N-14 8C/A

<R>As filed with the Securities and Exchange Commission on September 10, 2001

Securities Act File No. 333-65446
Investment Company Act File No. 811-7642</R>

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM N-14

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

<R>	Pre-Effective Amendment No. 1	|X|</R>
	Post-Effective Amendment No.	|   |

(Check appropriate box or boxes)

MuniAssets 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
MuniAssets Fund, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey 08536
Mailing Address:
PO Box 9011, Princeton, New Jersey 08543-9011

(Name and Address of Agent for Service)

Copies to:

Leonard B. Mackey, Jr.
CLIFFORD CHANCE
ROGERS & WELLS LLP
200 Park Avenue
New York, New York 10166 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 (2)
Common Stock ($.10 par value)	11,079,988	$13.07	$144,815,443	$36,204

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

(2) Previously paid by wire transfer to the designated lockbox of the Securities and Exchange Commission in Pittsburgh, Pennsylvania.

     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.

MUNIASSETS FUND, INC.
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF MUNIASSETS FUND, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.

To Be Held on October 24, 2001

TO THE STOCKHOLDERS OF

MUNIASSETS FUND, INC.
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.:

     NOTICE IS HEREBY GIVEN that an annual meeting of stockholders of MuniAssets Fund, Inc. (“MuniAssets”) and a special meeting of stockholders of Merrill Lynch High Income Municipal Bond Fund, Inc. (“High Income Municipal”) (together, the “Meetings”) will be held at the offices of Fund Asset Management, L.P. and Merrill Lynch Investment Managers, L.P., respectively, 800 Scudders Mill Road, Plainsboro, New Jersey on Wednesday, October 24, 2001 at 9:00 a.m. Eastern time (MuniAssets) and 10:00 a.m. Eastern time (High Income Municipal) for the following purposes:

     For the stockholders of MuniAssets and High Income Municipal:

     (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 High Income Municipal by MuniAssets, in return for newly issued shares of common stock of MuniAssets, and (ii) the distribution by High Income Municipal of such MuniAssets common stock to the holders of common stock of High Income Municipal (plus cash in lieu of fractional shares). A vote in favor of this proposal also will constitute a vote in favor of the liquidation and dissolution of High Income Municipal under Maryland corporate law and the termination of High Income Municipal’s registration under the Investment Company Act of 1940, as amended;

     For the stockholders of MuniAssets only:

     (2) To elect two Class I Directors of MuniAssets to serve for a term of three years; and

     For the stockholders of both Funds:

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

     The Boards of Directors of MuniAssets and High Income Municipal have 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 Meetings or any adjournment thereof.

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

     You are cordially invited to attend the applicable Meeting. Stockholders who do not expect to attend the Meetings 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 MuniAssets or High Income Municipal, as applicable.

     <R>If you have any questions regarding the enclosed proxy material or need assistance in voting your shares of common stock, please contact our proxy solicitor, Georgeson Shareholder at 1-888-856-1572.</R>

By Order of the Boards of Directors,

BRADLEY J. LUCIDO
Secretary
MuniAssets Fund, Inc.

ALICE A. PELLEGRINO
Secretary
Merrill Lynch High Income Municipal Bond Fund, Inc.

<R>Plainsboro, New Jersey
Dated: September 10, 2001</R>

<R></R>

JOINT PROXY STATEMENT AND PROSPECTUS
MUNIASSETS FUND, INC.
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800

ANNUAL MEETING OF STOCKHOLDERS OF MUNIASSETS FUND, INC.

SPECIAL MEETING OF STOCKHOLDERS OF
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.

To Be Held on October 24, 2001

     This Joint Proxy Statement and Prospectus is furnished to you as a stockholder of one or both of the funds listed above. An annual meeting of stockholders of MuniAssets Fund, Inc. (“MuniAssets”) and a special meeting of stockholders of Merrill Lynch High Income Municipal Bond Fund, Inc. (“High Income Municipal”) will be held on October 24, 2001 (each, a “Meeting” and together, the “Meetings”) to consider the items listed below and discussed in greater detail elsewhere in this Joint Proxy Statement and Prospectus. The Board of Directors of each of the funds is requesting its stockholders to submit a proxy to be used at the applicable Meeting to vote the shares held by the stockholder submitting the proxy.

     The proposals to be considered at the Meetings are:

     For stockholders of MuniAssets and High Income Municipal:

     1. To approve or disapprove an Agreement and Plan of Reorganization between the funds;

     For stockholders of MuniAssets only:

     2. To elect two Class I Directors of MuniAssets to serve for a term of three years; and

     For the stockholders of both MuniAssets and High Income Municipal:

     3. To transact such other business as may properly come before the Meetings or any adjournment thereof.

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

     MuniAssets, which will be the surviving fund, and

     High Income Municipal

(continued on next page)

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

<R>The date of this Joint Proxy Statement and Prospectus is September 10, 2001.</R>

     MuniAssets and High Income Municipal 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.”

     In the Reorganization, MuniAssets will acquire substantially all of the assets and assume substantially all of the liabilities of High Income Municipal solely in return for shares of common stock of MuniAssets (“MuniAssets Common Stock”). High Income Municipal will distribute the MuniAssets Common Stock 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”). MuniAssets will continue to operate as a registered, non-diversified, closed-end investment company with the investment objective and policies described in this Joint Proxy Statement and Prospectus.

     <R>In the Reorganization, a holder of common stock of High Income Municipal (“High Income Municipal Common Stock”) will receive MuniAssets Common Stock (plus cash in lieu of fractional shares) with an aggregate net asset value equal to the aggregate net asset value of the shares of High Income Municipal Common Stock such stockholder held just prior to the Reorganization. All references to the High Income Municipal Common Stock will include shares of Common Stock representing Dividend Reinvestment Plan shares held in the book deposit accounts of holders of High Income Municipal Common Stock.</R>

     This Joint Proxy Statement and Prospectus serves as a prospectus of MuniAssets in connection with the issuance of MuniAssets Common Stock in the Reorganization.

     This Joint Proxy Statement and Prospectus sets forth information about MuniAssets and High Income Municipal that stockholders of the Funds should know before considering the Reorganization and should be retained for future reference. Each Fund has authorized the solicitation of proxies in connection with the Meetings solely on the basis of this Joint Proxy Statement and Prospectus and the accompanying documents.

     The address of the principal executive offices of MuniAssets and High Income Municipal is 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and the telephone number is (609) 282-2800.

     MuniAssets Common Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “MUA” and may be bought or sold at the market price on each day the NYSE is open for trading. High Income Municipal engages in a continuous offering of its Common Stock. High Income Municipal Common Stock is not listed on any exchange and no secondary market presently exists for High Income Municipal Common Stock nor is it expected that a secondary market will develop. After the Reorganization, shares of MuniAssets Common Stock will continue to be listed on the NYSE under the symbol “MUA.” See “Additional Information.”

Table of Contents

		Page
INTRODUCTION		1
ITEM 1. THE REORGANIZATION		1
SUMMARY		1
	The Reorganization	1
	What Will Be the Results of the Reorganization	2
	Reasons for the Reorganization	2
RISK FACTORS AND SPECIAL CONSIDERATIONS		9
	Trading at a Discount	9
	Interest Rate and Credit Risk	9
	Non-Diversification	9
	High Yield or “Junk Bonds”	10
	Private Activity Bonds	10
	Indexed and Inverse Floating Obligations	10
	Options and Futures Transactions	10
	Antitakeover Provisions	10
COMPARISON OF THE FUNDS		11
	Financial Highlights	11
	Investment Objective and Policies	13
	Description of Municipal Bonds	15
	Other Investment Policies	15
	Information Regarding Options and Futures Transactions	17
	Investment Restrictions	19
	Portfolio Composition	21
	Performance	21
	Portfolio Transactions	22
	Portfolio Turnover	22
	Net Asset Value	23
	Capital Stock	23
	Certain Provisions of the Charters	23
	Management of the Funds	24
	Code of Ethics	26
	Voting Rights	26
	Stockholder Inquiries	27
	Dividends and Distributions	27
	Automatic Dividend Reinvestment Plan	27
	Mutual Fund Investment Option	29
	Tax Rules Applicable to the Funds and Their Stockholders	29
	Tax Treatment of Options and Futures Transactions	31

AGREEMENT AND PLAN OF REORGANIZATION		32
	General	32
	Procedure	32
	Terms of the Agreement and Plan of Reorganization	33
	Potential Benefits to Common Stockholders of the Funds as a Result of the Reorganization	34
	Surrender and Exchange of Stock Certificates	35
	Tax Consequences of the Reorganization	36
	Capitalization	37

 

		Page
ITEM 2. ELECTION OF DIRECTORS OF MUNIASSETS		37
	Committee Report	39
	Committee and Board Meetings	39
	Independent Auditors’ Fees	40
	Compliance with Section 16(a) of the Securities Exchange Act of 1934	40
	Interested Persons	40
	Compensation of Directors	40
	Officers of MuniAssets	40
INFORMATION CONCERNING THE MEETINGS		40
	Date, Time and Place of Meetings	40
	Solicitation, Revocation and Use of Proxies	40
	Record Date and Outstanding Shares	41
	Security Ownership of Certain Beneficial Owners and Management	41
	Voting Rights and Required Vote	41
	Appraisal Rights	41
ADDITIONAL INFORMATION		42
CUSTODIAN		43
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR		43
ACCOUNTING SERVICES PROVIDER		43
LEGAL PROCEEDINGS		43
LEGAL OPINIONS		43
EXPERTS		43
STOCKHOLDER PROPOSALS		43
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
APPENDIX IV:  CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF     DIRECTORS OF MUNIASSETS FUND, INC.		IV-1

     INTRODUCTION

     <R>This Joint Proxy Statement and Prospectus is furnished to you in connection with the solicitation of proxies on behalf of the Board of Directors of MuniAssets and High Income Municipal for use at the Meetings to be held at the offices of Fund Asset Management, L.P. (“FAM”) and Merrill Lynch Investment Managers, L.P. (“MLIM”), respectively, 800 Scudders Mill Road, Plainsboro, New Jersey on October 24, 2001, at the time specified for each Fund in Appendix I to this Joint Proxy Statement and Prospectus. The mailing address for each Fund is P.O. Box 9011, Princeton, New Jersey 08543-9011. The approximate mailing date of this Joint Proxy Statement and Prospectus is September 13, 2001.</R>

     Any person giving a proxy may revoke it at any time prior to its exercise by executing a superseding proxy, by giving written notice of the revocation to the Secretary of MuniAssets or High Income Municipal, as applicable, at the address indicated above or by voting in person at the applicable Meeting. All properly executed proxies received prior to the Meetings will be voted at the Meetings in accordance with the instructions marked thereon or otherwise as provided therein. Unless instructions to the contrary are marked, (a) for the stockholders of both Funds, all proxies will be voted “FOR” Item 1 to approve the Agreement and Plan of Reorganization between MuniAssets and High Income Municipal (the “Agreement and Plan”); and (b) for the stockholders of MuniAssets only, all proxies submitted by MuniAssets stockholders will be voted “FOR” Item 2 to elect two Class I Directors of MuniAssets to serve for a term of three years.

     <R>With respect to Item 1, assuming the required quorum is present at each Meeting, approval of the Agreement and Plan will require (i) the affirmative vote of a majority of the outstanding shares of High Income Municipal entitled to vote thereon and (ii) the affirmative vote of a majority of the votes cast by the holders of MuniAssets Common Stock with respect to such item, provided that the total number of votes cast on such item represents over 50% shares entitled to vote on such item. The Reorganization will not take place if either the MuniAssets stockholders or the High Income Municipal stockholders do not approve the Agreement and Plan.</R>

     With respect to Item 2, assuming the required quorum is present at the Meeting of MuniAssets stockholders, the election of two Class I Directors of MuniAssets will require the affirmative vote of a plurality of the votes cast by MuniAssets stockholders. A “plurality of the votes cast” means the candidates must receive more votes than any other candidates for the same positions, but not necessarily a majority of votes cast.

     <R>The Board of Directors of each Fund 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 Meetings, or any adjournment thereof. Stockholders on the Record Date will be entitled to one vote for each share held, with no shares having cumulative voting rights. At the Record Date, each Fund had outstanding the number of shares of Common Stock indicated in Appendix I. To the knowledge of the management of each Fund, no person owned beneficially more than 5% of the outstanding shares of capital stock of the respective Fund as of the Record Date.</R>

     The Boards of Directors of the Funds know of no business other than that discussed in Item 1 and Item 2 below that will be presented for consideration at the Meetings. 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.

ITEM 1. THE REORGANIZATION

SUMMARY

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

The Reorganization

     At separate meetings of the Board of Directors of High Income Municipal and MuniAssets held on June 7, 2001 and July 11, 2001, respectively, each Board unanimously approved the transaction whereby (i) MuniAssets would acquire substantially all of the assets and assume substantially all of the liabilities of High Income Municipal, (ii) MuniAssets would simultaneously issue to High Income Municipal shares of MuniAssets

Common Stock, (iii) the shares of MuniAssets Common Stock would be subsequently distributed to the holders of High Income Municipal Common Stock (plus cash in lieu of fractional shares) and (iv) High Income Municipal would be deregistered and dissolved, as described below.

What Will Be the Results of the Reorganization

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

• MuniAssets will acquire substantially all of the assets and assume substantially all of the liabilities of High Income Municipal;

• Stockholders of High Income Municipal will become stockholders of MuniAssets; and

• Stockholders of High Income Municipal Common Stock will receive full shares of MuniAssets Common Stock (plus cash in lieu of fractional shares) equal to the aggregate net asset value of the shares of High Income Municipal Common Stock currently owned by such stockholders.

     Stockholders should consult their tax advisers regarding the effect of the Reorganization in light of their individual circumstances.

Reasons for the Reorganization

     The Boards of Directors of MuniAssets and High Income Municipal have approved the Agreement and Plan. The Boards of Directors of MuniAssets and High Income Municipal recommend that you vote to approve the Agreement and Plan.

High Income Municipal

     <R>The Board of Directors of High Income Municipal has determined that High Income Municipal common stockholders are likely to benefit from the Reorganization and that the interests of existing stockholders will not be diluted as a result of the Reorganization. The Board of Directors believes that the Reorganization is in the best interests of High Income Municipal and its common stockholders.

     In reaching its decision, the Board of Directors considered a number of factors including the following:</R>

• After the Reorganization, High Income Municipal common stockholders will be invested in a substantially larger non-diversified, closed-end fund with an investment objective and policies substantially similar to High Income Municipal’s investment objective and policies;

• After the Reorganization, High Income Municipal common stockholders are expected to experience lower expenses per share, economies of scale and greater flexibility in portfolio management;

• After the Reorganization, High Income Municipal common stockholders will benefit from the fact that the Combined Fund will not pay the administrative fee currently paid by High Income Municipal;

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

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

• After the Reorganization, High Income Municipal common stockholders will no longer be subject to an early withdrawal charge (“EWC”) upon the sale of shares held for less than three years; and

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

MuniAssets

     <R>The Board of Directors of MuniAssets has determined that MuniAssets common stockholders are likely to benefit from the Reorganization and that the interests of existing stockholders will not be diluted as a result of the Reorganization. The Board believes that the Reorganization is in the best interest of MuniAssets and its common stockholders.</R>

2

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

• After the Reorganization, MuniAssets common stockholders will remain invested in a non-diversified, closed-end fund that has no changes to its current investment objective but has a larger asset base and is expected to have a lower expense ratio; and

• After the Reorganization, MuniAssets common stockholders should experience economies of scale and greater flexibility in portfolio management.

     See “Fee Table” below and “The Reorganization—Potential Benefits to Stockholders as a Result of the Reorganization.”

     The Reorganization requires the approval of the stockholders of both Funds. The Reorganization will not take place if either the MuniAssets stockholders or the High Income Municipal stockholders do not approve the Agreement and Plan. 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 stockholders of the Funds 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.

Fee Table for Common Stockholders of MuniAssets,
High Income Municipal and the Pro Forma Combined Fund
as of May 31, 2001 (Unaudited)

     The following fee table below illustrates the expenses incurred by each Fund individually and the estimated pro forma expenses to be incurred by the Combined Fund after the Reorganization. Future fees and expenses may be greater or less than those indicated.

<R>	Actual				Pro Forma
	MuniAssets		High Income Municipal		Combined Fund*
Stockholder Transaction Expenses
Maximum Sales Load (as a percentage of the    offering price) imposed on purchases    of Common Stock	None	(a)	None		None	(a)(b)
Dividend Reinvestment and Cash Purchase    Plan Fees	None		None		None
Early Withdrawal Charge   (as a percentage of original purchase   price or net asset value at the   time of repurchase)(c)	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    at May 31, 2001)
Investment Advisory Fees(d)	.55	%	.95	%	.55	%
Other Expenses	.21	%	.66	%(e)	.13	%
Total Annual Expenses	.76	%	1.61	%	.68	%

* The expenses for the Combined Fund represent the estimated annualized expenses as of May 31, 2001 assuming MuniAssets had acquired substantially all of the assets and assumed substantially all of the liabilities of High Income Municipal as of that date.

(a) Shares of Common Stock purchased in the secondary market may be subject to brokerage commissions or other charges.

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

(c) No Early Withdrawal Charge (“EWC”) will apply to shares of MuniAssets Common Stock issued to High Income Municipal in the Reorganization, nor will any EWC be due on shares of High Income Municipal Common Stock in connection with the Reorganization.</R>

(d) Based on average net assets of each Fund and the Combined Fund as of May 31, 2001.

(e) Includes the administrative fee at the rate of 0.25% of average daily net assets paid by High Income Municipal.

 

3

Example:

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:
MuniAssets	$  8	$24	$42	$  94
High Income Municipal*	$16	$51	$88	$191
Combined Fund**	$  7	$22	$38	$  85

* Assumes that the investor is not tendering shares at the end of the period.

** Assumes that the Reorganization had taken place on May 31, 2001.

     The foregoing Fee Table is intended to assist investors in understanding the costs and expenses that a stockholder of each Fund will bear directly or indirectly as compared to the costs and expenses that would be borne by such investors taking into account the Reorganization. The example set forth above assumes that all dividends were reinvested and uses a 5% annual rate of return as mandated by SEC regulations and for shares of High Income Municipal Common Stock that such shares were purchased in the initial public offering of shares of High Income Municipal Common Stock. The example 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 example. See “Comparison of the Funds” and “The Reorganization — Potential Benefits to Common Stockholders of the Funds as a Result of the Reorganization.”

MuniAssets		<R>MuniAssets was incorporated under the laws of the State of Maryland on April 15, 1993 and commenced operations on June 25, 1993. As of July 31, 2001, MuniAssets had net assets of approximately $137.6 million.
High Income Municipal		High Income Municipal was incorporated under the laws of the State of Maryland on August 16, 1990 and commenced operations on November 2, 1990. As of July 31, 2001, High Income Municipal had net assets of approximately $133.2 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 EWC)
	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, closed-end management investment company. The Funds have substantially similar

 

4

investment objectives and policies. Each Fund seeks to provide stockholders with high current income exempt from Federal income taxes.

<R>Each Fund seeks to achieve its investment objective by investing primarily in a portfolio of medium to lower grade or unrated municipal obligations, issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities paying interest 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. MuniAssets and High Income Municipal each invests at least 65% and 75%, respectively, of its total assets in Municipal Bonds that are rated in any one of the medium and lower rating categories by Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s (“S&P”) or Fitch, Inc. (“Fitch”) or in unrated Municipal Bonds that the Funds’ investment adviser believes are of comparable quality. The average maturity of each Fund’s portfolio securities, and therefore each Fund’s portfolio as a whole, will vary based upon an assessment by the Funds’ investment adviser of economic and market conditions. As of May 31, 2001, the weighted average maturity of the portfolio of MuniAssets and High Income Municipal was 22.36 years and 17.71 years, respectively. See “Comparison of the Funds — Investment Objective and Policies” in this Joint Proxy Statement and Prospectus.

Capital Stock. Each Fund has outstanding Common Stock. As of August 31, 2001, (i) the net asset value per share of MuniAssets Common Stock was $13.26 and the market price per share was $13.32; and (ii) the net asset value per share of High Income Municipal Common Stock was $9.52. See “Comparison of the Funds — Capital Stock” in this Joint Proxy Statement and Prospectus. </R>

Liquidity. MuniAssets Common Stock trades in the secondary market 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 MuniAssets Common Stock on the NYSE may be at a premium above or discount from the net asset value of the MuniAssets Common Stock.

High Income Municipal engages in a continuous offering of High Income Municipal Common Stock. High Income Municipal is not listed on any exchange and no secondary market presently exists for High Income Municipal Common Stock nor is it currently expected that a secondary market will develop. In order to provide liquidity for stockholders of High Income Municipal, the Fund makes tender offers on a quarterly basis to purchase its Common Stock from stockholders at net asset value per share (less any applicable EWC). If High Income

5

Municipal stockholders approve the Reorganization, it is not expected that High Income Municipal will make any additional tender offers for its shares.

Portfolio Management. The investment adviser for MuniAssets is FAM and the investment adviser for High Income Municipal is MLIM. FAM and MLIM are affiliates. The investment adviser for the Combined Fund will be FAM. Theodore R. Jaeckel, Jr. currently serves as the portfolio manager for each Fund and will continue to serve as the portfolio manager for the Combined Fund after the Reorganization.

Advisory and Administrative Fees. FAM and MLIM are responsible for the management of the investment portfolio of MuniAssets and High Income Municipal, respectively, and for providing administrative services to each respective Fund.

MuniAssets pays FAM a monthly advisory fee at the annual rate of 0.55% of MuniAssets’ average weekly net assets. High Income Municipal pays MLIM a monthly advisory fee at the annual rate of 0.95% of High Income Municipal’s average daily net assets. High Income Municipal also pays MLIM a monthly administrative fee at the annual rate of 0.25% of High Income Municipal’s average daily net assets. MuniAssets does not pay FAM a separate administrative fee. After the Reorganization, the Combined Fund will pay FAM a monthly advisory fee at the annual rate of 0.55% of its average weekly net assets. The Combined Fund will not pay a separate administrative fee to FAM. See “Comparison of the Funds — Management of the Funds.”

Overall Expense Ratio. The table below sets forth the total annualized operating expense ratio for MuniAssets and High Income Municipal and the Combined Fund based on their respective average net assets as of May 31, 2001.

	Average Net Assets as of May 31, 2001	Total Annualized Operating Expense Ratio
MuniAssets	$134,643,032	0.76%
High Income Municipal	$130,237,579	1.61%
Combined Fund	$264,880,611	0.68%

After the Reorganization, on a pro forma basis, the total annualized operating expenses of the Combined Fund as a percentage of net assets is expected to be: (a) 0.93% lower than High Income Municipal’s total annualized operating expense ratio, and (b) 0.08% lower than MuniAssets’ total annualized operating expense ratio.

<R>Purchases and Sales of Common Stock. Investors typically purchase and sell shares of MuniAssets Common Stock through a registered broker-dealer on each day that the NYSE is open for trading at the market price on that day, and may incur a brokerage commission set by the broker-dealer. Investors typically can purchase</R>

6

shares of High Income Municipal Common Stock from FAM Distributors, Inc. (“FAMD”), or from other selected securities dealers or other financial intermediaries. High Income Municipal Common Stock is not listed on any exchange. No secondary market presently exists for High Income Municipal Common Stock and it is not expected that a secondary market will develop. In order to provide liquidity for stockholders of High Income Municipal, High Income Municipal makes tender offers on a quarterly basis to purchase its Common Stock from stockholders at net asset value per share (less any applicable EWC). If High Income Municipal stockholders approve the Reorganization, it is not expected that High Income Municipal will make any additional tender offers for its shares.

Ratings of Municipal Bonds. MuniAssets and High Income Municipal each invests at least 65% and 75%, respectively, of its total assets in Municipal Bonds that are rated in any one of the medium and lower rating categories by Moody’s, S&P or Fitch or in unrated bonds that FAM or MLIM believes are of comparable quality. MuniAssets and High Income Municipal each has the authority to invest as much as 35% and 25%, respectively, of its assets in Municipal Bonds in the higher rating categories (ratings of A or higher by Moody’s, S&P or Fitch or comparable unrated securities). In addition, each Fund reserves the right to invest temporarily more than 20% of its assets in short-term municipal securities, or short-term taxable money market securities (including commercial paper, certificates of deposit and repurchase agreements) for defensive purposes when, in the opinion of FAM or MLIM, prevailing market or financial conditions warrant.

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 substantially similar with respect to the Common Stock of each Fund. See “Comparison of the Funds — Dividends and Distributions.”

Net Asset Value. The net asset value per share of MuniAssets Common Stock is determined as of the close of business on the NYSE (generally, 4:00 p.m., Eastern time) on the last business day of each week. The net asset value per share of High Income Municipal Common Stock is determined as of the close of business on the NYSE 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 and dividends accrued but not yet received) minus all liabilities (including accrued expenses) is divided by the total number of shares of

 

7

Common Stock of the Fund. Expenses, including fees payable to FAM and MLIM, 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. See “Comparison of the Funds — Capital Stock.”

Stockholder Services. An automatic dividend reinvestment plan is available to holders of shares of the Common Stock of each Fund. The plans are different for each Fund. Under the respective plans, High Income Municipal issues new shares at net asset value. MuniAssets, however, purchases shares on the open market if its shares are trading at a discount to net asset value but issues new shares at net asset value if its shares are trading at a premium to net asset value. 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.

 

Outstanding Securities of MuniAssets and High Income Municipal as of May 31, 2001

Title of Class	Amount Authorized	Amount Held By Fund for Its Own Account	Amount Outstanding Exclusive of Amount Shown in Previous Column
MuniAssets Common Stock	200,000,000	0	10,454,359
High Income Municipal Common Stock	200,000,000	0	13,883,973

Tax Considerations <R>The consummation of the Reorganization is subject to the receipt of an opinion of counsel to the effect that, among other things, neither Fund will recognize gain or loss on the transaction and the stockholders of High Income Municipal will not recognize gain or loss on the exchange of their shares of High Income Municipal Common Stock for MuniAssets Common Stock (except to the extent that a holder of High Income Municipal Common Stock receives cash representing an interest in less than a full share of MuniAssets Common Stock in the Reorganization). The Reorganization will not affect the status of MuniAssets as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). See “Agreement and Plan of Reorganization — Tax Consequences of the Reorganization.” </R>

 

8

RISK FACTORS AND SPECIAL CONSIDERATIONS

     <R>The investment objective, policies and restrictions of MuniAssets and High Income Municipal 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 MuniAssets are substantially similar to the investment risks associated with an investment in High Income Municipal. These investment risks will also apply to an investment in the Combined Fund after the Reorganization. The principal difference in risk between MuniAssets and High Income Municipal results from the fact that MuniAssets Common Stock trades at market value and shares may often trade at a discount to net asset value on the NYSE. Conversely, High Income Municipal Common Stock is not listed on any exchange and no secondary market presently exists for its common stock, nor is a secondary market currently expected to develop. Investors may, however, tender their shares to High Income Municipal for repurchase at net asset value on a quarterly basis. It is expected that the Reorganization itself will not adversely affect the rights of holders of shares of Common Stock of either Fund or create additional risks.</R>

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

Trading at a Discount

     Closed-end funds that are listed on an exchange, such as MuniAssets, are subject to the risk that the market price at which the common stock trades may be lower than the net asset value, commonly referred to as “trading at a discount.” Shares may also trade at a price that is higher than the Fund’s net asset value (a “premium”).

     High Income Municipal Common Stock is not listed on any exchange and no secondary market presently exists for its common stock, nor is a secondary market expected to develop. As long as there is no secondary market for High Income Municipal Common Stock, the Fund is not subject to the risk that its shares will trade at a discount to net asset value. To provide liquidity to stockholders, the Fund’s Board of Directors considers making tender offers once each quarter to repurchase the Fund’s shares at net asset value. However, shares of High Income Municipal Common Stock are less liquid than shares of funds traded on a stock exchange, and stockholders who tender shares of High Income Municipal Common Stock held for less than three years at the date of tender may pay an EWC. The Board of Directors of High Income Municipal 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, stockholders may be unable to sell their shares. Since the inception of High Income Municipal, however, the Board has authorized a tender offer each quarter. The most recent tender offer for shares of High Income Municipal Common Stock concluded on August 20, 2001. If the Reorganization is consummated, that will have been the final tender offer.

    Each Fund is designed primarily for long-term investors and should not be considered a vehicle for trading purposes.

Interest Rate and Credit Risk

     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 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 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. Because each Fund invests primarily in lower rated municipal bonds, each Fund is more subject to credit risk than a fund that invests primarily in investment grade municipal bonds.

Non-Diversification

     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 a Fund may invest a relatively high percentage of its assets in a limited number of issuers, the Fund may be more exposed to any single economic, political or regulatory occurrence than a more widely-diversified fund. Even as a non-diversified fund, each Fund must still meet the diversification requirements of applicable Federal income tax law.

 

9

High Yield or “Junk Bonds”

     The Funds invest primarily in Municipal Bonds that are rated in any one of the medium and lower rating categories by S&P, Moody’s or Fitch, or are considered by MLIM or FAM, as applicable, to be of comparable quality. These high yield or “junk bonds” 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.

Private Activity Bonds

     Each Fund may invest all or a portion of its assets 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.

Indexed and Inverse Floating Obligations

     Each Fund may invest in municipal bonds yielding returns based on a particular index of value or interest rates. Each Fund also may invest in “inverse floating obligations” or “residual interest bonds.” These securities generally pay interest at floating interest rates that decline as short-term market rates increase and increase as short-term market rates decline. FAM and MLIM believe that investing in indexed and inverse floating obligations allows a Fund to vary the degree of investment leverage relatively efficiently under different market conditions.

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 values, 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 may choose not to do so. The Funds cannot guarantee that any hedging strategies that they use will work.</R>

Antitakeover Provisions

     The Articles of Incorporation of each Fund (in each case, a “Charter”) and Maryland law contain certain 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 a Fund.

 

10

COMPARISON OF THE FUNDS

Financial Highlights

     MuniAssets. The financial information in the table below has been audited in conjunction with the annual audit of the financial statements of MuniAssets by Deloitte & Touche LLP, independent auditors. The following per share data and ratios have been derived from information provided in the financial statements of MuniAssets.

	For the Year Ended May 31,														For the Period June 25, 1993† to May 31,
	2001		2000		1999		1998		1997		1996		1995		1994
Increase (Decrease) in Net Asset Value: Per Share Operating Performance: Net asset value, beginning of period	$12.76		$14.46		$14.77		$14.16		$ 13.74		$13.73		$13.40		$14.18
Investment income — net	.83		.80		.83		.84		.84		.88		.87		.81
Realized and unrealized gain (loss) on investments — net	.19		(1.69	)	(.32	)	.62		.42		.03		.33		(.66	)
Total from investment operations	1.02		(.89	)	.51		1.46		1.26		.91		1.20		.15
Less dividends and distributions: Investment income — net	(.82	)	(.81	)	(.82	)	(.85	)	(.84	)	(.89	)	(.85	)	(.74	)
Realized gain on investments — net	—		—		—		—		—		—		—		(.15	)
Total dividends and distributions	(.82	)	(.81	)	(.82	)	(.85	)	(.84	)	(.89	)	(.85	)	(.89	)
Capital charge resulting from Issuance     of Common Stock	—		—		—		—		—		(.01	)	(.02	)	(.04	)
Net asset value, end of period	$12.96		$12.76		$14.46		$14.77		$14.16		$13.74		$13.73		$13.40
Market price per share, end of period	$13.00		$11.1875		$13.00		$13.75		$12.625		$12.375		$11.875		$12.25
Total Investment Return:* Based on net asset value per share	8.58	%	(5.45	%)	3.74	%	10.87	%	10.11	%	7.46	%	9.93	%	.83	%**
Based on market price per share	24.22	%	(7.79	%)	.19	%	15.76	%	9.01	%	11.91	%	4.00	%	(12.87	)%**
Ratios to Average Net Assets: Expenses, net of reimbursement	.76	%	.74	%	.72	%	.75	%	.76	%	.55	%	.50	%	.20	%††
Expenses	.76	%	.74	%	.72	%	.75	%	.76	%	.77	%	.85	%	.85	%††
Investment income — net	6.44	%	5.96	%	5.66	%	5.75	%	6.06	%	6.24	%	6.54	%	6.12	%††
Supplemental Data: Net assets, end of period (in thousands)	$135,448		$133,065		$150,883		$153,947		$147,630		$143,195		$143,169		$64,154
Portfolio turnover	17.11	%	32.38	%	40.57	%	36.39	%	45.15	%	42.72	%	55.51	%	101.59	%

* 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.

** Aggregate total investment return.

† Commencement of operations.

†† Annualized.

11

     <R>High Income Municipal. The financial information in the table below, except for the six-month period ended February 28, 2001, which is unaudited and has been provided by MLIM, has been audited in conjunction with the annual audit of the financial statements of High Income Municipal by Deloitte & Touche LLP, independent auditors. The following per share data and ratios have been derived from information provided in the financial statements of High Income Municipal.

For the Six Months Ended February  28,	For the Year Ended August 31,									For the Period November 2, 1990† to August 31,
2001	2000	1999	1998	1997	1996	1995	1994	1993	1992	1991

Increase (Decrease) in Net Asset Value: Per Share Operating Performance: Net asset value, beginning of period	$9.45		$10.24		$11.46		$11.34		$10.94		$10.97		$10.92		$11.44		$10.74		$10.29		$10.00
Investment    income    — net	.26		.55		.55		.61		.65		.66		.65		.65		.68		.71		.63
Realized and    unrealized    gain (loss)    on investments     — net	(.19	)	(.79	)	(.89	)	.32		.44		(.03	)	.23		(.45	)	.75		.50		.29
Total from     investment     operations	.07		(.24	)	(.34	)	.93		1.09		.63		.88		.20		1.43		1.21		.92
Less dividends and distributions:    Investment       income        — net	(.26	)	(.55	)	(.55	)	(.61	)	(.65	)	(.66	)	(.65	)	(.65	)	(.68	)	(.71	)	(.63	)
Realized       gain on          investments      — net	—		—		(.18	)	(.20	)	(.04	)	—		(.15	)	(.07	)	(.05	)	(.05	)	—
In excess of       realized      gain on      investments      — net	—		—		(.15	)	—		—		—		(.03	)	—		—		—		—
Total    dividends    and    distributions	(.26	)	(.55	)	(.88	)	(.81	)	(.69	)	(.66	)	(.83	)	(.72	)	(.73	)	(.76	)	(.63	)
Net asset    value, end    of period	$9.26		$9.45		$10.24		$11.46		$11.34		$10.94		$10.97		$10.92		$11.44		$10.74		$10.29
Total Investment Return: * Based on net    asset value    per share	0.81	%**	(2.29	)%	(3.16	)%	8.43	%	10.20	%	5.81	%	8.68	%	1.75	%	13.83	%	12.29	%	9.43	%**
Ratios to Average Net Assets: Expenses,     net of     reimburse-     ment	1.57	%††	1.46	%	1.46	%	1.48	%	1.44	%	1.50	%	1.52	%	1.48	%	1.37	%	1.30	%	.84	%††
Expenses	1.57	%††	1.46	%	1.46	%	1.48	%	1.44	%	1.50	%	1.52	%	1.48	%	1.47	%	1.55	%	1.76	%††
Investment    income    — net	5.74	%††	5.68	%	5.07	%	5.37	%	5.83	%	5.90	%	6.11	%	5.81	%	6.17	%	6.85	%	7.43	%††
Supplemental Data: Net assets,     end of     period (in     thousands)	$131,124		$149,394		$201,574		$233,713		$211,620		$199,552		$198,575		$212,958		$216,922		$170,735		$114,628
Portfolio    turnover	5.10	%	13.42	%	39.53	%	36.45	%	43.07	%	28.54	%	21.28	%	28.51	%	28.74	%	31.74	%	75.92	%

</R>

* Total investment returns exclude the effect of the early withdrawal charge, if any. High Income Municipal is a continuously offered closed-end fund, the shares of which are offered at net asset value. Therefore, no separate market exists.

** Aggregate total investment return.

† Commencement of operations.

†† Annualized.

12

Per Share Data for Common Stock* (Unaudited)

     <R>MuniAssets (Traded on NYSE)

Quarter Ended*	Market Price**		Net Asset Value		Premium (Discount) to Net Asset Value
	High	Low	High	Low	High		Low
	$	$	$	$	%		%
August 31, 1999	13.25	12.188	14.43	13.78	(6.57	)	(11.81	)
November 30, 1999	12.375	11.312	13.85	13.31	(9.47	)	(16.14	)
February 29, 2000	11.813	10.75	13.37	12.88	(9.27	)	(17.27	)
May 31, 2000	11.437	10.75	13.13	12.70	(11.68	)	(16.86	)
August 31, 2000	12.125	11.188	13.11	12.78	(7.30	)	(13.41	)
November 30, 2000	12.438	11.688	13.16	12.73	(4.98	)	(9.26	)
February 28, 2001	13.35	12.125	12.96	12.72	4.05		(4.98	)
May 31, 2001	13.89	12.50	12.99	12.84	2.95		(3.55	)
August 31, 2001	13.35	13.00	13.26	12.96	2.15		(0.99	)

</R>

* Calculations are based upon shares of Common Stock outstanding at the end of each quarter.

** As reported in the consolidated transaction operating system.

     High Income Municipal

<R>

Quarter Ended*	Net Asset Value
	High	Low
	$	$
November 30, 1999	10.24	9.88
February 29, 2000	9.90	9.57
May 31, 2000	9.61	9.27
August 31, 2000	9.46	9.31
November 30, 2000	9.46	9.22
February 28, 2001	9.29	9.21
May 31, 2001	9.35	9.26
August 31, 2001	9.53	9.34

</R>

* Calculations are based upon shares of Common Stock outstanding at the end of each quarter.

     <R>During the last two years, share prices for MuniAssets Common Stock have fluctuated between a maximum premium of approximately 4.05% and a maximum discount of approximately 17.27%. 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 or discount to net asset value following the Reorganization, or what the magnitude of any such premium or discount might be.</R>

Investment Objective and Policies

     <R>The structure, organization and investment policies of the Funds are substantially similar. Each Fund is a non-diversified, closed-end management investment company registered under the Investment Company Act.¹ The investment objectives of the Funds are substantially similar. Each Fund seeks to provide stockholders with high current income exempt from Federal income taxes. Each Fund seeks to achieve its investment objective by investing primarily in a portfolio of medium to lower grade or unrated Municipal Bonds. Under normal circumstances, at least 80% of each Fund’s total assets will be invested in Municipal Bonds. MuniAssets and High Income Municipal each invests at least 65% and 75%, respectively, of its total assets in Municipal Bonds that are rated in any one of the medium and lower rating categories of Moody’s, S&P or Fitch, or in unrated Municipal Bonds that FAM or MLIM, as applicable, believes are of comparable quality. These ratings are currently Baa (Moody’s) or BBB (S&P or Fitch) or lower. MuniAssets and High Income Municipal each has the authority to invest as much as 35% and 25%, respectively, of its assets in Municipal Bonds in the higher rating

1 High Income Municipal commenced operations on November 2, 1990 upon the closing of its initial public offering of shares of Common Stock. As of August 27, 2001, High Income Municipal had 13,554,767 shares of Common Stock outstanding. MuniAssets commenced operations on June 25, 1993 upon the closing of its initial public offering of shares of Common Stock. As of August 27, 2001, MuniAssets had 10,461,767 shares of Common Stock outstanding.</R>

 

13

categories of nationally recognized statistical rating organizations (ratings of A or higher by Moody’s, S&P or Fitch or comparable unrated securities). In addition, each Fund reserves the right to temporarily invest more than 20% of its assets in short-term municipal securities, or short-term taxable money market securities (including commercial paper, certificates of deposit and repurchase agreements) for defensive purposes when, in the opinion of FAM or MLIM, prevailing market or financial conditions warrant. Neither Fund presently contemplates that it will invest more than 25% of its total assets (taken at market value) in Municipal Bonds whose issuers are located in the same state.

     Ordinarily, neither Fund intends to realize significant interest income that is subject to Federal income taxes. However, 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 the Fund to a Federal alternative minimum tax.

     <R>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 the 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 interest 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 the Funds’ investment objective and policies.</R>

     Investments in lower rated Municipal Bonds generally provide a higher yield and are less affected by interest rate fluctuations than higher rated tax-exempt securities of similar maturity but are subject to greater overall market risk and are also subject to a greater degree of risk with respect to the ability of the issuer to meet its principal and interest obligations. See “Appendix III - Ratings of Municipal Bonds and Commercial Paper.”

     Each Fund seeks to reduce risk through investing in multiple issuers, credit analysis and monitoring of current developments regarding the obligor and trends in both the economy and financial markets. FAM and MLIM each will use various means to research the stability and/or potential for improvement of various municipal issuers in connection with the proposed purchase of their securities by the Funds. Evaluation of each Municipal Bond may include the analysis of financial performance, debt structure, economic factors and the administrative structure of the issuer. Additionally, the priority of liens and the overall structure of the particular issue may be factors that will determine suitability for purchase. Further investigation may be performed and may include, among other things, discussions with project management, corporate officers and industry experts as well as site inspections, area analysis, and project and financial projection analysis. All purchases and sales also may be subject to the review of market data, economic projections and the performance of the financial markets. Certain economic indicators also may be monitored. Additionally, FAM and MLIM each will vary the average maturity of the applicable Fund’s portfolio securities based upon their assessment of economic and market conditions.

     <R>Each Fund is classified as non-diversified within the meaning of the Investment Company Act, which means that it is not limited by such Act in the proportion of its assets that it may invest in securities of a single issuer. However, each Fund’s investments will be limited so as to qualify the Fund as a “regulated investment company” for purposes of Federal tax laws. See “Taxes.” Requirements for qualification include 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 and the Fund will not own more than 10% of the outstanding voting securities of a single issuer. A fund that elects to be classified as “diversified” under the Investment Company Act must satisfy the foregoing 5% and 10% requirements 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, the Fund’s net asset value may fluctuate to a greater extent than that of a diversified company as a result of changes in the financial condition or in the market’s assessment of the issuers.</R>

 

14

Description of Municipal Bonds

     <R>Municipal Bonds include debt obligations issued to obtain funds for various public purposes, including construction and equipping of a wide range of public facilities, refunding of outstanding obligations and obtaining funds for general operating expenses and loans to other public or private institutions for the construction of 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 parks, mass commuting facilities and multifamily housing projects, as well as facilities for water supply, gas, electricity, sewage or solid waste disposal and pollution control facilities. 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 industrial development bonds or PABs as discussed below. </R>

     The two principal classifications of Municipal Bonds are “general obligation” bonds and “revenue” or “special obligation” 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 typically secured by the issuer’s pledge of faith, credit, and taxing power for the repayment of principal and the payment of interest. The taxing power of any governmental entity may be limited, however, by provisions of state constitutions or laws, and an entity’s credit will depend on many factors, including potential erosion of the tax base due to population declines, natural disasters, declines in the state’s industrial base or inability to attract new industries, economic limits on the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes, and the extent to which the entity relies on Federal or state aid, access to capital markets or other factors beyond the state’s or entity’s control. 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 generally are not secured by a pledge of the credit or taxing power of the issuer of such bonds. The repayment of the principal and the payment of interest on such bonds depend 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 also may include “moral obligation” bonds, which normally are 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 the Fund. There is no limitation on the percentage of the 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 “Tax Rules Applicable to the Funds and their Stockholders.”

     <R>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. The COPs represent participations in a lease, an installment purchase contract or a conditional sales contract (hereinafter collectively called “lease obligations”) relating to such equipment, land or facilities. Although lease obligations do not constitute general obligations of the issuer for which the issuer’s unlimited taxing power is pledged, a lease obligation is frequently backed by the issuer’s covenant to budget for, appropriate and make the payments due under the lease obligation. However, certain lease obligations contain “non-appropriation” clauses which provide that the issuer has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although “non-appropriation” lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult.</R>

     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:

     Taxable Commercial Paper. Taxable commercial paper must be rated A-1+ through A-3 by S&P, Prime-1 through Prime-3 by Moody’s, F-1+ through F-3 by Fitch or have credit characteristics equivalent to such ratings

 

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in the opinion of FAM and MLIM. The short-term tax-exempt obligations also will be in the highest rating categories as determined either by Moody’s (currently, MIG-1 through MIG-3 for notes and Prime-1 through Prime-3 for commercial paper), S&P (currently, SP-1+ through SP-2 for notes and A-1+ through A-3 for commercial paper), or Fitch (currently, F-1 and F-2 for notes and F-1 for commercial paper), except that MuniAssets may invest in lower rated or unrated short-term tax exempt obligations to the extent that such investments do not exceed 20% of its assets. Certificates of deposit must be issued by depository institutions with total assets of at least $1 billion, except that the Funds may invest in certificates of deposit of smaller institutions if such certificates of deposit are Federally insured. See “Appendix III — Ratings of Municipal Bonds and Commercial Paper.”

     When-Issued Securities and Delayed Delivery Transactions. Each Fund may purchase or sell Municipal Bonds on a delayed delivery basis or 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 the Fund enters into the commitment and the value of the obligation will thereafter be reflected in the calculation of the Fund’s net asset value. The value of the obligation on the delivery date 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 securities having a market value at all times at least equal to the amount of the commitment.

     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.

