Assets having an aggregate Discounted Value usual to or greater than the AMPS Basic Maintenance Amount. Upon any failure to maintain the required Discounted Value, the Corporation will use its best efforts to alter the composition of its portfolio to reattain the AMPS Basic Maintenance Amount on or prior to the AMPS Basic Maintenance Cure Date. 47 (b) On or before 5:00 p.m., New York City time, on tile third Business Day after a Valuation Date on which the Corporation fails to satisfy the AMPS Basic Maintenance Amount, the Corporation shall complete and deliver to the Auction Agent, Moody's and S&P a complete AMPS Basic Maintenance Report as of the date of such failure, which will be deemed to have been delivered to the Auction Agent if the Auction Agent receives a copy or telecopy, telex or other electronic transcription thereof and on the same day the Corporation mails to the Auction Agent for delivery on the next Business Day the complete AMPS Basic Maintenance Report. The Corporation will deliver an AMPS Basic Maintenance Report to Moody's on or before 5:00 p.m., New York City time, on the third Business Day after a Valuation Date on which the Corporation cures its failure to maintain Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amounts or on which the Corporation fails to maintain Moody's Eligible Assets with an aggregate Discounted Value which exceeds that AMPS Basic Maintenance Amount by 5% or more. The Corporation will also deliver an AMPS Basic Maintenance Report to the Auction Agent and S&P and a Certificate of Minimum Liquidity to S&P as of (i) the fifteenth day of each month (or, if such day is not a Business Day, the next succeeding Business Day) and (ii) the last Business Day of each month, in each case on or before the third Business Day after such day. A failure by the Corporation to deliver an AMPS Basic Maintenance Report under this paragraph 7(b) shall be deemed to be delivery of an AMPS Basic Maintenance Report indicating the Discounted Value for S&P Eligible Assets and Moody's Eligible Assets of the Corporation is less than the AMPS Basic Maintenance Amount, as of the relevant Valuation Date. (c) Within ten Business Days after the date of delivery of an AMPS Basic Maintenance Report and a Certificate of Minimum Liquidity in accordance with paragraph 7(b) 48 above relating to a Quarterly Valuation Date, the Independent Accountant will confirm in writing to the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the calculations reflected in such Report (and in any other AMPS Basic Maintenance Report, randomly selected by the Independent Accountant, that was delivered by the Corporation during the quarter ending on such Quarterly Valuation Date) and (with respect to S&P only while S&P is rating the AMPS) such Certificate, (ii) that, in such Report (and in such randomly selected Report), the Corporation correctly determined the assets of the Corporation which constitute S&P Eligible Assets or Moody's Eligible Assets, as the case may be, at such Quarterly Valuation Date in accordance with these Articles Supplementary, (iii) that, in such Report (and in such randomly selected Report), the Corporation determined whether the Corporation had, at such Quarterly Valuation Date (and at the Valuation Date addressed in such randomly-selected Report) in accordance with these Articles Supplementary, S&P Eligible Assets of an aggregate Discounted Value at least equal to the AMPS Basic Maintenance amount and Moody's Eligible Assets of an aggregate Discounted Value at least equal to the AMPS Basic Maintenance Amount, (iv) that (with respect to S&P only) in such Certificate, the Corporation determined the Minimum Liquidity Level and the Corporation's Deposit Securities in accordance with these Articles Supplementary, including maturity or tender date, (v) with respect to the S&P rating on Municipal Bonds, the issuer name, issue size and coupon rate listed in such Report and (with respect to S&P only) such Certificate, that the Independent Accountant has requested that S&P verify such information and the Independent Accountant shall provide a listing in its letter of any differences, (vi) with respect to the Moody's ratings on Municipal Bonds, the issuer name, issue size and coupon rate listed in such Report and (with respect to S&P only) such Certificate, that such information has been verified by Moody's (in the event such information is not verified by 49 Moody's, the Independent Accountant will inquire of Moody's what such information is, and provide a listing in its letter of any differences), (vii) with respect to the bid or mean price (or such alternative permissible factor used in calculating the Market Value) provided by the custodian of the Corporation's assets to the Corporation for purposes of valuing securities in the Corporation's portfolio, the Independent Accountant has traced the price used in such Report and (with respect to S&P only) such Certificate to the bid or mean price listed in such Report and (with respect to S&P only) such Certificate as provided to the Corporation and verified that such information agrees (in the event such information does not agree, the Independent Accountant will provide a listing in its letter of such differences) and (viii) with respect to such confirmation to Moody's, that the Corporation has satisfied the requirements of paragraph 9(b) of these Articles Supplementary (such confirmation is herein called the "Accountant's Confirmation"). (d) Within ten Business Days after the date of delivery to the Auction Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with paragraph 7(b) above relating to any valuation Date on which the Corporation failed to maintain S&P Eligible Assets with an aggregate Discounted Value and Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount, and relating to the AMPS Basic Maintenance Cure Date with respect to such failure, the Independent Accountant will provide to the Auction Agent, S&P and Moody's an Accountant's Confirmation as to such AMPS Basic Maintenance Report. (e) If any Accountant's Confirmation delivered pursuant to subparagraph (c) or (d) of this paragraph 7 shows that an error was made in the AMPS Basic Maintenance Report for a particular Valuation Date for which such Accountant's Confirmation as required to be delivered, or shows that a lower aggregate Discounted Value for the aggregate of all S&P Eligible Assets or 50 Moody's Eligible Assets, as the case may be, of the Corporation was determined by the Independent Accountant, the calculation or determination made by such Independent Accountant shall be final and conclusive and shall be binding on the Corporation, and the Corporation shall accordingly amend and deliver the AMPS Basic Maintenance Report to the Auction Agent, S&P and Moody's promptly following receipt by the Corporation of such Accountant's Confirmation. (f) On or before 5:00 p.m., New York City time, on the first Business Day after the Date of Original Issue of the shares of AMPS, the Corporation will complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of the close of business on such Date of Original Issue. Within five business days of such Date of Original Issue, the Independent Accountant will confirm in writing to S&P and Moody's (i) the mathematical accuracy of the calculations reflected in such Report and (ii) that the aggregate Discounted Value of S&P Eligible Assets and the aggregate Discounted Value of Moody's Eligible Assets reflected thereon equals or exceeds the AMPS Basic Maintenance Amount reflected thereon. (g) For so long as shares of AMPS are rated by Moody's, in managing the Corporation's portfolio, the adviser will not alter the composition of the Corporation's portfolio if, in the reasonable belief of the adviser, the effect of any such alteration would be to cause the Corporation to have Moody's Eligible Assets with an aggregate Discounted Value, as of the immediately preceding Valuation Date, less than the AMPS Basic Maintenance Amount as of such Valuation Date; provided, however, that in the event that, as of the immediately preceding Valuation Date, the aggregate Discounted Value of Moody's Eligible Assets exceeded the AMPS Basic Maintenance Amount by five percent or less, the adviser will not alter the composition of the Corporation's portfolio in a manner reasonably expected to reduce the aggregate Discounted Value of Moody's Eligible Assets unless the Corporation shall have 51 confirmed that, after giving effect to such alteration, the aggregate Discounted Value of Moody's Eligible Assets would exceed the AMPS Basic Maintenance Amount. 8. Minimum Liquidity Level. (a) For so long as any shares of AMPS are rated by S&P, the Corporation shall be required to have, as of each Valuation Date, Dividend Coverage Assets having in the aggregate a Market Value not less than the Dividend Coverage Amount. (b) As of each Valuation Date as long as any shares of AMPS are rated by S&P, the Corporation shall determine (i) the Market Value of the Dividend Coverage Assets owned by the Corporation as of that Valuation Date, (ii) the Dividend Coverage Amount on that Valuation Date, and (iii) whether the Minimum Liquidity Level is met as of that Valuation Date. The calculations of the Dividend Coverage Assets, the Dividend Coverage Amount and whether the Minimum Liquidity Level is met shall be set forth in a certificate (a "Certificate of Minimum Liquidity") dated as of the Valuation Date. The AMPS Basic Maintenance Report and the Certificate of Minimum Liquidity may be combined in one certificate. The Corporation shall cause the Certificate of Minimum Liquidity to be delivered to S&P not later than the close of business on the third Business Day after the Valuation Date applicable to such Certificate pursuant to paragraph 7(b). The Minimum Liquidity Level shall be deemed to be met as of any date of determination if the Corporation has timely delivered a Certificate of Minimum Liquidity relating to such date which states that the same has been met and which is not manifestly inaccurate. In the event that a Certificate of Minimum Liquidity is not delivered to S&P when required, the Minimum Liquidity Level shall be deemed not to have been met as of the applicable date. (c) If the Minimum Liquidity Level is not met as of any valuation Date, then the Corporation shall purchase or otherwise acquire Dividend Coverage Assets to the extent 52 necessary so that the Minimum Liquidity Level is met as of the fifth Business Day following such Valuation Date. The Corporation shall, by such fifth Business Day, provide to S&P a Certificate of Minimum Liquidity setting forth the calculations of the Dividend Coverage Assets and the Dividend Coverage Amount and showing that the Minimum Liquidity Level is met as of such fifth Business Day together with a report of the custodian of the Corporation's assets confirming the amount of the corporation's Dividend Coverage Assets as of such fifth Business Day. 9. Certain Other Restrictions. (a) For so long as any shares of AMPS are rated by S&P, the Corporation will not purchase or sell futures contracts, write, purchase or sell options on futures contracts or write put options (except covered put options) or call options (except covered call options) on portfolio securities unless it receives written confirmation from S&P that engaging in such transactions will not impair the ratings then assigned to the shares of AMPS by S&P, except that the Corporation may purchase or sell futures contracts based on the Bond Buyer Municipal Bond Index (the "Municipal Index") or United States Treasury Bonds with remaining maturities of ten years of more ("Treasury Bonds") and write, purchase or sell put and call options on such contracts (collectively "S&P Hedging Transactions"), subject to the following limitations: (i) the corporation will not engage in any S&P Hedging Transaction based on the Municipal Index (other than transactions which terminate a futures contract or option held by the Corporation by the Corporation's taking an opposite position thereto ("Closing Transactions")), which would cause the Corporation at the time of such transaction to own or have sold the least of (A) more than 1,000 outstanding futures contracts based on the Municipal Index, (B) outstanding futures contracts based on the 53 Municipal Index exceeding in number 25% of the quotient of the Market Value of the Corporation's total assets divided by $100,000 or (C) outstanding futures contracts based on the Municipal Index exceeding in number 10% of the average number of daily traded futures contracts based on the Municipal Index in the thirty days preceding the time of effecting such transaction as reported by The Wall Street Journal; (ii) the Corporation will not engage in any S&P Hedging Transaction based on Treasury Bonds (other than Closing Transactions) which would cause the Corporation at the time of such transaction to own or have sold the lesser of (A) outstanding futures contracts based on Treasury Bonds and on the Municipal Index exceeding in number 25% of the quotient of the Market Value of the Corporation's total assets divided by $100,000 or (B) outstanding futures contracts based on Treasury Bonds exceeding in number 10% of the average number of daily traded futures contracts based on Treasury Bonds in the thirty days preceding the time of effecting such transaction as reported by The Wall Street Journal; (iii) the Corporation will engage in Closing Transactions to close out any outstanding futures contract which the Corporation owns or has sold or any outstanding option thereon owned by the Corporation in the event (A) the Corporation does not have S&P Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount on two consecutive Valuation Dates and (B) the Corporation is required to pay Variation Margin on the second such Valuation Date; (iv) the Corporation will engage in a Closing Transaction to close out any outstanding futures contract or option thereon in the month prior to the delivery month 54 under the terms of such futures contract or option thereon unless the Corporation holds the securities deliverable under such terms; and (v) when the Corporation writes a futures contract or option thereon, it will either maintain an amount of cash, cash equivalents or short-term, fixed-income securities in a segregated account with the Corporation's custodian, so that the amount so segregated plus the amount of initial Margin and Variation Margin held in the account of or on behalf of the Corporation's broker with respect to such futures contract or option equals the market Value of the futures contract or option, or, in the event the Corporation writes a futures contract or option thereon which requires delivery of an underlying security, it shall hold such underlying security in its portfolio. For purposes of determining whether the Corporation has S&P Eligible Assets with a Discounted Value that equals or exceeds the AMPS Basic Maintenance Amount, the Discounted Value of cash or securities held for the payment of Initial Margin or Variation Margin shall be zero and the aggregate Discounted Value of S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of the aggregate settlement value, as marked to market, of any outstanding futures contracts based on the Municipal Index which are owned by the Corporation plus (ii) 25% of the aggregate settlement value, as marked to market, of any outstanding futures contracts based on Treasury Bonds which contracts are owned by the Corporation. (b) For so long as any shares of AMPS are rated by Moody's, the Corporation will not buy or sell futures contracts, write, purchase or sell call options on futures contracts or purchase put options on futures contracts or write call options (except covered call options) on portfolio securities unless it receives written confirmation from Moody's that engaging in such transactions would not impair the ratings then assigned to the shares of AMPS by Moody's, 55 except that the Corporation may purchase or sell exchange-traded futures contracts based on the Municipal Index or Treasury Bonds and purchase or sell exchange-traded put options on such futures contracts and write exchange-traded call options on such futures contracts (collectively "Moody's Hedging Transactions"), subject to the following limitations: (i) the Corporation will not engage in any Moody's Hedging Transaction based on the Municipal Index (other than Closing Transactions) which would cause the Corporation at the time of such transaction to own or have sold (A) outstanding futures contracts based on the Municipal Index exceeding in number 10% of the average number of daily traded futures contracts based on the Municipal Index in the thirty days preceding the time of effecting such transaction as reported by The Wall Street Journal or (B) outstanding futures contracts based on the Municipal Index having a Market Value exceeding the Market Value of all Moody's Eligible Assets owned by the Corporation (other than Moody's Eligible Assets already subject to a Moody's Hedging Transaction); (ii) the Corporation will not engage in any Moody's Hedging Transaction based on Treasury Bonds (other than Closing Transactions) which would cause the Corporation at the time of such transaction to own or have sold (A) outstanding futures contracts based on Treasury Bonds having an aggregate Market Value exceeding 40% of the aggregate Market Value of Moody's Eligible Assets owned by the Corporation and rated Aa by Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by S&P) or (B) outstanding futures contracts based on Treasury Bonds having an aggregate Market Value exceeding 80% of the aggregate Market Value of all Moody's Eligible Assets owned by the Corporation (other than Moody's Eligible Assets already subject to a Moody's Hedging Transaction) and rated Baa or A by Moody's (or, if not rated by 56 Moody's but rated by S&P, rated A or AA by S&P) (for purposes of the foregoing clauses (i) and (ii), the Corporation shall be deemed to own the number of futures contracts that underlie any outstanding options written by the Corporation); (iii) the Corporation will engage in Closing Transactions to close out any outstanding futures contract based on the Municipal Index if the amount of open interest in the Municipal Index as reported by The Wall Street Journal is less than 5,000; (iv) the Corporation will engage in a Closing Transaction to close out any outstanding futures contract by no later than the fifth Business Day of the month in which such contract expires and will engage in a Closing Transaction to close out any outstanding option on a futures contract by no later than the first Business Day of the month in which such option expires; (v) the corporation will engage in Moody's Hedging Transactions only with respect to futures contracts or options thereon having the next settlement date or the settlement date immediately thereafter; (vi) the Corporation will not engage in options and futures transactions for leveraging or speculative purposes and will not write any call options or sell any futures contracts for the purpose of hedging the anticipated purchase of an asset prior to completion of such purchase; and (vii) the Corporation will not enter into an option or futures transaction unless, after giving effect thereto, the Corporation would continue to have Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount. 57 For purposes of determining whether the Corporation has Moody's Eligible Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets which the Corporation is obligated to deliver or receive pursuant to an outstanding futures contract or option shall be as follows: (i) assets subject to call options written by the Corporation which are either exchange-traded and "readily reversible" or which expire within 49 days after the date as of which such valuation is made shall be valued at the lesser of (a) Discounted Value and (b) the exercise price of the call option written by the Corporation; (ii) assets subject to call options written by the Corporation not meeting the requirements of clause (i) of this sentence shall have no value; (iii) assets subject to put options written by the Corporation shall be valued at the lesser of (A) the exercise price and (B) the Discounted Value of the subject security; (iv) futures contracts shall be valued at the lesser of (A) settlement price and (B) the Discounted Value of the subject security, provided that, if a contract matures within 49 days after the date as of which such valuation is made, where the Corporation is the Seller the contract be valued at the settlement price and where the Corporation is the buyer the contract may be valued at the Discounted Value of the subject securities and (v) where delivery may be made to the Corporation with any security of a class of securities, the Corporation shall assume that it will take delivery of the security with the lowest Discounted Value. For purposes of determining whether the Corporation has Moody's Eligible Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic Maintenance Amount, the following amounts shall be subtracted from the aggregate Discounted Value of the Moody's Eligible Assets held by the Corporation: (i) 10% of the exercise price of a written call option; (ii) the exercise price of any written put option; (iii) where the Corporation is the seller under a 58 futures contract, 10% of the settlement price of the futures contract; (iv) where the Corporation is the purchaser under a futures contract, the settlement price of assets purchased under such futures contract; the settlement price of the underlying futures contract if corporation writes put options on a futures contract; and (vi) 105% of the Market Value of the underlying futures contracts if the Corporation writes call options on a futures contract and not on the underlying contract. (c) For so long as any shares of AMPS are rated by Moody's, the Corporation will not enter into any contract to purchase securities for a fixed price at a future date beyond customary settlement time (other than such contracts that constitute Moody's Hedging Transactions that are permitted under paragraph 9(b) of these Articles Supplementary), except that the Corporation may enter into such contracts to purchase newly-issued securities on the date such securities are issued ("Forward Commitments"), subject to the following limitations: (i) the Corporation will maintain in a segregated account with its custodian cash, cash equivalents or short-term, fixed-income securities rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior to the date of the Forward Commitment with a Market Value that equals or exceeds the amount of the Corporation's obligations under any Forward Commitments to which it is from time to time a party or long-term fixed-income securities with a Discounted Value that equals or exceeds the amount of the Corporation's obligations under any Forward Commitment to which it is from time to time a party; and (ii) the Corporation will not enter into a Forward Commitment unless, after giving effect thereto the Corporation would continue to have Moody's Eligible Assets 59 with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Account. For purposes of determining whether the Corporation has Moody's Eligible Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic Maintenance Amount, the Discounted Value of all Forward Commitments to which the Corporation is a party and of all securities deliverable to the Corporation pursuant to such Forward Commitments shall be zero. (d) For so long as shares of AMPS are rated by S&P or Moody's, the Corporation will not, unless it has received written confirmation from S&P and/or Moody's, as the case may be, that such action would not impair the ratings then assigned to shares of AMPS by S&P and/or Moody's, as the case may be, (i) borrow money except for the purpose of clearing transactions in portfolio securities (which borrowings shall under any circumstances be limited to the lesser of $10 million and an amount equal to 5% of the Market Value of the Corporation's assets at the time of such borrowings), (ii) engage in short sales of securities, (iii) lend any securities, (iv) issue any class or series of stock ranking prior to or on a parity with the AMPS with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the Corporation, (v) reissue any AMPS previously purchased or redeemed by the Corporation, (vi) merge or consolidate into or with any other corporation or entity, (vii) change the Pricing Service or (viii) engage in reverse repurchase agreements. 10. Notice. All notices or communications, unless otherwise specified in the By-Laws of the Corporation or these Articles Supplementary, shall be sufficiently given if in writing and delivered in person or mailed by first-class mail, postage prepaid. Notice shall be deemed given on the earlier of the date received or the date seven days after which such notice is mailed. 60 11. Auction Procedures. (a) Certain definitions. As used in this paragraph 11, the following terms shall have the following meanings, unless the context otherwise requires: (i) "AMPS" shall mean the shares of AMPS being auctioned pursuant to this paragraph 11. (ii) "Auction Date" shall mean the first Business Day preceding the first day of a Dividend period. (iii) "Available AMPS" shall have the meaning specified in paragraph 11(d)(i) below. (iv) "Bid" shall have the meaning specified in paragraph 11(b)(i) below. (v) "Bidder" shall have the meaning specified in paragraph 11(b)(i) below. (vi) "Hold Order" shall have the meaning specific paragraph 11(b)(i) below. (vii) "Maximum Applicable Rate" for any Dividend Period will be the Applicable Percentage of the Reference Rate. The Applicable Percentage will be determined based on (i) the lower of the credit rating or ratings assigned on such date to such shares by Moody's and S&P (or if Moody's or S&P or both shall not make such rating available, the equivalent of either or both of such ratings by a Substitute Rating Agency or two Substitute Rating Agencies or, in the event that only one such rating shall be available, such rating) and (ii) whether the Corporation has provided notification to the Auction Agent prior to the Auction establishing the Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net capital gains or other taxable income will be included in such dividend on shares of AMPS as follows: 61 Applicable Applicable Percentage Percentage Credit Ratings Reference Reference - ---------------------------------------- Rate - Rate - Moody's S&P No Notification Notification - ----------------- -------------- --------------- ------------ "aa3" or higher AA- or higher 110% 150% "a3" to "a1" A- to A+ 125% 160% "baa3" to "baa1" BBB- to BBB+ 150% 250% Below "baa3" Below BBB- 200% 275% The Corporation shall take all reasonable action necessary to enable S&P and Moody's to provide a rating for each series of AMPS. If either S&P or Moody's shall not make such a rating available, or neither S&P nor Moody's shall make such a rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors, after consultation with the Corporation, shall select a nationally recognized statistical rating organization or two nationally recognized statistical rating organizations to act as a Substitute Rating Agency or Substitute Rating Agencies, as the case may be. (viii) "Order" shall gave the meaning specified in paragraph 11(b)(i) below. (ix) "Sell Order" shall have the meaning specified in paragraph 11(b)(i) below. (x) "Submission Deadline" shall mean 1:00 P.M., New York City time, on any Auction Date or such other time on any Auction Date as may be specified by the Auction Agent from time to time as the time by which each Broker-Dealer must submit to the Auction Agent in writing all orders obtained by it for the Auction to be conducted on such Auction Date. (xi) "Submitted Bid" shall have the meaning specified in paragraph 11(d) (i) below. (xii) "Submitted Hold Order" shall have the meaning specified in paragraph 11(d) (i) below. 62 (xiii) "Submitted Order" shall have the meaning specified in paragraph 11(d)(i) below. (xiv) "Submitted Sell Order" shall have the meaning specified in paragraph 11(d)(i) below. (xv) "Sufficient Clearing Bids" shall have the meaning specified in paragraph 11(d)(i) below. (xvi) "Winning Bid Rate" shall have the meaning specified in paragraph 11(d)(i) below. (b) Orders by Existing Holders and Potential Holders. (i) On or prior to the Submission Deadline on each Auction Date: (A) each Existing Holder may submit to a Broker-Dealer information as to: (1) the number of Outstanding shares, if any, of AMPS held by such Existing Holder which such Existing Holder desires to continue to hold without regard to the Applicable Rate for the next succeeding Dividend Period; (2) the number of Outstanding shares, if any, of AMPS held by such Existing Holder which such Existing Holder desires to continue to hold, provided that the Applicable Rate for the next succeeding Dividend Period shall not be less than the rate per annum specified by such Existing Holder; and/or (3) the number of Outstanding shares, if any, of AMPS held by such Existing Holder which such Existing Holder offers to sell without regard to the Applicable Rate for the next succeeding Dividend Period; and (B) each Broker-Dealer, using a list of Potential Holders that shall be maintained in good faith for the purpose of conducting a competitive Auction, shall 63 contact Potential Holders, including Persons that are not Existing Holders, on such list to determine the number of Outstanding shares, if any, of AMPS which each such Potential Holder offers to purchase, provided that the Applicable Rate for the next succeeding Dividend Period shall not be less than the rate per annum specified by such Potential Holder. For the purposes hereof, the communication to a Broker-Dealer of information referred to in clause (A) or (B) of this paragraph 11(b)(i) is hereinafter referred to as an "Order" and each Existing Holder and each Potential Holder placing an Order is hereinafter referred to as a "Bidder"; an Order containing the information referred to in clause (A)(1) of this paragraph 11(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the information referred to in clause (A)(2) or (B) of this paragraph 11(b)(i) is hereinafter referred to as a "Bid"; and an Order containing the information referred to in clause (A)(3) of this paragraph 11(b)(i) is hereinafter referred to as a "Sell Order". (ii) (A) A Bid by an Existing Holder shall constitute an irrevocable offer to sell: (1) the number of Outstanding shares of AMPS specified in such Bid if the Applicable Rate determined on such Auction Date shall be less than the rate per annum specified in such Bid; or (2) such number or a lesser number of Outstanding shares of AMPS to be determined as set forth in paragraph 11(e)(i)(D) of the Applicable Rate determined on such Auction Date shall be equal to the rate per annum specified therein; or (3) a lesser number of Outstanding shares of AMPS to be determined as set forth in paragraph 11(e)(ii)(C) if such specified rate per annum shall be 64 higher than the Maximum Applicable Rate and Sufficient Clearing Bids do not exist. (B) A Sell Order by an Existing Holder shall constitute an irrevocable offer to sell: (1) the number of Outstanding shares of AMPS specified in such Sell Order; or (2) such number or a lesser number of Outstanding shares of AMPS to be determined as set forth in paragraph 11(e)(ii)(C) if Sufficient Clearing Bids do not exist. (C) A Bid by a Potential Holder shall constitute an irrevocable offer to purchase: (1) the number of Outstanding shares of AMPS specified in such Bid if the Applicable Rate determined on such Auction Date shall be higher than the rate per annum specified in such Bid; or (2) such number or a lesser number of Outstanding shares of AMPS to be determined as set forth in paragraph 11(e)(i)(E) if the Applicable Rate determined on such Auction Date shall be equal to the rate per annum specified therein. (c) Submission of Orders by Broker-Dealers to Auction Agent. (i) Each Broker-Dealer shall submit in writing or through the Auction Agent's Auction Processing System to the Auction Agent prior to the Submission Deadline on each Auction Date all Orders obtained by such Broker-Dealer and specifying with respect to each Order: 65 (A) the name of the Bidder placing such Order; (B) the aggregate number of Outstanding shares of AMPS that are the subject of such order; (C) to the extent that such Bidder is an Existing Holder: (1) the number of Outstanding shares, if any, of AMPS subject to any Hold Order placed by such Existing Holder; (2) the number of Outstanding shares, if any, of AMPS subject to any Bid placed by such Existing Holder and the rate per annum specified in such Bid; and (3) the number of Outstanding shares, if any, of AMPS subject to any Sell Order placed by such Existing Holder; and (D) to the extent such Bidder is a Potential Holder, the rate per annum specified in such Potential Holder's Bid. (ii) If any rate per annum specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one thousandth (.001) of 1%. (iii) If an Order or Orders covering all of the Outstanding Shares of AMPS held by an Existing Holder are not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order (in the case of an Auction relating to a Dividend Period which is not a Special Dividend Period) and a Sell Order (in the case of an Auction relating to a Special Dividend Period) to have been submitted on behalf of such Existing Holder covering the number of Outstanding shares of AMPS and by such Existing Holder and not subject to Orders submitted to the Auction Agent. 66 (iv) If one or more Orders on behalf of an Existing Holder covering in the aggregate more than the number of Outstanding Shares of AMPS held by such Existing Holder are submitted to the Auction Agent, such Order shall be considered valid as follows and in the following order of priority: (A) any Hold Order submitted on behalf of such Existing Holder shall be considered valid up to and including the number of Outstanding shares of AMPS held by such Existing Holder; provided that if more than one Hold Order is submitted on behalf of such Existing Holder and the number of shares of AMPS subject to such Hold Orders exceeds the number of Outstanding shares of AMPS held by such Existing Holder, the number of shares of AMPS subject to each of such Hold Orders shall be reduced pro rata so that such Hold Orders, in the aggregate, will cover exactly the number of Outstanding shares of AMPS held by such Existing Holder; (B) any Bids submitted on behalf of such Existing Holder shall be considered valid, in the ascending order of their respective rates per annum if more than one Bid is submitted on behalf of such Existing Holder, up to and including the excess of the number of Outstanding shares of AMPS held by such Existing Holder over the number of shares of AMPS subject to any Hold Order referred to in paragraph 11(c)(iv)(A) above (and if more than one Bid submitted on behalf of such Existing Holder specifies the same rate per annum and together they cover more than the remaining number of shares that can be the subject of valid Bids after application of paragraph 11(c)(iv)(A) above and of the foregoing portion of this paragraph 1l(c)(iv)(B) to any Bid or Bids specifying a lower rate or rates per annum, the number of shares subject to each of such Bids shall be reduced pro rata so that such Bids, in the aggregate, cover exactly such remaining number 67 of shares); and the number of shares, if any, subject to Bids not valid under this paragraph 11(c)(iv)(B) shall be treated as the subject of a Bid by a Potential Holder; and (C) any Sell Order shall be considered valid up to and including the excess of the number of Outstanding shares of AMPS held by such Existing Holder over the number of shares of AMPS subject to Hold Orders referred to in paragraph 11(c)(iv)(A) and Bids referred to in paragraph 11(c)(iv)(B); provided that if more than one Sell Order is submitted on behalf of any Existing Holder and the number of shares of AMPS subject to such Sell Orders is greater than such excess, the number of shares of AMPS subject to each of such Sell Orders shall be reduced pro rata so that such Sell Orders, in the aggregate, cover exactly the number of shares of AMPS equal to such excess. (v) If more than one Bid is submitted on behalf of any Potential Holder, each Bid submitted shall be a separate Bid with the rate per annum and number of shares of AMPS specified. (d) Determination of Sufficient Clearing Bids Winning Bid Rate and Applicable Rate. (i) Not earlier than the Submission Deadline on each Auction Date, the Auction Agent shall assemble all Orders submitted or deemed submitted to it by the Broker-Dealers (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as a "Submitted Order") and shall determine: (A) the excess of the total number of Outstanding shares of AMPS over the number of Outstanding shares of AMPS that are the subject of Submitted Hold Orders (such excess being hereinafter referred to as the "Available AMPS"); 68 (B) from the Submitted Orders whether the number of Outstanding shares of AMPS that are the subject of Submitted Bids by Potential Holders specifying one or more rates per annum equal to or lower than the Maximum Applicable Rate exceeds or is equal to the sum of: (1) the number of Outstanding shares of AMPS that are the subject of Submitted Bids by Existing Holders specifying one or more rates per annum higher than the Maximum Applicable Rate, and (2) the number of Outstanding shares of AMPS that are subject to Submitted Sell orders (if such excess or such equality exists (other than because the number of Outstanding shares of AMPS in clauses (1) and (2) above are each zero because all of the Outstanding shares of AMPS are the subject of Submitted Hold Orders), such Submitted Bids by Potential Holders being hereinafter referred to collectively as "Sufficient Clearing Bids"); and (C) if Sufficient Clearing Bids exist, the lowest rate per annum specified in the Submitted Bids (the "Winning Bid Rate") that if: (1) each Submitted Bid from Existing Holders specifying the Winning Bid Rate and all other Submitted Bids from Existing Holders specifying lower rates per annum were rejected, thus entitling such Existing Holders to continue to hold the shares of AMPS that are the subject of such Submitted Bids, and (2) each Submitted Bid from Potential Holders specifying the Winning Bid Rate and all other Submitted Bids from Potential Holders specifying lower rates per annum were accepted, thus entitling the Potential Holders to purchase the shares of AMPS that are the subject of such Submitted Bids, 69 would result in the number of shares subject to all Submitted Bids specifying the Winning Bid Rate or a lower rate per annum being at least equal to the Available AMPS. (ii) Promptly after the Auction Agent has made the determinations pursuant to paragraph 11(d)(i), the Auction Agent shall advise the Corporation of the Maximum Applicable Rate and, based on such determinations, the Applicable Rate for the next succeeding Dividend Period as follows: (A) if Sufficient Clearing Bids exist, that the Applicable Rate for the next succeeding Dividend Period shall be equal to the Winning Bid Rate; (B) if Sufficient Clearing Bids do not exist (other than because all of the Outstanding shares of AMPS are the subject of Submitted Hold Orders), that the Applicable Rate for the next succeeding Dividend Period shall be equal to the Maximum Applicable Rate; or (C) if all of the Outstanding shares of AMPS are the subject of Submitted Hold Orders, that the Dividend Period next succeeding the Auction shall automatically be the same length as the immediately preceding Dividend Period and the Applicable Rate for the next succeeding Dividend Period shall be equal to 59% of the Reference Rate (or 90% of such rate if the Corporation has provided notification to the Auction Agent prior to the Auction establishing the Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net capital gains or other taxable income will be included in such dividend on shares of AMPS) on the date of the Auction. (e) Acceptance and Refection of Submitted Bids and Submitted Sell Orders and Allocation of Shares. Based on the determinations made pursuant to paragraph 11(d)(i), the 70 Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall take such other action as set forth below: (i) If Sufficient Clearing Bids have been made, subject to the provisions of paragraph 11(e)(iii) and paragraph 11(e)(iv), Submitted Bids and Submitted Sell Orders shall be accepted or rejected in the following order of priority and all other Submitted Bids shall be rejected: (A) the Submitted Sell Orders of Existing Holders shall be accepted and the Submitted Bid of each of the Existing Holders specifying any rate per annum that is higher than the Winning Bid Rate shall be accepted, thus requiring each such Existing Holder to sell the Outstanding shares of AMPS that are the subject of such Submitted Sell order or Submitted Bid; (B) the Submitted Bid of each of the Existing Holders specifying any rate per annum that is lower than the Winning Bid Rate shall be rejected, thus entitling each such Existing Holder to continue to hold the Outstanding shares of AMPS that are the subject of such Submitted Bid; (C) the Submitted Bid of each of the Potential Holders specifying any rate per annum that is lower than the Winning Bid Rate shall be accepted; (D) the Submitted Bid of each of the Existing Holders specifying a rate per annum that is equal to the Winning Bid Rate shall be rejected, thus entitling each such Existing Holder to continue to hold the Outstanding shares of AMPS that are the subject of such Submitted Bid, unless the number of Outstanding shares of AMPS subject to all such Submitted Bids shall be greater than the number of Outstanding shares of AMPS ("Remaining Shares") equal to the excess of the Available AMPS over the number of Outstanding shares of AMPS subject to Submitted Bids described in paragraph 71 11(e)(i)(B) and paragraph 11(e)(i)(C), in which event the Submitted Bids of each such Existing Holder shall be accepted, and each such Existing Holder shall be required to sell outstanding shares of AMPS, but only in an amount equal to the difference between (1) the number of Outstanding shares of AMPS then held by such Existing Holder subject to such Submitted Bid and (2) the number of shares of AMPS obtained by multiplying (x) the number of Remaining Shares by (y) a fraction the numerator of which shall be the number of Outstanding shares of AMPS held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the sum of the numbers of Outstanding shares of AMPS subject to such Submitted Bids made by all such Existing Holders that specified a rate per annum equal to the Winning Bid Rate; and (E) the Submitted Bid of each of the Potential Holders specifying a rate per annum that is equal to the Winning Bid Rate shall be accepted but only in an amount equal to the number of outstanding shares of AMPS obtained by multiplying (x) the difference between the Available AMPS and the number of Outstanding shares of AMPS subject to Submitted Bids described in paragraph 11(e)(i)(B), paragraph 1l(e)(i)(C) and paragraph 11(e)(i)(D) by (y) a fraction the numerator of which shall be the number of outstanding shares of AMPS subject to such Submitted Bid and the denominator of which shall be the sum of the number of Outstanding shares of AMPS subject to such Submitted Bids made by all such Potential Holders that specified rates per annum equal to the Winning Bid Rate. (ii) If Sufficient Clearing Bids have not been made (other than because all of the Outstanding shares of AMPS are subject to Submitted Hold Orders), subject to the provisions of 72 paragraph 11(e) (iii) , Submitted Orders shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids shall be rejected: (A) the Submitted Bid of each Existing Holder specifying any rate per annum that is equal to or lower than the Maximum Applicable Rate shall be rejected, thus entitling such Existing Holder to continue to hold the Outstanding shares of AMPS that are the subject of such Submitted Bid; (B) the Submitted Bid of each Potential Holder specifying any rate per annum that is equal to or lower than the Maximum Applicable Rate shall be accepted, thus requiring such Potential Holder to purchase the Outstanding shares of AMPS that are the subject of such Submitted Bid; and (C) the Submitted Bids of each Existing Holder specifying any rate per annum that is higher than the specifying the Maximum Applicable Rate shall be accepted and the Submitted Sell Orders of each Existing Holder shall be accepted, in both cases only an amount equal to the difference between (1) the number of Outstanding shares of AMPS then held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and (2) the number of shares of AMPS obtained by multiplying (x) the difference between the Available AMPS and the aggregate number of Outstanding shares of AMPS subject to Submitted Bids described in paragraph 11(e)(ii)(A) and paragraph 11(e)(ii)(B) by (y) a fraction the numerator of which shall be the number of Outstanding shares of AMPS held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the number of Outstanding shares of AMPS subject to all such Submitted Bids and Submitted Sell Orders. 73 (iii) If, as a result of the procedures described in paragraph 11(e)(i) or paragraph 1l(e)(ii), any Existing Holder would be entitled or required to sell, or any potential Holder would be entitled or required to purchase, a fraction of a share of AMPS on any Auction Date, the Auction Agent shall, in such manner as in its sole discretion it shall determine, round up or down the number of shares of AMPS to be purchased or sold by any Exiting Holder or Potential Holder on such Auction Date so that each Outstanding share of AMPS purchased or sold by each Existing Holder or Potential Holder on such Auction Date shall be a whole share of AMPS. (iv) If, as a result of the procedures described in paragraph 11(e)(i), any Potential Holder would be entitled or required to purchase less than a whole share of AMPS on any Auction Date, the Auction Agent shall, in such manner as in its sole discretion it shall determine, allocate shares of AMPS for purchase among Potential Holders so that only whole shares of AMPS are purchased on such Auction Date by any Potential Holder, even if such allocation results in one or more of such Potential Holders not purchasing any shares of AMPS on such Auction Date. (v) Based on the results of each Auction, the Auction Agent shall determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders on behalf of Existing Holders or Potential Holders, the aggregate number of Outstanding shares of AMPS to be purchased and the aggregate number of the Outstanding shares of AMPS to be sold by such Potential Holders and Existing Holders and, to the extent that such aggregate number of Outstanding shares to be purchased and such aggregate number of outstanding shares to be sold differ, the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers acting for one or more purchasers such Broker-Dealer shall deliver, or from which other Broker-Dealer or 74 Broker-Dealers acting for one or more sellers such Broker-Dealer shall receive, as the case may be, Outstanding shares of AMPS. (f) Miscellaneous. The Corporation may interpret the provisions of this paragraph 11 to resolve any inconsistency or ambiguity, remedy any formal defect or make any other change or modification that does not substantially adversely affect the rights of Existing Holders of AMPS. An Exiting Holder (A) may sell, transfer or otherwise dispose of shares of AMPS only pursuant to a Bid or Sell Order in accordance with the procedures described in this paragraph 11 or to or through a Broker-Dealer or to a Person that has delivered a signed copy of a Purchaser's Letter to the Auction Agent, provided that in the case of all transfers other than pursuant to Auctions such Existing Holder, its Broker-Dealer or its Agent Member advises the Auction Agent of such transfer and (B) except as otherwise required by law, shall have the ownership of the shares of AMPS held by it maintained in book entry form by the Securities Depository in the account of its Agent Member, which in turn will maintain records of such Existing Holder's beneficial ownership. Neither the Corporation nor any affiliate shall submit an Order in any Auction. Any Existing Holder that is an Affiliate shall not sell, transfer or otherwise dispose of shares of AMPS to any Person other than the Corporation. All of the Outstanding shares of AMPS shall be represented by a single certificate registered in the name of the nominee of the Securities Depository unless otherwise required by law or unless there is no Securities Depository. If there is no Securities Depository, at the Corporation's option and upon its receipt of such documents as it deems appropriate, any shares of AMPS may be registered in the Stock Register in the name of the Existing Holder thereof and such Existing Holder thereupon will be entitled to receive certificates therefor and required to deliver certificates therefor upon transfer or exchange thereof. 75 12. Securities Depositary; Stock Certificates. (a) If there is a Securities Depository, one certificate for all of the shares of Series A AMPS, one certificate for all of the shares of Series B AMPS, one certificate for all of the shares of Series C AMPS, one certificate for all of the shares of Series D AMPS and one certificate for all of the shares of Series E AMPS shall be issued to the Securities Depository and registered in the name of the Securities Depository or its nominee. Additional certificates may be issued as necessary to represent shares of AMPS. All such certificates shall bear a legend to the effect that such certificates are issued subject to the provisions restricting the transfer of shares of AMPS contained in these Articles Supplementary and each Purchaser's Letter. Unless the Corporation shall have elected, during a Non-Payment Period, to waive this requirement, the Corporation will also issue stop-transfer instructions to the Auction Agent for the shares of AMPS. Except as provided in paragraph (b) below, the Securities Depository or its nominee will be the Holder, and no Existing Holder shall receive certificates representing its ownership interest in such shares. (b) If the Applicable Rate applicable to all shares of AMPS shall be the Non-Payment Period Rate or there is no Securities Depository, the Corporation may at its option issue one or more new certificates with respect to such shares (without the legend referred to in paragraph 12(a)) registered in the names of the Existing Holders or their nominees and rescind the stop-transfer instructions referred to in paragraph 12(a) with respect to such shares. 76 IN WITNESS WHEREOF, MUNIYIELD FUND, INC. has caused these presents to be signed in its name and on its behalf by a duly authorized officer, and its corporate seal to be hereunto affixed and attested by its Secretary, and the said officers of the Corporation further acknowledge said instrument to be the corporate act of the Corporation, and state under the penalties of perjury that to the best of their knowledge, information and belief the matters and facts herein set forth with respect to approval are true in all material respects, all on December 19, 1991. MUNIYIELD FUND, INC. By /s/ Kenneth A. Jacob ------------------------------ Name: Kenneth A. Jacob Title: Vice President Attest: /s/ Mark Goldfus - ----------------------- Mark Goldfus Secretary 77 EX-1.E 4 file003.txt ARTICLES SUPPLEMETARY Exhibit 1(e) MUNIYIELD FUND, INC. Articles Supplementary creating five series of Auction Market Preferred Stock (R) MUNIYIELD FUND, INC., a Maryland corporation having its principal Maryland office in the City of Baltimore (the "Corporation"), certifies to the Maryland State Department of Assessments and Taxation that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article FIFTH of its Charter, the Board of Directors has reclassified 5,000 authorized and unissued shares of common stock of the Corporation as additional preferred stock of the Corporation and has authorized the issuance of preferred stock, par value $.10 per share, liquidation preference $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) thereon, to be designated Auction Market Preferred Stock. SECOND: The preferences, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the shares of such preferred stock shall be identical to the 5,000 shares of Auction Market Preferred Stock previously reclassified and authorized by the Board of Directors pursuant to Articles Supplementary dated December 19, 1991 and filed on December 20, 1991 with the Maryland State Department of Assessments and Taxation, as amended by Articles of Amendment to Articles Supplementary filed on November 13, 1992. Accordingly, these Articles Supplementary hereby incorporate by reference such previously filed Articles Supplementary beginning with the section entitled "DESIGNATION" - -------------------------- (R) Registered trademark of Merrill Lynch & Co., Inc. and continuing until the end of the final section entitled "Securities Depository; Stock Certificates," with the following exception: At page 2, in the section entitled "DESIGNATION," strike out "a date to be determined by the Board of Directors of the Corporation" and insert in lieu thereof the date " Dec. 1, 1994"; IN WITNESS WHEREOF, MUNIYIELD FUND, INC. has caused these presents to be signed in its name and on its behalf by a duly authorized officer, and attested by its Secretary, and the said officers of the Corporation further acknowledge said instrument to be the corporate act of the Corporation, and state under the penalties of perjury that to the best of their knowledge, information and belief the matters and facts herein set forth with respect to approval are true in all material respects, all on Nov. 30, 1994. MUNIYIELD FUND, INC. By /s/ Vincent R. Giordano ---------------------------- Name: Vincent R. Giordano Title: Senior Vice President Attest: /s/ Mark B. Goldfus - --------------------- Name: Mark B. Goldfus Its: Secretary EX-5.B 5 file004.txt HOLDER'S RIGHTS Exhibit 5(b) ========================================================================== Common Stock Common Stock par value $0.10 par value $0.10 NUMBER SHARES INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND CUSIP 626299 10 1 SEE REVERSE FOR CERTAIN DEFINITIONS MuniYield Fund, Inc. This certifies that Is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF MuniYield Fund, Inc., transferable on the books of the Corporation by the holder in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Articles of Incorporation and of the By-Laws of the Corporation and of all the amendments from time to time thereto. This Certificate is valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: Countersigned and Registered: THE BANK OF NEW YORK Transfer Agent and Registrar By President Secretary Authorized Signature ============================================================================= MuniYield Fund, Inc. A full statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of each class of stock which the Corporation is authorized to issue and the differences in the relative rights and preferences between the shares of each series to the extent that they have been set, and the authority of the Board of Directors to set the relative rights and preferences of subsequent series, will be furnished by the Corporation to any stockholder, without charge, upon request to the Secretary of the Corporation at its principal office. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -as tenants in common UNIF GIFT MIN ACT- ..........Custodian.......... TEN ENT -as tenants by the (Cust) (Minor) entireties JT TEN -as joint tenants with Under Uniform Gifts to Minors right of survivorship Act.......................... and not as (State) tenants in common Additional abbreviations may also be used though not in the above list. For value received,..........................hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- ----------------------------------------- - -------------------------------------- - -------------------------------------------------------------------------------- Please Print or Typewrite Name and Address including Postal Zip Code of Assignee - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------- Shares represented by the within Certificate, and do hereby irrevocably constitute and appoint - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Attorney to transfer the said shares on the books of the within-named Corporation with full power of substitution in the premises. Dated:............................. .................................................... NOTICE: The signature to this assignment must correspond with the name as written upon the face of the Certificate, in every particular, without alteration or enlargement, or any change whatever. - -------------------------------------------------------------------------------- Signatures must be guaranteed by a national bank or other bank which is a member of the Federal Reserve System (not a savings bank) or by a member firm of any national or regional stock exchange. Notarized signatures are not sufficient. - -------------------------------------------------------------------------------- EX-5.C 6 file005.txt AUCTION MARKET PREFERRED Exhibit 5(c) Auction Market Preferred Stock, Series A NUMBER SHARES 900 M MUNIYIELD FUND, INC. INCORPORATED UNDER THE LAWS SEE REVERSE FOR OF THE STATE OF MARYLAND CERTAIN DEFINITIONS THIS CERTIFICATE IS TRANSFERABLE CUSIP 626299-200 IN NEW YORK, NY THIS CERTIFIES THAT CEDE & CO. IS THE OWNER OF NINE HUNDRED (900) FULLY PAID AND NON-ASSESSABLE SHARES OF AUCTION MARKET PREFERRED STOCK, SERIES A, PAR VALUE $.10 PER SHARE, LIQUIDATION PREFERENCE $50,000 PER SHARE PLUS AN AMOUNT EQUAL TO ACCUMULATED BUT UNPAID DIVIDENDS THEREON (WHETHER OR NOT EARNED OR DECLARED) OF MUNIYIELD FUND, INC. transferable on the books of said Corporation in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof, MUNIYIELD FUND, INC. has caused its corporate seal to be hereto affixed and this certificate to be executed in its name and behalf by its duly authorized officers. Dated December 23, 1991 [SEAL] Countersigned and Registered: IBJ SCHRODER BANK & TRUST COMPANY ------------------------- (New York) Transfer Agent Vice President By ------------------------- Authorized Signature Secretary THE TRANSFER OF THE SHARES OF AUCTION MARKET PREFERRED STOCK REPRESENTED. HEREBY IS SUBJECT TO THE RESTRICTIONS CONTAINED IN THE CORPORATION'S CHARTER, AND THE PURCHASER'S LETTERS REFERRED TO HEREIN. THE CORPORATION WILL FURNISH INFORMATION ABOUT SUCH RESTRICTION TO ANY STOCKHOLDER, WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE CORPORATION. MUNIYIELD FUND, INC. A full statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the shares of each class of stock which the Corporation is authorized to issue and the differences in the relative rights and preferences between the shares of each series to the extent that they have been set, and the authority of the Board of Directors to set the relative rights and preferences of subsequent series, will be furnished by the Corporation to any stockholder, without charge, upon request to the Secretary of the Corporation at its principal office. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM-as tenants in common UNIF GIFT MIN ACT- ______Custodian ______ TEN ENT-as tenants by the entireties (Cust) (Minor) JT TEN- as joint tenants with right under Uniform Gifts to of survivorship and not as Minors Act_______________________ tenants in common (State) Additional abbreviations may also be used though not in the above list. For value received _____________________ hereby sell, assign and transfer unto Please insert social securities or other identifying number of assignee - -------------------------------------------- | | - -------------------------------------------- - -------------------------------------------------------------------------------- (Please Print or Typewrite Name and Address, Including Zip Code, of Assignee) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- shares - -------------------------------------------------------------------------- of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ______________________________________ Attorney to transfer the said stock on the books of the within named Corporation with fully power of substitution in the premises. Dated______________________ -------------------------------------------------------- NOTICE: The Signature to this assignment must correspond with the name as written upon the face of the Certificate in every particular, without alteration or enlargement or any change whatever. Auction Market Preferred Stock, Series B NUMBER SHARES 900 M MUNIYIELD FUND, INC. INCORPORATED UNDER THE LAWS SEE REVERSE FOR OF THE STATE OF MARYLAND CERTAIN DEFINITIONS THIS CERTIFICATE IS TRANSFERABLE CUSIP 626299-309 IN NEW YORK, NY THIS CERTIFIES THAT CEDE & CO. IS THE OWNER OF NINE HUNDRED (900) FULLY PAID AND NON-ASSESSABLE SHARES OF AUCTION MARKET PREFERRED STOCK, SERIES B, PAR VALUE $.10 PER SHARE, LIQUIDATION PREFERENCE $50,000 PER SHARE PLUS AN AMOUNT EQUAL TO ACCUMULATED BUT UNPAID DIVIDENDS THEREON (WHETHER OR NOT EARNED OR DECLARED) OF MUNIYIELD FUND, INC. transferable on the books of said Corporation in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof, MUNIYIELD FUND, INC. has caused its corporate seal to be hereto affixed and this certificate to be executed in its name and behalf by its duly authorized officers. Dated December 23, 1991 [SEAL] Countersigned and Registered: IBJ SCHRODER BANK & TRUST COMPANY ------------------------- (New York) Transfer Agent Vice President By ------------------------- Authorized Signature Secretary THE TRANSFER OF THE SHARES OF AUCTION MARKET PREFERRED STOCK REPRESENTED. HEREBY IS SUBJECT TO THE RESTRICTIONS CONTAINED IN THE CORPORATION'S CHARTER, AND THE PURCHASER'S LETTERS REFERRED TO HEREIN. THE CORPORATION WILL FURNISH INFORMATION ABOUT SUCH RESTRICTION TO ANY STOCKHOLDER, WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE CORPORATION. MUNIYIELD FUND, INC. A full statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the shares of each class of stock which the Corporation is authorized to issue and the differences in the relative rights and preferences between the shares of each series to the extent that they have been set, and the authority of the Board of Directors to set the relative rights and preferences of subsequent series, will be furnished by the Corporation to any stockholder, without charge, upon request to the Secretary of the Corporation at its principal office. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM-as tenants in common UNIF GIFT MIN ACT- ______Custodian ______ TEN ENT-as tenants by the entireties (Cust) (Minor) JT TEN- as joint tenants with right under Uniform Gifts to of survivorship and not as Minors Act_______________________ tenants in common (State) Additional abbreviations may also be used though not in the above list. For value received ___________________ hereby sell, assign and transfer unto Please insert social securities or other identifying number of assignee - -------------------------------------------- | | - -------------------------------------------- - -------------------------------------------------------------------------------- (Please Print or Typewrite Name and Address, Including Zip Code, of Assignee) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- shares - -------------------------------------------------------------------------- of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ______________________________________ Attorney to transfer the said stock on the books of the within named Corporation with fully power of substitution in the premises. Dated______________________ -------------------------------------------------------- NOTICE: The Signature to this assignment must correspond with the name as written upon the face of the Certificate in every particular, without alteration or enlargement or any change whatever. Auction Market Preferred Stock, Series C NUMBER SHARES 900 M MUNIYIELD FUND, INC. INCORPORATED UNDER THE LAWS SEE REVERSE FOR OF THE STATE OF MARYLAND CERTAIN DEFINITIONS THIS CERTIFICATE IS TRANSFERABLE CUSIP 626299-408 IN NEW YORK, NY THIS CERTIFIES THAT CEDE & CO. IS THE OWNER OF NINE HUNDRED (900) FULLY PAID AND NON-ASSESSABLE SHARES OF AUCTION MARKET PREFERRED STOCK, SERIES C, PAR VALUE $.10 PER SHARE, LIQUIDATION PREFERENCE $50,000 PER SHARE PLUS AN AMOUNT EQUAL TO ACCUMULATED BUT UNPAID DIVIDENDS THEREON (WHETHER OR NOT EARNED OR DECLARED) OF MUNIYIELD FUND, INC. transferable on the books of said Corporation in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof, MUNIYIELD FUND, INC. has caused its corporate seal to be hereto affixed and this certificate to be executed in its name and behalf by its duly authorized officers. Dated December 23, 1991 [SEAL] Countersigned and Registered: IBJ SCHRODER BANK & TRUST COMPANY ------------------------- (New York) Transfer Agent Vice President By ------------------------- Authorized Signature Secretary THE TRANSFER OF THE SHARES OF AUCTION MARKET PREFERRED STOCK REPRESENTED. HEREBY IS SUBJECT TO THE RESTRICTIONS CONTAINED IN THE CORPORATION'S CHARTER, AND THE PURCHASER'S LETTERS REFERRED TO HEREIN. THE CORPORATION WILL FURNISH INFORMATION ABOUT SUCH RESTRICTION TO ANY STOCKHOLDER, WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE CORPORATION. MUNIYIELD FUND, INC. A full statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the shares of each class of stock which the Corporation is authorized to issue and the differences in the relative rights and preferences between the shares of each series to the extent that they have been set, and the authority of the Board of Directors to set the relative rights and preferences of subsequent series, will be furnished by the Corporation to any stockholder, without charge, upon request to the Secretary of the Corporation at its principal office. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM-as tenants in common UNIF GIFT MIN ACT- ______Custodian ______ TEN ENT-as tenants by the entireties (Cust) (Minor) JT TEN- as joint tenants with right under Uniform Gifts to of survivorship and not as Minors Act_______________________ tenants in common (State) Additional abbreviations may also be used though not in the above list. For value received hereby sell, assign and transfer unto Please insert social securities or other identifying number of assignee - -------------------------------------------- | | - -------------------------------------------- - -------------------------------------------------------------------------------- (Please Print or Typewrite Name and Address, Including Zip Code, of Assignee) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- shares - -------------------------------------------------------------------------- of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ______________________________________ Attorney to transfer the said stock on the books of the within named Corporation with fully power of substitution in the premises. Dated______________________ -------------------------------------------------------- NOTICE: The Signature to this assignment must correspond with the name as written upon the face of the Certificate in every particular, without alteration or enlargement or any change whatever. Auction Market Preferred Stock, Series D NUMBER SHARES 900 M MUNIYIELD FUND, INC. INCORPORATED UNDER THE LAWS SEE REVERSE FOR OF THE STATE OF MARYLAND CERTAIN DEFINITIONS THIS CERTIFICATE IS TRANSFERABLE CUSIP 626299-507 IN NEW YORK, NY THIS CERTIFIES THAT CEDE & CO. IS THE OWNER OF NINE HUNDRED (900) FULLY PAID AND NON-ASSESSABLE SHARES OF AUCTION MARKET PREFERRED STOCK, SERIES D, PAR VALUE $.10 PER SHARE, LIQUIDATION PREFERENCE $50,000 PER SHARE PLUS AN AMOUNT EQUAL TO ACCUMULATED BUT UNPAID DIVIDENDS THEREON (WHETHER OR NOT EARNED OR DECLARED) OF MUNIYIELD FUND, INC. transferable on the books of said Corporation in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof, MUNIYIELD FUND, INC. has caused its corporate seal to be hereto affixed and this certificate to be executed in its name and behalf by its duly authorized officers. Dated December 23, 1991 [SEAL] Countersigned and Registered: IBJ SCHRODER BANK & TRUST COMPANY ------------------------- (New York) Transfer Agent Vice President By ------------------------- Authorized Signature Secretary THE TRANSFER OF THE SHARES OF AUCTION MARKET PREFERRED STOCK REPRESENTED. HEREBY IS SUBJECT TO THE RESTRICTIONS CONTAINED IN THE CORPORATION'S CHARTER, AND THE PURCHASER'S LETTERS REFERRED TO HEREIN. THE CORPORATION WILL FURNISH INFORMATION ABOUT SUCH RESTRICTION TO ANY STOCKHOLDER, WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE CORPORATION. MUNIYIELD FUND, INC. A full statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the shares of each class of stock which the Corporation is authorized to issue and the differences in the relative rights and preferences between the shares of each series to the extent that they have been set, and the authority of the Board of Directors to set the relative rights and preferences of subsequent series, will be furnished by the Corporation to any stockholder, without charge, upon request to the Secretary of the Corporation at its principal office. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM-as tenants in common UNIF GIFT MIN ACT- ______Custodian ______ TEN ENT-as tenants by the entireties (Cust) (Minor) JT TEN- as joint tenants with right under Uniform Gifts to of survivorship and not as Minors Act_______________________ tenants in common (State) Additional abbreviations may also be used though not in the above list. For value received hereby sell, assign and transfer unto Please insert social securities or other identifying number of assignee - -------------------------------------------- | | - -------------------------------------------- - -------------------------------------------------------------------------------- (Please Print or Typewrite Name and Address, Including Zip Code, of Assignee) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- shares - -------------------------------------------------------------------------- of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ______________________________________ Attorney to transfer the said stock on the books of the within named Corporation with fully power of substitution in the premises. Dated______________________ -------------------------------------------------------- NOTICE: The Signature to this assignment must correspond with the name as written upon the face of the Certificate in every particular, without alteration or enlargement or any change whatever. Auction Market Preferred Stock, Series E NUMBER SHARES 1,400 M MUNIYIELD FUND, INC. INCORPORATED UNDER THE LAWS SEE REVERSE FOR OF THE STATE OF MARYLAND CERTAIN DEFINITIONS THIS CERTIFICATE IS TRANSFERABLE CUSIP 626299-606 IN NEW YORK, NY THIS CERTIFIES THAT CEDE & CO. IS THE OWNER OF ONE THOUSAND FOUR HUNDRED (1,400) FULLY PAID AND NON-ASSESSABLE SHARES OF AUCTION MARKET PREFERRED STOCK, SERIES E, PAR VALUE $.10 PER SHARE, LIQUIDATION PREFERENCE $50,000 PER SHARE PLUS AN AMOUNT EQUAL TO ACCUMULATED BUT UNPAID DIVIDENDS THEREON (WHETHER OR NOT EARNED OR DECLARED) OF MUNIYIELD FUND, INC. transferable on the books of said Corporation in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof, MUNIYIELD FUND, INC. has caused its corporate seal to be hereto affixed and this certificate to be executed in its name and behalf by its duly authorized officers. Dated December 23, 1991 [SEAL] Countersigned and Registered: IBJ SCHRODER BANK & TRUST COMPANY ------------------------- (New York) Transfer Agent Vice President By ------------------------- Authorized Signature Secretary THE TRANSFER OF THE SHARES OF AUCTION MARKET PREFERRED STOCK REPRESENTED. HEREBY IS SUBJECT TO THE RESTRICTIONS CONTAINED IN THE CORPORATION'S CHARTER, AND THE PURCHASER'S LETTERS REFERRED TO HEREIN. THE CORPORATION WILL FURNISH INFORMATION ABOUT SUCH RESTRICTION TO ANY STOCKHOLDER, WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE CORPORATION. MUNIYIELD FUND, INC. A full statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the shares of each class of stock which the Corporation is authorized to issue and the differences in the relative rights and preferences between the shares of each series to the extent that they have been set, and the authority of the Board of Directors to set the relative rights and preferences of subsequent series, will be furnished by the Corporation to any stockholder, without charge, upon request to the Secretary of the Corporation at its principal office. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM-as tenants in common UNIF GIFT MIN ACT- ______Custodian ______ TEN ENT-as tenants by the entireties (Cust) (Minor) JT TEN- as joint tenants with right under Uniform Gifts to of survivorship and not as Minors Act_______________________ tenants in common (State) Additional abbreviations may also be used though not in the above list. For value received ____________________ hereby sell, assign and transfer unto Please insert social securities or other identifying number of assignee - -------------------------------------------- | | - -------------------------------------------- - -------------------------------------------------------------------------------- (Please Print or Typewrite Name and Address, Including Zip Code, of Assignee) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- shares - -------------------------------------------------------------------------- of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ______________________________________ Attorney to transfer the said stock on the books of the within named Corporation with fully power of substitution in the premises. Dated______________________ -------------------------------------------------------- NOTICE: The Signature to this assignment must correspond with the name as written upon the face of the Certificate in every particular, without alteration or enlargement or any change whatever. EX-7.A 7 file006.txt FORM OF PURCHASE AGREEMENT Exhibit 7(a) 30,000,000 Shares MuniYield Fund, Inc. (a Maryland corporation) Common Stock (Par Value $0.10 Per Share) PURCHASE AGREEMENT November 21, 1991 MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED Merrill Lynch World Headquarters World Financial Center North Tower New York, NY 10281-1305 Dear Sirs: MuniYield Fund, Inc., a Maryland corporation (the "Fund"), and Fund Asset Management, Inc., a Delaware corporation (the "Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter"), with respect to the sale by the Fund and the purchase by the Underwriter of 30,000,000 shares of common stock, par value $.10 per share, of the Fund (the "Common Stock") and, with respect to the grant by the Fund to the Underwriter of the option described in Section 2 hereof to purchase all or any part of 4,500,000 additional shares of Common Stock to cover overallotments. The aforesaid 30,000,000 shares (the "Initial Shares"), together with all or any part of the 4,500,000 additional shares of Common Stock subject to the option described in Section 2 hereof (the "Option Shares"), are collectively hereinafter called the "Shares". Prior to the purchase and public offering of the Shares by the Underwriter, the Fund and the Underwriter shall enter into an agreement substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Fund and the Underwriter and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Shares will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Fund has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form N-2 (No. 33-42878) and a related preliminary prospectus for the registration of the Shares under the Securities Act of 1933, as amended (the "1933 Act"), and a notification on Form N-8A of registration of the Fund as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations of the Commission under the 1940 Act (together with the rules and regulations under the 1933 Act, the "Rules and Regulations") and has filed such amendments to such registration statement on Form N-2, if any, and such amended preliminary prospectuses as may have been required to the date hereof. The Fund will prepare and file such additional amendments thereto and such amended prospectuses as may hereafter be required. Such registration statement (as amended, if applicable) and the prospectus constituting a part thereof (including in each case the information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the Rules and Regulations), as from time to time amended or supplemented pursuant to the 1933 Act, are hereinafter referred to as the "Registration Statement" and the "Prospectus", respectively, except that if any revised prospectus shall be provided to the Underwriter by the Fund for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether such revised prospectus is required to be filed by the Fund pursuant to Rule 497(b) or Rule 497(h) of the Rules and Regulations), the term "Prospectus" shall refer to each such revised prospectus from and after the time it is first provided to the Underwriter for such use. The Fund understands that the Underwriter proposes to make a public offering of the Shares as soon as the Underwriter deems advisable after the Registration Statement becomes effective and the Pricing Agreement has been executed and delivered. SECTION 1. Representations and Warranties. (a) The Fund and the Adviser each severally represents and warrants to the Underwriter as of the date hereof and as of the date of the Pricing Agreement (such later date being hereinafter referred to as the "Representation Date") as follows: (i) At the time the Registration Statement becomes effective and at the Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. At the time the Registration Statement becomes effective, at the Representation Date and at Closing Time referred to in Section 2, the Prospectus (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriter by the Fund for use in connection with the offering of the Shares which differs from the Prospectus on file with the Commission at the time the Registration Statement becomes effective, in which case at the time such prospectus is first provided to the Underwriter for such use) will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Fund in writing by the Underwriter expressly for use in the Registration Statement or Prospectus. (ii) The accountants who certified the statement of assets and liabilities included in the Registration Statement are independent public accountants as required by the 1933 Act and the Rules and Regulations. (iii) The statement of assets and liabilities included in the Registration Statement presents fairly the financial position of the Fund as at the date indicated and said statement has been prepared in conformity with generally accepted accounted principles. 2 (iv) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, of the Fund, or in the earnings, business affairs or business prospects of the Fund, whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Fund which are material to the Fund other than those in the ordinary course of business, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Fund on any class of its capital stock. (v) The Fund has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement; the Fund is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required; and the Fund has no subsidiaries. (vi) The Fund is registered with the Commission under the 1940 Act as a closed-end non-diversified management investment company, and no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or threatened by the Commission. (vii) The authorized, issued and outstanding capital stock, of the Fund is as set forth in the Prospectus under the caption "Description of Capital Stock"; the Shares have been duly authorized for issuance and sale to the Underwriter pursuant to this Agreement and, when issued and delivered by the Fund pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and nonassessable; the Shares conform in all material respects to all statements relating thereto contained in the Registration Statement; and the issuance of the Shares is not subject to preemptive rights. (viii) The Fund is not in violation of its articles of incorporation, as amended (the "Charter") or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it or its properties may be bound; and the execution and delivery of this Agreement, the Pricing Agreement and the Investment Advisory Agreement and the Custodial Agreement referred to in the Registration Statement (as used herein, the "Advisory Agreement" and the "Custody Agreement", respectively) and the consummation of the transactions contemplated herein and therein have been duly authorized by all necessary corporate action and will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject, nor will such action result in any violation of the provisions of the Charter or by-laws, as amended, of the Fund (the "By-Laws") or, to the best knowledge of the Fund and the Adviser, any law, administrative regulation or administrative or court decree; and no consent, approval, authorization or order of any court or governmental authority or agency is required for the consummation by the Fund of the transactions contemplated by 3 this Agreement, the Pricing Agreement, the Advisory Agreement and the Custody Agreement, except such as has been obtained under the 1940 Act or as may be required under the 1933 Act, state securities or Blue Sky laws or foreign securities laws in connection with the purchase and distribution of the Shares by the Underwriter. (ix) The Fund owns or possesses or has obtained all material governmental licenses, permits, consents, orders, approvals and other authorizations necessary to lease or own, as the case may be, and to operate its properties and to carry on its businesses as contemplated in the Prospectus. (x) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Fund, threatened against or affecting, the Fund, which might result in any material adverse change in the condition, financial or otherwise, business affairs or business prospects of the Fund, or might materially and adversely affect the properties or assets of the Fund; and there are no material contracts or documents of the Fund which are required to be filed as exhibits to the Registration Statement by the 1933 Act, the 1940 Act or by the Rules and Regulations which have not been so filed. (xi) The Fund owns or possesses, or can acquire on reasonable terms, adequate trademarks, service marks and trade names necessary to conduct its business as described in the Registration Statement, and the Fund has not received any notice of infringement of or conflict with asserted rights of others with respect to any trademarks, service marks or trade names which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially adversely affect the conduct of the business, operations, financial condition or income of the Fund. (b) The Adviser represents and warrants to the Underwriter as of the date hereof and as of the Representation Date as follows: (i) The Adviser has been duly incorporated as a corporation under the laws of the State of Delaware with corporate power and authority to conduct its business as described in the Prospectus. (ii) The Adviser is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is not prohibited by the Advisers Act or the 1940 Act, or the rules and regulations under such acts, from acting under the Advisory Agreement for the Fund as contemplated by the Prospectus. (iii) This Agreement has been duly authorized, executed and delivered by the Adviser; the Advisory Agreement has been duly authorized, executed and delivered by the Adviser and constitutes a valid and binding obligation of the Adviser, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or other laws relating to or affecting creditors' rights and to general equity principles; and neither the execution and delivery of this Agreement, or the Advisory Agreement nor the performance by the Adviser of its obligations hereunder or thereunder will conflict with, or result in a breach of any of the terms and provisions of, or constitute, with or without the giving of notice or lapse of time or both, a default under, any agreement or instrument to which the Adviser is a party or by which it is bound, or 4 any law, order, rule or regulation applicable to it of any jurisdiction, court, federal or state regulatory body, administrative agency or other governmental body, stock exchange or securities association having jurisdiction over the Adviser or its respective properties or operations. (iv) The Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Prospectus. (v) Any advertisement approved by the Adviser for use in the public offering of the Shares pursuant to Rule 482 under the Rules and Regulations (an "Omitting Prospectus") complies with the requirements of such Rule 482. (c) Any certificate signed by any officer of the Fund or the Adviser and delivered to the Underwriter shall be deemed a representation and warranty by the Fund or the Adviser, as the case may be, to the Underwriter, as to the matters covered thereby. SECTION 2. Sale and Delivery to the Underwriter; Closing. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Fund agrees to sell the Initial shares to the Underwriter, and the Underwriter agrees to purchase the Initial Shares from the Fund, at the price per share set forth in the Pricing Agreement. (a) If the Fund has elected not to rely upon Rule 430A under the Rules and Regulations, the initial public offering prices and the purchase price per share to be paid by the Underwriter for the Shares has been determined and set forth in the Pricing Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectus will be filed before the Registration Statement becomes effective. (b) If the Fund has elected to rely upon Rule 430A under the Rules and Regulations, the purchase price per share to be paid by the Underwriter for the Shares shall be an amount equal to the applicable initial public offering price, less an amount per share to be determined by agreement between the Underwriter and the Fund. The applicable initial public offering price per share shall be a fixed price based upon the number of Shares purchased in a single transaction to be determined by agreement between the Underwriter and the Fund. The initial public offering prices and the purchase price, when so determined, shall be set forth in the Pricing Agreement. In the event that such prices have not been agreed upon and the Pricing Agreement has not been executed and delivered by all parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, except as provided in Section 4, unless otherwise agreed to by the Fund, the Adviser and the Underwriter. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Fund hereby grants an option to the Underwriter to purchase all or any part of the Option Shares at the price per share set forth above. The option hereby granted will expire 45 days after the date hereof (or, if the Fund, has elected to rely upon Rule 430A under the Rules and Regulations, 45 days after the execution of the Pricing Agreement) and may be exercised only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Shares upon notice by the Underwriter to the Fund setting forth the number of Option Shares as to which the 5 Underwriter is then exercising the option and the time, date and place of payment and delivery for such Option Shares. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Underwriter but shall not be later than seven full business days after the exercise of said option, nor in any event prior to Closing Time, as hereinafter defined, unless otherwise agreed upon by the Underwriter and the Fund. Payment of the purchase price for, and delivery of certificates for, the Initial Shares shall be made at the office of Brown & Wood, One World Trade Center, New York, New York 10048-0557, or at such other place as shall be agreed upon by the Underwriter and the Fund, at 10:00 A.M. on the fifth business day (unless postponed in accordance with the provisions of Section 10) following the date the Registration Statement becomes effective (or, if the Fund has elected to rely upon Rule 430A under the Rules and Regulations, the fifth business day after execution of the Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Underwriter and the Fund (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Shares are purchased by the Underwriter, payment of the purchase price for, and delivery of certificates for, such option Shares shall be made at the above-mentioned office of Brown & Wood, or at such other place as shall be mutually agreed upon by the Fund and the Underwriter, on each Date of Delivery as specified in the notice from the Underwriter to the Fund. Payment shall be made to the Fund by check or checks drawn in New York Clearing House or similar next day funds and payable to the order of the Fund, against delivery to the Underwriter of certificates for the Shares to be purchased by it. Certificates for the Initial Shares and Option Shares shall be in such denominations and registered in such names as the Underwriter may request in writing at least two business days before Closing Time or the Date of Delivery, as the case may be. The certificates for the Initial Shares and the Option Shares will be made available by the Fund for examination and packaging by the Underwriter not later than 10:00 A.M. on the last business day prior to Closing Time or the Date of Delivery, as the case may be. SECTION 3. Covenants of the Fund. The Fund covenants with the Underwriter as follows: (a) The Fund will use its best efforts to cause the Registration Statement to become effective under the 1933 Act, and will advise the Underwriter promptly as to the time at which the Registration Statement and any amendments thereto (including any post-effective amendment) becomes so effective and, if required, to cause the issuance of any orders exempting the Fund from any provisions of the 1940 Act and will advise the Underwriter promptly as to the time at which any such orders are granted. (b) The Fund will notify the Underwriter immediately, and confirm the notice in writing, (i) of the effectiveness of the Registration Statement and any amendment thereto (including any post-effective amendment), (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, and (v) of the issuance by the Commission of an order of suspension or revocation of the notification on Form N-8A of registration of the Fund as an Investment Company under the 1940 Act or the initiation of any proceeding for that purpose. The Fund will make every reasonable effort to prevent the 6 issuance of any stop order described in subsection (iv) hereunder or any order of suspension or revocation described in subsection (v) hereunder and, if any such stop order or order of suspension or revocation is issued, to obtain the lifting thereof at the earliest possible moment. (c) The Fund will give the Underwriter notice of its intention to file any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Fund proposes for use by the Underwriter in connection with the offering of the Shares, which differs from the prospectus on file at the Commission at the time the Registration Statement becomes effective, whether such revised prospectus is required to be filed pursuant to Rule 497(b) or Rule 497(h) of the Rules and Regulations), whether pursuant to the 1940 Act, the 1933 Act, or otherwise, and will furnish the Underwriter with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement to which the Underwriter shall reasonably object. (d) The Fund will deliver to the Underwriter, as soon as practicable, two signed copies of the notification of registration and registration statement as originally filed and of each amendment thereto, in each case with two sets of the exhibits filed therewith, and will also deliver to the Underwriter a conformed copy of the registration statement as originally filed and of each amendment thereto (but without exhibits to the registration statement or any such amendment) for the Underwriter. (e) The Fund will furnish to the Underwriter, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as the Underwriter may reasonably request for the purposes contemplated by the 1933 Act or the Rules and Regulations. (f) If any event shall occur as a result of which it is necessary, in the opinion of counsel for the Underwriter, to amend or supplement the Prospectus in order to make the Prospectus not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Fund will forthwith amend or supplement the Prospectus by preparing and furnishing to the Underwriter a reasonable number of copies of an amendment or amendments of or a supplement or supplements to, the Prospectus (in form and substance satisfactory to counsel for the Underwriter, so that, as so amended or supplemented, the Prospectus will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading. (g) The Fund will endeavor, in cooperation with the Underwriter, to qualify the Shares for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Underwriter may designate, and will maintain such qualifications in effect for a period of not less than one year after the date hereof. The Fund will file such statements and reports as may be required by the laws of each jurisdiction in which the Shares have been qualified as above provided. (h) The Fund will make generally available to its security holders as soon as practicable, but no later than 60 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the Rules and Regulations) 7 covering a twelve-month period beginning not later than the first day of the Fund's fiscal quarter next following the "effective" date (as defined in said Rule 158) of the Registration Statement. (i) Between the date of this Agreement and the termination of any trading restrictions or Closing Time, whichever is later, the Fund will not, without your prior consent, offer or sell, or enter into any agreement to sell, any equity or equity related securities of the Fund other than the Shares and shares of Common Stock issued in reinvestment of dividends or distributions. (j) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the Rules and Regulations, then immediately following the execution of the Pricing Agreement, the Fund will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 497(h) of the Rules and Regulations, copies of amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus), containing all information so omitted. (k) The Fund will use its best efforts to effect the listing of the Shares on the New York Stock Exchange so that trading on such Exchange will begin no later than three weeks from the date of the Prospectus. SECTION 4. Payment of Expenses. The Fund will pay all expenses incident to the performance of its obligations under this Agreement, including, but not limited to, expenses relating to (i) the printing and filing of the registration statement as originally filed and of each amendment thereto, (ii) the printing of this Agreement and the Pricing Agreement, (iii) the preparation, issuance and delivery of the certificates for the Shares to the Underwriter, (iv) the fees and disbursements of the Fund's counsel and accountants, (v) the qualification of the Shares under securities laws in accordance with the provisions of Section 3(g) of this Agreement, including filing fees and any reasonable fees or disbursements of counsel for the Underwriter in connection therewith and in connection with the preparation of the Blue Sky Survey, (vi) the printing and delivery to the Underwriter of copies of the registration statement as originally filed and of each amendment thereto, of the preliminary prospectus, and of the Prospectus and any amendments or supplements thereto, (vii) the printing and delivery to the Underwriter of copies of the Blue Sky Survey, (viii) the fees and expenses incurred with respect to the filing with the National Association of Securities Dealers, Inc. and (ix) the fees and expenses incurred with respect to the listing of the Shares on the New York Stock Exchange. If this Agreement is terminated by the Underwriter in accordance with the provisions of Section 5 or Section 9(a)(i), the Fund or the Adviser shall reimburse the Underwriter for all of their reasonable out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriter. In the event the transactions contemplated hereunder are not consummated, the Adviser agrees to pay all of the costs and expenses set forth in the first paragraph of this Section 4 which the Fund would have paid if such transactions were consummated. 8 SECTION 5. Conditions of Underwriter's Obligations. The obligations of the Underwriter hereunder are subject to the accuracy of the representations and warranties of the Fund and the Adviser herein contained, to the performance by the Fund and the Adviser of their respective obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M., New York City time, on the date of this Agreement, or at a later time and date not later, however, than 5:30 P.M. on the first business day following the date hereof, or at such later time and date as may be approved by the Underwriter, and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Fund has elected to rely upon Rule 430A of the Rules and Regulations, the prices of the Shares and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 497(h) of the Rules and Regulations within the prescribed time period, and prior to Closing Time the Fund shall have provided evidence satisfactory to the Underwriter of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the Rules and Regulations. (b) At Closing Time, the Underwriter shall have received: (1) The favorable opinion, dated as of Closing Time, of Brown & Wood, counsel for the Fund and the Underwriter, to the effect that: (i) The Fund has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland. (ii) The Fund has corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and the Prospectus. (iii) The Fund is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required. (iv) The Shares have been duly authorized for issuance and sale to the Underwriter pursuant to this Agreement and, when issued and delivered by the Fund pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and nonassessable; the issuance of the Shares is not subject to preemptive rights; and the authorized capital stock conforms as to legal matters in all material respects to the description thereof in the Registration Statement under the caption "Description of Capital Stock". (v) This Agreement and the Pricing Agreement have each been duly authorized, executed and delivered by the Fund and each complies with all applicable provisions of the 1940 Act. 9 (vi) The Registration Statement is effective under the 1933 Act and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. (vii) At the time the Registration Statement became effective and at the Representation Date, the Registration Statement (other than the financial statements included therein, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act and the 1940 Act and the Rules and Regulations. (viii) To the best of their knowledge and information, there are no legal or governmental proceedings pending or threatened against the Fund which are required to be disclosed in the Registration Statement, other than those disclosed therein. (ix) To the best of their knowledge and information, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments of the Fund required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed as exhibits thereto, the descriptions thereof are correct in all material respects, references thereto are correct, and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, loan agreement, note or lease so described, referred to or filed. (x) No consent, approval, authorization or order of any court or governmental authority or agency is required in connection with the sale of the Shares to the Underwriter, except such as has been obtained under the 1933 Act, the 1940 Act or the Rules and Regulations or such as may be required under state or foreign securities laws; and to the best of their knowledge and information, the execution and delivery of this Agreement, the Pricing Agreement, the Advisory Agreement and the Custody Agreement and the consummation of the transactions contemplated herein and therein will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject, nor will such action result in any violation of the provisions of the Charter or By-Laws of the Fund, or any law or administrative regulation, or, to the best of their knowledge and information, administrative or court decree. (xi) The Advisory Agreement and the Custody Agreement have each been duly authorized and approved by the Fund and comply as to 10 form in all material respects with all applicable provisions of the 1940 Act, and both have been duly executed by the Fund. (xii) The Fund is registered with the Commission under the 1940 Act as a closed-end nondiversified management investment company, and all required action has been taken by the Fund under the 1933 Act, the 1940 Act and the Rules and Regulations to make the public offering and consummate the sale of the Shares pursuant to this Agreement; the provisions of the Charter and By-Laws of the Fund comply as to form in all material respects with the requirements of the 1940 Act; and, to the best of their knowledge and information, no order of suspension or revocation of such registration under the 1940 Act, pursuant to Section 8(e) of the 1940 Act, has been issued or proceedings therefor initiated or threatened by the Commission. (xiii) The information in the Prospectus under the caption "Taxes", to the extent that it constitutes matters of law or legal conclusions, has been reviewed by them and is correct in all material respects. (2) The favorable opinion, dated as of Closing Time, of Philip L. Kirstein, Esq., General Counsel to the Adviser, in form and substance satisfactory to counsel for the Underwriter, to the effect that: (i) The Adviser has been duly organized as a corporation under the laws of the State of Delaware with corporate power and authority to conduct its business as described in the Registration Statement and the Prospectus. (ii) The Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act or the 1940 Act, or the rules and regulations under such Acts, from acting under the Advisory Agreement for the Fund as contemplated by the Prospectus. (iii) This Agreement and the Advisory Agreement have been duly authorized, executed and delivered by the Adviser, and the Advisory Agreement constitutes a valid and binding obligation of the Adviser, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or other laws relating to or affecting creditors' rights and to general equity principles; and, to the best of his knowledge and information, neither the execution and delivery of this Agreement or the Advisory Agreement nor the performance by the Adviser of its obligations hereunder or thereunder will conflict with, or result in a breach of, any of the terms and provisions of, or constitute, with or without giving notice or lapse of time or both, a default under, any agreement or instrument to which the Adviser is a party or by which the Adviser is bound, or any law, order, rule or regulation applicable to the Adviser of any jurisdiction, court, federal or state regulatory body, administrative agency or other governmental body, stock exchange or 11 securities association having jurisdiction over the Adviser or its properties or operations. (iv) To the best of his knowledge and information, the description of the Adviser in the Registration Statement and the Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (3) In giving their opinion required by sub-section (b)(1) of this Section, Brown & Wood shall additionally state that nothing has come to their attention that would lead them to believe that the Registration Statement (other than the financial statements included therein, as to which no opinion need be rendered), at the time it became effective or at the Representation Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (other than the financial statement included therein, as to which no opinion need be rendered), at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriter by the Fund for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time they are first provided to the Underwriter for such use) or at Closing Time, included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In giving their opinion, Brown & Wood may rely as to matters involving the laws of the State of Maryland upon the opinion of Venable, Baetjer and Howard. Venable, Baetjer and Howard and Brown & Wood may rely, as to matters of fact, upon certificates and written statements of officers and employees of and accountants for the Fund and the Adviser and of public officials. (c) At Closing Time, (i) the Registration Statement and the Prospectus shall contain all statements which are required to be stated therein in accordance with the 1933 Act, the 1940 Act and the Rules and Regulations and in all material respects shall conform to the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations and neither the Registration Statement nor the Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and no action, suit or proceeding at law or in equity shall be pending or, to the knowledge of the Fund or the Adviser, threatened against the Fund or the Adviser which would be required to be set forth in the Prospectus other than as set forth therein, (ii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change in the condition, financial or otherwise, of the Fund or in its earnings, business affairs or business prospects, whether or not arising in the ordinary course of business, from that set forth in the Registration Statement and Prospectus, (iii) the Adviser shall have the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Registration Statement and the Prospectus and (iv) no proceedings shall be pending or, to the knowledge of the Fund or the Adviser, threatened against the Fund or the Adviser before or by any Federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding 12 would materially and adversely affect the business, property, financial condition or income of either the Fund or the Adviser other than as set forth in the Registration Statement and the Prospectus; and the Underwriter shall have received, at Closing Time, a certificate of the President or Treasurer of the Fund and of the President or a Vice President of the Adviser dated as of Closing Time, evidencing compliance with the appropriate provisions of this subsection (c). (d) At Closing Time, the Underwriter shall have received certificates, dated as of Closing Time, (i) of the President or Treasurer of the Fund to the effect that the representations and warranties of the Fund contained in Section 1(a) are true and correct with the same force and effect as though expressly made at and as of Closing Time and, (ii) of the President or a Vice President of the Adviser to the effect that the representations and warranties of the Adviser contained in Sections 1(a) and (b) are true and correct with the same force and effect as though expressly made at and as of Closing Time. (e) At the time of execution of this Agreement, the Underwriter shall have received from Deloitte & Touche a letter, dated such date in form and substance satisfactory to the Underwriter, to the effect that: (i) they are independent accountants with respect to the Fund within the meaning of the 1933 Act and the Rules and Regulations; (ii) in their opinion, the statement of assets and liabilities examined by them and included in the Registration Statement complies as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1940 Act and the Rules and Regulations; and (iii) they have performed specified procedures, not constituting an audit, including a reading of the latest available interim financial statements of the Fund, a reading of the minute books of the Fund, inquiries of officials of the Fund responsible for financial accounting matters and such other inquiries and procedures as may be specified in such letter, and on the basis of such inquiries and procedures nothing came to their attention that caused them to believe that at the date of the latest available statement of assets and liabilities read by such accountants, or at a subsequent specified date not more than five days prior to the date of this Agreement, there was any change in the capital stock or net assets of the Fund as compared with amounts shown on the statement of net assets included in the Prospectus. (f) At Closing Time, the Underwriter shall have received from Deloitte & Touche a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the "specified date" referred to shall be a date not more than five days prior to Closing Time. (g) At Closing Time, all proceedings taken by the Fund and the Adviser in connection with the organization and registration of the Fund under the 1940 Act and the issuance and sale of the Shares as herein and therein contemplated shall be satisfactory in form and substance to the Underwriter. (h) In the event the underwriter exercises its option provided in Section 2 hereof to purchase all or any portion of the Option Shares, the representations and warranties of the Fund 13 and the Adviser contained herein and the statements in any certificate furnished by the Fund and the Adviser hereunder shall be true and correct as of each Date of Delivery, and the Underwriter shall have received: (1) Certificates, dated the Date of Delivery, of the President or Treasurer of the Fund and of the President or a Vice President of the Adviser confirming that the information contained in the certificate delivered by each of them at Closing Time pursuant to Sections 5(c) and (d), as the case may be, remains true as of such Date of Delivery. (2) The favorable opinion of Brown & Wood, counsel for the Fund and Philip L. Kirstein, Esq., General Counsel to the Adviser, each in form and substance satisfactory to the Underwriter, dated such Date of Delivery, relating to the Option Shares and otherwise to the same effect as the opinions required by Sections 5(b)(1) and (2), respectively. (3) A letter from Deloitte & Touche, in form and substance satisfactory to the Underwriter and dated such Date of Delivery, substantially the same in scope and substance as the letter furnished to the Underwriter pursuant to Section 5(e), except that the "specified date" in the letter furnished pursuant to this Section 5(h)(3) shall be a date not more than five days prior to such Date of Delivery. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Underwriter by notice to the Fund at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4. SECTION 6. Indemnification. (a) The Fund and the Adviser, jointly and severally, agree to indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A of the Rules and Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever as incurred to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or 14 omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the indemnifying party; and (iii) against any and all expense whatsoever (including the fees and disbursements of counsel chosen by the Underwriter) reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement does not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Fund by the Underwriter expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (b) The Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Fund and the Adviser, their respective directors, each of the Fund's officers who signed the Registration Statement, and each person, if any, who controls the Fund or the Adviser within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Fund by the Underwriter expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) In addition to the foregoing indemnification, the Adviser also agrees to indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, with respect to any omitting Prospectus or any advertising materials approved by the Adviser for use in connection with the public offering of the Shares. (d) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. SECTION 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, 15 the Fund, the Adviser and the Underwriter shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement as incurred by the Fund, the Adviser and the Underwriter, as incurred, in such proportion that the Underwriter is responsible for that portion represented by the percentage that the aggregate underwriting compensation payable pursuant to Section 2 hereof bears to the aggregate initial public offering price of the Shares sold under this Agreement and the Fund and the Adviser are responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Underwriter, and each director of the Fund and the Adviser, respectively, each officer of the Fund who signed the Registration Statement, and each person, if any, who controls the Fund or the Adviser within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Fund and the Adviser, respectively. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or the Pricing Agreement, or contained in certificates of officers of the Fund or the Adviser submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter or controlling person, or by or on behalf of the Fund or the Adviser and shall survive delivery of the Shares to the Underwriter. SECTION 9. Termination of Agreement. (a) The Underwriter, by notice to the Fund, may terminate this Agreement at any time at or prior to Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Registration Statement, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Fund or the Adviser, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or elsewhere or any outbreak of hostilities or other calamity or crisis or any escalation of existing hostilities the effect of which is such as to make it, in the Underwriter's judgment, impracticable to market the Shares or enforce contracts for the sale of the Shares, or (iii) if trading in the Common Stock has been suspended by the Commission or if trading generally on either the American Stock Exchange or the New York Stock Exchange has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by Federal or New York authorities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4. 16 SECTION 10. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of written telecommunication. Notices to the Underwriter shall be directed to Merrill Lynch World Headquarters, North Tower, World Financial Center, New York, New York 10281, Attention: Theresa Lang, Director; notices to the Fund or the Adviser shall be directed to each of them at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Attention: Arthur Zeikel, President. SECTION 11. Parties. This Agreement and the Pricing Agreement shall inure to the benefit of and be binding upon the Underwriter, the Fund, the Adviser and their respective successors. Nothing expressed or mentioned in this Agreement or the Pricing Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and the Pricing Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and thereto and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Shares from the Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 12. Governing Law and Time. This Agreement and the Pricing Agreement shall be governed by the laws of the State of New York applicable to agreements made and to be performed in said State. Specified times of day refer to New York City time. 17 If the foregoing is in accordance with your understanding of our Agreement, please sign and return to us a counterpart hereof, whereupon this instrument, along with all counterparts, will become a single binding agreement among the Underwriter, the Fund and the Adviser in accordance with its terms. Very truly yours, MUNIYIELD FUND, INC. By:____________________________________________ (Authorized Officer) FUND ASSET MANAGEMENT, INC. By:____________________________________________ (Authorized Officer) Confirmed and Accepted, as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By:_______________________________ Vice President Investment Banking Group 18 Exhibit A 30,000,000 Shares MuniYield Fund, Inc. (a Maryland corporation) Common Stock (Par Value $.10 Per Share) PRICING AGREEMENT November 21, 1991 MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281 Dear Sirs: Reference is made to the Purchase Agreement, dated November 21, 1991 (the "Purchase Agreement"), relating to the purchase by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, (the "Underwriter"), of the above shares of Common Stock, par value $.10 per share (the "Initial Shares"), of MuniYield Fund, Inc. (the "Fund") and relating to the option granted to the Underwriter to purchase up to an additional 4,500,000 shares of Common Stock, par value $.10 per share, of the Fund to cover over-allotments in connection with the sale of the Initial Shares (the "Option Shares"). The Initial Shares and all or any part of the Option Shares are collectively herein referred to as the "Shares". Pursuant to Section 2 of the Purchase Agreement, the Fund agrees with the Underwriter as follows: 1. The applicable initial public offering price per share for the Shares, determined as provided in said Section 2, shall be as follows: (a) $15.00 for purchases in single transactions of less than 3,500 Shares; (b) $14.85 for purchases in single transactions of 3,500 or more Shares but less than 7,000 Shares; and (c) $14.70 for purchases in single transactions of 7,000 or more Shares. 