     <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, the Funds may invest in Municipal Bonds that pay interest based on an index of Municipal Bond interest rates. The principal amount payable upon maturity of certain Municipal Bonds also may be based on the value of an index. The Funds’ return on these types of Municipal Bonds (and Non-Municipal Tax-Exempt Securities) 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. The Funds also 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, interest rates 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 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 will generally 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 that have shorter term maturities or that contain limitations on the extent to which the interest rate may vary. FAM and MLIM believe that indexed and inverse floating obligations represent a flexible portfolio management instrument for the Funds that allows FAM and MLIM to vary the degree of investment leverage relatively efficiently under different market conditions.

     Repurchase Agreements. Each Fund may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer in U.S. Government securities or an affiliate thereof. Under a repurchase agreement, 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. This results in a fixed rate of return insulated from market fluctuations during such period. Each 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 the Fund’s net assets. In the event of default by the seller under a repurchase agreement, the Fund may suffer time delays and incur costs or possible losses in connection with the disposal 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.</R>

 

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     MuniAssets and High Income Municipal have different policies relating to borrowings. Under MuniAssets’ borrowing policy, which will apply to the Combined Fund, MuniAssets may not borrow money in amounts in excess of 5% of its total assets taken at market value. High Income Municipal’s policy relating to borrowing is set forth below.

     Borrowings. High Income Municipal 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 purchase of its own shares pursuant to tender offers, if any, or for temporary, extraordinary or emergency purposes. Borrowings by the Fund (commonly known as “leveraging”) create an opportunity for greater total return since the Fund will not be required to sell portfolio securities to purchase tendered shares but, at the same time, increase exposure to capital risk. In addition, borrowed funds are subject to interest costs that may offset or exceed the return earned on the borrowed funds.

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 Fund shares, the net asset value of Fund shares will fluctuate. There can be no assurance that a Fund’s hedging transactions will be effective. Furthermore, the Funds engage in hedging activities from time to time and may not necessarily be engaging in hedging activities when movements in interest rates occur. The Funds have no obligation to enter into hedging transactions and each may choose not to do so.

     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 “Taxes — Tax Treatment of Options and Futures Transactions.”

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

     Writing Covered Call Options. Each Fund may 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 only writes covered 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.

     Each Fund receives a premium from writing a call option that increases the 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 the 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 the Fund’s 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 that 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 the Fund’s total assets.

     Financial Futures Contracts and Options. Each Fund may purchase and sell certain financial futures contracts and options thereon solely for the purpose of hedging its investments in Municipal Bonds against

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declines in value and to hedge 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 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. A purchase of financial futures contracts may provide a hedge against an increase in the cost of securities intended to be purchased, because such appreciation may be offset, in whole or in part, by an increase in the value of the position in the futures contracts.

     <R>The purchase or sale of a futures contract differs from the purchase or sale of a security in that no price or premium is paid or received. Instead, an amount of cash or U.S. Treasury bills 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 futures contract fluctuates making the long and short positions in the futures contract more or less valuable.

     The Funds 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 recently issued tax-exempt bonds, and purchase and sell put and call options on such futures contracts for the purpose of hedging Municipal Bonds that the Funds hold or anticipate 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 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, Treasury notes, GNMA Certificates and three-month U.S. Treasury bills.</R>

     Subject to policies adopted by its Directors, each Fund also may engage in transactions in other financial futures contracts transactions and options thereon, such as financial futures contracts or options on other municipal bond indices that may become available if FAM or MLIM, as the case may be, and the Directors of the Fund should determine that there is normally a sufficient correlation between the prices of such futures contracts and the Municipal Bonds in which the Funds invest to make such hedging appropriate.

     Over-the-Counter Options. Each Fund may engage in options and futures transactions on exchanges and in the over-the-counter markets. 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. Over-the-counter options (“OTC options”) 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.

     Restrictions on OTC Options. Each Fund will engage in OTC options only with member banks of the Federal Reserve System and primary dealers in U.S. Government securities or with affiliates of such 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. OTC options and assets used to cover OTC options written by a Fund may be 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 might otherwise be realized.

     <R>Risk Factors in Options and Futures Transactions. Utilization of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts and movements in the price of the security that is the subject of the hedge. If the price of the 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 futures contracts have different maturities, ratings, geographic compositions or other characteristics than 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 futures contracts on U.S. Government securities and options on such 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.</R>

     Under regulations of the Commodity Futures Trading Commission (the “CFTC”), the futures trading activities described herein will not result in a Fund being deemed a “commodity pool,” as defined under such regulations, provided that each Fund adheres to certain restrictions. In particular, each Fund may purchase and

 

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sell futures contracts and options thereon (i) for bona fide hedging purposes, without regard to the percentage of the 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 the Fund’s existing futures position and premiums paid for outstanding options would exceed 5% of the market value of the liquidation value of the 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 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 short-term high-grade fixed-income securities in a segregated account with the 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 futures contract, thereby ensuring that the use of such futures contract is unleveraged.

     Although certain risks are involved in options and futures transactions, FAM and MLIM believe that, because the Funds will engage in options and futures transactions only for hedging purposes, the options and futures portfolio strategies of the Funds do not subject the Funds to certain risks frequently 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, there can be no assurance 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 or, in the case of OTC options, FAM and MLIM believe the Funds can receive on each business day at least two independent bids or offers. 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 options 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 whom a Fund has an open position in an options or futures contract.

     The liquidity of a secondary market in a futures contract may be adversely affected by “daily price fluctuation limits” established by commodity exchanges which limit the amount of fluctuation in a futures contract price during a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a price beyond the limit, thus preventing the liquidation of open futures positions. Prices have in the past moved beyond the daily limit on a number of consecutive trading days.

     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 and MLIM 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 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 only engages in hedging transactions from time to time and may not necessarily be engaging in hedging transactions when movements in interest rates occur.

Investment Restrictions

     The Funds’ investment restrictions differ in some respects, as discussed below. The fundamental investment restrictions of each Fund may not be changed without the approval of the holders of a majority of the outstanding shares of Common Stock of that Fund. (For this purpose and under the Investment Company Act, “majority” means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares.) The following investment restrictions of MuniAssets will apply to the Combined Fund. Under its fundamental investment restrictions, MuniAssets may not:

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

 

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	companies and only if immediately thereafter not more than 10% of the Fund’s total assets would be invested in such securities.
3)	Purchase or sell real estate, real estate limited partnerships, commodities or commodity contracts; provided that the Fund may invest in securities secured by real estate or interests therein or issued by companies that invest in real estate or interests therein and the Fund may purchase and sell financial futures contracts and options thereon.

4) Issue senior securities or borrow amounts in excess of 5% of its total assets taken at market value.

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

6) Make loans to other persons, except that the Fund may purchase Municipal Bonds and other debt securities and enter into repurchase agreements in accordance with its investment objective, policies and limitations.

7) 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. (For purposes of this restriction, states, municipalities and their political subdivisions are not considered to be part of any industry.)

     For purposes of restriction (7), the exception for states, municipalities and their political subdivisions applies only to tax-exempt securities issued by such entities.

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

1) Invest more than 25% of its total assets (taken at market value at the time of each investment) in the Municipal Bonds of any one state.

2) Mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund except as may be necessary in connection with borrowings mentioned in (4) above or except as may be necessary in connection with transactions in financial futures contracts and options thereon.

3) 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).

4) <R>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 a mandatory tender for the purchase of related municipal bonds.</R>

     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.

     High Income Municipal’s fundamental investment restrictions are substantially the same as MuniAsset’s fundamental investment restrictions (1) through (7) above. However, High Income Municipal has two other fundamental investment restrictions, which are substantially similar to MuniAsset’s additional non-fundamental investment restrictions (3) and (4) above.

     FAM, MLIM and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) are owned and controlled by Merrill Lynch & Co., Inc. (“ML & Co.”). Because of the affiliation of Merrill Lynch with FAM and MLIM, the Funds are 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 which 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. See “Portfolio Transactions.”

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Portfolio Composition

     <R>There are differences in concentration among the types of securities held in the portfolio of each Fund. For MuniAssets, as of July 31, 2001, approximately 88.6%, 10.4%, 0.3% and 0.7% of its portfolio was invested in revenue bonds, general obligation bonds, common stock and cash equivalents, respectively; for High Income Municipal, approximately 89.4%, 9.8%, 0.5% and 0.3% of its portfolio was invested in revenue bonds, general obligation bonds, common stock, and cash equivalents, 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 are different. As a result there are certain differences in the composition of the two investment portfolios. The tables below set forth the percentages as of July 31, 2001 of the municipal bonds held by each Fund.</R>

     MuniAssets

     <R>As of July 31, 2001, approximately 97% and 3% of the market value of MuniAssets’ portfolio was invested in long-term Municipal Bonds and short-term Municipal Bonds, respectively. The following table sets forth certain information with respect to the composition of MuniAssets’ long-term municipal obligation investment portfolio as of July 31, 2001.

S&P		Moody’s	Number of Issues	Value (in thousands)	Percent
	BBB	Baa	13	$  23,964	18.1%
	BB	Ba	15	$  25,148	19.0%
	B	B	3	$    4,423	3.3%
	NR	NR	44	$  78,849	59.6%
	Total:		75	$132,384	100.0%</R>

* Ratings: Using the higher of S&P’s or Moody’s rating on the Fund’s Municipal Bonds 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.”

     High Income Municipal

     <R>As of July 31, 2001, approximately 98% and 2% of the market value of High Income Municipal’s portfolio was invested in long-term Municipal Bonds and short-term Municipal Bonds, respectively. The following table sets forth certain information with respect to the composition of High Income Municipal’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	4	$    8,178	6.3%
	A	A	2	$    3,729	2.9%
	BBB	Baa	6	$  17,811	13.8%
	BB	Ba	14	$  14,879	11.5%
	B	B	6	$  17,364	13.5%
	NR	NR	37	$  66,997	52.0%
	Total:		69	$128,958	100.0%</R>

* Ratings: Using the higher of S&P’s or Moody’s rating on High Income Municipal’s Municipal Bonds. 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.”

Performance

<R>      The table below sets forth for each Fund the yield and tax equivalent yield for the 31 days ended May 31, 2001 and the average annual total return for the one, five and ten years ended 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/ Ten Years ended May 31, 2001
High Income Municipal	6.42%	8.10%	6.51%	3.50%	6.03%
MuniAssets	6.62%	9.32%	8.58%	5.39%	5.67%*

†	Assumes a 27.5% federal income tax rate.
*	Since inception on June 25, 1993.</R>

 

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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 or MLIM is primarily responsible for the execution of the applicable Fund’s portfolio transactions. In executing such transactions, FAM and MLIM seek to obtain the best results for the applicable 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 and MLIM generally seek 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 and MLIM, 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 and MLIM under their respective investment advisory agreements with the Funds, and the expenses of FAM and MLIM will not necessarily be reduced as a result of the receipt of such supplemental 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 and MLIM, 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 each Fund to FAM or MLIM. 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 or MLIM. 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:

	Year Ended May 31, 2000	Year Ended May 31, 2001
MuniAssets	32.38%	17.11%

	Year Ended August 31, 2000	Six Months Ended February 28, 2001
High Income Municipal	13.42%	5.10%

 

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Net Asset Value

     The net asset value per share of MuniAssets Common Stock is determined as of the close of business on the NYSE on the last business day of each week. The net asset value per share of High Income Municipal Common Stock is determined as of the close of business on the NYSE 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 each Fund plus any cash or other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) is divided by the total number of shares of Common Stock outstanding at such time. Expenses, including fees payable to FAM and MLIM, 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. 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.

     MuniAssets 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. The net asset value of High Income Municipal may be obtained by calling the Fund’s transfer agent at 1-800-637-3863.

Capital Stock

     <R>Each Fund has outstanding Common Stock. The Common Stock of MuniAssets is traded on the NYSE. The shares of MuniAssets Common Stock commenced trading on the NYSE on July 20, 1993. As of August 31, 2001, the net asset value per share of MuniAssets Common Stock was $13.26 and the market price per share was $13.32. High Income Municipal engages in a continuous offering of High Income Municipal Common Stock. High Income Municipal Common Stock is not listed on any exchange. No secondary market presently exists for High Income Municipal Common Stock and a secondary market is not expected to develop. As of May 31, 2001, the net asset value per share of High Income Municipal Common Stock was $9.52.</R>

     Each Fund is authorized to issue 200,000,000 shares of capital stock, all of which 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.

     Holders of each Fund’s Common Stock are entitled to share equally in dividends declared by the Fund’s Board of Directors payable to holders of the Common Stock and in the net assets of the Fund available for distribution to holders of the Common Stock. 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.

Certain Provisions of the Charters

     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 in the case of MuniAssets, 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. With respect to High Income Municipal, a director may be removed from office with cause by action taken by the

 

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holders of at least 75% of the shares of capital stock entitled to be voted on the matter. With respect to MuniAssets, a director may be removed from office with or without cause by vote of the holders of 66% of the votes entitled to be voted on the matter.

    In addition, the Charters of MuniAssets and High Income Municipal require the favorable vote of the holders of at least 66²/3% and 75%, respectively, of all of the Fund’s shares of capital stock, then entitled to be voted on the matter, to approve, adopt or authorize the following:

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

• 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 such Fund is required.

     In addition, conversion of MuniAssets to an open-end investment company would require an amendment to MuniAssets’ 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 MuniAssets’ outstanding shares of capital stock entitled to be voted on the matter (or a majority of such shares if the amendment was previously 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). 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 MuniAssets is converted to an open-end investment company, it could be required to liquidate portfolio securities to meet requests for redemptions, and the MuniAssets Common Stock would no longer be listed on a stock exchange. Conversion to an open-end investment company would require changes in certain of the Fund’s investment policies and restrictions, such as those relating to the purchase of illiquid securities.

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

Management of the Funds

     <R>Directors and Officers. The Board of Directors of MuniAssets currently consists of six persons, five of whom are not “interested persons,” as defined in the Investment Company Act, of MuniAssets. The Board of Directors of High Income Municipal currently consists of eight persons, seven of whom are not “interested persons,” as defined in the Investment Company Act, of High Income Municipal. 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 have the same slate of officers with a few exceptions. For further information regarding the Directors and officers of each Fund, see Appendix I —“Information Pertaining to Each Fund.”</R>

     Theodore R. Jaeckel, Jr. serves as the portfolio manager of each Fund and will continue to serve as the portfolio manager of the Combined Fund after the Reorganization. The portfolio manager is primarily responsible for the management of the applicable Fund’s portfolio.

     Advisory and Administrative Arrangements. FAM and MLIM, both of which are owned and controlled by ML & Co., serve as the investment adviser for MuniAssets and High Income Municipal, respectively, pursuant to separate investment advisory agreements that, except for (i) termination dates, (ii) advisory fee rates and (iii) the fact that the investment advisory agreement for MuniAssets contains certain provisions relating to FAM’s providing administrative services to MuniAssets, are substantially similar. See “Administrative Services and

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<R>Fees” below. FAM and MLIM provide the respective Fund with the same investment advisory and management services. FAM, MLIM, and their affiliates act as investment advisers to more than 100 registered investment companies and offer services to individuals and institutional accounts. As of July 2001, FAM and MLIM had a total of approximately $535 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 and MLIM. FAM and MLIM were organized as investment advisers in 1977 and 1976, respectively, and each offers investment advisory services to more than 50 registered investment companies. The principal business address of both FAM and MLIM is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.</R>

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

     For the services provided by FAM under MuniAssets’ Investment Advisory Agreement, MuniAssets pays a monthly fee at an annual rate of 0.55% of its average weekly net assets (i.e., the average weekly value of the total assets of the Fund, minus the sum of accrued liabilities of the Fund). For purposes of this calculation, average weekly net assets are determined at the end of each month on the basis of the average net assets of the Fund for each week during the month. The assets for each weekly period are determined by averaging the net assets at the last business day of a week with the net assets at the last business day of the prior week. For the services provided by MLIM under High Income Municipal’s Investment Advisory Agreement, High Income Municipal pays a monthly fee at an annual rate of 0.95% of average daily net assets (i.e., the average daily value of the total assets of the Fund, minus the sum of accrued liabilities of the Fund). For purposes of this calculation, average daily net assets are determined at the end of each month on the basis of the average net assets of the Fund for each day during the month. After the Reorganization, the investment adviser for the Combined Fund will be FAM, and the Combined Fund will pay FAM a monthly fee at the annual rate of 0.55% of its average weekly net assets as described above.

     <R>For the fiscal years ended May 31, 1999, 2000 and 2001, the fees paid by MuniAssets to FAM pursuant to the Investment Advisory Agreement were $839,645, $770,217, and $740,906, respectively (such fees based on average weekly net assets of approximately $152.7 million, $140.0 million and $134.6 million, respectively). For the fiscal years ended August 31, 1998, 1999 and 2000 and the six month period ended February 28, 2001, the fees paid by High Income Municipal to MLIM pursuant to the Investment Advisory Agreement were $2,144,677, $2,138,848, $1,661,213 and $669,103, respectively (such fees based on average daily net assets of approximately $226.4 million, $225.1 million, $174.9 million and $142.0 million, respectively).</R>

     Administrative Services and Fees. Under the terms of the administration agreement between High Income Municipal and MLIM (the “Administration Agreement”), MLIM 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 High Income Municipal, including administering shareholder accounts and handling shareholder relations. Pursuant to the MuniAssets Investment Advisory Agreement, FAM provides similar services for MuniAssets.

     Under the Administration Agreement, High Income Municipal pays MLIM 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 High Income Municipal under the Investment Advisory Agreement. MuniAssets does not pay a separate administrative fee to FAM. FAM provides administrative services to MuniAssets under the MuniAssets’ Investment Advisory Agreement. After the Reorganization, the Combined Fund also will not pay a separate administrative fee to FAM.

    <R> For the fiscal years ended August 31, 1998, 1999 and 2000 and the six month period ended February 28, 2001, the fees paid by High Income Municipal to MLIM pursuant to the Administration Agreement were $564,389, $562,855, $437,161 and $176,080, respectively (such fees based on average daily net assets of approximately $226.4 million, $225.1 million, $174.9 million and $142.0 million, respectively).</R>

     Payment of Fund Expenses. Each Fund’s Investment Advisory Agreement obligates FAM or MLIM, as applicable, to provide investment advisory services and, in the case of MuniAssets, administrative services to the Fund. Under each Fund’s Investment Advisory Agreement, FAM or MLIM, as applicable, pays all compensation of and furnishes office space for officers and employees of the Fund connected with investment and economic

 

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research, trading and investment management, as well as the compensation of all Directors of the Fund who are affiliated persons of FAM, MLIM or any of their affiliates.

     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, SEC 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.

     <R>Accounting Services Provider. Each Fund has 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 each Fund. Each Fund pays a fee for these services. For the period January 1, 2001 to May 31, 2001 and for the period January 1, 2001 to February 28, 2001, MuniAssets and High Income Municipal paid State Street $21,907 and $8,909, respectively, under this agreement. Prior to January 1, 2001, FAM or MLIM, as applicable, provided accounting services to each Fund at its cost and each Fund reimbursed FAM or MLIM, as applicable, for these services. FAM or MLIM, as applicable, continues to provide certain accounting services to each Fund. MuniAssets and High Income Municipal reimburse FAM or MLIM, as applicable, for such services. For the fiscal years ended May 31, 1999, 2000 and 2001, MuniAssets reimbursed FAM an aggregate of $54,814, $40, 954 and $31,455, respectively, for the above-described accounting services. For the fiscal years ended August 31, 1998, 1999 and 2000 and the six months ended February 28, 2001, High Income Municipal reimbursed MLIM an aggregate of $60,910, $74,013, $34,636 and $22,050, respectively, for the above-described accounting services.</R>

     Duration and Termination of Investment Advisory and Administration Agreements. Unless earlier terminated as described below, the Investment Advisory Agreement between each Fund and FAM or MLIM, as applicable, will continue from year to year if approved annually (a) by the Board of Directors of a Fund or by a majority of the outstanding shares of a Fund’s Common Stock, 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.

     High Income Municipal’s Administration Agreement will continue in effect until terminated. The agreement is not assignable and may be terminated without penalty on 60 days’ written notice at the option of either party thereto.

     Securities held by a Fund may also be held by, or be appropriate investments for, other funds or investment advisory clients for which FAM, MLIM or their 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 or MLIM 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 by FAM, MLIM (or their 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 approved a Code of Ethics under Rule 17j-l of the Investment Company Act that covers each Fund, FAM, MLIM 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 the 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. The shares of each Fund’s Common 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 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 will not be able to elect any of such Directors.

 

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Stockholder Inquiries

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

Dividends and Distributions

     <R>The Funds’ current policies with respect to dividends and distributions relating to shares of their Common Stock are identical. Each Fund intends to distribute all or a portion of its net investment income monthly to holders of a Fund’s Common Stock. A Fund may at times pay out less than the entire amount of net investment income earned in any particular period and may at times pay out such accumulated undistributed income in addition to net investment income earned in other periods in order to permit it to maintain a more stable level of dividends to holders of Common Stock. As a result, the dividend paid by a Fund to holders of its Common Stock for any particular period may be more or less than the amount of net investment income earned by that Fund during such period. For Federal tax purposes, a Fund is required to distribute substantially all of its net investment income for each year. All net realized capital gains, if any, are distributed pro rata at least annually to holders of shares of a Fund’s Common Stock. See “Comparison of the Funds — Tax Rules Applicable to the Funds and Their Stockholders.”</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 any other classes of stock outstanding in accordance with the current position of the IRS described herein. See “Tax Rules Applicable to the Funds and Their Stockholders” below.

     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” below. 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.

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 The Bank of New York (“BONY”), as agent for MuniAssets stockholders in administering the Plan, or Financial Data Services, Inc. (“FDS”), as agent for stockholders of High Income Municipal 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 MuniAssets’ shares are exchange-listed while High Income Municipal shares are continuously offered by High Income Municipal. After the Reorganization, the Combined Fund will use the MuniAssets 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 or by sending written instructions to FDS or calling FDS at (1-800-MER-FUND), as applicable, as dividend paying agent, 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.

 

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     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 MuniAssets 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.

     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.

     MuniAssets

     Under the MuniAssets Plan, whenever the Fund declares an ordinary income dividend or a capital gain dividend (collectively referred to as “dividends”) payable either in shares or in cash, non-participants in the Plan 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 the Fund’s Common Stock from the Fund (“newly issued shares”) or (ii) by purchase of outstanding shares of the Fund’s 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 the Fund’s Common Stock is equal to or less than the market price per share of the Fund’s 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 the Fund’s 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.

     In the event of a market discount on the dividend payment date, the MuniAssets 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. MuniAssets intends to pay monthly income dividends. Therefore, the period during which open-market purchases can be made exists only from the payment date on 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 MuniAssets Common Stock exceeds the net asset value per share, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the Fund’s shares, resulting in the acquisition of fewer shares than if the dividend had been paid in newly issued shares on the dividend payment date. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent 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 MuniAssets Plan may receive benefits not available to stockholders not participating in that Plan. If the market price (plus commissions) of the Fund’s shares of Common Stock is higher than the net asset value of such shares, participants in the Plan receive shares of the Fund’s 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

 

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available in the market to make distributions of shares at prices below the net asset value. Also, since the Fund 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 each Plan.

     High Income Municipal

     <R>Under the High Income Municipal Plan, High Income Municipal always issues newly issued shares at net asset value. No early withdrawal charge is imposed upon redemption of shares issued as a result of the automatic reinvestment of dividends or capital gains distributions. After the Reorganization, High Income Municipal common stockholders will own shares of MuniAssets and such shares will not be subject to the EWC currently applicable to High Income Municipal Common Stock.

     After the Reorganization, a holder of shares of High Income Municipal 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 both Funds, after the Reorganization, the stockholder’s election with respect to the dividends of MuniAssets will control unless the stockholder specifically elects a different option at that time. Prior to the Reorganization, High Income Municipal stockholders should direct all correspondence to the Plan Agent for High Income Municipal as follows: Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Following the Reorganization, all correspondence should be directed to the Plan Agent for MuniAssets, The Bank of New York, 101 Barclay Street, New York, New York 10286.</R>

Mutual Fund Investment Option

     <R>A holder of MuniAssets Common Stock who purchased his or her shares through Merrill Lynch in the Fund’s initial public offering has the right to reinvest the net proceeds from a sale of such shares in Class A shares of certain Merrill Lynch-sponsored open-end funds without the imposition of an initial sales charge, if certain conditions are satisfied. A holder of High Income Municipal Common Stock has an investment option consisting of the right to reinvest the net proceeds from a sale of shares of High Income Municipal Common Stock in a tender offer by High Income Municipal in Class D shares of certain Merrill Lynch-sponsored open-end funds at their net asset value, without imposition of a sales charge, if the High Income Municipal Common Stock was held for three years at the date of tender. If the Reorganization is consummated, a holder of High Income Municipal Common Stock will have the same mutual fund investment option as a holder of MuniAssets Common Stock who purchased his or her shares through Merrill Lynch in the initial public offering of MuniAssets Common Stock as described above.</R>

Tax Rules Applicable to the Funds and Their Stockholders

     The tax consequences of investing in shares of Common Stock 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. MuniAssets 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

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“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.

     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 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

 

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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.

     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, in the case of MuniAssets, when MuniAssets’ shares are trading at a premium over net asset value, MuniAssets 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 MuniAssets’ dividend reinvestment plan. Thus, stockholders who do not participate in the dividend reinvestment plan, as well as dividend reinvestment plan participants, might be required to report as ordinary income a portion of their distributions equal to 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

     <R>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.</R>

     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.

 

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AGREEMENT AND PLAN OF REORGANIZATION

General

     Under the Agreement and Plan (attached hereto as Appendix II), MuniAssets will acquire substantially all of the assets, and will assume substantially all of the liabilities, of High Income Municipal, solely in return for shares of an equal aggregate value of MuniAssets Common Stock to be issued by MuniAssets. The number of shares of MuniAssets Common Stock issued to High Income Municipal will have an aggregate net asset value equal to the aggregate net asset value of the shares of High Income Municipal Common Stock. Upon receipt by High Income Municipal of such shares, High Income Municipal will distribute the shares of MuniAssets Common Stock to the holders of High Income Municipal Common Stock (plus cash in lieu of fractional shares), in return for their shares of High Income Municipal Common Stock. As soon as practicable after the date that the Reorganization takes place (the “Closing Date”), High Income Municipal will deregister under the Investment Company Act and will file Articles of Dissolution with the State of Maryland Department of Assessments and Taxation (“Maryland Department”) to effect the formal dissolution of High Income Municipal, and will dissolve.

     <R>The distribution by High Income Municipal of MuniAsset Common Stock will be accomplished by opening new accounts on the books of MuniAssets in the names of the stockholders of High Income Municipal Common Stock and transferring to those stockholder accounts the MuniAssets Common Stock previously credited on those books to the accounts of High Income Municipal. Each newly-opened account on the books of MuniAssets for the previous holders of High Income Municipal Common Stock would represent the pro rata number of shares of MuniAssets 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 MuniAssets Common Stock will be issued. In lieu thereof, MuniAssets’ transfer agent, BONY, will aggregate all fractional shares of MuniAssets 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 High Income Municipal Common Stock certificates. See “Surrender and Exchange of Stock Certificates” below for a description of the procedures to be followed by the stockholders of High Income Municipal to obtain their MuniAssets Common Stock (and cash in lieu of fractional shares, if any).

     Accordingly, as a result of the Reorganization, every holder of High Income Municipal Common Stock would own shares of MuniAssets 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 High Income Municipal Common Stock immediately prior to the Closing Date. Since the MuniAssets Common Stock would be issued at net asset value and the shares of High Income Municipal Common Stock would be valued at net asset value for the purposes of the exchange, the holders of Common Stock of neither Fund will be diluted as a result of the Reorganization. However, as a result of the Reorganization, a stockholder of either Fund likely will hold a reduced percentage of ownership in the larger combined entity than he or she held in MuniAssets or High Income Municipal. In addition, the market value of the MuniAssets Common Stock may be lower than the net asset value of the MuniAssets Common Stock. </R>

Procedure

     <R>At a meeting of the Board of Directors of each Fund, the Board of Directors of each Fund, including all of the Directors who are not “interested persons,” as defined in the Investment Company Act, of the applicable Fund, unanimously approved the Agreement and Plan and the submission of such Agreement and Plan to the stockholders of such Fund for approval.</R>

     As a result of such Board approvals, the Funds have filed this Joint Proxy Statement and Prospectus with the SEC soliciting a vote of the stockholders of each Fund to approve the Reorganization. Meetings of stockholders of each Fund will be held on October 24, 2001. If the stockholders of both Funds 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 Boards of Directors of MuniAssets and High Income Municipal recommend that the stockholders of the respective Funds approve the Agreement and Plan.

 

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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 both Funds: 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 based on prices at the time of closing on the Valuation Date. The NYSE generally closes at 4:00 p.m., Eastern 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 all liabilities (including accrued expenses) 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 or MLIM, 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 MuniAssets Common Stock. On the Closing Date, MuniAssets will issue to High Income Municipal a number of shares of MuniAssets Common Stock the aggregate net asset value of which will equal the aggregate net asset value of shares of High Income Municipal Common Stock on the Valuation Date. Each holder of High Income Municipal Common Stock will receive the number of full shares of MuniAssets Common Stock corresponding to his or her proportionate interest in the aggregate net asset value of High Income Municipal Common Stock (plus cash in lieu of fractional shares).

     No sales charge or fee of any kind will be charged to stockholders of High Income Municipal in connection with their receipt of MuniAssets Common Stock in the Reorganization. No EWC will apply to shares of MuniAssets Common Stock issued to High Income Municipal in the Reorganization, nor will any EWC be due on the shares of High Income Municipal Common Stock in connection with the Reorganization.

     <R>Expenses. The expenses of the Reorganization that are directly attributable to High Income Municipal and the conduct of its business will be deducted from the assets of High Income Municipal as of the Valuation Date. 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 of the stockholders of High Income Municipal to consider the Reorganization, the expenses related to the solicitation of proxies to be voted at that meeting and a portion of the expenses incurred in printing the N-14 Registration Statement. The expenses of the Reorganization that are directly attributable to MuniAssets and the conduct of its business will be deducted from the assets of MuniAssets as of the Valuation Date. The expenses attributable to MuniAssets include the costs, if any, of printing stock certificates, transfer agent fees, the expenses incurred in preparing, printing and mailing the proxy materials to be used in connection with the meeting of the stockholders of MuniAssets to consider the Reorganization, the expenses related to the solicitation of proxies to be voted at that meeting 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 the Funds.</R>

     The total expenses associated with the Reorganization attributable to High Income Municipal are estimated to be approximately $158,000 and the total expenses attributable to MuniAssets are estimated to be approximately $145,900.

     Required Approvals. Under High Income Municipal’s Articles of Incorporation and relevant Maryland law, stockholder approval of the Agreement and Plan requires the affirmative vote of a majority of the outstanding

 

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<R>shares of High Income Municipal Common Stock entitled to vote on the matter. In addition, under the rules of the NYSE, stockholder approval of the Agreement and Plan requires the affirmative vote of a majority of the votes cast by the holders of MuniAssets Common Stock, provided that the total number of votes cast represents over 50% of all shares entitled to vote on the matter. Because of the requirement that the Agreement and Plan be approved by the stockholders of both Funds, the Reorganization will not take place if the stockholders of either Fund do not approve the Agreement and Plan.</R>

     Deregistration and Dissolution. Following the transfer of the assets and liabilities of High Income Municipal and the distribution of shares of MuniAssets Common Stock to stockholders of High Income Municipal in accordance with the foregoing, High Income Municipal 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 a registration statement on Form N-14 being declared effective by the SEC, approval by the stockholders of each Fund as described above, an opinion of counsel being received with respect to tax matters, an opinion of counsel being received as to securities matters and the continuing accuracy of various representations and warranties of each Fund being confirmed by the other Fund.

     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 that 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 both 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 Common Stockholders of the Funds as a Result of the Reorganization

     In approving the Reorganization, the Board of Directors of each Fund identified certain potential benefits that are likely to result from the Reorganization, including lower aggregate operating expenses per share of Common Stock, greater efficiency and flexibility in portfolio management and a more liquid trading market for the shares of Common Stock of the Combined Fund. Following the Reorganization, (i) High Income Municipal stockholders will be invested in a non-diversified, closed-end fund that has a substantially similar investment objective and management arrangements, a larger asset base and a potentially lower expense ratio and (ii) MuniAssets stockholders will remain invested in a non-diversified, closed-end fund that has no changes to its current investment objective and management arrangements but has a larger asset base and a potentially lower expense ratio.

     After the Reorganization, High Income Municipal common stockholders also will benefit from the fact that the advisory fee rate that the Combined Fund will pay is less than the advisory fee rate paid by High Income Municipal and that the Combined Fund will not pay the administrative fee currently paid by High Income Municipal. See “Advisory and Administrative Fees” above. Additionally, High Income Municipal common stockholders will no longer be subject to the expenses associated with the Fund’s required yearly prospectus updates since a closed-end fund that is listed on an exchange, such as the Combined Fund, is not required to update its prospectus annually. High Income Municipal common stockholders also will no longer be subject to the expenses of conducting quarterly tender offers. Finally, High Income Municipal common stockholders will no longer be subject to the EWC upon the sale of shares of common stock held for less than three years. As common stockholders of the Combined Fund, however, High Income Municipal common stockholders will be subject to the expenses associated with listing of the Combined Fund’s shares on the NYSE and the Combined Fund’s required annual meeting of stockholders including the cost of the preparation and dissemination of proxy materials. They may also be subject to brokerage commissions on transactions in Fund shares. After the Reorganization, MuniAssets stockholders will benefit from the larger asset base and potentially lower expense ratio of the Combined Fund.

     The Boards also 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

 

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between the Funds, including their substantially similar investment objectives and investment policies, their use 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.

     The Combined Fund that would result from the Reorganization would have a larger asset base than either Fund has currently. Based on data presented by FAM and MLIM, certain fixed costs, such as costs of printing stockholder reports and proxy statements, legal expenses, audit fees, mailing costs and other expenses will be spread across a larger asset base, thereby lowering the expense ratio and increasing earnings per common share for the Combined Fund. Due to the larger asset base, the Combined Fund may also experience economies of scale and greater flexibility in portfolio management.

     The proposed Reorganization will also provide High Income Municipal common stockholders with additional liquidity. After the Reorganization, High Income Municipal common stockholders will own shares of MuniAssets, an exchange listed fund, which will enable such stockholders to sell their Common Stock on the NYSE on each day the NYSE is open for trading. Any such sales, however, 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 a brokerage commission. As noted above, such shares will not be subject to the EWC currently applicable to High Income Municipal Common Stock.

     Presently, High Income Municipal common stockholders may only sell their shares at such times as High Income Municipal tenders for its shares, which has occurred once each quarter. In a tender offer, High Income Municipal purchases shares at net asset value (less any applicable EWC). The Board of Directors of High Income Municipal, however, is not obligated to authorize tender offers. Consequently, if the Board does not authorize a tender offer, there may be periods of time during which High Income Municipal’s common stockholders may be unable to sell their shares. Since the inception of High Income Municipal, however, the Board has authorized a tender offer each quarter.

     The table below sets forth the total annualized operating expense ratio for MuniAssets and High Income Municipal and the Combined Fund based on their respective average net assets as of May 31, 2001.

	Average Net Assets as of May 31, 2001	Total Annualized Operating Expense Ratio
MuniAssets	$134,643,032	0.76%
High Income Municipal	$130,237,579	1.61%
Combined Fund	$264,880,611	0.68%

     <R>Management projections estimate that the Combined Fund will have net assets in excess of $270 million (based on the Net assets of the Funds as of July 31, 2001) upon completion of the Reorganization. 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>

     Based on the foregoing, the Board of Directors of each Fund concluded 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.

     In approving the Reorganization, the Board of Directors of each Fund determined that the Reorganization is in the best interests of that Fund and, with respect to net asset value, that 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 High Income Municipal Common Stock will be entitled to receive, upon surrender of his or her certificate or certificates, a certificate or certificates representing the number of shares of MuniAssets Common Stock distributable with respect to such holder’s shares of High Income Municipal Common Stock, together with cash in lieu of any fractional shares of Common Stock. Promptly after the Closing Date, the transfer agent for the MuniAssets Common Stock will mail to each holder of certificates formerly representing shares of High Income Municipal Common Stock a letter of transmittal for use in surrendering his or her certificates for certificates representing shares of MuniAssets Common Stock and cash in lieu of any fractional shares of Common Stock.

 

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

If Prior to the Reorganization You Held:	After the Reorganization, You Will Hold:
High Income Municipal Common Stock	MuniAssets Common Stock
MuniAssets Common Stock	MuniAssets Common Stock

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

     From and after the Closing Date, there will be no transfers on the stock transfer books of High Income Municipal. If, after the Closing Date, certificates representing shares of High Income Municipal Common Stock are presented to MuniAssets, they will be canceled and exchanged for certificates representing MuniAssets 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. MuniAssets and High Income Municipal will receive an opinion of counsel with respect to the Reorganization to the effect that, among other things, neither High Income Municipal nor MuniAssets will recognize a gain or loss on the transaction and High Income Municipal stockholders will not recognize gain or loss on the transaction (except to the extent a High Income Municipal stockholder receives cash in lieu of fractional shares).

     As of May 31, 2001, each Fund had undistributed net realized capital losses and net unrealized capital losses. 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 other Fund to offset future net realized capital gains of the Combined Fund, if any.</R>

     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 MuniAssets intends to continue to so qualify after the Reorganization. The Funds have jointly requested an opinion of counsel that for Federal income tax purposes: (i) the exchange of substantially all of the assets by High Income Municipal for MuniAssets Common Stock as described above, will constitute a reorganization within the meaning of Section 368(a)(1)(C) of the Code, and each of MuniAssets and High Income Municipal 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 High Income Municipal as a result of the Reorganization or on the distribution of MuniAssets Common Stock to the stockholders of High Income Municipal under Section 361(c)(1) of the Code; (iii) under Section 1032 of the Code, no gain or loss will be recognized to MuniAssets 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 High Income Municipal on the receipt of MuniAssets Common Stock in exchange for their shares of Common Stock (except to the extent that common stockholders receive cash representing an interest in fractional shares of MuniAssets Common Stock in the Reorganization); (v) in accordance with Section 362(b) of the Code, the tax basis of the assets of High Income Municipal in the hands of MuniAssets will be the same as the tax basis of such assets in the hands of High Income Municipal 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 MuniAssets Common Stock received by the stockholders of High Income Municipal in the Reorganization will be equal to the tax basis of the Common Stock of High Income Municipal surrendered in exchange; (vii) in accordance with Section 1223 of the Code, a stockholder’s holding period for the MuniAssets Common Stock will be determined by including the period for which such stockholder held the High Income Municipal Common Stock exchanged therefor, provided, that such

 

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shares were held as a capital asset; (viii) in accordance with Section 1223 of the Code, MuniAssets’ holding period with respect to the assets of High Income Municipal transferred will include the period for which such assets were held by High Income Municipal; (ix) the payment of cash to common stockholders of High Income Municipal in lieu of fractional shares of MuniAssets Common Stock will be treated as though the fractional shares were distributed as part of the Reorganization and then redeemed, 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 MuniAssets fractional shares; and (x) the taxable year of High Income Municipal will end on the effective date of the Reorganization, and pursuant to Section 381(a) of the Code and regulations thereunder, MuniAssets will succeed to and take into account certain tax attributes of High Income Municipal, such as earnings and profits, capital loss carryovers and method of accounting.

     Under Section 381(a) of the Code, MuniAssets will succeed to and take into account certain tax attributes of High Income Municipal, 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 MuniAssets.

     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.

     <R>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 MuniAssets intends to continue to so qualify.</R>

Capitalization

     The following table sets forth as of May 31, 2001 (i) the capitalization of MuniAssets, (ii) the capitalization of High Income Municipal, (iii) the capitalization of the Combined Fund as adjusted to give effect to the Reorganization.

Capitalization of MuniAssets, High Income Municipal,
and the Combined Fund as of May 31, 2001
(unaudited)

	MuniAssets	High Income Municipal	Pro Forma Adjustment	Combined Fund as Adjusted(a)
Net Assets Attributable to      Common Stock	$135,448,485	$129,598,228	$(1,149,363)	$263,897,350
Shares of Outstanding Common Stock	10,454,359	13,883,974	(3,819,685)	20,518,648	(b)
Net Asset Value Per Share	$           12.96	$            9.33	—	$           12.86	(c)

(a) The adjusted balances are presented as if the Reorganization had been consummated on May 31, 2001 and are for informational purposes only. Assumes distribution of undistributed net investment income and accrual of estimated Reorganization expenses of approximately $303,900, of which $145,900 is attributable to Muni Assets and $158,000 is attributable to High Income Municipal. No assurance can be given about how many shares of MuniAssets Common Stock will be received by holders of High Income Municipal Common Stock on the Closing Date, and the foregoing should not be relied upon to reflect the number of shares of MuniAssets Common Stock that actually will be received on or after such date.

(b) Assumes the issuance of 10,064,289 shares of MuniAssets Common Stock in exchange for the net assets of High Income Municipal. The estimated number of shares issued was based on the net asset value of each Fund, net of distributions, on May 31, 2001.

(c) Net Asset Value Per Share of Common Stock net of Reorganization-related expenses of $303,900 and distribution of undistributed net investment income of $845,463  for MuniAssets.

ITEM 2. ELECTION OF DIRECTORS OF MUNIASSETS

     <R>At the MuniAssets Meeting, two Class I Directors will be elected to serve for a term of three years and until their successors are elected and qualified. Pursuant to MuniAssets’ By-Laws, the terms of office of the Directors are staggered. The Board of Directors is divided into three classes, designated Class I, Class II and Class III, with each class having a term of three years. Each year the term of one class expires. Class I consists of Joe Grills and Robert S. Salomon, Jr. Class II consists of Terry K. Glenn and Walter Mintz. Class III consists of Melvin R. Seiden and Stephen B. Swensrud. Only the Directors in Class I are being considered for election at this Meeting.</R>

     If the stockholders of both Funds approve the Reorganization, then the Board of Directors of MuniAssets will serve as the Board of the Combined Fund, until the next annual meeting of stockholders of the Combined Fund. If the stockholders of either Fund do not approve the Reorganization, then the Class I Directors of

 

37

MuniAssets elected at the Meeting and the incumbent Class II and Class III Directors of MuniAssets will continue to serve until the next annual meeting of stockholders of MuniAssets and the Board of High Income Municipal will continue to serve for an indefinite term. It is intended that all properly executed proxies submitted by MuniAssets stockholders will be voted (unless such authority has been withheld in the proxy) in favor of the two (2) persons designated as Class I Directors to be elected by the MuniAssets stockholders.

     The Board of Directors of MuniAssets knows of no reason why either of these nominees will be unable to serve, but in the event of any such unavailability, the proxies received will be voted for such substitute nominee or nominees as the Board of Directors may recommend.

<R>

     Certain information concerning the nominees is set forth below. Additional information relevant to the election of two Class I Directors and other information concerning the Directors is set forth in Appendix I. As of the Record Date, the Directors owned no shares of MuniAssets Common Stock.

Name and Address of Nominee	Age	Principal Occupation During Past Five Years and Public Directorships(1)
Joe Grills(1)(2)(3) P.O. Box 98 Rapidan, Virginia 22733	66	Member of the Committee on Investment of Employee Benefit Assets of the Financial Executives Institute (now associated with the Association of Financial Professionals) (“CIEBA”) since 1986; Member of CIEBA’s Executive Committee since 1988 and its Chairman from 1991 to 1992; Assistant Treasurer of International Business Machines Corporation (“IBM”) and Chief Investment Officer of IBM Retirement Funds from 1986 until 1993; Member of the Investment Advisory Committee of the State of New York Common Retirement Fund since 1989; Member of the Investment Advisory Committee of the Howard Hughes Medical Institute from 1997 to 2000; Director, Duke Management Company since 1992 and elected Vice Chairman in May 1998; Director, LaSalle Street Fund from 1995 to 2001; Trustee of Mercury HW Funds, Mercury HW Variable Trust and Fund Asset Management Master Trust and Director of Merrill Lynch Investment Managers Funds, Inc. since 1996; Director, Kimco Realty Corporation since 1997; Member of the Investment Advisory Committee of the Virginia Retirement System since 1998; Director, Montpelier Foundation since December 1998 and its Vice Chairman since 2000; Member of the Investment Committee of the Woodberry Forest School since 2000; Member of the Investment Committee of the National Trust for Historic Preservation since 2000.
Robert S. Salomon, Jr. (1)(2) 106 Dolphin Cove Quay Stamford, Connecticut 06902	64	Principal of STI Management (investment adviser) since 1994; Trustee, Commonfund since 1980; Chairman and CEO of Salomon Brothers Asset Management from 1992 until 1995; Chairman of Salomon Brothers equity mutual funds from 1992 until 1995; regular columnist with Forbes magazine since 1992; Director of Stock Research and U.S. Equity Strategist at Salomon Brothers from 1975 until 1991.

(1) Each of the Directors is a director, trustee or member of an advisory board of certain other investment companies for which FAM, MLIM or their affiliates act as investment adviser. See “Compensation from MuniAssets and High Income Municipal” in Appendix I.

(2)	Member of Audit Committee of the Board of Directors.
(3)	Mr. Grills, formerly a Class II Director, was redesignated as a Class I Director at a meeting of the Board of Directors held on July 11, 2001. </R>

 

38

Committee Report

     <R>The Board of MuniAssets has a standing Audit Committee (the “Committee”), which consists of Board members who are not “interested persons” of the Fund within the meaning of the Investment Company Act and who are “independent” as defined in the NYSE listing standards. Currently, Messrs. Grills, Mintz, Salomon, Seiden and Swensrud are members of the Committee. The principal responsibilities of the Committee are to: (i) recommend to the Board the selection, retention or termination of the Fund’s independent auditors; (ii) review with the independent auditors the scope, performance and anticipated cost of their audit; (iii) discuss with the independent auditors certain matters relating to the Fund’s financial statements, including any adjustment to such financial statements recommended by such independent auditors, or any other results of any audit; (iv) ensure that the independent auditors submit on a periodic basis a formal written statement with respect to their independence, discuss with the independent auditors any relationships or services disclosed in the statement that may impact the objectivity and independence of the Fund’s independent auditors and recommend that the Board take appropriate action in response thereto to satisfy itself of the independent auditors’ independence; and (v) consider the comments of the independent auditors and management’s responses thereto with respect to the quality and adequacy of the Fund’s accounting and financial reporting policies and practices and internal controls. The Board adopted an Audit Committee Charter (the “Charter”) at a meeting held on June 6, 2000. The Board revised and reapproved the Charter on April 11, 2001. A copy of the current Charter is attached to this Proxy Statement as Appendix IV. The Committee also has (a) received written disclosures and the letter required by Independence Standards Board Standard No. 1 from Deloitte & Touche LLP (“D&T”), independent auditors for the Fund, and (b) discussed certain matters required to be discussed by Statements on Auditing Standards No. 61 with D&T. The Committee has considered whether the provision of non-audit services by the Fund’s independent auditors is compatible with maintaining the independence of those auditors.</R>

     At its meeting held on July 11, 2001, the Committee reviewed and discussed the audit of the Fund’s financial statements with Fund management and D&T. Had any material concerns arisen during the course of the audit and the preparation of the audited financial statements mailed to stockholders and included in the Fund’s Annual Report, the Committee would have been notified by Fund management or D&T. The Committee received no such notifications. Based on the foregoing, the Committee recommended to the Board that the Fund’s audited financial statements be included in the Fund’s Annual Report to Stockholders for the fiscal year ended May 31, 2001.

     In addition to the above, the Committee also reviews and nominates candidates to serve as non-interested Board members. The Committee generally will not consider nominees recommended by stockholders of a Fund. The non-interested Board members have retained independent legal counsel to assist them in connection with these duties.

Committee and Board Meetings

     During the Fund’s last fiscal year, each of the Board members then in office attended at least 75% of the aggregate of the total number of meetings of the Board held during the fiscal year and, if a member, of the total number of meetings of the Committee held during the period for which he served. See Appendix I for further information about Committee and Board meetings.

Independent Auditors’ Fees

     The following table sets forth the aggregate fees MuniAssets paid D&T for the fiscal year ended May 31, 2001 for professional services rendered for: (i) the audit of the Fund’s annual financial statements and the review of financial statements included in the Fund’s reports to shareholders; (ii) financial information systems design and implementation services provided to the Fund, FAM and entities controlling, controlled by or under common control with FAM that provide services to the Fund; and (iii) all other non-audit services provided to the Fund, FAM, and entities controlling, controlled by or under common control with FAM that provide services to the Fund. The Committee determined that the provision of information technology services under clause (ii) and the provision of non-audit services under clause (iii) are compatible with maintaining the independence of the independent auditors.<R>

Audit Fees Charged to the Fund	Financial Information Systems Design and Implementation Fees	All Other Fees*
$30,700	None	$3,401,400
</R>

* Includes fees billed for non-audit services rendered to MuniAssets, FAM and any entity controlling, controlled by, or under common control with FAM, during the year ended December 31, 2000.

 

39

Compliance with Section 16(a) of the Securities Exchange Act of 1934

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the officers and directors of the Fund and persons who own more than ten percent of a registered class of the Fund’s equity securities, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the NYSE. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish the Fund with copies of all Forms 3, 4 and 5 they file.

     <R>Based solely on the Fund’s review of the copies of such forms, and amendments thereto, furnished to it during or with respect to its most recent fiscal year, and written representations from certain reporting persons that they were not required to file Form 5 with respect to the most recent fiscal year, each Fund believes that all of its officers, directors, greater than ten percent beneficial owners and other persons subject to Section 16 of the Exchange Act because of the requirements of Section 30 of the Investment Company Act, i.e., any advisory board member, investment adviser or affiliated person of the Fund’s investment adviser, have complied with all filing requirements applicable to them with respect to transactions during the Fund’s most recent fiscal year, except that Michael G. Clark inadvertently made a late Form 4 filing reporting changes in beneficial ownership with respect to MuniAssets.</R>

Interested Persons

     MuniAssets considers Mr. Glenn to be an “interested person” of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act because of the positions he holds with FAM and its affiliates and/or due to his ownership of securities issued by ML & Co. Mr. Glenn is the President of the Fund.

Compensation of Directors

     FAM, the investment adviser of MuniAssets, pays all compensation to all officers of and all Directors of MuniAssets who are affiliated with ML & Co. or its subsidiaries. The Fund pays each Director not affiliated with FAM (each a “non-affiliated Director”) an annual fee plus a fee for each meeting attended, and the Fund also pays each member of the Committee an annual fee plus a fee for each meeting attended, together with such Director’s out-of-pocket expenses relating to attendance at each Board and Committee meeting. Information with respect to fees and expenses paid to the non-interested Directors for the Fund’s most recently completed fiscal year is set forth in Appendix I.

Officers of MuniAssets

     Information regarding the officers of MuniAssets is set forth in Appendix I. Officers of the Fund are elected and appointed by the Board and hold office until they resign, are removed or are otherwise disqualified to serve.

INFORMATION CONCERNING THE MEETINGS

Date, Time and Place of Meetings

     <R>The Meetings will be held on October 24, 2001 at the offices of Fund Asset Management, L.P. or Merrill Lynch Investment Managers, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey at 9:00 a.m. Eastern time (MuniAssets) and 10:00 a.m. Eastern time (High Income Municipal).</R>

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, by giving written notice of the revocation to the Secretary of the appropriate Fund or by voting in person at the Meeting. Although mere attendance at a Meeting will not revoke a proxy, a stockholder present at a Meeting may withdraw his or her proxy and vote in person.

     <R>All shares represented by properly executed proxies, unless such proxies previously have been revoked, will be voted at the Meetings in accordance with the directions on the proxies; if no direction is indicated, the shares will be voted as follows: (i) for the stockholders of MuniAssets only, all proxies submitted by MuniAssets stockholders will be voted “FOR” the election of the Class I nominees to the Board of Directors of MuniAssets, and (ii) for the stockholders of both Funds, all proxies submitted by stockholders of MuniAssets and High Income</R>

 

40

Municipal will be voted “FOR” the proposal to approve the Agreement and Plan. It is not anticipated that any other matters will be brought before the Meetings. If, however, any other business properly is brought before the Meetings, proxies will be voted in accordance with the judgment of the persons designated on such proxies.

Record Date and Outstanding Shares

     Only holders of record of shares of Common Stock of a Fund at the close of business on the Record Date are entitled to vote at a Meeting or any adjournment thereof. At the close of business on the Record Date, the Funds had the number of shares outstanding listed in Appendix I to this Joint Proxy Statement and Prospectus.

Security Ownership of Certain Beneficial Owners and Management

     <R>To the knowledge of the Funds, as of the Record Date, no person or entity owns beneficially or of record 5% or more of the shares of the Common Stock of either Fund. </R>

     As of the Record Date, the Directors and officers of MuniAssets as a group (11 persons) owned an aggregate of less than 1% of the outstanding shares of MuniAssets Common Stock.

     As of the Record Date, the Directors and officers of High Income Municipal as a group (13 persons) owned an aggregate of less than 1% of the outstanding shares of High Income Municipal Common Stock.

     On the Record Date, Mr. Glenn, a Director and an officer of each Fund and the other 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

     <R>For the purposes of this Joint Proxy Statement and Prospectus, each share of Common Stock of each Fund is entitled to one vote. Approval of the Agreement and Plan requires the approval of each Fund. With respect to High Income Municipal, approval of the Agreement and Plan requires the affirmative vote of stockholders representing a majority of the shares of High Income Municipal Common Stock entitled to vote on the matter. With respect to MuniAssets, approval of the Agreement and Plan requires the affirmative vote of a majority of the votes cast by the holders of MuniAssets Common Stock with respect to the matter, provided that the total number of votes cast on the matter represents over 50% of all shares entitled to vote on the matter.</R>

     For purposes of any vote at a Meeting that requires the approval of the outstanding shares of a Fund’s Common Stock, a quorum consists of a majority of the shares entitled to vote at that Meeting. If, by the time scheduled for each Meeting, a quorum of the applicable Fund’s stockholders is not present, or if a quorum is present but sufficient votes to act upon the Agreement and Plan are not received from the stockholders of the applicable Fund, the persons named as proxies may propose one or more adjournments of a Meeting to permit further solicitation of proxies from stockholders. Any such adjournment will require the affirmative vote of a majority of the shares of the applicable Fund present in person or by proxy and entitled to vote at the session of a 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 the applicable Fund’s stockholders. No additional notice will be provided to you in the event that a Meeting is adjourned unless otherwise required by applicable law.

     With respect to the election of two Class I Directors of MuniAssets, assuming a quorum is present, election of each nominee requires the affirmative vote of a plurality of the votes cast by MuniAssets stockholders. A “plurality of the votes cast” means the candidates must receive more votes than any other candidates for the same positions, but not necessarily a majority of votes cast.

Appraisal Rights

     Under Maryland law, stockholders of a company whose shares are not publicly traded are entitled to demand payment for the fair value of their shares upon a transfer of assets. Since High Income Municipal Common Stock is not publicly traded, High Income Municipal stockholders will be entitled to appraisal rights upon the consummation of the Reorganization.

     Under Maryland law, a holder of High Income Municipal Common Stock desiring to receive payment of the fair value of his or her stock (an “objecting stockholder”) (i) must file with High Income Municipal a written objection to the Reorganization at or before the Meeting, (ii) may not vote in favor of the Reorganization

 

41

(although a vote against the Reorganization is not required), and (iii) must make written demand on MuniAssets 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 (MuniAssets 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 who demands payment for his or her stock pursuant to the procedure described above 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 date of the Meeting. A demand for payment of fair market value may not be withdrawn, except upon the consent of MuniAssets. 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 a court located in Baltimore, Maryland for an appraisal to determine the fair value of his or her stock.

ADDITIONAL INFORMATION

     <R>The expenses of preparing, printing and mailing the enclosed forms of proxy, the accompanying Notice and this Joint Proxy Statement and Prospectus and the costs of soliciting proxies to be voted at the Meetings will be borne by MuniAssets and High Income -- Municipal. See “Agreement and Plan of Reorganization -- Terms of the Agreement and Plan of Reorganization Expenses.”</R>

     The Funds will reimburse banks, brokers and others for their reasonable expenses in forwarding proxy solicitation materials to the beneficial owners of shares of each Fund and certain persons that the Funds may employ for their reasonable expenses in assisting in the solicitation of proxies from such beneficial owners of shares of capital stock of the Funds.

     <R>In order to obtain the necessary quorum at each Meeting, supplementary solicitation may be made by mail, telephone, telegraph or personal interview by officers of the Funds. Each Fund 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 MuniAssets and High Income Municipal of approximately $3,000 each, plus out-of-pocket expenses of approximately $5,000 and $7,500, respectively.

     Broker-dealer firms, including Merrill Lynch, holding Fund 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 Meetings. MuniAssets understands that, under the rules of the NYSE, such broker-dealer firms may, without instructions from their customers and clients, grant authority to the proxies designated to vote on the election of the Class I Directors of MuniAssets if no instructions have been received prior to the date specified in the broker-dealer firm’s request for voting instructions. With respect to shares of Common Stock of each Fund, broker-dealer firms, including Merrill Lynch, will not be permitted to vote without instructions with respect to the approval of the Agreement and Plan. Each Fund 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 that Fund exists. Proxies that are returned to a Fund 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, therefore, will not have an effect on the vote on the election of the Class I Directors of MuniAssets. Abstentions and broker non-votes will have the same effect as a vote against the Reorganization with respect to High Income Municipal, but will have no effect on the vote on the Reorganization with respect to MuniAssets assuming that, as required, at least a majority of the votes have been cast on the Reorganization. </R>

     This Joint Proxy Statement and Prospectus does not contain all of the information set forth in the registration statement and the exhibits relating thereto that MuniAssets has filed with the SEC 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 Exchange Act and the Investment Company Act and in accordance therewith are required to file reports, proxy statements and other information with the SEC. Any such reports, proxy statements and other information can be inspected and copied at the public

 

42

reference facilities of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the SEC: Northeast Regional Office, at Seven World Trade Center, 13th Floor, New York, New York 10048; Pacific Regional Office, at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036; and Midwest Regional Office, at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can be obtained from the public reference section of the SEC at 450 Fifth Street, NW, Washington, DC 20549, at prescribed rates. The SEC maintains a Web site at http://www.sec.gov containing reports, proxy and information statements and other information regarding registrants, including the Funds, that file electronically with the SEC. Reports, proxy statements and other information concerning MuniAssets can 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 MuniAssets and High Income Municipal 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

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

ACCOUNTING SERVICES PROVIDER

     State Street provides certain accounting services for MuniAssets and High Income Municipal and will provide the same service 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 PROCEEDINGS

     There are no material legal proceedings to which MuniAssets or High Income Municipal is a party.

LEGAL OPINIONS

     Certain legal matters in connection with the Reorganization will be passed upon for High Income Municipal by Sidley Austin Brown & Wood LLP, One World Trade Center, New York, New York 10048 and for MuniAssets by Clifford Chance Rogers & Wells LLP, 200 Park Avenue, New York, New York 10166. Sidley Austin Brown & Wood LLP, special Maryland counsel and special tax counsel to MuniAssets, will render an opinion to MuniAssets.

EXPERTS

     The financial highlights of MuniAssets and High Income Municipal included in this Joint Proxy Statement and Prospectus, except for the financial highlights for the six month period ended February 28, 2001 for High Income Municipal, have been so included in reliance on the reports of Deloitte & Touche LLP, independent auditors, given on their authority as experts in auditing and accounting. The principal business address of Deloitte & Touche LLP is Two World Financial Center, New York, New York 10281-1008. Deloitte & Touche LLP will serve as the independent auditors for the Combined Fund after the Reorganization.

STOCKHOLDER PROPOSALS

     <R>The 2002 Annual Meeting of MuniAssets is expected to be held in August 2002. If a stockholder intends to present a proposal at the 2002 Annual Meeting of Stockholders of MuniAssets and desires to have the proposal included in the Fund’s proxy statement and form of proxy for that meeting, the stockholder must send the written </R>

 

43

<R>proposal to MuniAssets by March 17, 2002. Any stockholder of MuniAssets who desires to present a proposal at the 2002 Annual Meeting of Stockholders, without including such proposal in MuniAssets’ proxy statement, must deliver written notice thereof to the Fund by May 31, 2002. Written proposals should be sent to the Secretary of MuniAssets at the offices of MuniAssets.</R>

     High Income Municipal is not required, and does not intend, to hold an Annual Meeting of Stockholders. Stockholders wishing to submit proposals for inclusion in a proxy statement for a subsequent stockholder meeting must send their written proposal to High Income Municipal a reasonable time before the Board of Directors’ solicitation relating to such meeting is to be made. Any stockholder who wishes to present any proposal at any subsequent stockholder meeting, without including such proposal in High Income Municipal’s proxy statement relating to the meeting, also must send their written proposal to High Income Municipal 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 High Income Municipal at the offices of High Income Municipal.

By Order of the Boards of Directors,

BRADLEY J. LUCIDO
Secretary
MuniAssets Fund, Inc.

ALICE A. PELLEGRINO
Secretary
Merrill Lynch High Income
Municipal Bond Fund, Inc.

<R>Plainsboro, New Jersey
Dated: September 10, 2001</R>

 

44

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Audited Financial Statements for MuniAssets Fund, Inc.
         for the Fiscal Year Ended May 31, 2001.............................F-2

Audited Financial Statements for Merrill Lynch High
         Income Municipal Bond Fund, Inc. for the Fiscal
         Year Ended August 31, 2000.........................................F-12

Unaudited Financial Statements for Merrill Lynch High
         Income Municipal Bond Fund, Inc. for the
         Six-Months Ended February 28, 2001.................................F-23

Unaudited Financial Statements for the Combined
         Fund on a Pro Forma Basis, as of May 31, 2001......................F-33


                                      F-1















                        Audited Financial Statements for
                              MuniAssets Fund, Inc.
                     for the Fiscal Year Ended May 31, 2001


                                      F-2















<R>
MuniAssets Fund, Inc.                                            May 31, 2001
<R>

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniAssets Fund, Inc. as of May 31,
2001, 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 presented. 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 May 31, 2001 by correspondence with the custodian and
broker; where replies were not received from the broker, we performed other
auditing procedures. 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 MuniAssets Fund,
Inc. as of May 31, 2001, 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
New York, New York
June 27, 2001


                                      F-3















<R>
MuniAssets Fund, Inc.                                              May 31, 2001</R>
SCHEDULE OF INVESTMENTS                                           (in Thousands)

                   S&P   Moody's  Face
STATE            Ratings Ratings Amount    Issue                                                                           Value
===================================================================================================================================
Alabama--1.2%        B      NR*   $1,420    Brewton, Alabama, IDB, PCR, Refunding (Container Corporation of
                                            America--Jefferson Smurfit Corp. Project), 8% due 4/01/2009                    $  1,448
                     CCC    NR*    4,324    Mobile, Alabama, IDB, Solid Waste Disposal Revenue Refunding Bonds
                                            (Mobile Energy Services Co. Project), 6.95% due 1/01/2020 (b)                       216
===================================================================================================================================
Alaska--1.9%         NR*    NR*    1,620    Alaska Industrial Development and Export Authority Revenue Bonds
                                            (Williams Lynxs Alaska Cargoport), AMT, 7.80% due 5/01/2014                       1,629
                     NR*    NR*    1,000    Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Amerada Hess
                                            Pipeline Corporation), 6.10% due 2/01/2024                                        1,001
===================================================================================================================================
<R>
Arizona--9.1%        B      Ba3    2,500    Coconino County, Arizona, Pollution Control Corporation Revenue Refunding
                                            Bonds (Tucson Electric Power Navajo), Series B, 7% due 10/01/2032                 2,550
                     BBB    Baa2   2,045    Maricopa County, Arizona, IDA, Health Facilities Revenue Bonds (Catholic
                                            Healthcare West Project), Series A, 5% due 7/01/2021                              1,658
                     NR*    NR*    1,115    Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds (Sun King
                                            Apartments Project), Sub-Series C, 9.50% due 11/01/2031                           1,141
                     NR*    B3     3,000    Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds (America
                                            West Airlines Inc. Project), AMT, 6.30% due 4/01/2023                             2,451
                                            Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds (Tucson
                                            Electric Power Company Project):
                     B+     Ba3    1,040      Series B, 6% due 9/01/2029                                                        959
                     B+     Ba3    2,000      Series C, 6% due 9/01/2029                                                      1,840
                     NR*    NR*    1,710    Show Low, Arizona, Improvement District No. 5, Special Assessment Bonds,
                                            6.375% due 1/01/2015                                                              1,762
</R>
===================================================================================================================================
California--4.8%     AAA    NR*    4,000    Los Angeles, California, Department of Water and Power, Electric Plant
                                            Revenue Bonds, RIB, Series 144, 7.87% due 6/15/2029 (a)(e)                        4,587
                     NR*    NR*    1,780    Pleasanton, California, Joint Powers Financing Authority, Revenue
                                            Refunding Bonds, Reassessment, Sub-Series B, 6.60% due 9/02/2008                  1,873
===================================================================================================================================
Colorado--2.0%       NR*    NR*    2,500    Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue Bonds
                                            (Pavilions), AMT, 7.75% due 9/01/2016                                             2,654
===================================================================================================================================
Connecticut--4.9%    NR*    NR*    1,590    Connecticut State Development Authority, IDR (AFCO Cargo BDL-LLC Project),
                                            AMT, 8% due 4/01/2030                                                             1,625
                     BBB    Baa2   4,000    Connecticut State Development Authority, PCR, Refunding (Connecticut Light
                                            and Power Company), Series A, 5.85% due 9/01/2028                                 3,957
                     NR*    B1       990    New Haven, Connecticut, Facility Revenue Bonds (Hill Health Corporation
                                            Project), 9.25% due 5/01/2017                                                     1,018
===================================================================================================================================
Florida--5.0%        NR*    NR*    2,000    Hillsborough County, Florida, IDA, Exempt Facilities Revenue Bonds
                                            (National Gypsum), AMT, Series A, 7.125% due 4/01/2030                            1,440

Portfolio
Abbreviations

To simplify the listings of MuniAssets 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)
EDA   Economic Development Authority
GO    General Obligation Bonds
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
VRDN  Variable Rate Demand Notes


                                     F-4
















<R>
MuniAssets Fund, Inc.                                              May 31, 2001</R>
SCHEDULE OF INVESTMENTS (continued)                               (in Thousands)

                   S&P   Moody's   Face
STATE            Ratings Ratings  Amount   Issue                                                                           Value
====================================================================================================================================
Florida              NR*    NR*   $2,800    Parkway Center, Florida, Community Development District Special Assessment
(concluded)                                 Refunding Bonds, Series B, 8% due 5/01/2010                                    $  2,814
                     A1+    VMIG1+ 2,500    Saint Lucie County, Florida, PCR, Refunding (Florida Power and Light
                                            Company Project), VRDN, 3.10% due 9/01/2028 (f)                                   2,500
===================================================================================================================================
Idaho--0.7%          NR*    NR*    1,000    Idaho Health Facilities Authority, Revenue Refunding Bonds (Valley Vista
                                            Care Corporation), Series A, 7.75% due 11/15/2016                                   974
===================================================================================================================================
Illinois--5.2%       NR*    NR*    1,755    Illinois Development Finance Authority Revenue Bonds (Primary Health Care
                                            Centers Facilities Acquisition Program), 7.50% due 12/01/2006                     1,839
                                            Illinois Health Facilities Authority Revenue Bonds:
                     BBB+   NR*    1,000      (Community Hospital of Ottawa Project), 6.75% due 8/15/2014                     1,004
                     BBB+   NR*    2,000      (Community Hospital of Ottawa Project), 6.85% due 8/15/2024                     1,981
                     NR*    Ba3    2,150      (Holy Cross Hospital Project), 6.70% due 3/01/2014                              1,800
                     A1     VMIG1+   400    Illinois Health Facilities Authority, Revenue Refunding Bonds (Resurrection
                                            Health), VRDN, Series A, 3.10% due 5/01/2029 (a)(f)                                 400

===================================================================================================================================
<R>
Iowa--0.7%           NR*    NR*     800    Iowa Finance Authority, Health Care Facilities Revenue Refunding Bonds
                                           (Care Initiatives Project), 9.25% due 7/01/2025                                      953
</R>
====================================================================================================================================
Kentucky--0.7%       NR*    NR*   1,000    Kenton County, Kentucky, Airport Board, Special Facilities Revenue Bonds
                                           (Mesaba Aviation Inc. Project), AMT, Series A, 6.70% due 7/01/2029                   951
====================================================================================================================================
Louisiana--3.4%      BB-    NR*   4,500    Port New Orleans, Louisiana, IDR, Refunding (Continental Grain Company
                                           Project), 7.50% due 7/01/2013                                                      4,550
====================================================================================================================================
Maryland--4.0%       NR*    NR*   1,930    Maryland State Economic Development Corporation, Revenue Refunding Bonds
                                           (Baltimore Association for Retarded Citizens--Health and Mental Hygiene
                                           Program), Series A, 7.75% due 3/01/2025                                            1,973
                     NR*    NR*   3,000    Maryland State Energy Financing Administration, Limited Obligation
                                           Revenue Bonds (Cogeneration--AES Warrior Run), AMT, 7.40% due 9/01/2019            3,095
                     A1+    VMIG1+  400    Maryland State Energy Financing Administration, Solid Waste Disposal
                                           Revenue Bonds (Cimenteries Project), AMT, VRDN, 3.20% due 5/01/2035 (f)              400
====================================================================================================================================
Massachusetts--3.7%  NR*    NR*     825    Massachusetts State Health and Educational Facilities Authority Revenue
                                           Bonds (New England Memorial Hospital Project), Series C, 7% due 4/01/2014 (b)        165
                     NR*    Ba2   2,220    Massachusetts State Health and Educational Facilities Authority, Revenue
                                           Refunding Bonds (Bay Cove Human Services Issue), Series A, 5.90% due
                                           4/01/2028                                                                          1,810
                     NR*    Aaa   2,765    Massachusetts State Industrial Finance Agency, Revenue Refunding Bonds
                                           (Bay Cove Human Services Inc.), 8.375% due 4/01/2004 (d)                           3,103
====================================================================================================================================
Michigan--0.3%       NR*    VMIG1+  400    Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project),
                                           VRDN, 3.05% due 4/15/2018 (f)(g)                                                     400
====================================================================================================================================
Mississippi--0.7%    BBB-   Ba1   1,000    Mississippi Business Finance Corporation, Mississippi, PCR, Refunding
                                           (System Energy Resources Inc. Project), 5.90% due 5/01/2022                          923
====================================================================================================================================
Missouri--0.7%       NR*    NR*   1,000    Fenton, Missouri, Tax Increment Revenue Refunding and Improvement Bonds
                                           (Gravois Bluffs), 7% due 10/01/2021                                                1,016
====================================================================================================================================
New Jersey--12.4%                          Camden County, New Jersey, Improvement Authority, Lease Revenue Bonds
                                           (Holt Hauling & Warehousing), AMT, Series A:
                     NR*    NR*   1,000      9.625% due 1/01/2011                                                               938
                     NR*    NR*   3,800      9.875% due 1/01/2021                                                             3,563


                                    F-5















<R>
MuniAssets Fund, Inc.                                              May 31, 2001</R>
SCHEDULE OF INVESTMENTS (continued)                               (in Thousands)

                   S&P   Moody's   Face
STATE            Ratings Ratings  Amount   Issue                                                                           Value
====================================================================================================================================
New Jersey                                 Camden County, New Jersey, Pollution Control Financing Authority, Solid
(concluded)                                Waste Resource Recovery Revenue Refunding Bonds, AMT:
                     CCC    B2   $3,000      Series A, 7.50% due 12/01/2010                                                  $2,897
                     CCC    B2      500      Series B, 7.50% due 12/01/2009                                                     483
                     NR*    NR*   2,000    New Jersey EDA, Economic Development Revenue Bonds (Glimcher Properties
                                           LP Project), AMT, 6% due 11/01/2028                                                1,773
                     NR*    NR*   1,000    New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel), 7% due
                                           10/01/2014                                                                         1,013
                     NR*    NR*   2,800    New Jersey EDA, Retirement Community Revenue Bonds (Seabrook Village
                                           Inc.), Series A, 8.125% due 11/15/2023                                             2,804
                     BB     Ba2   2,000    New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines Inc.
                                           Project), AMT, 6.25% due 9/15/2029                                                 1,868
                     BBB-   Baa3  1,500    New Jersey Health Care Facilities Financing Authority, Revenue Refunding
                                           Bonds (Trinitas Hospital Obligation Group), 7.40% due 7/01/2020                    1,495
====================================================================================================================================
New Mexico--1.0%     NR*    Baa3  1,500    Farmington, New Mexico, PCR, Refunding (Public Service Company--San Juan
                                           Project), Series A, 5.80% due 4/01/2022                                            1,413
====================================================================================================================================
New York--1.8%                             Utica, New York, GO, Public Improvement Bonds:
                     BB     Ba1     700      9.25% due 8/15/2001                                                                705
                     BB     Ba1     700      9.25% due 8/15/2002                                                                726
                     BB     Ba1     700      9.25% due 8/15/2003                                                                745
                     BB     Ba1     250      8.50% due 8/15/2015                                                                278
====================================================================================================================================
North Carolina--1.2% BBB    Baa3    350    North Carolina Eastern Municipal Power Agency, Power System Revenue
                                           Refunding Bonds, Series A, 5.75% due 1/01/2026                                       335
                     NR*    NR*   1,200    North Carolina Medical Care Commission, Health Care Facilities, First
                                           Mortgage Revenue Refunding Bonds (Presbyterian Homes Project), 7%
                                           due 10/01/2031                                                                     1,223
====================================================================================================================================
Ohio--2.2%           NR*    Ba2   3,365    Cleveland, Ohio, Airport Special Revenue Refunding Bonds (Continental
                                           Airlines Inc. Project), AMT, 5.70% due 12/01/2019                                  2,934
====================================================================================================================================
Oregon--3.3%         NR*    NR*   1,630    Klamath Falls, Oregon, Electric Revenue Refunding Bonds (Klamath
                                           Cogeneration Project), Senior Lien, 6% due 1/01/2025                               1,534
                     NR*    VMIG1+  200    Oregon State Health, Housing, Educational and Cultural Facilities
                                           Authority Revenue Bonds (Guide Dogs for the Blind), VRDN, Series A, 3.05%
                                           due 7/01/2025 (f)                                                                    200
                     NR*    NR*     700    Western Generation Agency, Oregon, Cogeneration Project Revenue Bonds
                                           (Wauna Cogeneration Project), Series A, 7.125% due 1/01/2021                         705
                     B      NR*   2,000    Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint Corporation
                                           Project), 8% due 12/01/2003                                                        2,034
====================================================================================================================================
Pennsylvania--7.4%   NR*    NR*     250    Lancaster County, Pennsylvania, Hospital Authority Revenue Bonds
                                           (Health Center--Saint Anne's Home), 6.60% due 4/01/2024                              240
                     NR*    Ba2   1,500    Lehigh County, Pennsylvania, General Purpose Authority, Revenue
                                           Refunding Bonds (Kidspeace Obligation Group), 6% due 11/01/2023                    1,266
                                      3    Northhampton Pulp LLC (b)(c)(h)                                                      398
                     AAA    NR*   1,455    Pennsylvania State Higher Educational Facilities Authority, College and
                                           University Revenue Refunding Bonds (Eastern College), Series A, 8% due
                                           10/15/2006 (d)                                                                     1,768
                     NR*    NR*   4,000    Philadelphia, Pennsylvania, Authority for IDR, Commercial Development,
                                           AMT, 7.75% due 12/01/2017                                                          4,208
                     NR*    NR*   2,625    Philadelphia, Pennsylvania, Authority for Industrial Development,
                                           Health Care Facility Revenue Refunding Bonds (Paul's Run), Series A,
                                           5.875% due 5/15/2028                                                               2,203
====================================================================================================================================
South Carolina--1.2% BBB    NR*   1,500    South Carolina Jobs, EDA, Economic Development Revenue Bonds (Westminster
                                           Presbyterian Center), 7.75% due 11/15/2030                                         1,586
====================================================================================================================================
Texas--6.1%          BBB-   Baa3  1,000    Austin, Texas, Convention Center Revenue Bonds (Convention Enterprises
                                           Inc.), First Tier, Series A, 6.70% due 1/01/2028                                   1,000


                                      F-6
















<R>
MuniAssets Fund, Inc.                                              May 31, 2001</R>
SCHEDULE OF INVESTMENTS (concluded)                               (in Thousands)

                   S&P   Moody's   Face
STATE            Ratings Ratings  Amount   Issue                                                                           Value
====================================================================================================================================
<R>
Texas (concluded)    BB     Ba1  $3,000    Houston, Texas, Airport System Revenue Bonds (Special
                                           Facilities--Continental Airlines), AMT, Series B, 6.125% due 7/15/2017          $  2,766
                     BBB-   Baa2  4,500    Lower Colorado River Authority, Texas, PCR (Samsung Austin Semiconductor),
                                           AMT, 6.375% due 4/01/2027                                                          4,457
</R>
====================================================================================================================================
Utah--1.3%           NR*    NR*   1,660    Carbon County, Utah, Solid Waste Disposal Revenue Refunding Bonds
                                           (Laidlaw Environmental), AMT, Series A, 7.45% due 7/01/2017                        1,694
====================================================================================================================================
Vermont--2.4%        NR*    NR*   3,015    Vermont Educational and Health Buildings Financing Agency, Revenue
                                           Refunding Bonds (College of Saint Joseph Project), 8.50% due 11/01/2024            3,307
====================================================================================================================================
Virginia--8.7%       NR*    NR*   1,500    Dulles Town Center, Virginia, Community Development Authority, Special
                                           Assessment Tax (Dulles Town Center Project), 6.25% due 3/01/2026                   1,459
                     NR*    NR*   3,075    Peninsula Ports Authority, Virginia, Revenue Refunding Bonds (Port
                                           Facility--Zeigler Coal), 6.90% due 5/02/2022 (b)                                   1,414
                                           Pittsylvania County, Virginia, IDA, Revenue Refunding Bonds,
                                           Exempt-Facility, AMT, Series A:
                     NR*    NR*   1,700      7.50% due 1/01/2014                                                              1,624
                     NR*    NR*   1,000      7.55% due 1/01/2019                                                                947
                                           Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds,
                                           Capital Appreciation:
                     NR*    Ba1   6,200      First Tier, Sub-Series C, 6.25%** due 8/15/2032                                    616
                     BBB-   Baa3 48,400      Senior Series B, 5.95%** due 8/15/2032                                           5,672
====================================================================================================================================
Washington--1.4%     NR*    NR*   1,900    Port Seattle, Washington, Special Facilities Revenue Bonds (Northwest
                                           Airlines Project), AMT, 7.25% due 4/01/2030                                        1,868
====================================================================================================================================
Wisconsin--0.7%      NR*    NR*   1,000    Wisconsin State Health and Educational Facilities Authority Revenue Bonds
                                           (Oakwood Village Project), Series A, 7.625% due 8/15/2030                          1,014
====================================================================================================================================
                     Total Investments (Cost--$143,775)--100.1%                                                             135,633

                     Liabilities in Excess of Other Assets--(0.1%)                                                             (185)
                                                                                                                           --------
                     Net Assets--100.0%                                                                                    $135,448
                                                                                                                           ========
====================================================================================================================================


(a)   FSA Insured.
(b)   Non-income producing security.
(c)   These shares represent an equity interest in the reorganization of
      Ponderosa Fibres PA. The security may be offered and sold to "qualified
      institutional buyers" under Rule 144A of the Securities Act of 1933.
(d)   Prerefunded.
(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 May 31, 2001.
(f)   The interest rate is subject to change periodically based upon prevailing
      market rates. The interest rate shown is the rate in effect at May 31,
      2001.
(g)   AMBAC Insured.
(h)   Escrowed to maturity.
 *    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.
      Ratings of issues shown have not been audited by Deloitte & Touche LLP.

      See Notes to Financial Statements.


                                      F-7
















<R>
MuniAssets Fund, Inc.                            May 31, 2001
</R>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL

              As of May 31, 2001
========================================================================================================
Assets:       Investments, at value (identified cost-$143,774,607) ....                    $ 135,632,525
              Cash .....................................................                          24,608
              Receivables:
                Interest ...............................................   $   2,466,628
                Securities sold ........................................         247,438       2,714,066
                                                                           -------------
              Prepaid expenses and other assets ........................                           8,195
                                                                                           -------------
              Total assets .............................................                     138,379,394
                                                                                           -------------
========================================================================================================
Liabilities:  Payables:
                Securities purchased ...................................       2,845,481
                Investment adviser .....................................          50,905       2,896,386
                                                                           -------------
              Accrued expenses and other liabilities ...................                          34,523
                                                                                           -------------
              Total liabilities ........................................                       2,930,909
                                                                                           -------------
========================================================================================================
Net Assets:   Net assets ...............................................                   $ 135,448,485
                                                                                           =============
========================================================================================================
Capital:      Common Stock, par value $.10 per share; 200,000,000 shares
              authorized; 10,454,359 shares issued and outstanding .....                   $   1,045,436
              Paid-in capital in excess of par .........................                     148,814,553
              Undistributed investment income--net .....................                         845,463
              Accumulated realized capital losses on investments--net ..                      (7,114,885)
              Unrealized depreciation on investments--net ..............                      (8,142,082)
                                                                                           -------------
              Total capital--Equivalent to $12.96 net asset value per
              share of Common Stock (market price--$13.00) .............                   $ 135,448,485
                                                                                           =============
========================================================================================================

              See Notes to Financial Statements.




STATEMENT OF OPERATIONS

                    For the Year Ended May 31, 2001
==========================================================================================================
Investment          Interest and amortization of premium and discount earned                  $  9,698,498
Income:
==========================================================================================================
Expenses:           Investment advisory fees ...............................   $    740,906
                    Professional fees ......................................         57,834
                    Accounting services ....................................         53,362
                    Directors' fees and expenses ...........................         40,498
                    Listing fees ...........................................         35,652
                    Printing and shareholder reports .......................         33,577
                    Transfer agent fees ....................................         31,869
                    Custodian fees .........................................          9,153
                    Pricing fees ...........................................          8,722
                    Other ..................................................         15,539
                                                                               ------------
                    Total expenses .........................................                     1,027,112
                                                                                              ------------
                    Investment income--net .................................                     8,671,386
                                                                                              ------------
==========================================================================================================
Realized &          Realized loss on investments--net ......................                    (2,286,735)
Unrealized          Change in unrealized depreciation on investments--net ..                     4,301,686
Gain (Loss) on                                                                                ------------
Investments--Net:   Net Increase in Net Assets Resulting from Operations ...                  $ 10,686,337
                                                                                              ============
==========================================================================================================

                    See Notes to Financial Statements.


                                       F-8


















<R>
MuniAssets Fund, Inc.                            May 31, 2001
</R>

STATEMENTS OF CHANGES IN NET ASSETS

                                                                                                 For the Year Ended May 31,
                                                                                               ------------------------------
                 Increase (Decrease) in Net Assets:                                                 2001             2000
=============================================================================================================================
Operations:      Investment income--net ....................................................   $   8,671,386    $   8,385,908
                 Realized loss on investments--net .........................................      (2,286,735)      (3,125,350)
                 Change in unrealized appreciation/depreciation on investments--net ........       4,301,686      (14,597,801)
                                                                                               -------------    -------------
                 Net increase (decrease) in net assets resulting from operations ...........      10,686,337       (9,337,243)
                                                                                               -------------    -------------
=============================================================================================================================
Dividends to     Dividends to shareholders from investment income--net .....................      (8,588,342)      (8,480,641)
Shareholders:                                                                                  -------------    -------------
=============================================================================================================================
Common Stock     Value of shares issued to Common Stock shareholders in reinvested dividends         285,115               --
Transactions:                                                                                  -------------    -------------
=============================================================================================================================
Net Assets:      Total increase (decrease) in net assets ...................................       2,383,110      (17,817,884)
                 Beginning of year .........................................................     133,065,375      150,883,259
                                                                                               -------------    -------------
                 End of year* ..............................................................   $ 135,448,485    $ 133,065,375
                                                                                               =============    =============
=============================================================================================================================
                *Undistributed investment income--net ......................................   $     845,463    $     747,094
                                                                                               =============    =============
=============================================================================================================================

                 See Notes to Financial Statements.

FINANCIAL HIGHLIGHTS

                     The following per share data and ratios have been derived
                     from information provided in the financial statements.                 For the Year Ended May 31,
                                                                                ---------------------------------------------------
                     Increase (Decrease) in Net Asset Value:                     2001      2000       1999       1998       1997
===================================================================================================================================
Per Share            Net asset value, beginning of year ......................  $  12.76  $  14.46   $  14.77   $  14.16   $  13.74
Operating                                                                       --------  --------   --------   --------   --------
Performance:           Investment income--net .................................      .83       .80        .83        .84        .84
                       Realized and unrealized gain (loss) on investments--net       .19     (1.69)      (.32)       .62        .42
                                                                                --------  --------   --------   --------   --------
                     Total from investment operations ........................      1.02      (.89)       .51       1.46       1.26
                                                                                --------  --------   --------   --------   --------
                     Less dividends from investment income--net ..............      (.82)     (.81)      (.82)      (.85)      (.84)
                                                                                --------  --------   --------   --------   --------
                     Net asset value, end of year ............................  $  12.96  $  12.76   $  14.46   $  14.77   $  14.16
                                                                                ========  ========   ========   ========   ========
                     Market price per share, end of year .....................  $  13.00  $11.1875   $  13.00   $  13.75   $ 12.625
                                                                                ========  ========   ========   ========   ========
===================================================================================================================================
Total Investment     Based on net asset value per share ......................     8.58%    (5.45%)     3.74%     10.87%     10.11%
Return:*                                                                        ========  ========   ========   ========   ========
                     Based on market price per share .........................    24.22%    (7.79%)      .19%     15.76%      9.01%
                                                                                ========  ========   ========   ========   ========
===================================================================================================================================
Average              Expenses ................................................      .76%      .74%       .72%       .75%       .76%
Net Assets:                                                                     ========  ========   ========   ========   ========
                     Investment income--net ..................................     6.44%     5.96%      5.66%      5.75%      6.06%
                                                                                ========  ========   ========   ========   ========
===================================================================================================================================
Supplemental         Net assets, end of year (in thousands) ..................  $135,448  $133,065   $150,883   $153,947   $147,630
Data:                                                                           ========  ========   ========   ========   ========
                     Portfolio turnover ......................................    17.11%    32.38%     40.57%     36.39%     45.15%
                                                                                ========  ========   ========   ========   ========
===================================================================================================================================

*     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.

      See Notes to Financial Statements.


                                      F-9


















<R>
MuniAssets Fund, Inc.                                            May 31, 2001
</R>

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies:

MuniAssets 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 MUA. 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 last available bid price in the
over-the-counter market or on the basis of yield equivalents as obtained by the
Fund's pricing service 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 closing 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-the-counter
market, valuation is the last asked price (options written) or the last bid
price (options purchased). Short-term investments with a remaining maturity 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.

o 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.

o 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 June 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, but
will result in a $43,627 increase to the cost of securities and a corresponding
$43,627 decrease to net unrealized depreciation, based on debt securities held
as of May 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.


                                      F-10
















<R>
MuniAssets Fund, Inc.                                            May 31, 2001
</R>

NOTES TO FINANCIAL STATEMENTS (concluded)

(f) Reclassification--Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax differences of $15,325 have been
reclassified between accumulated realized capital gains and undistributed net
investment income. These reclassifications have no effect on net assets or net
asset value per share.

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 of
 .55% based upon the average weekly value of the Fund's net assets.

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 year ended May 31, 2001, the Fund reimbursed FAM an
aggregate of $31,455 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
year ended May 31, 2001 were $22,491,118 and $22,156,496, respectively.

Net realized losses for the year ended May 31, 2001 and net unrealized losses as
of May 31, 2001 were as follows:

- --------------------------------------------------------------------------------
                                                Realized             Unrealized
                                                 Losses                Losses
- --------------------------------------------------------------------------------
Long-term investments ................         $(2,286,735)         $(8,142,082)
                                               -----------          -----------
Total ................................         $(2,286,735)         $(8,142,082)
                                               ===========          ===========
- --------------------------------------------------------------------------------

As of May 31, 2001, net unrealized depreciation for Federal income tax purposes
aggregated $8,142,082, of which $3,680,794 related to appreciated securities and
$11,822,876 related to depreciated securities. The aggregate cost of investments
at May 31, 2001 for Federal income tax purposes was $143,774,607.

4. Common Stock Transactions:

At May 31, 2001, the Fund had one class of shares of Common Stock, par value
$.10 per share, of which 200,000,000 shares were authorized. Shares issued and
outstanding during the year ended May 31, 2001 increased by 22,168 as a result
of dividend reinvestment and during the year ended May 31, 2000 remained
constant.

5. Capital Loss Carryforward:

At May 31, 2001, the Fund had a net capital loss carryforward of approximately
$4,941,000, of which $1,047,000 expires in 2004, $2,037,000 expires in 2008, and
$1,857,000 expires in 2009. This amount will be available to offset like amounts
of any future taxable gains.

6. Subsequent Event:

On June 7, 2001, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.072815 payable on June
28, 2001 to shareholders of record as of June 19, 2001.