2. The purchase price per share for the Shares to be paid by the Underwriter shall be $14.175 being an amount equal to the applicable initial public offering price set forth above less (i) $.825 per share for purchases in single transactions of less than 3,500 Shares; (ii) $.675 per share for purchases in single transactions of 3,500 or more Shares A-1 but less than 7,000 Shares and (iii) $.525 per share for purchases in single transactions of 7,000 or more Shares. If the foregoing is in accordance with your understanding of our Agreement, please sign and return to the Fund a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriter and the Fund in accordance with its terms. Very truly yours, MUNIYIELD FUND, INC. By:____________________________________________ (Authorized Officer) Confirmed and Accepted, as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By:_______________________________ Vice President Investment Banking Group A-2 EX-7.B 8 file007.txt FORM OF PURCHASE AGREEMENT Exhibit 7(b) $250,000,000 MUNIYIELD FUND, INC. (a Maryland corporation) AUCTION MARKET PREFERRED STOCK ["AMPS"(R)] 900 Shares Series A 900 Shares Series C 900 Shares Series B 900 Shares Series D 1,400 Shares Series E Liquidation Preference $50,000 Per Share PURCHASE AGREEMENT December 18, 1991 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters World Financial Center North Tower New York, New York 10281-1201 Dear Sirs: MuniYield Fund, Inc., a Maryland corporation (the "Fund"), and Fund Asset Management, Inc., a Delaware corporation (the "Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") with respect to the sale by the Fund and the purchase by the Underwriter of 900 shares of auction market preferred stock, Series A, of the Fund (the "Series A AMPS"), 900 shares of auction market preferred stock, Series B, of the Fund (the "Series B AMPS"), 900 shares of auction market preferred stock, Series C, of the Fund (the "Series C AMPS"), 900 shares of auction market preferred stock, Series D, of the Fund (the "Series D AMPS") and 1,400 shares of auction market preferred stock, Series E, of the Fund (the "Series E AMPS") all with a par value of $.10 per share and a liquidation preference of $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared). The Series A AMPS, Series B AMPS, Series C AMPS, Series D AMPS and Series E AMPS are herein collectively referred to as the "Shares." Prior to the purchase and public offering of the Shares by the Underwriter, the Fund and the Underwriter, shall enter into an agreement substantially in the form of Exhibit A hereto (the - ---------- (R) Registered trademark of Merrill Lynch & Co., Inc. "Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Fund and the Underwriter and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Shares will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Fund has filed with the Securities and Exchange Commission (the "Commission") a notification on Form N-8A of registration of the Fund as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act") and a registration statement on Form N-2 (No. 33-43264) and a related preliminary prospectus for the registration of the Shares under the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act, and the rules and regulations of the Commission under the 1933 Act and the 1940 Act (the "Rules and Regulations") and has filed such amendments to such registration statement on Form N-2, if any, and such amended preliminary prospectuses as may have been required to the date hereof. The Fund will prepare and file such additional amendments thereto and such amended prospectuses as may hereafter be required. Such registration statement (as amended at the time it becomes effective, if applicable) and the prospectus constituting a part thereof (including in each case the information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the Rules and Regulations), as from time to time amended or supplemented pursuant to the 1933 Act, are hereinafter referred to as the "Registration Statement" and the "Prospectus," respectively, except that if any revised prospectus shall be provided to the Underwriter by the Fund for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether such revised prospectus is required to be filed by the Fund pursuant to Rule 497(b) or Rule 497(h) of the Rules and Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriter for such use. The Fund understands that the Underwriter proposes to make a public offering of the Shares as soon as the Underwriter deems advisable after the Registration Statement becomes effective and the Pricing Agreement has been executed and delivered. SECTION 1. Representations and Warranties. (a) The Fund and the Adviser each severally represents and warrants to the Underwriter as of the date hereof and as of the date of the Pricing Agreement (such later date being hereinafter referred to as the "Representation Date") as follows: (i) At the time the Registration Statement becomes effective and at the Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. At the time the Registration Statement becomes effective, at the Representation Date and at Closing Time as defined in Section 2, the Prospectus (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriter by the Fund for use in connection with the offering of the Shares which differs from the Prospectus on file with the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriter for such use) will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the 2 statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Fund in writing by the Underwriter expressly for use in the Registration Statement or Prospectus. (ii) The accountants who certified the statement of assets and liabilities included in the Registration Statement are independent public accountants as required by the 1933 Act and the Rules and Regulations. (iii) The financial statements included in the Registration Statement present fairly the financial position of the Fund as at the date indicated and the results of its operations for the period specified; such financial statements have been prepared in conformity with generally accepted accounting principles; and the information in the Prospectus under the headings "Description of Capital Stock" and "Portfolio Composition" has been fairly presented. (iv) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, of the Fund, or in the earnings, business affairs or business prospects of the Fund, whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Fund which are material to the Fund other than those in the ordinary course of business and (C) except for regular monthly dividends on the outstanding shares of common stock, par value $.10 per share ("Common Shares") of the Fund, there has been no dividend or distribution of any kind declared, paid or made by the Fund or any class of its capital stock. (v) The Fund has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Maryland, with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement; the Fund is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required; and the Fund has no subsidiaries. (vi) The Fund is registered with the Commission under the 1940 Act as a closed-end, non-diversified management investment company, and no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or threatened by the Commission. (vii) The authorized, issued and outstanding capital stock of the Fund is as set forth in the Prospectus under the caption "Description of Capital Stock"; the outstanding Common Shares have been duly authorized and validly issued and are fully paid and non-assessable; the Shares have been duly authorized for issuance and sale to the Underwriter pursuant to this Agreement and, when issued and delivered by the Fund pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and nonassessable; the Common Shares and the Shares conform in all material respects to all statements relating thereto contained 3 in the Registration Statement; and the issuance of the Shares to be purchased by the Underwriter is not subject to preemptive rights. (viii) The Fund is not in violation of its charter, as amended (the "Charter") or by-laws, as amended (the "By-Laws") or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it or its properties may be bound; and the execution and delivery of this Agreement, the Pricing Agreement and the Investment Advisory Agreement, the Custodian Agreement, the Auction Agent Agreement and the Depository Agreement referred to in the Registration Statement (the "Advisory Agreement," "Auction Agreement," "Custodian Agreement" and "Depository Agreement," respectively), and the consummation of the transactions contemplated herein and therein, will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject, nor will such action result in any violation of the provisions of the Charter or By-laws of the Fund or, to the best knowledge of the Fund and the Adviser, any law, administrative regulation or administrative or court decree; and no consent, approval, authorization or order of any court or governmental authority or agency is required for the consummation by the Fund of the transactions contemplated by this Agreement, the Pricing Agreement, the Advisory Agreement, the Custodian Agreement, the Auction Agreement and the Depository Agreement, except such as has been obtained under the 1940 Act or as may be required under the 1933 Act or state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriter. (ix) The Fund owns or possesses or has obtained all material governmental licenses, permits, consents, orders, approvals and other authorizations necessary to lease or own, as the case may be, and to operate its properties and to carry on its businesses as contemplated in the Prospectus and the Fund has not received any notice of proceedings relating to the revocation or modification of any such licenses, permits, covenants, orders, approvals or authorizations. (x) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Fund or the Adviser, threatened against or affecting, the Fund, which might result in any material adverse change in the condition, financial or otherwise, business affairs or business prospects of the Fund, or might materially and adversely affect the properties or assets of the Fund; and there are no material contracts or documents of the Fund which are required to be filed as exhibits to the Registration Statement by the 1933 Act, the 1940 Act or by the Rules and Regulations which have not been so filed. (xi) The Fund owns or possesses, or can acquire on reasonable terms, adequate trademarks, service marks and trade names necessary to conduct the business now operated by it, and the Fund has not received any notice of infringement of or conflict with asserted rights of others with respect to any trademarks, service marks and trade names which, singly or in the aggregate, if the subject of an unfavorable decision, ruling 4 or finding, would materially and adversely affect the conduct of the business, operations, financial condition or income of the Fund. (xii) The Fund intends to, and will, direct the investment of the proceeds of the offering described in the Registration Statement in such a manner as to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended ("Subchapter M of the Code"), and intends to qualify as a regulated investment company under Subchapter M of the Code. (xiii) This Agreement, the Pricing Agreement, the Advisory Agreement and the Custodian Agreement have each been duly authorized, executed and delivered by the Fund and each complies with all applicable provisions of the 1940 Act. (xiv) The Auction Agreement and the Depository Agreement have each been duly authorized for execution and delivery by the Fund and, when executed and delivered by the Fund, will constitute a valid and binding obligation of the Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or other laws relating to or affecting creditors' rights and to general equity principles. (b) The Adviser represents and warrants to the Underwriter as of the date hereof and as of the Representation Date as follows: (i) The Adviser has been duly incorporated under the laws of the State of Delaware with corporate power and authority to conduct its business as described in the Prospectus. (ii) The Adviser is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is not prohibited by the Advisers Act or the 1940 Act or the rules and regulations under such acts from acting under the Advisory Agreement for the Fund as contemplated by the Prospectus. (iii) This Agreement has been duly authorized, executed and delivered by the Adviser; the Advisory Agreement is in full force and effect and constitutes a valid and binding obligation of the Adviser, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or other laws relating to or affecting creditors' rights and to general equity principles; and neither the execution and delivery of this Agreement nor the performance by the Adviser of its obligations hereunder or under the Advisory Agreement will conflict with, or result in a breach of any of the terms and provisions of, or constitute, with or without the giving of notice or lapse of time or both, a default under, any agreement or instrument to which the Adviser is a party or by which it is bound, or any law, order, rule or regulation applicable to it of any jurisdiction, court, federal or state regulatory body, administrative agency or other governmental body, stock exchange or securities association having jurisdiction over the Adviser or its respective properties or operations. (iv) The Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Prospectus. 5 (c) Any certificate signed by any officer of the Fund or the Adviser and delivered to the Underwriter shall be deemed a representation and warranty by the Fund or the Adviser, as the case may be, to the Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to the Underwriter; Closing. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Fund agrees to sell the Shares to the Underwriter and the Underwriter agrees to purchase the Shares from the Fund, at the price per share set forth in the Pricing Agreement. (i) If the Fund has elected not to rely upon rule 430A under the Rules and Regulations, the initial public offering price and the purchase price per share to be paid by the Underwriter for the Shares each has been determined and set forth in the Pricing Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectus will be filed before the Registration Statement becomes effective. (ii) If the Fund has elected to rely upon rule 430A under the Rules and Regulations, the purchase price per share to be paid by the Underwriter for the Shares shall be an amount equal to the initial public offering price, less an amount per share to be determined by agreement between the Underwriter and the Fund. The initial public offering price per share shall be a fixed price to be determined by agreement between the Underwriter and the Fund. The initial public offering price and the purchase price, when so determined, shall be set forth in the Pricing Agreement. In the event that such prices have not been agreed upon and the Pricing Agreement has not been executed and delivered by all parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, except as provided in Section 5, unless otherwise agreed to by the Fund, the Adviser and the Underwriter. (b) Payment of the purchase price for, and delivery of certificates for, the Shares shall be made at the office of Brown & Wood, One World Trade Center, New York, New York 10048-0557 or at such other place as shall be agreed upon by the Underwriter and the Fund, at 10:00 A.M. on the fifth business day following the date the Registration Statement becomes effective (or, if the Fund has elected to rely upon rule 430A under the Rules and Regulations, the fifth business day after execution of the Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Underwriter and the Fund (such time and date of payment and delivery being herein called "Closing Time"). Payment shall be made to the Fund by Federal funds check or checks or similar same-day funds and payable to the order of the Fund, against delivery to the Underwriter of the certificates for the Shares to be purchased by it. The Series A Shares, Series B Shares, Series C Shares, Series D Shares and Series E Shares shall each be represented by a certificate registered in the name of Cede & Co., as nominee for The Depository Trust Company. The certificates for the Shares will be made available for examination by the Underwriter not later than 10:00 A.M. on the last business day prior to Closing Time. 6 SECTION 3. Covenants of the Fund. The Fund covenants with the Underwriter as follows: (a) The Fund will use its best efforts (i) to cause the Registration Statement to become effective under the 1933 Act, and will advise the Underwriter promptly as to the time at which the Registration Statement and any amendments thereto (including any post-effective amendment) becomes so effective and (ii) if required, to cause the issuance of any orders exempting the Fund from any provisions of the 1940 Act and will advise the Underwriter promptly as to the time at which any such orders are granted. (b) The Fund will notify the Underwriter immediately, and confirm the notice in writing, (i) of the effectiveness of the Registration Statement and any amendments thereto (including any post-effective amendment), (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose and (v) of the issuance by the Commission of an order of suspension or revocation of the notification on Form N-8A of registration of the Fund as an investment company under the 1940 Act or initiation of any proceeding for that purpose. The Fund will make every reasonable effort to prevent the issuance of any stop order described in subsection (iv) hereunder or any order of suspension or revocation described in subsection (v) hereunder and, if any stop order or order of suspension or revocation is issued, to obtain the lifting thereof at the earliest possible moment. (c) The Fund will give the Underwriter notice of its intention to file any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Fund proposes for use by the Underwriter in connection with the offering of the Shares which differs from the prospectus on file at the Commission at the time the Registration Statement becomes effective, whether such revised prospectus is required to be filed pursuant to Rule 497 (b) or rule 497 (h) of the Rules and Regulations) whether pursuant to the 1940 Act, the 1933 Act, or otherwise, and will furnish the Underwriter with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement to which the Underwriter or counsel for the Underwriter shall reasonably object. (d) The Fund will deliver to the Underwriter, as soon as practicable, two signed copies of the registration statement as originally filed and of each amendment thereto, in each case with two sets of the exhibits filed therewith, and will also deliver to the Underwriter a conformed copy of the registration statement as originally filed and of each amendment thereto (but without exhibits to the registration statement or to any such amendment) for the Underwriter. (e) The Fund will furnish to the Underwriter, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as the Underwriter may reasonably request for the purposes contemplated by the 1933 Act or the Rules and Regulations. 7 (f) If any event shall occur as a result of which it is necessary, in the opinion of counsel for the Underwriter, to amend or supplement the Prospectus in order to make the Prospectus not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Fund will forthwith amend or supplement the Prospectus by preparing and furnishing to the Underwriter a reasonable number of copies of an amendment or amendments of, or a supplement or supplements to, the Prospectus (in form and substance satisfactory to counsel for the Underwriter), so that, as so amended or supplemented, the Prospectus will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading. (g) The Fund will endeavor, in cooperation with the Underwriter, to qualify the Shares for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Underwriter may designate, and will maintain such qualifications in effect for a period of not less than one year after the date hereof. The Fund will file such statements and reports as may be required by the laws of each jurisdiction in which the Shares have been qualified as above provided. (h) The Fund will make generally available to its security holders as soon as practicable, but not later than 60 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the Rules and Regulations) covering a twelve-month period beginning not later than the first day of the Fund's fiscal quarter next following the "effective" date (as defined is said Rule 158) of the Registration Statement. (i) Between the date of this Agreement and the termination of any trading restrictions or Closing time, whichever is later, the Fund will not, without your prior consent, offer or sell or enter into any agreement to sell any equity or equity related securities of the Fund other than the Shares and Common Shares issued in reinvestment of dividends or distributions. (j) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the Rules and Regulations, then immediately following the execution of the Pricing Agreement, the Fund will prepare and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 497(h) of the Rules and Regulations, copies of an amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus) containing all information so omitted. (k) The Fund will use its best efforts to maintain its qualification as a regulated investment company under Subchapter M of the Code. SECTION 4. Covenants of the Underwriter. The Underwriter covenants and agrees with the Fund as follows: (a) It will sell Shares only to a person who has agreed to execute and deliver or who has already executed and delivered a Master Purchaser's Letter (as defined in the Prospectus) in accordance with the terms of the Prospectus. (b) No later than Closing Time, it will execute and deliver a Master Purchaser's Letter in accordance with the terms of the Prospectus. 8 (c) No later than the second business day succeeding Closing Time, it will provide the Fund and the Auction Agent (as defined in the Prospectus) with a list of the persons to whom it has sold Shares, the number of Shares sold to each such person and the number of Shares it is holding as of the date of such notice. SECTION 5. Payment of Expenses. The Fund will pay all expenses incident to the performance of its obligations under this Agreement, including, but not limited to, expenses relating to (i) the printing and filing of the registration statement as originally filed and of each amendment thereto, (ii) the preparation, issuance and delivery of the certificates for the Shares to the Underwriter, (iii) the fees and disbursements of the Fund's counsel and accountants, (iv) the qualification of the Shares under securities laws in accordance with the provisions of Section 3 (g) of this Agreement, including filing fees and any fees or disbursements of counsel for the Underwriter in connection therewith and in connection with the preparation of the Blue Sky Survey, (v) the printing and delivery to the Underwriter of copies of the registration statement as originally filed and of each amendment thereto, of the preliminary prospectuses, and of the Prospectus and any amendments or supplements thereto, (vi) the printing and delivery to the Underwriter of copies of the Blue Sky Survey and (vii) the fees charged by rating agencies for the rating of the Shares. If this Agreement is terminated by the Underwriter in accordance with the provisions of Section 6 or Section 10(a)(i); the Fund or the Adviser shall reimburse the Underwriter for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriter. In the event the transactions contemplated hereunder are not consummated, the Adviser agrees to pay all of the costs and expenses set forth in the first paragraph of this Section 5 which the Fund would have paid if such transactions had been consummated. SECTION 6. Conditions of Underwriter's Obligations. The obligations of the Underwriter hereunder are subject to the accuracy of the representations and warranties of the Fund and the Adviser herein contained, to the performance by the Fund and the Adviser of their respective obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M., New York City time, on the date hereof or at such later time and date as may be approved by the Underwriter, and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Fund has elected to rely upon Rule 430A of the Rules and Regulations, the price of the Shares and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 497(h) of the Rules and Regulations within the prescribed time period, and prior to Closing Time the Fund shall have provided evidence satisfactory to the Underwriter of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the Rules and Regulations. (b) At Closing Time, the Underwriter shall have received: (i) The favorable opinion, dated as of Closing Time, of Brown & Wood, counsel for the Fund and the Underwriter, to the effect that: 9 (1) The Fund has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Maryland. (2) The Fund has corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus. (3) The Fund is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, business affairs or business prospects of the Fund. (4) The outstanding Common Shares have been duly authorized and validly issued and are fully paid and non-assessable. (5) The Shares have been duly authorized for issuance and sale to the Underwriter pursuant to this Agreement and, when issued and delivered by the Fund pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and non-assessable; the issuance of the Shares is not subject to preemptive or other similar rights; and the authorized capital stock conforms in all material respects to the description thereof in the Registration Statement. (6) This Agreement and the Pricing Agreement each has been duly authorized, executed and delivered by the Fund and each complies with all applicable provisions of the 1940 Act. (7) The Registration Statement is effective under the 1933 Act and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted, are pending or are contemplated. (8) At the time the Registration Statement became effective and at the Representation Date, the Registration Statement (other than the financial statements included therein, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations. (9) To the best of their knowledge and information, there are no legal or governmental proceedings pending or threatened against the Fund which are required to be disclosed in the Registration Statement, other than those disclosed therein. (10) To the best of their knowledge and information, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments of the Fund required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed as exhibits thereto, the descriptions thereof or references thereto are correct, and no default exists in the due performance or observance of any 10 material obligation, agreement, covenant or condition contained in any contract, indenture, loan agreement, note or lease so described, referred to or filed. (11) No consent, approval, authorization or order of any court or governmental authority or agency is required in connection with the sale of the Shares to the Underwriter, except such as has been obtained under the 1933 Act, the 1940 Act or the Rules and Regulations or such as may be required under state securities laws; and to the best of their knowledge and information, the execution and delivery of this Agreement, the Pricing Agreement, the Advisory Agreement, the Custodian Agreement, the Auction Agreement and the Depository Agreement and the consummation of the transactions contemplated herein and therein will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject, nor will such action result in any violation of the provisions of the Charter or By-Laws of the Fund, or any law, administrative regulation or administrative or court decree. (12) The Advisory Agreement and the Custodian Agreement have each been duly authorized, executed and delivered by the Fund and each complies with all applicable provisions of the 1940 Act. (13) The Fund is registered with the Commission under the 1940 Act as a closed-end non-diversified management investment company, and all required action has been taken by the Fund under the 1933 Act, the 1940 Act and the Rules and Regulations to make the public offering and consummate the sale of the Shares pursuant to this Agreement; the provisions of the Charter and By-Laws of the Fund comply as to form in all material respects with the requirements of the 1940 Act; and, to the best of their knowledge and information, no order of suspension or revocation of such registration under the 1940 Act, pursuant to Section 8(e) thereof, has been issued or proceedings therefor initiated or threatened by the Commission. (14) The information in the Prospectus under the caption "Taxes" to the extent that it constitutes matters of law or legal conclusions, has been reviewed by them and is correct in all material respects. (15) The Auction Agreement and the Depository Agreement each have been duly authorized, executed and delivered by the Fund and each constitutes a valid and binding obligation of the Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or other laws relating to or affecting creditors' rights and to general equity principles. (ii) The favorable opinion, dated as of Closing Time, of Philip L. Kirstein, Esq., General Counsel to the Adviser, in form and substance satisfactory to counsel for the Underwriter, to the effect that: 11 (1) The Adviser has been duly organized as a corporation under the laws of the State of Delaware with corporate power and authority to conduct its business as described in the Registration Statement and the Prospectus. (2) The Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act or the 1940 Act or the rules and regulations under such Acts from acting under the Advisory Agreement for the Fund as contemplated by the Prospectus. (3) This Agreement has been duly authorized, executed and delivered by the Adviser; the Advisory Agreement is in full force and effect and constitutes a valid and binding obligation of the Adviser, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or other laws relating to or affecting creditors' rights and to general equity principles; and to the best of his knowledge and information, neither the execution and delivery of this Agreement or the Advisory Agreement nor the performance by the Adviser of its obligations hereunder or thereunder will conflict with, or result in a breach of, any of the terms and provisions of, or constitute, with or without giving notice or lapse of time or both, a default under, any agreement or instrument to which it is a party or by which the Adviser is bound, or any law, order, rule or regulation applicable to the Adviser of any jurisdiction, court, Federal or state regulatory body, administrative agency or the governmental body, stock exchange or securities association have jurisdiction over the Adviser or its respective properties or operations. (4) To the best of his knowledge and information, the description of the Adviser in the Registration Statement and the Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (iii) In giving their opinion required by subsection (b)(i) of this Section, Brown & Wood shall additionally state that nothing has come to their attention that would lead them to believe that the Registration Statement (excluding the financial statements and financial schedules included therein, as to which such counsel need express no belief), at the time it became effective or at the Representation Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (except for the financial statements and financial schedules included therein as to which such counsel need express no belief), at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriter by the Fund for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriter for such use) or at Closing Time, included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In giving their opinion, Brown & Wood may rely, as to all matters governed by the law of the State of Maryland, upon the opinion of Venable, Baetjer and Howard and Brown & Wood may rely, as to matters of fact upon certificates and written 12 statements of officers and employees of and accountants of the Fund and the Adviser and of public officials. (c) At Closing Time (i) the Registration Statement and the Prospectus shall contain all statements which are required to be stated therein in accordance with the 1933 Act, the 1940 Act and the Rules and Regulations and in all material respects shall conform to the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations and the Prospectus shall not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein in the light of the circumstances under which they were made, not misleading and no action, suit or proceeding at law or in equity shall be pending or, to the knowledge of the Fund or the Adviser, threatened against the Fund or the Adviser which would be required to be set forth in the Prospectus other than as set forth therein, (ii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change in the condition, financial or otherwise, of the Fund or in its earnings, business affairs or business prospects, whether or not arising in the ordinary course of business, from that set forth in the Registration Statement and Prospectus, (iii) the Adviser shall have the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Registration Statement and the Prospectus, (iv) no proceedings shall be pending or, to the knowledge of the Fund or the Adviser, threatened against the Fund or the Adviser before or by any Federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding would materially and adversely affect the business, property, financial condition or income of either the Fund or the Adviser other than as set forth in the Registration Statement and the Prospectus and (v) Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's corporation ("S&P") shall have confirmed that the Shares have been rated "aaa" and AAA respectively, by such agencies; and the Underwriter shall have received, at Closing Time, a certificate of the President or Treasurer of the Fund and of the President or a Vice President of the Adviser dated as of Closing Time, evidencing compliance with the appropriate provisions of this subsection (c), together with true and correct copies of letters from Moody's and S&P confirming their rating. (d) At Closing Time, the Underwriter shall have received certificates, dated as of Closing Time, (i) of the President or Treasurer of the Fund to the effect that the representations and warranties of the Fund contained in Section 1(a) are true and correct with the same force and effect as though expressly made at and as of Closing Time and (ii) of the President or a Vice President of the Adviser contained in Sections 1(a) and (b) are true and correct with the same force and effect as though expressly made at and as of Closing Time. (e) At the time of execution of this Agreement, the Underwriters shall have received from Deloitte & Touche a letter, dated the date hereof, in form and substance satisfactory to the Underwriter, to the effect that: (i) they are independent accountants with respects to the Fund within the meaning of the 1933 Act and the Rules and Regulations; (ii) in their opinion, the statement of assets and liabilities examined by them and included in the Registration Statement complies as to form in all material respects with the applicable accounting requirements of the 1933 Act and 1940 Act and the Rules and Regulations; 13 (iii) they have performed specified procedures, not constituting an audit, including a reading of the latest available interim financial statements of the Fund, a reading of the minute books of the Fund, inquiries of officials of the Fund responsible for financial accounting matters and such other inquiries and procedures as may be specified in such letter, and on the basis of such inquiries and procedures nothing came to their attention that caused them to believe that (A) the unaudited financial statements as of December 3, 1991 and for the period from November 29, 1991 to December 3, 1991 included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations applicable to unaudited interim financial statements included in registration statements or are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financed statements included in the Registration Statement and (B) at the date of the latest available financial statements read by such accountants, or at a subsequent specified date not more than five days prior to the date of this Agreement, there was any change in the capital stock or net assets of the Fund as compared with amounts shown on the statement of net assets included in the Prospectus; and (iv) in addition to the procedures referred to in clause (iii) above, they have performed other specified procedures, not constituting an audit, with respect to certain amounts, percentages, numerical data, financial information and financial statements appearing in the Registration Statement, which have previously been specified by you and which shall be specified in such letter, and have compared certain of such items with, and have found such items to be in agreement with, the accounting and financial records of the Fund. (f) At Closing Time, the Underwriter shall have received from Deloitte & Touche a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the "specified date" referred to shall be a date not more than five days prior to Closing Time. (g) At Closing Time, counsel for the Underwriter shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Shares as herein contemplated and to pass upon related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Fund and the Adviser in connection with the organization and registration of the Fund under the 1940 Act and the issuance and sale of the Shares as herein contemplated shall be satisfactory in form and substance to the Underwriter and counsel for the Underwriter. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Underwriter by notice to the Fund at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 5. 14 SECTION 7. Indemnification. (a) The Fund and the Adviser, jointly and severally, agree to indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A of the Rules and Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability claim, damage and expense whatsoever as incurred to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Fund; and (iii) against any and all expense whatsoever (including the fees and disbursements of counsel chosen by the Underwriter) reasonably incurred in investigating, preparing or defending against any litigation or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, to the extent such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement does not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Fund by the Underwriter expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (b) The Underwriter severally agrees to indemnify and hold harmless the Fund and the Adviser, their respective directors, each of the Fund's officers who signed the Registration Statement, and each person, if any, who controls the Fund or the Adviser within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment or supplement thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Fund by the Underwriter expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). 15 (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. SECTION 8. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 7 is for any reason held to be enforceable by the indemnified parties although applicable in accordance with its terms, the Fund and the Underwriter shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement as incurred by the Fund and the Underwriter, as incurred, in such proportions that the Underwriter is responsible for that portion represented by the percentage that the underwriting compensation payable pursuant to Section 2 hereof bears to the initial public offering price appearing on the cover page of the Prospectus and the Fund is responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding provisions of this Section 8, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay in respect of such losses, liabilities, claims, damages and expenses. For purposes of this Section, each person, if any, who controls the Underwriter within the meaning of Section 15, of the 1933 Act shall have the same rights to contribution as the Underwriter, and each director of the Fund, each officer of the Fund who signed the Registration Statement, and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Underwriter, and each director of the Fund, each officer of the Fund who signed the Registration Statement, and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Fund. SECTION 9. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement and the Pricing Agreement, or contained in certificates of officers of the Fund or the Adviser submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter or controlling person, or by or on behalf of the Fund or the Adviser and shall survive delivery of the Shares to the Underwriter. SECTION 10. Termination of Agreement. (a) The Underwriter, by notice to the Fund, may terminate this Agreement at any time or prior to Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Registration Statement, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Fund or the Adviser, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or any outbreak of hostilities or escalation thereof or other calamity or crisis the effect of which is such as to make it, in the Underwriter's 16 judgment, impracticable to market the Shares or enforce contracts for the sale of the Shares, or (iii) if trading in the Common Shares has been suspended by the Commission or if trading generally on either the American Stock Exchange or the New York Stock Exchange has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by Federal or New York authorities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 5. SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of written telecommunication. Notices to the Underwriter shall be directed to Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated at Merrill Lynch World Headquarters, North Tower, World Financial Center, New York, New York 10281-1201, Attention: Theresa Lang, Director; notices to the Fund or the Adviser shall be directed to each of them at 800 Scudders Mill Road, Plainsboro, New Jersey, 08536, Attention: Arthur Zeikel. SECTION 12. Parties. This Agreement and the Pricing Agreement shall inure to the benefit of and be binding upon the Underwriter, the Fund, the Adviser and their respective successors. Nothing expressed or mentioned in this Agreement or the Pricing agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons and officers and directors referred to in Sections 7 and 8 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and the Pricing Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and thereto and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Shares from the Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. Governing Law and Time. This Agreement and the Pricing Agreement shall be governed by the laws of the State of New York applicable to agreements made and to be performed in said State. Specified times of day refer to New York City time. 17 If the foregoing is in accordance with your understanding of our Agreement, please sign and return to us a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriter, the Fund and the Adviser in accordance with its terms. Very truly yours, MUNIYIELD FUND, INC. By:________________________________________ Authorized Officer FUND ASSET MANAGEMENT, INC. By:________________________________________ Authorized Officer CONFIRMED AND ACCEPTED, as of the date first above written: By: Merrill Lynch, Pierce, Fenner & Smith Incorporated By: ______________________________________ Vice President Investment Banking 18 EXHIBIT A $250,000,000 MUNIYIELD FUND, INC. (a Maryland corporation) AUCTION MARKET PREFERRED STOCK [AMPS(R)] 900 Shares Series A 900 Shares Series C 900 Shares Series B 900 Shares Series D 1,400 Shares Series E Liquidation Preference $50,000 Per Share PURCHASE AGREEMENT December 18, 1991 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters World Financial Center North Tower New York, New York 10281-1201 Dear Sirs: Reference is made to the Purchase Agreement, dated December 18, 1991 (the "Purchase Agreement"), relating to the purchase by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") of 900 shares of auction market preferred stock, Series A, of MuniYield Fund, Inc. (the "Fund") (the "Series A AMPS"), 900 shares of auction market preferred stock, Series B, of the Fund (the "Series B AMPS"), 900 shares of auction market preferred stock, Series C, of the Fund (the "Series C AMPS"), 900 shares of auction market preferred stock, Series D, of the Fund (the "Series D AMPS") and 1,400 shares of auction market preferred stock, Series E (the "Series E AMPS") of the Fund, all with a par value of $.10 per share and a liquidation preference of $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared). The Series A AMPS, Series B AMPS, Series C AMPS, Series D AMPS and Series E AMPS are collectively referred to as the "Shares." - ---------- (R) Registered trademark of Merrill Lynch & Co., Inc. Pursuant to Section 2 of the Purchase Agreement, the Fund agrees with the Underwriter as follows: 1. The initial public offering price per share for the Shares, determined as provided in said Section 2, shall be $50,000. 2. The purchase price per share for the Shares to be paid by the Underwriter shall be $49,125, being an amount equal to the initial public offering price set forth above less $875 per share. 3. The dividend rate for the Series A AMPS for the Initial Dividend Period ending January 7, 1992 will be 5.000%, the dividend rate for the Series B AMPS for the Initial Dividend Period ending January 14, 1992 will be 4.900%, the dividend rate for the Series C AMPS for the Initial Dividend Period ending January 21, 1992 will be 4.900%, the dividend rate for the Series D AMPS for the Initial Dividend Period ending January 28, 1992 will be 4.875% and the dividend rate for the Series E AMPS for the Initial Dividend Period ending January 7, 1992 will be 5.000%. A-2 If the foregoing is in accordance with your understanding of our Agreement, please sign and return to us a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriter, the Fund and the Adviser in accordance with its terms. Very truly yours, MUNIYIELD FUND, INC. By:________________________________________ Authorized Officer CONFIRMED AND ACCEPTED, as of the date first above written: By: Merrill Lynch, Pierce, Fenner & Smith Incorporated By: ______________________________________ Vice President Investment Banking A-3 EX-7.C 9 file008.txt FORM OF BROKER-DEALER AGREEMENT Exhibit 7(c) [LOGO] MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED MERRILL LYNCH WORLD HEADQUARTERS NORTH TOWER WORLD FINANCIAL CENTER NEW YORK, N.Y. 10281-1305 STANDARD DEALER AGREEMENT Dear Sirs: In connection with public offerings of securities underwritten by us, or by a group of underwriters (the "Underwriters") represented by us, you may be offered the opportunity to purchase a portion of such securities, as principal, at a discount from the offering price representing a selling concession or reallowance granted as consideration for services rendered by you in the sale of such securities. We request that you agree to the following terms and provisions, and make the following representations, which, together with any additional terms and provisions set forth in any wire or letter sent to you in connection with a particular offering, will govern all such purchases of securities and the reoffering thereof by you. Your subscription to, or purchase of, such securities will constitute your reaffirmation of this Agreement. 1. When we are acting as representative (the "Representative") of the Underwriters in offering securities to you, it should be understood that all offers are made subject to prior sale of the subject securities, when, as and if such securities are delivered to and accepted by the Underwriters and subject to the approval of legal matters by their counsel. In such cases, any order from you for securities will be strictly subject to confirmation and we reserve the right in our uncontrolled discretion to reject any order in whole or in part. Upon release by us, you may reoffer such securities at the offering price fixed by us. With our consent, you may allow a discount, not in excess of the reallowance fixed by us, in selling such securities to other dealers, provided that in doing so you comply with the Conduct Rules of the National Association of Securities Dealers, Inc. (the "NASD"). Upon our request, you will advise us of the identity of any dealer to whom you allow such a discount and any Underwriter or dealer from whom you receive such a discount. After the securities are released for sale to the public, we may vary the offering price and other selling terms. 2. You represent that you are a dealer actually engaged in the investment banking or securities business and that you are either (i) a member in good standing of the NASD or (ii) a dealer with its principal place of business located outside the United States, its territories or possessions and not registered under the Securities Exchange Act of 1934 (a "non-member foreign dealer") or (iii) a bank not eligible for membership in the NASD. If you are a non-member foreign dealer, you agree to make no sales of securities within the United States, its territories or its possessions or to persons who are nationals thereof or residents therein. Non-member foreign dealers and banks agree, in making any sales, to comply with the NASD's interpretation with respect to free-riding and withholding. In accepting a selling concession where we are acting as Representative of the Underwriters, in accepting a reallowance from us whether or not we are acting as such Representative, and in allowing a discount to any other person, you agree to comply with the provisions of Rule 2740 of the Conduct Rules of the NASD, and, in addition, if you are a non-member foreign dealer or bank, you agree to comply, as though you were a member of the NASD, with the provisions of Rules 2730 and 2750 of of such Conduct Rules and to comply with Rule 2420 thereof as that Rule applies to a non-member foreign dealer or bank. You represent that you are fully familiar with the above provisions of the Conduct Rules of the NASD. 3. If the securities have been registered under the Securities Act of 1933 (the "1933 Act"), in offering and selling such securities, you are not authorized to give any information or make any representation not contained in the prospectus relating thereto. You confirm that you are familiar with the rules and policies of the Securities and Exchange Commission relating to the distribution of preliminary and final prospectuses, and you agree that you will comply therewith in any offering covered by this Agreement. If we are acting as Representative of the Underwriters, we will make available to you, to the extent made available to us by the issuer of the securities, such number of copies of the prospectus or offering documents, for securities not registered under the 1933 Act, as you may reasonably request. 4. If we are acting as Representative of the Underwriters of securities of an issuer that is not required to file reports under the Securities Exchange Act of 1934 (the "1934 Act"), you agree that you will not sell any of the securities to any account over which you have discretionary authority. 5. Payment for securities purchased by you is to be made at our office, One Liberty Plaza, 165 Broadway, New York, N.Y. 10006 (or at such other place as we may advise), at the offering price less the concession allowed to you, on such date as we may advise, by certified or official bank check in New York Clearing House funds (or such other funds as we may advise), payable to our order, against delivery of the securities to be purchased by you. We shall have authority to make appropriate arrangements for payment for and/or delivery through the facility of The Depository Trust Company or any such other depository or similar facility for the securities. 6. In the event that, prior to the completion of the distribution of securities covered by this Agreement, we purchase in the open market or otherwise any securities delivered to you, if we are acting as Representative of the Underwriters, you agree to repay to us for the accounts of the Underwriters the amount of the concession allowed to you plus brokerage commissions and any transfer taxes paid in connection with such purchase. 7. At any time prior to the completion of the distribution of securities covered by this Agreement you will, upon our request as Representative of the Underwriters, report to us the amount of securities purchased by you which then remains unsold and will, upon our request, sell to us for the account of one or more of the Underwriters such amount of such unsold 2 securities as we may designate, at the offering price less an amount to be determined by us not in excess of the concession allowed to you. 8. If we are acting as Representative of the Underwriters, upon application to us, we will inform you of the states and other jurisdictions of the United States in which it is believed that the securities being offered are qualified for sale under, or are exempt from the requirements of, their respective securities laws, but we assume no responsibility with respect to your right to sell securities in any jurisdiction. We shall have authority to file with the Department of State of the State of New York a Further State Notice with respect to the securities, if necessary. 9. You agree that in connection with any offering of securities covered by this Agreement you will comply with the applicable provisions of the 1933 Act and the 1934 Act and the applicable rules and regulations of the Securities and Exchange Commission thereunder, the applicable rules and regulations of the NASD, and the applicable rules of any securities exchange having jurisdiction over the offering. 10. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to any offering covered by this Agreement. We shall be under no liability to you except for our lack of good faith and for obligations assumed by us in this Agreement, except that you do not waive any rights that you may have under the 1933 Act or the rules and regulations thereunder. 11. Any notice from us shall be deemed to have been duly given if mailed or transmitted by any standard form of written telecommunications to you at the above address or at such other address as you shall specify to us in writing. 12. With respect to any offering of securities covered by this Agreement, the price restrictions contained in Paragraph 1 hereof and the provisions of Paragraphs 6 and 7 hereof shall terminate as to such offering at the close of business on the 45th day after the securities are released for sale or, as to any or all such provisions, at such earlier time as we may advise. All other provisions of this Agreement shall remain operative and in full force and effect with respect to such offering. 13. This Agreement shall be governed by the laws of the State of New York. 3 Please confirm your agreement hereto by signing the enclosed duplicate copy hereof in the place provided below and returning such signed duplicate copy to us at World Headquarters, North Tower, World Financial Center, New York, N.Y. 10281-1305, Attention: Corporate Syndicate. Upon receipt thereof, this instrument and such signed duplicate copy will evidence the agreement between us. Very truly yours, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By:___________________________________ Name: Confirmed and accepted as of the day of , 19 _________________________________ Name of Dealer _________________________________ Authorized Officer or Partner (if not Officer or Partner, attach copy of Instrument of Authorization) 4 EX-9 10 file009.txt FORM OF CUSTODY AGREEMENT Exhibit 9 CUSTODY AGREEMENT Agreement made as of this 11th day of November, 1991, between MUNIYIELD FUND, INC., a Massachusetts business trust organized and existing under the laws of the Commonwealth of Massachusetts, having its principal office and place of business at 800 Scudders Mill Road, Plainsboro, New Jersey 08536 (hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York corporation authorized to do a banking business, having its principal office and place of business at 48 Wall Street, New York, New York 10286 (hereinafter called the "Custodian"). W I T N E S S E T H : that for and in consideration of the mutual promises hereinafter set forth, the Fund and the Custodian agree as follows: ARTICLE I DEFINITIONS Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: 1. "Authorized Person" shall be deemed to include any person, whether or not such person is an Officer or employ of the Fund, duly authorized by the Board of Trustees of the Fund to give Oral Instructions and Written Instructions on behalf of the Fund and listed in the Certificate annexed hereto as Appendix A or such other Certificate as may be received by the Custodian from time to time. 2. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system for United States and federal agency securities, its successor or successors and its nominee or nominees. 3. "Call Option" shall mean an exchange traded option with respect to Securities other than Stock Index Options, Futures Contracts, and Futures Contract Options entitling the holder, upon timely exercise and payment of the exercise price, as specified therein, to purchase from the writer thereof the specified underlying Securities. 4. "Certificate" shall mean any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to the Custodian which is actually received by the Custodian and signed on behalf of the Fund by any two Officers. 5. "Clearing Member" shall mean a registered broker-dealer which is a clearing member under the rules of O.C.C. and a member of a national securities exchange qualified to act as a custodian for an investment company, or any broker-dealer reasonably believed by the Custodian to be such a clearing member. 6. "Collateral Account" shall mean a segregated account so denominated which is specifically allocated to a Series and pledged to the Custodian as security for, and in consideration of, the Custodian's issuance of (a) any Put Option guarantee letter or similar document described in paragraph 8 of Article V herein, or (b) any receipt described in Article V or VIII herein. 7. "Covered Call Option" shall mean an exchange traded option entitling the holder, upon timely exercise and payment of the exercise price, as specified therein, to purchase from the writer thereof the specified underlying Securities (excluding Futures Contracts) which are owned by the writer thereof and subject to appropriate restrictions. 