                                      F-11















               Audited Financial Statements for Merrill Lynch High
                 Income Municipal Bond Fund, Inc. for the Fiscal
                           Year Ended August 31, 2000


                                      F-12













<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.    August 31, 2000
<R>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders,
Merrill Lynch High Income Municipal
Bond Fund, Inc.:

We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
High Income Municipal Bond Fund, Inc. as of August 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
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 August 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 High Income Municipal Bond Fund, Inc. as of August 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
October 5, 2000


                                      F-13














<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                                     August 31, 2000
</R>

SCHEDULE OF INVESTMENTS                                           (in Thousands)
                 S&P    Moody's   Face
State          Ratings  Ratings  Amount                       Issue                                            Value
=======================================================================================================================
Alabama--1.8%     B       NR*  $ 1,000   Brewton, Alabama, IDB, PCR, Refunding (Container Corporation
                                         of America--Jefferson Smurfit Corp. Project),
                                         8% due 4/01/2009                                                      $  1,039
                  CCC     Ca     5,285   Mobile, Alabama, IDB, Solid Waste Disposal Revenue Refunding
                                         Bonds (Mobile Energy Services Co. Project), 6.95% due
                                         1/01/2020 (e)                                                            1,718

=======================================================================================================================
<R>
Arizona--7.4%     B       Ba3    3,000   Coconino County, Arizona, Pollution Control Corporation,
                                         Revenue Refunding Bonds (Tucson Electric Power--Navajo),
                                         AMT, Series A, 7.125% due 10/01/2032                                     3,059
                  NR*     NR*    1,280   Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds
                                         (Sun King Apartments Project), Sub-Series C, 9.50% due
                                         11/01/2031                                                               1,307
                  NR*     B1     4,600   Phoenix, Arizona, IDA, Airport Facility Revenue Refunding
                                         Bonds (America West Airlines Inc. Project), AMT, 6.30% due
                                         4/01/2023                                                                4,146
                  NR*     NR*    1,235   Pima County, Arizona, IDA, Industrial Revenue Bonds (La
                                         Hacienda Project), 9.50% due 12/01/2016                                  1,323
                  B       Ba3      500   Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds
                                         (Tucson Electric Power Company Project), Series C, 6% due
                                         9/01/2029                                                                  460
                                         Sedona, Arizona, Wastewater Municipal Property Corporation,
                                         Excise Tax Revenue Refunding Bonds (d):
                  AAA     NR*    1,410      5.20%** due 7/01/2021                                                   447
                  AAA     NR*    1,310      5.24%** due 7/01/2023                                                   369
</R>
=======================================================================================================================
California--4.6%  NR*     NR*    1,500   Long Beach, California, M/F Housing Redevelopment Agency,
                                         Revenue Bonds (Pacific Court Apartments), AMT, Issue B, 6.80%
                                         due 9/01/2013 (e)                                                          930
                  AAA     NR*    5,865   Los Angeles, California, Department of Water and Power,
                                         Electric Plant Revenue Bonds, RIB, Series 144, 6.89% due
                                         6/15/2029 (b)(h)                                                         5,888
=======================================================================================================================
Colorado--6.4%    NR*     NR*    1,700   Colorado Post--Secondary Educational Facilities Authority
                                         Revenue Bonds (Colorado Ocean Journey Inc. Project), 8.30%
                                         due 12/01/2017                                                           1,857
                  A       A2     2,000   Denver, Colorado, City and County Airport Revenue Bonds, AMT,
                                         Series D, 7.75% due 11/15/2013                                           2,394
                  NR*     NR*    3,000   Denver, Colorado, Urban Renewal Authority, Tax Increment and
                                         Allocation Bonds, AMT, 7.75% due 9/01/2017                               3,204
                                         San Miguel County, Colorado (Mountain Village Metropolitan
                                         District), GO, Refunding:
                  NR*     NR*    1,350      8.10% due 12/01/2002 (f)                                              1,466
                  NR*     NR*      650      8.10% due 12/01/2011                                                    693

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

PORTFOLIO ABBREVIATIONS

To simplify the listings of Merrill Lynch High Income Municipal Bond
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)
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
INFLOS     Inverse Floating Rate Municipal Bonds
M/F        Multi-Family
PCR        Pollution Control Revenue Bonds
RIB        Residual Interest Bonds
S/F        Single-Family


                                      F-14

















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                                     August 31, 2000
</R>

SCHEDULE OF INVESTMENTS (continued)                                                                 (in Thousands)

                 S&P    Moody's   Face
State          Ratings  Ratings  Amount                       Issue                                            Value
=======================================================================================================================
Connecticut--3.2% NR*     NR*  $ 1,900   Connecticut State Development Authority, IDR (AFCO Cargo
                                         BDL--LLC Project), AMT, 8% due 4/01/2030                               $ 1,942
                  NR*     NR*    1,080   Connecticut State Health and Educational Facilities Authority
                                         Revenue Bonds (Edgehill Issue), Series A, 6.875% due 7/01/2027           1,057
                  NR*     B1     1,745   New Haven, Connecticut, Facility Revenue Bonds (Hill Health
                                         Corporation Project), 9.25% due 5/01/2017                                1,808

=======================================================================================================================
Florida--5.4%     NR*     NR*      940   Arbor Greene Community Development District, Florida, Special
                                         Assessment Revenue Bonds, 7.60% due 5/01/2018                              991
                  NR*     NR*      975   Grand Haven Community Development District, Florida, Special
                                         Assessment Bonds, Series B, 6.90% due 5/01/2019                            977
                  NR*     NR*    3,000   Orlando, Florida, Special Assessment Bonds (Conroy Road
                                         Interchange Project), Series A, 5.80% due 5/01/2026                      2,654
                  NR*     NR*    3,400   Parkway Center, Florida, Community Development District
                                         Special Assessment Refunding Bonds, Series B, 8% due 5/01/2010           3,388

=======================================================================================================================
Georgia--1.3%     NR*     NR*    1,895   Atlanta, Georgia, Urban Residential Finance Authority, M/F
                                         Mortgage Revenue Bonds (Northside Plaza Apartments Project),
                                         AMT, 9.75% due 11/01/2020                                                1,941

=======================================================================================================================
Illinois--7.5%    BBB-    Baa1   4,000   Chicago, Illinois, O'Hare International Airport, Special Facility
                                         Revenue Refunding Bonds (American Airlines Inc. Project),
                                         8.20% due 12/01/2024                                                     4,383
                  NR*     NR*    3,195   Illinois Development Finance Authority, Primary Health Care
                                         Centers Facilities, Acquisition Program Revenue Bonds, 7.75%
                                         due 12/01/2016                                                           3,468
                  NR*     NR*    2,000   Illinois Educational Facilities Authority, Revenue Refunding
                                         Bonds (Chicago Osteopathic Health System), 7.25% due
                                         11/15/2019 (f)                                                           2,383
                  BBB     NR*    1,000   Lansing, Illinois, Tax Increment Revenue Refunding Bonds
                                         (Sales Tax--Landings Redevelopment), 7% due 12/01/2008                   1,058

=======================================================================================================================
<R>
Indiana--2.4%     A+      NR*    1,500   Indiana Bond Bank Revenue Bonds, Special Hospital Program
                                         (Hendricks Community Hospital), Series A, 7.125% due 4/01/2013           1,571
                  NR*     NR*    2,000   Indianapolis, Indiana, M/F Revenue Bonds (Lake Nora Fox Club
                                         Project), Series B, 7.50% due 10/01/2029                                 1,970
</R>
=======================================================================================================================
Iowa--1.2%        NR*     NR*    1,500   Iowa Finance Authority, Health Care Facilities Revenue Refunding
                                         Bonds (Care Initiatives Project), 9.25% due 7/01/2025                    1,798
=======================================================================================================================
<R>
Kentucky--3.9%    NR*     NR*    1,850   Kenton County, Kentucky, Airport Board, Special Facilities
                                         Revenue Bonds (Mesaba Aviation Inc. Project), AMT, Series A,
                                         6.70% due 7/01/2029                                                      1,758
                  AAA     Aaa    3,700   Louisville, Kentucky, Hospital Revenue Refunding Bonds,
                                         INFLOS, 8.578% due 10/01/2014 (d)(h)                                     4,001
</R>
=======================================================================================================================
Louisiana--2.0%   CC      NR*    3,000   Port New Orleans, Louisiana, IDR, Refunding (Continental
                                         Grain Company Project), 7.50% due 7/01/2013                              3,039

=======================================================================================================================
Maryland--3.4%    NR*     NR*    5,000   Maryland State Energy Financing Administration, Limited
                                         Obligation Revenue Bonds (Cogeneration--AES Warrior Run),
                                         AMT, 7.40% due 9/01/2019                                                 5,087

=======================================================================================================================
Massachusetts--   NR*     NR*    1,145   Boston, Massachusetts, Industrial Development Financing
6.1%                                     Authority, Solid Waste Disposal Facility Revenue Bonds
                                         (Jet-A-Way Project), AMT, 10.50% due 1/01/2011                           1,195
                  NR*     NR*    1,475   Massachusetts State Health and Educational Facilities Authority
                                         Revenue Bonds (New England Memorial Hospital Project),
                                         Series C, 7% due 4/01/2014 (e)                                             371
                  NR*     Ca     2,745   Massachusetts State Health and Educational Facilities Authority,
                                         Revenue Refunding Bonds (New England Memorial Hospital),
                                         Series B, 6.125% due 7/01/2013 (e)                                         549
                  NR*     AAA    1,580   Massachusetts State Industrial Finance Agency, Revenue
                                         Refunding Bonds (Bay Cove Human Services Inc.), 8.375% due
                                         4/01/2004 (f)                                                            1,766
                  NR*     NR*    5,000   Massachusetts State Port Authority, Special Project Revenue
                                         Bonds (Harborside Hyatt Project), AMT, 10% due 3/01/2026                 5,182

=======================================================================================================================
Mississippi--1.5% NR*     NR*    2,275   Mississippi Development Bank, Special Obligation Revenue
                                         Refunding Bonds (Diamond Lakes Utilities), Series A, 6.25%
                                         due 12/01/2017                                                           2,179

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


                                      F-15















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                                     August 31, 2000
</R>

SCHEDULE OF INVESTMENTS (continued)                                                                 (in Thousands)

                 S&P    Moody's   Face
State          Ratings  Ratings  Amount                       Issue                                            Value
=======================================================================================================================
Nevada--1.4%      BBB     Baa1 $ 2,500   Henderson, Nevada, Health Care Facility Revenue Bonds
                                         (Catholic Healthcare West--Saint Rose Dominican Hospital),
                                         5.375% due 7/01/2026                                                   $ 2,046

=======================================================================================================================
New Jersey--15.0%                        Camden County, New Jersey, Improvement Authority, Lease
                                         Revenue Bonds (Holt Hauling & Warehousing), AMT, Series A:
                  CCC     NR*    4,600      9.625% due 1/01/2011                                                  4,559
                  CCC     NR*    2,000      9.875% due 1/01/2021                                                  1,980
                  CCC     B2     4,000   Camden County, New Jersey, Pollution Control Financing
                                         Authority, Solid Waste Resource Recovery Revenue Bonds,
                                         Series D, 7.25% due 12/01/2010                                           3,790
                  CCC     B2     6,000   Camden County, New Jersey, Pollution Control Financing
                                         Authority, Solid Waste Resource Recovery Revenue Refunding
                                         Bonds, AMT, Series A, 7.50% due 12/01/2010                               5,789
                  NR*     NR*    3,000   New Jersey EDA, Economic Development Revenue Bonds
                                         (Glimcher Properties LP Project), AMT, 6% due 11/01/2028                 2,721
                  NR*     NR*    1,500   New Jersey EDA, IDR, Refunding (Newark Airport Marriott
                                         Hotel), 7% due 10/01/2014                                                1,532
                  BBB-    Baa3   2,000   New Jersey Health Care Facilities Financing Authority, Revenue
                                         Refunding Bonds (Trinitas Hospital Obligation Group), 7.375%
                                         due 7/01/2015                                                            2,061

=======================================================================================================================
New Mexico--      B      Ba3    1,000   Farmington, New Mexico, PCR, Refunding (Tucson Electric
0.7%                                     Power Co.--San Juan Project), Series A, 6.95% due 10/01/2020             1,011
</R>
=======================================================================================================================
New York--2.4%                           Utica, New York, GO, Public Improvement:
                  BB      Ba3      635      8.50% due 8/15/2007                                                     709
                  BB      Ba3      635      8.50% due 8/15/2008                                                     708
                  BB      Ba3      500      8.50% due 8/15/2009                                                     558
                  BB      Ba3      500      8.50% due 8/15/2010                                                     558
                  BB      Ba3      500      8.50% due 8/15/2011                                                     558
                  BB      Ba3      500      8.50% due 8/15/2012                                                     558

=======================================================================================================================
Ohio--0.7%        AAA     Aaa    1,050   Ohio HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series A,
                                         9.061% due 3/24/2031 (c)(h)                                              1,105

=======================================================================================================================
Oregon--1.7%      NR*     NR*    1,000   Western Generation Agency, Oregon, Cogeneration Project
                                         Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
                                         7.40% due 1/01/2016                                                      1,036
                  B       NR*    1,455   Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
                                         Corporation Project), 8% due 12/01/2003                                  1,503

=======================================================================================================================
Pennsylvania--    NR*     NR*    1,000   Lehigh County, Pennsylvania, General Purpose Authority,
6.2%                                     Revenue Refunding Bonds (Kidspeace Obligation Group),
                                         6% due 11/01/2023                                                          828
                                     5   Northhampton Pulp LLC (a)(e)(g)                                            671
                  NR*     NR*    5,000   Philadelphia, Pennsylvania, Authority for IDR, Commercial
                                         Development, AMT, 7.75% due 12/01/2017                                   5,278
                  NR*     NR*    3,125   Philadelphia, Pennsylvania, Authority for Industrial Development,
                                         Health Care Facility Revenue Refunding Bonds (Paul's Run),
                                         Series A, 5.875% due 5/15/2028                                           2,511

=======================================================================================================================
South Carolina--  BBB     NR*    2,000   South Carolina Jobs, EDA, Economic Development Revenue
1.7%                                     Bonds (Westminster Presbyterian Center), 7.75% due 11/15/2030            2,065
                  NR*     NR*      500   South Carolina Jobs, EDA, Health Facilities Revenue Bonds,
                                         First Mortgage (Lutheran Homes Project), 6.625% due 5/01/2028              467

=======================================================================================================================
Texas--1.8%       BB      Ba1    3,000   Houston, Texas, Airport System Revenue Bonds (Special
                                         Facilities--Continental Airlines), AMT, Series C, 6.125%
                                         due 7/15/2027                                                            2,674

=======================================================================================================================
Utah--0.1%        NR*     NR*    3,200   Tooele County, Utah, PCR, Refunding (Laidlaw Environmental),
                                         AMT, Series A, 7.55% due 7/01/2027 (e)                                     123

=======================================================================================================================
Vermont--1.1%     NR*     NR*    1,450   Vermont Educational and Health Buildings Financing Agency,
                                         Revenue Refunding Bonds (College of Saint Joseph Project),
                                         8.50% due 11/01/2024                                                     1,602
=======================================================================================================================


                                      F-16















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                                     August 31, 2000
</R>

SCHEDULE OF INVESTMENTS (concluded)                                                                 (in Thousands)
</R>

                 S&P    Moody's   Face
State          Ratings  Ratings  Amount                       Issue                                            Value
=======================================================================================================================
Virginia--7.5%    NR*     NR*  $ 4,560   Peninsula Ports Authority, Virginia, Revenue Refunding Bonds
                                         (Port Facility--Zeigler Coal), 6.90% due 5/02/2022                    $  2,234
                  NR*     NR*    2,000   Pittsylvania County, Virginia, IDA Revenue Refunding Bonds,
                                         Exempt--Facility, AMT, Series A, 7.50% due 1/01/2014                     2,075
                                         Pocahontas Parkway Association, Virginia, Toll Road Revenue
                                         Bonds:
                  NR*     Ba1    5,500      1st Tier, Sub-Series C, 6.25%** due 8/15/2027                           729
                  NR*     Ba1    9,000      1st Tier, Sub-Series C, 6.25%** due 8/15/2035                           655
                  BBB-    Baa3  48,400      Senior Series B, 5.95%** due 8/15/2031                                5,468

=======================================================================================================================
Total Investments (Cost--$159,332)--98.4%                                                                       146,978

Other Assets Less Liabilities--1.6%                                                                               2,416
                                                                                                               --------
Net Assets--100.0%                                                                                             $149,394
                                                                                                               ========
=======================================================================================================================
(a)Escrowed to maturity.
(b)FSA Insured.
(c)GNMA Collateralized.
(d)MBIA Insured.
(e)Non-income producing security.
(f)Prerefunded.
<R>
(g)These shares represent an equity interest in the reorganization
   of Ponderosa Fibres PA. The security may be offered and sold to
   "qualified institutional buyers" under Rule 144A of the Securities
   Act of 1933.
(h)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 August 31, 2000.
*Not Rated.
**Represents a zero coupon; the interest rate shown is the effective
  yield at the time of purchase by the Fund.
  Ratings of issues shown have not been audited by Deloitte & Touche
  LLP.
</R>

See Notes to Financial Statements.


                                      F-17
















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                                     August 31, 2000
</R>

FINANCIAL INFORMATION

Statement of Assets and Liabilities as of August 31, 2000

Assets:             Investments, at value (identified cost--$159,332,391)                                   $146,977,887
                    Cash                                                                                          45,213
                    Receivables:
                      Interest                                                             $  3,033,650
                      Capital shares sold                                                        35,604        3,069,254
                                                                                           ------------
                    Prepaid registration fees and other assets                                                    16,090
                                                                                                            ------------
                    Total assets                                                                             150,108,444
                                                                                                            ------------

========================================================================================================================
Liabilities:        Payables:
                      Dividends to shareholders                                                 330,936
                      Investment adviser                                                         98,603
                      Administration                                                             25,948          455,487
                                                                                           ------------
                    Accrued expenses and other liabilities                                                       259,179
                                                                                                            ------------
                    Total liabilities                                                                            714,666
                                                                                                            ------------

========================================================================================================================
Net Assets:         Net assets                                                                              $149,393,778
                                                                                                            ============

========================================================================================================================
Net Assets          Common stock, $.10 par value, 200,000,000 shares authorized                             $  1,580,429
Consist of:         Paid-in capital in excess of par                                                         167,925,839
                    Accumulated realized capital loss on investments--net                                    (4,607,124)
                    Accumulated distributions in excess of realized capital gains--net                       (3,150,862)
                    Unrealized depreciation on investments--net                                             (12,354,504)
                                                                                                            ------------
                    Net assets--Equivalent to $9.45 per share based on 15,804,289 shares of
                    capital outstanding                                                                     $149,393,778
                                                                                                            ============

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

                    See Notes to Financial Statements.


                                      F-18















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                                     August 31, 2000
</R>

FINANCIAL INFORMATION (continued)

Statement of Operations
                                                                                                      For the Year Ended
                                                                                                         August 31, 2000

========================================================================================================================
Investment          Interest and amortization of premium and discount earned                                $ 12,534,559
Income:

========================================================================================================================
Expenses:           Investment advisory fees                                               $  1,661,213
                    Administrative fees                                                         437,161
                    Professional fees                                                            95,905
                    Transfer agent fees                                                          86,338
                    Advertising                                                                  76,715
                    Registration fees                                                            68,616
                    Printing and shareholder reports                                             44,266
                    Accounting services                                                          34,636
                    Directors' fees and expenses                                                 29,133
                    Custodian fees                                                               15,648
                    Pricing services                                                              7,711
                    Other                                                                        10,389
                                                                                           ------------
                    Total expenses                                                                             2,567,731
                                                                                                            ------------
                    Investment income--net                                                                     9,966,828
                                                                                                            ------------

========================================================================================================================
Realized &          Realized loss on investments--net                                                        (4,607,124)
Unrealized          Change in unrealized depreciation on investments--net                                   (10,597,603)
Loss on                                                                                                     ------------
Investments--Net:   Net Decrease in Net Assets Resulting from Operations                                   $ (5,237,899)
                                                                                                            ============

========================================================================================================================
                    See Notes to Financial Statements.

Statements of Changes in Net Assets

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

Operations:         Investment income--net                                                 $  9,966,828     $ 11,419,261
                    Realized loss on investments--net                                       (4,607,124)        (569,093)
                    Change in unrealized appreciation/depreciation on
                    investments--net                                                       (10,597,603)     (17,755,283)
                                                                                           ------------     ------------
                    Net decrease in net assets resulting from operations                    (5,237,899)      (6,905,115)
                                                                                           ------------     ------------

========================================================================================================================
Dividends &         Investment income--net                                                  (9,966,828)     (11,419,261)
Distributions to    Realized gain on investments--net                                                --      (3,642,201)
Shareholders:       In excess of realized gain on investments--net                                   --      (3,150,862)
                                                                                           ------------     ------------

                    Net decrease in net assets resulting from dividends
                    and distributions to shareholders                                       (9,966,828)     (18,212,324)
                                                                                           ------------     ------------

========================================================================================================================
Capital Share       Net decrease in net assets derived from capital
Transactions:       shares transactions                                                    (36,975,237)      (7,021,727)
                                                                                           ------------     ------------

========================================================================================================================
Net Assets:         Total decrease in net assets                                           (52,179,964)     (32,139,166)
                    Beginning of year                                                       201,573,742      233,712,908
                                                                                           ------------     ------------
                    End of year                                                            $149,393,778     $201,573,742
                                                                                           ============     ============

========================================================================================================================
                    See Notes to Financial Statements.


                                      F-19
















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                                     August 31, 2000
</R>

FINANCIAL INFORMATION (concluded)

Financial Highlights

The following per share data and ratios have been derived
from information provided in the financial statements.
                                                                                 For the Year Ended August 31,
                                                                      --------------------------------------------------
Increase (Decrease) in Net Asset Value:                                  2000       1999     1998      1997      1996

========================================================================================================================
Per Share           Net asset value, beginning of year                $  10.24   $  11.46  $  11.34  $  10.94   $  10.97
Operating                                                             --------   --------  --------  --------   --------
Performance:        Investment income--net                                 .55        .55       .61       .65        .66
                    Realized and unrealized gain (loss) on
                    investments--net                                     (.79)      (.89)       .32       .44      (.03)
                                                                      --------   --------  --------  --------   --------
                    Total from investment operations                     (.24)      (.34)       .93      1.09        .63
                                                                      --------   --------  --------  --------   --------
                    Less dividends and distributions:
                      Investment income--net                             (.55)      (.55)     (.61)     (.65)      (.66)
                      Realized gain on investments--net                     --      (.18)     (.20)     (.04)         --
                      In excess of realized gain on
                      investments--net                                      --      (.15)        --        --         --
                                                                      --------   --------  --------  --------   --------
                    Total dividends and distributions                    (.55)      (.88)     (.81)     (.69)      (.66)
                                                                      --------   --------  --------  --------   --------
                    Net asset value, end of year                      $   9.45   $  10.24  $  11.46  $  11.34   $  10.94
                                                                      ========   ========  ========  ========   ========

========================================================================================================================
Total Investment    Based on net asset value per share                 (2.29%)    (3.16%)     8.43%    10.20%      5.81%
Return:*                                                              ========   ========  ========  ========   ========

========================================================================================================================
Ratios to Average   Expenses                                             1.46%      1.46%     1.48%     1.44%      1.50%
Net Assets:                                                           ========   ========  ========  ========   ========
                    Investment income--net                               5.68%      5.07%     5.37%     5.83%      5.90%
                                                                      ========   ========  ========  ========   ========

========================================================================================================================
Supplemental        Net assets, end of year (in thousands)            $149,394   $201,574  $233,713  $211,620   $199,552
Data:                                                                 ========   ========  ========  ========   ========
                    Portfolio turnover                                  13.42%     39.53%    36.45%    43.07%     28.54%
                                                                      ========   ========  ========  ========   ========

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

*Total investment returns exclude the effect of the early withdrawal
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.

See Notes to Financial Statements.


                                      F-20
















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.    August 31, 2000
</R>

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies:
Merrill Lynch High Income Municipal Bond 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
accordance 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 municipal bond and money 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-
the-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 and call 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) Prepaid registration fees--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









                                      F-21

















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.    August 31, 2000
</R>

NOTES TO FINANCIAL STATEMENTS (concluded)

on the ex-dividend dates. Distributions in excess of realized
capital gains are due primarily to differing tax treatments for
future transactions and post-October losses.

2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general
partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner.

MLIM 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 .95% of
the Fund's average daily net assets.

<R>
The Fund also has entered into an Administrative Services Agreement
with MLIM whereby the Fund pays a monthly fee at 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.
</R>

For the year ended August 31, 2000, FAM Distributors, Inc. ("FAMD"),
which is a wholly-owned subsidary of Merrill Lynch Group, Inc.,
earned early withdrawal charges of $29,619 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 MLIM at cost.

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

3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 2000 were $23,001,843 and $61,684,225,
respectively.

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

                                     Realized     Unrealized
                                      Losses        Losses

Long-term investments            $(4,607,124)  $(12,354,504)
                                  -----------   ------------
Total                            $(4,607,124)  $(12,354,504)
                                  ===========   ============

As of August 31, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $12,355,955, of which $4,901,791
related to appreciated securities and $17,257,746 related to
depreciated securities. The aggregate cost of investments at August
31, 2000 for Federal income tax purposes was $159,333,842.

4. Capital Shares Transactions:
Transactions in capital shares were as follows:

For the Year Ended                                  Dollar
August 31, 2000                       Shares        Amount

Shares sold                           420,954   $  4,098,154
Shares issued to share-
holders in reinvestment of
dividends                             410,736      3,963,637
                                 ------------   ------------
Total issued                          831,690      8,061,791
Shares tendered                   (4,709,915)   (45,037,028)
                                 ------------   ------------
Net decrease                      (3,878,225)  $(36,975,237)
                                 ============   ============

For the Year Ended                                  Dollar
August 31, 1999                       Shares        Amount

Shares sold                         1,231,384   $ 13,670,459
Shares issued to share-
holders in reinvestment of
dividends and distributions           732,001      7,958,787
                                 ------------   ------------
Total issued                        1,963,385     21,629,246
Shares tendered                   (2,680,943)   (28,650,973)
                                 ------------   ------------
Net decrease                        (717,558)  $ (7,021,727)
                                 ============   ============

5. Capital Loss Carryforward:
At August 31, 2000, the Fund had a net capital loss carryforward of
approximately $2,052,000, all of which expires in 2008. This amount
will be available to offset like amounts of any future taxable
gains.


                                      F-22















              Unaudited Financial Statements for Merrill Lynch High
                    Income Municipal Bond Fund, Inc. for the
                       Six-Months Ended February 28, 2001


                                      F-23















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                               February 28, 2001
</R>

SCHEDULE OF INVESTMENTS                                                                              (in Thousands)

               S&P      Moody's    Face
State        Ratings    Ratings   Amount                      Issue                                            Value
=======================================================================================================================
Alabama--1.0%    B       NR*     $1,000    Brewton, Alabama, IDB, PCR, Refunding (Container
                                           Corporation of America-Jefferson Smurfit Corp. Project),
                                           8% due 4/01/2009                                                   $  1,020
                 CCC     NR*      5,285    Mobile, Alabama, IDB, Solid Waste Disposal Revenue Refunding
                                           Bonds (Mobile Energy Services Co. Project), 6.95%
                                           due 1/01/2020 (e)                                                       264

=======================================================================================================================
<R>
Arizona--8.1%    B+      Ba3      3,000    Coconino County, Arizona, Pollution Control Corporation,
                                           Revenue Refunding Bonds (Tucson Electric Power-Navajo),
                                           AMT, Series A, 7.125% due 10/01/2032                                  3,048
                 NR*     NR*      1,280    Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds
                                           (Sun King Apartments Project), Sub-Series C, 9.50%
                                           due 11/01/2031                                                        1,312
                 NR*     B1       4,600    Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
                                           (America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023        3,919
                 NR*     NR*      1,235    Pima County, Arizona, IDA, Industrial Revenue Bonds
                                           (La Hacienda Project), 9.50% due 12/01/2016                           1,302
                 B       Ba3        400    Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds
                                           (Tucson Electric Power Company Project), Series C,
                                           6% due 9/01/2029                                                        361
                                           Sedona, Arizona, Wastewater Municipal Property Corporation,
                                           Excise Tax Revenue Refunding Bonds (d):
                 AAA     NR*      1,410      5.20%** due 7/01/2021                                                 487
                 AAA     NR*        500      5.24%** due 7/01/2023                                                 154

=======================================================================================================================
California--0.3% A1      NR*        445    California Pollution Control Financing Authority, PCR, Refunding
                                           (Pacific Gas and Electric), VRDN, Series D, 6% due 11/01/2026 (a)       445
</R>
=======================================================================================================================
Colorado--7.4%   NR*     NR*      1,700    Colorado Post-Secondary Educational Facilities Authority
                                           Revenue Bonds (Colorado Ocean Journey Inc. Project),
                                           8.30% due 12/01/2017                                                  1,953
                 A       A2       2,000    Denver, Colorado, City and County Airport Revenue Bonds,
                                           AMT, Series D, 7.75% due 11/15/2013                                   2,457
                 NR*     NR*      3,000    Denver, Colorado, Urban Renewal Authority, Tax Increment and
                                           Allocation Bonds, AMT, 7.75% due 9/01/2017                            3,197
                                           San Miguel County, Colorado (Mountain Village Metropolitan
                                           District), GO, Refunding:
                 NR*     NR*      1,350      8.10% due 12/01/2002 (f)                                            1,466
                 NR*     NR*        650      8.10% due 12/01/2011                                                  686

=======================================================================================================================
Connecticut      NR*     NR*      1,900    Connecticut State Development Authority, IDR
- --2.8%                                     (AFCO Cargo BDL-LLC Project), AMT, 8% due 4/01/2030                   1,936
                 NR*     B1       1,745    New Haven, Connecticut, Facility Revenue Bonds
                                           (Hill Health Corporation Project), 9.25% due 5/01/2017                1,800

=======================================================================================================================
<R>
Florida--4.1%    NR*     NR*        940    Arbor Greene Community Development District, Florida,
                                           Special Assessment Revenue Bonds, 7.60% due 5/01/2018                 1,000
</R>
=======================================================================================================================

PORTFOLIO ABBREVIATIONS

To simplify the listings of Merrill Lynch High Income Municipal Bond
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)
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
INFLOS     Inverse Floating Rate Municipal Bonds
M/F        Multi-Family
PCR        Pollution Control Revenue Bonds
RIB        Residual Interest Bonds
S/F        Single-Family
VRDN       Variable Rate Demand Notes


                                      F-24















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                               February 28, 2001
</R>

SCHEDULE OF INVESTMENTS (continued)                                                                  (in Thousands)

               S&P      Moody's    Face
State        Ratings    Ratings   Amount                      Issue                                            Value
=======================================================================================================================
Florida          NR*     NR*     $  970    Grand Haven Community Development District, Florida,
(concluded)                                Special Assessment Bonds, Series B, 6.90% due 5/01/2019            $    984
                 NR*     NR*      3,400    Parkway Center, Florida, Community Development District
                                           Special Assessment Refunding Bonds, Series B,
                                           8% due 5/01/2010                                                      3,406

=======================================================================================================================
Georgia--1.5%    NR*     NR*      1,860    Atlanta, Georgia, Urban Residential Finance Authority,
                                           M/F Mortgage Revenue Bonds (Northside Plaza Apartments
                                           Project), AMT, 9.75% due 11/01/2020                                   1,906

=======================================================================================================================
Illinois--7.9%   BBB-    Baa1     4,000    Chicago, Illinois, O'Hare International Airport, Special Facility
                                           Revenue Refunding Bonds (American Airlines Inc. Project),
                                           8.20% due 12/01/2024                                                  4,442
                 NR*     NR*      3,195    Illinois Development Finance Authority, Primary Health Care
                                           Centers Facilities, Acquisition Program Revenue Bonds,
                                           7.75% due 12/01/2016                                                  3,456
                 NR*     NR*      2,000    Illinois Educational Facilities Authority, Revenue Refunding
                                           Bonds (Chicago Osteopathic Health System), 7.25%
                                           due 11/15/2019 (f)                                                    2,467

=======================================================================================================================
Indiana--1.5%    NR*     NR*      2,000    Indianapolis, Indiana, M/F Revenue Bonds (Lake Nora Fox Club
                                           Project), Series B, 7.50% due 10/01/2029                              1,990

=======================================================================================================================
Iowa--1.4%       NR*     NR*      1,500    Iowa Finance Authority, Health Care Facilities Revenue Refunding
                                           Bonds (Care Initiatives Project), 9.25% due 7/01/2025                 1,791

=======================================================================================================================
Kentucky--4.3%   NR*     NR*      1,850    Kenton County, Kentucky, Airport Board, Special Facilities
                                           Revenue Bonds (Mesaba Aviation Inc. Project), AMT, Series A,
                                           6.70% due 7/01/2029                                                   1,751
                 AAA     Aaa      3,600    Louisville, Kentucky, Hospital Revenue Refunding Bonds,
                                           INFLOS, 9.034% due 10/01/2014 (d)(h)                                  3,883

=======================================================================================================================
Louisiana--2.3%  BB-     NR*      3,000    Port New Orleans, Louisiana, IDR, Refunding (Continental
                                           Grain Company Project), 7.50% due 7/01/2013                           3,035
=======================================================================================================================
Maryland--3.8%   NR*     NR*      5,000    Maryland State Energy Financing Administration, Limited
                                           Obligation Revenue Bonds (Cogeneration-AES Warrior Run),
                                           AMT, 7.40% due 9/01/2019                                             5,045

=======================================================================================================================
Massachusetts--  NR*     NR*      1,045    Boston, Massachusetts, Industrial Development Financing
2.8%                                       Authority, Solid Waste Disposal Facility Revenue Bonds
                                           (Jet-A-Way Project), AMT, 10.50% due 1/01/2011                        1,089
                 NR*     NR*      1,475    Massachusetts State Health and Educational Facilities Authority
                                           Revenue Bonds (New England Memorial Hospital Project),
                                           Series C, 7% due 4/01/2014 (e)                                          295
                 NR*     Ca       2,745    Massachusetts State Health and Educational Facilities Authority,
                                           Revenue Refunding Bonds (New England Memorial Hospital),
                                           Series B, 6.125% due 7/01/2013 (e)                                      549
                 NR*     AAA      1,580    Massachusetts State Industrial Finance Agency, Revenue
                                           Refunding Bonds (Bay Cove Human Services Inc.),
                                           8.375% due 4/01/2004 (f)                                              1,779

=======================================================================================================================
Mississippi--    BBB-    Ba1      1,000    Mississippi Business Finance Corporation, Mississippi, PCR,
0.7%                                       Refunding (System Energy Resources Inc. Project),
                                           5.875% due 4/01/2022                                                    957

=======================================================================================================================
Missouri--0.8%   NR*     NR*      1,000    Fenton, Missouri, Tax Increment Revenue Refunding and
                                           Improvement Bonds (Gravois Bluffs), 6.75% due 10/01/2015                990

=======================================================================================================================
Nevada--1.5%     BBB     Baa2     2,500    Henderson, Nevada, Health Care Facility Revenue Bonds
                                           (Catholic Healthcare West-Saint Rose Dominican Hospital),
                                           5.375% due 7/01/2026                                                  1,974

=======================================================================================================================
New Jersey--18.8%                          Camden County, New Jersey, Improvement Authority,
                                           Lease Revenue Bonds (Holt Hauling & Warehousing),
                                           AMT, Series A:
                 CC      NR*      4,600      9.625% due 1/01/2011                                                4,454
                 CC      NR*      2,000      9.875% due 1/01/2021                                                1,935
                 CCC     B2       3,525    Camden County, New Jersey, Pollution Control Financing
                                           Authority, Solid Waste Resource Recovery Revenue Bonds,
                                           Series D, 7.25% due 12/01/2010                                        3,327


                                      F-25















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                               February 28, 2001
</R>

SCHEDULE OF INVESTMENTS (continued)                                                                  (in Thousands)

               S&P      Moody's    Face
State        Ratings    Ratings   Amount                      Issue                                            Value
=======================================================================================================================
New Jersey       CCC     B2      $6,000    Camden County, New Jersey, Pollution Control Financing Authority,
(concluded)                                Solid Waste Resource Recovery Revenue Refunding Bonds,
                                           AMT, Series A, 7.50% due 12/01/2010                                $  5,763
                 NR*     NR*      3,000    New Jersey EDA, Economic Development Revenue Bonds
                                           (Glimcher Properties LP Project), AMT, 6% due 11/01/2028              2,641
                 NR*     NR*      1,500    New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel),
                                           7% due 10/01/2014                                                     1,515
                 NR*     NR*      3,000    New Jersey EDA, Retirement Community Revenue Bonds
                                           (Seabrook Village Inc.), Series A, 8.125% due 11/15/2023              2,943
                 BBB-    Baa3     2,000    New Jersey Health Care Facilities Financing Authority
                                           Revenue Refunding Bonds (Trinitas Hospital Obligation Group),
                                           7.375% due 7/01/2015                                                  2,030

=======================================================================================================================
<R>
New Mexico--0.8% B       Ba3      1,000    Farmington, New Mexico, PCR, Refunding (Tucson Electric
                                           Power Co.-San Juan Project), Series A, 6.95% due 10/01/2020             994
</R>
=======================================================================================================================
New York--2.8%                             Utica, New York, GO, Public Improvement:
                 BB      Ba3        635      8.50% due 8/15/2007                                                   706
                 BB      Ba3        635      8.50% due 8/15/2008                                                   705
                 BB      Ba3        500      8.50% due 8/15/2009                                                   555
                 BB      Ba3        500      8.50% due 8/15/2010                                                   555
                 BB      Ba3        500      8.50% due 8/15/2011                                                   555
                 BB      Ba3        500      8.50% due 8/15/2012                                                   555

=======================================================================================================================
North            NR*     NR*      1,200    North Carolina Medical Care Commission, Health Care
Carolina--                                 Facilities, First Mortgage Revenue Refunding Bonds
0.9%                                       (Presbyterian Homes Project), 7% due 10/01/2031                       1,209

=======================================================================================================================
Ohio--0.6%       AAA     Aaa        800    Ohio, HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series A,
                                           9.72% due 3/24/2031 (c)(h)                                              840

=======================================================================================================================
Oregon--1.9%     NR*     NR*      1,000    Western Generation Agency, Oregon, Cogeneration Project
                                           Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
                                           7.40% due 1/01/2016                                                   1,024
                 B       NR*      1,455    Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
                                           Corporation Project), 8% due 12/01/2003                               1,481

=======================================================================================================================
Pennsylvania     NR*     Ba2      1,000    Lehigh County, Pennsylvania, General Purpose Authority,
- --7.1%                                     Revenue Refunding Bonds (Kidspeace Obligation Group),
                                           6% due 11/01/2023                                                       831
                                      5    Northhampton Pulp LLC (e)(g)                                            665
                 NR*     NR*      5,000    Philadelphia, Pennsylvania, Authority for IDR, Commercial
                                           Development, AMT, 7.75% due 12/01/2017                                5,261
                 NR*     NR*      3,125    Philadelphia, Pennsylvania, Authority for Industrial Development,
                                           Health Care Facility Revenue Refunding Bonds (Paul's Run),
                                           Series A, 5.875% due 5/15/2028                                        2,488

=======================================================================================================================
South            BBB     NR*      2,000    South Carolina Jobs, EDA, Economic Development Revenue
Carolina--                                 Bonds (Westminster Presbyterian Center), 7.75% due 11/15/2030         2,068
1.6%

=======================================================================================================================
Texas--0.1%      A1+     VMIG1++    100    Sabine River Authority, Texas, PCR, Refunding
                                           (Texas Utilities Electric Company Project), VRDN,
                                           Series A, 3.15% due 3/01/2026 (a)(b)                                    100

=======================================================================================================================
Utah--0.1%       NR*     NR*      3,200    Tooele County, Utah, PCR, Refunding (Laidlaw Environmental),
                                           AMT, Series A, 7.55% due 7/01/2027 (e)                                   91

=======================================================================================================================
Vermont--1.2%    NR*     NR*      1,395    Vermont Educational and Health Buildings Financing Agency,
                                           Revenue Refunding Bonds (College of Saint Joseph Project),
                                           8.50% due 11/01/2024                                                  1,539

=======================================================================================================================
Virginia--8.0%   NR*     NR*      4,560    Peninsula Ports Authority, Virginia, Revenue Refunding Bonds
                                           (Port Facility-Zeigler Coal), 6.90% due 5/02/2022                     1,573
                 NR*     NR*      2,000    Pittsylvania County, Virginia, IDA, Revenue Refunding Bonds,
                                           Exempt-Facility, AMT, Series A, 7.50% due 1/01/2014                   1,904
                                           Pocahontas Parkway Association, Virginia, Toll Road
                                           Revenue Bonds:
                 NR*     Ba1      5,500      1st Tier, Sub-Series C, 6.25%** due 8/15/2027                         747
                 NR*     Ba1      9,000      1st Tier, Sub-Series C, 6.25%** due 8/15/2035                         668
                 BBB-    Baa3    48,400      Senior Series B, 5.95%** due 8/15/2031                              5,611
=======================================================================================================================


                                      F-26















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                               February 28, 2001
</R>

SCHEDULE OF INVESTMENTS (continued)                                                                  (in Thousands)

               S&P      Moody's    Face
State        Ratings    Ratings   Amount                      Issue                                            Value
=======================================================================================================================
Wisconsin--0.7%  NR*     NR*    $ 1,000    Wisconsin State Health and Educational Facilities Authority
                                           Revenue Bonds (Oakwood Village Project), Series A,
                                           7.625% due 8/15/2030                                               $    974

=======================================================================================================================
Total Investments (Cost--$141,200)--96.8%                                                                      126,903

Other Assets Less Liabilities--3.2%                                                                              4,221
                                                                                                              --------
Net Assets--100.0%                                                                                            $131,124
                                                                                                              ========
=======================================================================================================================

<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 February 28, 2001.
(b)AMBAC Insured.
(c)GNMA Collateralized.
(d)MBIA Insured.
(e)Non-income producing security.
(f)Prerefunded.
(g)These shares represent an equity interest in the reorganization
   of Ponderosa Fibres PA. The security may be offered and sold to
   "qualified institutional buyers" under Rule 144A of the Securities
   Act of 1933.
(h)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 February 28, 2001.
*Not Rated.
**Represents a zero coupon; 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.
</R>

See Notes to Financial Statements.


                                      F-27















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                               February 28, 2001
</R>

FINANCIAL INFORMATION

Statement of Assets and Liabilities as of February 28, 2001

Assets:             Investments, at value (identified cost--$141,200,038)                                   $126,903,035
                    Cash                                                                                          55,972
                    Receivables:
                      Securities sold                                                      $  5,098,000
                      Interest                                                                2,687,847
                      Capital shares sold                                                        19,997        7,805,844
                                                                                           ------------
                    Prepaid registration fees and other assets                                                    16,089
                                                                                                            ------------
                    Total assets                                                                             134,780,940
                                                                                                            ------------


========================================================================================================================
Liabilities:        Payables:
                      Securities purchased                                                    3,154,265
                      Dividends to shareholders                                                 273,231
                      Investment adviser                                                         83,797
                      Administration                                                             22,052        3,533,345
                                                                                           ------------
                    Accrued expenses and other liabilities                                                       123,917
                                                                                                            ------------
                    Total liabilities                                                                          3,657,262
                                                                                                            ------------

========================================================================================================================
Net Assets:         Net assets                                                                              $131,123,678
                                                                                                            ============

========================================================================================================================
Net Assets          Common stock, $.10 par value, 200,000,000 shares authorized                             $  1,416,360
Consist of:         Paid-in capital in excess of par                                                         152,949,403
                    Accumulated realized capital loss on investments--net                                    (5,794,220)
                    Accumulated distributions in excess of realized capital gains--net                       (3,150,862)
                    Unrealized depreciation on investments--net                                             (14,297,003)
                                                                                                            ------------
                    Net assets--Equivalent to $9.26 per share based on 14,163,600 shares of
                    capital outstanding                                                                     $131,123,678
                                                                                                            ============

========================================================================================================================
                    See Notes to Financial Statements.


                                      F-28





















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                               February 28, 2001
</R>

FINANCIAL INFORMATION (continued)

Statement of Operations

<R>
                                                                                                For the Six Months Ended
                                                                                                    February 28, 2001

========================================================================================================================
Investment Income:  Interest and amortization of premium and discount earned                               $   5,145,147

========================================================================================================================
Expenses:           Investment advisory fees                                                $   669,103
                    Administrative fees                                                         176,080
                    Professional fees                                                            58,379
                    Transfer agent fees                                                          44,698
                    Advertising fees                                                             39,526
                    Printing and shareholder reports                                             31,475
                    Accounting services                                                          30,959
                    Registration fees                                                            19,370
                    Directors' fees and expenses                                                 18,465
                    Custodian fees                                                                6,516
                    Pricing services                                                              4,723
                    Other                                                                         6,046
                                                                                           ------------

                    Total expenses                                                                             1,105,340
                                                                                                            ------------
                    Investment income--net                                                                     4,039,807
                                                                                                            ------------

========================================================================================================================
Realized &          Realized loss on investments--net                                                        (1,187,096)
Unrealized          Change in unrealized depreciation on investments--net                                    (1,942,499)
Loss on                                                                                                     ------------
Investments--Net:   Net Increase in Net Assets Resulting from Operations                                    $    910,212
                                                                                                            ============
========================================================================================================================
                    See Notes to Financial Statements.

Statements of Changes in Net Assets

                                                                                          For the Six          For the
                                                                                          Months Ended        Year Ended
                                                                                          February 28,        August 31,
                                                                                              2001              2000
Increase (Decrease) in Net Assets:
========================================================================================================================
Operations:         Investment income--net                                                 $  4,039,807     $  9,966,828
                    Realized loss on investments--net                                       (1,187,096)      (4,607,124)
                    Change in unrealized appreciation/depreciation on
                    investments--net                                                        (1,942,499)     (10,597,603)
                                                                                           ------------     ------------
                    Net increase (decrease) in net assets resulting
                    from operations                                                             910,212      (5,237,899)
                                                                                           ------------     ------------

========================================================================================================================
Dividends to        Investment income--net                                                  (4,039,807)      (9,966,828)
Shareholders:                                                                              ------------     ------------
                    Net decrease in net assets resulting from dividends
                    to shareholders                                                         (4,039,807)      (9,966,828)
                                                                                           ------------     ------------

========================================================================================================================
Capital Share       Net decrease in net assets derived from capital
Transactions:       shares transactions                                                    (15,140,505)     (36,975,237)
                                                                                           ------------     ------------

========================================================================================================================
Net Assets:         Total decrease in net assets                                           (18,270,100)     (52,179,964)
                    Beginning of period                                                     149,393,778      201,573,742
                                                                                           ------------     ------------
                    End of period                                                          $131,123,678     $149,393,778
                                                                                           ============     ============

========================================================================================================================
                    See Notes to Financial Statements.
</R>

                                      F-29















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.                                               February 28, 2001
</R>

FINANCIAL INFORMATION (concluded)

Financial Highlights

<R>
The following per share data and ratios have been derived
from information provided in the financial statements.              For the Six
                                                                    Months Ended     For the Year Ended August 31,
                                                                    February 28,     -----------------------------
                                                                        2001       2000      1999      1998      1997
Increase (Decrease) in Net Asset Value:
========================================================================================================================
Per Share           Net asset value, beginning of period              $   9.45   $  10.24  $  11.46  $  11.34   $  10.94
Operating                                                             --------   --------  --------  --------   --------
Performance:        Investment income--net                                 .26        .55       .55       .61        .65
                    Realized and unrealized gain (loss) on
                    investments--net                                     (.19)      (.79)     (.89)       .32        .44
                                                                      --------   --------  --------  --------   --------
                    Total from investment operations                       .07      (.24)     (.34)       .93       1.09
                                                                      --------   --------  --------  --------   --------
                    Less dividends and distributions:
                      Investment income--net                             (.26)      (.55)     (.55)     (.61)      (.65)
                      Realized gain on investments--net                     --         --     (.18)     (.20)      (.04)
                      In excess of realized gain on investments--net        --         --     (.15)        --         --
                                                                      --------   --------  --------  --------   --------
                    Total dividends and distributions                    (.26)      (.55)     (.88)     (.81)      (.69)
                                                                      --------   --------  --------  --------   --------
                    Net asset value, end of period                    $   9.26   $   9.45  $  10.24  $  11.46   $  11.34
                                                                      ========   ========  ========  ========   ========

========================================================================================================================
Total Investment    Based on net asset value per share                 0.81%++    (2.29%)   (3.16%)     8.43%     10.20%
Return:**                                                             ========   ========  ========  ========   ========

========================================================================================================================
Ratios to Average   Expenses                                            1.57%*      1.46%     1.46%     1.48%      1.44%
Net Assets:                                                           ========   ========  ========  ========   ========
                    Investment income--net                              5.74%*      5.68%     5.07%     5.37%      5.83%
                                                                      ========   ========  ========  ========   ========

========================================================================================================================
Supplemental        Net assets, end of period (in thousands)          $131,124   $149,394  $201,574  $233,713   $211,620
Data:                                                                 ========   ========  ========  ========   ========
                    Portfolio turnover                                   5.10%     13.42%    39.53%    36.45%     43.07%
                                                                      ========   ========  ========  ========   ========

========================================================================================================================
*Annualized.
**Total investment returns exclude the effect of the early
  withdrawal 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.
++Aggregate total investment return.
</R>
See Notes to Financial Statements.


                                      F-30














<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.           February 28, 2001
</R>

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies:
Merrill Lynch High Income Municipal Bond 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 municipal
bond and money 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-the-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
and call 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 September 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


                                      F-31















<R>
Merrill Lynch High Income Municipal Bond Fund, Inc.           February 28, 2001
</R>

NOTES TO FINANCIAL STATEMENTS (continued)

an adjustment to the cost of securities and a corresponding adjustment to net
unrealized appreciation/depreciation, based on securities held as of August 31,
2001.

(e) Prepaid registration fees--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 future transactions and post-October
losses.

2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general
partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect,
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner.

MLIM 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 .95% of
the Fund's average daily net assets.

<R>
The Fund also has entered into an Administrative Services Agreement
with MLIM whereby the Fund pays a monthly fee at 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.
</R>

For the six months ended February 28, 2001, FAM Distributors, Inc.
("FAMD"), which is a wholly-owned subsidiary of Merrill Lynch Group,
Inc., earned early withdrawal charges of $27,909 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 were provided to the Fund by MLIM through
December 31, 2000. Up to this date, the Fund reimbursed MLIM $20,076
for these services. As of January 1, 2001, accounting services are
provided for the Fund by State Street Bank and Trust Company ("State
Street") pursuant to an agreement between State Street and the Fund.
The Fund will pay the cost of these services. In addition, the Fund
will reimburse MLIM for the cost of certain additional accounting
services.

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

3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 2001 were $6,990,066 and
$24,714,908, respectively.

Net realized losses for the six months ended February 28, 2001 and
net unrealized losses as of February 28, 2001 were as follows:

                                     Realized     Unrealized
                                      Losses        Losses

Long-term investments            $(1,187,096)  $(14,297,003)
                                  -----------   ------------
Total                            $(1,187,096)  $(14,297,003)
                                  ===========   ============

As of February 28, 2001, net unrealized depreciation for Federal
income tax purposes aggregated $14,297,003, of which $4,724,153
related to appreciated securities and $19,021,156 related to
depreciated securities. The aggregate cost of investments at
February 28, 2001 for Federal income tax purposes was $141,200,038.

4. Capital Shares Transactions:
Transactions in capital shares were as follows:

For the Six Months Ended                            Dollar
February 28, 2001                     Shares        Amount
                                 ------------   ------------
Shares sold                           234,083   $  2,174,544
Shares issued to share-
holders in reinvestment
of dividends                          167,625      1,559,354
                                 ------------   ------------
Total issued                          401,708      3,733,898
Shares tendered                   (2,042,397)   (18,874,403)
                                 ------------   ------------
Net decrease                      (1,640,689)  $(15,140,505)
                                 ============   ============

For the Year Ended                                  Dollar
August 31, 2000                       Shares        Amount
                                 ------------   ------------
Shares sold                           420,954   $  4,098,154
Shares issued to share-
holders in reinvestment of
dividends                             410,736      3,963,637
                                 ------------   ------------
Total issued                          831,690      8,061,791
Shares tendered                   (4,709,915)   (45,037,028)
                                 ------------   ------------
Net decrease                      (3,878,225)  $(36,975,237)
                                 ============   ============

5. Capital Loss Carryforward:
At August 31, 2000, the Fund had a net capital loss carryforward of
approximately $2,052,000, all of which expires in 2008. This amount
will be available to offset like amounts of any future taxable
gains.


                                      F-32
















                 Unaudited Financial Statements for the Combined
                  Fund on a Pro Forma Basis, as of May 31, 2001


                                      F-33














                                            <R>COMBINED SCHEDULE OF INVESTMENTS FOR
                            MUNIASSETS FUND, INC. AND MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
                                                   As of May 31, 2001 (unaudited)
                                                      (in thousands)</R>
                                                                                                              Value
                                                                                               ----------------------------------
                                                                                                                         ProForma
                                                                                                               High         for
                 S&P     Moody's  Face                                                         MuniAssets     Income     Combined
      STATE      Ratings Ratings  Amount                                                          Fund       Municipal     Fund
===================================================================================================================================
Alabama--1.1%    B       NR*    $ 2,420    Brewton, Alabama, IDB, PCR, Refunding (Container      $1,448       $1,020      $2,468
                                           Corporation of America-Jefferson Smurfit Corp.
                                           Project),  8% due 4/01/2009
                 CCC     NR*      9,609    Mobile, Alabama, IDB, Solid Waste Disposal               216          264         480
                                           Revenue Refunding Bonds (Mobile Energy Services
                                           Co. Project), 6.95% due 1/01/2020(b)

===================================================================================================================================
Alaska--1.0%     NR*     NR*      1,620    Alaska Industrial Development and Export               1,629           --       1,629
                                           Authority Revenue Bonds (Williams Lynxs Alaska
                                           Cargoport), AMT, 7.80% due 5/01/2014
                 NR*     NR*      1,000    Valdez, Alaska, Marine Terminal Revenue Refunding      1,001           --       1,001
                                           Bonds (Amerada Hess Pipeline Corporation),  6.10%
                                           due 2/01/2024

===================================================================================================================================
<R>
Arizona--8.5%                              Coconino County, Arizona, Pollution Control
                                           Corporation Revenue Refunding Bonds (Tucson
                                           Electric Power-Navajo):
                 B+      Ba3      3,000        AMT, Series A,  7.125% due 10/01/2032                 --        3,055       3,055
                 B+      Ba3      2,500        Series B,  7% due 10/01/2032                       2,550           --       2,550
                                           Maricopa County, Arizona, IDA, Health Facilities
                                           Revenue Bonds:
                 BBB     Baa2     2,045       (Catholic Healthcare West Project), Series A,       1,658           --       1,658
                                              5% due 7/01/2021
                 NR*     NR*      2,395       (Sun King Apartments Project), Sub-Series C,        1,141        1,310       2,451
                                              9.50% due 11/01/2031
                 NR*     B3       7,600    Phoenix, Arizona, IDA, Airport Facility Revenue        2,451        3,758       6,209
                                           Refunding Bonds (America West Airlines Inc.
                                           Project), AMT, 6.30% due 4/01/2023
                 NR*     NR*      1,235    Pima County, Arizona, IDA, Industrial Revenue             --        1,292       1,292
                                           Bonds (La Hacienda Project),  9.50% due 12/01/2016
                                           Pima County, Arizona, IDA, Industrial Revenue
                                           Refunding Bonds (Tucson Electric Power Company
                                           Project):
                 B       Ba3      1,040        Series B,  6% due 9/01/2029                          959           --         959
                 B       Ba3      2,400        Series C,  6% due 9/01/2029                        1,840          368       2,208
                 AAA     NR*      1,000    Sedona, Arizona, Wastewater Municipal Property            --          336         336
                                           Corporation, Excise Tax Revenue Refunding Bonds,
                                           5.20% due 7/01/2021(j)**
                 NR*     NR*      1,710    Show Low, Arizona, Improvement District No. 5,         1,762           --       1,762
                                           Special Assessment Bonds,  6.375% due 1/01/2015
</R>
===================================================================================================================================
California--     AAA     NR*      4,000    Los Angeles, California, Department of Water and       4,587           --       4,587
2.4%                                       Power, Electric Plant Revenue Bonds, RIB, Series
                                           144, 7.87% due 6/15/2029(a)(e)
                 NR*     NR*      1,780    Pleasanton, California, Joint Powers Financing         1,873           --       1,873
                                           Authority Revenue Refunding Bonds, Reassessment,
                                           Sub-Series B, 6.60% due 9/02/2008

===================================================================================================================================
<R>
Colorado--4.1%   A       A2       2,000    Denver, Colorado, City and County Airport Revenue         --        2,430       2,430
                                           Bonds, AMT, Series D,  7.75% due 11/15/2013
                                           Denver, Colorado, Urban Renewal Authority, Tax
                                           Increment Revenue Bonds (Pavilions), AMT:
                 NR*     NR*      2,500        7.75% due 9/01/2016                                2,654           --       2,654
                 NR*     NR*      3,000        7.75% due 9/01/2017                                   --        3,185       3,185
                 A-1     VMIG1+   500      Moffat County, Colorado, PCR, Refunding                   --          500         500
                                           (Pacificorp Projects),
                                           VRDN, 3% due
                                           5/01/2013(f)(g) San Miguel
                                           County, Colorado (Mountain
                                           Village Metropolitan
                                           District), GO, Refunding:
                 NR*     NR*      650          8.10% due 12/01/2011                                  --          683         683
                 NR*     NR*      1,350        8.10% due 12/01/2002(d)                               --        1,459       1,459
</R>
===================================================================================================================================
Connecticut--    NR*     NR*      3,490    Connecticut State Development Authority, IDR           1,625        1,941       3,566
4.0%                                       (AFCO Cargo BDL-LLC Project), AMT,  8% due
                                           4/01/2030


                                      F-34















                                            <R>COMBINED SCHEDULE OF INVESTMENTS FOR
                            MUNIASSETS FUND, INC. AND MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
                                             As of May 31, 2001 (unaudited) (continued)
                                                      (in thousands)</R>

                                                                                                              Value
                                                                                               ----------------------------------
                                                                                                                         ProForma
                                                                                                               High         for
                 S&P     Moody's  Face                                                         MuniAssets     Income     Combined
      STATE      Ratings Ratings  Amount                                                          Fund       Municipal     Fund
===================================================================================================================================
<R>
Connecticut      BBB     Baa2   $ 4,000    Connecticut State Development Authority, PCR,          3,957           --     $ 3,957
                                           Refunding (Connecticut Light and Power Company),
(concluded)                                Series A, 5.85% due 9/01/2028
                 A-1     VMIG1+   300      Connecticut State Health and Educational                  --          300         300
                                           Facilities Authority Revenue Bonds (Yale
                                           University), VRDN, Series U-2,  2.45% due
                                           7/01/2033(f)
                 NR*     B1       2,690    New Haven, Connecticut, Facility Revenue Bonds         1,018        1,748       2,766
                                           (Hill Health Corporation Project),  9.25% due
                                           5/01/2017

===================================================================================================================================
Florida--4.6%    NR*     NR*      895      Arbor Greene Community Development District,              --          953         953
                                           Florida, Special Assessment Revenue Bonds,  7.60%
                                           due 5/01/2018
                 NR*     NR*      945      Grand Haven Community Development District,               --          957         957
                                           Florida, Special Assessment Bonds, Series B,
                                           6.90% due 5/01/2019
                 NR*     NR*      2,000    Hillsborough County, Florida, IDA, Exempt              1,440            -       1,440
                                           Facilities Revenue Bonds (National Gypsum), AMT,
                                           Series A, 7.125% due 4/01/2030
                 NR*     NR*      6,200    Parkway Center, Florida, Community Development         2,814        3,417       6,231
                                           District Special Assessment Refunding Bonds,
                                           Series B,  8% due 5/01/2010
                 A1      VMIG1+   2,500    Saint Lucie County, Florida, PCR, Refunding            2,500           --       2,500
                                           (Florida Power and Light Company Project), VRDN,
                                           3.10% due 9/01/2028(f)</R>

===================================================================================================================================
Georgia--0.7%    NR*     NR*      1,860    Atlanta, Georgia, Urban Residential Finance               --        1,911       1,911
                                           Authority, M/F Mortgage Revenue Bonds (Northside
                                           Plaza Apartments Project), AMT,  9.75% due
                                           11/01/2020

===================================================================================================================================
Idaho--0.4%      NR*     NR*      1,000    Idaho Health Facilities Authority Revenue                974           --         974
                                           Refunding Bonds (Valley Vista Care Corporation),
                                           Series A, 7.75% due 11/15/2016

===================================================================================================================================
<R>
Illinois--6.6%   BBB-    Baa3     4,000    Chicago, Illinois, O'Hare International Airport,          --        4,447       4,447
                                           Special Facility Revenue Refunding Bonds
                                           (American Airlines Inc. Project),  8.20% due
                                           12/01/2024
                                           Illinois Development Finance Authority Revenue
                                           Bonds (Primary Health Care Centers Facilities
                                           Acquisition Program):
                 NR*     NR*      1,755        7.50% due 12/01/2006                               1,839           --       1,839
                 NR*     NR*      3,195        7.75% due 12/01/2016                                  --        3,448       3,448
                                           Illinois Health Facilities Authority Revenue
                                           Bonds:
                 BBB     NR*      1,000        (Community Hospital of Ottawa Project),            1,004           --       1,004
                                               6.75% due 8/15/2014
                 BBB     NR*      2,000        (Community Hospital of Ottawa Project),            1,981           --       1,981
                                               6.85% due 8/15/2024
                 NR*     Ba3      2,150        (Holy Cross Hospital Project),  6.70% due          1,800           --       1,800
                                               3/01/2014
                                           Illinois Health Facilities Authority Revenue
                                           Refunding Bonds:
                 NR*     NR*      2,000        (Chicago Osteopathic Health System), 7.25%            --        2,445       2,445
                                               due 11/15/2019(d)
                 A1      VMIG1+   400          (Resurrection Health), VRDN, Series A,  3.10%        400           --         400
                                               due 5/01/2029(a)(f)
</R>
===================================================================================================================================
Indiana--0.7%    NR*     NR*      2,000    Indianapolis, Indiana, M/F Revenue Bonds (Lake            --        1,964       1,964
                                           Nora Fox Club Project), Series B,  7.50% due
                                           10/01/2029

===================================================================================================================================
Iowa--1.0%       NR*     NR*      2,300    Iowa Finance Authority, Health Care Facilities           953        1,786       2,739
                                           Revenue Refunding Bonds (Care Initiatives
                                           Project), 9.25% due 7/01/2025

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


                                      F-35















                                            <R>COMBINED SCHEDULE OF INVESTMENTS FOR
                            MUNIASSETS FUND, INC. AND MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
                                             As of May 31, 2001 (unaudited) (continued)
                                                      (in thousands)</R>

                                                                                                              Value
                                                                                               ----------------------------------
                                                                                                                         ProForma
                                                                                                               High         for
                 S&P     Moody's  Face                                                         MuniAssets     Income     Combined
      STATE      Ratings Ratings  Amount                                                          Fund       Municipal     Fund
===================================================================================================================================
Kentucky--2.5%   NR*     NR*    $ 2,850    Kenton County, Kentucky, Airport Board, Special          951        1,760     $ 2,711
                                           Facilities Revenue Bonds (Mesaba Aviation Inc.
                                           Project), AMT, Series A,  6.70% due 7/01/2029
                 AAA     Aaa      3,600    Louisville, Kentucky, Hospital Revenue Refunding          --        3,848       3,848
                                           Bonds, INFLOS,  9.496% due 10/01/2014(e)(j)

===================================================================================================================================
Louisiana--2.9%  BB-     NR*      7,500    Port New Orleans, Louisiana, IDR, Refunding            4,550        3,033       7,583
                                           (Continental Grain Company Project),  7.50% due
                                           7/01/2013

===================================================================================================================================
<R>
Maryland--4.0%   NR*     NR*      1,930    Maryland State Economic Development Corporation        1,973           --       1,973
                                           Revenue Refunding Bonds (Baltimore Association
                                           for Retarded Citizens-Health and Mental Hygiene
                                           Program), Series A, 7.75% due 3/01/2025
                 NR*     NR*      8,000    Maryland State Energy Financing Administration,        3,095        5,158       8,253
                                           Limited Obligation Revenue Bonds
                                           (Cogeneration-AES Warrior Run), AMT,  7.40% due
                                           9/01/2019
                 A1      VMIG1+   400      Maryland State Energy Financing Administration,          400           --         400
                                           Solid Waste Disposal Revenue Bonds (Cimenteries
                                           Project), AMT, VRDN,  3.20% due 5/01/2035(f)
</R>
===================================================================================================================================
Massachusetts--  NR*     NR*      1,045    Boston, Massachusetts, Industrial Development             --        1,079       1,079
3.3%                                       Financing Authority, Solid Waste Disposal
                                           Facility Revenue Bonds (Jet-A-Way Project), AMT,
                                           10.50% due 1/01/2011
                 NR*     NR*      2,300    Massachusetts State Health and Educational               165          295         460
                                           Facilities Authority Revenue Bonds (New England
                                           Memorial Hospital Project), Series C,  7% due
                                           4/01/2014(b)
                                           Massachusetts State Health and Educational
                                           Facilities Authority Revenue Refunding Bonds:
                 NR*     Ba2      2,220        (Bay Cove Human Services Issue), Series A,         1,810           --       1,810
                                               5.90% due 4/01/2028
                 NR*     Ca       2,745        (New England Memorial Hospital), Series B,            --          549         549
                                               6.125% due 7/01/2013(b)
                 NR*     Aaa      4,345    Massachusetts State Industrial Finance Agency          3,103        1,773       4,876
                                           Revenue Refunding Bonds (Bay Cove Human Services
                                           Inc.), 8.375% due 4/01/2004(d)

===================================================================================================================================
Michigan--0.1%   NR*     VMIG1+   400      Michigan State Strategic Fund, PCR, Refunding            400           --         400
                                           (Consumers Power Project), VRDN,  3.05% due
                                           4/15/2018(f)(g)

===================================================================================================================================
Mississippi--                              Mississippi Business Finance Corporation,
0.7%                                       Mississippi, PCR, Refunding (System Energy
                                           Resources Inc. Project):
                 BBB-    Ba1      1,000       5.875% due 4/01/2022                                   --          921         921
                 BBB-    Ba1      1,000       5.90% due 5/01/2022                                   923           --         923

===================================================================================================================================
Missouri--0.8%   NR*     NR*      2,000    Fenton, Missouri, Tax Increment Revenue Refunding      1,016        1,010       2,026
                                           and Improvement Bonds (Gravois Bluffs),  7% due
                                           10/01/2021

===================================================================================================================================
Nevada--0.8%     BBB     Baa2     2,500    Henderson, Nevada, Health Care Facility Revenue           --        2,092       2,092
                                           Bonds (Catholic Healthcare West-Saint Rose
                                           Dominican Hospital),  5.375% due 7/01/2026

===================================================================================================================================
New Jersey--                               Camden County, New Jersey, Improvement Authority,
15.6%                                      Lease Revenue Bonds (Holt Hauling & Warehousing),
                                           AMT, Series A:
                 NR*     NR*      5,600        9.625% due 1/01/2011                                 938        4,313       5,251
                 NR*     NR*      5,800        9.875% due 1/01/2021                               3,563        1,875       5,438
                 CCC     B2       3,525    Camden County, New Jersey, Pollution Control              --        3,475       3,475
                                           Financing Authority, Solid Waste Resource
                                           Recovery Revenue Bonds, Series D,  7.25% due
                                           12/01/2010


                                      F-36
















                                            <R>COMBINED SCHEDULE OF INVESTMENTS FOR
                            MUNIASSETS FUND, INC. AND MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
                                             As of May 31, 2001 (unaudited) (continued)
                                                      (in thousands)</R>

                                                                                                              Value
                                                                                               ----------------------------------
                                                                                                                         ProForma
                                                                                                               High         for
                 S&P     Moody's  Face                                                         MuniAssets     Income     Combined
      STATE      Ratings Ratings  Amount                                                          Fund       Municipal     Fund
===================================================================================================================================
<R>
New Jersey                                 Camden County, New Jersey, Pollution Control
                                           Financing Authority, Solid Waste Resource
(concluded)                                Recovery Revenue Refunding Bonds, AMT:</R>
                 CCC     B2     $ 9,000        Series A,  7.50% due 12/01/2010                    2,897        5,795     $ 8,692
                 CCC     B2       500          Series B,  7.50% due 12/01/2009                      483           --         483
                 NR*     NR*      5,000    New Jersey EDA, Economic Development Revenue           1,773        2,659       4,432
                                           Bonds (Glimcher Properties LP Project), AMT,  6%
                                           due 11/01/2028
                 NR*     NR*      2,500    New Jersey EDA, IDR, Refunding (Newark Airport         1,013        1,519       2,532
                                           Marriott Hotel),  7% due 10/01/2014
                 NR*     NR*      5,800    New Jersey EDA, Retirement Community Revenue           2,804        3,005       5,809
                                           Bonds (Seabrook Village Inc.), Series A,  8.125%
                                           due 11/15/2023
                 BB      Ba2      2,000    New Jersey EDA, Special Facility Revenue Bonds         1,868           --       1,868
                                           (Continental Airlines Inc. Project), AMT,  6.25%
                                           due 9/15/2029
                                           New Jersey Health Care Facilities Financing
                                           Authority Revenue Refunding Bonds (Trinitas
                                           Hospital Obligation Group):
                 BBB-    Baa3     2,000        7.375% due 7/01/2015                                  --        1,999       1,999
                 BBB-    Baa3     1,500        7.40% due 7/01/2020                                1,495           --       1,495

===================================================================================================================================
<R>
New Mexico--1.4% NR*     Baa3     3,000    Farmington, New Mexico, PCR, Refunding (Public         1,413        1,412       2,825
                                           Service Company-San Juan Project), Series A,
                                           5.80% due 4/01/2022
                 B       Ba3      1,000    Farmington, New Mexico, PCR, Refunding (Tucson            --        1,001       1,001
                                           Electric Power Co.-San Juan Project), Series A,
                                           6.95% due 10/01/2020
</R>
===================================================================================================================================
New York--2.3%                             Utica, New York, GO, Public Improvement Bonds:
                 BB      Ba1      700          9.25% due 8/15/2001                                  705           --         705
                 BB      Ba1      700          9.25% due 8/15/2002                                  726           --         726
                 BB      Ba1      700          9.25% due 8/15/2003                                  745           --         745
                 BB      Ba1      635          8.50% due 8/15/2007                                   --          708         708
                 BB      Ba1      635          8.50% due 8/15/2008                                   --          706         706
                 BB      Ba1      500          8.50% due 8/15/2009                                   --          556         556
                 BB      Ba1      500          8.50% due 8/15/2010                                   --          556         556
                 BB      Ba1      500          8.50% due 8/15/2011                                   --          556         556
                 BB      Ba1      500          8.50% due 8/15/2012                                   --          556         556
                 BB      Ba1      250          8.50% due 8/15/2015                                  278           --         278

===================================================================================================================================
North Carolina-- BBB     Baa3     350      North Carolina Eastern Municipal Power Agency,           335           --         335
1.1%                                       Power System Revenue Refunding Bonds, Series A,
                                           5.75% due 1/01/2026
                 NR*     NR*      2,400    North Carolina Medical Care Commission, Health         1,223        1,223       2,446
                                           Care Facilities, First Mortgage Revenue Refunding
                                           Bonds (Presbyterian Homes Project),  7% due
                                           10/01/2031

===================================================================================================================================
Ohio--1.4%       NR*     Ba2      3,365    Cleveland, Ohio, Airport Special Revenue               2,934           --       2,934
                                           Refunding Bonds (Continental Airlines Inc.
                                           Project), AMT, 5.70% due 12/01/2019
                 AAA     Aaa      700      Ohio, HFA, S/F Mortgage Revenue Bonds, RIB, AMT,          --          732         732
                                           Series A, 9.953% due 3/24/2031(e)(i)

===================================================================================================================================
<R>
Oregon--2.6%     NR*     NR*      1,630    Klamath Falls, Oregon, Electric Revenue Refunding      1,534           --       1,534
                                           Bonds (Klamath Cogeneration Project), Senior
                                           Lien,  6% due 1/01/2025
                 NR*     VMIG1+   200      Oregon State Health, Housing, Educational and            200           --         200
                                           Cultural Facilities Authority Revenue Bonds
                                           (Guide Dogs for the Blind), VRDN, Series A,
                                           3.05% due 7/01/2025(f)
                                           Western Generation Agency, Oregon, Cogeneration
                                           Project Revenue Bonds (Wauna Cogeneration
                                           Project):
                 NR*     NR*      1,000        AMT, Series B,  7.40% due 1/01/2016                   --        1,024       1,024
                 NR*     NR*      700          Series A,  7.125% due 1/01/2021                      705           --         705
</R>

                                      F-37
















                                            <R>COMBINED SCHEDULE OF INVESTMENTS FOR
                            MUNIASSETS FUND, INC. AND MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
                                        As of May 31, 2001 (unaudited) (continued)</R>
                                                      (in thousands)</R>

                                                                                                              Value
                                                                                               ----------------------------------
                                                                                                                         ProForma
                                                                                                               High         for
                 S&P     Moody's  Face                                                         MuniAssets     Income     Combined
      STATE      Ratings Ratings  Amount                                                          Fund       Municipal     Fund
===================================================================================================================================
<R>
Oregon           B       NR*    $ 3,455    Yamhill County, Oregon, PCR, Refunding (Smurfit        2,034        1,479     $ 3,513
(concluded)                                Newsprint Corporation Project),  8% due 12/01/2003</R>

===================================================================================================================================
Pennsylvania--   NR*     NR*      250      Lancaster County, Pennsylvania, Hospital                 240           --         240
7.4%                                       Authority Revenue Bonds (Health Center-Saint
                                           Anne's Home), 6.60% due 4/01/2024
                 NR*     Ba2      2,500    Lehigh County, Pennsylvania, General Purpose           1,266          844       2,110
                                           Authority Revenue Refunding Bonds (Kidspeace
                                           Obligation Group), 6% due 11/01/2023
                                      8    Northhampton Pulp LLC(b)(c)(h)                           398          663       1,061
                 AAA     NR*      1,455    Pennsylvania State Higher Educational Facilities       1,768           --       1,768
                                           Authority, College and University Revenue
                                           Refunding Bonds (Eastern College), Series A, 8%
                                           due 10/15/2006(d)
                 NR*     NR*      9,000    Philadelphia, Pennsylvania, Authority for IDR,         4,208        5,260       9,468
                                           Commercial Development, AMT, 7.75% due
                                           12/01/2017
                 NR*     NR*      5,750    Philadelphia, Pennsylvania, Authority for              2,203        2,622       4,825
                                           Industrial Development, Health Care Facility
                                           Revenue Refunding Bonds (Paul's Run), Series A,
                                           5.875% due 5/15/2028

===================================================================================================================================
South Carolina-- BBB     NR*      3,500    South Carolina Jobs, EDA, Economic Development         1,586        2,115       3,701
1.4%                                       Revenue Bonds (Westminster Presbyterian Center),
                                           7.75% due 11/15/2030

===================================================================================================================================
<R>
Texas--3.1%      BBB-    Baa3     1,000    Austin, Texas, Convention Center Revenue Bonds         1,000           --       1,000
                                           (Convention Enterprises Inc.), First Tier, Series
                                           A,  6.70% due 1/01/2028
                 A1      NR*      100      Harris County, Texas, Health Facilities                   --          100         100
                                           Development Corporation, Hospital Revenue
                                           Refunding Bonds (Methodist Hospital), VRDN,  3%
                                           due 12/01/2025(f)
                 BB      Ba1      3,000    Houston, Texas, Airport System Revenue Bonds           2,766           --       2,766
                                           (Special Facilities-Continental Airlines), AMT,
                                           Series B, 6.125% due 7/15/2017
                 BBB-    Baa2     4,500    Lower Colorado River Authority, Texas, PCR             4,457           --       4,457
                                           (Samsung Austin Semiconductor), AMT,  6.375% due
                                           4/01/2027
</R>
===================================================================================================================================
Utah--0.7%       NR*     NR*      1,660    Carbon County, Utah, Solid Waste Disposal Revenue      1,694           --       1,694
                                           Refunding Bonds (Laidlaw Environmental), AMT,
                                           Series A, 7.45% due 7/01/2017
                 NR*     NR*      3,200    Tooele County, Utah, PCR, Refunding (Laidlaw              --           89          89
                                           Environmental), AMT, Series A,  7.55% due
                                           7/01/2027(b)

===================================================================================================================================
Vermont--1.8%    NR*     NR*      4,410    Vermont Educational and Health Buildings               3,307        1,530       4,837
                                           Financing Agency Revenue Refunding Bonds (College
                                           of Saint Joseph Project),  8.50% due 11/01/2024

===================================================================================================================================
Virginia--8.8%   NR*     NR*      1,500    Dulles Town Center, Virginia, Community                1,459           --       1,459
                                           Development Authority, Special Assessment Tax
                                           (Dulles Town Center Project),  6.25% due 3/01/2026
                 NR*     NR*      7,635    Peninsula Ports Authority, Virginia, Revenue           1,414        2,098       3,512
                                           Refunding Bonds (Port Facility-Zeigler Coal),
                                           6.90% due 5/02/2022(b)
                                           Pittsylvania County, Virginia, IDA Revenue
                                           Refunding Bonds, Exempt-Facility, AMT, Series A:
                 NR*     NR*      3,700         7.50% due 1/01/2014                               1,624        1,911       3,535
                 NR*     NR*      1,000         7.55% due 1/01/2019                                 947           --         947
                                           Pocahontas Parkway Association, Virginia, Toll
                                           Road Revenue Bonds, Capital Appreciation:
                 NR*     Ba1      5,500        First Tier, Sub-Series C,  6.25%** due                --          791         791
                                               8/15/2027
                 NR*     Ba1      6,200        First Tier, Sub-Series C,  6.25%** due               616           --         616
                                               8/15/2032


                                      F-38
















                                            <R>COMBINED SCHEDULE OF INVESTMENTS FOR
                            MUNIASSETS FUND, INC. AND MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
                                             As of May 31, 2001 (unaudited) (concluded)
                                                      (in thousands)</R>

                                                                                                              Value
                                                                                               ----------------------------------
                                                                                                                         ProForma
                                                                                                               High         for
                 S&P     Moody's  Face                                                         MuniAssets     Income     Combined
      STATE      Ratings Ratings  Amount                                                          Fund       Municipal     Fund
===================================================================================================================================
<R>
Virginia         NR*     Ba1    $ 9,000        First Tier, Sub-Series C,  6.25%** due           $    --      $   716     $   716
(concluded)                                    8/15/2035
                 BBB-    Baa3     48,400       Senior Series B,  5.95%** due 8/15/2032            5,672           --       5,672
                 BBB-    Baa3     48,400       Senior Series B,  5.95%** due 8/15/2031               --        6,075       6,075

===================================================================================================================================
Washington--     NR*     NR*      1,900    Port Seattle, Washington, Special Facilities           1,868           --       1,868
0.7%                                       Revenue Bonds (Northwest Airlines Project), AMT,
                                           7.25% due 4/01/2030

===================================================================================================================================
Wisconsin--      NR*     NR*      2,000    Wisconsin State Health and Educational Facilities      1,014        1,015       2,029
0.8%                                       Authority Revenue Bonds (Oakwood Village
                                           Project), Series A, 7.625% due 8/15/2030

                 Total Investments  (Cost -- $284,671)  -- 100.1%                               135,633      127,473     263,106
                 Other Assets in Excess of Liabilities  -- (0.1)%                                  (185)       2,125         791++
                 Net Assets - 100.0%                                                            135,448      129,598     263,897++
===================================================================================================================================
</R>
(a)              FSA Insured.
(b)              Non-income producing security.
(c)              These shares represent an equity interest in the reorganization
                 of Ponderosa Fibres PA. The security may be offered and sold to
                 "qualified institutional buyers" under Rule 144A of the
                 Securities Act of 1933.
(d)              Prerefunded.
(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 May 31, 2001.
(f)              The interest rate is subject to change periodically based upon
                 prevailing market rates. The interest rate shown is the rate in
                 effect at May 31, 2001.
(g)              AMBAC Insured.
(h)              Escrowed to maturity.
(i)              GNMA Collateralized.
(j)              MBIA Insured.
*                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.<R>
++               Amounts reflect Pro Forma adjustments to the Statement of Assets,
                 Liabilities and Capital. Ratings of issues shown have not been audited by
                 Deloitte & Touche LLP.

See Notes to Financial Statements.

Portfolio Abbreviations
- -----------------------

To simplify the listings of MuniAssets Fund's portfolio holdings in
the Schedule of Investments, we have abbreviated the names of many of
the securities according to the list below.</R>

<R>
AMT              Alternative Minimum Tax (subject to)
EDA              Economic Development Authority
GO               General Obligation Bonds
IDA              Industrial Development Authority
IDB              Industrial Development Board
IDR              Industrial Development Revenue Bonds
INFLOS           Inverse Floating Rate Municipal Bonds
M/F              Multi-Family
PCR              Pollution Control Revenue Bonds
RIB              Residual Interest Bonds
VRDN             Variable Rate Demand Notes
<R>

                                      F-39

















                                 PRO FORMA COMBINED STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
                                                  FOR MUNIASSETS FUND, INC. AND
                                       MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC
                                                 As of May 31, 2001 (Unaudited)

      <R>The following unaudited Pro Forma Combined Statement of Assets, Liabilities and Capital has been derived from the
Statement of Assets,  Liabilities and Capital of MuniAssets  Fund, Inc. and the Statement of Assets and  Liabilities of
Merrill Lynch High Income  Municipal Bond Fund, Inc., each at May 31, 2001 and such information has been adjusted to give effect
to the  Reorganization  as if the  Reorganization  had occurred on May 31, 2001. The Pro Forma Combined  Statement of Assets and
Liabilities 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 May 31, 2001. The 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 Joint Proxy Statement and Prospectus. <R>
                                                                        High Income                               Pro Forma for
                                                    MuniAssets           Municipal           Adjustments          Combined Fund
                                                 ---------------       --------------        -----------          -------------
Assets:
Investments, at value*                             $ 135,632,525       $ 127,472,894                              $ 263,105,419
Cash                                                      24,608                  --                                     24,608
Receivables:
   Interest                                            2,466,628           2,485,107                                  4,951,735
   Securities sold                                       247,438             300,782                                    548,220
Prepaid expenses and other assets                          8,195              44,226                                     52,421
                                                   -------------       -------------       -------------          -------------
Total assets                                         138,379,394         130,303,009                                268,682,403
                                                   -------------       -------------       -------------          -------------

Liabilities:
Payables:
   Securities purchased                                2,845,481                  --                                  2,845,481
   Dividends to shareholders                                  --             315,637       $     845,463              1,161,100
   Investment adviser                                     50,905              53,402                                    104,307
   Administration fees                                        --              54,531                                     54,531
Accrued expenses and other liabilities                    34,523             281,211             303,900(1)             619,634
                                                   -------------       -------------       -------------          -------------
Total liabilities                                      2,930,909             704,781           1,149,363              4,785,053
                                                   -------------       -------------       -------------          -------------


Net Assets                                         $ 135,448,485       $ 129,598,228       $  (1,149,363)         $ 263,897,350
                                                   =============       =============       =============          =============
<R>
Capital
Common Stock, par value $.10 per share;                1,045,436           1,388,397            (381,969)             2,051,864
200,000,000 shares authorized+
Paid-in capital in excess of par                     148,814,553         150,376,590              78,069            299,269,212
Undistributed investment income -- net                   845,463                  --            (845,463)                    --
Accumulated realized capital losses on
investments--net                                      (7,114,885)         (5,591,995)                               (12,706,880)
Accumulated distributions in excess of
realized capital gains on investments-net                     --          (3,150,862)                                (3,150,862)
Unrealized depreciation on investments-net            (8,142,082)        (13,423,902)                               (21,565,984)
                                                   -------------       -------------       -------------          -------------
Total capital                                      $ 135,448,485       $ 129,598,228       $  (1,149,363)         $ 263,897,350
                                                   =============       =============       =============          =============
Net asset value per share of Common Stock                 $12.96               $9.33                                     $12.86
                                                   =============       =============       =============          =============
</R>

 *Identified Cost                                  $ 143,774,607       $ 140,896,796                              $ 284,671,403
 +Shares issued and outstanding                       10,454,359          13,883,974          (3,819,685)            20,518,648

- --------
(1)   Reflects the charge for estimated Reorganization expenses of $303,900, of
      which $145,900 is attributable to MuniAssets Fund, Inc. and $158,000 is
      attributable to Merrill Lynch High Income Municipal Bond Fund, Inc.

See Notes to Financial Statements.


                                      F-40

















                                       <R>PRO FORMA COMBINED STATEMENT OF OPERATIONS
                                                  FOR MUNIASSETS FUND, INC. AND
                                       MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
                                           For the Period June 1, 2000 to May 31, 2001
                                                          (Unaudited)

      The following  unaudited Pro Forma Combined  Statement of Operations has been derived from the Statements of Operations of the
respective  Funds  for the  period  June 1,  2000 to May 31,  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.
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 Joint Proxy Statement and Prospectus.</R>

                                                                                                      Pro Forma for
                                                                  High Income                           Combined
                                                MuniAssets         Municipal         Adjustments         Fund(2)
                                              --------------    --------------       -----------       ------------
<R>
Investment Income :
Interest and amortization of premium
and discount earned                           $  9,698,498       $ 10,625,561                        $ 20,324,059
                                              ------------       ------------     -----------       ------------
Expenses:
Investment advisory fees                           740,906          1,355,424        (639,487)(1)      1,456,843
Administrative fees                                     --            356,691        (356,691)(1)             --
Professional fees                                   57,834            110,998        (110,998)(1)         57,834
Transfer agent fees                                 31,869             80,955         (78,501)(1)         34,323
Accounting services                                 53,362             58,694         (19,970)(1)         92,086
Printing and shareholder reports                    33,577             61,589         (53,976)(1)         41,190
Advertising                                             --             83,365         (83,365)(1)             --
Directors' fees and expenses                        40,498             33,510         (33,510)(1)         40,498
Registration fees                                       --             47,796         (47,796)(1)             --
Listing fees                                        35,652              8,785          (9,437)(1)         35,000
Custodian fees                                       9,153             12,868              --             22,021
Pricing fees                                         8,722                 --           3,778             12,500
Other                                               15,539             11,620          (5,659)(1)         21,500
                                              ------------       ------------     -----------       ------------
Total expenses                                   1,027,112          2,222,295      (1,435,612)         1,813,795
                                              ------------       ------------     -----------       ------------
Investment income -- net                         8,671,386          8,403,266       1,435,612         18,510,264
                                              ------------       ------------     -----------       ------------
Realized & Unrealized Gain (Loss) on
Investments -- Net
Realized loss on investments--net               (2,286,735)        (1,543,036)                        (3,829,771)
Change in unrealized
appreciation/depreciation on
investments -- net                               4,301,686          2,100,641                          6,402,327
                                              ------------       ------------     -----------       ------------
Net Increase in Net Assets Resulting
from Operations                               $ 10,686,337       $  8,960,871     $ 1,435,612       $ 21,082,820
                                              ============       ============     ===========       ============
</R>
- --------
(1)   Reflects the anticipated savings as a result of the Reorganization through
      fewer audits and consolidation of printing, accounting, and other
      services.

(2)   This Pro Forma Combined Statement of Operations excludes non-recurring
      aggregate estimated Reorganization expenses of $303,900, of which $145,900
      is attributable to MuniAssets Fund, Inc. and $158,000 is attributable to
      Merrill Lynch High Income Municipal Bond Fund, Inc.

See Notes to Financial Statements.


                                      F-41
















                         <R>MUNIASSETS FUND, INC.
               MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
          NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited)</R>


1. Significant Accounting Policies:

     <R>MuniAssets Fund, Inc. (the "Fund," which term as used herein
shall refer to MuniAssets Fund, Inc., after giving effect to
the Reorganization with Merrill Lynch High Income Municipal
Bond Fund, Inc.) 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 MUA. The following is
a summary of significant accounting policies followed by the
Fund.</R>

     (a) Valuation of investments -- Municipal bonds 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 by the Fund's pricing service 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 closing 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-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Short-term
investments with a remaining maturity 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.

o       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.

o       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.


                                      F-42


















                         <R>MUNIASSETS FUND, INC.
                 MERRILL LYNCH MUNICIPAL HIGH INCOME FUND, INC.
    NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited) (concluded)</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 June 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, but will result in a $43,627 increase to the cost of
securities and a corresponding $43,627 decrease to net unrealized
depreciation, based on debt securities held as of May 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.

     (f) Reclassification - Accounting principles generally accepted
in the United States of America require that certain components of net
assets be adjusted to reflect permanent differences between financial
and tax reporting. Accordingly, the current year's permanent book/tax
differences of $15,325 have been reclassified between accumulated
realized capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value per
share.

     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 of .55% based upon the average
weekly value of the Fund's net assets.

     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 year ended May
31, 2001, the Fund reimbursed FAM an aggregate of $31,455 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.


                                      F-43

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
MuniAssets Fund, Inc.		MuniAssets	5/31	MD	9:00 a.m.
Merrill Lynch High Income    Municipal Bond Fund, Inc.		High Income Municipal	8/31	MD	10:00 a.m.

<R>

Fund	Common Stock Outstanding as of the Record Date
MuniAssets	10.461,767
High Income Municipal	13,554,767

</R>

Information Pertaining to Directors of MuniAssets and High Income Municipal

<R>

		Shares Beneficially Owned on the Record Date
Fund	Glenn*	Grills	Mintz	Salomon	Seiden	Swensrud
MuniAssets	None	None	None	None	None	None

* Interested person, as defined in the Investment Company Act, of MuniAssets and High Income Municipal.

</R>

     Set forth in the table below is information regarding board of directors and audit committee meetings held and the aggregate fees and expenses paid by each Fund to non-affiliated Directors during that Fund’s most recently completed fiscal year.

	Board of Directors			Audit Committee
Fund	# Meetings Held*	Annual ($)	Per Meeting Fee ($)**	# Meetings Held*	Annual Fee ($)***	Per Meeting Fee ($)**	Aggregate Fees and Expenses ($)
MuniAssets	4	2,000	500	4	2,000	500	40,498
High Income Municipal	5	1,900	150	4	1,900	150	29,133

    * Includes meetings held via teleconferencing equipment.

  ** The fee is payable for each meeting attended in person. A fee is not paid for telephonic meetings.<R>

*** With respect to High Income Municipal, the Co-Chairmen of the Audit Committee each receive an additional annual fee of $500.</R>

 

I-1

     Set forth in the table below is information regarding compensation paid by each Fund to the non-affiliated Directors for that Fund’s most recently completed fiscal year. Each non-affiliated Director of a Fund is a member of the Audit Committee of the Fund.