8. "Depository" shall mean The Depository Trust Company ("DTC"), a clearing agency registered with the Securities and Exchange Commission, its successor or successors and its nominee or nominees. The term "Depository" shall further mean and include any other person authorized to act as a depository under the Investment Company Act of 1940, its successor or successors and its nominee or nominees, specifically identified in a certified copy of a resolution of the Fund's Board of Trustees specifically approving deposits therein by the Custodian. 9. "Financial Futures Contract" shall mean the firm commitment to buy or sell fixed income securities including, without limitation, U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of deposit, and Eurodollar certificates of deposit, during a specified month at an agreed upon price. 10. "Futures Contract" shall mean a Financial Futures Contract and/or Stock Index Futures Contracts. 11. "Futures Contract Option" shall mean an option with respect to a Futures Contract. 12. "Margin Account" shall mean a segregated account in the name of a broker, dealer, futures commission merchant, or a Clearing Member, or in the name of the Fund for the benefit of a broker, dealer, futures commission merchant, or Clearing Member, or otherwise, in accordance with an agreement between the Fund, the Custodian and a broker, dealer, futures commission merchant or a Clearing Member (a "Margin Account Agreement"), separate and distinct from the custody account, in which certain Securities and/or money of the Fund shall be deposited and withdrawn from time to time in connection with such transactions as the Fund may from time to time determine. Securities held in the Book-Entry System or the Depository shall be deemed to have been deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting an appropriate entry in its books and records. 13. "Money Market Security" shall be deemed to include, without limitation, certain Reverse Repurchase Agreements, debt obligations issued or guaranteed as to interest and principal by the government of the United States or agencies or instrumentalities thereof, any tax, bond or revenue anticipation note issued by any state or municipal government or public authority, commercial paper, certificates of deposit and bankers' acceptances, repurchase agreements with respect to the same and bank time deposits, where the purchase and sale of such securities normally requires settlement in federal funds on the same day as such purchase or sale. 14. "O.C.C." shall mean the Options Clearing Corporation, a clearing agency registered under Section 17A of the Securities Exchange Act of 1934, its successor or successors, and its nominee or nominees. 2 15. "Officers" shall be deemed to include the President, any Vice President, the Secretary, the Clerk, the Treasurer, the Controller, any Assistant Secretary, any Assistant Clerk, any Assistant Treasurer, and any other person or persons, whether or not any such other person is an officer of the Fund, duly authorized by the Board of Trustees of the Fund to execute any Certificate, instruction, notice or other instrument on behalf of the Fund and listed in the Certificate annexed hereto as Appendix B or such other Certificate as may be received by the Custodian from time to time. 16. "Option" shall mean a Call Option, Covered Call Option, Stock Index Option and/or a Put Option. 17. "Oral Instructions" shall mean verbal instructions actually received by the Custodian from an Authorized Person or from a person reasonably believed by the Custodian to be an Authorized Person. 18. "Put Option" shall mean an exchange traded option with respect to Securities other than Stock Index Options, Futures Contracts, and Futures Contract options entitling the holder, upon timely exercise and tender of the specified underlying Securities, to sell such Securities to the writer thereof for the exercise price. 19. "Reverse Repurchase Agreement" shall mean an agreement pursuant to which the Fund sells Securities and agrees to repurchase such Securities at a described or specified date and price. 20. "Security" shall be deemed to include, without limitation, Money Market Securities, Call Options, Put Options, Stock Index Options, Stock Index Futures Contracts, Stock Index Futures Contract Options, Financial Futures Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements, common stocks and other securities having characteristics similar to common stocks, preferred stocks, debt obligations issued by state or municipal governments and by public authorities, (including, without limitation, general obligation bonds, revenue bonds, industrial bonds and industrial development bonds), bonds, debentures, notes, mortgages or other obligations, and any certificates, receipts, warrants or other instruments representing rights to receive, purchase, sell or subscribe for the same, or evidencing or representing any other rights or interest therein, or any property or assets. 21. "Senior Security Account" shall mean an account maintained and specifically allocated to a Series under the terms of this Agreement as a segregated account, by recordation or otherwise, within the custody account in which certain Securities and/or other assets of the Fund specifically allocated to such Series shall be deposited and withdrawn from time to time in accordance with Certificates received by the Custodian in connection with such transactions as the Fund may from time to time determine. 22. "Series" shall mean the various portfolios, if any, of the Fund as described from time to time in the current and effective prospectus for the Fund. 23. "Shares" shall mean the shares of beneficial interest of the Fund, each of which is, in the case of a Fund having Series, allocated to a particular Series. 24. "Stock Index Futures Contract" shall mean a bilateral agreement pursuant to which the parties agree to take or make delivery of an amount of cash equal to a specified dollar 3 amount times the difference between the value of a particular stock index at the close of the last business day of the contract and the price at which the futures contract is originally struck. 25. "Stock Index Option" shall mean an exchange traded option entitling the holder, upon timely exercise, to receive an amount of cash determined by reference to the difference between the exercise price and the value of the index on the date of exercise. 26. "Written Instructions" shall mean written communications actually received by the Custodian from an Authorized Person or from a person reasonably believed by the Custodian to be an Authorized Person by telex or any other such system whereby the receiver of such communications is able to verify by codes or otherwise with a reasonable degree of certainty the identity of the sender of such communication. ARTICLE II APPOINTMENT OF CUSTODIAN 1. The Fund hereby constitutes and appoints the Custodian as custodian of the Securities and moneys at any time owned by the Fund during the period of this Agreement. 2. The Custodian hereby accepts appointment as such custodian and agrees to perform the duties thereof as hereinafter set forth. ARTICLE III CUSTODY OF CASH AND SECURITIES 1. Except as otherwise provided in paragraph 7 of this Article and in Article VIII, the Fund will deliver or cause to be delivered to the Custodian all Securities and all moneys owned by it, at any time during the period of this Agreement, and shall specify with respect to such Securities and money the Series to which the same are specifically allocated. The Custodian shall segregate, keep and maintain the assets of the Series separate and apart. The Custodian will not be responsible for any Securities and moneys not actually received by it. The Custodian will be entitled to reverse any credits made on the Funds behalf where such credits have been previously made and moneys are not finally collected. The Fund shall deliver to the Custodian a certified resolution of the Board of Trustees of the Fund, substantially in the form of Exhibit A hereto, approving, authorizing and instructing the Custodian on a continuous and on-going basis to deposit in the Book-Entry System all Securities eligible for deposit therein, regardless of the Series to which the same are specifically allocated and to utilize the Book-Entry System to the extent possible in connection with its performance hereunder, including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities and deliveries and returns of Securities collateral. Prior to a deposit of Securities specifically allocated to a Series in the Depository, the Fund shall deliver to the Custodian a certified resolution of the Board of Trustees of the Fund, substantially in the form of Exhibit B hereto, approving, authorizing and instructing the Custodian on a continuous and ongoing basis until instructed to the contrary by a Certificate actually received by the Custodian to deposit in the Depository all Securities specifically allocated to such Series eligible for deposit therein, and to utilize the Depository to the extent possible with respect to such Securities in connection with its performance hereunder, including, without limitation, in connection with settlements of 4 purchases and sales of Securities, loans of Securities, and deliveries and returns of Securities collateral. Securities and moneys deposited in either the Book-Entry System or the Depository will be represented in accounts which include only assets held by the Custodian for customers, including, but not limited to, accounts in which the Custodian acts in a fiduciary or representative capacity and will be specifically allocated on the Custodian's books to the separate account for the applicable Series. Prior to the Custodian's accepting, utilizing and acting with respect to Clearing Member confirmations for Options and transactions in options for a Series as provided in this Agreement, the Custodian shall have received a certified resolution of the Fund's Board of Trustees, substantially in the form of Exhibit C hereto, approving, authorizing and instructing the Custodian on a continuous and on-going basis, until instructed to the contrary by a Certificate actually received by the Custodian, to accept, utilize and act in accordance with such confirmations as provided in this Agreement with respect to such Series. 2. The Custodian shall establish and maintain separate accounts, in the name of each Series, and shall credit to the separate account for each Series all moneys received by it for the account of the Fund with respect to such Series. Money credited to a separate account for a Series shall be disbursed by the Custodian only: (a) As hereinafter provided; (b) Pursuant to Certificates setting forth the name and address of the person to whom the payment is to be made, the Series account from which payment is to be made and the purpose for which payment is to be made; or (c) In payment of the fees and in reimbursement of the expenses and liabilities of the Custodian attributable to such Series. 3. Promptly after the close of business on each day, the Custodian shall furnish the Fund with confirmations and a summary, on a per Series basis, of all transfers to or from the account of the Fund for a Series, either hereunder or with any co-custodian or sub-custodian appointed in accordance with this Agreement during said day. Where Securities are transferred to the account of the Fund for a Series, the Custodian shall also by book-entry or otherwise identify as belonging to such Series a quantity of Securities in a fungible bulk of Securities registered in the name of the Custodian (or its nominee) or shown on the Custodian's account on the books of the Book-Entry System or the Depository. At least monthly and from time to time, the Custodian shall furnish the Fund with a detailed statement, on a per series basis, of the Securities and moneys held by the Custodian for the Fund. 4. Except as otherwise provided in paragraph 7 of this Article and in Article VIII, all Securities held by the Custodian hereunder, which are issued or issuable only in bearer form, except such Securities as are held in the Book-Entry System, shall be held by the Custodian in that form; all other Securities held hereunder may be registered in the name of the Fund, in the name of any duly appointed registered nominee of the Custodian as the Custodian may from time to time determine, or in the name of the Book-Entry System or the Depository or their successor or successors, or their nominee or nominees. The Fund agrees to furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of its registered nominee or in the name of the Book-Entry System or the Depository any Securities which it may hold hereunder and which may from time to time be registered in the name of the Fund. The Custodian shall hold all such Securities specifically 5 allocated to a Series which are not held in the Book-Entry System or in the Depository in a separate account in the name of such Series physically segregated at all times from those of any other person or persons. 5. Except as otherwise provided in this Agreement and unless otherwise instructed to the contrary by a Certificate, the Custodian by itself, or through the use of the Book-Entry System or the Depository with respect to Securities held hereunder and therein deposited, shall with respect to all Securities held for the Fund hereunder in accordance with preceding paragraph 4: (a) Collect all income due or payable; (b) Present for payment and collect the amount payable upon such Securities which are called, but only if either (i) the Custodian receives a written notice of such call, or (ii) notice of such call appears in one or more of the publications listed in Appendix C annexed hereto, which may be amended at any time by the Custodian without the prior notification or consent of the Fund; (c) Present for payment and collect the amount payable upon all Securities which mature; (d) Surrender Securities in temporary form for definitive Securities; (e) Execute, as custodian, any necessary declarations or certificates of ownership under the Federal Income Tax Laws or the laws or regulations of any other taxing authority now or hereafter in effect; and (f) Hold directly, or through the Book-Entry System or the Depository with respect to Securities therein deposited, for the account of a Series, all rights and similar securities issued with respect to any Securities held by the Custodian for such Series hereunder. 6. Upon receipt of a Certificate and not otherwise, the Custodian, directly or through the use of the Book-Entry System or the Depository, shall: (a) Execute and deliver to such persons as may be designated in such Certificate proxies, consents, authorizations, and any other instruments whereby the authority of the Fund as owner of any Securities held by the Custodian hereunder for the Series specified in such Certificate may be exercised; (b) Deliver any Securities held by the Custodian hereunder for the Series specified in such Certificate in exchange for other Securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege and receive and hold hereunder specifically allocated to such Series any cash or other Securities received in exchange; (c) Deliver any Securities held by the Custodian hereunder for the Series specified in such Certificate to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation, recapitalization or sale of assets of any corporation, and receive and hold hereunder specifically allocated to such 6 Series such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; (d) Make such transfers or exchanges of the assets of the Series specified in such Certificate, and take such other steps as shall be stated in such Certificate to be for the purpose of effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; and (e) Present for payment and collect the amount payable upon Securities not described in preceding paragraph 5(b) of this Article which may be called as specified in the Certificate. 7. Notwithstanding any provision elsewhere contained herein, the Custodian shall not be required to obtain possession of any instrument or certificate representing any Futures Contract, any Option, or any Futures Contract Option until after it shall have determined, or shall have received a Certificate from the Fund stating, that any such instruments or certificates are available. The Fund shall deliver to the Custodian such a Certificate no later than the business day preceding the availability of any such instrument or certificate. Prior to such availability, the Custodian shall comply with Section 17(f) of the Investment Company Act of 1940, as amended, in connection with the purchase, sale, settlement, closing out or writing of Futures Contracts, Options, or Futures Contract Options by making payments or deliveries specified in Certificates received by the Custodian in connection with any such purchase, sale, writing, settlement or closing out upon its receipt from a broker, dealer, or futures commission merchant of a statement or confirmation reasonably believed by the Custodian to be in the form customarily used by brokers, dealers, or future commission merchants with respect to such Futures Contracts, Options, or Futures Contract Options, as the case may be, confirming that such Security is held by such broker, dealer or futures commission merchant, in book-entry form or otherwise, in the name of the Custodian (or any nominee of the Custodian) as custodian for the Fund, provided, however, that notwithstanding the foregoing, payments to or deliveries from the Margin Account and payments with respect to Securities to which a Margin Account relates, shall be made in accordance with the terms and conditions of the Margin Account Agreement. Whenever any such instruments or certificates are available, the Custodian shall, notwithstanding any provision in this Agreement to the contrary, make payment for any Futures Contract, Option, or Futures Contract Option for which such instruments or such certificates are available only against the delivery to the Custodian of such instrument or such certificate, and deliver any Futures Contract, Option or Futures Contract Option for which such instruments or such certificates are available only against receipt by the Custodian of payment therefor. Any such instrument or certificate delivered to the Custodian shall be held by the Custodian hereunder in accordance with, and subject to, the provisions of this Agreement. ARTICLE IV PURCHASE AND SALE OF INVESTMENTS OF THE FUND OTHER THAN OPTIONS, FUTURES CONTRACTS AND FUTURES CONTRACT OPTIONS 1. Promptly after each purchase of Securities by the Fund, other than a purchase of an Option, a Futures Contract, or a Futures Contract Option, the Fund shall deliver to the Custodian (i) with respect to each purchase of Securities which are not Money Market Securities, a Certificate, and (ii) with respect to each purchase of Money Market Securities, 7 a Certificate, Oral Instructions or Written Instructions, specifying with respect to each such purchase: (a) the Series to which such Securities are to be specifically allocated; (b) the name of the issuer and the title of the Securities; (c) the number of shares or the principal amount purchased and accrued interest, if any; (d) the date of purchase and settlement; (e) the purchase price per unit; (f) the total amount payable upon such purchase; (g) the name of the person from whom or the broker through whom the purchase was made, and the name of the clearing broker, if any; and (h) the name of the broker to whom payment is to be made. The Custodian shall, upon receipt of Securities purchased by or for the Fund, pay to the broker specified in the Certificate out of the moneys held for the account of such Series the total amount payable upon such purchase, provided that the same conforms to the total amount payable as set forth in such Certificate, Oral Instructions or Written Instructions. 2. Promptly after each sale of Securities by the Fund, other than a sale of any Option, Futures Contract, Futures Contract Option, or any Reverse Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect to each sale of Securities which are not Money Market Securities, a Certificate, and (ii) with respect to each sale of Money Market Securities, a Certificate, Oral Instructions or Written Instructions, specifying with respect to each such sale: (a) the Series to which such Securities were specifically allocated; (b) the name of the issuer and the title of the Security; (c) the number of shares or principal amount sold, and accrued interest, if any; (d) the date of sale; (e) the sale price per unit; (f) the total amount payable to the Fund upon such sale; (g) the name of the broker through whom or the person to whom the sale was made, and the name of the clearing broker, if any; and (h) the name of the broker to whom the Securities are to be delivered. The Custodian shall deliver the Securities specifically allocated to such Series to the broker specified in the Certificate against payment upon receipt of the total amount payable to the Fund upon such sale, provided that the same conforms to the total amount payable as set forth in such Certificate, Oral Instructions or Written Instructions. ARTICLE V OPTIONS 1. Promptly after the purchase of any Option by the Fund, the Fund shall deliver to the Custodian a Certificate specifying with respect to each Option purchased: (a) the Series to which such Option is specifically allocated; (b) the type of Option (put or call); (c) the name of the issuer and the title and number of shares subject to such Option or, in the case of a Stock Index Option, the stock index to which such Option relates and the number of Stock Index Options purchased; (d) the expiration date; (e) the exercise price; (f) the dates of purchase and settlement; (g) the total amount payable by the Fund in connection with such purchase; (h) the name of the Clearing Member through whom such Option was purchased; and (i) the name of the broker to whom payment is to be made. The Custodian shall pay, upon receipt of a Clearing Member's statement confirming the purchase of such Option held by such Clearing Member for the account of the Custodian (or any duly appointed and registered nominee of the Custodian) as custodian for the Fund, out of moneys held for the account of the Series to which such Option is to be specifically allocated, the total amount payable upon such purchase to the Clearing Member through whom the purchase was made, provided that the same conforms to the total amount payable as set forth in such Certificate. 8 2. Promptly after the sale of any Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate specifying with respect to each such sale: (a) the Series to which such Option was specifically allocated; (b) the type of Option (put or call); (c) the name of the issuer and the title and number of shares subject to such Option or, in the case of a Stock Index Option, the stock index to which such Option relates and the number of Stock Index Options sold; (d) the date of sale; (e) the sale price; (f) the date of settlement; (g) the total amount payable to the Fund upon such sale; and (h) the name of the Clearing Member through whom the sale was made. The Custodian shall consent to the delivery of the option sold by the Clearing Member which previously supplied the confirmation described in preceding paragraph 1 of this Article with respect to such option against payment to the Custodian of the total amount payable to the Fund, provided that the same conforms to the total amount payable as set forth in such Certificate. 3. Promptly after the exercise by the Fund of any Call Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate specifying with respect to such Call Option: (a) the Series to which such Call Option was specifically allocated; (b) the name of the issuer and the title and number of shares subject to the Call Option; (c) the expiration date; (d) the date of exercise and settlement; (e) the exercise price per share; (f) the total amount to be paid by the Fund upon such exercise; and (g) the name of the Clearing Member through whom such Call Option was exercised. The Custodian shall, upon receipt of the Securities underlying the Call Option which was exercised, pay out of the moneys held for the account of the Series to which such Call Option was specifically allocated the total amount payable to the Clearing Member through whom the Call Option was exercised, provided that the same conforms to the total amount payable as set forth in such Certificate. 4. Promptly after the exercise by the Fund of any Put Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate specifying with respect to such Put Option: (a) the Series to which such Put Option was specifically allocated; (b) the name of the issuer and the title and number of shares subject to the Put Option; (c) the expiration date; (d) the date of exercise and settlement; (e) the exercise price per share; (f) the total amount to be paid to the Fund upon such exercise; and (g) the name of the Clearing Member through whom such Put Option was exercised. The Custodian shall, upon receipt of the amount payable upon the exercise of the Put Option, deliver or direct the Depository to deliver the Securities specifically allocated to such Series, provided the same conforms to the amount payable to the Fund as set forth in such Certificate. 5. Promptly after the exercise by the Fund of any Stock Index Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate specifying with respect to such Stock Index Option: (a) the Series to which such Stock Index Option was specifically allocated; (b) the type of Stock Index Option (put or call); (c) the number of Options being exercised; (d) the stock index to which such Option relates; (e) the expiration date; (f) the exercise price; (g) the total amount to be received by the Fund in connection with such exercise; and (h) the Clearing Member from whom such payment is to be received. 6. Whenever the Fund writes a Covered Call Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Covered Call Option: (a) the Series for which such Covered Call Option was written; (b) the name of the issuer and the title and number of shares for which the Covered Call Option was written and which underlie the same; (c) the expiration date; (d) the exercise price; (e) the premium to be received by the Fund; (f) the 9 date such Covered Call Option was written; and (g) the name of the Clearing Member through whom the premium is to be received. The Custodian shall deliver or cause to be delivered, in exchange for receipt of the premium specified in the Certificate with respect to such Covered Call Option, such receipts as are required in accordance with the customs prevailing among Clearing Members dealing in Covered Call options and shall impose, or direct the Depository to impose, upon the underlying Securities specified in the Certificate specifically allocated to such Series such restrictions as may be required by such receipts. Notwithstanding the foregoing, the Custodian has the right, upon prior written notification to the Fund, at any time to refuse to issue any receipts for Securities in the possession of the Custodian and not deposited with the Depository underlying a Covered Call Option. 7. Whenever a Covered Call Option written by the Fund and described in the preceding paragraph of this Article is exercised, the Fund shall promptly deliver to the Custodian a Certificate instructing the Custodian to deliver, or to direct the Depository to deliver, the Securities subject to such Covered Call Option and specifying: (a) the Series for which such Covered Call Option was written; (b) the name of the issuer and the title and number of shares subject to the Covered Call Option; (c) the Clearing Member to whom the underlying Securities are to be delivered; and (d) the total amount payable to the Fund upon such delivery. Upon the return and/or cancellation of any receipts delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver, or direct the Depository to deliver, the underlying Securities as specified in the Certificate against payment of the amount to be received as set forth in such Certificate. 8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Put Option: (a) the Series for which such Put Option was written; (b) the name of the issuer and the title and number of shares for which the Put Option is written and which underlie the same; (c) the expiration date; (d) the exercise price; (e) the premium to be received by the Fund; (f) the date such Put Option is written; (g) the name of the Clearing Member through whom the premium is to be received and to whom a Put Option guarantee letter is to be delivered; (h) the amount of cash, and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in the Senior Security Account for such Series; and (i) the amount of cash and/or the amount and kind of Securities specifically allocated to such Series to be deposited into the Collateral Account for such Series. The Custodian shall, after making the deposits into the Collateral Account specified in the Certificate, issue a Put Option guarantee letter substantially in the form utilized by the Custodian on the date hereof, and deliver the same to the Clearing Member specified in the Certificate against receipt of the premium specified in said Certificate. Notwithstanding the foregoing, the Custodian shall be under no obligation to issue any Put Option guarantee letter or similar document if it is unable to make any of the representations contained therein. 9. Whenever a Put Option written by the Fund and described in the preceding paragraph is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Put Option was written; (b) the name of the issuer and title and number of shares subject to the Put Option; (c) the Clearing Member from whom the underlying Securities are to be received; (d) the total amount payable by the Fund upon such delivery; (e) the amount of cash and/or the amount and kind of Securities specifically allocated to such Series to be withdrawn from the Collateral Account for such Series and (f) the amount of cash and/or the amount and kind of Securities, specifically allocated to such Series, if any, to be withdrawn from the Senior Security Account. Upon the return and/or cancellation of any Put Option guarantee letter or similar document issued by the Custodian in connection with such Put 10 Option, the Custodian shall pay out of the moneys held for the account of the Series to which such Put Option was specifically allocated the total amount payable to the Clearing Member specified in the Certificate as set forth in such Certificate against delivery of such Securities, and shall make the withdrawals specified in such Certificate. 10. Whenever the Fund writes a Stock Index Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Stock Index Option: (a) the Series for which such Stock Index Option was written; (b) whether such Stock Index Option is a put or a call; (c) the number of Options written; (d) the stock index to which such Option relates; (e) the expiration date; (f) the exercise price; (g) the Clearing Member through whom such Option was written; (h) the premium to be received by the Fund; (i) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in the Senior Security Account for such Series; (j) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in the Collateral Account for such Series; and (k) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in a Margin Account, and the name in which such account is to be or has been established. The Custodian shall, upon receipt of the premium specified in the Certificate, make the deposits, if any, into the Senior Security Account specified in the Certificate, and either (1) deliver such receipts, if any, which the Custodian has specifically agreed to issue, which are in accordance with the customs prevailing among Clearing Members in Stock Index Options and make the deposits into the Collateral Account specified in the Certificate, or (2) make the deposits into the Margin Account specified in the Certificate. 11. Whenever a Stock Index Option written by the Fund and described in the preceding paragraph of this Article is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Stock Index Option: (a) the Series for which such Stock Index Option was written; (b) such information as may be necessary to identify the Stock Index Option being exercised; (c) the Clearing Member through whom such Stock Index Option is being exercised; (d) the total amount payable upon such exercise, and whether such amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the amount of cash and/or amount and kind of Securities, if any, to be withdrawn from the Senior Security Account for such Series; and the amount of cash and/or the amount and kind of Securities, if any, to be withdrawn from the Collateral Account for such Series. Upon the return and/or cancellation of the receipt, if any, delivered pursuant to the preceding paragraph of this Article, the Custodian shall pay out of the moneys held for the account of the Series to which such Stock Index Option was specifically allocated to the Clearing Member specified in the Certificate the total amount payable, if any, as specified therein. 12. Whenever the Fund purchases any option identical to a previously written Option described in paragraphs, 6, 8 or 10 of this Article in a transaction expressly designated as a "Closing Purchase Transaction" in order to liquidate its position as a writer of an Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to the Option being purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the Series for which the Option was written; (c) the name of the issuer and the title and number of shares subject to the Option, or, in the case of a Stock Index Option, the stock index to which such Option relates and the number of Options held; (d) the exercise price; (e) the premium to be paid by the Fund; (f) the expiration date; (g) the type of Option (put or call); (h) the date of such purchase; (i) the name of the Clearing Member to whom the premium is to be paid; and (j) the 11 amount of cash and/or the amount and kind of Securities, if any, to be withdrawn from the Collateral Account, a specified Margin Account, or the Senior Security Account for such Series. Upon the Custodian's payment of the premium and the return and/or cancellation of any receipt issued pursuant to paragraphs 6, 8 or 10 of this Article with respect to the Option being liquidated through the Closing Purchase Transaction, the Custodian shall remove, or direct the Depository to remove, the previously imposed restrictions on the Securities underlying the Call Option. 13. Upon the expiration, exercise or consummation of a Closing Purchase Transaction with respect to any Option purchased or written by the Fund and described in this Article, the Custodian shall delete such Option from the statements delivered to the Fund pursuant to paragraph 3 Article III herein, and upon the return and/or cancellation of any receipts issued by the Custodian, shall make such withdrawals from the Collateral Account, and the Margin Account and/or the Senior Security Account as may be specified in a Certificate received in connection with such expiration, exercise, or consummation. ARTICLE VI FUTURES CONTRACTS 1. Whenever the Fund shall enter into a Futures Contract, the Fund shall deliver to the Custodian a Certificate specifying with respect to such Futures Contract, (or with respect to any number of identical Futures Contract(s)): (a) the Series for which the Futures Contract is being entered; (b) the category of Futures Contract (the name of the underlying stock index or financial instrument); (c) the number of identical Futures Contracts entered into; (d) the delivery or settlement date of the Futures Contract(s); (e) the date the Futures Contract(s) was (were) entered into and the maturity date; (f) whether the Fund is buying (going long) or selling (going short) on such Futures Contract(s); (g) the amount of cash and/or the amount and kind of Securities, if any, to be deposited in the Senior Security Account for such Series; (h) the name of the broker, dealer, or futures commission merchant through whom the Futures Contract was entered into; and (i) the amount of fee or commission, if any, to be paid and the name of the broker, dealer, or futures commission merchant to whom such amount is to be paid. The Custodian shall make the deposits, if any, to the Margin Account in accordance with the terms and conditions of the Margin Account Agreement. The Custodian shall make payment out of the moneys specifically allocated to such Series of the fee or commission, if any, specified in the Certificate and deposit in the Senior Security Account for such Series the amount of cash and/or the amount and kind of Securities specified in said Certificate. 2. (a) Any variation margin payment or similar payment required to be made by the Fund to a broker, dealer, or futures commission merchant with respect to an outstanding Futures Contract, shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. (b) Any variation margin payment or similar payment from a broker, dealer, or futures commission merchant to the Fund with respect to an outstanding Futures Contract, shall be received and dealt with by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 12 3. Whenever a Futures Contract held by the Custodian hereunder is retained by the Fund until delivery or settlement is made on such Futures Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a) the Futures Contract and the Series to which the same relates; (b) with respect to a Stock Index Futures Contract, the total cash settlement amount to be paid or received, and with respect to a Financial Futures Contract, the Securities and/or amount of cash to be delivered or received; (c) the broker, dealer, or futures commission merchant to or from whom payment or delivery is to be made or received; and (d) the amount of cash and/or Securities to be withdrawn from the Senior Security Account for such Series. The Custodian shall make the payment or delivery specified in the Certificate, and delete such Futures Contract from the statements delivered to the Fund pursuant to paragraph 3 of Article III herein. 4. Whenever the Fund shall enter into a Futures Contract to offset a Futures Contract held by the Custodian hereunder, the Fund shall deliver to the Custodian a Certificate specifying: (a) the items of information required in a Certificate described in paragraph 1 of this Article, and (b) the Futures Contract being offset. The Custodian shall make payment out of the money specifically allocated to such Series of the fee or commission, if any, specified in the Certificate and delete the Futures Contract being offset from the statements delivered to the Fund pursuant to paragraph 3 of Article III herein, and make such withdrawals from the Senior Security Account for such Series as may be specified in such Certificate. The withdrawals, if any, to be made from the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. ARTICLE VII FUTURES C0NTRACT OPTIONS 1. Promptly after the purchase of any Futures Contract Option by the Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Futures Contract Option: (a) the Series to which such Option is specifically allocated; (b) the type of Futures Contract Option (put or call); (c) the type of Futures Contract and such other information as may be necessary to identify the Futures Contract underlying the Futures Contract option purchased; (d) the expiration date; (e) the exercise price; (f) the dates of purchase and settlement; (g) the amount of premium to be paid by the Fund upon such purchase; (h) the name of the broker or futures commission merchant through whom such option was purchased; and (i) the name of the broker, or futures commission merchant, to whom payment is to be made. The Custodian shall pay out of the moneys specifically allocated to such Series, the total amount to be paid upon such purchase to the broker or futures commissions merchant through whom the purchase was made, provided that the same conforms to the amount set forth in such Certificate. 2. Promptly after the sale of any Futures Contract Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to each such sale: (a) Series to which such Futures Contract Option was specifically allocated; (b) the type of Futures Contract Option (put or call); (c) the type of Futures Contract and such other information as may be necessary to identify the Futures Contract underlying the Futures Contract Option; (d) the date of sale; (e) the sale price; (f) the date of settlement; (g) the total amount payable to the Fund upon such sale; and (h) the name of the broker or futures commission merchant through whom the sale was made. The Custodian shall consent to the cancellation of the Futures Contract Option being closed against payment to the 13 Custodian of the total amount payable to the Fund, provided the same conforms to the total amount payable as set forth in such Certificate. 3. Whenever a Futures Contract option purchased by the Fund pursuant to paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Futures Contract Option was specifically allocated; (b) the particular Futures Contract Option (put or call) being exercised; (c) the type of Futures Contract underlying the Futures Contract Option; (d) the date of exercise; (e) the name of the broker or futures commission merchant through whom the Futures Contract Option is exercised; (f) the net total amount, if any, payable by the Fund; (g) the amount, if any, to be received by the Fund; and (h) the amount of cash and/or the amount and kind of Securities to be deposited in the Senior Security Account for such Series. The Custodian shall make, out of the moneys and Securities specifically allocated to such Series, the payments, if any, and the deposits, if any, into the Senior Security Account as specified in the Certificate. The deposits, if any, to be made to the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 4. Whenever the Fund writes a Futures Contract Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Futures Contract Option: (a) the Series for which such Futures Contract Option was written; (b) the type of Futures Contract Option (put or call); (c) the type of Futures Contract and such other information as may be necessary to identify the Futures Contract underlying the Futures Contract Option; (d) the expiration date; (e) the exercise price; (f) the premium to be received by the Fund; (g) the name of the broker or futures commission merchant through whom the premium is to be received; and (h) the amount of cash and/or the amount and kind of Securities, if any, to be deposited in the Senior Security Account for such Series. The Custodian shall, upon receipt of the premium specified in the Certificate, make out of the moneys and Securities specifically allocated to such Series the deposits into the Senior Security Account, if any, as specified in the Certificate. The deposits, if any, to be made to the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 5. Whenever a Futures Contract Option written by the Fund which is a call is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Futures Contract option was specifically allocated; (b) the particular Futures Contract option exercised; (c) the type of Futures Contract underlying the Futures Contract Option; (d) the name of the broker or futures commission merchant through whom such Futures Contract Option was exercised; (e) the net total amount, if any, payable to the Fund upon such exercise; (f) the net total amount, if any, payable by the Fund upon such exercise; and (g) the amount of cash and/or the amount and kind of Securities to be deposited in the Senior Security Account for such Series. The Custodian shall, upon its receipt of the net total amount payable to the Fund, if any, specified in such Certificate make the payments, if any, and the deposits, if any, into the Senior Security Account as specified in the Certificate. The deposits, if any, to be made to the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 6. Whenever a Futures Contract Option which is written by the Fund and which is a put is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Option was specifically allocated; (b) the particular Futures Contract Option exercised; (c) the type of Futures Contract underlying such Futures Contract Option; 14 (d) the name of the broker or futures commission merchant through whom such Futures Contract option is exercised; (e) the net total amount, if any, payable to the Fund upon such exercise; (f) the net total amount, if any, payable by the Fund upon such exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn from or deposited in, the Senior Security Account for such Series, if any. The Custodian shall, upon its receipt of the net total amount payable to the Fund, if any, specified in the Certificate, make out of the moneys and Securities specifically allocated to such Series, the payments, if any, and the deposits, if any, into the Senior Security Account as specified in the Certificate. The deposits to and/or withdrawals from the Margin Account, if any, shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 7. Whenever the Fund purchases any Futures Contract option identical to a previously written Futures Contract option described in this Article in order to liquidate its position as a writer of such Futures Contract Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to the Futures Contract Option being purchased: (a) the Series to which such option is specifically allocated; (b) that the transaction is a closing transaction; (c) the type of Future Contract and such other information as may be necessary to identify the Futures Contract underlying the Futures Option Contract; (d) the exercise price; (e) the premium to be paid by the Fund; (f) the expiration date; (g) the name of the broker or futures commission merchant to whom the premium is to be paid; and (h) the amount of cash and/or the amount and kind of Securities, if any, to be withdrawn from the Senior Security Account for such Series. The Custodian shall effect the withdrawals from the Senior Security Account specified in the Certificate. The withdrawals, if any, to be made from the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 8. Upon the expiration, exercise, or consummation of a closing transaction with respect to, any Futures Contract Option written or purchased by the Fund and described in this Article, the Custodian shall (a) delete such Futures Contract Option from the statements delivered to the Fund pursuant to paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in the case of an exercise such deposits into the Senior Security Account as may be specified in a Certificate. The deposits to and/or withdrawals from the Margin Account, if any, shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 9. Futures Contracts acquired by the Fund through the exercise of a Futures Contract Option described in this Article shall be subject to Article VI hereof. ARTICLE VIII SHORT SALES 1. Promptly after any short sales by any Series of the Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series for which such short sale was made; (b) the name of the issuer and the title of the Security; (c) the number of shares or principal amount sold, and accrued interest or dividends, if any; (d) the dates of the sale and settlement; (e) the sale price per unit; (f) the total amount credited to the Fund upon such sale, if any, (g) the amount of cash and/or the amount and kind of Securities, if any, which are to be deposited in a Margin Account and the name in which such Margin Account has been or is to be 15 established; (h) the amount of cash and/or the amount and kind of Securities, if any, to be deposited in a senior security Account, and (i) the name of the broker through whom such short sale was made. The Custodian shall upon its receipt of a statement from such broker confirming such sale and that the total amount credited to the Fund upon such sale, if any, as specified in the Certificate is held by such broker for the account of the Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a receipt or make the deposits into the Margin Account and the Senior Security Account specified in the Certificate. 2. In connection with the closing-out of any short sale, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to each such closing out: (a) the Series for which such transaction is being made; (b) the name of the issuer and the title of the Security; (c) the number of shares or the principal amount, and accrued interest or dividends, if any, required to effect such closing-out to be delivered to the broker; (d) the dates of closing-out and settlement; (e) the purchase price per unit; (f) the net total amount payable to the Fund upon such closing-out; (g) the net total amount payable to the broker upon such closing-out; (h) the amount of cash and the amount and kind of Securities to be withdrawn, if any, from the Margin Account; (i) the amount of cash and/or the amount and kind of Securities, if any, to be withdrawn from the Senior Security Account; and (j) the name of the broker through whom the Fund is effecting such closing-out. The Custodian shall, upon receipt of the net total amount payable to the Fund upon such closing-out, and the return and/ or cancellation of the receipts, if any, issued by the Custodian with respect to the short sale being closed-out, pay out of the moneys held for the account of the Fund to the broker the net total amount payable to the broker, and make the withdrawals from the Margin Account and the Senior Security Account, as the same are specified in the Certificate. ARTICLE IX REVERSE REPURCHASE AGREEMENTS 1. Promptly after the Fund enters a Reverse Repurchase Agreement with respect to Securities and money held by the Custodian hereunder, the Fund shall deliver to the Custodian a Certificate, or in the event such Reverse Repurchase Agreement is a Money Market Security, a Certificate, Oral Instructions, or Written Instructions specifying: (a) the Series for which the Reverse Repurchase Agreement is entered; (b) the total amount payable to the Fund in connection with such Reverse Repurchase Agreement and specifically allocated to such Series; (c) the broker or dealer through or with whom the Reverse Repurchase Agreement is entered; (d) the amount and kind of Securities to be delivered by the Fund to such broker or dealer; (e) the date of such Reverse Repurchase Agreement; and (f) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in a Senior Security Account for such Series in connection with such Reverse Repurchase Agreement. The Custodian shall, upon receipt of the total amount payable to the Fund specified in the certificate, Oral Instructions, or Written Instructions make the delivery to the broker or dealer, and the deposits, if any, to the Senior Security Account, specified in such Certificate, Oral Instructions, or Written Instructions. 2. Upon the termination of a Reverse Repurchase Agreement described in preceding paragraph 1 of this Article, the Fund shall promptly deliver a Certificate or, in the event such Reverse Repurchase Agreement is a Money Market Security, a Certificate, Oral Instructions, or Written Instructions to the Custodian specifying: (a) the Reverse Repurchase Agreement being 16 terminated and the Series for which same was entered; (b) the total amount payable by the Fund in connection with such termination; (c) the amount and kind of Securities to be received by the Fund and specifically allocated to such Series in connection with such termination; (d) the date of termination; (e) the name of the broker or dealer with or through whom the Reverse Repurchase Agreement is to be terminated; and (f) the amount of cash and/or the amount and kind of Securities to be withdrawn from the Senior Securities Account for such Series. The Custodian shall, upon receipt of the amount and kind of Securities to be received by the Fund specified in the Certificate, Oral Instructions, or Written Instructions, make the payment to the broker or dealer, and the withdrawals, if any, from the Senior Security Account, specified in such Certificate, Oral Instructions, or Written Instructions. ARTICLE X LOAN OF PORTFOLIO SECURITIES OF THE FUND 1. Promptly after each loan of portfolio Securities specifically allocated to a Series held by the Custodian hereunder, the Fund shall deliver or cause to be delivered to the Custodian a Certificate specifying with respect to each such loan: (a) the Series to which the loaned securities are specifically allocated; (b) the name of the issuer and the title of the Securities, (c) the number of shares or the principal amount loaned; (d) the date of loan and delivery; (e) the total amount to be delivered to the Custodian against the loan of the Securities, including the amount of cash collateral and the premium, if any, separately identified; and (f) the name of the broker, dealer, or financial institution to which the loan was made. The Custodian shall deliver the Securities thus designated to the broker, dealer or financial institution to which the loan was made upon receipt of the total amount designated as to be delivered against the loan of Securities. The Custodian may accept payment in connection with a delivery otherwise than through the Book-Entry System or Depository only in the form of a certified or bank cashier's check payable to the order of the Fund or the Custodian drawn on New York Clearing House funds and may deliver securities in accordance with the customs prevailing among dealers in securities. 2. Promptly after each termination of the loan of Securities by the Fund, the Fund shall deliver or cause to be delivered to the Custodian a Certificate specifying with respect to each such loan termination and return of Securities: (a) the Series to which the loaned Securities are specifically allocated; (b) the name of the issuer and the title of the Securities to be returned; (c) the number of shares or the principal amount to be returned; (d) the date of termination; (e) the total amount to be delivered by the Custodian (including the cash collateral for such Securities minus any offsetting credits as described in said Certificate); and (f) the name of the broker, dealer, or financial institution from which the Securities will be returned. The Custodian shall receive all Securities returned from the broker, dealer, or financial institution to which such Securities were loaned and upon receipt thereof shall pay, out of the moneys held for the account of the Fund, the total amount payable upon such return of Securities as set forth in the Certificate. 17 ARTICLE XI CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY ACCOUNTS, AND COLLATERAL ACCOUNTS 1. The Custodian shall, from time to time, make such deposits to, or withdrawals from, a Senior Security Account as specified in a Certificate received by the Custodian. Such Certificate shall specify the Series for which such deposit or withdrawal is to be made and the amount of cash and/or the amount and kind of Securities specifically allocated to such Series to be deposited in, or withdrawn from, such Senior Security Account for such Series. In the event that the Fund fails to specify in a Certificate the Series, the name of the issuer, the title and the number of shares or the principal amount of any particular Securities to be deposited by the Custodian into, or withdrawn from, a Senior Securities Account, the Custodian shall be under no obligation to make any such deposit or withdrawal and shall so notify the Fund. 2. The Custodian shall make deliveries or payments from a Margin Account to the broker, dealer, futures commission merchant or Clearing Member in whose name, or for whose benefit, the account was established as specified in the Margin Account Agreement. 3. Amounts received by the Custodian as payments or distributions with respect to Securities deposited in any Margin Account shall be dealt with in accordance with the terms and conditions of the Margin Account Agreement. 4. The Custodian shall have a continuing lien and security interest in and to any property at any time held by the Custodian in any Collateral Account described herein. In accordance with applicable law the Custodian may enforce its lien and realize on any such property whenever the Custodian has made payment or delivery pursuant to any Put Option guarantee letter or similar document or any receipt issued hereunder by the Custodian. In the event the Custodian should realize on any such property net proceeds which are less than the Custodian's obligations under any Put Option guarantee letter or similar document or any receipt, such deficiency shall be a debt owed the Custodian by the Fund within the scope of Article XIV herein. 5. On each business day the Custodian shall furnish the Fund with a statement with respect to each Margin Account in which money or Securities are held specifying as of the close of business on the previous business day: (a) the name of the Margin Account; (b) the amount and kind of Securities held therein; and (c) the amount of money held therein. The Custodian shall make available upon request to any broker, dealer, or futures commission merchant specified in the name of a Margin Account a copy of the statement furnished the Fund with respect to such Margin Account. 6. Promptly after the close of business on each business day in which cash and/or Securities are maintained in a Collateral Account for any Series, the Custodian shall furnish the Fund with a statement with respect to such Collateral Account specifying the amount of cash and/or the amount and kind of Securities held therein. No later than the close of business next succeeding the delivery to the Fund of such statement, the Fund shall furnish to the Custodian a Certificate or Written Instructions specifying the then market value of the Securities described in such statement. In the event such then market value is indicated to be less than the Custodian's obligation with respect to any outstanding Put option guarantee letter or similar document, the 18 Fund shall promptly specify in a Certificate the additional cash and/or Securities to be deposited in such Collateral Account to eliminate such deficiency. ARTICLE XII PAYMENT OF DIVIDENDS OR DISTRIBUTIONS 1. The Fund shall furnish to the Custodian a copy of the resolution of the Board of Trustees of the Fund, certified by the Secretary, the Clerk, any Assistant Secretary or any Assistant Clerk, either (i) setting forth with respect to the Series specified therein the date of the declaration of a dividend or distribution, the date of payment thereof, the record date as of which shareholders entitled to payment shall be determined, the amount payable per Share of such Series to the shareholders of record as of that date and the total amount payable to the Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund on the payment date, or (ii) authorizing with respect to the Series specified therein the declaration of dividends and distributions on a daily basis and authorizing the Custodian to rely on Oral Instructions, Written Instructions or a Certificate setting forth the date of the declaration of such dividend or distribution, the date of payment thereof, the record date as of which shareholders entitled to payment shall be determined, the amount payable per Share of such Series to the shareholders of record as of that date and the total amount payable to the Dividend Agent on the payment date. 2. Upon the payment date specified in such resolution, Oral Instructions, Written Instructions or Certificate, as the case may be, the Custodian shall pay out of the moneys held for the account of each Series the total amount payable to the Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with respect to such Series. ARTICLE XIII SALE AND REDEMPTION OF SHARES 1. Whenever the Fund shall sell any Shares, it shall deliver to the Custodian a Certificate duly specifying: (a) The Series, the number of Shares sold, trade date, and price; and (b) The amount of money to be received by the Custodian for the sale of such Shares and specifically allocated to the separate account in the name of such Series. 2. Upon receipt of such money from the Transfer Agent, the Custodian shall credit such money to the separate account in the name of the Series for which such money was received. 3. Upon issuance of any Shares of any Series described in the foregoing provisions of this Article, the Custodian shall pay, out of the money held for the account of such Series, all original issue or other taxes required to be paid by the Fund in connection with such issuance upon the receipt of a Certificate specifying the amount to be paid. 4. Except as provided hereinafter, whenever the Fund desires the Custodian to make payment out of the money held by the Custodian hereunder in connection with a redemption of any Shares, it shall furnish to the Custodian a Certificate specifying: 19 (a) The number and Series of Shares redeemed; and (b) The amount to be paid for such Shares. 5. Upon receipt from the Transfer Agent of an advice setting forth the Series and number of Shares received by the Transfer Agent for redemption and that such Shares are in good form for redemption, the Custodian shall make payment to the Transfer Agent out of the moneys held in the separate account in the name of the Series the total amount specified in the Certificate issued pursuant to the foregoing paragraph 4 of this Article: 6. Notwithstanding the above provisions regarding the redemption of any Shares, whenever any Shares are redeemed pursuant to any check redemption privilege which may from time to time be offered by the Fund, the Custodian, unless otherwise instructed by a Certificate, shall, upon receipt of an advice from the Fund or its agent setting forth that the redemption is in good form for redemption in accordance with the check redemption procedure, honor the check presented as part of such check redemption privilege out of the moneys held in the separate account of the Series of the Shares being redeemed. ARTICLE XIV OVERDRAFTS OR INDEBTEDNESS 1. If the Custodian, should in its sole discretion advance funds on behalf of any Series which results in an overdraft because the moneys held by the Custodian in the separate account for such Series shall be insufficient to pay the total amount payable upon a purchase of securities specifically allocated to such Series, as set forth in a Certificate, Oral Instructions, or Written Instructions or which results in an overdraft in the separate account of such Series for some other reason, or if the Fund is for any other reason indebted to the Custodian with respect to a Series, including any indebtedness to The Bank of New York under the Fund's Cash Management and Related Services Agreement, (except a borrowing for investment or for temporary or emergency purposes using Securities as collateral pursuant to a separate agreement and subject to the provisions of paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to be a loan made by the Custodian to the Fund for such Series payable on demand and shall bear interest from the date incurred at a rate per annum (based on a 360-day year for the actual number of days involved) equal to Federal Fund Rate at 1% over Custodian's prime commercial lending rate in effect from time to time, such rate to be adjusted on the effective date of any change in such prime commercial lending rate but in no event to be less than 6% per annum. In addition, the Fund hereby agrees that the Custodian shall have a continuing lien and security interest in and to any property specifically allocated to such Series at any time held by it for the benefit of such series or in which the Fund may have an interest which is then in the Custodian's possession or control or in possession or control of any third party acting in the Custodian's behalf. The Fund authorizes the Custodian, in its sole discretion, at any time to charge any such overdraft or indebtedness together with interest due thereon against any balance of account standing to such Series' credit on the Custodian's books. In addition, the Fund hereby covenants that on each Business Day on which either it intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from a third party, or which next succeeds a Business Day on which at the close of business the Fund had outstanding a Reverse Repurchase Agreement or such a borrowing, it shall prior to 9 a.m., New York City time, advise the 20 Custodian, in writing, of each such borrowing, shall specify the Series to which the same relates, and shall not incur any indebtedness not so specified other than from the Custodian. 2. The Fund will cause to be delivered to the Custodian by any bank (including, if the borrowing is pursuant to a separate agreement, the Custodian) from which it borrows money for investment or for temporary or emergency purposes using Securities held by the Custodian hereunder as collateral for such borrowings, a notice or undertaking in the form currently employed by any such bank setting forth the amount which such bank will loan to the Fund against delivery of a stated amount of collateral. The Fund shall promptly deliver to the Custodian a Certificate specifying with respect to each such borrowing: (a) the Series to which such borrowing relates; (b) the name of the bank; (c) the amount and terms of the borrowing, which may be set forth by incorporating by reference an attached promissory note, duly endorsed by the Fund, or other loan agreement; (d) the time and date, if known, on which the loan is to be entered into; (e) the date on which the loan becomes due and payable; (f) the total amount payable to the Fund on the borrowing date; (g) the market value of Securities to be delivered as collateral for such loan, including the name of the issuer, the title and the number of shares or the principal amount of any particular Securities; and (h) a statement specifying whether such loan is for investment purposes or for temporary or emergency purposes and that such loan is in conformance with the Investment Company Act of 1940 and the Fund's prospectus. The Custodian shall deliver on the borrowing date specified in a Certificate the specified collateral and the executed promissory note, if any, against delivery by the lending bank of the total amount of the loan payable, provided that the same conforms to the total amount payable as set forth in the Certificate. The Custodian may, at the option of the lending bank, keep such collateral in its possession, but such collateral shall be subject to all rights therein given the lending bank by virtue of any promissory note or loan agreement. The Custodian shall deliver such Securities as additional collateral as may be specified in a Certificate to collateralize further any transaction described in this paragraph. The Fund shall cause all Securities released from collateral status to be returned directly to the Custodian, and the Custodian shall receive from time to time such return of collateral as may be tendered to it. In the event that the Fund fails to specify in a Certificate the Series, the name of the issuer, the title and number of shares or the principal amount of any particular Securities to be delivered as collateral by the Custodian, the Custodian shall not be under any obligation to deliver any Securities. ARTICLE XV CONCERNING THE CUSTODIAN 1. Except as hereinafter provided, neither the Custodian nor its nominee shall be liable for any loss or damage, including counsel fees, resulting from its action or omission to act or otherwise; either hereunder or under any Margin Account Agreement, except for any such loss or damage arising out of its own negligence or willful misconduct. In no event shall the Custodian be liable to the Fund or any third party for special, indirect or consequential damages or lost profits or loss of business, arising under or in connection with this Agreement, even if previously informed of the possibility of such damages and regardless of the form of action. The Custodian may, with respect to questions of law arising hereunder or under any Margin Account Agreement, apply for and obtain the advice and opinion of counsel to the Fund or of its own counsel, at the expense of the Fund, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. The Custodian shall be liable to the Fund for any loss or damage resulting from the use of the Book-Entry System or any 21 Depository arising by reason of any negligence or willful misconduct on the part of the Custodian or any of its employees or agents. 2. Without limiting the generality of the foregoing, the Custodian shall be under no obligation to inquire into, and shall not be liable for: (a) The validity of the issue of any Securities purchased, sold, or written by or for the Fund, the legality of the purchase, sale or writing thereof, or the propriety of the amount paid or received therefor; (b) The legality of the sale or redemption of any Shares, or the propriety of the amount to be received or paid therefor; (c) The legality of the declaration or payment of any dividend by the Fund; (d) The legality of any borrowing by the Fund using Securities as collateral; (e) The legality of any loan of portfolio Securities, nor shall the Custodian be under any duty or obligation to see to it that any cash collateral delivered to it by a broker, dealer, or financial institution or held by it at any time as a result of such loan of portfolio Securities of the Fund is adequate collateral for the Fund against any loss it might sustain as a result of such loan. The Custodian specifically, but not by way of limitation, shall not be under any duty or obligation periodically to check or notify the Fund that the amount of such cash collateral held by it for the Fund is sufficient collateral for the Fund, but such duty or obligation shall be the sole responsibility of the Fund. In addition, the Custodian shall be under no duty or obligation to see that any broker, dealer or financial institution to which portfolio Securities of the Fund are lent pursuant to Article XIV of this Agreement makes payment to it of any dividends or interest which are payable to or for the account of the Fund during the period of such loan or at the termination of such loan, provided, however, that the Custodian shall promptly notify the Fund in the event that such dividends or interest are not paid and received when due; or (f) The sufficiency or value of any amounts of money and/or Securities held in any Margin Account, Senior Security Account or Collateral Account in connection with transactions by the Fund. In addition, the Custodian shall be under no duty or obligation to see that any broker, dealer, futures commission merchant or Clearing Member makes payment to the Fund of any variation margin payment or similar payment which the Fund may be entitled to receive from such broker, dealer, futures commission merchant or Clearing Member, to see that any payment received by the Custodian from any broker, dealer, futures commission merchant or Clearing Member is the amount the Fund is entitled to receive, or to notify the Fund of the Custodian's receipt or non-receipt of any such payment. 3. The Custodian shall not be liable for, or considered to be the Custodian of, any money, whether or not represented by any check, draft, or other instrument for the payment of money, received by it on behalf of the Fund until the Custodian actually receives and collects such money directly or by the final crediting of the account representing the Fund's interest at the Book-Entry System or the Depository. 4. The Custodian shall have no responsibility and shall not be liable for ascertaining or acting upon any calls, conversions, exchange offers, tenders, interest rate changes or similar 22 matters relating to Securities held in the Depository, unless the Custodian shall have actually received timely notice from the Depository. In no event shall the Custodian have any responsibility or liability for the failure of the Depository to collect, or for the late collection or late crediting by the Depository of any amount payable upon Securities deposited in the Depository which may mature or be redeemed, retired, called or otherwise become payable. However, upon receipt of a Certificate from the Fund of an overdue amount on Securities held in the Depository the Custodian shall make a claim against the Depository on behalf of the Fund, except that the Custodian shall not be under any obligation to appear in, prosecute or defend any action suit or proceeding in respect to any Securities held by the Depository which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense and liability be furnished as often as may be required. 5. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount due to the Fund from the Transfer Agent of the Fund nor to take any action to effect payment or distribution by the Transfer Agent of the Fund of any amount paid by the Custodian to the Transfer Agent of the Fund in accordance with this Agreement 6. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount if the Securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until (i) it shall be directed to take such action by a Certificate and (ii) it shall be assured to its satisfaction of reimbursement of its costs and expenses in connection with any such action. 7. The Custodian may appoint one or more banking institutions as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as Co-Custodian or Co-Custodians including, but not limited to, banking institutions located in foreign countries, of Securities and moneys at any time owned by the Fund, upon such terms and conditions as may be approved in a Certificate or contained in an agreement executed by the Custodian, the Fund and the appointed institution. 8. The Custodian shall not be under any duty or obligation (a) to ascertain whether any Securities at any time delivered to, or held by it, for the account of the Fund and specifically allocated to a Series are such as properly may be held by the Fund or such Series under the provisions of its then current prospectus, or (b) to ascertain whether any transactions by the Fund, whether or not involving the custodian, are such transactions as may properly be engaged in by the Fund. 9. The Custodian shall be entitled to receive and the Fund agrees to pay to the Custodian all out-of-pocket expenses and such compensation as may be agreed upon from time to time between the Custodian and the Fund. The Custodian may charge such compensation and any expenses with respect to a Series incurred by the Custodian in the performance of its duties pursuant to such agreement against any money specifically located to such Series. Unless and until the Fund instructs the Custodian by a Certificate to apportion any loss, damage, liability or expense among the Series in a specified manner, the Custodian shall also be entitled to charge against any money held by it for the account of a Series such Series' pro rata share (based on such Series net asset value at the time of the charge to the aggregate net asset value of all Series at that time) of the amount of any loss, damage, liability or expense, including counsel fees, for which it shall be entitled to reimbursement under the provisions of this Agreement. The expenses for which the Custodian shall be entitled to reimbursement hereunder shall include, but 23 are not limited to, the expenses of sub-custodians and foreign branches of the custodian incurred in settling outside of New York City transactions involving the purchase and sale of Securities of the Fund. 10. The Custodian shall be entitled to rely upon any Certificate, notice or other instrument in writing received by the Custodian and reasonably believed by the Custodian to be a Certificate. The Custodian shall be entitled to rely upon any Oral Instructions and any Written Instructions actually received by the Custodian hereinabove provided for. The Fund agrees to forward to the Custodian a Certificate or facsimile thereof confirming such Oral Instructions or Written Instructions in such manner so that such Certificate or facsimile thereof is received by the Custodian, whether by hand delivery, telecopier or other similar device, or otherwise, by the close of business of the same day that such Oral Instructions or Written Instructions are given to the Custodian. The Fund agrees that the fact that such confirming instructions are not received by the Custodian shall in no way affect the validity of the transactions or enforceability of the transactions hereby authorized by the Fund. The Fund agrees that the Custodian shall incur no liability to the Fund in acting upon Oral Instructions or Written Instructions given to the Custodian hereunder concerning such transactions provided such instructions reasonably appear to have been received from an Authorized Person. 11. The Custodian shall be entitled to rely upon any instrument, instruction or notice received by the Custodian and reasonably believed by the Custodian to be given in accordance with the terms and conditions of any Margin Account Agreement. Without limiting the generality of the foregoing, the Custodian shall be under no duty to inquire into, and shall not be liable for, the accuracy of any statements or representations contained in any such instrument or other notice including, without limitation, any specification of any amount to be paid to a broker, dealer, futures commission merchant or Clearing Member. 12. The books and records pertaining to the Fund which are in the possession of the Custodian shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the Investment Company Act of 1940, as amended, and other applicable securities laws and rules and regulations. The Fund, or the Fund's authorized representatives, shall have access to such books and records during the Custodian's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by the Custodian to the Fund or the Fund's authorized representative, and the Fund shall reimburse the Custodian its expenses of providing such copies. Upon reasonable request of the Fund, the Custodian shall provide in hard copy or on micro-film, whichever the Custodian elects, any records included in any such delivery which are maintained by the Custodian on a computer disc, or are similarly maintained, and the Fund shall reimburse the Custodian for its expenses of providing such hard copy or micro-film. 13. The Custodian shall provide the Fund with any report obtained by the Custodian on the system of internal accounting control of the Book-Entry System, the Depository or O.C.C., and with such reports on its own systems of internal accounting control as the Fund may reasonably request from time to time. 14. The Fund agrees to indemnify the Custodian against and save the Custodian harmless from all liability, claims, losses and demands whatsoever, including attorney's fees, howsoever arising or incurred because of or in connection with this Agreement, including the Custodian's payment or non-payment of checks pursuant to paragraph 6 of Article XIII as part of 24 any check redemption privilege program of the Fund, except for any such liability, claim, loss and demand arising out of the Custodian's own negligence or willful misconduct. 15. Subject to the foregoing provisions of this Agreement, the Custodian may deliver and receive Securities, and receipts with respect to such Securities, and arrange for payments to be made and received by the Custodian in accordance with the customs prevailing from time to time among brokers or dealers in such Securities. When the Custodian is instructed to deliver Securities against payment, delivery of such Securities and receipt of payment therefor may not be completed simultaneously. The Fund assumes all responsibility and liability for all credit risks involved in connection with the Custodian's delivery of securities pursuant to instructions of the Fund, which responsibility and liability shall continue until final payment in full has been received by the Custodian. 16. The Custodian shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against the Custodian. ARTICLE XVI TERMINATION 1. Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of giving of such notice. In the event such notice is given by the Fund, it shall be accompanied by a copy of a resolution of the Board of Trustees of the Fund, certified by the Secretary, the Clerk, any Assistant Secretary or any Assistant Clerk, electing to terminate this Agreement and designating a successor custodian or custodians, each of which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. In the event such notice is given by the Custodian, the Fund shall, on or before the termination date, deliver to the Custodian a copy of a resolution of the Board of Trustees of the Fund, certified by the Secretary, the Clerk, any Assistant Secretary or any Assistant Clerk, designating a successor custodian or custodians. In the absence of such designation by the Fund, the Custodian may designate a successor custodian which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon the date set forth in such notice this Agreement shall terminate, and the Custodian shall upon receipt of a notice of acceptance by the successor custodian on that date deliver directly to the successor custodian all Securities and moneys then owned by the Fund and held by it as Custodian, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled. 2. If a successor custodian is not designated by the Fund or the Custodian in accordance with the preceding paragraph, the Fund shall upon the date specified in the notice of termination of this Agreement and upon the delivery by the Custodian of all Securities (other than securities held in the Book-Entry System which cannot be delivered to the Fund) and moneys then owned by the Fund be deemed to be its own custodian and the Custodian shall thereby be relieved of all duties and responsibilities pursuant to this Agreement, other than the duty with respect to Securities held in the Book-Entry System which cannot be delivered to the Fund to hold such Securities hereunder in accordance with this Agreement. 25 ARTICLE XVII MISCELLANEOUS 1. Annexed hereto as Appendix A is a Certificate signed by two of the present officers of the Fund under its seal, setting forth the names and the signatures of the present Authorized Persons. The Fund agrees to furnish to the Custodian a new Certificate in similar form in the event that any such present Authorized Person ceases to be an Authorized Person or in the event that other or additional Authorized Persons are elected or appointed. Until such new Certificate shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon Oral Instructions or signatures of the present Authorized Persons as set forth in the last delivered Certificate. 2. Annexed hereto as Appendix B is a Certificate signed by two of the present Officers of the Fund under its seal, setting forth the names and the signatures of the present Officers of the Fund. The Fund agrees to furnish to the Custodian a new Certificate in similar form in the event any such present Officer ceases to be an Officer of the Fund, or in the event that other or additional officers are elected or appointed. Until such new Certificate shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon the signatures of the officers as set forth in the last delivered Certificate. 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, shall be sufficiently given if addressed to the Custodian and mailed or delivered to it at its offices at 90 Washington Street, New York, New York 10286, or at such other place as the Custodian may from time to time designate in writing. 4. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund shall be sufficiently given if addressed to the Fund and mailed or delivered to it at its office at the address for the Fund first above written, or at such other place as the Fund may from time to time designate in writing. 5. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties with the same formality as this Agreement and approved by a resolution of the Board of Trustees of the Fund. 6. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of the Custodian, or by the Custodian without the written consent of the Fund, authorized or approved by a resolution of the Fund's Board of Trustees. 7. This Agreement shall be construed in accordance with the laws of the State of New York without giving effect to conflict of laws principles thereof. Each party hereby consents to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder and hereby waives its right to trial by jury. 8. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. 26 9. A copy of the Declaration of Trust of the Fund is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Board of Trustees of the Fund as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the Fund; provided, however, that the Declaration of Trust of the Fund provides that the assets of a particular Series of the Fund shall under no circumstances be charged with liabilities attributable to any other Series of the Fund and that all persons extending credit to, or contracting with or having any claim against a particular Series of the Fund shall look only to the assets of that particular Series for payment of such credit, contract or claim. 27 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective Officers, thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written. MUNIYIELD FUND, INC. [SEAL] By:______________________________________ Attests: __________________________________ THE BANK OF NEW YORK [SEAL] By:______________________________________ Attest: __________________________________ 28 APPENDIX A I, , President and I, , of MuniYield Fund, Inc., a Massachusetts business trust (the "Fund"), do hereby certify that: The following individuals have been duly authorized by the Board of Trustees of the Fund in conformity with the Fund's Declaration of Trust and By-Laws to give Oral Instructions and Written Instructions on behalf of the Fund, and the signatures set forth opposite their respective names are their true and correct signatures: Name Signature _______________________________ ___________________________________ APPENDIX B I, , President and I, , of MuniYield Fund, Inc., a Massachusetts business trust (the "Fund"), do hereby certify that: The following individuals serve in the following positions with the Fund and each has been duly elected or appointed by the Board of Trustees of the Fund to each such position and qualified therefor in conformity with the Fund's Declaration of Trust and By-Laws, and the signatures set forth opposite their respective names are their true and correct signatures: Name Position Signature _________________________ ________________________ _________________________ APPENDIX C I, Marjorie McLaughlin, an Assistant Vice President with THE BANK OF NEW YORK do hereby designate the following publications: The Bond Buyer Depository Trust Company Notices Financial Daily Card Service JJ Kenney Municipal Bond Service London Financial Times New York Times Standard & Poor's Called Bond Record Wall Street Journal EXHIBIT A CERTIFICATION The undersigned, , hereby certifies that he or she is the duly elected and acting of MuniYield Fund, Inc., a Massachusetts business trust (the "Fund"), and further certifies that the following resolution was adopted by the Board of Trustees of the Fund at a meeting duly held on ______________, 1991, at which a quorum was at all times present and that such resolution has not been modified or rescinded and is in full force and effect as of the date hereof. RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody Agreement between The Bank of New York and the Fund dated as of ____________, 1991, (the "Custody Agreement") is authorized and instructed on a continuous and ongoing basis to deposit in the Book-Entry System, as defined in the Custody Agreement, all securities eligible for deposit therein, regardless of the Series to which the same are specifically allocated, and to utilize the Book-Entry System to the extent possible in connection with its performance thereunder, including, without limitation, in connection with settlements of purchases and sales of securities, loans of securities, and deliveries and returns of securities collateral. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of MuniYield Fund, Inc., as of the day of , 1991. _______________________________________ [SEAL] EXHIBIT B CERTIFICATION The undersigned, , hereby certifies that he or she is the duly elected and acting of MuniYield Fund, Inc., a Massachusetts business trust (the "Fund"), and further certifies that the following resolution was adopted by the Board of Trustees of the Fund at a meeting duly held on , 1991, at which a quorum was at all times present and that such resolution has not been modified or rescinded and is in full force and effect as of the date hereof. RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody Agreement between The Bank of New York and the Fund dated as of , 1991, (the "Custody Agreement") is authorized and instructed on a continuous and ongoing basis until such time as it receives a Certificate, as defined in the Custody Agreement, to the contrary to deposit in the Depository, as defined in the Custody Agreement, all securities eligible for deposit therein, regardless of the Series to which the same are specifically allocated, and to utilize the Depository to the extent possible in connection with its performance thereunder, including, without limitation, in connection with settlements of purchases and sales of securities, loans of securities, and deliveries and returns of securities collateral. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of MuniYield Fund, Inc., as of the day of , 1991. _______________________________________ [SEAL] EXHIBIT B-1 CERTIFICATION The undersigned, , hereby certifies that he or she is the duly elected and acting of MuniYield Fund, Inc., a Massachusetts business trust (the "Fund"), and further certifies that the following resolution was adopted by the Board of Trustees of the Fund at a meeting duly held on ___________, 1991, at which a quorum was at all times present and that such resolution has not been modified or rescinded and is in full force and effect as of the date hereof. RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody Agreement between The Bank of New York and the Fund dated as of , 1991, (the "Custody Agreement") is authorized and instructed on a continuous and ongoing basis until such time as it receives a Certificate, as defined in the Custody Agreement, to the contrary to deposit in the Participants Trust Company as Depository, as defined in the Custody Agreement, all securities eligible for deposit therein, regardless of the Series to which the same are specifically allocated, and to utilize the Participants Trust Company to the extent possible in connection with its performance thereunder, including, without limitation, in connection with settlements of purchases and sales of securities, loans of securities, and deliveries and returns of securities collateral. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of MuniYield Fund, Inc., as of the day of , 1991. _______________________________________ [SEAL] EXHIBIT C CERTIFICATION The undersigned, , hereby certifies that he or she is the duly elected and acting of MuniYield Fund, Inc., a Massachusetts business trust (the "Fund"), and further certifies that the following resolution was adopted by the Board of Trustees of the Fund at a meeting duly held on ______________, 1991, at which a quorum was at all times present and that such resolution has not been modified or rescinded and is in full force and effect as of the date hereof. RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody Agreement between The Bank of New York and the Fund dated as of ____________, 1991, (the "Custody Agreement") is authorized and instructed on a continuous and ongoing basis until such time as it receives a Certificate, as defined in the Custody Agreement, to the contrary, to accept, utilize and act with respect to Clearing Member confirmations for Options and transaction in Options, regardless of the Series to which the same are specifically allocated, as such terms are defined in the Custody Agreement, as provided in the Custody Agreement. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of MuniYield Fund, Inc., as of the day of , 1991. _______________________________________ [SEAL] DOMESTIC CUSTODIAN FEE SCHEDULE FOR MUNIYIELD FUND, INC. Safekeepinq/Income Collection/Reporting via LASER DTC/ID Affirmations 5/8ths of a basis point per annum on the aggregate net assets of the portfolio's securities. Security Transaction Charges $ 8 - Book-Entry settlement - DTC/FRB $25 - Physicals, options, and futures $ 5 - Futures maintenance margins Other Transaction Charges $ 8.50 Bank official checks and money transfers in/out- not related to securities transactions. Out-of-Pocket Expenses These expenses are in addition to quoted fees and are billed as they are incurred. These expenses traditionally include, but are not limited to, postage and handling on physical transfer items, telephone charges, Fed Wire charges relating to security settlements, etc. MuniYield Fund, Inc. The Bank of New York Approved by:_________________________ Submitted by:__________________________ Date:_________________________ Date:__________________________ EX-11 11 file010.txt OPINION AND CONSENT OF COUNSEL Exhibit 11 Sidley Austin Brown & Wood LLP 875 Third Avenue New York, New York 10022 Telephone: (212) 906-2000 Fax: (212) 906-2021 September 14, 2001 MuniYield Fund, Inc. 800 Scudders Mill Road Plainsboro, New Jersey 08536 Ladies and Gentlemen: We have acted as counsel for MuniYield Fund, Inc. (the "Fund") in connection with the proposed acquisition by the Fund of substantially all of the assets and the assumption by the Fund of substantially all of the liabilities of Merrill Lynch Municipal Strategy Fund, Inc. ("Municipal Strategy"), in return solely for newly issued shares of common stock and shares of a newly created series of auction market preferred stock of the Fund (collectively the "Reorganization"). This opinion is furnished in connection with the Fund's Registration Statement on Form N-14 under the Securities Act of 1933, as amended (File No. 333-65242) (the "Registration Statement"), relating to shares of common stocks and auction market preferred stock of the Fund, each par value $0.10 per share (the "Stocks"), to be issued in the Reorganization. As counsel for the Fund, we are familiar with the proceedings taken by it and to be taken by it in connection with the authorization, issuance and sale of the Stocks. In addition, we have examined and are familiar with the Articles of Incorporation of the Fund, as amended and supplemented, the By-Laws of the Fund, as amended, and such other documents as we have deemed relevant to the matters referred to in this opinion. Based upon the foregoing, we are of the opinion that subsequent to the approval of the Agreement and Plan of Reorganization among the Fund and Municipal Strategy set forth in the proxy statement and prospectus constituting a part of the Registration Statement (the "Proxy Statement and Prospectus"), the Stocks, upon issuance in the manner referred to in the Registration Statement, for consideration not less than the par value thereof, will be legally issued, fully paid and non-assessable shares of common stocks or auction market preferred stock, as the case may be, of the Fund. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the Proxy Statement and Prospectus constituting a part thereof. Very truly yours, /s/Sidley Austin Brown & Wood LLP EX-13.A 12 file011.txt FORM OF SERVICE AGREEMENT Exhibit 13(a) AGREEMENT, made as of November 11, 1991, between MuniYield Fund, Inc. a corporation organized and existing under the laws of the state of Massachusetts (hereinafter referred to as the "Customer"), and The Bank of New York, a New York trust company (hereinafter referred to as the "Bank"). W I T N E S S E T H: That for and in consideration of the mutual promises hereinafter set forth, the parties hereto covenant and agree as follows: ARTICLE I DEFINITIONS Whenever used in this Agreement, the following words and phrases shall have the following meanings: 1. "Business Day" shall be deemed to be each day on which the Bank is open for business. 2. "Certificate" shall mean any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to the Bank by the Customer which is signed by any Officer, as hereinafter defined, and actually received by the Bank. 3. "Officer" shall be deemed to be the Customer's Chief Executive' Officer, President, any Vice President, the Secretary, the Treasurer, the Controller, any Assistant Treasurer and any Assistant Secretary duly authorized by the Board of Directors of the Customer to execute any Certificate, instruction, notice or other instrument on behalf of the Customer and named in a Certificate, as such Certificate may be amended from time to time. 4. "Prospectus" shall mean the last Customer prospectus actually received by the Bank from the Customer with respect to which the Customer has indicated a registration statement under the Securities Act of 1933, as amended, has become effective, including the statement of Additional Information incorporated by reference therein. 5. "Shares" shall mean all or any part of each class of the shares of capital stock of the Customer which from time to time are authorized and/or issued by the Customer and identified in a Certificate of the Secretary of the Customer under corporate seal, as such Certificate may be amended from time to time. ARTICLE II APPOINTMENT OF BANK 1. The Customer hereby constitutes and appoints the Bank as its agent to perform the services described herein and as more particularly described in Schedule I attached hereto (the "Services"), and the Bank hereby accepts appointment as such agent and agrees to perform the Services in accordance with the terms hereinafter set forth. 2. In connection with such appointment, the Customer shall deliver the following documents to the Bank on or about the closing date of the initial public offering: (a) A certified copy of the Certificate of Incorporation or other document evidencing the Customer's form of organization (the "Charter") and all amendments thereto; (b) A certified copy of the By-Laws of the Customer; (c) A certified copy of a resolution of the Board of Directors of the Customer appointing the Bank to perform the Services and authorizing the execution and delivery of this Agreement; (d) A Certificate signed by the Secretary of the Customer specifying: the number of authorized Shares, the number of such authorized Shares issued and currently outstanding, and the names and specimen signatures of all persons duly authorized by the Board of Directors of the Customer to execute any Certificate on behalf of the Customer, which Certificate may be amended from time to time; (e) A Specimen Share certificate for each class of Shares in the form approved by the Board of Directors of the Customer, together with a Certificate signed by the Secretary of the Customer as to such approval; (f) A copy of the Customer's Registration Statement, filed by the Customer with the Securities and Exchange Commission under the Securities Act of 1933, as amended; and (g) An opinion of counsel for the Customer with respect to the validity of the authorized and outstanding Shares, whether such Shares are fully paid and non-assessable and the status of such Shares under the Securities Act of 1933, as amended, and any other applicable law or regulation (i.e., if subject to registration, that they have been registered and that the Registration Statement has become effective or, if exempt, the specific grounds therefor). 3. The Customer shall furnish the Bank with a sufficient supply of blank Share certificates and from time to time will renew such supply upon request of the Bank. Such blank Share certificates shall be properly signed, by facsimile or otherwise, by officers of the Customer authorized by law or by the By-Laws to sign Share certificates, and, if required, shall bear the corporate seal or a facsimile thereof. ARTICLE III AUTHORIZATION AND ISSUANCE OF SHARES 1. The Customer shall deliver to the Bank a certified copy of the amendment to the Charter giving effect to such increase, decrease or change, on or before the effective date of any increase, decrease or other change in the total number of Shares authorized to be issued. (a) A certified copy of the amendment to the Charter giving effect to such increase, decrease or change; (b) An opinion of counsel for the Customer with respect to the validity of the Shares and the status of such Shares under the Securities Act of 1933, as amended; and any other applicable federal law or regulations (i.e.,if subject to registration, that they have been registered and that the Registration Statement has become effective or, if exempt, the specific grounds therefor); and 2 (c) In the case of an increase, if the appointment of the Bank was theretofore expressly limited, a certified copy of a resolution of the Board of Directors of the Customer increasing the authority of the Bank. 2. Prior to the issuance of any additional Shares pursuant to stock dividends, stock splits or otherwise, and prior to any reduction in the number of Shares outstanding, the Customer shall deliver the following documents to the Bank: (a) A certified copy of the resolutions adopted by the Board of Directors and/or the shareholders of the Customer authorizing such issuance of additional Shares of the Customer or such reduction, as the case may be; (b) A certified copy of the order or consent, if applicable, of each governmental or regulatory authority required by law as a prerequisite to the issuance or reduction of such Shares; and (c) An opinion of counsel for the Customer with respect to the validity of the Shares and the status of such the Shares under the Securities Act of 1933, as amended, and any other applicable law or regulation (i.e., if subject to registration, that they have been registered and that the Registration Statement has become effective, or, if exempt, the specific grounds therefor). ARTICLE IV RECAPITALIZATION OR CAPITAL ADJUSTMENT 1. In the case of any negative stock split, recapitalization or other capital adjustment requiring a change in the form of Share certificates, the Bank will issue Share certificates in the new form in exchange for, or upon transfer of, outstanding Share certificates in the old form, upon receiving: (a) A Certificate authorizing the issuance of Share certificates in the new form; (b) A certified copy of any amendment to the Charter with respect to the change; (c) Specimen Share certificates for each class of Shares in the new form approved by the Board of Directors of the Customer, with a Certificate signed by the Secretary of the Customer as to such approval; (d) A certified copy of the order or consent of each governmental or regulatory authority required by law as a prerequisite to the issuance of the Shares in the new form, and an opinion of counsel for the Customer that the order or consent of no other governmental or regulatory authority is required; and (e) An opinion of counsel for the Customer with respect to the validity of the Shares in the new form and the status of such Shares under the Securities Act of 1933, as amended, and any other applicable law or regulation (i.e., if subject to registration that the Shares have been registered and that the Registration Statement has become effective or, if exempt, the specific grounds therefor). 2. The Customer shall furnish the Bank with a sufficient supply of blank Share certificates in the new form, and from time to time will replenish such supply upon the request of the Bank. 3 Such blank Share certificates shall be properly signed, by facsimile or otherwise, by Officers of the Customer authorized by law or by the By-Laws to sign Share Certificates and, if required, shall bear the corporate seal or a facsimile thereof. ARTICLE V ISSUANCE AND TRANSFER OF SHARES 1. (a) The Bank will issue Share certificates upon receipt of a Certificate from an Officer, but shall not be required to issue Share certificates after it has received from an appropriate federal or state authority written notification that the sale of Shares has been suspended or discontinued, and the Bank shall be entitled to rely upon such written notification. The Bank shall not be responsible for the payment of any original issue or other taxes required to be paid by the Customer in connection with the issuance of any shares. (b) Shares will be transferred upon presentation to the Bank of Share certificates in form deemed by the Bank properly endorsed for transfer, accompanied by such documents as the Bank deems necessary to evidence the authority of the person making such transfer, and bearing satisfactory evidence of the payment of applicable stock transfer taxes. In the case of small estates where no administration is contemplated, the Bank may, when furnished with an appropriate surety bond, and without further approval of the Customer, transfer Shares registered in the name of the decedent where the current market value of the Shares being transferred does not exceed such amount as may from time to time be prescribed by the various states. The Bank reserves the right to refuse to transfer Shares until it is satisfied that the endorsements on Share certificates are valid and genuine, and for that purpose it may require, unless otherwise instructed by an Officer of the Customer, a guaranty of signature by a member firm of the New York Stock Exchange or by a bank or trust company acceptable to the Bank. The Bank also reserves the right to refuse to transfer Shares until it is satisfied that the requested transfer is legally authorized, and it shall incur no liability for the refusal in good faith to make transfers which the Bank, in its judgment, deems improper or unauthorized, or until it is satisfied that there is no basis to any claims adverse to such transfer. The Bank may, in effecting transfers of Shares, rely upon those provisions of the Uniform Act for the Simplification of Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be amended from time to time, applicable to the transfer of securities, and the Customer shall indemnify the Bank for any act done or omitted by it in good faith in reliance upon such laws. (c) All certificates representing Shares that are subject to restrictions on transfer (e.g., securities acquired pursuant to an investment representation, securities held by controlling persons, securities subject to stockholders' agreements, etc.), other than the general restrictions on the transferability of the Shares described in the Prospectus, shall be stamped with a legend describing the extent and conditions of the restrictions or referring to the source of such restrictions. The Bank assumes no responsibility with respect to the transfer of restricted securities where counsel for the Customer advises that such transfer may be properly effected. (d) Notwithstanding the foregoing or any other provision contained in this Agreement to the contrary, the Bank shall be fully protected by the Customer in not requiring any instruments, documents, assurances, endorsements or guarantees, including, without limitation, any signature guarantees, in connection with a transfer of Shares whenever the Bank reasonably believes that requiring the same would be inconsistent with the transfer procedures as described in the Prospectus. 4 ARTICLE VI DIVIDENDS AND DISTRIBUTIONS 1. The Customer shall furnish to the Bank a copy of a resolution of its Board of Directors, certified by the Secretary or any Assistant Secretary, either (i) setting forth the date of the declaration of a dividend or distribution, the date of accrual or payment, as the case may be, the record date as of which shareholders entitled to payment, or accrual, as the case may be, shall be determined, the amount per Share of such dividend or distribution, the payment date on which all previously accrued and unpaid dividends are to be paid, and the total amount, if any, payable to the Bank on such payment date, or (ii) authorizing the declaration of dividends and distributions on a periodic basis and authorizing the Bank to rely on a Certificate setting forth the information described in subsection (i) of this paragraph. 2. Prior to the payment date specified in such Certificate or resolution, as the case may be, the Customer shall, in the case of a cash dividend or distribution, pay to the Bank an amount of cash, sufficient for the Bank to make the payment, specified in such Certificate or resolution, to the shareholders of record as of such payment date. The Bank will, upon receipt of any such cash, (i) in the case of shareholders who are participants in a dividend reinvestment and/or cash purchase plan of the Customer, reinvest such cash dividends or distributions in accordance with the terms of such plan, and (ii) in the case of shareholders who are not participants in any such plan, make payment of such cash dividends or distributions to the shareholders of record as of the record date by mailing a check, payable to the registered shareholder, to the address of record or dividend mailing address. The Bank shall not be liable for any improper payment made in accordance with a Certificate or resolution described in the preceding paragraph. If the Bank shall not receive sufficient cash prior to the payment date to make payments of any cash dividend or distribution pursuant to subsections (i) and (ii) above to all shareholders of the Customer as of the record date, the Bank shall, upon notifying the Customer, withhold payment to all shareholders of the Customer as of the record date until sufficient cash is provided to the Bank. 3. It is understood that the Bank shall in no way be responsible for the determination of the rate or form of dividends or distributions due to the shareholders. 4. It is understood that the Bank shall file such appropriate information returns concerning the payment of dividends and distributions with the proper federal, state and local authorities as are required by law to be filed by the Customer but shall in no way be responsible for the collection or withholding of taxes due on such dividends or distributions due to shareholders, except and only to the extent required of it by applicable law. ARTICLE VII CONCERNING THE CUSTOMER 1. The Customer shall promptly deliver to the Bank written notice of any change in the Officers authorized to sign Share certificates, Certificates, notifications or requests, together with a specimen signature of each new Officer. In the event any Officer who shall have signed manually or whose facsimile signature shall have been affixed to blank Share certificates shall die, resign or be removed prior to issuance of such Share certificates, the Bank may issue such Share certificates as the Share certificates of the Customer notwithstanding such death, resignation or removal, and the Customer shall promptly deliver to the Bank such approvals, adoptions or ratifications as may be required by law. 5 2. Each copy of the Charter of the Customer and copies of all amendments thereto shall be certified by the Secretary of State (or other appropriate official) of the state of incorporation, and if such Charter and/or amendments are required by law also to be filed with a county or other officer or official body, a certificate of such filing shall be filed with a certified copy submitted to the Bank. Each copy of the By-Laws and copies of all amendments thereto, and copies of resolutions of the Board of Directors of the Customer, shall be certified by the Secretary or an Assistant Secretary of the Customer under the corporate seal. 3. It shall be the sole responsibility of the Customer to deliver to the Bank the Customer's currently effective Prospectus and, for purposes of this Agreement, the Bank shall not be deemed to have notice of any information contained in such Prospectus until it is actually received by the Bank. ARTICLE VIII CONCERNING THE BANK 1. The Bank shall not be liable and shall be fully protected in acting upon any oral instruction, writing or document reasonably believed by it to be genuine and to have been given, signed or made by the proper person or persons and shall not be held to have any notice of any change of authority of any person until receipt of written notice thereof from an Officer of the Customer. It shall also be protected in processing Share certificates which it reasonably believes to bear the proper manual or facsimile signatures of the duly authorized officers of the Customer and the proper countersignature of the Bank. 2. The Bank may establish such additional procedures, rules and regulations governing the transfer or registration of Share certificates as it may deem advisable and consistent with such rules and regulations generally adopted by bank transfer agents. 3. The Bank may keep such records as it deems advisable but not inconsistent with resolutions adopted by the Board of Directors of the Customer. The Bank may deliver to the Customer from time to time at its discretion, for safekeeping or disposition by the Customer in accordance with law, such records, papers, Share certificates which have been cancelled in transfer or exchange and other documents accumulated in the execution of its duties hereunder as the Bank may deem expedient, other than those which the Bank is itself required to maintain pursuant to applicable laws and regulations, and the Customer shall assume all responsibility for any failure thereafter to produce any record, paper, cancelled Share certificate or other document so returned, if and when required. The records maintained by the Bank pursuant to this paragraph which have not been previously delivered to the Customer pursuant to the foregoing provisions of this paragraph shall be considered to be the property of the Customer, shall be made available upon request for inspection by the Officers, employees and auditors of the Customer, and shall be delivered to the Customer upon request and in any event upon the date of termination of this Agreement, as specified in Article IX of this Agreement, in the form and manner kept by the Bank on such date of termination or such earlier date as may be requested by the Customer. 4. The Bank may employ agents or attorneys-in-fact at the reasonable expense of the Customer, and shall not be liable for any loss or expense arising out of or in connection with, the actions or omissions to act of its agents or attorneys-in-fact, so long as the Bank acts in good 6 faith and without negligence or willful misconduct in connection with the selection of such agents or attorneys-in-fact. 5. The Bank shall not be liable for any loss or damage, -including reasonable attorney's fees, resulting from its actions or omissions to act or otherwise, except for any loss or damage arising out of its own negligence or willful misconduct. 6. The Customer shall indemnify and hold harmless the Bank from and against any and all claims (whether with or without basis in fact or law), costs, demands, expenses and liabilities, including reasonable attorney's fees, which the Bank may sustain or incur or which may be asserted against the Bank by reason of or as a result of any action taken or omitted to be taken by the Bank without its own negligence or willful misconduct in reliance upon (i) any provision of this agreement, (ii) the Prospectus, (iii) any instrument, order or Share certificate reasonably believed by it to be genuine and to be signed, countersigned or executed by any duly authorized Officer of the Customer, (iv) any Certificate or other instructions of an Officer, (v) any opinion of legal counsel for the Customer or the Bank, or (vi) any law, act, regulation or any interpretation of the same even though such law, act or regulation may thereafter have been altered, changed, amended or repealed. 7. Specifically, but not by way of limitation, the Customer shall indemnify and hold harmless the Bank from and against any and all claims (whether with or without basis in fact or law), costs, demands, expenses and liabilities, including reasonable attorney's fees, of any and every nature which the Bank may sustain or incur or which may be asserted against the Bank in connection with the genuineness of a Share certificate, the Bank's capacity and authorization to issue Shares and the form and amount of authorized Shares. 8. At any time the Bank may apply to an Officer of the Customer for written instructions with respect to any matter arising in connection with the Bank's duties and obligations under this Agreement, and the Bank shall not be liable for any action taken or omitted to be taken by the Bank in good faith in accordance with such instructions. Such application by the Bank for instructions from an Officer of the Customer may, at the option of the Bank, set forth in writing any action proposed to be taken or omitted to be taken by the Bank with respect to its duties or obligations under this Agreement and the date on and/or after which such action shall be taken, and the Bank shall not be liable for any action taken or omitted to be taken in accordance with a proposal included in any such application on or after the date specified therein unless, prior to taking or omitting to take any such action, the Bank has received written instructions in response to such application specifying the action to be taken or omitted. The Bank may consult counsel to the Customer or its own counsel, at the expense of the Customer, and shall be fully protected with respect to anything done or omitted by it in good faith in accordance with the advice or opinion of such counsel. 