Compensation from MuniAssets and High Income Municipal($)*

Fund	Grills	Mintz	Salomon	Seiden	Swensrud
MuniAssets	$8,000	$8,000	$8,000	$8,000	$8,000
	Forbes	Montgomery	Reilly	Ryan	Suddarth**	West	Zinbarg**
High Income Municipal	$5,900	$5,400	$5,900	$5,400	$325	$5,400	$325

  * No pension or retirement benefits are accrued as part of Fund expenses.

** Messrs. Suddarth and Zinbarg were elected Directors of High Income Municipal on July 10, 2000.

     Set forth in the table below is information regarding the aggregate compensation paid by all registered investment companies advised by FAM and its affiliate, MLIM (collectively, “FAM/MLIM Advised Funds”), including MuniAssets and High Income Municipal, to the non-affiliated Directors for the year ended December 31, 2000.

Name of Director		Aggregate Compensation from FAM/MLIM Advised Funds Paid to Directors($)(1)
MuniAssets
	Joe Grills	$224,500
	Walter Mintz	$184,000
	Robert S. Salomon, Jr.	$184,000
	Melvin R. Seiden	$184,000
	Stephen B. Swensrud	$280,233
High Income Municipal
	Ronald W. Forbes	$295,008
	Cynthia A. Montgomery	$264,008
	Charles C. Reilly	$352,050
	Kevin A. Ryan	$264,008
	Roscoe S. Suddarth(2)	$193,977
	Richard R. West	$373,000
	Edward D. Zinbarg(2)	$242,435

(1) The Directors serve on the boards of FAM/MLIM-advised funds as follows: Mr. Forbes (51 registered investment companies consisting of 58 portfolios); Mr. Grills (30 registered investment companies consisting of 46 portfolios); Mr. Mintz (16 registered investment companies consisting of 36 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. Salomon (16 registered investment companies consisting of 36 portfolios); Mr. Seiden (16 registered investment companies consisting of 36 portfolios); Mr. Suddarth (51 registered investment companies consisting of 58 portfolios); Mr. Swensrud (43 registered investment companies consisting of 93 portfolios) Mr. West (66 registered investment companies consisting of 72 portfolios) and Mr. Zinbarg (51 registered investment companies consisting of 58 portfolios).

(2) Messrs. Suddarth and Zinbarg were elected Directors of High Income Municipal on July 10, 2000.

 

I-2

<R>Information Pertaining to Directors of MuniAssets and High Income Municipal*

Name, Address and Biography		Age	High Income Municipal Director Since	MuniAssets Director Since
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 MLIM and its affiliate, FAM (which terms as used herein include their corporate predecessors) 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, L.P. since 1988; Director of FDS since 1985.
Ronald W. Forbes		60	1997	N/A
	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. from 1995 to 1999.

Walter Mintz		72	N/A	1993
	1114 Avenue of the Americas, New York, New York 10036. Special Limited Partner of Cumberland Associates (investment partnership) since 1982.
Cynthia A. Montgomery		49	1997	N/A
	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; Associate Professor, Graduate School of Business Administration, The University of Michigan from 1979 to 1985; Director, UNUMProvident Corporation since 1990 and Director, NewellRubbermaid Inc. since 1995.
Charles C. Reilly		70	1997	N/A
	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, The University of Pennsylvania from 1989 to 1990; Partner, Small Cities Cable Television from 1986 to 1997.
Kevin A. Ryan		68	1997	N/A
	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 to 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.

* Biographical information pertaining to the Director nominees, Joe Grills and Robert S. Salomon, Jr., appears on page 38.</R>

 

I-3

Name, Address and Biography		Age	High Income Municipal Director Since	MuniAssets Director Since
Melvin R. Seiden		70	N/A	1993
	780 Third Avenue, Suite 2502, New York, New York 10017. Director of Silbanc Properties, Ltd. (real estate, investment and consulting) since 1987; Chairman and President of Seiden & de Cuevas, Inc. (private investment firm) from 1964 to 1987.

<R>
Roscoe S. Suddarth		66	2000	N/A
	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, Deputy Inspector General, U.S. Department of State from 1991 to 1994, U.S. Ambassador to the Hashemite Kingdom of Jordan from 1987 to 1990.
Stephen B. Swensrud		68	N/A	1993
	88 Broad Street, 2nd Floor, Boston, Massachusetts 02110. Chairman of Fernwood Advisors (investment adviser) since 1996; Principal, Fernwood Associates (financial consultant) since 1975; Chairman of RPP Corporation (manufacturing) since 1978; Director of International Mobile Communications, Inc. (telecommunications) since 1998.
</R>
Richard R. West		63	1997	N/A
	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 holding company).
Edward D. Zinbarg		66	2000	N/A
	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.

I-4

Information Pertaining to Officers of MuniAssets and High Income Municipal

     Set forth in the table below is information about the officers of MuniAssets and High Income Municipal.

<R>

				Officer Since
Name and Biography		Age	Office	MuniAssets	High Income Municipal
Terry K. Glenn		60	President*	1993	1990
	Chairman (Americas Region) since 2001, and Executive Vice President of MLIM and its affiliate, FAM (which terms as used herein include their corporate predecessors) 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, L.P. since 1988; Director of FDS since 1985.
Vincent R Giordano		57	Senior Vice	1993	1993
	Managing Director of MLIM since 2000 and Senior Vice President thereof from 1984 to 2000; Senior Vice President of Princeton Services since 1993.		President
Kenneth A. Jacob		50	Vice President	1993	1990
	First Vice President of MLIM since 1997 and Vice President thereof from 1984 to 1997; Vice President of FAM since 1984.
Theodore R. Jaeckel, Jr.		42	Vice President	1997	1995
	Director (Municipal Tax-Exempt Fund Management) of MLIM since 1997; Vice President of MLIM from 1991 to 1997.		and Portfolio Manager
Donald C. Burke		41	Vice President	1993	1994
	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 and FAM from 1990 to 1997; Director of Taxation of MLIM since 1990.		and Treasurer	1999	1999
Bradley J. Lucido		35	Secretary	1999	N/A
	Vice President of MLIM since 1999; attorney with MLIM since 1995.
Alice A. Pellegrino		41	Secretary	N/A	2001
	Vice President of MLIM since 1999; attorney with MLIM since 1997; Associate with Kirkpatrick & Lockhart LLP from 1992 to 1997.

</R>

* Prior to being elected President of MuniAssets and High Income Municipal in 1999, Mr. Glenn served as Executive Vice President of both Funds.

 

I-5

APPENDIX II

AGREEMENT AND PLAN OF REORGANIZATION

    <R> THIS AGREEMENT AND PLAN OF REORGANIZATION (this “Agreement”) is made as of the 7th day of September, 2001, by and between Merrill Lynch High Income Municipal Bond Fund, Inc., a Maryland corporation (“High Income Municipal”), and MuniAssets Fund, Inc., a Maryland corporation (“MuniAssets”). MuniAssets and High Income Municipal are sometimes referred to herein collectively as the “Funds” and individually as a “Fund,” as the context requires.</R>

PLAN OF REORGANIZATION

     The reorganization will constitute the following:

     (1) the acquisition by MuniAssets of substantially all of the assets, and the assumption by MuniAssets of substantially all of the liabilities of High Income Municipal in return solely for an equal aggregate value of newly issued full shares of common stock, with a par value of $0.10 per share, of MuniAssets (“MuniAssets Common Stock”), and

     (2) the subsequent distribution by High Income Municipal to High Income Municipal stockholders of all of the full shares of MuniAssets Common Stock received by High Income Municipal in return for High Income Municipal stockholders’ shares of common stock, with a par value of $0.10 per share, including shares of common stock of High Income Municipal representing the Dividend Reinvestment Plan (“DRIP”) shares held in the book deposit accounts of the holders of common stock of High Income Municipal (“High Income Municipal Common Stock”)( plus cash in lieu of fractional shares);

     all upon and subject to the terms hereinafter set forth (collectively, the “Reorganization”).

     In the course of the Reorganization, each holder of High Income Municipal Common Stock will be entitled to receive a number of full shares of MuniAssets Common Stock and cash in lieu of fractional shares equal to the aggregate net asset value of High Income Municipal Common Stock owned by such stockholder on the Closing Date (as defined in Section 7(a) below).

     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, High Income Municipal 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.

     As promptly as practicable after the consummation of the Reorganization, High Income Municipal 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”).

AGREEMENT

     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 MuniAssets.

MuniAssets represents and warrants to, and agrees with, High Income Municipal that:

     (a) MuniAssets 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. MuniAssets 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.

     (b) MuniAssets is duly registered under the 1940 Act as a non-diversified, closed-end management investment company (File No. 811-07642), and such registration has not been revoked or rescinded and is in full force and effect. MuniAssets has elected and qualified since inception for the special tax treatment

 

II-1

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) High Income Municipal has been furnished with MuniAssets’ Annual Report to Stockholders for the fiscal year ended May 31, 2001, and the audited financial statements appearing therein, having been audited by Deloitte & Touche LLP, independent public accountants, fairly present the financial position of MuniAssets as of the respective dates indicated, in conformity with accounting principles generally accepted in the United States of America applied on a consistent basis.

     (d) An unaudited statement of assets, liabilities and capital of MuniAssets and an unaudited schedule of investments of MuniAssets, each as of the Valuation Time (as defined in Section 3(d) of this Agreement), will be furnished to High Income Municipal, at or prior to the Closing Date for the purpose of determining the number of shares of MuniAssets Common Stock to be issued pursuant to Section 4 of this Agreement; each will fairly present the financial position of MuniAssets as of the Valuation Time in conformity with accounting principles generally accepted in the United States of America applied on a consistent basis.

     (e) MuniAssets 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.

     (f) There are no material legal, administrative or other proceedings pending or, to the knowledge of MuniAssets, threatened against it which assert liability on the part of MuniAssets or which materially affect its financial condition or its ability to consummate the Reorganization. MuniAssets 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.

     (g) MuniAssets 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.

     (h) There are no material contracts outstanding to which MuniAssets 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 High Income Municipal prior to the Valuation Time.

     (i) MuniAssets 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 May 31, 2001, and those incurred in connection with the Reorganization. As of the Valuation Time, MuniAssets will advise High Income Municipal 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.

     (j) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by MuniAssets 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).

     (k) The registration statement filed by MuniAssets on Form N-14 which includes the joint proxy statement of the Funds with respect to the transactions contemplated herein and the prospectus of MuniAssets relating to the MuniAssets Common Stock to be issued pursuant to this Agreement, (the “Joint 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 stockholders’ meetings referred to in Section 6(a) of this Agreement and at the Closing Date, insofar as it relates to MuniAssets (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

 

II-2

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 Joint 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 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 MuniAssets for use in the N-14 Registration Statement as provided in Section 6(e) of this Agreement.

     (l) MuniAssets is authorized to issue 200,000,000 shares of capital stock, all of which 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.

     (m) The shares of MuniAssets Common Stock to be issued to High Income Municipal 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 MuniAssets will have any preemptive right of subscription or purchase in respect thereof.

     (n) At or prior to the Closing Date, the MuniAssets Common Stock to be transferred to High Income Municipal for distribution to the stockholders of High Income Municipal 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 High Income Municipal 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.

     (o) At or prior to the Closing Date, MuniAssets will have obtained any and all regulatory, Director and stockholder approvals necessary to issue the MuniAssets Common Stock to High Income Municipal.

     2.  Representations and Warranties of High Income Municipal.

High Income Municipal represents and warrants to, and agrees with, MuniAssets that:

     (a) High Income Municipal 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. High Income Municipal 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.

     (b) High Income Municipal is duly registered under the 1940 Act as a continuously offered, non-diversified, closed-end management investment company (File No. 811-06156), and such registration has not been revoked or rescinded and is in full force and effect. High Income Municipal has elected and qualified since 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.

     (c) As used in this Agreement, the term “High Income Municipal Investments” shall mean (i) the investments of High Income Municipal shown on the schedule of its investments as of the Valuation Time furnished to MuniAssets; and (ii) all other assets owned by High Income Municipal or liabilities incurred as of the Valuation Time.

     (d) High Income Municipal 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) MuniAssets has been furnished with High Income Municipal’s Annual Report to Stockholders for the fiscal year ended August 31, 2000, and the audited financial statements appearing therein, having been audited by Deloitte & Touche LLP, independent auditors, fairly present the financial position of High Income Municipal as of the respective dates indicated, in conformity with accounting principles generally accepted in the United States of America applied on a consistent basis.

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<R>      (f) MuniAssets has been furnished with High Income Municipal’s Semi-Annual Report to Stockholders for the period ended February 28, 2001 and the unaudited financial statements appearing therein, fairly present the financial position of High Income Municipal as of the respective dates indicated, in conformity with accounting principles generally accepted in the United States of America applied on a consistent basis. </R>

     (g) An unaudited statement of assets, liabilities and capital of High Income Municipal and an unaudited schedule of investments of High Income Municipal, each as of the Valuation Time, will be furnished to MuniAssets at or prior to the Closing Date for the purpose of determining the number of shares of MuniAssets Common Stock to be issued to High Income Municipal pursuant to Section 4 of this Agreement; each will fairly present the financial position of High Income Municipal 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 High Income Municipal, threatened against it which assert liability on the part of High Income Municipal or which materially affect its financial condition or its ability to consummate the Reorganization. High Income Municipal 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 High Income Municipal is a party that have not been disclosed in the N-14 Registration Statement or will not otherwise be disclosed to MuniAssets prior to the Valuation Time.

     (j) High Income Municipal 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.

     (k) High Income Municipal 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 February 28, 2001, and those incurred in connection with the Reorganization. As of the Valuation Time, High Income Municipal will advise MuniAssets 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) High Income Municipal 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 High Income Municipal have been adequately provided for on its books, and no tax deficiency or liability of High Income Municipal 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, High Income Municipal will have full right, power and authority to sell, assign, transfer and deliver the High Income Municipal Investments. At the Closing Date, subject only to the obligation to deliver the High Income Municipal Investments as contemplated by this Agreement, High Income Municipal will have good and marketable title to all of the High Income Municipal Investments, and MuniAssets will acquire all of the High Income Municipal 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 High Income Municipal 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 High Income Municipal 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 stockholders’ meetings referred to in Section 6(a) of this Agreement and on the Closing Date, insofar as it relates to High Income Municipal (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934

 

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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 Joint 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 High Income Municipal for use in the N-14 Registration Statement as provided in Section 6(e) of this Agreement.

     (p) High Income Municipal is authorized to issue 200,000,000 shares of capital stock, all of which 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.

     (q) All of the issued and outstanding shares of High Income Municipal Common Stock were offered for sale and sold in conformity with all applicable Federal and state securities laws.

     (r) The books and records of High Income Municipal made available to MuniAssets and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of High Income Municipal.

     (s) High Income Municipal will not sell or otherwise dispose of any of the shares of MuniAssets Common Stock to be received in the Reorganization, except in distribution to the stockholders of High Income Municipal, as provided in Section 3 of this Agreement.

     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, High Income Municipal agrees to convey, transfer and deliver to MuniAssets and MuniAssets agrees to acquire from High Income Municipal on the Closing Date, substantially all of the High Income Municipal Investments (including interest accrued as of the Valuation Time on debt instruments) and assume substantially all of the liabilities of High Income Municipal in return solely for that number of full shares of MuniAssets Common Stock and cash in lieu of fractional shares provided in Section 4 of this Agreement.

     Pursuant to this Agreement, as soon as practicable after the Closing Date High Income Municipal will distribute all full shares of MuniAssets Common Stock received by it to its stockholders (plus cash in lieu of fractional shares) in return for their shares of High Income Municipal Common Stock. Such distributions shall be accomplished by the opening of stockholder accounts on the stock ledger records of MuniAssets in the amounts due the stockholders of High Income Municipal based on their holdings in High Income Municipal as of the Valuation Time.

     (b) Prior to the Closing Date, High Income Municipal 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.

     (c) High Income Municipal will pay or cause to be paid to MuniAssets any interest High Income Municipal receives on or after the Closing Date with respect to any of the High Income Municipal Investments transferred to MuniAssets 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”).</R>

     (e) Recourse for liabilities assumed from High Income Municipal by MuniAssets in the Reorganization will be limited to the net assets of High Income Municipal acquired by MuniAssets. The known liabilities of High Income Municipal, as of the Valuation Time, shall be confirmed in writing to MuniAssets pursuant to Section 2(k) of this Agreement.

     (f) The Funds will jointly file Articles of Transfer with the State Department of Assessments and Taxation of Maryland (the “Maryland Department”) and any other such instrument as may be required by the State of Maryland to effect the transfer of the High Income Municipal Investments.

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     (g) High Income Municipal will be dissolved following the Closing Date by filing Articles of Dissolution with the Maryland Department.

     (h) As promptly as practicable after the liquidation of High Income Municipal pursuant to the Reorganization, High Income Municipal shall terminate its registration under the 1940 Act.

     4.  Issuance and Valuation of MuniAssets Common Stock.

     Full shares of MuniAssets Common Stock of an aggregate net asset value equal (to the nearest one ten thousandth of one cent) to the value of the assets of High Income Municipal acquired in the Reorganization determined as hereinafter provided, reduced by the amount of liabilities of High Income Municipal assumed by MuniAssets in the Reorganization, shall be issued by MuniAssets to High Income Municipal in return for such assets of High Income Municipal.

     The net asset value of each Fund shall be determined as of the Valuation Time in accordance with the procedures described in the N-14 Registration Statement 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 High Income Municipal Investments to be transferred to MuniAssets shall be determined by MuniAssets pursuant to the procedures utilized by MuniAssets in valuing its own assets and determining its own liabilities for purposes of the Reorganization. Such valuation and determination shall be made by MuniAssets in cooperation with High Income Municipal and shall be confirmed in writing by MuniAssets to High Income Municipal. The net asset value per share of the MuniAssets Common Stock shall be determined in accordance with such procedures and MuniAssets 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) is divided by the total number of shares of Common Stock of that Fund outstanding at such time.

     MuniAssets shall issue to High Income Municipal separate certificates for the MuniAssets Common Stock, registered in the name of High Income Municipal. High Income Municipal then shall distribute the MuniAssets Common Stock to the holders of High Income Municipal Common Stock by redelivering the certificates evidencing ownership of the MuniAssets Common Stock to The Bank of New York (“BONY”), as the transfer agent and registrar for the MuniAssets Common Stock, for distribution to the holders of High Income Municipal Common Stock on the basis of such holder’s proportionate interest in the aggregate net asset value of High Income Municipal Common Stock. With respect to any High Income Municipal stockholder holding certificates evidencing ownership of High Income Municipal Common Stock as of the Closing Date, and subject to MuniAssets being informed thereof in writing by High Income Municipal, MuniAssets will not permit such stockholder to receive new certificates evidencing ownership of the MuniAssets Common Stock, exchange MuniAssets Common Stock 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 MuniAssets Common Stock, in any case, until notified by High Income Municipal or its agent that such stockholder has surrendered his or her outstanding certificates evidencing ownership of High Income Municipal Common Stock or, in the event of lost certificates, posted adequate bond. High Income Municipal, at its own expense, will request its stockholders to surrender their outstanding certificates evidencing ownership of High Income Municipal Common Stock or post adequate bond therefor.

     Dividends payable to holders of record of shares of MuniAssets Common Stock, as of any date after the Closing Date and prior to the receipt of certificates in connection with the Reorganization by any stockholder of High Income Municipal, 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 High Income Municipal Common Stock in return for shares of MuniAssets Common Stock.

     No fractional shares of MuniAssets Common Stock will be issued to holders of High Income Municipal Common Stock. In lieu thereof, MuniAssets’ transfer agent, BONY, will aggregate all fractional shares of MuniAssets Common Stock and sell the resulting full shares on the New York Stock Exchange at the current market price for shares of MuniAssets 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 High Income Municipal Common Stock.

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     5.  Payment of Expenses.

     <R>The expenses of the Reorganization that are directly attributable to High Income Municipal and the conduct of its business will be deducted from the assets of High Income Municipal 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 meeting of the stockholders of High Income Municipal to consider the Reorganization, the expenses related to the solicitation of proxies to be voted at that meeting and a portion of the expenses incurred in printing the N-14 Registration Statement. The expenses of the Reorganization that are directly attributable to MuniAssets and the conduct of its business will be deducted from the assets of MuniAssets as of the Valuation Time. The expenses attributable to MuniAssets are expected to include the costs, if any of transfer agent fees, the costs of printing stock certificates, the expenses incurred in preparing, printing and mailing the proxy materials to be utilized in connection with the meeting of the stockholders of MuniAssets to consider the Reorganization, the expenses related to the solicitation of proxies to be voted at that meeting 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, stock exchange fees and audit fees, will be borne equally by the Funds.</R>

     6.  Covenants of the Funds.

     (a) Each Fund agrees to hold a meeting of its stockholders, special or otherwise, 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) High Income Municipal 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 MuniAssets Common Stock 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 MuniAssets, if any, and on and after the Closing Date it shall not conduct any business except in connection with its dissolution.

     (d) High Income Municipal 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 High Income Municipal has ceased to be a registered investment company.

     (e) MuniAssets 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) MuniAssets has no plan or intention to sell or otherwise dispose of the High Income Municipal Investments, except for dispositions made in the ordinary course of business.

     (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. MuniAssets 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 High Income Municipal 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, High Income Municipal 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

 

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and Forms 1099 to be duly filed with the appropriate taxing authorities. Notwithstanding the aforementioned provisions of this subsection, any expenses incurred by High Income Municipal (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.

     (h) Each Fund agrees to mail to its respective stockholders of record entitled to vote at the 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, the Joint 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, MuniAssets 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.

     (a) Delivery of the assets of High Income Municipal to be transferred and the shares of MuniAssets Common Stock to be issued as provided in this Agreement, shall be made at the offices of Sidley Austin Brown & Wood LLP, One World Trade Center, New York, New York 10048, 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 High Income Municipal Investments, for any reason, are not transferable on the Closing Date, High Income Municipal shall cause such High Income Municipal Investments to be transferred to MuniAssets’s account with BONY at the earliest practicable date thereafter.

     (b) High Income Municipal will deliver to MuniAssets on the Closing Date confirmations or other adequate evidence as to the tax basis of each of its respective High Income Municipal Investments delivered to MuniAssets hereunder, certified by Deloitte & Touche LLP.

     (c) As soon as practicable after the close of business on the Closing Date, High Income Municipal shall deliver to MuniAssets a list of the names and addresses of all of the stockholders of record of High Income Municipal on the Closing Date and the number of shares of High Income Municipal Common Stock owned by each such stockholder, certified to the best of their knowledge and belief by the transfer agent for High Income Municipal or by its President.

     8.  Conditions of High Income Municipal.

The obligations of High Income Municipal 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 affirmative vote of (i) the Board of Directors of MuniAssets, and (ii) at least two-thirds of the members of the Board of Directors of High Income Municipal, and by the affirmative vote, (A) with respect to High Income Municipal, of the holders of a majority of the outstanding shares of capital stock of High Income Municipal entitled to vote thereon, and (B) with respect to MuniAssets, of the holders of a majority of the outstanding shares of capital stock of MuniAssets entitled to vote thereon, and further that MuniAssets shall have delivered to High Income Municipal a copy of the resolution approving this Agreement adopted by MuniAssets’ Board of Directors, and a certificate setting forth the vote of MuniAssets’ stockholders obtained at the meeting of its stockholders, each certified by the Secretary of MuniAssets.

     (b) That High Income Municipal shall have received from MuniAssets 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 MuniAssets’ behalf by its President (or any Vice President) and its Treasurer, and a certificate signed by MuniAssets’ 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 MuniAssets 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.

 

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     (c) That MuniAssets shall have furnished to High Income Municipal a certificate signed by MuniAssets’ 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 MuniAssets 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 MuniAssets 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.

     (e) That High Income Municipal shall have received an opinion of Sidley Austin Brown & Wood LLP, as Maryland counsel to MuniAssets, as to Maryland law in form satisfactory to High Income Municipal and dated the Closing Date, to the effect that (i) MuniAssets 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 MuniAssets to be issued pursuant to this Agreement are duly authorized and, upon delivery, will be validly issued and fully paid and nonassessable by MuniAssets, and no stockholder of MuniAssets has any preemptive right to subscription or purchase in respect thereof (pursuant to the Articles of Incorporation or the by-laws of MuniAssets or, to the best of such counsel’s knowledge, otherwise); (iii) this Agreement has been duly authorized, executed and delivered by MuniAssets; (iv) the execution and delivery of this Agreement by MuniAssets does not, and the consummation of the Reorganization will not, violate any provisions of Maryland law or the Articles of Incorporation, as amended, or the by-laws, as amended, of MuniAssets; (v) to the best of such counsel’s knowledge, no consent, approval, authorization or order of any Maryland court or governmental authority is required for the consummation by MuniAssets of the Reorganization, except such as have been obtained under Maryland law; and (vi) such opinion is solely for the benefit of High Income Municipal and its Directors and Officers. In giving the opinion set forth above, Sidley Austin Brown & Wood LLP may state that it is relying on certificates of officers of MuniAssets with regard to matters of fact and certain certificates and written statements of government officials with respect to the organization and good standing of MuniAssets.

     (f) That High Income Municipal shall have received an opinion of Clifford Chance Rogers & Wells LLP, as counsel to MuniAssets, in form satisfactory to High Income Municipal and dated the Closing Date, to the effect that (i) this Agreement represents 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; 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; (ii) the execution and delivery of this Agreement by MuniAssets does not, and the consummation of the Reorganization will not, violate any material provisions of any agreement (known to such counsel to which MuniAssets is a party or by which MuniAssets is bound), except insofar as the parties have agreed to amend such provisions as a condition precedent to the Reorganization; (iii) to the best of such counsel’s knowledge, no consent, approval, authorization or order of any United States federal court or governmental authority is required for the consummation by MuniAssets 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 such as may be required under state securities laws; (iv) 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; (v) 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; (vi) 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; (vii) MuniAssets, to the knowledge of such counsel, is not 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 MuniAssets has so qualified or the failure so to qualify would not have a material adverse effect on

 

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MuniAssets or its stockholders; (viii) such counsel does not have actual knowledge of any material suit, action or legal or administrative proceeding pending or threatened against MuniAssets, the unfavorable outcome of which would materially and adversely affect MuniAssets; (ix) all corporate actions required to be taken by MuniAssets to authorize this Agreement and to effect the Reorganization have been duly authorized on the part of MuniAssets; and (x) such opinion is solely for the benefit of High Income Municipal and its 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 relating to MuniAssets required to be stated therein or necessary to make the statements therein not misleading; and (2) the proxy statement and prospectus included in the N-14 Registration Statement contained any untrue statement of a material fact or omitted to state any material fact relating to MuniAssets necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (B) such counsel does not express any opinion or belief as to the financial statements or other financial or statistical data contained or incorporated by reference in the N-14 Registration Statement. In giving the opinion set forth above, Clifford Chance Rogers & Wells LLP may state that it is relying on certificates of officers of MuniAssets with regard to matters of fact and certain certificates and written statements of governmental officials with respect to the good standing of MuniAssets.

     (g) That High Income Municipal shall have received an opinion of Sidley Austin Brown & Wood LLP to the effect that for Federal income tax purposes (i) the transfer by High Income Municipal of substantially all of its assets to MuniAssets in exchange solely for shares of MuniAssets Common Stock as provided in this Agreement will constitute a reorganization within the meaning of Section 368(a)(1)(C) of the Code, and MuniAssets and High Income Municipal will each be deemed to be 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 High Income Municipal as a result of the asset transfer solely in exchange for shares of MuniAssets Common Stock or on the distribution of MuniAssets Common Stock to High Income Municipal stockholders under Section 361(c)(1) of the Code; (iii) under Section 1032 of the Code, no gain or loss will be recognized to MuniAssets on the receipt of assets of High Income Municipal in exchange for MuniAssets shares; (iv) in accordance with Section 354(a)(1) of the Code, no gain or loss will be recognized to the stockholders of High Income Municipal on the receipt of shares of MuniAssets Common Stock in exchange for their shares of High Income Municipal Common Stock (except to the extent that High Income Municipal common stockholders receive cash representing an interest in fractional shares of MuniAssets Common Stock in the Reorganization); (v) in accordance with Section 362(b) of the Code, the tax basis of the High Income Municipal assets in the hands of MuniAssets will be the same as the tax basis of such assets in the hands of High Income Municipal 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 MuniAssets Common Stock received by the stockholders of High Income Municipal in the Reorganization will be equal to the tax basis of the shares of High Income Municipal surrendered in exchange; (vii) in accordance with Section 1223 of the Code, a stockholder’s holding period for the shares of MuniAssets will be determined by including the period for which such stockholder held the shares of High Income Municipal Common Stock exchanged therefor, provided, that such shares of High Income Municipal were held as a capital asset; (viii) in accordance with Section 1223 of the Code, MuniAssets’ holding period with respect to the High Income Municipal assets transferred will include the period for which such assets were held by High Income Municipal; (ix) the payment of cash to common stockholders of High Income Municipal will be treated as though the fractional shares of MuniAssets Common Stock were distributed as part of the Reorganization and then redeemed by MuniAssets, 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 MuniAssets fractional shares: and (x) the taxable year of High Income Municipal will end on the effective date of the Reorganization, and pursuant to Section 381(a) of the Code and regulations thereunder, MuniAssets will succeed to and take into account, subject to limitation, certain tax attributes of High Income Municipal, such as earnings and profits, capital loss carryovers and method of accounting.

     (h) That all proceedings taken by MuniAssets and its counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to High Income Municipal.

 

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     (i) 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 MuniAssets, be contemplated by the Commission.

     (j) That High Income Municipal 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 them, to the effect that (i) they are independent public accountants with respect to MuniAssets 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 MuniAssets 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 High Income Municipal 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 MuniAssets included in the N-14 Registration Statement, and inquiries of certain officials of MuniAssets 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, 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 High Income Municipal and described in such letter (but not an examination in accordance with generally accepted auditing standards), the information relating to MuniAssets 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 MuniAssets or from schedules prepared by officials of MuniAssets having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom.

     (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 MuniAssets or would prohibit the Reorganization.

     (l) That High Income Municipal shall have received from the Commission such orders or interpretations as Sidley Austin Brown & Wood LLP, as counsel to High Income Municipal, 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 MuniAssets.

The obligations of MuniAssets 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 and the stockholders of each of the Funds as set forth in Section 8(a); and that High Income Municipal shall have delivered to MuniAssets a copy of the resolution approving this Agreement adopted by High Income Municipal’s Board of Directors, and a certificate setting forth the vote of High Income Municipal’s stockholders obtained at the meeting of its stockholders, certified by the Secretary of High Income Municipal.

     (b) That High Income Municipal shall have furnished to MuniAssets 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

 

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position of High Income Municipal since the date of such Fund’s most recent Annual Report or Semi-Annual Report, as applicable, other than changes in the High Income Municipal Investments since that date or changes in the market value of the High Income Municipal Investments.

     (c) That High Income Municipal shall have furnished to MuniAssets 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 High Income Municipal 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 High Income Municipal 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.

     (d) That High Income Municipal shall have delivered to MuniAssets 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 High Income Municipal for the period ended May 31, 2001 (which returns originally were prepared and filed by High Income Municipal), 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 High Income Municipal for the period covered thereby; and that for the period from June 1, 2001 to and including the Closing Date and for any taxable year of High Income Municipal ending upon the liquidation of High Income Municipal, 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 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 June 1, 2001 to and including the Closing Date and for any taxable year of High Income Municipal 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.

     (f) That MuniAssets shall have received an opinion of Sidley Austin Brown & Wood LLP, as counsel to High Income Municipal, in form satisfactory to MuniAssets and dated the Closing Date, to the effect that (i) High Income Municipal is a corporation duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland; (ii) this Agreement has been duly authorized, executed and delivered by High Income Municipal, 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; (iii) the execution and delivery of this Agreement by High Income Municipal 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 High Income Municipal is a party or by which High Income Municipal is bound, except insofar as the parties have agreed to amend such provision as a condition precedent to the Reorganization; (iv) High Income Municipal 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, High Income Municipal will have duly transferred such assets and liabilities in accordance with this Agreement; (v) 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 High Income Municipal 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 such as may be required under state securities laws; (vi) 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

 

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requirements of the 1933 Act, the 1934 Act and the 1940 Act and the published rules and regulations of the Commission thereunder; (vii) 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; (viii) the information in the Joint 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 Joint Proxy Statement and Prospectus; (ix) 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; (x) High Income Municipal, to the knowledge of such counsel, is not 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 High Income Municipal has so qualified or the failure so to qualify would not have a material adverse effect on High Income Municipal or its stockholders; (xi) such counsel does not have actual knowledge of any material suit, action or legal or administrative proceeding pending or threatened against High Income Municipal, the unfavorable outcome of which would materially and adversely affect High Income Municipal; (xii) all corporate actions required to be taken by High Income Municipal to authorize this Agreement and to effect the Reorganization have been duly authorized on the part of High Income Municipal; and (xiii) such opinion is solely for the benefit of MuniAssets and its 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 relating to High Income Municipal required to be stated therein or necessary to make the statements therein not misleading; and (2) the proxy statement and prospectus included in the N-14 Registration Statement contained any untrue statement of a material fact or omitted to state any material fact relating to High Income Municipal necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (B) such counsel does not express any opinion or belief as to the financial statements or other financial or statistical data 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 High Income Municipal with regard to matters of fact and certain certificates and written statements of governmental officials with respect to the organization and good standing of High Income Municipal.

     (g) That MuniAssets shall have received an opinion of Sidley Austin Brown & Wood LLP with respect to the matters specified in Section 8(g) of this Agreement.

     (h) That MuniAssets 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 MuniAssets, to the effect that (i) they are independent public accountants with respect to High Income Municipal 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 High Income Municipal 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 MuniAssets 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 High Income Municipal included in the N-14 Registration Statement, and inquiries of certain officials of High Income Municipal 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;

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and (iv) on the basis of limited procedures agreed upon by MuniAssets and described in such letter (but not an examination in accordance with generally accepted auditing standards), the information relating to High Income Municipal 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 High Income Municipal or from schedules prepared by officials of High Income Municipal having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom.

     (i) That the High Income Municipal Investments to be transferred to MuniAssets shall not include any assets or liabilities which MuniAssets, 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 High Income Municipal, 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 High Income Municipal or would prohibit the Reorganization.

     (l) That MuniAssets shall have received from the Commission such orders or interpretations as Clifford Chance Rogers & Wells LLP, as counsel to MuniAssets, 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.

     (m) That all proceedings taken by High Income Municipal and its counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to MuniAssets.

     (n) That prior to the Closing Date, High Income Municipal 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 gains, if any, realized to and including the Closing Date.

     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 High Income Municipal if any condition of High Income Municipal’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 MuniAssets if any condition of MuniAssets’ 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 Board of Directors of MuniAssets has delegated to

 

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FAM and the Board of Directors of High Income Municipal has delegated to Merrill Lynch Investment Managers, L.P. (“MLIM”), the ability to make non-material changes to the transaction if MLIM or FAM, as the case may be, deems it to be in the best interests of the Funds to do so. FAM and the Board of Directors of High Income Municipal has delegated to Merrill Lynch Investment Managers, L.P. (“MLIM”), the ability to make non-material changes to the transaction if MLIM or FAM, as the case may be, 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 the Funds unless such terms and conditions shall result in a change in the method of computing the number of shares of MuniAssets Common Stock to be issued to High Income Municipal, as applicable, in which event, unless such terms and conditions shall have been included in the proxy solicitation materials furnished to the stockholders of the Funds prior to the meetings at which the Reorganization shall have been approved, this Agreement shall not be consummated and shall terminate unless the Funds promptly shall call a meeting of stockholders at which such conditions so imposed shall be submitted for approval.

     11. Indemnification.

     (a) High Income Municipal hereby agrees to indemnify and hold MuniAssets harmless from all loss, liability and expenses (including reasonable counsel fees and expenses in connection with the contest of any claim), as incurred, which MuniAssets may incur or sustain by reason of the fact that (i) MuniAssets shall be required to pay any corporate obligation of High Income Municipal, whether consisting of tax deficiencies or otherwise, based upon a claim or claims against High Income Municipal which were omitted or not fairly reflected in the financial statements to be delivered to MuniAssets in connection with the Reorganization; (ii) any representations or warranties made by High Income Municipal in this Agreement should prove to be false or erroneous in any material respect; (iii) any covenant of High Income Municipal 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 Joint Proxy Statement and Prospectus delivered to the stockholders of the Funds 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 High Income Municipal by MuniAssets.

     (b) MuniAssets hereby agrees to indemnify and hold High Income Municipal harmless from all loss, liability and expenses (including reasonable counsel fees and expenses in connection with the contest of any claim), as incurred, which High Income Municipal may incur or sustain by reason of the fact that (i) any representations or warranties made by MuniAssets in this Agreement should prove false or erroneous in any material respect, (ii) any covenant of MuniAssets 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 Joint Proxy Statement and Prospectus delivered to stockholders of the Funds 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 MuniAssets by High Income Municipal.

     (c) In the event that any claim is made against MuniAssets in respect of which indemnity may be sought by MuniAssets from High Income Municipal under Section 11(a) of this Agreement, or in the event that any claim is made against High Income Municipal in respect of which indemnity may be sought by

 

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High Income Municipal from MuniAssets 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 MuniAssets and High Income Municipal 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), MuniAssets will cause to be affixed upon the certificate(s) issued to such person (if any) a legend as follows:

THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO MUNIASSETS 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 MuniAssets’ transfer agent with respect to such shares. High Income Municipal will provide MuniAssets on the Closing Date with the name of any stockholder of High Income Municipal who is to the knowledge of High Income Municipal an affiliate of High Income Municipal 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.

 

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     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.

	MUNIASSETS FUND, INC.
BY:		/s/ DONALD C. BURKE
		Donald C. Burke Vice President

ATTEST:

/s/ BRADLEY J. LUCIDO

Bradley J. Lucido
Secretary

	MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
BY:		/s/ DONALD C. BURKE
		Donald C. Burke Vice President

ATTEST:

/s/ ALICE A. PELLEGRINO

Alice A. Pellegrino
Secretary

 

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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 edged.” Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes 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 some time in the future.
Baa	Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba	Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B	Bonds which are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa	Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

Ca	Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C	Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

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

Short-term
Notes:	In municipal debt issuance, there are three rating categories for short-term obligations that are considered investment grade. These ratings are designated as Moody’s Investment Grade (MIG) and are divided into three levels — MIG 1 through MIG 3.
	MIG 1/VMIG 1 This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.

 

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MIG 2/VMIG 2

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

MIG 3/VMIG 3

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

SG

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

Description of Moody’s Commercial Paper Ratings (Prime Rating System)

      Moody’s short-term issuer ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. Such obligations generally have an original maturity not exceeding one year. Moody’s employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:

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

      Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt 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, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.

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

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

      If an issuer represents to Moody’s that its short-term debt obligations are supported by the credit of another entity or entities, then the name or names of such supporting entity or entities are listed within the parenthesis beneath the name of the issuer, or there is a footnote referring the reader to another page for the name or names of the supporting entity or entities. In assigning ratings to such issuers, Moody’s evaluates the financial strength of the affiliated corporations, commercial banks, insurance companies, foreign governments or other entities, but only as one factor in the total rating assessment. Moody’s makes no representation and gives no opinion on the legal validity or enforceability of any support arrangements.

      Moody’s ratings are opinions, not recommendations to buy or sell, and their accuracy is not guaranteed. A rating should be weighed solely as one factor in an investment decision and you should make your own study and evaluation of any issuer whose securities or debt obligations you consider buying or selling.

Description of Standard & Poor’s, A Division of The McGraw-Hill Companies, Inc. (“Standard & Poor’s”), Municipal Issue Ratings

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

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

 

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      Issue Credit ratings are based on current information furnished by the obligors or obtained by Standard & Poor’s from other sources Standard & Poor’s considers reliable. Standard & Poor’s does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. Credit ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or based on 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 the financial commitment on an obligation in accordance with the terms of the obligation; II. Nature of and provisions of the obligation; III. Protection afforded to, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.

AAA	An obligation rated “AAA” has the highest rating assigned by Standard & Poor’s. The obligor’s Capacity to meet its financial commitment on the obligation is extremely strong.
AA	An obligation rated “AA” differs from the highest-rated obligations only in small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
A	An obligation rated “A” is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
BBB	An obligation rated “BBB” exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

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

BB	An obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B	An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB,’ but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.

CCC	An obligation rated ‘CCC’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC	An obligation rated ‘CC’ is currently highly vulnerable to nonpayment.
C	The ‘C’ rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued.
D	An obligation rated “D” is in payment default. The “D” rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor’s believes that such payments will be made during such grace period. The “D” rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized.

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

Description of Standard & Poor’s Short-Term Issuer Credit

      Issue credit ratings can be either long term or short term. Short-term ratings are generally assigned to those obligations considered short term in the relevant market. In the U.S., for example, that means obligations with an

 

III-3

original maturity of no more than 365 days—including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term ratings address the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings.

      Local Currency and Foreign Currency Risks: Country risk considerations are a standard part of Standard & Poor’s analysis for credit ratings on any issuer or issue. Currency of repayment is a key factor in this analysis. An obligor’s capacity to repay foreign currency obligations may be lower than its capacity to repay obligations in its local currency due to the sovereign government’s own relatively lower capacity to repay external versus domestic debt. These sovereign risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign currency issuer ratings are also distinguished from local currency issuer ratings to identify those instances where sovereign risks make them different for the same issuer.

A-1	An obligor rated ‘A-1‘ has STRONG capacity to meet its financial commitments. It is rated in the highest category by Standard & Poor’s. Within this category, certain obligors are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitments is EXTREMELY STRONG.
A-2	An obligor rated ‘A-2‘ has SATISFACTORY capacity to meet its financial commitments. However, it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in the highest rating category.

A-3	An obligor rated ‘A-3‘ has ADEQUATE capacity to meet its financial obligations. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.
B	An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.
C	A subordinated debt or preferred stock obligation rated ‘C’ is CURRENTLY HIGHLY VULNERABLE to nonpayment. The ‘C’ rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A ‘C’ also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying.
SD and D	An obligor rated ‘SD’ (Selective Default) or ‘D’ has failed to pay one or more of its financial obligations (rated or unrated) when it came due. A ‘D’ rating is assigned when Standard & Poor’s believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when Standard & Poor’s believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. Please see Standard & Poor’s issue credit ratings for a more detailed description of the effects of a default on specific issues or classes of obligations.
R	An obligor rated ‘R’ is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision the regulators may have the power to favor one class of obligations over others or pay some obligations and not others. Please see Standard & Poor’s issue credit ratings for a more detailed description of the effects of regulatory supervision on specific issues or classes of obligations.
<R>
N.R.	An issue designated N.R. is not rated. </R>

Description of Fitch, Inc.’s (“Fitch”) Investment Grade Bond Ratings

      When assigning ratings, Fitch considers the historical and prospective financial condition, quality of management, and operating performance of the issuer and of any guarantor, any special features of a specific issue or guarantee, the issue’s relationship to other obligations of the issuer, as well as developments in the economic and political environment that might affect the issuer’s financial strength and credit quality. In the case of a structured financing, the quality of its underlying assets and the integrity of its legal structure are considered. In the case of banks, for which sector there is a history of rescue by sovereign “lenders of last resort” or by major shareholders, the potential strength of any such support is also taken into account in the ratings.

 

III-4

 

      Investment-grade ratings reflect expectations of timeliness of payment. However, ratings of different classes of obligations of the same issuer may vary based on expectations of recoveries in the event of a default or liquidation. Recovery expectations, which are the amounts expected to be received by investors after a security defaults, are a relatively minor consideration in investment grade ratings, but we do use “notching” of particular issues to reflect their degree of preference in a winding up, liquidation, or reorganization, as well as other factors. Recoveries do, however, gain in importance at lower rating levels, because of the greater likelihood of default, and become the major consideration at the ‘DDD’ category. Factors that affect recovery expectations include collateral and seniority relative to other obligations in the capital structure.

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

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

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

AAA	Highest credit quality. ‘AAA’ ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA	Very high credit quality. ‘AA’ ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A	High credit quality. ‘A’ ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.
BBB	Good credit quality. ‘BBB’ ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.

      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.

      ‘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.

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

      <R>Rating Outlook: A Rating Outlook indicates the direction a rating is likely to move over a one to two-year period. Outlooks may be positive, stable or negative. A positive or negative Rating Outlook does not imply a rating change is inevitable. Similarly, companies whose outlooks are ‘stable’ could be upgraded or downgraded before an outlook moves to positive or negative if circumstances warrant such an action. Occasionally, Fitch may be unable to identify the fundamental trend. In these cases, the Rating Outlook may be described as evolving. </R>

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

 

III-5

defaulted bonds, the rating (“DDD” to “D”) is an assessment of the ultimate recovery value through reorganization or liquidation.

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

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

BB	Speculative. ‘BB’ ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.
B	Highly speculative. ‘B’ ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favourable business and economic environment.

CCC, CC, and C	High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favourable business or economic developments. A ‘CC’ rating indicates that default of some kind appears probable. ‘C’ ratings signal imminent default.
DDD, DD, and D	Default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. ‘DDD’ obligations have the highest potential for recovery, around 90% - 100% of outstanding amounts and accrued interest. ‘DD’ indicates potential recoveries in the range of 50% - 90% and ‘D’ the lowest recovery potential, i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations. Entities rated ‘DDD’ have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated ‘DD’ and ‘D’ are generally undergoing a formal reorganization or liquidation process; those rated ‘DD’ are likely to satisfy a higher portion of their outstanding obligations, while entities rated ‘D’ have a poor prospect of repaying all obligations.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the “DDD,” “DD,” or “D” categories.

Description of Fitch’s Short-Term Ratings

      Fitch’s short-term ratings apply to debt obligations that are payable on demand or have original maturities of up to three years, including commercial paper, certificates of deposit, medium-term notes, and 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	Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature.
F-2	Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings.
F-3	Fair credit quality. The capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade.
B	Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions.
C	High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favourable business and economic environment.

 

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D Default. Denotes actual or imminent payment default.

      Notes to Long-term and Short-term ratings:   

      “+” or “-” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the ‘AAA’ Long-term rating category, to categories below ‘CCC’, or to Short-term ratings other than ‘F1’.   

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

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

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

 

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APPENDIX IV

CHARTER OF THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS OF MUNIASSETS FUND, INC.

     Although MuniAssets Fund, Inc.’s audit committee also serves as a nominating committee, the following charter pertains only to its audit and nominating committee’s duties as an audit committee. The Board of Directors of the Fund has adopted the following audit committee charter:

I. Composition of the Audit Committee

     The Audit Committee shall be composed of at least three Directors:

     (a) each of whom shall not be an “interested person” of the Fund, as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended;

     (b) each of whom shall not have any relationship to the Fund that may interfere with the exercise of their independence from Fund management and the Fund;

     (c) each of whom shall otherwise satisfy the applicable independence requirements for any stock exchange or market quotation system on which Fund shares are listed or quoted;

     (d) each of whom shall be financially literate, as such qualification is interpreted by the Board of Directors in its business judgment, or shall become financially literate within a reasonable period of time after his or her appointment to the Audit Committee; and

     (e) at least one of whom shall have accounting or related financial management expertise as the Board of Directors interprets such qualification in its business judgment.

II. Purposes of the Audit Committee

     The purposes of the Audit Committee are to assist the Board of Directors:

     (a) in its oversight of the Fund’s accounting and financial reporting policies and practices, the Fund’s internal audit controls and procedures and, as appropriate, the internal audit controls and procedures of certain of the Fund’s service providers;

     (b) in its oversight of the Fund’s financial statements and the independent audit thereof; and

     (c) in acting as a liaison between the Fund’s independent accountants and the Board of Directors.

     The function of the Audit Committee is oversight. Fund management is responsible for maintaining appropriate systems for accounting. The independent accountants of the Fund are responsible for conducting a proper audit of the Fund’s financial statements.

III. Responsibilities and Duties of the Audit Committee

     The policies and procedures of the Audit Committee shall remain flexible to facilitate its ability to react to changing conditions and to generally discharge its functions. The following listed responsibilities describe areas of attention in broad terms.

     To carry out its purposes, the Audit Committee shall have the following responsibilities and duties:

     (a) to recommend the selection, retention or termination of the Fund’s independent accountants based on an evaluation of their independence and the nature and performance of audit services and other services;

     (b) to ensure that the independent accountants for the Fund submit on a periodic basis to the Audit Committee a formal written statement delineating all relationships between such independent accountants and the Fund, consistent with Independence Standards Board Standard No. 1, and actively engage in a dialogue with the independent accountants for the Fund with respect to any disclosed relationships or services that may impact the objectivity and independence of such independent accountants and, if deemed appropriate by the Audit Committee, to recommend that the Board of Directors take appropriate action in response to the report of such independent accountants to satisfy itself of the independence of such independent accountants;

 

IV-I

     (c) to receive specific representations from the independent accountants with respect to their independence and to consider whether the provision of any disclosed non-audit services by the independent accountants is compatible with maintaining the independence of those accountants;

     (d) to review the fees charged by independent accountants for audit and other services;

     (e) to review with the independent accountants arrangements for annual audits and special audits and the scope thereof;

     (f) to discuss with the independent accountants those matters required by SAS No. 61 and SAS No. 90 relating to the Fund’s financial statements, including, without limitation, any adjustment to such financial statements recommended by such independent accountants, or any other results of any audit;

     (g) to consider with the independent accountants their comments with respect to the quality and adequacy of the Fund’s accounting and financial reporting policies, practices and internal controls and management’s responses thereto, including, without limitation, the effect on the Fund of any recommendation of changes in accounting principles or practices by management or the independent accountants;

     (h) to report to the Board of Directors regularly with respect to the Audit Committee’s activities and to make any recommendations it believes necessary or appropriate with respect to the Fund’s accounting and financial reporting policies, practices and the Fund’s internal controls;

     (i) to review and reassess the adequacy of this Charter on an annual basis and recommend any changes to the Board of Directors;

     (j) to review legal and regulatory matters presented by counsel and the independent accountants for the Fund that may have a material impact on the Fund’s financial statements;

     (k) to cause to be prepared and to review and submit any report, including any recommendation of the Audit Committee, required to be included in the Fund’s annual proxy statement by the rules of the Securities and Exchange Commission;

     (l) to assist the Fund, if necessary, in preparing any written affirmation or written certification required to be filed with any stock exchange on which Fund shares are listed; and

     (m) to perform such other functions consistent with this Charter, the Fund’s By-laws and governing law, as the Audit Committee or the Board of Directors deems necessary or appropriate.

     In fulfilling their responsibilities hereunder, it is recognized that members of the Audit Committee are not full-time employees of the Fund and are not, and do not represent themselves to be, accountants or auditors by profession or experts in the field of accounting or auditing. As such, it is not the duty or responsibility of the Audit. Committee or its members to conduct “field work” or other types of auditing or accounting reviews or procedures, and each member of the Audit Committee shall be entitled to rely on (i) the integrity of those persons and organizations inside and outside the Fund from which the Audit Committee receives information and (ii) the accuracy of the financial and other information provided to the Audit Committee by such persons or organizations absent actual knowledge to the contrary (which actual knowledge shall be promptly reported to the Board of Directors).

     The independent accountants for the Fund are ultimately accountable to the Board of Directors and the Audit Committee. The Board of Directors and the Audit Committee have the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent accountants for the Fund (or to nominate the independent accountants to be proposed for shareholder approval in the proxy statement).

IV. Meetings

     The Audit Committee shall meet at least once annually with the independent accountants (outside the presence of Fund management) and at least once annually with the representatives of Fund management responsible for the financial and accounting operations of the Fund. The Audit Committee shall hold special meetings at such times as the Audit Committee believes appropriate. Members of the Audit Committee may participate in a meeting of the Audit Committee by means of conference call or similar communications equipment by means of which all persons participating in such meeting can hear each other.

 

IV-2

 

V. Outside Resources and Assistance from Fund Management

     The appropriate officers of the Fund shall provide or arrange to provide such information, data and services as the Audit Committee may request. The Audit Committee shall have the power and authority to take all action it believes necessary or appropriate to discharge its responsibilities, including the authority to retain at the expense of the Fund their own counsel and other experts and consultants whose expertise would be considered helpful to the Audit Committee.

Dated June 6, 2000
Revised April 11, 2001

 

IV-3

<R>

PART C
OTHER INFORMATION

</R>

Item 15. Indemnification.

     Section 2-418 of the General Corporation Law of the State of Maryland, Article VI of the Registrant’s Articles of Incorporation, which was previously filed as an exhibit to the Common Stock Registration Statement (as defined below), Article VI of the Registrant’s By-Laws, which was previously filed as an exhibit to the Common Stock Registration Statement, and the Investment Advisory Agreement, a form of which was previously filed as an exhibit to the Common Stock Registration Statement, 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 Section 6 of the Purchase Agreement relating to the Registrant’s Common Stock, a form of which was filed as an exhibit to the Common Stock Registration Statement.

Item 16. Exhibits.

<R>

1	(a)	—	Articles of Incorporation of the Registrant, dated April 14, 1993.(a)
	(b)	—	Articles of Amendment to Articles of Incorporation.(a)
2		—	Amended and Restated By-Laws of the Registrant.(d)
3		—	Not Applicable.
4		—	Form of Agreement and Plan of Reorganization between the Registrant and Merrill Lynch High Income Municipal Bond Fund, Inc. (included in Appendix II to the Joint 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.(a)
6		—	Form of Investment Advisory Agreement between Registrant and Fund Asset Management, L.P.(a)
7	(a)	—	Form of Purchase Agreement.(a)
	(b)	—	Form of Merrill Lynch Standard Dealer Agreement.(a)
8		—	Not applicable.
9		—	Form of Custodian Agreement between the Fund and The Bank of New York.(a)
10		—	Not applicable.
11		—	Opinion of Clifford Chance Rogers & Wells LLP, counsel for the Registrant.
12		—	Opinion of Sidley Austin Brown & Wood LLP, relating to certain tax matters.*
13		—	Form of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between the Registrant and The Bank of New York.(a)
14	(a)	—	Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
	(b)	—	Consent of Deloitte & Touche LLP, independent auditors for Merrill Lynch High Income Municipal Bond Fund, Inc.
15		—	Not applicable.
16		—	Power of Attorney.(e)
17		—	Code of Ethics.(c)

* To be filed by post-effective amendment.

(a) Refiled as an Exhibit to this Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form N-14 (File No. 333-65446) (the “N-14 Registration Statement”) pursuant to Electronic Data Gathering, Analysis and Retrieval (EDGAR) requirements.</R>

 

C-1

(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, previously filed as Exhibit (1) to the Registration Statement, and to Article II, Article III (sections 1, 2, 3, 5 and 17), Article VI, Article VII, Article XII, Article XIII and Article XIV of the Registrant’s By-Laws previously filed as Exhibit (2) to the Registration Statement.

(c) Incorporated by reference to Exhibit 15 to Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A of Merrill Lynch Middle East/Africa Fund, Inc. (File No. 33-55843), filed on March 29, 2000.<R>

(d) Filed on July 19, 2001 as an Exhibit to the N-14 Registration Statement.

(e) Included on the signature page of the N-14 Registration Statement 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, a copy of an opinion of counsel as to certain tax matters within a reasonable time after receipt of such opinion.

 

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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 10th day of September, 2001.</R>

MUNIASSETS FUND, INC.  (Registrant)
By:	/s/ DONALD C. BURKE (Donald C. Burke, Vice President and Treasurer)

     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.

<R>

Signature	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)
JOE GRILLS* (Joe Grills)	Director
WALTER MINTZ* (Walter Mintz)	Director
ROBERT S. SALOMON, JR.* (Robert S. Salomon, Jr.)	Director
MELVIN R. SEIDEN* (Melvin R. Seiden)	Director
STEPHEN B. SWENSRUD* (Stephen B. Swensrud)	Director
*By     /s/ DONALD C. BURKE (Donald C. Burke, Attorney-in-Fact))		September 10, 2001

</R>

 

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INDEX TO EXHIBITS

Exhibit
Number Description

<R>

1	(a)	—	Articles of Incorporation of the Registrant, dated April 14, 1993.
	(b)	—	Articles of Amendment to Articles of Incorporation.
5	(b)	—	Form of specimen certificate for the Common Stock of the Registrant.
6		—	Form of Investment Advisory Agreement between the Registrant and Fund Asset Management, L.P.
7	(a)	—	Form of Purchase Agreement.
	(b)	—	Form of Merrill Lynch Standard Dealer Agreement.
9		—	Form of Custodian Agreement between the Registrant and The Bank of New York.
11		—	Opinion of Clifford Chance Rogers & Wells LLP, counsel for the Registrant.
13		—	Form of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between the Registrant and The Bank of New York. </R>
14	(a)	—	Consent of Deloitte & Touche LLP, independent auditors for the registrant.
14	(b)	—	Consent of Deloitte & Touche LLP, independent auditors for Merrill Lynch High Income Municipal Bond Fund, Inc.

[Proxy Card Front]

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

PROXY

This proxy is solicited on behalf of the Board of Directors

     The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice A. Pellegrino as proxies, each with the power to appoint his or her substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the shares of Common Stock of Merrill Lynch High Income Municipal Bond Fund, Inc. (the “Fund”) held of record by the undersigned on August 27, 2001 at the Special Meeting of Stockholders of the Fund to be held on October 24, 2001, or any adjournment thereof.

     This proxy when properly executed will be voted in the manner herein directed by the undersigned stockholder. If no direction is made, this proxy will be voted “FOR” approval of the Agreement and Plan of Reorganization.

     By signing and dating the reverse side of this card, you authorize the proxies to vote the proposal as marked, or if not marked, to vote “FOR” the proposal, and to use their discretion to vote for any other matter as may properly come before the meeting or any adjournment thereof. If you do not intend to personally attend the meeting, please complete and return this card at once in the enclosed envelope.

    You may also vote your shares by touch-tone phone by calling 1-800-690-6903 or through the Internet at www.proxyvote.com.

(Continued and to be signed on the reverse side)

[Proxy Card Reverse]

     Please mark boxes /   / or /X/ in blue or black ink.

1. To consider and act upon a proposal to approve the Agreement and Plan of Reorganization between the Fund and MuniAssets Fund, Inc.

FOR   /   / AGAINST   /   / ABSTAIN   /   /

2. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof.

. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons.
Dated: _____________________________

X _________________________________
                                    Signature

X _________________________________
                       Signature, if held jointly

Sign, date, and Return the Proxy Card Promptly Using the Enclosed Envelope.

[Proxy Card Front]

MUNIASSETS FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011

PROXY

This proxy is solicited on behalf of the Board of Directors

     The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Bradley J. Lucido as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the shares of Common Stock of MuniAssets Fund, Inc. (the “Fund”) held of record by the undersigned on August 27, 2001 at the Annual Meeting of Stockholders of the Fund to be held on October 24, 2001, or any adjournment thereof.

     This proxy when properly executed will be voted in the manner herein directed by the undersigned stockholder. If no direction is made, this proxy will be voted “FOR” Items 1 and 2.

     By signing and dating the reverse side of this card, you authorize the proxies to vote each proposal as marked, or if not marked, to vote “FOR” each proposal, and to use their discretion to vote for any other matter as may properly come before the meeting or any adjournment thereof. If you do not intend to personally attend the meeting, please complete and return this card at once in the enclosed envelope.

    You may also vote your shares by touch-tone phone by calling 1-800-690-6903 or through the Internet at www.proxyvote.com.

(Continued and to be signed on the reverse side)

[Proxy Card Reverse]

Please mark boxes /   / or /X/ in blue or black ink.

1. To consider and act upon a proposal to approve the Agreement and Plan of Reorganization between the Fund and Merrill Lynch High Income Municipal Bond Fund, Inc.

FOR   /   / AGAINST   /   / ABSTAIN   /   /

2. To elect two Class I Directors for
a term of three years FOR all nominees listed below (except as marked to the contrary below)      /   / WITHHOLD AUTHORITY to vote for all nominees listed below    /   /

(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee’s name in the list below.)

Class I Nominees: Joe Grills, Robert S. Salomon, Jr.

3. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof.

. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons.
Dated: _____________________________

X _________________________________
                                    Signature

X _________________________________
                       Signature, if held jointly

Sign, Date, and Return the Proxy Card Promptly Using the Enclosed Envelope.

  EX-1.A 3 file002.txt ARTICLES OF INCORPORATION Exhibit 1(a) ARTICLES OF INCORPORATION OF MUNIINCOME FUND, INC. ARTICLE I THE UNDERSIGNED, Jon R. Lewis, whose post-office address is c/o Rogers & Wells, 200 Park Avenue, New York, New York 10166, being at least eighteen (18) years of age, does hereby act as an incorporator, under and by virtue of the General Laws of the State of Maryland authorizing the formation of corporations and with the intention of forming a corporation. ARTICLE II NAME The name of the corporation is MUNIINCOME FUND, INC. (the "Corporation"). ARTICLE III PURPOSES AND POWERS The purpose or purposes for which the Corporation is formed is to act as a closed-end, management investment company under the Investment Company Act of 1940, as amended, and to exercise and enjoy all of the powers, rights and privileges granted to, or conferred upon, corporations by the General Laws of the State of Maryland now or hereafter in force. ARTICLE IV PRINCIPAL OFFICE AND RESIDENT AGENT The post-office address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the resident agent of the Corporation in this State is The Corporation Trust Incorporated, a corporation of this State, and the post-office address of the resident agent is The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. ARTICLE V CAPITAL STOCK (1) The total number of shares of capital stock which the Corporation shall have authority to issue is Two Hundred Million (200,000,000) shares, all of one class called Common Stock, of the par value of Ten Cents ($0.10) per share and of the aggregate par value of Twenty Million Dollars ($20,000,000). (2) The Board of Directors may classify and reclassify any unissued shares of capital stock into one or more additional or other classes or series as may be established from time to time by setting or changing in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock and pursuant to such classification or reclassification to increase or decrease the number of authorized shares of any existing class or series. 2 (3) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, the holders of each class or series of capital stock shall be entitled to dividends and distributions in such amounts and at such times as may be determined by the Board of Directors, and the dividends and distributions paid with respect to the various classes or series of capital stock may vary among such classes and series. (4) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, on each matter submitted to a vote of stockholders, each holder of a share of capital stock of the Corporation shall be entitled to one vote for each share standing in such holder's name on the books of the Corporation, irrespective of the class or series thereof, and all shares of all classes and series shall vote together as a single class; provided, however, that as to any matter with respect to which a separate vote of any class or series is required by the Investment Company Act of 1940, as amended, and in effect from time to time, or any rules, regulations or orders issued thereunder, or by the Maryland General Corporation Law, such requirement as to a separate vote by that class or series shall apply in lieu of a general vote of all classes and series as described above. (5) Notwithstanding any provision of the Maryland General Corporation Law requiring a greater proportion than a majority of the votes of all classes or series of capital stock of the Corporation (or of any class or series entitled to vote thereon as 3 a separate class or series) to take or authorize any action, the Corporation is hereby authorized (subject to the requirements of the Investment Company Act of 1940, as amended, and in effect from time to time, and any rules, regulations and orders issued thereunder) to take such action upon the concurrence of a majority of the aggregate number of shares of capital stock of the Corporation entitled to vote thereon (or a majority of the aggregate number of shares of a class or series entitled to vote thereon as a separate class or series). (6) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of all classes and series of capital stock of the Corporation shall be entitled, after payment or provision for payment of the debts and other liabilities of the Corporation, to share ratably in the remaining net assets of the Corporation. (7) Any fractional shares shall carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but including, without limitation, the right to vote and the right to receive dividends. (8) All persons who shall acquire stock in the Corporation shall acquire the same subject to the provisions of the charter and By-Laws of the Corporation. As used in the charter of the Corporation, the terms "charter" and "Articles of Incorporation" shall mean and include the Articles of Incorporation of the 4 Corporation as amended, supplemented and restated from time to time by Articles of Amendment, Articles Supplementary, Articles of Restatement or otherwise. ARTICLE VI PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN POWERS OF THE CORPORATION AND OF THE DIRECTORS AND STOCKHOLDERS (1) The number of directors of the Corporation shall be three (3), which number may be changed pursuant to the By-Laws of the Corporation but shall never be less than three (3). The names of the directors who shall act until the first annual meeting or until their successors are duly elected and qualify are: Robert Harris Philip L. Kirstein Mark B. Goldfus (2) The Board of Directors of the Corporation is hereby empowered to authorize the issuance from time to time of shares of capital stock, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, subject to such limitations as may be set forth in these Articles of Incorporation or in the By-Laws of the Corporation or in the General Laws of the State of Maryland. (3) Each director and each officer of the Corporation shall be indemnified by the Corporation to the full extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to 5 directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal. (4) To the fullest extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended, no director or officer of the Corporation shall be personally liable to the Corporation or its security holders for money damages. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal. (5) The Board of Directors of the Corporation may make, alter or repeal from time to time any of the By-Laws of the Corporation except any particular By-Law which is specified as not subject to alteration or repeal by the Board of Directors, subject to the requirements of the Investment Company Act of 1940, as amended. (6) A director elected by the holders of capital stock may be removed (with or without cause), but only by action taken by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the shares of capital stock then entitled to vote in an election to fill that directorship. ARTICLE VII DENIAL OF PREEMPTIVE RIGHTS No shareholder of the Corporation shall by reason of his holding shares of capital stock have any preemptive or preferential right to purchase or subscribe to any shares of capital stock of the Corporation, now or hereafter to be authorized, or any notes, 6 debentures, bonds or other securities convertible into shares of capital stock, now or hereafter to be authorized, whether or not the issuance of any such shares, or notes, debentures, bonds or other securities would adversely affect the dividend or voting rights of such shareholder; and the Board of Directors may issue shares of any class of the Corporation, or any notes, debentures, bonds, other securities convertible into shares of any class, either whole or in part, to the existing shareholders. ARTICLE VIII DETERMINATION BINDING Any determination made in good faith, so far as accounting matters are involved, in accordance with accepted accounting practice by or pursuant to the direction of the Board of Directors, as to the amount of assets, obligations or liabilities of the Corporation, as to the amount of net income of the Corporation from dividends and interest for any period or amounts at any time legally available for the payment of dividends, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating reserves or as to the use, alteration or cancellation of any reserves or charges (whether or not any obligation or liability for which such reserves or charges shall have been created, shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the price of any security owned by the Corporation or as to any other matters relating to the issuance, sale, redemption or other acquisition or disposition of securities or shares of capital stock of the Corporation, and any reasonable determination made in good 7 faith by the Board of Directors as to whether any transaction constitutes a purchase of securities on "margin," a sale of securities "short," or an underwriting of the sale of, or a participation in any underwriting or selling group in connection with the public distribution of, any securities, shall be final and conclusive, and shall be binding upon the Corporation and all holders of its capital stock, past, present and future, and shares of the capital stock of the Corporation are issued and sold on the condition and understanding, evidenced by the purchase of shares of capital stock or acceptance of share certificates, that any and all such determinations shall be binding as aforesaid. No provision of these Articles of Incorporation shall be effective to (a) require a waiver of compliance with any provision of the Securities Act of 1933, as amended, or the Investment Company Act of 1940, as amended, or of any valid rule, regulation or order of the Securities and Exchange Commission thereunder or (b) protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. ARTICLE IX PERPETUAL EXISTENCE The duration of the Corporation shall be perpetual. 8 ARTICLE X PRIVATE PROPERTY OF STOCKHOLDERS The private property of Stockholders shall not be subject to the payment of corporate debts to any extent whatsoever. ARTICLE XI CONVERSION TO OPEN-END COMPANY Notwithstanding any other provisions of these Articles of Incorporation or the By-Laws of the Corporation, a favorable vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital stock of the Corporation entitled to be voted on the matter shall be required to approve, adopt or authorize an amendment to these Articles of Incorporation of the Corporation that makes the Common Stock a "redeemable security" (as that term is defined in section 2(a) (32) the Investment Company Act of 1940, as amended) unless such action has previously 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 of the Corporation, in which case the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required. ARTICLE XII MERGER, SALE OF ASSETS, LIQUIDATION Notwithstanding any other provisions of these Articles of Incorporation or the By-Laws of the Corporation, a favorable vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) 9 of the outstanding shares of capital stock of the Corporation entitled to be voted on the matter shall be required to approve, adopt or authorize (i) a merger or consolidation or statutory share exchange of the Corporation with any other corporation, (ii) a sale of all or substantially all of the assets of the Corporation (other than in the regular course of its investment activities), or (iii) a liquidation or dissolution of the Corporation, unless such action has previously 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 of the Corporation, in which case the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required. ARTICLE XIII AMENDMENT The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute, including any amendment which alters the contract rights, as expressly set forth in the charter, of any outstanding stock and substantially adversely affects the stockholders' rights and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding any other provisions of these Articles of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles of Incorporation or the By-Laws of the Corporation) the amendment or repeal of Section (5) of Article V, 10 Section (1), Section (3), Section (4), Section (5) and Section (6) of Article VI, Article IX, Article X, Article XI, Article XII, or this Article XIII, of these Articles of Incorporation shall require the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital stock of the Corporation entitled to be voted on the matter. IN WITNESS WHEREOF, the undersigned incorporator of MuniIncome Fund, Inc. hereby executes the foregoing Articles of Incorporation and acknowledges the same to be his act and further acknowledges that, to the best of his knowledge, the matters and facts set forth therein are true in all material respects under the penalties of perjury. Dated the 14th day of April 1993 /s/ Jon R. Lewis ----------------------- Jon R. Lewis 11 EX-1.B 4 file003.txt ARTICLES OF AMENDMENT Exhibit 1(b) MUNIINCOME FUND, INC. ARTICLES OF AMENDMENT MUNIINCOME FUND, INC., a Maryland corporation having its principal office c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202 (hereinafter called the Corporation), hereby certifies to the State Department of Assessments and Taxation of Maryland, that: FIRST: The charter of the Corporation is hereby amended by striking out Article II of the Articles of Incorporation and inserting in lieu thereof the following: ARTICLE II NAME The name of the corporation is MUNIASSETS FUND, INC. (the "Corporation"). SECOND: The foregoing amendment to the charter of the Corporation has been duly approved by the entire Board of Directors by Unanimous Written Consent dated as of the 5th day of May, 1993 and at the time of the approval by the Directors there were no shares of stock of the Corporation entitled to vote on the matter either outstanding or subscribed for. The President acknowledges these Articles of Amendment to be the corporate act of the Corporation and states that to the best of his knowledge, information and belief the matters and facts set forth in these Articles with respect to the authorization and approval of the amendment of the Corporation's charter are true in all material respects, and that this statement is made under the penalties of perjury. IN WITNESS WHEREOF, MuniIncome Fund, Inc. has caused these Articles to be signed in its name and on its behalf by its President and attested by its Secretary on May 5, 1993. MUNIINCOME FUND, INC. By: /s/ Philip L. Kirstein ----------------------------- Philip L. Kirstein, President Attest: By: /s/ Mark B. Goldfus ---------------------------- Mark B. Goldfus, Secretary 2 EX-5.B 5 file004.txt TEMPORARY CERTIFICATE Exhibit 5(b) TEMPORARY CERTIFICATE Exchangeable for Definitive Engraved Certificate When Ready for Delivery [GRAPHIC OMITTED] MuniAssets Fund, Inc. INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND COMMON STOCK CUSIP 62618Q 10 6 PAR VALUE $.10 SEE REVERSE FOR CERTAIN DEFINITIONS This certifies that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF MuniAssets 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 made thereto. This Certificate is not 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. MUNIASSETS FUND, INC. CORPORATE SEAL 1993 MARYLAND Dated: Authorized Signature /s/ Mark B. Goldfus /s/ Arthur Zeikel ------------------------------ ------------------------------ Secretary President Countersigned and Registered The Bank of New York By _______________________ Transfer Agent and Registrar MuniAssets Fund, Inc. A full statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of each class and series of stock which the Corporation is authorized to issue and the differences in the relative rights and preferences between the shares of each class and series to the extent that they have been set, and the authority of the Board of Directors to set the relative rights and preferences of subsequent classes and series, will be furnished by the Corporation to any stockholder, without charge, upon request to the Secretary of the Corporation at its principal office. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian --------------------- (Cust) (Minor) TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors JT TEN -- as joint tenants with right Act _________________ of survivorship and not as (State) tenants in common Additional abbreviations may also be used though not in the above list 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. For value received ____________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ________________________________________________________________________________ ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ Shares represented by the within Certificate and do hereby irrevocably constitute and appoint ________________________________________________________________________________ ________________________________________________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated: __________________________ X ________________________________ Signatures must be guaranteed by an "eligible guarantor institution" as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. EX-6 6 file005.txt INVESTMENT ADVISORY AGREEMENT Exhibit 6 INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 25th day of June, 1993, by and between MUNIASSETS FUND, INC., a Maryland corporation (hereinafter referred to as the "Fund"), and FUND ASSET MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the "Investment Adviser"). W I T N E S S E T H: WHEREAS, the Fund is engaged in business as a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (hereinafter referred to as the "Investment Company Act"); and WHEREAS, the Investment Adviser is engaged principally in rendering management and investment advisory services and is registered as an investment adviser under the Investment Advisers Act of l94O; and WHEREAS, the Fund desires to retain the Investment Adviser to provide management and investment advisory services to the Fund in the manner and on the terms hereinafter set forth; and WHEREAS, the Investment Adviser is willing to provide management and investment advisory services to the Fund on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, the Fund and the Investment Adviser hereby agree as follows: ARTICLE I Duties of the Investment Adviser The Fund hereby employs the Investment Adviser to act as a manager and investment adviser of the Fund and to furnish, or arrange for affiliates to furnish, the management and investment advisory services described below, subject to the policies of, review by and overall control of the Board of Directors of the Fund, for the period and on the terms and conditions set forth in this Agreement. The Investment Adviser hereby accepts such employment and agrees during such period, at its own expense, to render, or arrange for the rendering of, such services and to assume the obligations herein set forth for the compensation provided for herein. The Investment Adviser and its affiliates shall for all purposes herein be deemed to be independent contractors and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Fund in any way or otherwise be deemed agents of the Fund. (a) Investment Advisory Services. The Investment Adviser shall perform (or arrange for the performance by affiliates of) the management, investment advisory and administrative services necessary for the operation of the Fund including administering shareholder accounts and handling shareholder relations. The Investment Adviser shall provide the Fund with office space, facilities, equipment and necessary personnel and such other services as the Investment Adviser, subject to review by the Board of Directors, shall from time to time determine to be necessary or useful to perform its obligations under this Agreement. The 2 Investment Adviser shall also, on behalf of the Fund, conduct relations with custodians, depositories, transfer agents, pricing agents, dividend disbursing agents, other shareholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable. The Investment Adviser shall generally monitor the Fund's compliance with investment policies and restrictions as set forth in filings made by the Fund under the Federal securities laws. The Investment Adviser shall make reports to the Board of Directors of its performance of obligations hereunder and furnish advice and recommendations with respect to such other aspects of the business and affairs of the Fund as it shall determine to be desirable. (b) Investment Advisory Services. The Investment Adviser shall provide (or arrange for affiliates to provide) the Fund with such investment research, advice and supervision as the latter may from time to time consider necessary for the proper supervision of the assets of the Fund, shall furnish continuously an investment program for the Fund and shall determine from time to time which securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held in the various securities in which the Fund invests, options, futures, options on futures or cash, subject always to the restrictions of the Articles of Incorporation and By-Laws of the Fund, as amended from time to time, the provisions of the Investment Company Act and the statements relating to the Fund's investment objectives, investment policies and investment restrictions as the same are set forth in 3 filings made by the Fund under the Federal securities laws. The Investment Adviser shall make decisions for the Fund as to foreign currency matters and make determinations as to foreign exchange contracts, foreign currency options, foreign currency futures and related options on foreign currency futures. The Investment Adviser shall make decisions for the Fund as to the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the Fund's portfolio securities shall be exercised. Should the Directors at any time, however, make any definite determination as to investment policy and notify the Investment Adviser thereof in writing, the Investment Adviser shall be bound by such determination for the period, if any, specified in such notice or until similarly notified that such determination has been revoked. The Investment Adviser shall take, on behalf of the Fund, all actions which it deems necessary to implement the investment policies determined as provided above, and in particular to place all orders for the purchase or sale of portfolio securities for the Fund's account with brokers or dealers selected by it, and to that end, the Investment Adviser is authorized as the agent of the Fund to give instructions to the Custodian of the Fund as to deliveries of securities and payments of cash for the account of the Fund. In connection with the selection of such brokers or dealers and the placing of such orders with respect to assets of the Fund, the Investment Adviser is directed at all times to seek to obtain execution and prices within the policy guidelines determined by the Board of Directors and set forth in filings made by the Fund under the Federal securities laws. Subject to this 4 requirement and the provisions of the Investment Company Act, the Securities Exchange Act of 1934, as amended, and other applicable provisions of law, the Investment Adviser may select brokers or dealers with which it or the Fund is affiliated. ARTICLE II Allocation of Charges and Expenses (a) The Investment Adviser. The Investment Adviser assumes and shall pay for maintaining the staff and personnel necessary to perform its obligations under this Agreement, and shall at its own expense, provide the office space, facilities, equipment and necessary personnel which it is obligated to provide under Article I hereof, and shall pay all compensation of officers and employees of the Fund and all Directors of the Fund who are affiliated persons of the Investment Adviser. (b) The Fund. The Fund assumes and shall pay or cause to be paid all other expenses of the Fund including, without limitation: organizational costs, taxes, expenses for legal and auditing services, costs of printing proxies, stock certificates, shareholder reports, prospectuses, listing fees, charges of the custodian, any sub-custodian, transfer agent, dividend disbursing agent and registrar, expenses of portfolio transactions, Securities and Exchange Commission fees, expenses of registering the shares under Federal, state and foreign laws, fees and actual out-of-pocket expenses of Directors who are not affiliated persons of the Investment Adviser, accounting and pricing costs (including the weekly calculation of the net asset value), insurance, interest, brokerage costs, litigation and other extraordinary or nonrecurring 5 expenses, and other expenses properly payable by the Fund. It is also understood that the Fund will reimburse the Investment Adviser for its costs in providing accounting services to the Fund. ARTICLE III Compensation of the Investment Adviser (a) Investment Advisory Fee. For the services rendered, the facilities furnished and expenses assumed by the Investment Adviser, the Fund shall pay to the Investment Adviser at the end of each calendar month a fee based upon the average weekly value of the net assets of the Fund at the annual rate of 0.55% of the Fund's average weekly net assets (i.e., the average weekly value of the total assets of the Fund, minus the sum of accrued liabilities of the Fund), commencing on the day following effectiveness hereof. For purposes of this calculation, average weekly net assets are determined at the end of each month on the basis of the average net assets of the Fund for each week during the month. The assets for each weekly period are determined by averaging the net assets at the last business day of a week with the net assets at the last business day of the prior week. If this Agreement becomes effective subsequent to the first day of a month or shall terminate before the last day of a month, compensation for that part of the month this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fee as set forth above. Payment of the Investment Adviser's compensation for the preceding month shall be made as promptly as possible. During any period when the determination of net asset value is suspended by the Board of Directors, the average net asset value of a share for the last 6 week prior to such suspension shall for this purpose be deemed to be the net asset value at the close of each succeeding week until it is again determined. ARTICLE IV Limitation of Liability of the Investment Adviser The Investment Adviser shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. As used in this Article IV, the term "Investment Adviser" shall include any affiliates of the Investment Adviser performing services for the Fund contemplated hereby and directors, officers and employees of the Investment Adviser and such affiliates. ARTICLE V Activities of the Investment Adviser The services of the Investment Adviser to the Fund are not to be deemed to be exclusive: the Investment Adviser and any person controlled by or under common control with the Investment Adviser (for purposes of this Article V referred to as "affiliates") are free to render services to others. It is understood that Directors, officers, employees and shareholders of the Fund are or may become interested in the Investment Adviser and its affiliates, as directors, officers, employees, partners and shareholders or otherwise, and that directors, officers, employees, partners and shareholders of the Investment Adviser and its 7 affiliates are or may become similarly interested in the Fund, and that the Investment Adviser and directors, officers, employees, partners and shareholders of its affiliates may become interested in the Fund as a shareholder or otherwise. ARTICLE VI Duration and Termination of this Agreement This Agreement shall become effective as of the date first above written and shall remain in force until June 18, 1995 and thereafter, but only so long as such continuance is specifically approved at least annually by (i) the Board of Directors of the Fund, or by the vote of a majority of the outstanding voting securities of the Fund, and (ii) a majority of those Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time, without the payment of any penalty, by the Board of Directors or by vote of a majority of the outstanding voting securities of the Fund, or by the Investment Adviser, on sixty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment. 8 ARTICLE VII Amendment of this Agreement This Agreement may be amended by the parties only if such amendment is specifically approved by (i) the vote of a majority of outstanding voting securities of the Fund, and (ii) a majority of those Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval. ARTICLE VIII Definitions of Certain Terms The terms "vote of a majority of the outstanding voting securities," "assignment," "affiliated person" and "interested person," when used in this Agreement, shall have the respective meanings specified in the Investment Company Act and the rules and regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act. ARTICLE IX Governing Law This Agreement shall be construed in accordance with laws of the State of New York and the applicable provisions of the Investment Company Act. To the extent that the applicable laws of the State of New York, or any of the provisions herein, conflict with the applicable provisions of the Investment Company Act, the latter shall control. 9 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. MUNIASSETS FUND, INC. By /s/ Mark B. Goldfus ---------------------------- (Authorized Signatory) FUND ASSET MANAGEMENT, INC. By /s/ Mark B. Goldfus ---------------------------- (Authorized Signatory) EX-7.A 7 file006.txt PURCHASE AGREEMENT Exhibit 7(a) 6,700,000 Shares MuniAssets Fund, Inc. (a Maryland corporation) Common Stock (Par Value $0.10 Per Share) PURCHASE AGREEMENT June ___, 1993 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: MuniAssets 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 6,700,000 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 1,005,000 additional shares of Common Stock to cover over-allotments. The aforesaid 6,700,000 shares (the "Initial Shares"), together with all or any part of the 1,005,000 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. 33-61150) 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 2 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 accounting principles. (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. 3 (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 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. 4 (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. (xii) The Shares have been approved for listing on the New York Stock Exchange upon notice of issuance. (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 5 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. (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 6 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 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 Rogers & Wells, 200 Park Avenue, New York, New York 10166, 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"). 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 Rogers & Wells, 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. 7 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 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 8 amendment thereto (but without exhibits to the registration statement or any such amendment). (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 securityholders 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) covering a twelve-month period beginning not later than the first day of the Funds'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, 9 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 the 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) Trading of the Shares on the New York Stock Exchange will begin no later than four weeks from the date of the Prospectus. SECTION 4. Payment of Expenses. The Fund will pay all expenses incidental 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 its 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. 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 10 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 Rogers & Wells, 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 each have been duly authorized, executed and delivered by the Fund and each complies with all applicable provisions of the 1940 Act. 11 (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, and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument 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 12 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 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 13 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 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 addition to providing the opinion required by subsection (b) (1) of this Section, Rogers & Wells shall also state that nothing has come to their attention that would lead them to believe that the Registration Statement on the date it became effective or at the Representation Date, 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 or that the Prospectus, as of the date the Registration Statement became effective, 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, contained or contain any untrue statement of a material fact or omitted 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. In making such statement, Rogers & Wells may state that the limitations inherent in the independent verification of factual matters and the character of determinations involved in the registration process are such, however, that it does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus, except to the limited extent stated in paragraph b(l) (xiii) above. In addition, it does not express any opinion or belief as to the financial statements contained in the Registration Statement or the Prospectus and understands that the Underwriters are relying upon Deloitte & Touche, certified public accountants, as to the form and content of financial statements contained in the Registration Statement and Prospectus. In giving their opinion, Rogers & Wells may rely as to matters involving the laws of the State of Maryland upon the opinion of Ginsburg, Feldman and Bress, Chartered. Ginsburg, Feldman and Bress, Chartered and Rogers & Wells may rely, as to matters of fact, upon certificates 14 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 the Prospectus shall 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, 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 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) and (b) 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: 15 (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 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; 16 (2) the favorable opinion of Rogers & Wells, 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; and (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 omission, or any such alleged untrue statement or omission, if such settlement is 17 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 18 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, 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 19 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. 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: _________, 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. 20 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, MUNIASSETS 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 21 Exhibit A 6,700,000 Shares MuniAssets Fund, Inc (a Maryland corporation) Common Stock (Par Value $.l0 Per Share) PRICING AGREEMENT June __, 1993 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 June ___, 1993 (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 MuniAssets Fund, Inc. (the "Fund") and relating to the option granted to the Underwriter to purchase up to an additional 1,005,000 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 purchase 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 $_________ being an amount equal to the applicable initial public offering price set forth above less (i) $_____ per share for purchases in single transactions of less than 3,500 Shares; (ii) $_____ per share for purchases in single transactions of 3,500 or more Shares but less than 7,000 Shares and (iii) $_____ 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, MUNIASSETS 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 EX-7.B 8 file007.txt STANDARD DEALER AGREEMENT Exhibit 7(b) Revised October 29, 1990 [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 Rules of Fair Practice 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 Section 24 of Article III of the Rules of Fair Practice 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 Sections 8 and 36 of Article III of such Rules of Fair Practice and to comply with Section 25 of Article III thereof as that Section applies to a non-member foreign dealer or bank. You represent that you are fully familiar with the above provisions of the Rules of Fair Practice 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 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. 2 13. This Agreement shall be governed by the laws of the State of New York. 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: /s/ Fred F. Hessinger --------------------------------- Name: Fred F. Hessinger 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) 3 EX-9 9 file008.txt CUSTODY AGREEMENT Exhibit 9 CUSTODY AGREEMENT Agreement made as of this 14th day of June, 1993, between MuniAssets Fund, Inc., a corporation organized and existing under the laws of the State of Maryland having its principal office and place of business at 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. "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. 2. "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. 3. "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, and the term Certificate shall also include instructions by the Fund to the Custodian communicated by a Terminal Link. 4. "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. 5. "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. 6. "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. 7. "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 Directors specifically approving deposits therein by the Custodian. 8. "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. 9. "Futures Contract" shall mean a Financial Futures Contract and/or Stock Index Futures Contracts. 10. "Futures Contract Option" shall mean an option with respect to a Futures Contract. 11. "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. -2- 12. "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. 13. "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. 14. "Officers" shall be deemed to include the President, any Vice President, the Secretary, the Treasurer, the Controller, any Assistant Secretary, 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 Directors 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 A or such other Certificate as may be received by the Custodian from time to time. 15. "Option" shall mean a Call Option, Covered Call Option, Stock Index Option and/or a Put Option. 16. "Oral Instructions" shall mean verbal instructions actually received by the Custodian from an Officer or from a person reasonably believed by the Custodian to be an Officer. 17. "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. 18. "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. 19. "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 -3- 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. 20. "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. 21. "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. 22. "Shares" shall mean the shares of capital stock of the Fund, each of which is, in the case of a Fund having Series, allocated to a particular Series. 23. "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 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. 24. "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. 25. "Terminal Link" shall mean an electronic data transmission link between the Fund and the Custodian requiring in connection with each use of the Terminal Link by or on behalf of the Fund use of an authorization code provided by the Custodian and at least two access codes established by the Fund. -4- 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 Fund's 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 Directors 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 Directors 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 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 -5- 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 Directors, 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 -6- 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 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 B 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. -7- 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 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, -8- 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, a Certificate or Oral 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 -9- 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 or Oral 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 or Oral 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 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 or Oral 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 -10- 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. 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 -11- 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 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 -12- 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 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 -13- 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 -14- 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 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, -15- 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. 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. -16- ARTICLE VII. FUTURES CONTRACT 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 Future 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 of 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 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 -17- (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: -18- (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; (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. -19- 9. Futures Contracts acquired by the Funds 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 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 -20- 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 or Oral 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 or Oral 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 or Oral Instructions to the Custodian specifying: (a) the Reverse Repurchase Agreement being 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 or Oral Instructions, make the payment to the broker or dealer, and the withdrawals, if any, from the Senior Security Account, specified in such Certificate or Oral Instructions. -21- 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. -22- 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. -23- 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 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 Directors of the Fund, certified by the Secretary or any Assistant Secretary, 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 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 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. -24- 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. 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) A resolution by the Board of Directors of the Fund directing the Transfer Agent to redeem the Shares; and (b) A Certificate specifying the number and Series of Shares redeemed; and (c) 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. -25- 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 or Oral 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 1/2% 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 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 -26- 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. TERMINAL LINK 1. At no time and under no circumstances shall the Fund be obligated to have or utilize the Terminal Link, and the provisions of this Article shall apply if, but only if, the Fund in its sole and absolute discretion elects to utilize the Terminal Link to transmit Certificates to the Custodian. 2. The Terminal Link shall be utilized by the Fund only for the purpose of the Fund providing Certificates to the Custodian with respect to transactions involving Securities or for the transfer of money to be applied to the payment of -27- dividends, distributions or redemptions of Fund Shares, and shall be utilized by the Custodian only for the purpose of providing notices to the Fund. Such use shall commence only after the Fund shall have delivered to the Custodian a Certificate substantially in the form of Exhibit D and shall have established access codes. Each use of the Terminal Link by the Fund shall constitute a representation and warranty that the Terminal Link is being used only for the purposes permitted hereby, that at least two Officers have each utilized an access code, that such safekeeping procedures have been established by the Fund, and that such use does not contravene the Investment Company Act of 1940, as amended, or the rules or regulations thereunder. 3. The Fund shall obtain and maintain at its own cost and expense all equipment and services, including, but not limited to communications services, necessary for it to utilize the Terminal Link, and the Custodian shall not be responsible for the reliability or availability of any such equipment or services. 4. The Fund acknowledges that any data bases made available as part of, or through the Terminal Link and any proprietary data, software, processes, information and documentation (other than any such which are or become part of the public domain or are legally required to be made available to the public) (collectively, the "Information"), are the exclusive and confidential property of the Custodian. The Fund shall, and shall cause others to which it discloses the Information, to keep the Information confidential by using the same care and discretion it uses with respect to its own confidential property and trade secrets, and shall neither make nor permit any disclosure without the express prior written consent of the Custodian. 5. Upon termination of this Agreement for any reason, the Fund shall return to the Custodian any and all copies of the Information which are in the Fund's possession or under its control, or which the Fund distributed to third parties. The provisions of this Article shall not affect the copyright status of any of the Information which may be copyrighted and shall apply to all Information whether or not copyrighted. 6. The Custodian reserves the right to modify the Terminal Link from time to time without notice to the Fund except that the Custodian shall give the Fund notice not less than 75 days in advance of any modification which would materially adversely affect the Fund's operation, and the Fund agrees that the Fund shall not modify or attempt to modify the Terminal Link without the Custodian's prior written consent. The Fund acknowledges that any software or procedures provided the Fund as part of the Terminal Link are the property of the Custodian and, accordingly, the Fund agrees that any modifications to the Terminal Link, whether by the Fund, or by -28- the Custodian and whether with or without the Custodian's consent, shall become the property of the Custodian. 7. Neither the Custodian nor any manufacturers and suppliers it utilizes or the Fund utilizes in connection with the Terminal Link makes any warranties or representations, express or implied, in fact or in law, including but not limited to warranties of merchantability and fitness for a particular purpose. 8. The Fund will cause its Officers and employees to treat the authorization codes and the access codes applicable to Terminal Link with extreme care, and irrevocably authorizes the Custodian to act in accordance with and rely on Certificates received by it through the Terminal Link. The Fund acknowledges that it is its responsibility to assure that only its Officers use the Terminal Link on its behalf, and that a Custodian shall not be responsible nor liable for use of the Terminal Link on the Fund's behalf by persons other than such persons or Officers, or by only a single Officer, nor for any alteration, omission, or failure to promptly forward. 9 (a). Except as otherwise specifically provided in Section 9(b) of this Article, the Custodian shall have no liability for any losses, damages, injuries, claims, costs or expenses arising out of or in connection with any failure, malfunction or other problem relating to the Terminal Link except for money damages suffered as the direct result of the negligence of the Custodian in an amount not exceeding for any incident $25,000 provided, however, that the Custodian shall have no liability under this Section 9 if the Fund fails to comply with the provisions of Section 11. 9 (b). The Custodian's liability for its negligence in executing or failing to execute in accordance with a Certificate received through Terminal Link shall be only with respect to a transfer of funds which is not made in accordance with such Certificate after such Certificate shall have been duly acknowledged by the Custodian, and shall be contingent upon the Fund complying with the provisions of Section 12 of this Article, and shall be limited to (i) restoration of the principal amount mistransferred, if and to the extent that the Custodian would be required to make such restoration under applicable law, and (ii) the lesser of (A) a Fund's actual pecuniary loss incurred by reason of its loss of use of the mistransferred funds or the funds which were not transferred, as the case may be, or (B) compensation for the loss of the use of the mistransferred funds or the funds which were not transferred, as the case may be, at a rate per annum equal to the average federal funds rate as computed from the Federal Reserve Bank of New York's daily determination of the effective rate for federal funds, for the period during which a Fund has lost use of such funds. In no event shall the Custodian have any liability for failing to execute in -29- accordance with a Certificate a transfer of funds where the Certificate is received by the Custodian through Terminal Link other than through the applicable transfer module for the particular instructions contained in such Certificate. 10. Without limiting the generality of the foregoing, in no event shall the Custodian or any manufacturer or supplier of its computer equipment, software or services relating to the Terminal Link be responsible for any special, indirect, incidental or consequential damages which the Fund may incur or experience by reason of its use of the Terminal Link even if the Custodian or any manufacturer or supplier has been advised of the possibility of such damages, nor with respect to the use of the Terminal Link shall the Custodian or any such manufacturer or supplier be liable for acts of God, or with respect to the following to the extent beyond such person's reasonable control: machine or computer breakdown or malfunction, interruption or malfunction of communication facilities, labor difficulties or any other similar or dissimilar cause. 11. The Fund shall notify the Custodian of any errors, omissions or interruptions in, or delay or unavailability of, the Terminal Link as promptly as practicable, and in any event within 24 hours after the earliest of (i) discovery thereof, (ii) the Business Day on which discovery should have occurred through the exercise of reasonable care and (iii) in the case of any error, the date of actual receipt of the earliest notice which reflects such error, it being agreed that discovery and receipt of notice may only occur on a business day. The Custodian shall promptly advise the Fund whenever the Custodian learns of any errors, omissions or interruption in, or delay or unavailability of, the Terminal Link. 12. The Custodian shall verify to the Fund, by use of the Terminal Link, receipt of each Certificate the Custodian receives through the Terminal Link, and in the absence of such verification the Custodian shall not be liable for any failure to act in accordance with such Certificate and the Fund may not claim that such Certificate was received by the Custodian. Such verification, which may occur after the Custodian has acted upon such Certificate, shall be accomplished on the same day on which such Certificate is received. -30- ARTICLE XVI. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES 1. The Custodian is authorized and instructed to employ, as sub-custodian for each Series' Foreign Securities (as such term is defined in paragraph (c) (1) of Rule 17f-5 under the Investment Company Act of 1940, as amended) and other assets, the foreign banking institutions and foreign securities depositories and clearing agencies designated on Schedule I hereto ("Foreign Sub-Custodians") to carry out their respective responsibilities in accordance with the terms of the sub-custodian agreement between each such Foreign Sub- Custodian and the Custodian, copies of which have been previously delivered to the Fund and receipt of which is hereby acknowledged (each such agreement, a "Foreign Sub-Custodian Agreement"). The Custodian shall be liable for the acts and omissions of each Foreign Sub-Custodian constituting negligence or willful misconduct in the conduct of its responsibilities under the terms of the Foreign Sub-Custodian Agreement. Upon receipt of a Certificate, together with a certified resolution substantially in the form attached as Exhibit E of the Fund's Board of Directors, the Fund may designate any additional foreign sub-custodian with which the Custodian has an agreement for such entity to act as the Custodian's agent, as its sub-custodian and any such additional foreign sub-custodian shall be deemed added to Schedule I. Upon receipt of a Certificate from the Fund, the Custodian shall cease the employment of any one or more Foreign Sub-Custodians for maintaining custody of the Fund's assets and such Foreign Sub-Custodian shall be deemed deleted from Schedule I. 2. Each Foreign Sub-Custodian Agreement shall be substantially in the form previously delivered to the Fund and will not be amended in a way that materially adversely affects the Fund without the Fund's prior written consent. 3. The Custodian shall identify on its books as belonging to each Series of the Fund the Foreign Securities of such Series held by each Foreign Sub-Custodian. At the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claims by the Fund or any Series against a Foreign Sub-Custodian as a consequence of any loss, damage, cost, expense, liability or claim sustained or incurred by the Fund or any Series if and to the extent that the Fund or such Series has not been made whole for any such loss, damage, cost, expense, liability or claim. -31- 4. Upon request of the Fund, the Custodian will, consistent with the terms of the applicable Foreign Sub-Custodian Agreement, use reasonable efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any Foreign Sub-Custodian insofar as such books and records relate to the performance of such Foreign Sub-Custodian under its agreement with the Custodian on behalf of the Fund. 5. The Custodian will supply to the Fund from time to time, as mutually agreed upon, statements in respect of the securities and other assets of each Series held by Foreign Sub-Custodians, including but not limited to, an identification of entities having possession of each Series' Foreign Securities and other assets, and advices or notifications of any transfers of Foreign Securities to or from each custodial account maintained by a Foreign Sub- Custodian for the Custodian on behalf of the Series. 6. The Custodian shall furnish annually to the Fund, as mutually agreed upon, information concerning the Foreign Sub-Custodians employed by the Custodian. Such information shall be similar in kind and scope to that furnished to the Fund in connection with the Fund's initial approval of such Foreign Sub-Custodians and, in any event, shall include information pertaining to (i) the Foreign Custodians' financial strength, general reputation and standing in the countries in which they are located and their ability to provide the custodial services required, and (ii) whether the Foreign Sub-Custodians would provide a level of safeguards for safekeeping and custody of securities not materially different from those prevailing in the United States. The Custodian shall monitor the general operating performance of each Foreign Sub-Custodian, and at least annually obtain and review the annual financial report published by such Foreign Sub-Custodian to determine that it meets the financial criteria of an "Eligible Foreign Custodian" under Rule 17f-5(c)(2)(i) or (ii). The Custodian will promptly inform the Fund in the event that the Custodian learns that a Foreign Sub-Custodian no longer satisfies the financial criteria of an "Eligible Foreign Custodian" under such Rule. The Custodian agrees that it will use reasonable care in monitoring compliance by each Foreign Sub-Custodian with the terms of the relevant Foreign Sub-Custodian Agreement and that if it learns of any breach of such Foreign Sub-Custodian Agreement believed by the Custodian to have a material adverse effect on the Fund or any Series it will promptly notify the Fund of such breach. The Custodian also agrees to use reasonable and diligent efforts to enforce its rights under the relevant Foreign Sub-Custodian Agreement. 7. The Custodian shall transmit promptly to the Fund all notices, reports or other written information received pertaining to the Fund's Foreign Securities, including without limitation, notices of corporate action, proxies and proxy solicitation materials. -32- 8. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for securities received for the account of any Series and delivery of securities maintained for the account of such Series may be effected in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivery of securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. ARTICLE XVII. CONCERNING THE CUSTODIAN 1. Except as hereinafter provided, or as provided in Article XVI 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 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; -33- (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 matters relating to Securities held in the Depository, unless the Custodian shall have actually received -34- 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 in addition to the employment of Foreign Sub-Custodians pursuant to Article XVI 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 or by any Foreign Sub-Custodian, 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. -35- 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 allocated 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 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 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 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 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 given to the Custodian hereunder concerning such transactions provided such instructions reasonably appear to have been received from an Officer. 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 -36- 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. Subject to the foregoing provisions of this Agreement, including, without limitation, those contained in Article XVI 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. 15. 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. -37- ARTICLE XVIII. 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 Directors of the Fund, certified by the Secretary or any Assistant Secretary, 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 Directors of the Fund, certified by the Secretary or any Assistant Secretary, 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. ARTICLE XIX. MISCELLANEOUS 1. Annexed hereto as Appendix A is a Certificate signed by two of the present Officers of the Fund under its corporate seal, setting forth the names and the signatures of the present Officers of the Fund. The Fund agrees to furnish to -38- 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. 2. 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. 3. 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. 4. 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 Directors of the Fund. 5. 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 Directors. 6. 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. 7. 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. -39- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective corporate Officers, thereunto duly authorized and their respective corporate seals to be hereunto affixed, as of the day and year first above written. MUNIASSET FUND, INC. [SEAL] By: /s/ Gerald M Richard, Treasurer --------------------------------- GERALD M. RICHARD, TREASURER Attest: /s/ Mark B. Goldfus - -------------------------- THE BANK OF NEW YORK [SEAL] By: /s/ Illegible ----------------------------- Attest: /s/ Illegible - -------------------------- EX-11 10 file009.txt OPINION OF CLIFFORD CHANCE ROGERS & WELLS LLP Exhibit 11 Clifford Change Rogers & Wells LLP 200 Park Avenue New York, New York 10166-0153 Tel +1 212 878 8000 Fax +1 212 878 8375 www.cliffordchance.com September 10, 2001 MuniAssets Fund, Inc. 800 Scudders Mill Road Plainsboro, New Jersey 08536 Ladies and Gentlemen: We have acted as counsel for MuniAssets Fund, Inc. (the "Fund") in connection with the proposed acquisition by the Fund of substantially all of the assets and the assumption of substantially all of the liabilities of Merrill Lynch High Income Municipal Bond Fund, Inc. ("High Income"), in exchange solely for an equal aggregate value of newly issued shares of common stock of the Fund to be distributed thereafter to stockholders of High Income (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 (the "Registration Statement"), relating to shares of common stock of the Fund, each with a par value of $0.10 per share (the "Shares"), 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 Shares. In addition, we have examined and are familiar with the Articles of Incorporation of the Fund, as amended, the By-Laws of the Fund 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 by the stockholders of the Fund and of High Income of the Agreement and Plan of Reorganization between the Fund and High Income set forth in the joint proxy statement and prospectus constituting a part of the Registration Statement (the "Proxy Statement and Prospectus"), the Shares, 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 stock 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/ Clifford Chance Rogers & Wells LLP EX-13 11 file010.txt TRANSFER AGENCY AGREEMENT Exhibit 13 AGREEMENT, made as of June 14, 1993, between MuniAssets Fund, Inc., a corporation organized and existing under the laws of the State of Maryland (hereinafter referred to as the "Customer"), and The Bank of New York, a New York trust company (hereinafter referred to as the "Bank"). WITNESSETH: 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 day 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; -2- (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 (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. -3- 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. 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. -4- 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. -5- 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. -6- 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 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. -7- 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. 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. -8- 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 I. 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. -9- 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. 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: MUNIASSETS FUND, INC. /s/ Mark B. Goldfus BY: /s/ Gerald M. Richard - ----------------------------- ------------------------------ Title: GERALD M. RICHARD, TREASURER Attest: THE BANK OF NEW YORK /s/ Illegible BY: /s/ Illegible - ----------------------------- ------------------------------ Title: Vice President EX-14.A 12 file011.htm CONSENT OF DELOITTE & TOUCHE