9. When mail is used for delivery of non-negotiable Share certificates, the value of which does not exceed the limits of the Bank's Blanket Bond, the Bank shall send such non-negotiable Share certificates by first class mail, and such deliveries will be covered while in transit by the Bank's Blanket Bond. Non-negotiable Share certificates, the value of which exceed the limits of the Bank's Blanket Bond, will be sent by insured registered mail. Negotiable Share certificates will be sent by insured registered mail. The Bank shall advise the Customer of any Share certificates returned as undeliverable after being mailed as herein provided for. 7 10. The Bank may issue new Share certificates in place of Share certificates represented to have been lost, stolen or destroyed upon receiving instructions in writing from an Officer and indemnity satisfactory to the Bank. Such instructions from the Customer shall be in such form as approved by the Board of Directors of the Customer in accordance with applicable law or the By-Laws of the Customer governing such matters. If the Bank receives written notification from the owner of the lost, stolen or destroyed Share certificate within a reasonable time after he has notice of it, the Bank shall promptly notify the Customer and shall act pursuant to written instructions signed by an Officer. If the Customer receives such written notification from the owner of the lost, stolen or destroyed Share certificate within a reasonable time after he has notice of it, the Customer shall promptly notify the Bank and the Bank shall act pursuant to written instructions signed by an Officer. The Bank shall not be liable for any act done or omitted by it pursuant to the written instructions described herein. The Bank may issue new Share certificates in exchange for, and upon surrender of, mutilated Share certificates. 11. The Bank will issue and mail subscription warrants for Shares, Shares representing stock dividends, exchanges or splits, or act as conversion agent upon receiving written instructions from an Officer and such other documents as the Bank may deem necessary. 12. The Bank will supply shareholder lists to the Customer from time to time upon receiving a request therefor from an Officer of the Customer. 13. In case of any requests or demands for the inspection of the shareholder records of the Customer, the Bank will notify the Customer and endeavor to secure instructions from an officer as to such inspection. The Bank reserves the right, however, to exhibit the shareholder records to any person whenever it is advised by its counsel that there is a reasonable likelihood that the Bank will be held liable for the failure to exhibit the shareholder records to such person. 14. At the request of an Officer, the Bank will address and mail such appropriate notices to shareholders as the Customer may direct. 15. Notwithstanding any provisions of this Agreement to the contrary, the Bank shall be under no duty or obligation to inquire into, and shall not be liable for: (a) The legality of the issue, sale or transfer of any Shares, the sufficiency of the amount to be received in connection therewith, or the authority of the Customer to request such issuance, sale or transfer; (b) The legality of the purchase of any Shares, the sufficiency of the amount to be paid in connection therewith, or the authority of the Customer to request such purchase; (c) The legality of the declaration of any dividend by the Customer, or the legality of the issue of any Shares in payment of any stock dividend; or (d) The legality of any recapitalization or readjustment of the Shares. 16. The Bank shall be entitled to receive and the Customer hereby agrees to pay to the Bank for its performance hereunder (i) out-of-pocket expenses (including reasonable attorney's fees and expenses) incurred in connection with this Agreement and its performance hereunder, and (ii) the compensation for services as set forth in Schedule L 8 17. The Bank shall not be responsible for any money, whether or not represented by any check, draft or other instrument for the payment of money, received by it on behalf of the Customer, until the Bank actually receives and collects such funds. 18. The Bank shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against the Bank in connection with this Agreement. ARTICLE IX TERMINATION Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. In the event such notice is given by the Customer, it shall be accompanied by a copy of a resolution of the Board of Directors of the Customer, certified by the Secretary electing to terminate this Agreement and designating a successor transfer agent or transfer agents. In the event such notice is given by the Bank, the Customer shall, on or before the termination date, deliver to the Bank a copy of a resolution of its Board of Directors certified by the Secretary designating a successor transfer agent or transfer agents. In the absence of such designation by the Customer, the Bank may designate a successor transfer agent. If the Customer fails to designate a successor transfer agent and if the Bank is unable to find a successor transfer agent, the Customer shall, upon the date specified in the notice of termination of this Agreement and delivery of the records maintained hereunder, be deemed to be its own transfer agent and the Bank shall thereafter be relieved of all duties and responsibilities hereunder. Upon termination hereof, the Customer shall pay to the Bank such compensation as may be due to the Bank as of the date of such termination, and shall reimburse the Bank for any disbursements and expenses made or incurred by the Bank and payable or reimbursable hereunder. ARTICLE X MISCELLANEOUS 1. The Customer agrees that prior to effecting any change in the Prospectus which would increase or alter the duties and obligations of the Bank hereunder, it shall advise the Bank of such proposed change at least ten business days prior to the intended date of the same, and shall proceed with such change only if it shall have received the written consent of the Bank thereto. 2. The indemnities contained herein shall be continuing obligations of the Customer, its successors and assigns, notwithstanding the termination of this Agreement. 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Customer shall be sufficiently given if addressed to the Customer and mailed or delivered to it at 800 Scudders Mill Road, Plainsboro, NJ 08536 or at such place as the Customer may from time to time designate in writing. 4. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Bank shall be sufficiently given if addressed to the Bank and mailed or delivered to it at its office at 101 Barclay Street (22W), New York, New York 10286 or at such other place as the Bank may from time to time designate in writing. 9 5. This Agreement may not be amended or modified in any manner except by a written agreement duly authorized and executed by both parties. Any duly authorized Officer may amend any Certificate naming Officers authorized to execute and deliver Certificates, instructions, notices or other instruments, and the Secretary or any Assistant Secretary may amend any Certificate listing the shares of capital stock of the Customer for which the Bank performs Services hereunder. 10 6. This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided however, that this Agreement shall not be assignable by either party without the prior written consent of the other party. 7. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 8. This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original; but such counterparts, together, shall constitute only one instrument. 9. The provisions of this Agreement are intended to benefit only the Bank and the Customer, and no rights shall be granted to any other person, by virtue of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective corporate officer, thereunto duly authorized and their respective corporate seals to be hereunto affixed, as of the day and year first above written. Attest: _____________________________ BY:_____________________________ Title:__________________________ Attest: THE BANK OF NEW YORK _____________________________ BY:_____________________________ Title:__________________________ MUNIYIELD FUND, INC. STOCK TRANSFER FEE SCHEDULE November 22, 1991 Account Maintenance Fee, (per account)....................$2.64 Certificate Issuance (per certificate)....................$1.20 Check Issuance Fee, (per check)...........................$0.25 Fees will be billed monthly and include all services, as illustrated below. Fees will remain in effect for a period of 2 years from the date of our appointment. Account Maintenance: We will: o Maintain all shareholders name and address records and process all changes. o Issue and register all certificates. o Record all certificate transactions. o Answer shareholders inquiries, including written correspondence. o Provide hard-copy or microfiche reports of daily transfer activity. o Address, insert and mail up to three quarterly reports and one annual report. (The material must be adaptable to automatic equipment.) o Address, insert and mail proxy cards and standard proxy material for annual meeting. (The material must be adaptable to automatic equipment.) o Tabulate proxies and provide terminal access to our database for your annual meeting. o Provide a secondary proxy mailing to shareholders who have not voted. o Provide a shareholder list and a final voted and unvoted list as of the annual meeting date. o Mail W-9 certifications. o Solicit taxpayer identification numbers on new accounts. o Issue, enclose and reconcile each dividend check. o File IRS Forms 1099 and 1096 covering dividends paid, plus Forms 1042S and 1042 NRA Tax (for foreign holders). o Initiate mailings to shareholders with uncashed dividend checks over one year old. o Cease delivery of checks to undeliverable accounts. o Provide escheatment reporting. o Provide arrangements for handling restricted stock. o Process all stock options. o Place, remove and maintain all stop transfers. o Process all legal transfers. o Replace all lost, stolen or destroyed checks and certificates. o Provide three analytical reports as follows: 1 Geographical Analysis 1 Class Code Analysis 1 Share Range Analysis o Install and provide access via company terminal to The Bank of New York database. Training will be completed on site at your offices by personnel from by The Bank of New York. Dividend Reinvestment Plan Account Maintenance Fee...........................$3.00 This account maintenance fee will be billed monthly at a rate of $0.25 per dividend reinvestment account record. We will: o Reinvest each dividend o Process terminations o Process optional cash payments and send acknowledgements o Provide an efficient way of purchasing and selling shares through our Discount Brokerage services. This service is affiliated with our Trust Sector and will be provided at a discounted rate. TERMS OF PROPOSAL o The Bank of New York does not levy a conversion charge or setup fee for assumption of records in an automated tape format in connection with our appointment as Transfer Agent and Registrar. Any charges made by your existing agent in connection with our assumption of your shareholder records in an automated tape format would be passed through to your account. o Out-of-pocket expenses are defined as costs paid by The Bank of New York for the purchase of goods or services required to fulfill our obligations under our agreement. These expenses may include, but not be limited to, postage, insurance on physical transfer items, and costs for obtaining prices for security valuations. These expenses are billed at our cost, on a pro-rata basis for goods and services received. o There will not be a usage charge applied for utilizing the Bank's Stock Transfer Inquiry System. Connect time will be billed at cost, based on a dedicated line or dial-up expense. o For issuing purchase warrants, stock dividends and splits, the handling of tenders and exchanges of stock, subscriptions, preparing state information returns, and any other services not covered by this fee schedule, charges will be based on an analysis and appraisal of the services rendered. o All fees are based upon the use of automatic equipment. Any services requiring manual processing and/or overtime, will result in a special or higher charge. o The Bank of New York's minimum charge is $10,000. If at the end of each year (12 months from appointment date) the total fees are less than the minimum, the difference will be billed to your account. The fees are charged on a monthly basis. o In the event that we do not enter into a written agreement within three months of the date of this proposal, this offer will be subject to revision. MuniYield Fund, Inc. By:_________________________________ The Bank of New York By:_________________________________ EX-13.B 13 file012.txt FORM OF AUCTION AGENT AGREEMENT Exhibit 13(b) ================================================================================ AUCTION AGENT AGREEMENT between MUNIYIELD FUND, INC. and IBJ SCHRODER BANK & TRUST COMPANY Dated as of December 23, 1991 Relating to Auction Market Preferred Stock(R) ("AMPS"(R)) Series A, Series B, Series C, Series D and Series E of MUNIYIELD FUND, INC. ================================================================================ (R) Registered trademark of Merrill Lynch & Co., Inc. THIS AUCTION AGENT AGREEMENT dated as of December 23, 1991, between MUNIYIELD FUND, INC., a Maryland corporation (the "Company"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation. The Company proposes to duly authorize and issue 900 shares of Auction Market Preferred Stock(R), Series A ("Series A AMPS"), 900 shares of Auction Market Preferred Stock, Series B ("Series B AMPS"), 900 shares of Auction Market Preferred Stock, Series C ("Series C AMPS"), 900 shares of Auction Market Preferred Stock, Series D ("Series D AMPS") and 1,400 shares of Auction Market Preferred Stock, Series E ("Series E AMPS"), all with a par value of $.10 per share and a liquidation preference of $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) pursuant to the Company's Articles Supplementary (as defined below). The Series A AMPS, Series B AMPS, Series C AMPS, Series D AMPS and Series E AMPS are sometimes referred to together herein as "AMPS". A separate Auction (as defined below) will be conducted for each series of AMPS. The Company desires that IBJ Schroder Bank & Trust Company perform certain duties as agent in connection with each Auction of shares of AMPS (the "Auction Agent") and as the transfer agent, registrar, dividend disbursing agent and redemption agent with respect to the shares of AMPS (the "Paying Agent") upon the terms and conditions of this Agreement, and hereby appoints IBJ Schroder Bank & Trust Company as said Auction Agent and Paying Agent in accordance with those terms and conditions (hereinafter generally referred to as the "Auction Agent" except in Sections 3 and 4 below). NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Company and the Auction Agent agree as follows: - -------------------- (R) Registered trademark of Merrill Lynch & Co., Inc. 1 1. Definitions and Rules of Construction. 1.1 Terms Defined by Reference to Articles Supplementary Capitalized terms not defined herein shall have the respective meanings specified in the Articles Supplementary. 1.2 Terms Defined Herein. As used herein and in the Settlement Procedures (as defined below), the following terms shall have the following meanings, unless the context otherwise requires: (a) "Affiliate" shall mean any Person, other than Merrill Lynch, Pierce, Fenner & Smith Incorporated, made known to the Auction Agent to be controlled by, in control of or under common control with, the Company, or its successors. (b) "Agent Member" of any Person shall mean such Person's agent member of the Securities Depository who is identified as such in such Person's Purchaser's Letter. (c) "Articles Supplementary" shall mean the Articles Supplementary of the Company, establishing the powers, preferences and rights of the AMPS, filed on December 20, 1991, in the Office of the State Department of Assessments and Taxation of the State of Maryland. (d) "Auction" shall have the meaning specified in Section 2.1 hereof. (e) "Auction Procedures" shall mean the Auction Procedures that are set forth in Paragraph 11 of the Articles Supplementary. (f) "Authorized Officer" shall mean each Senior Vice President, Vice President, Assistant Vice President, Trust Officer and Assistant Secretary and Assistant Treasurer of the Auction Agent assigned to its Corporate Trust and Agency Group and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes hereof in a communication to the Company. (g) "Broker-Dealer Agreement" shall mean each agreement between the Auction Agent and a Broker-Dealer substantially in the form attached hereto as Exhibit A. 2 (h) "Company Officer" shall mean the Chairman and Chief Executive Officer, the President, each Vice President (whether or not designated by a number or word or words added before or after the title "Vice President"), the Secretary, the Treasurer, each Assistant Secretary and each Assistant Treasurer of the Company and every other officer or employee of the Company designated as a "Company Officer" for purposes hereof in a notice from the Company to the Auction Agent. (i) "Holder" shall be a holder of record of one or more shares of AMPS, listed as such in the stock register maintained by the Paying Agent pursuant to Section 4.6. (j) "Purchaser's Letter" shall mean a letter addressed to the Company, the Auction Agent and a Broker-Dealer, substantially in the form attached to the Broker-Dealer Agreement as Exhibit A. (k) "Settlement Procedures" shall mean the Settlement Procedures attached to the Broker-Dealer Agreement as Exhibit B. 1.3 Rules of Construction. Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Agreement: (a) Words importing the singular number shall include the plural number and vice versa. (b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect. (c) The words "hereof," "herein," "hereto," and other words of similar import refer to this Agreement as a whole. (d) All references herein to a particular time of day shall be to New York City time. 3 2. The Auction. 2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures. (a) The Articles Supplementary provide that the Applicable Rate on shares of Series A AMPS, Series B AMPS, Series C AMPS, Series D AMPS or Series E AMPS, as the case may be, for each Dividend Period therefor after the Initial Dividend Period shall be the rate per annum that a commercial bank, trust company, or other financial institution appointed by the Company advises results from implementation of the Auction Procedures. The Board of Directors of the Company has adopted a resolution appointing IBJ Schroder Bank & Trust Company as Auction Agent for purposes of the Auction Procedures. The Auction Agent hereby accepts such appointment and agrees that, on each Auction Date, it shall follow the procedures set forth in this Section 2 and the Auction Procedures for the purpose of determining the Applicable Rate for the AMPS, for the next Dividend Period therefor. Each periodic operation of such procedures is hereinafter referred to as an "Auction." (b) All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part hereof to the same extent as if such provisions were fully set forth herein. 2.2 Preparation for Each Auction; Maintenance of Registry of Beneficial Owners. (a) Pursuant to Section 2.5 hereof, the Company shall not designate any Person to act as a Broker-Dealer without prior written approval of the Auction Agent (which approval shall not be withheld unreasonably). At the time of closing of the initial issuance and sale of the AMPS (the "Closing"), the Company shall provide the Auction Agent with a list of the Broker-Dealers previously approved by the Auction Agent and shall cause to be delivered to the Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by each such Broker-Dealer. The Auction Agent shall keep such list current and accurate, and shall indicate thereon, or on a separate list, the identity of each Existing Holder, if any, whose most recent Order was submitted by a Broker-Dealer on such list and resulted in such Existing Holder continuing to hold or purchasing shares of AMPS. Not later than five days prior to any Auction Date for which any change in such list of Broker-Dealers is to be effective, the Company shall notify the Auction Agent in 4 writing of such change and, if any such change is the addition of a Broker-Dealer to such list, the Company shall cause to be delivered to the Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by such Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer Agreement with each Broker-Dealer prior to the participation of any such Broker-Dealer in any Auction. (b) In the event that the Auction Date for any Auction shall be changed after the Auction Agent shall have given the notice referred to in clause (vii) of Paragraph (a) of the Settlement Procedures, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to the Broker-Dealers not later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date. (c) With respect to each Dividend Period that is a Special Dividend Period, the Company may, at its sole option and to the extent permitted by law, by telephonic and written notice (a "Request for Special Dividend Period") to the Auction Agent and to each Broker-Dealer, request that the next succeeding Dividend Period for a series of AMPS will be a number of days (other than 28 in the case of Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS and other than 7 in the case of Series E AMPS), evenly divisible by seven, and not fewer than seven nor more than 364 in the case of a Short Term Dividend Period or a number of whole years not greater than five years in the case of a Long Term Dividend Period, specified in such notice, provided that for any Auction occurring after the initial Auction, the Company may not give a Request for Special Dividend Period (and any such request shall be null and void) unless the Company has received written confirmation from S&P that such action would not impair the rating then assigned to the AMPS by S&P and unless sufficient Clearing Bids were made in the last occurring Auction and unless full cumulative dividends, any amounts due with respect to mandatory redemptions and any Additional Dividends payable prior to such date have been paid in full. Such Request for Special Dividend Period, in the case of a Short Term Dividend Period, shall be given on or prior to the fourth day but not more than seven days prior to an Auction Date for a series of AMPS and, in the case of a Long Term Dividend Period, shall be given on or prior to the 14th day but not more than 28 days prior to the Auction Date for a series of AMPS. Upon receiving such Request for Special Dividend Period, the Broker-Dealers(s) shall jointly determine whether given the factors set forth in paragraph 2(c)(iii) of the Articles Supplementary it is advisable that 5 the Company issue a Notice of Special Dividend Period for the series of AMPS as contemplated by such Request for Special Dividend Period and the Optional Redemption Price of the AMPS during such Special Dividend Period and the Specific Redemption Provisions and shall give the Company and the Auction Agent written notice (a "Response") of such determination by no later than the third day prior to such Auction Date. If the Broker-Dealer(s) shall not give the Company and the Auction Agent a Response by such third day or if the Response states that given the factors referred to above it is not advisable that the Company give a Notice of Special Dividend Period (as defined below) for the series of AMPS, the Company may not give a Notice of Special Dividend Period in respect of such Request for Special Dividend Period. In the event the Response indicates that it is advisable that the Company give a Notice of Special Dividend Period for the series of AMPS, the Company may by no later than the second day prior to such Auction Date give a notice (a "Notice of Special Dividend Period") to the Auction Agent, the Securities Depository and each Broker-Dealer, which notice will specify (i) the duration of the Special Dividend Period, (ii) the Optional Redemption Price as specified in the related Response and (iii) the Specific Redemption Provisions, if any, as specified in the related Response. The Company shall not give a Notice of Special Dividend Period, or, if such Notice of Special Dividend Period shall have already been given, shall give telephonic and written notice (a "Notice of Revocation") to the Auction Agent, each Broker-Dealer, and the Securities Depository on or prior to the Business Day prior to the relevant Auction Date if (x) either the 1940 Act AMPS Coverage is not satisfied or the Company shall fail to maintain S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value at least equal to the AMPS Basic Maintenance Amount in each case on each of the two Valuation Dates immediately preceding the Business Day prior to the relevant Auction Date on an actual basis and on a pro forma basis giving effect to the proposed Special Dividend Period (using as a pro forma dividend rate with respect to such Special Dividend Period the dividend rate which the Broker-Dealers shall advise the Company is an approximately equal rate for securities similar to the AMPS with an equal dividend period), provided that in calculating the aggregate Discounted Value of Moody's Eligible Assets for this purpose, the Moody's Exposure Period shall be deemed to be one week longer, (y) sufficient funds for the payment of dividends payable on the immediately succeeding Dividend Payment Date have not been irrevocably deposited with the Auction Agent by the close of business on the third Business Day preceding the related Auction Date or (z) the 6 Broker-Dealer(s) jointly advise the Company that after consideration of the factors referred to above they have concluded that it is advisable to give a Notice of Revocation. If the Company is prohibited from giving a Notice of Special Dividend Period as a result of the factors enumerated in clause (x), (y) or (z) of the preceding sentence or if the Company gives a Notice of Revocation with respect to a Notice of Special Dividend Period, the next succeeding Dividend Period will be a 28-day Dividend Period in the case of Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS and a 7-day Dividend Period in the case of Series E AMPS, provided that if the then-current Dividend Period for Series A AMPS, Series B AMPS, Series C AMPS or Series D AMPS is a Special Dividend Period of less than 28 days, the next succeeding Dividend Period for such Series of AMPS will be the same length as the current Dividend Period. In addition, in the event sufficient Clearing Bids are not made in any Auction or an Auction is not held for any reason, the next succeeding Dividend Period will be a 28-day Dividend Period (in the case of Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS) or a 7-day Dividend Period (in the case of Series E AMPS) and the Company may not again give a Notice of Special Dividend Period (and any such attempted notice shall be null and void) until sufficient Clearing Bids have been made in an Auction with respect to a 28-day Dividend Period (in the case of Series A AMPS, Series B AMPS, Series C AMPS and Series D AMPS) or a 7-day Dividend Period (in the case of Series E AMPS). (d) (i) Whenever the Company intends to include any net capital gains or other taxable income in any dividend on shares of AMPS, the Company will notify the Auction Agent of the amount to be so included at least five Business Days prior to the Auction Date on which the Applicable Rate for such dividend is to be established. Whenever the Auction Agent receives such notice from the Company, it will in turn notify each Broker- Dealer, who, on or prior to such Auction Date, in accordance with its Broker-Dealer Agreement, will notify its Existing Holders and Potential Holders believed to be interested in submitting an Order in the Auction to be held on such Auction Date. (ii) If the Company makes a Retroactive Taxable Allocation, the Company will, within 90 days (and generally within 60 days) after the end of its fiscal year for which a Retroactive Taxable Allocation is made provide notice thereof to the Auction Agent and to each holder of shares (initially the Securities Depository) during such fiscal year at such holder's address as the same appears or last appeared on the stock books of the Company. The Company 7 will, within 30 days after such notice is given to the Auction Agent, pay to the Auction Agent (who will then distribute to such holders of shares of AMPS), out of funds legally available therefor, a cash amount equal to the aggregate Additional Dividend with respect to all Retroactive Taxable Allocations made to such holders during the fiscal year in question. (e) (i) On each Auction Date, the Auction Agent shall determine the Reference Rate and the Maximum Applicable Rate. If the Reference Rate is not quoted on an interest basis but is quoted on a discount basis, the Auction Agent shall convert the quoted rate to an Interest Equivalent, as set forth in Paragraph 1 of the Articles Supplementary; or, if the rate obtained by the Auction Agent is not quoted on an interest or discount basis, the Auction Agent shall convert the quoted rate to an interest rate after consultation with the Company as to the method of such conversion. Not later than 9:30 A.M. on each Auction Date, the Auction Agent shall notify the Company and the Broker-Dealers of the Reference Rate so determined and the Maximum Applicable Rate. (ii) If the Reference Rate is the applicable "AA" Composite Commercial Paper Rate and such rate is to be based on rates supplied by Commercial Paper Dealers and one or more of the Commercial Paper Dealers shall not provide a quotation for the determination of the applicable "AA" Composite Commercial Paper Rate, the Auction Agent shall immediately notify the Company so that the Company can determine whether to select a Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers to provide the quotation or quotations not being supplied by any Commercial Paper Dealer or Commercial Paper Dealers. The Company shall promptly advise the Auction Agent of any such selection. If the Company does not select any such Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, then the rates shall be supplied by the remaining Commercial Paper Dealer or Commercial Paper Dealers. (iii) If, after the date of this Agreement, there is any change in the prevailing rating of AMPS by either of the rating agencies (or substitute or successor rating agencies) referred to in the definition of the Maximum Applicable Rate, thereby resulting in any change in the corresponding applicable percentage for the AMPS, as set forth in said definition (the "Percentage"), the Company shall notify the Auction Agent in writing of such change in the Percentage prior to 9:00 A.M. on the Auction Date for AMPS next succeeding such change. The Percentage for the AMPS on the 8 date of this Agreement is as specified in paragraph 11(a)(vii) of the Articles Supplementary. The Auction Agent shall be entitled to rely on the last Percentage of which it has received notice from the Company (or, in the absence of such notice, the Percentage set forth in the preceding sentence) in determining the Maximum Applicable Rate as set forth in Section 2.2(e)(i) hereof. (f)(i) The Auction Agent shall maintain by series a current registry of the beneficial owners of the shares of each series of AMPS who shall constitute the Existing Holders for purposes of each Auction. The Company shall use its best efforts to provide or cause to be provided to the Auction Agent within ten days following the date of Closing a list of the initial Existing Holders of each series of AMPS, and the Broker-Dealer of each such Existing Holder through which such Existing Holder purchased such shares. The Auction Agent may rely upon, as evidence of the identities of the Existing Holders, such list, the results of each Auction and notices from any Existing Holder, the Agent Member of any Existing Holder or the Broker-Dealer of any Existing Holder with respect to such Existing Holder's transfer of any shares of AMPS to another Person. (ii) In the event of any partial redemption of any series of AMPS, upon notice by the Company to the Auction Agent of such partial redemption, the Auction Agent shall promptly request the Securities Depository to notify the Auction Agent of the identities of the Agent Members (and the respective numbers of shares) from the accounts of which shares have been called for redemption and the person or department at such Agent Member to contact regarding such redemption and, at least two Business Days prior to the Auction preceding the date of redemption with respect to shares of the series being partially redeemed, the Auction Agent shall request each Agent Member so identified to disclose to the Auction Agent (upon selection by such Agent Member of the Existing Holders whose shares are to be redeemed) the number of shares of such series of AMPS of each such Existing Holder, if any, to be redeemed by the Company; provided the Auction Agent has been furnished with the name and telephone number of a person or department at such Agent Member from which it is to request such information. If necessary to procure such information, the Auction Agent shall deliver to each Agent Member a facsimile copy of the Purchaser's Letter of each Existing Holder represented by such Agent Member, which authorizes and instructs such Agent Member to release such information to the Auction Agent. In the absence of receiving any such information with respect to an Existing Holder, from such Existing Holder's Agent 9 Member or otherwise, the Auction Agent may continue to treat such Existing Holder as the beneficial owner of the number of shares of the series of AMPS shown in the Auction Agent's registry of beneficial owners. (iii) The Auction Agent shall register a transfer of the beneficial ownership of shares of a series of AMPS from an Existing Holder to another Person only if such transfer is made to a Person that has delivered a signed Purchaser's Letter to the Auction Agent and only if (A) such transfer is pursuant to an Auction or (B) if such transfer is made other than pursuant to an Auction, the Auction Agent has been notified in writing in a notice substantially in the form of Exhibit D to the Broker-Dealer Agreements, by such Existing Holder, the Agent Member of such Existing Holder, or the Broker-Dealer of such Existing Holder of such transfer. The Auction Agent is not required to accept any notice of transfer delivered for an Auction unless it is received by the Auction Agent by 3:00 P.M. on the Business Day next preceding the applicable Auction Date. The Auction Agent shall rescind a transfer made on the registry of the beneficial owners of any shares of AMPS if the Auction Agent has been notified in writing in a notice substantially in the form of Exhibit E to the Broker-Dealer Agreement by the Agent Member or the Broker-Dealer of any Person that (i) purchased any shares of AMPS and the seller failed to deliver such shares or (ii) sold any shares of AMPS and the purchaser failed to make payment to such Person upon delivery to the purchaser of such shares. (g) The Auction Agent may request that the Broker-Dealers, as set forth in Section 3.2(c) of the Broker-Dealer Agreements, provide the Auction Agent with a list of their respective customers that such Broker-Dealers believe are Existing Holders of shares of any series of AMPS. The Auction Agent shall keep confidential any such information and shall not disclose any such information so provided to any Person other than the relevant Broker-Dealer and the Company, provided that the Auction Agent reserves the right to disclose any such information if it is advised by its counsel that its failure to do so would be unlawful. 10 2.3 Auction Schedule. The Auction Agent shall conduct Auctions in accordance with the schedule set forth below. Such schedule may be changed by the Auction Agent with the consent of the Company, which consent shall not be unreasonably withheld. The Auction Agent shall give notice of any such change to each Broker-Dealer. Such notice shall be received prior to the first Auction Date on which any such change shall be effective. Time Event ---- ----- By 9:30 A.M. Auction Agent advises the Company and the Broker-Dealers of the Reference Rate and the Maximum Applicable Rate as set forth in Section 2.2(e)(i) hereof. 9:30 A.M. - 1:00 P.M. Auction Agent assembles information communicated to it by Broker- Dealers as provided in Paragraph 11(c)(i) of the Articles Supplementary. Submission deadline is 1:00 P.M. Not earlier than Auction Agent makes determination 1:00 P.M. pursuant to Paragraph 11(d)(i) of the Articles Supplementary. By approximately Auction Agent advises Company of 3:00 P.M. results of Auction as provided in Paragraph 11(d)(ii) of the Articles Supplementary. Submitted Bids and Submitted Sell Orders are accepted and rejected in whole or in part and shares of AMPS allocated as provided in Paragraph 11(e) of the Articles Supplementary. By approximately 10:00 A.M. Auction Agent gives notice of on the next succeeding Auction results as set forth in Business Day Section 2.4 hereof. 2.4 Notice of Auction Results. On each Auction Date, the Auction Agent shall notify Broker-Dealers of the results of the Auction held on such date by telephone or through the Auction Agent's Auction Processing 11 System as set forth in Paragraph (a) of the Settlement Procedures. 2.5 Broker-Dealers. (a) Not later than 12:00 noon on each Auction Date, the Company shall pay to the Auction Agent in New York Clearing House or similar next-day funds an amount in cash equal to (i) in the case of any Auction Date immediately preceding a 7-day Dividend Period, 28-day Dividend Period or Short-Term Dividend Period, the product of (A) a fraction the numerator of which is the number of days in such Dividend Period (calculated by counting the first day of such Dividend Period but excluding the last day thereof) and the denominator of which is 360, times (B) 1/4 of 1%, times (C) $50,000, times (D) the sum of the aggregate number of Outstanding shares of the series of AMPS for which the Auction is conducted and (ii) in the case of any Long Term Dividend Period, the amount determined by mutual consent of the Company and the Broker-Dealers pursuant to Section 3.5 of the Broker-Dealer Agreements. The Auction Agent shall apply such moneys as set forth in Section 3.5 of the Broker-Dealer Agreements and shall thereafter remit to the Company any remaining funds paid to the Auction Agent pursuant to this Section 2.5(a). (b) The Company shall not designate any Person to act as a Broker-Dealer without the prior written approval of the Auction Agent, which written approval shall not be unreasonably withheld. The Company may designate an Affiliate and Merrill Lynch, Pierce, Fenner & Smith Incorporated to act as a Broker-Dealer. (c) The Auction Agent shall terminate any Broker-Dealer Agreement as set forth therein if so directed by the Company. (d) Subject to Section 2.5(b) hereof, the Auction Agent shall from time to time enter into such Broker-Dealer Agreements as the Company shall request. (e) The Auction Agent shall maintain a list of Broker-Dealers. 2.6 Ownership of Shares of AMPS and Submission of Bids by Company and Affiliates. Neither the Company nor any Affiliate of the Company may submit any Sell Order or Bid, directly or indirectly, in any Auction, except that an Affiliate of the Company that is a 12 Broker-Dealer may submit a Sell Order or Bid on behalf of an Existing Holder or Potential Holder. The Company shall notify the Auction Agent if the Company or, to the best of the Company's knowledge, any Affiliate of the Company becomes an Existing Holder of any shares of AMPS. Any shares of AMPS redeemed, purchased or otherwise acquired (i) by the Company shall not be reissued or (ii) by its Affiliates shall not be transferred (other than to the Company). The Auction Agent shall have no duty or liability with respect to enforcement of this Section 2.6. 2.7 Access to and Maintenance of Auction Records. The Auction Agent shall afford to the Company, its agents, independent public accountants and counsel, access at reasonable times during normal business hours to review and make extracts or copies (at the Company's sole cost and expense) of all books, records, documents and other information concerning the conduct and results of Auctions, provided that any such agent, accountant, or counsel shall furnish the Auction Agent with a letter from the Company requesting that the Auction Agent afford such person access. The Auction Agent shall maintain records relating to any Auction for a period of two years after such Auction (unless requested by the Company to maintain such records for such longer period not in excess of four years, then for such longer period), and such records shall, in reasonable detail, accurately and fairly reflect the actions taken by the Auction Agent hereunder. The Company agrees to keep any information regarding the customers of any Broker-Dealer received from the Auction Agent in connection with this Agreement or any Auction confidential and shall not disclose such information or permit the disclosure of such information without the prior written consent of the applicable Broker-Dealer to anyone except such agent, accountant or counsel engaged to audit or review the results of Auctions as permitted by this Section 2.7. Any such agent, accountant or counsel, before having access to such information, shall agree to keep such information confidential and not to disclose such information or permit disclosure of such information without the prior written consent of the applicable Broker-Dealer. 3. The Auction Agent as Paying Agent. 3.1 Paying Agent. The Board of Directors of the Company has adopted a resolution appointing IBJ Schroder Bank & Trust Company as transfer agent, registrar, dividend disbursing agent and redemption agent for the company in connection with any shares of AMPS (the "Paying Agent"). The Paying Agent hereby accepts such 13 appointment and agrees to act in accordance with its standard procedures and the provisions of the Articles Supplementary which are specified herein as Paying Agent with respect to the shares of AMPS and as set forth in this Section 3. 3.2 The Company's Notices to Paying Agent. Whenever any shares of AMPS are to be redeemed, the Company shall promptly deliver to the Paying Agent the Notice of Redemption, which will be mailed by the Company to each Holder, at least five days prior to the date such Notice of Redemption is required to be mailed by the Articles Supplementary. The Paying Agent shall have no responsibility to confirm or verify the accuracy of any such notice. 3.3 Company to Provide Funds for Dividends, Redemptions and Additional Dividends. (a) Not later than noon, on the Business Day immediately preceding each Dividend Payment Date, the Company shall deposit with the Paying Agent an aggregate amount of New York Clearing House or similar next-day funds equal to the declared dividends to be paid to Holders on such Dividend Payment Date and shall give the Paying Agent irrevocable instructions to apply such funds to the payment of such dividends on such Dividend Payment Date. (b) If the Company shall give the Notice of Redemption then, by noon of the Business Day immediately preceding the date fixed for redemption, the Company shall deposit in trust with the Paying Agent an aggregate amount of New York Clearing House or similar next day funds sufficient to redeem such shares of AMPS called for redemption and shall give the Paying Agent irrevocable instructions and authority to pay the redemption price to the Holders of shares of AMPS called for redemption upon surrender of the certificate or certificates therefor. (c) If the Company provides notice to the Auction Agent of a Retroactive Taxable Allocation, the Company shall, within 30 days after such notice is given and by noon of the Business Day immediately preceding the date fixed for payment of an Additional Dividend, deposit in trust with the Paying Agent an aggregate amount of New York Clearing House or similar next-day funds equal to such Additional Dividend and shall give the Paying Agent irrevocable instructions and authority to pay the Additional Dividends to Holders (or former Holders) of AMPS entitled thereto. 14 3.4 Disbursing Dividends, Redemption Price and Additional Dividends. After receipt of the New York Clearing House or similar next-day funds and instructions from the Company described in Sections 3.3(a), (b) and (c) above, the Paying Agent shall pay to the Holders (or former Holders) entitled thereto (i) on each corresponding Dividend Payment Date, dividends on the Series A AMPS, Series B AMPS, Series C AMPS, Series D AMPS or Series E AMPS, as the case may be, (ii) on any date fixed for redemption, the redemption price of any shares of AMPS called for redemption and (iii) on the date fixed for payment of an Additional Dividend, such Additional Dividend. The amount of dividends for any Dividend Period to be paid by the Paying Agent to Holders will be determined by the Company as set forth in Paragraph 2 of the Articles Supplementary. The redemption price to be paid by the Paying Agent to the Holders of any shares of AMPS called for redemption will be determined as set forth in Paragraph 4 of the Articles Supplementary. The amount of Additional Dividends to be paid by the Paying Agent in the event of a Retroactive Taxable Allocation to Holders will be determined by the Company pursuant to paragraph 2(e) of the Articles Supplementary. The Company shall notify the Paying Agent in writing of a decision to redeem any shares of AMPS on or prior to the date specified in Section 3.2 above, and such notice by the Company to the Paying Agent shall contain the information required to be stated in the Notice of Redemption required to be mailed by the Company to such Holders. The Paying Agent shall have no duty to determine the redemption price and may rely on the amount thereof set forth in the Notice of Redemption. 4. The Paying Agent as Transfer Agent and Registrar. 4.1 Original Issue of Stock Certificates. On the Date of Original Issue, one certificate for each series of AMPS shall be issued by the Company and registered in the name of Cede & Co., as nominee of the Securities Depository, and countersigned by the Paying Agent. 4.2 Registration of Transfer or Exchange of Shares. Except as provided in this Section 4.2, the shares of each series of AMPS shall be registered solely in the name of the Securities Depository or its nominee. If the Securities Depository shall give notice of its intention to resign as such, and if the Company shall not have selected a substitute Securities Depository acceptable to the Paying Agent prior to such resignation, then upon such resignation, the shares of each series of AMPS may, at the Company's request, be registered for 15 transfer or exchange, and new certificates thereupon shall be issued in the name of the designated transferee or transferees, upon surrender of the old certificates in form deemed by the Paying Agent properly endorsed for transfer with (a) all necessary endorsers' signatures guaranteed in such manner and form as the Paying Agent may require by a guarantor reasonably believed by the Paying Agent to be responsible, (b) such assurances as the Paying Agent shall deem necessary or appropriate to evidence the genuineness and effectiveness of each necessary endorsement and (c) satisfactory evidence of compliance with all applicable laws relating to the collection of taxes in connection with any registration of transfer and exchange or funds necessary for the payment of such taxes. If the certificates for shares of AMPS are not held by the Securities Depository or its nominee, payments upon transfer of shares in an Auction shall be made in same day funds to the Auction Agent against delivery of certificates therefor. 4.3 Removal of Legend. Any request for removal of a legend indicating a restriction on transfer from certificates evidencing shares of a series of AMPS shall be accompanied by an opinion of counsel stating that such legend may be removed and such shares transferred free of the restriction described in such legend, said opinion to be delivered under cover of a letter from a Company Officer authorizing the Paying Agent to remove the legend on the basis of said opinion. 4.4 Lost Stock Certificates. The Paying Agent shall issue and register replacement certificates for certificates represented to have been lost, stolen or destroyed, upon the fulfillment of such requirements as shall be deemed appropriate by the Company and the Paying Agent, subject at all times to provisions of law, the By-Laws of the Company governing such matters and resolutions adopted by the Company with respect to lost securities. The Paying Agent may issue new certificates in exchange for and upon the cancellation of mutilated certificates. Any request by the Company to the Paying Agent to issue a replacement or new certificate pursuant to this Section 4.4 shall be deemed to be a representation and warranty by the Company to the Paying Agent that such issuance will comply with such provisions of applicable law and the By-Laws and resolutions of the Company. 16 4.5 Disposition of Cancelled Certificates; Record Retention. The Paying Agent shall retain stock certificates which have been cancelled in transfer or in exchange and accompanying documentation in accordance with applicable rules and regulations of the Securities and Exchange Commission for two calendar years from the date of such cancellation. The Paying Agent shall, upon written request from the Company, afford to the Company, its agents and counsel access at reasonable times during normal business hours to review and make extracts or copies (at the Company's sole cost and expense) of such certificates and accompanying documentation. Upon the expiration of this two-year period, the Paying Agent shall deliver to the Company the cancelled certificates and accompanying documentation. The Company shall, at its expense, retain such records for a minimum additional period of four calendar years from the date of delivery of the records to the Company and shall make such records available during this period at any time, or from time to time, for reasonable periodic, special, or other examinations by representatives of the Securities and Exchange Commission. The Company shall also undertake to furnish to the Securities and Exchange Commission, upon demand, at either the principal office or at any regional office, complete, correct and current hard copies of any and all such records. Thereafter such records shall not be destroyed by the Company without the approval of the Paying Agent, which shall not be unreasonably withheld, but will be safely stored for possible future reference. 4.6 Stock Register. The Paying Agent shall maintain the stock register, which shall contain a list of the Holders, the number of shares held by each Holder and the address of each Holder. The Paying Agent shall record in the stock register any change of address of a Holder upon notice by such Holder. In case of any written request or demand for the inspection of the stock register or any other books of the Company in the possession of the Paying Agent, the Paying Agent will notify the Company and secure instructions as to permitting or refusing such inspection. The Paying Agent reserves the right, however, to exhibit the stock register or other records to any person in case it is advised by its counsel that its failure to do so would (i) be unlawful or (ii) expose it to liability, unless the Company shall have offered indemnification satisfactory to the Paying Agent. 17 4.7 Return of Funds. Any funds deposited with the Paying Agent by the Company for any reason under this Agreement, including for the payment of dividends or the redemption of shares of any series of AMPS, that remain with the Paying Agent after 12 months shall be repaid to the Company upon the written request of the Company. 5. Representations and Warranties. (a) The Company represents and warrants to the Auction Agent that: (i) the Company is a duly incorporated and validly existing corporation in good standing under the laws of the State of Maryland and has full power to execute and deliver this Agreement and to authorize, create and issue the shares of each series of AMPS; (ii) the Company is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as a closed-end non-diversified management investment company; (iii) this Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject as to such enforceability to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equitable principles; (iv) the forms of certificate evidencing the shares of each series of AMPS comply with all applicable laws of the State of Maryland; (v) the shares of each series of AMPS have been duly and validly authorized by the Company and, upon completion of the initial sale of the shares of such series of AMPS and receipt of payment therefor, will be validly issued, fully paid and nonassessable; (vi) the offering of the shares of each series of AMPS has been registered under the Securities Act of 1933, as amended, and no further action by or before any governmental body or authority of the United States or of any state thereof is required in connection with the execution and delivery of this Agreement or the issuance of the shares of 18 each series of AMPS except as required by applicable state securities or insurance laws, all of which have been taken; (vii) the execution and delivery of this Agreement and the issuance and delivery of the shares of each series of AMPS do not and will not conflict with, violate, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, the Charter or the By-Laws of the Company, any law or regulation applicable to the Company, any order or decree of any court or public authority having jurisdiction over the Company, or any mortgage, indenture, contract, agreement or undertaking to which the Company is a party or by which it is bound; and (viii) no taxes are payable upon or in respect of the execution of this Agreement or the issuance of the shares of each series of AMPS. (b) The Auction Agent represents and warrants to the Company that the Auction Agent is duly organized and is validly existing as a banking corporation in good standing under the laws of the State of New York and has the corporate power to enter into and perform its obligations under this Agreement. 6. The Auction Agent. 6.1 Duties and Responsibilities. (a) The Auction Agent is acting solely as agent for the Company hereunder and owes no fiduciary duties to any Person except as provided by this Agreement. (b) The Auction Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Auction Agent. (c) In the absence of bad faith or negligence on its part, the Auction Agent shall not be liable for any action taken, suffered or omitted or for any error of judgment made by it in the performance of its duties under this Agreement. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been negligent in ascertaining (or failing to ascertain) the pertinent facts. 19 6.2 Rights of the Auction Agent. (a) The Auction Agent may rely and shall be protected in acting or refraining from acting upon any communication authorized hereby and upon any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or document reasonably believed by it to be genuine. The Auction Agent shall not be liable for acting upon any telephone communication authorized hereby which the Auction Agent believes in good faith to have been given by the Company or by a Broker-Dealer. The Auction Agent may record telephone communications with the Company or with the Broker-Dealers or both. (b) The Auction Agent may consult with counsel of its choice, and the written advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder. (d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys. 6.3 Auction Agent's Disclaimer. The Auction Agent makes no representation as to the validity or adequacy of this Agreement, the Broker-Dealer Agreements or the AMPS. 6.4 Compensation. Expenses and Indemnification. (a) The Company shall pay the Auction Agent from time to time reasonable compensation for all services rendered by it under this Agreement and the Broker-Dealer Agreements. (b) The Company shall reimburse the Auction Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Auction Agent in accordance with any provision of this Agreement and the Broker-Dealer Agreements (including the reasonable compensation, expenses and disbursements of its agents and counsel), except any expense, disbursement and advances attributable to its negligence or bad faith. 20 (c) The Company shall indemnify the Auction Agent for, and hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with its agency under this Agreement and the Broker-Dealer Agreements, including the costs and expenses of defending itself against any claim or liability in connection with its exercise or performance of any of its duties hereunder and thereunder, except such as may result from its negligence or bad faith. 7. Miscellaneous. 7.1 Term of Agreement. (a) The term of this Agreement is unlimited unless it shall be terminated as provided in this Section 7.1. The Company may terminate this Agreement at any time by so notifying the Auction Agent, provided that if any AMPS remain outstanding the Company has entered into an agreement in substantially the form of this Agreement with a successor auction agent. The Auction Agent may terminate this Agreement upon prior notice to the Company on the date specified in such notice, which shall be no earlier than 60 days after delivery of such notice. If the Auction Agent resigns while any shares of AMPS remain outstanding, the Company shall use its best efforts to enter into an agreement with a successor auction agent containing substantially the same terms and conditions as this Agreement. (b) Except as otherwise provided in this Section 7.1(b), the respective rights and duties of the Company and the Auction Agent under this Agreement shall cease upon termination of this Agreement. The Company's representations, warranties, covenants and obligations to the Auction Agent under Sections 5 and 6.4 hereof shall survive the termination hereof. Upon termination of this Agreement, the Auction Agent shall (i) resign as Auction Agent under the Broker-Dealer Agreements, (ii) at the Company's request, promptly deliver to the Company copies of all books and records maintained by it in connection with its duties hereunder, and (iii) at the request of the Company, promptly transfer to the Company or any successor auction agent any funds deposited by the Company with the Auction Agent (whether in its capacity as Auction Agent or Paying Agent) pursuant to this Agreement which have not previously been distributed by the Auction Agent in accordance with this Agreement. 21 7.2 Communications. Except for (i) communications authorized to be made by telephone pursuant to this Agreement or the Auction Procedures and (ii) communications in connection with Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given to such party addressed to it at its address, or telecopy number set forth below: If to the Company, MuniYield Fund, Inc. addressed: 800 Scudders Mill Road Plainsboro, New Jersey 08536 Attention: Treasurer Telephone No.: (609) 282-2800 Telecopier No.: (609) 282-3472 If to the Auction Agent, IBJ Schroder Bank & Trust Company addressed: One State Street New York, New York 10004 Attention: Auction Window Subcellar 1 Telephone No.: (212) 858-2272 Telecopier No.: (212) 797-1148 or such other address or telecopy number as such party may hereafter specify for such purpose by notice to the other party. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of the Company by a Company Officer and on behalf of the Auction Agent by an Authorized Officer. 7.3 Entire Agreement. This Agreement contains the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or inferred between the parties relating to the subject matter hereof except for agreements relating to the compensation of the Auction Agent. 7.4 Benefits. Nothing herein, express or implied, shall give to any Person, other than the Company, the Auction Agent and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim hereunder. 22 7.5 Amendment; Waiver. (a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged. The Company shall notify the Auction Agent of any change in the Articles Supplementary prior to the effective date of any such change. (b) Failure of either party hereto to exercise any right or remedy hereunder in the event of a breach hereof by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach. 7.6 Successor and Assigns. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and permitted assigns of each of the Company and the Auction Agent. This Agreement may not be assigned by either party hereto absent the prior written consent of the other party, which consent shall not be unreasonably withheld. 7.7 Severability. If any clause, provision or section hereof shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof. 7.8 Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 7.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said state. 23 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written. MUNIYIELD FUND, INC. By: ----------------------------------- Title: Vice President IBJ SCHRODER BANK & TRUST COMPANY By: ----------------------------------- Title: Assistant Vice President 24 EX-13.D 14 file013.txt BROKER DEALER AGREEMENT Exhhibit 13(d) ================================================================================ BROKER-DEALER AGREEMENT between IBJ SCHRODER BANK & TRUST COMPANY and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED Dated as of December 23, 1991 Relating to AUCTION MARKET PREFERRED STOCK(R) ("AMPS"(R)) Series A, Series B, Series C, Series D and Series E of MUNIYIELD FUND, INC. ================================================================================ (R) Registered trademark of Merrill Lynch & Co., Inc. BROKER-DEALER AGREEMENT dated as of December 23, 1991 between IBJ Schroder Bank & Trust Company, a New York banking corporation (the "Auction Agent") (not in its individual capacity but solely as agent of MuniYield Fund, Inc., a Maryland corporation (the "Company"), pursuant to authority granted to it in the Auction Agent Agreement dated as of December 23, 1991, between the Company and the Auction Agent (the "Auction Agent Agreement")) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (together with its successors and assigns hereinafter referred to as "BD"). The Company has duly authorized and issued 900 shares of Auction Market Preferred Stock(R), Series A ("Series A AMPS"), 900 shares of Auction Market Preferred Stock, Series B ("Series B AMPS"), 900 shares of Auction Market Preferred Stock, Series C ("Series C AMPS"), 900 shares of Auction Market Preferred Stock, Series D ("Series D AMPS") and 1,400 shares of Auction Market Preferred Stock, Series E ("Series E AMPS"), all with a par value of $.10 per share and a liquidation preference of $50,000 per share plus accumulated but unpaid dividends (whether or not earned or declared), each pursuant to the Company's Articles Supplementary (as defined below). The Series A AMPS, Series B AMPS, Series C AMPS, Series D AMPS and Series E AMPS are sometimes referred to together herein as "AMPS". The Company's Articles Supplementary provide that the dividend rate on each series of AMPS for each Dividend Period therefor after the Initial Dividend Period shall be the Applicable Rate therefor, which in each case, in general, shall be the rate per annum that a commercial bank, trust company or other financial institution appointed by the Company advises results from implementation of the Auction Procedures (as defined below). The Board of Directors of the Company has adopted a resolution appointing IBJ Schroder Bank & Trust Company as Auction Agent for purposes of the Auction Procedures, and pursuant to Section 2.5(d) of the Auction Agent Agreement, the Company has requested and directed the Auction Agent to execute and deliver this Agreement. The Auction Procedures require the participation of one or more Broker-Dealers. - ---------- (R) Registered trademark of Merrill Lynch & Co., Inc. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Auction Agent and BD agree as follows: 1. Definitions and Rules of Construction. 1.1 Terms Defined by Reference to the Articles Supplementary. Capitalized terms not defined herein shall have the respective meanings specified in the Articles Supplementary of the Company. 1.2 Terms Defined Herein. As used herein and in the Settlement Procedures (as defined below), the following terms shall have the following meanings, unless the context otherwise requires: (a) "Articles Supplementary" shall mean the Articles Supplementary, as amended, of the Company, establishing the powers, preferences and rights of the AMPS filed on December 20, 1991 in the office of the State Department of Assessments and Taxation of the State of Maryland. (b) "Auction" shall have the meaning specified in Section 2 .1 hereof. (c) "Auction Procedures" shall mean the Auction Procedures that are set forth in Paragraph 11 of the Articles Supplementary. (d) "Authorized Officer" shall mean each Senior Vice President, Vice President, Assistant Vice President, Trust Officer, Assistant Secretary and Assistant Treasurer of the Auction Agent assigned to its Corporate Trust and Agency Group and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes of this Agreement in a communication to BD: (e) "BD Officer" shall mean each officer or employee of BD designated as a "BD Officer" for purposes of this Agreement in a communication to the Auction Agent. (f) "Broker-Dealer Agreement" shall mean this Agreement and any substantially similar agreement between the Auction Agent and a Broker-Dealer. (g) "Purchaser's Letter" shall mean a letter addressed to the Company, the Auction Agent and a Broker-Dealer, substantially in the form attached hereto as Exhibit A. (h) "Settlement Procedures" shall mean the Settlement Procedures attached hereto as Exhibit B. 1.3 Rules of Construction. Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Agreement: (a) Words importing the singular number shall include the plural number and vice versa. (b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect. 2 (c) The words "hereof," "herein," "hereto," and other words of similar import refer to this Agreement as a whole. (d) All references herein to a particular time of day shall be to New York City time. 2. Notification of Dividend Period and Advance Notice of Allocation of Taxable Income. (a) The provisions contained in paragraph 2 of the Articles Supplementary concerning the notification of a Special Dividend Period will be followed by the Auction Agent and BD and the provisions contained therein are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were fully set forth herein. (b) Whenever the Company intends to include any net capital gains or other taxable income in any dividend on shares of any series of AMPS, the Company will notify the Auction Agent of the amount to be so included at least five Business Days prior to the Auction Date on which the Applicable Rate for such dividend is to be established. Whenever the Auction Agent receives such notice from the Company, it will in turn notify BD, who, on or prior to such Auction Date, will notify its Existing Holders and Potential Holders believed to be interested in submitting an Order in the Auction to be held on such Auction Date. 3. The Auction. 3.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures. (a) On each Auction Date, the provisions of the Auction Procedures will be followed by the Auction Agent for the purpose of determining the Applicable Rate for each series of AMPS, for the next Dividend Period therefor. Each periodic operation of such procedures is hereinafter referred to as an "Auction." (b) All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were fully set forth herein. (c) BD is delivering herewith a Purchaser's Letter executed by BD and, in the case of Merrill Lynch, Pierce, Fenner & Smith Incorporated, a list of persons to whom BD will initially sell the shares of each series of AMPS, the number of shares of each series of AMPS BD will sell to each such person and the number of shares of each series of AMPS BD will hold for its own account. BD agrees to act as, and assumes the obligations of and limitations and restrictions placed upon, a Broker-Dealer under this Agreement. BD understands that other Persons meeting the requirements specified in the definition of "Broker-Dealer" contained in Paragraph 1 of the Articles Supplementary may execute a Broker-Dealer Agreement and a Purchaser's Letter and participate as Broker-Dealers in Auctions. (d) BD and other Broker-Dealers may participate in Auctions for their own accounts, provided that BD or such other Broker-Dealers, as the case may be, has executed a Purchaser's Letter. However, the Company may by notice to BD and all other Broker-Dealers prohibit all 3 Broker-Dealers from submitting Bids in Auctions for their own accounts, provided that Broker-Dealers may continue to submit Hold Orders and Sell Orders. 3.2 Preparation for Each Auction. (a) Not later than 9:30 A.M. on each Auction Date for each series of AMPS, the Auction Agent shall advise BD by telephone of the Reference Rate and the Maximum Applicable Rate in effect on such Auction Date. (b) In the event that the Auction Date for any Auction shall be changed after the Auction Agent has given the notice referred to in clause (vii) of paragraph (a) of the Settlement Procedures, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to BD not later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date. Thereafter, BD shall promptly notify customers of BD that BD believes are Existing Holders of shares of Series A AMPS, Series B AMPS, Series C AMPS, Series D AMPS or Series E AMPS, as the case may be, of such change in the Auction Date. (c) The Auction Agent from time to time may request BD to provide it with a list of the respective customers BD believes are Existing Holders of shares of each series of AMPS. BD shall comply with any such request, and the Auction Agent shall keep confidential any such information, including information received as to the identity of Bidders in any Auction, and shall not disclose any such information so provided to any Person other than the Company; and such information shall not be used by the Auction Agent or its officers, employees, agents or representatives for any purpose other than such purposes as are described herein. The Auction Agent shall transmit any list of customers BD believes are Existing Holders of shares of each series of AMPS and information related thereto only to its officers, employees, agents or representatives in the Corporate Trust and Agency Group who need to know such information for the purposes of acting in accordance with this Agreement and shall prevent the transmission of such information to others and shall cause its officers, employees, agents and representatives to abide by the foregoing confidentiality restrictions; provided, however, that the Auction Agent shall have no responsibility or liability for the actions of any of its officers, employees, agents or representatives after they have left the employ of the Auction Agent. (d) The Auction Agent is not required to accept the Purchaser's Letter for any Potential Holder for an Auction unless it is received by the Auction Agent by 3:00 P.M. on the Business Day next preceding such Auction. 3.3 Auction Schedule; Method of Submission of Orders. (a) The Company and the Auction Agent shall conduct Auctions for each series of AMPS in accordance with the schedule set forth below. Such schedule may be changed at any time by the Auction Agent with the consent of the Company, which consent shall not be unreasonably withheld. The Auction Agent shall give notice of any such change to BD. Such notice shall be received prior to the first Auction Date on which any such change shall be effective. 4 Time Event ---- ----- By 9:30 A.M. Auction Agent advises the Company and Broker-Dealers of Reference Rate and the Maximum Applicable Rate as set forth in section 3.2(a) hereof. 9:30 A.M. - 1:00 P.M. Auction Agent assembles information communicated to it by Broker-Dealers as provided in Paragraph 11(c)(i) of the Articles Supplementary. Submission Deadline is 1:00 P.M. Not earlier than 1:00 P.M. Auction Agent makes determinations pursuant to Paragraph 11(d)(i) of the Articles Supplementary. By approximately 3:00 P.M. Auction Agent advises Company of results of Auction as provided in Paragraph 11(d)(ii) of the Articles Supplementary. Submitted Bids and Submitted Sell Orders are accepted and rejected in whole or in part and shares of AMPS are allocated as provided in Paragraph 11(e) of the Articles Supplementary. By approximately 10:00 A.M. on Auction Agent gives notice of Auction the next succeeding Business Day results as set forth in Section 3.4(a) hereof. (b) BD agrees to maintain a list of Potential Holders and to contact the Potential Holders on such list on or prior to each Auction Date for the purposes set forth in Paragraph 11 of the Articles Supplementary. (c) BD agrees not to sell, assign or dispose of any shares of any series of AMPS, to any Person who has not delivered a signed Purchaser's Letter to the Auction Agent. (d) BD shall submit Orders to the Auction Agent in writing in substantially the form attached hereto as Exhibit C. BD shall submit separate Orders to the Auction Agent for each Potential Holder or Existing Holder on whose behalf BD is submitting an Order and shall not net or aggregate the orders of Potential Holders or Existing Holders on whose behalf BD is submitting orders. (e) BD shall deliver to the Auction Agent (i) a written notice, substantially in the form attached hereto as Exhibit D, of transfers of shares of any series of AMPS, made through BD by an Existing Holder to another Person other than pursuant to an Auction, and (ii) a written notice, substantially in the form attached hereto as Exhibit E, of the failure of shares of any series of AMPS to be transferred to or by any Person that purchased or sold shares of any series of AMPS or through BD pursuant to an Auction. The Auction Agent is not required to accept any notice delivered pursuant to the terms of the foregoing sentence with respect to an Auction 5 unless it is received by the Auction Agent by 3:00 P.M. on the Business Day next preceding the applicable Auction Date. 3.4 Notice of Auction Results. (a) On each Auction Date, the Auction Agent shall notify BD by telephone as set forth in paragraph (a) of the Settlement Procedures. On the Business Day next succeeding such Auction Date, the Auction Agent shall notify BD in writing of the disposition of all Orders submitted by BD in the Auction held on such Auction Date. (b) BD shall notify each Existing Holder or Potential Holder on whose behalf BD has submitted an Order as set forth in paragraph (b) of the Settlement Procedures and take such other action as is required of BD pursuant to the Settlement Procedures. If any Existing Holder selling shares of any series of AMPS in an Auction fails to deliver such shares, the BD of any Person that was to have purchased shares of such series of AMPS in such Auction may deliver to such Person a number of whole shares of such series of AMPS that is less than the number of shares that otherwise was to be purchased by such Person. In such event, the number of shares of such series of AMPS to be so delivered shall be determined by such BD. Delivery of such lesser number of shares shall constitute good delivery. Upon the occurrence of any such failure to deliver shares, such BD shall deliver to the Auction Agent the notice required by Section 3.3(e)(ii) hereof. Notwithstanding the foregoing terms of this Section 3.4(b), any delivery or non-delivery of shares of any series of AMPS which represents any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or non-delivery in accordance with the terms of Section 3.3 (e) hereof. The Auction Agent shall have no duty or liability with respect to enforcement of this Section 3.4(b). 3.5 Service Charge to Be Paid to BD. On the Business Day next succeeding each Auction Date, the Auction Agent shall pay to BD from moneys received from the Company an amount equal to: (a) in the case of any Auction Date immediately preceding a 7-day Dividend Period, 28-day Dividend Period or Short Term Dividend Period, the product of (i) a fraction the numerator of which is the number of days in such Dividend Period (calculated by counting the first day of such Dividend Period but excluding the last day thereof) and the denominator of which is 360, times (ii) 1/4 of 1%, times (iii) $50,000, times (iv) the sum of (A) the aggregate number of AMPS placed by BD in the applicable Auction that were (x) the subject of a Submitted Bid of an Existing Holder submitted by BD and continued to be held as a result of such submission and (y) the subject of a Submitted Bid of a Potential Holder submitted by BD and were purchased as a result of such submission plus (B) the aggregate number of AMPS subject to valid Hold Orders (determined in accordance with Paragraph 11 of the Articles Supplementary) submitted to the Auction Agent by BD plus (C) the number of AMPS deemed to be subject to Hold Orders by Existing Holders pursuant to Paragraph 11 of the Articles Supplementary that were acquired by such Existing Holders through BD and (b) in the case of any Auction Date immediately preceding a Long Term Dividend Period, that amount as mutually agreed upon by the Company and BD, based on the selling concession that would be applicable to an underwriting of fixed or variable rate preferred shares with a similar final maturity or variable rate dividend period, at the commencement of such Long Term Dividend Period. 6 For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any Existing Holder who acquired shares of any series of AMPS through BD transfers those shares to another Person other than pursuant to an Auction, then the Broker-Dealer for the shares so transferred shall continue to be BD, provided, however, that if the transfer was effected by, or if the transferee is, a Broker-Dealer other than BD, then such Broker-Dealer shall be the Broker-Dealer for such shares. 4. The Auction Agent. 4.1 Duties and Responsibilities. (a) The Auction Agent is acting solely as agent for the Company hereunder and owes no fiduciary duties to any other Person by reason of this Agreement. (b) The Auction Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Auction Agent. (c) In the absence of bad faith or negligence on its part, the Auction Agent shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under this Agreement. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been negligent in ascertaining (or failing to ascertain) the pertinent facts. 4.2 Rights of the Auction Agent. (a) The Auction Agent may rely and shall be protected in acting or refraining from acting upon any communication authorized by this Agreement and upon any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or document believed by it to be genuine. The Auction Agent shall not be liable for acting upon any telephone communication authorized by this Agreement which the Auction Agent believes in good faith to have been given by the Company or by a Broker-Dealer. The Auction Agent may record telephone communications with the Broker-Dealers. (b) The Auction Agent may consult with counsel of its own choice, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder. (d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys. 4.3 Auction Agent's Disclaimer. The Auction Agent makes no representation as to the validity or adequacy of this Agreement or the AMPS. - ----------------------------------- 7 5. Miscellaneous. 5.1 Termination. Any party may terminate this Agreement at any time upon five days' prior notice to the other party; provided, however, that if BD is Merrill Lynch, Pierce, Fenner & Smith Incorporated, neither BD nor the Auction Agent may terminate this Agreement without first obtaining prior written consent of the Company of such termination, which consent shall not be unreasonably withheld. 5.2 Participant in Securities Depository; Payment of Dividends in Same-Day Funds. (a) BD is, and shall remain for the term of this Agreement, a member of, or participant in, the Securities Depository (or an affiliate of such a member or participant). (b) BD represents that it (or if such BD does not act as Agent Member, one of its affiliates) shall make all dividend payments on the AMPS available in same-day funds on each Dividend Payment Date to customers that use such BD or affiliate as Agent Member. 5.3 Agent Member. At the date hereof, BD is a participant of the Securities Depository. 5.4 Communications. Except for (i) communications authorized to be made by telephone pursuant to this Agreement or the Auction Procedures and (ii) communications in connection with the Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given to such party, addressed to it, at its address or telecopy number set forth below: If to BD Merrill Lynch, Pierce, Fenner & Smith Incorporated addressed: Merrill Lynch World Headquarters World Financial Center - North Tower New York, New York 10281-1205 Attention: Telecopier No.: (212) 449-2760 Telephone No.: (212) 449-4940 If to the Auction IBJ Schroder Bank & Trust Company Agent, addressed: One State Street New York, New York 10004 Attention: Auction Window Subcellar 1 Telecopier No.: (212) 797-1148 Telephone No.: (212) 858-2272 or such other address or telecopy number as such party may hereafter specify for such purpose by notice to the other party. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of BD by a BD Officer and on behalf 8 of the Auction Agent by an Authorized Officer. BD may record telephone communications with the Auction Agent. 5.5 Entire Agreement. This Agreement contains the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or inferred, between the parties relating to the subject matter hereof. 5.6 Benefits. Nothing in this Agreement, express or implied, shall give to any person, other than the Company, the Auction Agent and BD and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim under this Agreement. 5.7 Amendments; Waiver. (a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged. (b) Failure of either party to this Agreement to exercise any right or remedy hereunder in the event of a breach of this Agreement by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach. 5.8 Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and permitted assigns of each of BD and the Auction Agent. This Agreement may not be assigned by either party hereto absent the prior written consent of the other party; provided, however, that this Agreement may be assigned by the Auction Agent to a successor Auction Agent selected by the Company without the consent of BD. 5.9 Severability. If any clause, provision or section of this Agreement shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any remaining clause, provision or section hereof. 5.10 Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written. IBJ SCHRODER BANK & TRUST COMPANY By: _____________________________________ Title: Assistant Vice President MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: _____________________________________ Title: Vice President 10 EXHIBIT A TO BE SUBMITTED TO YOUR BROKER-DEALER WHO WILL THEN DELIVER COPIES ON YOUR BEHALF TO THE RESPECTIVE TRUST COMPANY OR REMARKETING AGENT. MASTER PURCHASER'S LETTER Relating to Securities Involving Rate Settings Through Auctions or Remarketings THE COMPANY A REMARKETING AGENT THE TRUST COMPANY A BROKER-DEALER AN AGENT MEMBER OTHER PERSONS Dear Sirs: 1. This letter is designed to apply to publicly or privately offered debt or equity securities ("Securities") of any issuer ("Company") which are described in any final prospectus or other offering materials relating to such Securities as the same may be amended or supplemented (collectively, with respect to the particular Securities concerned, the "Prospectus") and which involve periodic rate settings through auctions ("Auctions") or remarketing procedures ("Remarketings"). This letter shall be for the benefit of any Company and of any trust company, auction agent, paying agent (collectively, "trust company"), remarketing agent, broker-dealer, agent member, securities depository or other interested person in connection with any Securities and related Auctions or Remarketings (it being understood that such persons may be required to execute specified agreements and nothing herein shall alter such requirements). The terminology used herein is intended to be general in its application and not to exclude any Securities in respect of which (in the Prospectus or otherwise) alternative terminology is used. 2. We may from time to time offer to purchase, purchase, offer to sell and/or sell Securities of any Company as described in the Prospectus relating thereto. We agree that this letter shall apply to all such purchases, sales and offers and to Securities owned by us. We understand that the dividend/interest rate on Securities may be based from time to time on the results of Auctions or Remarketings as set forth in the Prospectus. 3. We agree that any bid or sell order placed by us in an Auction or a Remarketing shall constitute an irrevocable offer (except as otherwise described in the Prospectus) by us to purchase or sell the Securities subject to such bid or sell order, or such lesser amount of Securities as we shall be required to sell or purchase as a result of such Auction or Remarketing, at the applicable price, all as set forth in the Prospectus, and that if we fail to place a bid or sell order with respect to Securities owned by us with a broker-dealer on any Auction or Remarketing date, or a broker-dealer to which we communicate a bid or sell order fails to submit such bid or sell order to the trust company or remarketing agent concerned, we shall be deemed to have placed a hold order with respect to such Securities as described in the Prospectus. We A-1 authorize any broker-dealer that submits a bid or sell order as our agent in Auctions or Remarketing to execute contracts for the sale of Securities covered by such bid or sell order. We recognize that the payment by such broker-dealer for Securities purchased on our behalf shall not relieve us of any liability to such broker-dealer for payment for such Securities. 4. We understand that in a Remarketing, the dividend or interest rate or rates on the Securities and the allocation of Securities tendered for sale between dividend or interest periods of different lengths will be based from time to time on the determinations of one or more remarketing agents, and we agree to be conclusively bound by such determinations. We further agree to the payment of different dividend or interest races to different holder of Securities depending on the length of the dividend or interest period elected by such holders. We agree that any notice given by us to a remarketing agent (or to a broker-dealer for transmission to a remarketing agent) of our desire to tender Securities in a Remarketing shall constitute an irrevocable (except to the limited extent set forth in the Prospectus) offer by us to sell the Securities specified in such notice, or such lesser number of Securities as we shall be required to sell as a result of such Remarketing in accordance with the terms set forth in the Prospectus, and we authorize the remarketing agent to sell, transfer or otherwise dispose of such Securities as set forth in the Prospectus. 5. We agree that, during the applicable period as described in the Prospectus, dispositions of Securities can be made only in the denominations set forth in the Prospectus and we will sell, transfer or otherwise dispose of any Securities held by us from time to time only pursuant to a bid or sell order placed in an Auction, in a Remarketing. to or through a broker-dealer or, when permitted in the Prospectus, to a person that has signed and delivered to the applicable trust company or a remarketing agent a letter substantially in the form of this letter (or other applicable purchaser's, letter) provided that in the case of all transfers other than pursuant to Auctions or Remarketings we or our broker-dealer or our agent member shall advise such trust company or a remarketing agent of such transfer. We understand that a restrictive legend will be placed on certificates representing the Securities and stop-transfer instructions will be issued to the transfer agent and or registrar all as set forth in the Prospectus. 6. We agree that, during the applicable period as described in the Prospectus, ownership of Securities shall be represented by one or more global certificates registered in the name of the applicable securities depository or its nominee that we will not be entitled to receive any certificate representing the Securities and that our ownership of any Securities will be maintained in book entry form by the securities depository for the account of our agent member, which in turn will maintain records of our beneficial ownership. We authorize and instruct our agent member to disclose to the applicable trust company or remarketing agent such information concerning our beneficial ownership of Securities as such trust company or remarketing agent shall request. 7. We acknowledge that partial deliveries of Securities purchased in Auctions or Remarketings may be made to us and such deliveries shall constitute good delivery as set forth in the Prospectus. 8. This letter is not a commitment by us to purchase any Securities. A-2 9. This letter supersedes any prior-dated version of this master purchaser's letter, and supplements any prior or post-dated purchaser's letter specific to particular Securities, and this letter may only be revoked by a signed writing delivered to the original recipients hereof. 10. The descriptions of Auction or Remarketing procedures set forth in each applicable Prospectus are incorporated by reference herein and in case of any conflict between this letter, any purchaser's letter specific to particular Securities and any such description, such description shall control. 11. Any xerographic or other copy of this letter shall be deemed of equal effect as a signed original. 12. Our agent member of The Depository Trust Company currently is ____________. 13. Our personnel authorized to place orders with broker-dealers for the purposes set forth in the Prospectus in Auctions or Remarketings currently is/are , telephone number ( ) . 14. Our taxpayer identification number is __________. 15. In the case of each offer to purchase, purchase, offer to sell or sale by us of Securities not registered under the Securities Act of 1933, as amended (the "Act"), we represent and agree as follows: A. We understand and expressly acknowledge that the Securities have not been and will not be registered under the Act and, accordingly, that the Securities may not be reoffered, resold or otherwise pledged, hypothecated or transferred unless an applicable exemption from the registration requirements of the Act is available. B. We hereby confirm that any purchase of Securities made by us will be for our own account, or for the account of one or more parties for which we are acting as trustee or agent with complete investment discretion and with authority to bind such parties, and not with a view to any public resale or distribution thereof. We and each other party for which we are acting which will acquire Securities will be "accredited investors" within the meaning of Regulation D under the Act with respect to the Securities to be purchased by us or such party, as the case may be, will have previously invested in similar types of instruments and will be able and prepared to bear the economic risk of investing in and holding such Securities. C. We acknowledge that prior to purchasing any Securities we shall have received a Prospectus (or private placement memorandum) with respect thereto and acknowledge that we will have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase Securities. A-3 D. We recognize that the Company and broker-dealers will rely upon the truth and accuracy of the foregoing investment representations and agreements, and we agree that each of our purchases of Securities now or in the future shall be deemed to constitute our concurrence in all of the foregoing which shall be binding on us and each party for which we are acting as set forth in Subparagraph B above. ------------------------------------------- (Name of Purchaser) By ------------------------------------------ Name: Title: Dated: ---------------------- Mailing Address of Purchaser - ---------------------------- - ---------------------------- - ---------------------------- A-4 EXHIBIT B SETTLEMENT PROCEDURES Capitalized terms used herein shall have the respective meanings specified in the Articles Supplementary. (a) On each Auction Date, the Auction Agent shall notify by telephone or through the Auction Agent's Processing System the Broker-Dealers that participated in the Auction held on such Auction Date and submitted an Order on behalf of any Existing Holder or Potential Holder of: (i) the Applicable Rate fixed for the next succeeding Dividend Period; (ii) whether Sufficient Clearing Bids existed for the determination of the Applicable Rate; (iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a Bid or Sell Order on behalf of an Existing Holder, the number of shares, if any, of Preferred Shares to be sold by such Existing Holder; (iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a Bid on behalf of a Potential Holder, the number of shares, if any, of Preferred Shares to be purchased by such Potential Holder; (v) if the aggregate number of Preferred Shares to be sold by all Existing Holder on whose behalf such Broker-Dealer submitted a Bid or a Sell Order exceeds the aggregate number of Preferred Shares to be purchased by all potential Holders on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Buyer's Broker-Dealer (and the name of the Agent Member, if any, of each such Buyer's Broker-Dealer) acting for one or more purchasers of such excess number of Preferred Shares and the number of such shares to he purchased from one or more Existing Holders on whose behalf such Broker-Dealer acted by one or more Potential Holders on whose behalf each of such Buyer's Broker-Dealer acted; (vi) if the aggregate number of Preferred Shares to be purchased by all Potential Holders on whose behalf such Broker-Dealer submitted a Bid exceeds the aggregate number of Preferred Shares to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order, the name or names of one or more Seller's Broker-Dealers (and the name of the Agent Member, if any, of each such Seller's Broker-Dealer) acting for one or more sellers of such excess number of Preferred Shares and the number of such shares to be sold to one or more Potential Holders on whose behalf such Broker-Dealer acted by one or more Existing Holders on whose behalf each of such Seller's Broker-Dealer acted; and (vii) the Auction Date of the next succeeding Auction with respect to the Preferred Shares; B-1 (b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Holder or Potential Holder shall: (i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer, instruct each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Potential Holder's Agent Member to pay to such Broker-Dealer (or its Agent Member) through the Securities Depository the amount necessary to purchase the number of Preferred Shares to be purchased pursuant to such Bid against receipt of such shares and advise such Potential Holder of the Applicable Rate for the next succeeding Dividend Period; (ii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer, instruct each Existing Holder on whose behalf such Broker-Dealer submitted a Sell Order that was accepted, in whole or in part, or a Bid that was accepted, in whole or in part, to instruct such Existing Holder's Agent Member to deliver to such Broker-Dealer (or its Agent Member) through the Securities Depository the number of Preferred Shares to be sold pursuant to such Order against payment therefor and advise any such Existing Holder that will continue to hold Preferred Shares of the Applicable Rate for the next succeeding Dividend Period; (iii) advise each Existing Holder on whose behalf such Broker-Dealer submitted a Hold Order of the Applicable Rate for the next succeeding Dividend Period; (iv) advise each Existing Holder on whose behalf such Broker-Dealer submitted an Order of the Auction Date for the next succeeding Auction; and (v) advise each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the Auction Date for the next succeeding Auction. (c) On the basis of the information provided to it pursuant to (a) above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a Potential Holder or an Existing Holder shall, in such manner and at such time or times as in its sole discretion it may determine, allocated any funds received by it pursuant to (b)(i) above and any Preferred Shares received by it pursuant to (b)(ii) above among the Potential Holders, if any, on whose behalf such Broker-Dealer submitted Bids, the Existing Holders, if any, on whose behalf such Broker-Dealer submitted Bids that were accepted or Sell Orders, and any Broker-Dealer or Broker-Dealers identified to it by the Auction Agent pursuant to (a)(v) or (a)(vi) above. (d) On each Auction Date: (i) each Potential Holder and Existing Holder shall instruct its Agent Member as provided in (b)(i) or (ii) above, as the case may be. (ii) each Seller's Broker-Dealer which is not an Agent Member of the Securities Depository shall instruct its Agent Member to (A) pay through the Securities Depository to the Agent Member of the Existing Holder delivering shares to such Broker-Dealer pursuant to (b)(ii) above the amount necessary to purchase such shares against receipt of such shares, and (B) deliver such shares through the Securities Depository to a Buyer's Broker-Dealer (or its Agent Member) identified to such Sellers Broker-Dealer pursuant to (a)(v) above against payment therefor; and (iii) each Buyers Broker-Dealer which is not an Agent Member of the Securities Depository, shall instruct its Agent Member to (A) pay through the Securities Depository to a Seller's Broker-Dealer (or its Agent Member) identified pursuant to (a)(vi) above the amount necessary to purchase the shares to be purchased pursuant to (b)(i) above against receipt of such shares, and (B) deliver such shares through the Securities B-2 Depository to the Agent Member of the purchaser thereof against payment therefor. (e) On the day after the Auction Date: (i) each Bidder's Agent Member referred to in (d)(i) above shall instruct the Securities Depository to execute the transactions described under (b)(i) or (ii) above, and the Securities Depository shall execute such transactions: (ii) each Seller's Broker-Dealer or its Agent Member shall instruct the Securities Depository to execute the transactions described in (d)(ii) above, and the Securities Depository shall execute such transactions; and (iii) each Buyer's Broker-Dealer or its Agent Member shall, instruct the Securities Depository to execute the transactions described in (d)(iii) above, and the Securities Depository shall execute such transactions. (f) If an Existing Holder selling Preferred Shares in an Auction fails to deliver such shares (by authorized book-entry), a Broker-Dealer may deliver to the Potential Holder on behalf of which it submitted a Bid that was accepted a number of whole Preferred Shares that is less than the number of shares that otherwise was to be purchased by such Potential Holder. In such event, the number of Preferred Shares to be so delivered shall be determined solely by such Broker-Dealer. Delivery of such lesser number of shares shall constitute good delivery. Notwithstanding the foregoing terms of this paragraph (f), any delivery or non-delivery of shares which shall represent any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or non-delivery in accordance with the provisions of the Auction Agent Agreement and the Broker-Dealer Agreements. B-3 EXHIBIT C IBJ SCHRODER BANK & TRUST COMPANY AUCTION BID FORM Submit To: IBJ Schroder Bank & Trust Co. Issue________________________ Securities Transfer Department Series_______________________ One State Street Auction Date_________________ New York, New York 10004 Telephone (212) 858-2272 Attention: Auction Window Facsimile (212) 797-1148 The undersigned Broker-Dealer submits the following Order on behalf of the Bidder listed below: Name of Bidder:_____________________ EXISTING HOLDER Shares now held HOLD_________________________ BID at rate of ______________ SELL ________________________ POTENTIAL HOLDER # of shares bid _____________ BID at rate of ______________ Notes: (1) If submitting more than one Bid for one Bidder, use additional Auction Bid Forms. (2) If one or more Bids covering in the aggregate more than the number of outstanding shares held by any Existing Holder are submitted, such Bids shall be considered valid in the order of priority set forth in the Auction Procedures on the above issue. (3) A Hold or Sell may be placed only by an Existing Holder covering a number of shares not greater than the number of shares currently held. (4) Potential Holders may make only Bids, each of which must specify a rate. If more than one Bid is submitted on behalf of any Potential Holder, each Bid submitted shall be a separate Bid with the rate specified. (5) Bids may contain no more than three figures to the right of the decimal point (.001 of 1%). Fractions will not accepted. NAME OF BROKER-DEALER __________________________ Authorized Signature __________________________ EXHIBIT D (To be used only for transfers made other than pursuant to an Auction). TRANSFER FORM Re: MuniYield Fund, Inc. Auction Market Preferred Stock, Series ______ ("AMPS") We are (check one): |_| the Existing Holder named below; |_| the Broker-Dealer for such Existing Holder; or |_| the Agent Member for such Existing Holder. We hereby notify you that such Existing Holder has transferred _____ shares of Series _____ AMPS to ____________________. ------------------------------------ (Name of Existing Holder) ------------------------------------ (Name of Broker-Dealer) ------------------------------------ (Name of Agent Member) By: ------------------------------------ Name: Title: EXHIBIT E (To be used only for failures to deliver AMPS sold pursuant to an Auction) NOTICE OF A FAILURE TO DELIVER Complete either I or II I. We are a Broker-Dealer for ______________________________ (the "Purchaser"), which purchased _____ shares of Series _______ AMPS of MuniYield Fund, Inc. in the Auction held on _______________________ from the seller of such shares. II. We are a Broker-Dealer for ___________________________ (the "Seller"), which sold ____ shares of Series _____ AMPS of MuniYield Fund, Inc. in the Auction held on _____________________________ to the Purchaser of such shares. We hereby notify you that (check one) -- ____________ the Seller failed to deliver such shares to the Purchaser ____________ the Purchaser failed to make payment to the Seller upon delivery of such shares Name: ----------------------------------- Name of Broker-Dealer) By: ------------------------------------- Name: Title: EX-13.E 15 file014.txt FORM OF LETTER OF REPRESENTATION Exhibit 13(e) LETTER OF REPRESENTATION MUNIYIELD FUND, INC. and IBJ SCHRODER BANK & TRUST COMPANY December 23, 1991 The Depository Trust Company 55 Water Street New York, New York 10041 Attention: General Counsel's Office Re: MuniYield Fund, Inc. Issuance of Auction Market Preferred Stock ["AMPS"](R) Ladies and Gentlemen: The purpose of this letter is to set forth certain matters relating to the issuance and sales by MuniYield Fund, Inc., a Maryland corporation (the "Issuer"), of 900 shares of Auction Market Preferred Stock, Series A (the "Series A AMPS"), 900 shares of Auction Market Preferred Stock, Series B (the "Series B AMPS"), 900 shares of Auction Market Preferred Stock, Series C (the "Series C AMPS"), 900 shares of Auction Market Preferred Stock, Series D (the "Series D AMPS"), 1,400 shares of Auction Market Preferred Stock, Series E (the "Series E AMPS"). The Series A AMPS, Series B AMPS, Series C AMPS, Series D AMPS and Series E AMPS are sometimes herein together called the "AMPS". A description of the AMPS and the related offering are contained in a Prospectus, dated December 18, 1991 (the "Prospectus"), a copy of which is attached hereto as Exhibit A. IBJ Schroder Bank & Trust Company in its capacity as Auction Agent (as defined in the Prospectus), will act as the transfer agent, registrar, dividend disbursing agent and redemption agent with respect to the shares of AMPS. The shares of AMPS are being distributed through The Depository Trust Company ("DTC") by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriters"). To induce DTC to accept the shares of AMPS as eligible for deposit at DTC and to act in accordance with its rules (the "DTC Rules") with respect to the shares of AMPS, the Issuer and the Auction Agent make the following representations to DTC: - ---------- (R) Registered Trademark of Merrill Lynch & Co., Inc. 1. Subsequent to the issuance of the shares of AMPS on December 23, 1991 the Issuer shall cause the Underwriter to deposit with DTC one share certificate representing each series of AMPS, registered in the name of DTC's nominee, CEDE & CO., which will respectively represent the total number of shares of AMPS of such series, and said certificates shall remain in DTC's custody. 2. The Prospectus describes provisions for the solicitation of consents from, and voting by, holders of the shares of AMPS under certain circumstances. The Issuer shall establish a record date or record dates for such purposes and give DTC notice of such record date or dates not less than 15 calendar days in advance of such record date or dates to the extent practicable. 3. In the event of a full or partial redemption of outstanding shares of AMPS the Issuer or the Auction Agent shall give DTC notice of such event not less than 10 days nor more than 30 days prior to the redemption date. 4. In the event of a partial redemption of shares of any series of AMPS outstanding, the Issuer or the Auction Agent shall send DTC a notice specifying: the number of shares of AMPS of such series to be redeemed and the date such notice is to be mailed to shareholders of the Issuer or published by the Issuer ("Publication Date"). Such notice shall be sent to DTC by a secure means (e.g., legible facsimile transmission, registered or certified mail, overnight express delivery or hand delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business on the Business Day (as defined in the Prospectus) before the Publication Date. (The Issuer or the Auction Agent sending such notice shall have a method to verify subsequently the use of such means and timeliness of the notice.) In the event of a partial redemption, the Publication Date shall not be less than 10 days nor more than 30 days prior to the redemption date. 5. The Prospectus indicates that the dividend rate for the shares of AMPS of each series may vary from time to time. Absent other existing arrangements with DTC, the Issuer or the Auction Agent shall give DTC notice of each such change in the dividend rate on the same day the new rate is determined by telephone to the Supervisor of the Dividend Announcement Section at (212) 709-1270 and such notice shall be followed by prompt written confirmation sent by a secure means as described in paragraph 4 above to: Manager, Announcements, Dividend Department The Depository Trust Company 7 Hanover Square, 22nd Floor New York, New York 10004 6. The Prospectus indicates that each purchaser of shares of AMPS of any series will be required to sign a Purchaser's Letter (as defined in the Prospectus) that contains provisions restricting transfer of the shares of AMPS purchased. The Issuer and the Auction Agent acknowledge that as long as CEDE & CO. is the 2 sole record owner of the shares of AMPS, CEDE & CO. shall be entitled to all voting rights applicable to the shares of AMPS and to receive the full amount of all dividends, Additional Dividends, liquidation proceeds and redemption proceeds payable with respect to the shares of AMPS. The Issuer and the Auction Agent acknowledge that DTC shall treat any DTC Participant (defined in the DTC Rules to mean, generally, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations for whom DTC, directly or indirectly, holds securities) having shares of AMPS credited to its DTC account as entitled to the full benefits of ownership of such shares even if the credits of shares of AMPS to the DTC account of such DTC Participant result from transfers or failures to transfer in violation of the provisions of the Purchaser's Letter. Without limiting the generality of the preceding sentence, the Issuer and the Auction Agent acknowledge that DTC shall treat any DTC Participant having shares of AMPS credited to its account as entitled to receive dividends, distributions and voting rights, if any, in respect of such shares and, subject to Section 13 hereof, to receive certificates evidencing such shares of AMPS if such certificates are to be issued in accordance with the Issuer's Charter (as defined in the Prospectus). (The treatment by DTC of the effects of the crediting by it of shares of AMPS to the accounts of DTC Participants described in the preceding two sentences shall not affect the rights of the Issuer, participants in Auctions (as defined in the Prospectus) relating to the shares of AMPS, purchasers, sellers or holders of shares of AMPS against any DTC Participant.) DTC shall have no responsibility to ascertain that any transfer of shares of AMPS is made in accordance with the provisions of the Purchaser's Letter. Notwithstanding anything to the contrary, the parties acknowledge and agree that the Issuer and the Auction Agent shall have no responsibility or liability whatsoever for DTC's actions or omissions to act in respect of the shares of AMPS. 7. The Prospectus indicates that in the event the Issuer retroactively allocates any net capital gains or other taxable income to shares of any series of AMPS without having given advance notice thereof to the Auction Agent as described in the Prospectus solely by reason of the fact that such allocation is made as a result of the redemption of all or a portion of the outstanding shares of AMPS or the liquidation of the Issuer (the amount of such allocation referred to herein as a "Retroactive Taxable Allocation"), the Issuer will, within 90 days (and generally within 60 days) after the end of the Issuer's fiscal year for which a Retroactive Taxable Allocation is made, provide notice thereof to the Auction Agent and to each holder of shares of such series (initially Cede & Co. as nominee of DTC) during such fiscal year at such holder's address as the same appears or last appeared on the stock books of the Issuer. The Issuer will, within 30 days after such notice is given to the Auction Agent, pay to the Auction Agent (who will then distribute to such holders of such shares of AMPS), out of funds legally available therefor, an amount equal to the aggregate Additional Dividend (as defined in the Prospectus) with respect to all Retroactive Taxable Allocations made to such holders during the fiscal year in question. 3 8. The Issuer will notify DTC, at least 10 business days prior to the payment date for any Additional Dividends, of (i) the record date for holders of shares of each series of AMPS entitled to receive Additional Dividends, (ii) the amount of Additional Dividends payable on a per share basis to such holders and (iii) the CUSIP number set forth on the share certificate representing such shares of AMPS. 9. The Prospectus indicates that in the event a Response (as defined in the Prospectus) indicates that it is advisable that the Issuer give a Notice of Special Dividend Period (as defined in the Prospectus) for the AMPS, the Issuer may by no later than the second day prior to such Auction Date give a Notice of Special Dividend (as defined in the Prospectus) to the Auction Agent, DTC and each Broker-Dealer, which notice will specify (i) the duration of the Special Dividend Period, (ii) the Optional Redemption Price as specified in the Related Response and (iii) the Specific Redemption Provisions, if any, as specified in the related response. The Issuer is required to give telephonic and written notice (a "Notice of Revocation") to the Auction Agent, each Broker-Dealer, and DTC on or prior to the Business Day prior to the relevant Auction Date under the circumstances specified in the Prospectus. 10. All notices and payment advices sent to DTC shall contain the CUSIP number set forth on the share certificate representing the applicable series of AMPS. 11. Notices to DTC by facsimile transmission shall be sent to (212) 709-1093 or (212) 709-1094. Except as provided in paragraph 5 hereof, notices to DTC by any other means shall be sent to: Manager, Reorganization Department Reorganization Window The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004 12. Dividend payments shall be received by CEDE & CO., as nominee of DTC, or its registered assigns in same-day funds on each payment date or the equivalent as agreed between the Issuer or the Auction Agent and DTC ("Fed-Funds"). Such payment shall be made payable to the order of "CEDE & CO." Absent any other agreement between the Issuer or the Auction Agent and DTC such payments shall be addressed as follows: Manager, Cash Receipts, Dividends The Depository Trust Company 7 Hanover Square, 24th Floor New York, New York 10004 4 13. Redemption payments shall be made in Fed-Funds in the manner set forth in the SDFS Paying Agent Operating Procedures, a copy of which is attached hereto as Exhibit B. 14. DTC may direct the Issuer or the Auction Agent to use any other telephone number for facsimile transmission, address, or department of DTC as the number, address or department to which payments of dividends, redemption proceeds or notices may be sent. 15. In the event of a redemption necessitating a reduction in the number of shares of AMPS of any series outstanding, the Issuer will cause to be executed and delivered a new share certificate representing the remaining outstanding shares of AMPS of such series. Under such circumstances, DTC agrees to submit the original certificate to the Auction Agent for cancellation. 16. In the event the Issuer determines that beneficial owners of the shares of AMPS of any series (generally, the Existing Holders as defined in the Issuer's Charter) shall be able to obtain certificates representing such shares of AMPS (as provided for in the Issuer's Charter), the Issuer or the Auction Agent shall notify DTC of the availability of share certificates representing such shares of AMPS, as the case may be, and shall issue, transfer and exchange such certificates as required by DTC and others in appropriate amounts. 17. DTC may determine to discontinue providing its services as securities depository with respect to the shares of AMPS at any time by giving reasonable notice to the Issuer or the Auction Agent (at which time DTC will confirm with the Auction Agent the aggregate amount of the respective shares of AMPS outstanding). Under such circumstances the Issuer or the Auction Agent will cooperate with DTC in taking appropriate action to provide for a substitute or successor securities depository or to make available one or more separate certificates evidencing the shares of AMPS, to any DTC Participant having such shares credited to its DTC account. 18. The Issuer hereby authorizes DTC to provide to the Auction Agent position listings of its DTC Participants with respect to the shares of AMPS from time to time at the request of the Auction Agent, and also authorizes DTC, in the event of a partial redemption of shares of AMPS, to provide, and DTC hereby agrees to provide, upon receipt of its customary fee, the Auction Agent, upon request, with the names of those DTC Participants whose positions in such shares of AMPS have been selected for redemption by DTC. DTC agrees to use its best efforts to notify the Auction Agent of those DTC Participants whose positions in the shares of AMPS have been selected for redemption by DTC. The Issuer authorizes the Auction Agent to provide DTC with such signatures, exemplars of signatures and authorizations to act as may be deemed necessary by DTC to permit DTC to discharge its obligations to its DTC Participants and appropriate regulatory authorities. 5 This authorization, unless revoked by the Issuer, shall continue with respect to the shares of AMPS while any such shares are on deposit at DTC, until and unless the Auction Agent shall no longer be acting. In such event, the Issuer shall provide DTC with similar evidence of the authorization of any successor thereto so to act. 19. Requests for securities position listings shall be transmitted as follows: Facsimile transmissions of such requests shall be sent to DTC's Reorganization Department at (212) 709-6896 or (212) 709-6897, and receipt of such notices shall be confirmed by telephoning (212) 709-6870. Delivery of such requests by mail or other memo shall be sent to the following address: Supervisor - Proxy Reorganization Department The Depository Trust Company 7 Hanover Square - 23rd Floor New York, New York 10004-2695 20. Nothing herein shall be deemed to require the Auction Agent to advance funds on behalf of the Issuer. Very truly yours, MUNIYIELD FUND, INC. as Issuer By:_________________________________ Title: Vice President IBJ SCHRODER BANK & TRUST COMPANY as Auction Agent By:_________________________________ Title: Assistant Vice President Received and Accepted: THE DEPOSITORY TRUST COMPANY By:__________________________________ Title: Assistant Vice President cc: Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated 6 EX-14.A 16 file015.htm CONSENT OF INDEPENDENT AUDITORS EXHIBIT 14

Exhibit 14(a)

INDEPENDENT AUDITORS’ CONSENT

We consent to the use in Pre-Effective Amendment No. 1 to Registration Statement No. 333-65242 on Form N-14 of MuniYield Fund, Inc. (the “Fund”) of our report dated December 7, 2000 appearing in the October 31, 2000 Annual Report of the Fund, and to the references to us under the captions “COMPARISON OF THE FUNDS - Financial Highlights - MuniYield” and “EXPERTS” appearing in the Proxy Statement and Prospectus, which is a part of such Registration Statement.

/s/ Deloitte & Touche LLP

New York, New York
September 7, 2001

EX-14.B 17 file016.htm CONSENT OF INDEPENDENT AUDITORS EXHIBIT 14

Exhibit 14(b)

INDEPENDENT AUDITORS’ CONSENT

We consent to the use in Pre-Effective Amendment No. 1 to Registration Statement No. 333-65242 on Form N-14 of MuniYield Fund, Inc. of our report dated December 5, 2000 for Merrill Lynch Municipal Strategy Fund, Inc. (the “Fund”) appearing in the October 31, 2000 Annual Report of the Fund, and to the references to us under the captions “COMPARISON OF THE FUNDS - Financial Highlights - Municipal Strategy ” and “EXPERTS” appearing in the Proxy Statement and Prospectus, which is a part of such Registration Statement.

/s/ Deloitte & Touche LLP

New York, New York
September 7, 2001

-----END PRIVACY-ENHANCED MESSAGE-----

Copies to:
Frank P. Bruno, Esq. SIDLEY AUSTIN BROWN & WOOD LLP One World Trade Center New York, New York 10048-0557	<R>Philip L. Kirstein, Esq.</R> FUND ASSET MANAGEMENT, L.P. 800 Scudders Mill Road Plainsboro, New Jersey 08543-9011


Title of Securities Being Registered	Amount being Registered(1)	Proposed Maximum Offering Price Per Unit(1)		Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee(3)





Common Stock ($.10 par value)	6,356,590	$13.37		$84,987,605.63	$21,246.90

Auction Market Preferred Stock, Series F ($.10 par value)	1,720	$25,000	(2)	$43,000,000	$10,750

	Procedure	45
	Terms of the Agreement and Plan of Reorganization	45
	Potential Benefits to Stockholders as a Result of the Reorganization	47
	Surrender and Exchange of Stock Certificates	49
	Tax Consequences of the Reorganization	49
	Capitalization	51
INFORMATION CONCERNING THE MEETING		51
	Date, Time and Place of Meeting	51
	Solicitation, Revocation and Use of Proxies	51
	Record Date and Outstanding Shares	51
	Security Ownership of Certain Beneficial Owners and Management	52
	Voting Rights and Required Vote	52
	Appraisal Rights	52
ADDITIONAL INFORMATION		53
CUSTODIAN		54
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR		54
ACCOUNTING SERVICES PROVIDER		54
LEGAL OPINIONS		54
EXPERTS		54
LEGAL PROCEEDINGS		54
STOCKHOLDER PROPOSALS		55
INDEX TO FINANCIAL STATEMENTS		F-1
APPENDIX I: INFORMATION PERTAINING TO EACH FUND		I-1
APPENDIX II: AGREEMENT AND PLAN OF REORGANIZATION		II-1
APPENDIX III: RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER		III-1

	1 Year	3 Years	5 Years	10 Years
An investor would pay the following expenses on a $1,000 investment assuming (1) the operating expense ratio for each Fund set forth above and (2) a 5% annual return throughout the period:



MuniYield	$10	$32	$ 55	$122
Municipal Strategy*	$21	$64	$110	$238
Combined Fund**	$10	$32	$ 55	$121

MuniYield		MuniYield was incorporated under the laws of the State of Maryland on September 20, 1991, and commenced operations on November 20, 1991.

		MuniYield currently has outstanding common stock and five series of AMPS, designated Series A, Series B, Series C, Series D and Series E (collectively, the “MuniYield AMPS”).

		<R>As of July 31, 2001, MuniYield had net assets (including assets attributable to MuniYield AMPS) of approximately $774 million.</R>

Municipal Strategy		Municipal Strategy was incorporated under the laws of the State of Maryland on July 13, 1994, and commenced operations on November 3, 1995.

		Municipal Strategy has outstanding common stock and one series of AMPS, designated Series A.

	Liquidity. MuniYield Common Stock is listed on the NYSE and may be bought or sold at market price on each day the NYSE is open for trading. On any given day, the market price for MuniYield Common Stock on the NYSE may be higher or lower than the net asset value of the MuniYield Common Stock.

	<R>Municipal Strategy engages in a continuous offering of Municipal Strategy Common Stock. Municipal Strategy Common Stock is not listed on any exchange and no secondary market presently exists for Municipal Strategy Common Stock, nor is it currently expected that a secondary market will develop. To provide liquidity for stockholders of Municipal Strategy, the Fund’s Board of Directors considers, on a quarterly basis, whether the Fund should make a tender offer for its common stock. In a tender offer, the Fund purchases outstanding Municipal Strategy Common Stock at the Fund’s net asset value (less any applicable CDSC) on the last day of the offer. </R>

	Municipal Strategy’s Board of Directors is not required to authorize the making of a tender offer and there can be no assurance that a tender offer will be made during any particular quarter. If a tender offer is not made, stockholders may be unable to sell their shares. Since the inception of Municipal Strategy, however, the Board has authorized a tender offer each quarter.

	<R>If the Reorganization is consummated, the tender offer of Municipal Strategy that concluded on August 20, 2001 will have been the Fund’s final tender offer. </R>

	Contingent Deferred Sales Charge. Stockholders of MuniYield do not pay any CDSC because the Fund’s common stock trades on the NYSE. If common stockholders of Municipal Strategy sell their stock back to the Fund during a tender offer and they have held those shares for less than three years when the tender offer begins, they may have to pay a CDSC. This charge varies depending on how long a shareholder has owned the tendered shares. The amount of the charge is based on how much the shareholder paid for the tendered shares or their net asset value, whichever amount is less.

	<R>Portfolio Management. The investment adviser for each Fund is FAM. Mr. Roberto W. Roffo currently manages the investment portfolio of each Fund and will manage the Combined Fund after the Reorganization. </R>

	Advisory and Administrative Fees. FAM is responsible for the management of each Fund’s investment portfolio and for providing administrative services to each Fund.

	Pursuant to a separate investment advisory agreement between FAM and each Fund, each Fund pays FAM a monthly advisory fee at the annual rate of 0.50% of each Fund’s average net assets, including proceeds from the issuance of AMPS. The fee paid by MuniYield is computed on average weekly net assets. In comparison, Municipal Strategy’s fee is calculated on average daily net assets.

	Municipal Strategy also pays FAM a monthly administrative fee at the annual rate of 0.25% of its average daily net assets, including proceeds from the issuance of AMPS. MuniYield does not pay an administrative fee to FAM and the Combined Fund will not pay a separate administrative fee to FAM.

	Since the commencement of operations of Municipal Strategy to the present, FAM has waived a portion of the advisory fee due from Municipal Strategy and/or reimbursed certain other expenses. The fee waiver and/or expense reimbursement with respect to Municipal Strategy is voluntary and may be reduced or discontinued by FAM at any time without notice to stockholders. It is not anticipated that FAM will waive any portion of its advisory fee and/or reimburse expenses with respect to the Combined Fund after the Reorganization. See “Comparison of the Funds—Management of the Funds.”

	<R>Overall Expense Ratio. As stated above, since the commencement of operations of Municipal Strategy, FAM has voluntarily waived a portion of its advisory fee and/or reimbursed certain other expenses. </R>

	FAM has not waived fees or reimbursed expenses with respect to MuniYield. It is not anticipated that FAM will waive its advisory fee and/or reimburse expenses with respect to the Combined Fund on an ongoing basis.

	The table below summarizes the total annualized operating expense ratio for MuniYield, Municipal Strategy (excluding any advisory fee waivers and/or expense reimbursements) and the Combined Fund based on their respective average net assets (excluding assets attributable to AMPS) for the six month period ended April 30, 2001.

	Average Net Assets (Excluding Assets Attributable to AMPS) for the Six Month Period Ended April 30, 2001	Total Annualized Operating Expense Ratio
MuniYield	$507,503,509	1.00	%
Municipal Strategy	$ 81,220,051	2.05	%*
Combined Fund**	$588,723,560	0.99	%

	<R>Purchases and Sales of Common Stock and AMPS. Investors typically purchase and sell shares of MuniYield Common Stock at market price through a registered broker-dealer on each day that the NYSE is open for trading, and may incur a brokerage commission or other charge set by the broker-dealer. Alternatively, investors may purchase or sell shares of MuniYield Common Stock through privately negotiated transactions with existing stockholders.

	Investors typically can purchase shares of Municipal Strategy Common Stock from FAM Distributors, Inc., other selected securities dealers or other financial intermediaries, including Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”). The Fund offers its common stock on a best efforts basis through such distributors at a price equal to the next determined net asset value per share without a front-end sales charge. Shares are sold subject to certain minimum initial and subsequent purchase requirements.

	Municipal Strategy Common Stock is not listed on any exchange and no secondary market presently exists for Municipal Strategy Common Stock, nor is it currently expected that a secondary market will develop. To provide liquidity for stockholders of Municipal Strategy, the Fund’s Board of Directors considers, on a quarterly basis, whether the Fund should make a tender offer for its common stock. See “Liquidity.”

	Purchase and sale procedures for the AMPS of each Fund are identical. Such AMPS generally are purchased and sold at separate auctions conducted on a regular basis by BONY, as the auction agent for each Fund’s AMPS (in such capacity, the “Auction Agent”). Unless otherwise permitted by the Funds, existing and potential holders of AMPS may participate in auctions only through their broker-dealers. Broker-dealers submit the orders of their respective customers who are existing and potential holders of AMPS to the Auction Agent. On or prior to each auction date for the AMPS (the business day next preceding the first day of each dividend period), each holder may submit orders to buy, sell or hold AMPS to its broker-dealer.</R>

	Outside of these auctions, shares of AMPS may be purchased or sold through broker-dealers for the AMPS in a secondary trading market maintained by the broker-dealers. However, no assurance can be given that a secondary market will develop, or, if it does develop, that it will provide holders with a liquid trading market for the AMPS of either Fund.

	<R>Ratings of AMPS. The AMPS of each Fund have been assigned a rating of AAA from S&P and aaa from Moody’s. See “Comparison of the Funds—Rating Agency Guidelines.” </R>
	Portfolio Transactions. The portfolio transactions in which the Funds may engage are substantially similar, as are the procedures for such transactions. See “Comparison of the Funds—Portfolio Transactions.”

	Dividends and Distributions. The methods of dividend payment and distributions are identical with respect to the common stock and the AMPS of each Fund. See “Comparison of the Funds—Dividends and Distributions.”




	Net Asset Value. MuniYield determines its net asset value per share of common stock as of the close of business on the NYSE (generally, 4:00 p.m., Eastern time) (the “NYSE close of business”) on the last business day of each week. Municipal Strategy determines its net asset value as of the NYSE close of business once daily on each day the NYSE is open for trading.

	For purposes of determining the net asset value of a share of common stock of each Fund, the value of the securities held by the Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS of the Fund is divided by the total number of shares of common stock of the Fund outstanding at such time. Expenses, including fees payable to FAM, are accrued daily. See “Comparison of the Funds—Net Asset Value.”

	Voting Rights. The corresponding voting rights of the holders of shares of each Fund’s common stock are substantially similar. The corresponding voting rights of the holders of shares of each Fund’s AMPS are also substantially similar. See “Comparison of the Funds—Capital Stock.”

	Stockholder Services. An automatic dividend reinvestment plan is available to holders of shares of common stock of each Fund. See “Comparison of the Funds—Automatic Dividend Reinvestment Plan.” Other stockholder services, including the provision of annual and semi-annual reports, are the same for each Fund.

<R>	Outstanding Securities of MuniYield and Municipal Strategy as of July 31, 2001
	Title of Class	Amount Authorized	Amount Held By Fund for Its Own Account	Amount Outstanding Exclusive of Amount Shown in Previous Column
	MuniYield
	Common Stock	199,990,000	0	38,560,928

	AMPS
	Series A	1,800	0	1,800
	Series B	1,800	0	1,800
	Series C	1,800	0	1,800
	Series D	1,800	0	1,800
	Series E	2,800	0	2,800

	Municipal Strategy

	Common Stock	199,960,000	0	8,434,658
	AMPS
	Series A	8,000	0	1,720
	Series B	8,000	0	0
	Series C	8,000	0	0
	Series D	8,000	0	0
	Series E	8,000	0	0

	For the Six Months Ended April 30,		For the Year Ended October 31,								For the Period November 3, 1995†† to October 31,
	2001		2000		1999		1998		1997		1996
	(Unaudited)
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period	$ 8.75		$ 8.89		$ 10.96		$ 10.87		$ 10.17		$ 10.00

Investment income — net	.31		.72		.71		.73		.75		.68
Realized and unrealized gain (loss) on investments — net	.10		(.14	)	(1.75	)	.35		.70		.21

Total from investment operations	.41		.58		(1.04	)	1.08		1.45		.89

Less dividends and distributions to Common Stock shareholders:
Investment income — net	(.23	)	(.49	)	(.58	)	(.60	)	(.59	)	(.59	)
Realized gain on investments — net	—	†	—		—		(.19	)	—		—
In excess of realized gain on investments — net	—		—		(.27	)	—		—		—

Total dividends and distributions to Common Stock shareholders	(.23	)	(.49	)	(.85	)	(.79	)	(.59	)	(.59	)

Effect of Preferred Stock activity: ††††
Dividends and distributions to Preferred Stock shareholders:
Investment income — net	(.08	)	(.23	)	(.13	)	(.13	)	(.16	)	(.09	)
Realized gain on investments — net	—	†	—		—		(.07	)	—		—
In excess of realized gain on investments — net	—		—		(.05	)	—		—		—
Capital charge resulting from issuance of Preferred Stock	—		—		—		—		—		(.04	)

Total effect of Preferred Stock activity	(.08	)	(.23	)	(.18	)	(.20	)	(.16	)	(.13	)

Net asset value, end of period	$8.85		$8.75		$8.89		$10.96		$10.87		$10.17

Total Investment Return:**
Based on net asset value per share	3.73	%†††	4.09	%	(11.94	)%	8.28	%	13.08	%	7.81	%†††

Ratios Based on Average Net Assets of Common Stock:
Total expenses, net of reimbursement***	1.90	%*	1.88	%	1.75	%	1.61	%	1.37	%	.68	%*

Total expenses***	2.05	%*	2.04	%	1.90	%	1.80	%	1.83	%	1.60	%*

Total investment income — net***	6.99	%*	8.14	%	6.98	%	6.65	%	7.14	%	6.86	%*

Amount of dividends to Preferred Stock shareholders	1.84	%*	2.56	%	1.31	%	1.21	%	1.53	%	.94	%*

Investment income — net, to Common Stock shareholders	5.15	%*	5.58	%	5.67	%	5.44	%	5.61	%	5.92	%*

Ratios Based on Total Average Net Assets: ***†††††
Total expenses, net of reimbursement	1.24	%*	1.15	%	1.17	%	1.12	%	.96	%	.53	%*

Total expenses	1.34	%*	1.25	%	1.27	%	1.25	%	1.28	%	1.26	%*

Total investment income — net	4.57	%*	4.99	%	4.66	%	4.61	%	5.01	%	5.40	%*

Ratios Based on Average Net Assets of Preferred Stock:
Dividends to Preferred Stock shareholders	3.47	%*	4.05	%	2.63	%	2.75	%	3.58	%	3.49	%*

Supplemental Data:
Net assets, net of Preferred Stock, end of period (in thousands)	$78,479		$85,394		$102,174		$115,339		$101,463		$83,573

†		<R>Amount is less than $.01 per share.</R>
††		Commencement of operations.

	Market Price**		Net Asset Value		Premium (Discount) to Net Asset Value



Quarter Ended*	High	Low	High	Low	High		Low
	$	$	$	$	%		%
January 31, 1999	17.187	16.062	16.36	15.40	8.34		2.06
April 30, 1999	16.25	15.187	15.58	15.32	4.37		(1.25	)
July 31, 1999	15.625	14.00	15.35	14.52	1.79		(4.37	)
October 31, 1999	14.188	12.375	14.53	13.02	(1.22	)	(7.42	)
January 31, 2000	13.00	11.25	13.55	12.51	(2.51	)	(12.38	)
April 30, 2000	12.25	11.125	13.24	12.50	(2.50	)	(13.49	)
July 31, 2000	12.625	11.375	13.18	12.49	(3.63	)	(9.58	)
October 31, 2000	13.063	12.25	13.45	13.03	(1.37	)	(7.27	)
January 31, 2001	14.11	12.313	13.46	12.84	6.57		(5.00	)
April 30, 2001	13.94	13.28	13.51	12.87	4.58		(.15	)
July 31, 2001	13.80	13.23	13.58	12.89	6.03		(.38	)

S&P	Moody’s	Number of Issues	Value (in Thousands)	Percent
S&P	Moody’s	Number of Issues	Value (in Thousands)	Percent
AAA	Aaa	62	$339,453	45.0	%
AA	Aa	22	104,103	13.8
A	A	4	48,573	6.4
BBB	Baa	19	127,624	16.9
NR	NR	26	134,946	17.9

Total		133	$754,699	100.0	%
						</R>

					Average Annual Total Return
	Yield—31 days ended May 31, 2001		Tax Equivalent Yield—31 days ended May 31, 2001†		One Year ended May 31, 2001		Five Years ended May 31, 2001		Since Inception to May 31, 2001


Municipal Strategy	5.27	%	7.27	%	12.26	%	4.91	%	4.52	%*
MuniYield	6.40	%	8.83	%	10.87	%	5.17	%	7.40	%**

	For the Six Month Period Ended April 30, 2001		For the Year Ended October 31,
	(Unaudited)		2000		1999
MuniYield	36.66	%	103.44	%	78.42	%

	For the Six Month Period Ended April 30, 2001		For the Year Ended October 31,
	(Unaudited)		2000		1999
Municipal Strategy	20.49	%	115.52	%	158.57	%

Auction Date	Fund	Dividend Period	Series	Dividend Rate
September 4, 2001	MuniYield	28 days	A	2.50	%
August 14, 2001	MuniYield	28 days	B	2.50	%
August 28, 2001	MuniYield	28 days	C	2.40	%
August 28, 2001	MuniYield	28 days	D	2.40	%
September 4, 2001	MuniYield	7 days	E	2.45	%
August 22, 2001	Municipal Strategy	7 days	A	2.40	%

MuniYield
Period	Paid to State Street			Paid to FAM
Fiscal year ended October 31, 1998		N/A		$	86,625
Fiscal year ended October 31, 1999		N/A		$	103,026
Fiscal year ended October 31, 2000		N/A		$	115,121
For the six months ended April 30, 2001	$	70,706	*	$	54,031

	Average Net Assets (Excluding Assets Attributable to AMPS) for the Six Month Period ended April 30, 2001	Total Annualized Operating Expense Ratio
MuniYield	$507,503,509	1.00	%
Municipal Strategy	$ 81,220,051	2.05	%*
Combined Fund**	$588,723,560	0.99	%

If Prior To The Reorganization You Held:		After The Reorganization, You Will Hold:
Municipal Strategy Common Stock		MuniYield Common Stock
Municipal Strategy Series A AMPS		MuniYield Series F AMPS

		MuniYield		Municipal Strategy	Pro Forma Adjustment		Combined Fund as adjusted(a)
Net Assets:
Net Assets Attributable to
Common Stock	$	495,408,940	$	78,478,891	$(6,833,262	)	$	567,054,569
Net Assets Attributable to AMPS	$	250,000,000	$	43,000,000			$	293,000,000
Shares Outstanding:
Common Stock		38,482,330		8,871,713	(2,705,008	)		44,649,035	(b)
AMPS
Series A		1,800		1,720	(1,720	)		1,800
Series B		1,800		—	—			1,800
Series C		1,800		—	—			1,800
Series D		1,800		—	—			1,800
Series E		2,800		—	—			2,800
Series F		—		—	1,720			1,720	(b)
Net Asset Value Per Share:
Common Stock	$	12.87	$	8.85	—		$	12.70	(c)
AMPS	$	25,000	$	25,000	—		$	25,000

(in Thousands)
					Value
State	S&P Ratings	Moody’s Ratings	Face Amount		MuniYield Fund	Municipal Strategy Fund	Pro Forma for Combined Fund

Alabama — 0.0%				Columbia, Alabama, IDB, PCR, Refunding (Alabama Power Company Project), VRDN(a):
	A1	VMIG1†	$ 300	Series A, 4.50% due 5/01/2022	$ —	$ 300	$ 300
	A1	VMIG1†	100	Series E, 4.45% due 10/01/2022	—	100	100

Alaska — 1.0%	NR*	NR*	5,050	Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024	5,014	—	5,014

Arizona — 1.9%	AAA	Aaa	1,460	Arizona State Wastwater Management Authority, Wastewater Treatment Financial Assistance Revenue Bonds, Series A, 5.60% due 7/01/2006(b)(c)	1,593	—	1,593

				Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds (America West Airlines Inc. Project), AMT:
	NR*	B3	10,000	6.25% due 6/01/2019	6,800	1,700	8,500
	NR*	B3	6,900	6.30% due 4/01/2023	4,465	1,348	5,813

California — 1.3%	AAA	NR*	4,000	California State, GO, Refunding, 5.75% due 12/01/2011(e)	4,366	—	4,366

	AAA	Aaa	3,000	California State University and Colleges, Student Union Revenue Bonds (Chico), Series B, 4.375% due 11/01/2028(e)	—	2,493	2,493

	AAA	Aaa	1,560	Centinela Valley, California, Union High School District, GO, Series A, 5.875% due 8/01/2024(e)	—	1,645	1,645

				Los Angeles County, California, Schools Regionalized Business Services, COP, Pooled Financing, Series A(c):
	AAA	Aaa	1,430	5.90%** due 8/01/2019	—	518	518
	AAA	Aaa	2,510	6%** due 8/01/2029	—	498	498

	AA	Aa3	1,250	Sacramento County, California, Sanitation District Financing Authority Revenue Refunding Bonds, Trust Receipts, Class R, Series A, 7.597% due 12/01/2019(k)	—	1,389	1,389

Colorado — 3.4%	NR*	Aaa	9,110	Broomfield, Colorado, COP (Open Space Park and Recreational Facilities), 5.75% due 12/01/2015(c)	4,948	4,715	9,663

	AA	Aa2	1,500	Colorado HFA Revenue Refunding Bonds (S/F Program), AMT, Series D-2, 6.90% due 4/01/2029	—	1,668	1,668

				Denver, Colorado, City and County Airport Revenue Bonds, AMT, Series D:
	A	Aaa	700	7.75% due 11/15/2001(b)	731	—	731
	A	A2	8,000	7.75% due 11/15/2013	9,656	—	9,656

	NR*	NR*	$6,500	Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue Bonds (Pavilions), AMT, 7.75% due 9/01/2016	5,291	$1,587	6,878

</R>


(a)		The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2001.

	MuniYield Fund		Municipal Strategy Fund		Adjustments		Pro Forma for Combined Fund
Assets:
Investments, at value*	$735,484,577		$120,646,530				$856,131,107
Cash	36,465		23,957				60,422
Receivables:
Interest	13,291,362		2,023,863				15,315,225
Securities sold	351,866		—				351,866
Deferred organization expenses	—		174				174
Prepaid expenses and other assets	87,775		37,610				125,385

Total assets	749,252,045		122,732,134				871,984,179

Liabilities:
Payables:
Securities purchased	3,441,463		985,299				4,426,762
Investment adviser	301,380		39,029				340,409
Dividends to shareholders	45,650		118,957		$6,707,462		6,872,069
Administration fees	—		24,393				24,393
Accrued expenses and other liabilities	54,612		85,565		125,800	(1)	265,977

Total liabilities	3,843,105		1,253,243		6,833,262		11,929,610

Net Assets	$745,408,940		$121,478,891		$(6,833,262	)	$860,054,569

Capital:
Capital Stock (200,000,000 shares authorized)
Preferred Stock*, shares of AMPS issued and outstanding† at $25,000 per share liquidation preference	$250,000,000		$ 43,000,000				$293,000,000
Common Stock, par value $.10 per share issued and outstanding††	3,848,233		887,171		$ (270,501	)	4,464,903
Paid-in capital in excess of par	541,046,599		93,476,958		144,701		634,668,258
Undistributed investment income — net	6,673,054		34,408		(6,707,462	)	—
Accumulated realized capital losses on investments — net	(38,225,209	)	(9,137,861	)			(47,363,070	)
Accumulated distributions in excess of realized capital gains on investments — net	(11,020,699	)	(3,406,030	)			(14,426,729	)
Unrealized depreciation on investments — net	(6,913,038	)	(3,375,755	)			(10,288,793	)

Total capital	$745,408,940		$121,478,891		$(6,833,262	)	$860,054,569

Net asset value per Common Share	$ 12.87		$ 8.85				$ 12.70

* Identified Cost	$742,397,615		$124,022,285				$866,419,900
† Shares issued and outstanding	10,000		1,720				11,720
†† Shares issued and outstanding	38,482,330		8,871,713		(2,705,008	)	44,649,035

**		Auction Market Preferred Stock
***		Shares of MuniYield AMPS Series A, B, C, D and E have a par value of $.05; shares of Municipal Strategy AMPS Series A have a par value of $.10.


(1)		Reflects the charge for estimated Reorganization expenses of $125,800 attributable to Municipal Strategy. The estimated Reorganization expenses of $95,400 attributable to MuniYield will be paid by Fund Asset Management, L.P. (“FAM”).


(1)		Reflects anticipated savings as a result of the Reorganization through fewer audits and consolidation of printing, accounting and other services and excludes non-recurring organization expenses attributable to Municipal Strategy.


Fund	Defined Term Used in Appendix I	Fiscal Year End	State of Incorporation	Meeting Time
MuniYield Fund, Inc.	MuniYield	10/31	Maryland	N/A
Merrill Lynch Municipal Strategy Fund, Inc.	Municipal Strategy	10/31	Maryland	9:30 a.m.


	Shares of Capital Stock Outstanding as of the Record Date
Fund	Common Stock	AMPS
MuniYield	38,598,832	10,000
Municipal Strategy	7,919,993	1,720