Exhibit 14(a)

INDEPENDENT AUDITORS’ CONSENT

We consent to the use in Pre-Effective Amendment No. 1 to Registration Statement No. 333-65446 on Form N-14 of MuniAssets Fund, Inc. (the “Fund”) of our report dated June 27, 2001 appearing in the May 31, 2001 Annual Report of the Fund, and to the references to us under the captions “COMPARISON OF THE FUNDS—Financial Highlights—MuniAssets” and “EXPERTS” appearing in the Joint 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 13 file012.htm INDEPENDENT AUDITORS' CONSENT

Exhibit 14(b)

INDEPENDENT AUDITORS’ CONSENT

We consent to the use in Pre-Effective Amendment No. 1 to Registration Statement No. 333-65446 on Form N-14 of MuniAssets Fund, Inc. of our report dated October 5, 2000 for Merrill Lynch High Income Municipal Bond Fund, Inc. (the “Fund”) appearing in the August 31, 2000 Annual Report of the Fund, and to the references to us under the captions “COMPARISON OF THE FUNDS—Financial Highlights—High Income Municipal” and “EXPERTS” appearing in the Joint 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-----

EX-1.A

                                                                    Exhibit 1(a)

                            ARTICLES OF INCORPORATION

                                       OF

                              MUNIINCOME FUND, INC.

                                    ARTICLE I

      THE UNDERSIGNED,  Jon R. Lewis, whose post-office  address is c/o Rogers &
Wells, 200 Park Avenue,  New York, New York 10166,  being at least eighteen (18)
years of age,  does  hereby act as an  incorporator,  under and by virtue of the
General Laws of the State of Maryland  authorizing the formation of corporations
and with the intention of forming a corporation.

                                   ARTICLE II

                                      NAME

      The name of the corporation is MUNIINCOME FUND, INC. (the "Corporation").

                                   ARTICLE III

                               PURPOSES AND POWERS

      The purpose or purposes for which the Corporation is formed is to act as a
closed-end,  management  investment  company under the Investment Company Act of
1940,  as  amended,  and to  exercise  and enjoy all of the  powers,  rights and
privileges  granted to, or conferred  upon,  corporations by the General Laws of
the State of Maryland now or hereafter in force.




                                   ARTICLE IV

                       PRINCIPAL OFFICE AND RESIDENT AGENT

      The post-office  address of the principal office of the Corporation in the
State of Maryland is c/o The  Corporation  Trust  Incorporated, 32 South Street,
Baltimore,  Maryland 21202. The name of the resident agent of the Corporation in
this State is The  Corporation  Trust Incorporated, a corporation of this State,
and the  post-office  address of the  resident  agent is The  Corporation  Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202.

                                    ARTICLE V

                                  CAPITAL STOCK

      (1) The total  number of shares of  capital  stock  which the  Corporation
shall have authority to issue is Two Hundred Million  (200,000,000)  shares, all
of one class  called  Common  Stock,  of the par value of Ten Cents  ($0.10) per
share and of the aggregate par value of Twenty Million Dollars ($20,000,000).

      (2) The Board of Directors may classify and reclassify any unissued shares
of capital  stock into one or more  additional or other classes or series as may
be  established  from time to time by  setting  or  changing  in any one or more
respects the  designations,  preferences,  conversion  or other  rights,  voting
powers,  restrictions,  limitations as to dividends,  qualifications or terms or
conditions  of  redemption  of  such  shares  of  stock  and  pursuant  to  such
classification  or  reclassification  to  increase  or  decrease  the  number of
authorized shares of any existing class or series.


                                       2



      (3) Unless otherwise expressly provided in the charter of the Corporation,
including  any  Articles  Supplementary  creating any class or series of capital
stock, the holders of each class or series of capital stock shall be entitled to
dividends  and  distributions  in  such  amounts  and at  such  times  as may be
determined by the Board of Directors,  and the dividends and distributions  paid
with  respect to the various  classes or series of capital  stock may vary among
such classes and series.

      (4) Unless otherwise expressly provided in the charter of the Corporation,
including  any  Articles  Supplementary  creating any class or series of capital
stock,  on each matter  submitted  to a vote of  stockholders,  each holder of a
share of capital stock of the Corporation shall be entitled to one vote for each
share  standing  in  such  holder's  name  on  the  books  of  the  Corporation,
irrespective of the class or series  thereof,  and all shares of all classes and
series shall vote together as a single class; provided,  however, that as to any
matter with respect to which a separate  vote of any class or series is required
by the  Investment  Company Act of 1940, as amended,  and in effect from time to
time, or any rules, regulations or orders issued thereunder,  or by the Maryland
General Corporation Law, such requirement as to a separate vote by that class or
series  shall  apply in lieu of a  general  vote of all  classes  and  series as
described above.

      (5)  Notwithstanding any provision of the Maryland General Corporation Law
requiring  a greater  proportion  than a majority of the votes of all classes or
series of capital stock of the  Corporation  (or of any class or series entitled
to vote thereon as


                                       3


a separate class or series) to take or authorize any action,  the Corporation is
hereby authorized  (subject to the requirements of the Investment Company Act of
1940, as amended,  and in effect from time to time,  and any rules,  regulations
and orders  issued  thereunder)  to take such action upon the  concurrence  of a
majority of the aggregate  number of shares of capital stock of the  Corporation
entitled to vote thereon (or a majority of the  aggregate  number of shares of a
class or series entitled to vote thereon as a separate class or series).

      (6) Unless otherwise expressly provided in the charter of the Corporation,
including  any  Articles  Supplementary  creating any class or series of capital
stock,  in the  event  of any  liquidation,  dissolution  or  winding  up of the
Corporation,  whether  voluntary or involuntary,  the holders of all classes and
series of capital stock of the Corporation  shall be entitled,  after payment or
provision for payment of the debts and other liabilities of the  Corporation, to
share ratably in the remaining net assets of the Corporation.

      (7) Any fractional shares shall carry  proportionately all the rights of a
whole  share,  excepting  any right to  receive a  certificate  evidencing  such
fractional share, but including,  without limitation,  the right to vote and the
right to receive dividends.

      (8) All persons who shall acquire stock in the  Corporation  shall acquire
the  same  subject  to  the  provisions  of  the  charter  and  By-Laws  of  the
Corporation. As used in the charter of the Corporation,  the terms "charter" and
"Articles of Incorporation" shall mean and include the Articles of Incorporation
of the


                                       4


Corporation as amended,  supplemented and restated from time to time by Articles
of Amendment, Articles Supplementary, Articles of Restatement or otherwise.

                                   ARTICLE VI

                           PROVISIONS FOR DEFINING, LIMITING AND
                           REGULATING CERTAIN POWERS OF THE
                           CORPORATION AND OF THE DIRECTORS
                           AND STOCKHOLDERS

      (1) The number of directors of the  Corporation  shall be three (3), which
number may be changed pursuant to the By-Laws of the Corporation but shall never
be less than three (3). The names of the directors who shall act until the first
annual meeting or until their successors are duly elected and qualify are:

                                  Robert Harris
                               Philip L. Kirstein
                                 Mark B. Goldfus

      (2) The Board of  Directors  of the  Corporation  is hereby  empowered  to
authorize the issuance from time to time of shares of capital stock, whether now
or hereafter  authorized,  for such  consideration as the Board of Directors may
deem  advisable,  subject  to such  limitations  as may be set  forth  in  these
Articles of Incorporation or in the By-Laws of the Corporation or in the General
Laws of the State of Maryland.

      (3) Each director and each officer of the Corporation shall be indemnified
by the Corporation to the full extent permitted by the General Laws of the State
of Maryland,  subject to the requirements of the Investment Company Act of 1940,
as amended. No amendment  of these  Articles of  Incorporation  or repeal of any
provision hereof shall limit or eliminate the benefits provided to


                                       5


directors  and  officers  under this  provision  in  connection  with any act or
omission that occurred prior to such amendment or repeal.

      (4) To the fullest  extent  permitted  by the General Laws of the State of
Maryland,  subject to the requirements of the Investment Company Act of 1940, as
amended, no director or officer of the Corporation shall be personally liable to
the Corporation or its security holders for money damages. No amendment of these
Articles  of  Incorporation  or repeal of any  provision  hereof  shall limit or
eliminate the benefits  provided to directors and officers  under this provision
in connection  with any act or omission that occurred prior to such amendment or
repeal.

      (5) The Board of Directors of the  Corporation  may make,  alter or repeal
from time to time any of the By-Laws of the  Corporation  except any  particular
By-Law which is specified as not subject to alteration or repeal by the Board of
Directors, subject to the requirements of the Investment Company Act of 1940, as
amended.

      (6) A  director  elected by the  holders  of capital  stock may be removed
(with or without  cause),  but only by action  taken by the  holders of at least
sixty-six and  two-thirds  percent (66 2/3%) of the shares of capital stock then
entitled to vote in an election to fill that directorship.

                                   ARTICLE VII

                           DENIAL OF PREEMPTIVE RIGHTS

      No shareholder of the Corporation shall by reason of his holding shares of
capital stock have any preemptive or preferential right to purchase or subscribe
to any  shares of  capital  stock of the  Corporation,  now or  hereafter  to be
authorized, or any notes,


                                       6


debentures,  bonds or other securities convertible into shares of capital stock,
now or  hereafter  to be  authorized,  whether or not the  issuance  of any such
shares, or notes,  debentures,  bonds or other securities would adversely affect
the dividend or voting  rights of such  shareholder;  and the Board of Directors
may issue  shares of any class of the  Corporation,  or any  notes,  debentures,
bonds, other securities convertible into shares of any class, either whole or in
part, to the existing shareholders.

                                  ARTICLE VIII

                              DETERMINATION BINDING

      Any  determination  made in good faith,  so far as accounting  matters are
involved,  in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors, as to the amount of assets,  obligations or
liabilities  of  the  Corporation,  as to  the  amount  of  net  income  of  the
Corporation  from  dividends  and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the  propriety  thereof,  as to the time of or purpose for
creating  reserves or as to the use,  alteration or cancellation of any reserves
or charges  (whether or not any  obligation or liability for which such reserves
or charges shall have been created,  shall have been paid or discharged or shall
be then or thereafter required to be paid or discharged), as to the price of any
security  owned by the  Corporation  or as to any other matters  relating to the
issuance,  sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the  Corporation,  and any  reasonable  determination
made in good


                                       7


faith by the Board of  Directors  as to whether any  transaction  constitutes  a
purchase  of  securities  on  "margin,"  a sale  of  securities  "short,"  or an
underwriting of the sale of, or a participation  in any  underwriting or selling
group in connection with the public  distribution  of, any securities,  shall be
final and conclusive,  and shall be binding upon the Corporation and all holders
of its capital stock,  past, present and future, and shares of the capital stock
of the  Corporation  are issued  and sold on the  condition  and  understanding,
evidenced  by the  purchase of shares of capital  stock or  acceptance  of share
certificates,  that  any  and  all  such  determinations  shall  be  binding  as
aforesaid. No provision of these Articles of Incorporation shall be effective to
(a) require a waiver of compliance  with any provision of the  Securities Act of
1933, as amended,  or the Investment Company Act of 1940, as amended,  or of any
valid  rule,  regulation  or order of the  Securities  and  Exchange  Commission
thereunder  or (b) protect or purport to protect any  director or officer of the
Corporation  against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless  disregard of the duties involved in the conduct of
his office.

                                   ARTICLE IX

                               PERPETUAL EXISTENCE

      The duration of the Corporation shall be perpetual.


                                       8


                                    ARTICLE X

                        PRIVATE PROPERTY OF STOCKHOLDERS

      The private  property of Stockholders  shall not be subject to the payment
of corporate debts to any extent whatsoever.

                                   ARTICLE XI

                         CONVERSION TO OPEN-END COMPANY

      Notwithstanding any other provisions of these Articles of Incorporation or
the  By-Laws of the  Corporation,  a  favorable  vote of the holders of at least
sixty-six and two-thirds  percent (66 2/3%) of the outstanding shares of capital
stock of the Corporation entitled to be voted on the matter shall be required to
approve,  adopt or authorize an amendment to these Articles of  Incorporation of
the  Corporation  that makes the Common Stock a  "redeemable  security" (as that
term is defined in section  2(a) (32) the  Investment  Company  Act of 1940,  as
amended) unless such action has previously 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  of the  Corporation,  in which case the
affirmative  vote of the  holders of a  majority  of the  outstanding  shares of
capital stock of the Corporation entitled to vote thereon shall be required.

                                   ARTICLE XII

                       MERGER, SALE OF ASSETS, LIQUIDATION

      Notwithstanding any other provisions of these Articles of Incorporation or
the  By-Laws of the  Corporation,  a  favorable  vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%)


                                       9


of the  outstanding  shares of capital stock of the  Corporation  entitled to be
voted on the matter  shall be  required  to approve,  adopt or  authorize  (i) a
merger or  consolidation or statutory share exchange of the Corporation with any
other corporation,  (ii) a sale of all or substantially all of the assets of the
Corporation (other than in the regular course of its investment activities),  or
(iii) a liquidation or dissolution  of the  Corporation,  unless such action has
previously 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 of the Corporation, in which case the affirmative vote of the holders of
a  majority  of the  outstanding  shares  of  capital  stock of the  Corporation
entitled to vote thereon shall be required.

                                  ARTICLE XIII

                                    AMENDMENT

      The Corporation  reserves the right to amend,  alter, change or repeal any
provision  contained in these  Articles of  Incorporation,  in the manner now or
hereafter  prescribed  by statute,  including  any  amendment  which  alters the
contract rights, as expressly set forth in the charter, of any outstanding stock
and  substantially  adversely  affects the  stockholders'  rights and all rights
conferred  upon  stockholders  herein are granted  subject to this  reservation.
Notwithstanding  any other  provisions of these Articles of Incorporation or the
By-Laws  of  the  Corporation  (and  notwithstanding  the  fact  that  a  lesser
percentage  may be  specified by law,  these  Articles of  Incorporation  or the
By-Laws of the Corporation) the amendment or repeal of Section (5) of Article V,


                                       10


Section (1),  Section (3),  Section (4),  Section (5) and Section (6) of Article
VI,  Article IX,  Article X, Article XI,  Article XII, or this Article  XIII, of
these  Articles  of  Incorporation  shall  require the  affirmative  vote of the
holders  of  at  least  sixty-six  and  two-thirds  percent  (66  2/3%)  of  the
outstanding  shares of capital stock of the Corporation  entitled to be voted on
the matter.

      IN WITNESS WHEREOF, the undersigned  incorporator of MuniIncome Fund, Inc.
hereby executes the foregoing  Articles of  Incorporation  and  acknowledges the
same to be his act and further  acknowledges that, to the best of his knowledge,
the matters and facts set forth therein are true in all material  respects under
the penalties of perjury.

Dated the 14th day
of April 1993

                                        /s/ Jon R. Lewis
                                        -----------------------
                                             Jon R. Lewis


                                       11

EX-1.B

                                                                    Exhibit 1(b)

                              MUNIINCOME FUND, INC.

                              ARTICLES OF AMENDMENT

      MUNIINCOME FUND, INC., a Maryland  corporation having its principal office
c/o The Corporation Trust  Incorporated,  32 South Street,  Baltimore,  Maryland
21202  (hereinafter  called  the  Corporation),  hereby  certifies  to the State
Department of Assessments and Taxation of Maryland, that:

      FIRST:  The charter of the  Corporation  is hereby amended by striking out
Article II of the Articles of  Incorporation  and  inserting in lieu thereof the
following:

                                   ARTICLE II

                                      NAME

      The name of the corporation is MUNIASSETS FUND, INC. (the "Corporation").

      SECOND: The foregoing amendment to the charter of the Corporation has been
duly  approved by the entire Board of Directors  by  Unanimous  Written  Consent
dated  as of the 5th day of May,  1993 and at the  time of the  approval  by the
Directors there were no shares of stock of the  Corporation  entitled to vote on
the matter either outstanding or subscribed for.

      The President acknowledges these Articles of Amendment to be the corporate
act of the Corporation and states that to the best of his knowledge, information
and belief the matters and facts set forth in these Articles with respect to the
authorization  and approval of the  amendment of the  Corporation's  charter are
true in all  material  respects,  and that  this  statement  is made  under  the
penalties of perjury.




      IN WITNESS WHEREOF, MuniIncome Fund, Inc. has caused these Articles to  be
signed  in its name and on its  behalf  by its  President  and  attested  by its
Secretary on May 5, 1993.

                                                MUNIINCOME FUND, INC.

                                                By: /s/ Philip L. Kirstein
                                                   -----------------------------
                                                   Philip L. Kirstein, President

Attest:

By: /s/ Mark B. Goldfus
    ----------------------------
    Mark B. Goldfus, Secretary


                                       2

EX-5.B

                                                                    Exhibit 5(b)

                             TEMPORARY CERTIFICATE
                      Exchangeable for Definitive Engraved
                      Certificate When Ready for Delivery

                               [GRAPHIC OMITTED]

                              MuniAssets Fund, Inc.

              INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND

  COMMON STOCK                                         CUSIP 62618Q 10 6
 PAR VALUE $.10                              SEE REVERSE FOR CERTAIN DEFINITIONS

This certifies that

is the owner of

            FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF

MuniAssets  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 made thereto.  This Certificate is not 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.

MUNIASSETS FUND, INC.
     CORPORATE
        SEAL
        1993
      MARYLAND

Dated:

                              Authorized Signature

          /s/ Mark B. Goldfus                      /s/ Arthur Zeikel
     ------------------------------          ------------------------------
               Secretary                               President

                          Countersigned and Registered
                              The Bank of New York

By _______________________                          Transfer Agent
                                                    and Registrar




                              MuniAssets Fund, Inc.

      A full statement of the designations  and any preferences,  conversion and
other  rights,  voting  powers,  restrictions,   limitations  as  to  dividends,
qualifications  and terms and  conditions  of  redemption  of the shares of each
class and series of stock which the  Corporation  is authorized to issue and the
differences in the relative  rights and  preferences  between the shares of each
class and series to the extent that they have been set, and the authority of the
Board of Directors  to set the relative  rights and  preferences  of  subsequent
classes and series,  will be furnished by the  Corporation  to any  stockholder,
without  charge,  upon  request  to  the  Secretary  of the  Corporation  at its
principal office.


The following  abbreviations,  when used in the  inscription on the face of this
certificate,  shall  be  construed  as  though  they  were  written  out in full
according to applicable laws or regulations:

TEN COM -- as tenants in common       UNIF GIFT MIN ACT --       Custodian
                                                           ---------------------
                                                           (Cust)       (Minor)
TEN ENT -- as tenants by the entireties            under Uniform Gifts to Minors

JT TEN  -- as joint tenants with right                     Act _________________
           of survivorship and not as                               (State)
           tenants in common

     Additional abbreviations may also be used though not in the above list

      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.

  For value received ____________________ hereby sell, assign and transfer unto

    PLEASE INSERT SOCIAL SECURITY OR OTHER
        IDENTIFYING NUMBER OF ASSIGNEE

________________________________________________________________________________

________________________________________________________________________________
    PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE

________________________________________________________________________________

________________________________________________________________________________

_________________________________________________________________________ Shares
represented by the within Certificate and do hereby  irrevocably  constitute and
appoint

________________________________________________________________________________

________________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.

Dated: __________________________

                                       X ________________________________

Signatures  must be guaranteed by an "eligible  guarantor  institution"  as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.

EX-6

                                                                       Exhibit 6

                          INVESTMENT ADVISORY AGREEMENT

      AGREEMENT  made this 25th day of June,  1993,  by and  between  MUNIASSETS
FUND, INC., a Maryland corporation (hereinafter referred to as the "Fund"), and
FUND ASSET MANAGEMENT,  INC., a Delaware corporation (hereinafter referred to as
the "Investment Adviser").

                              W I T N E S S E T H:

      WHEREAS, the Fund is engaged in business as a non-diversified,  closed-end
management  investment  company  registered under the Investment  Company Act of
1940, as amended (hereinafter referred to as the "Investment Company Act"); and

      WHEREAS,  the  Investment  Adviser is  engaged  principally  in  rendering
management and investment  advisory  services and is registered as an investment
adviser under the Investment Advisers Act of l94O; and

      WHEREAS,  the Fund  desires  to retain the  Investment  Adviser to provide
management and investment advisory services to the Fund in the manner and on the
terms hereinafter set forth; and

      WHEREAS,  the  Investment  Adviser is willing  to provide  management  and
investment advisory services to the Fund on the terms and conditions hereinafter
set forth;

      NOW,  THEREFORE,  in  consideration  of the  premises  and  the  covenants
hereinafter  contained,  the Fund and the  Investment  Adviser  hereby  agree as
follows:




                                    ARTICLE I

                        Duties of the Investment Adviser

      The Fund  hereby  employs the  Investment  Adviser to act as a manager and
investment  adviser of the Fund and to  furnish,  or arrange for  affiliates  to
furnish,  the management  and  investment  advisory  services  described  below,
subject  to the  policies  of,  review by and  overall  control  of the Board of
Directors of the Fund,  for the period and on the terms and conditions set forth
in this  Agreement.  The Investment  Adviser hereby accepts such  employment and
agrees  during such period,  at its own expense,  to render,  or arrange for the
rendering of, such services and to assume the  obligations  herein set forth for
the compensation  provided for herein. The Investment Adviser and its affiliates
shall for all purposes herein be deemed to be independent contractors and shall,
unless otherwise expressly provided or authorized,  have no authority to act for
or represent the Fund in any way or otherwise be deemed agents of the Fund.

      (a) Investment Advisory Services. The Investment Adviser shall perform (or
arrange  for  the  performance  by  affiliates  of) the  management,  investment
advisory and  administrative  services  necessary  for the operation of the Fund
including administering shareholder accounts and handling shareholder relations.
The  Investment  Adviser shall  provide the Fund with office space,  facilities,
equipment and  necessary  personnel  and such other  services as the  Investment
Adviser,  subject to review by the Board of  Directors,  shall from time to time
determine  to be  necessary  or useful to  perform  its  obligations  under this
Agreement. The


                                       2


Investment  Adviser shall also, on behalf of the Fund,  conduct  relations  with
custodians,  depositories,  transfer agents, pricing agents, dividend disbursing
agents,   other   shareholder   servicing   agents,   accountants,    attorneys,
underwriters,  brokers and dealers,  corporate fiduciaries,  insurers, banks and
such  other  persons  in any such  other  capacity  deemed  to be  necessary  or
desirable.  The Investment Adviser shall generally monitor the Fund's compliance
with  investment  policies and  restrictions as set forth in filings made by the
Fund under the  Federal  securities  laws.  The  Investment  Adviser  shall make
reports to the Board of Directors of its  performance of  obligations  hereunder
and furnish advice and recommendations with respect to such other aspects of the
business and affairs of the Fund as it shall determine to be desirable.

      (b) Investment Advisory Services. The Investment Adviser shall provide (or
arrange for  affiliates  to  provide)  the Fund with such  investment  research,
advice and  supervision  as the latter may from time to time consider  necessary
for the proper supervision of the assets of the Fund, shall furnish continuously
an investment  program for the Fund and shall  determine from time to time which
securities shall be purchased,  sold or exchanged and what portion of the assets
of the Fund shall be held in the various  securities  in which the Fund invests,
options, futures, options on futures or cash, subject always to the restrictions
of the Articles of  Incorporation  and By-Laws of the Fund, as amended from time
to  time,  the  provisions  of the  Investment  Company  Act and the  statements
relating to the Fund's investment objectives, investment policies and investment
restrictions as the same are set forth in


                                       3


filings  made by the Fund under the  Federal  securities  laws.  The  Investment
Adviser  shall make  decisions for the Fund as to foreign  currency  matters and
make determinations as to foreign exchange contracts,  foreign currency options,
foreign currency futures and related options on foreign  currency  futures.  The
Investment  Adviser shall make  decisions for the Fund as to the manner in which
voting  rights,  rights to consent  to  corporate  action  and any other  rights
pertaining to the Fund's  portfolio  securities  shall be exercised.  Should the
Directors at any time, however, make any definite determination as to investment
policy and notify the  Investment  Adviser  thereof in writing,  the  Investment
Adviser shall be bound by such  determination for the period, if any,  specified
in such notice or until  similarly  notified  that such  determination  has been
revoked.  The Investment  Adviser shall take, on behalf of the Fund, all actions
which it deems  necessary to implement  the  investment  policies  determined as
provided  above,  and in particular to place all orders for the purchase or sale
of portfolio  securities for the Fund's account with brokers or dealers selected
by it, and to that end, the Investment Adviser is authorized as the agent of the
Fund to give  instructions  to the  Custodian  of the Fund as to  deliveries  of
securities and payments of cash for the account of the Fund. In connection  with
the  selection  of such  brokers or dealers  and the placing of such orders with
respect to assets of the Fund, the  Investment  Adviser is directed at all times
to seek to obtain execution and prices within the policy  guidelines  determined
by the Board of  Directors  and set forth in filings  made by the Fund under the
Federal securities laws. Subject to this


                                       4


requirement  and the  provisions of the  Investment  Company Act, the Securities
Exchange Act of 1934, as amended,  and other  applicable  provisions of law, the
Investment  Adviser may select  brokers or dealers  with which it or the Fund is
affiliated.

                                   ARTICLE II

                       Allocation of Charges and Expenses

      (a) The Investment  Adviser.  The Investment Adviser assumes and shall pay
for  maintaining  the staff and personnel  necessary to perform its  obligations
under this  Agreement,  and shall at its own expense,  provide the office space,
facilities,  equipment and necessary  personnel which it is obligated to provide
under Article I hereof, and shall pay all compensation of officers and employees
of the Fund and all  Directors  of the Fund who are  affiliated  persons  of the
Investment Adviser.

      (b) The Fund. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund including, without limitation: organizational costs, taxes,
expenses  for legal and  auditing  services,  costs of printing  proxies,  stock
certificates,  shareholder reports,  prospectuses,  listing fees, charges of the
custodian,  any  sub-custodian,  transfer agent,  dividend  disbursing agent and
registrar,   expenses  of  portfolio   transactions,   Securities  and  Exchange
Commission  fees,  expenses of registering  the shares under Federal,  state and
foreign laws,  fees and actual  out-of-pocket  expenses of Directors who are not
affiliated  persons of the  Investment  Adviser,  accounting  and pricing  costs
(including the weekly calculation of the net asset value), insurance,  interest,
brokerage costs, litigation and other extraordinary or nonrecurring


                                       5


expenses, and other expenses properly payable by the Fund. It is also understood
that the Fund will reimburse the  Investment  Adviser for its costs in providing
accounting services to the Fund.

                                   ARTICLE III

                     Compensation of the Investment Adviser

      (a) Investment  Advisory Fee. For the services  rendered,  the  facilities
furnished and expenses assumed by the Investment Adviser,  the Fund shall pay to
the  Investment  Adviser at the end of each calendar  month a fee based upon the
average  weekly  value of the net assets of the Fund at the annual rate of 0.55%
of the Fund's average  weekly net assets (i.e.,  the average weekly value of the
total  assets of the Fund,  minus the sum of accrued  liabilities  of the Fund),
commencing  on the day  following  effectiveness  hereof.  For  purposes of this
calculation,  average  weekly net assets are determined at the end of each month
on the basis of the  average  net  assets of the Fund for each week  during  the
month.  The assets for each weekly  period are  determined  by averaging the net
assets  at the  last  business  day of a week  with the net  assets  at the last
business day of the prior week. If this Agreement becomes  effective  subsequent
to the first day of a month or shall  terminate  before the last day of a month,
compensation  for that part of the month this  Agreement  is in effect  shall be
prorated in a manner  consistent  with the  calculation  of the fee as set forth
above. Payment of the Investment Adviser's  compensation for the preceding month
shall be made as promptly as possible.  During any period when the determination
of net asset value is suspended by the Board of Directors, the average net asset
value of a share for the last


                                       6


week  prior to such  suspension  shall for this  purpose be deemed to be the net
asset value at the close of each succeeding week until it is again determined.

                                   ARTICLE IV

                Limitation of Liability of the Investment Adviser

      The  Investment  Adviser  shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any  investment  or for any act or
omission in the  management  of the Fund,  except for willful  misfeasance,  bad
faith or gross  negligence  in the  performance  of its duties,  or by reason of
reckless  disregard of its  obligations  and duties  hereunder.  As used in this
Article IV, the term  "Investment  Adviser"  shall include any affiliates of the
Investment  Adviser  performing  services for the Fund  contemplated  hereby and
directors, officers and employees of the Investment Adviser and such affiliates.

                                    ARTICLE V

                      Activities of the Investment Adviser

      The services of the Investment Adviser to the Fund are not to be deemed to
be  exclusive:  the  Investment  Adviser and any person  controlled  by or under
common  control  with the  Investment  Adviser  (for  purposes of this Article V
referred  to as  "affiliates")  are free to render  services  to  others.  It is
understood that Directors,  officers, employees and shareholders of the Fund are
or may become  interested  in the  Investment  Adviser  and its  affiliates,  as
directors, officers, employees, partners and shareholders or otherwise, and that
directors,  officers,  employees,  partners and  shareholders  of the Investment
Adviser and its


                                       7


affiliates  are or may become  similarly  interested  in the Fund,  and that the
Investment Adviser and directors, officers, employees, partners and shareholders
of its  affiliates  may  become  interested  in the  Fund  as a  shareholder  or
otherwise.

                                   ARTICLE VI

                   Duration and Termination of this Agreement

      This Agreement  shall become  effective as of the date first above written
and shall remain in force until June 18, 1995 and  thereafter,  but only so long
as such continuance is specifically  approved at least annually by (i) the Board
of Directors of the Fund, or by the vote of a majority of the outstanding voting
securities  of the Fund,  and (ii) a  majority  of those  Directors  who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.

      This  Agreement may be terminated at any time,  without the payment of any
penalty,  by the Board of Directors or by vote of a majority of the  outstanding
voting  securities of the Fund,  or by the  Investment  Adviser,  on sixty days'
written notice to the other party. This Agreement shall automatically  terminate
in the event of its assignment.


                                       8


                                   ARTICLE VII

                           Amendment of this Agreement

      This  Agreement  may be amended by the parties  only if such  amendment is
specifically  approved  by (i) the  vote of a  majority  of  outstanding  voting
securities  of the Fund,  and (ii) a  majority  of those  Directors  who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.

                                  ARTICLE VIII

                          Definitions of Certain Terms

      The terms  "vote of a  majority  of the  outstanding  voting  securities,"
"assignment,"  "affiliated  person" and  "interested  person," when used in this
Agreement,  shall  have the  respective  meanings  specified  in the  Investment
Company Act and the rules and regulations thereunder,  subject, however, to such
exemptions as may be granted by the  Securities  and Exchange  Commission  under
said Act.

                                   ARTICLE IX

                                  Governing Law

      This Agreement  shall be construed in accordance with laws of the State of
New York and the  applicable  provisions of the  Investment  Company Act. To the
extent  that  the  applicable  laws  of the  State  of New  York,  or any of the
provisions  herein,  conflict with the  applicable  provisions of the Investment
Company Act, the latter shall control.


                                       9


      IN WITNESS  WHEREOF,  the parties  hereto have executed and delivered this
Agreement as of the date first above written.

                                             MUNIASSETS FUND, INC.

                                             By /s/ Mark B. Goldfus
                                                ----------------------------
                                                   (Authorized Signatory)

                                             FUND ASSET MANAGEMENT, INC.

                                             By /s/ Mark B. Goldfus
                                                ----------------------------
                                                   (Authorized Signatory)

EX-7.A

                                                                    Exhibit 7(a)
                                6,700,000 Shares

                              MuniAssets Fund, Inc.
                            (a Maryland corporation)

                                  Common Stock
                           (Par Value $0.10 Per Share)

                               PURCHASE AGREEMENT


                                                                  June ___, 1993

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:

      MuniAssets 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 6,700,000  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 1,005,000 additional shares of Common Stock to cover
over-allotments. The aforesaid 6,700,000 shares (the "Initial Shares"), together
with all or any part of the 1,005,000  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. 33-61150) 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


                                       2


      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 accounting principles.

            (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.


                                       3


            (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 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.


                                       4


            (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.

            (xii) The  Shares  have been  approved  for  listing on the New York
      Stock Exchange upon notice of issuance.

      (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


                                       5


      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.

            (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


                                       6


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  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 Rogers & Wells,  200 Park Avenue,
New York, New York 10166,  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").  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 Rogers & Wells,  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.


                                       7


      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 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


                                       8


amendment  thereto (but without  exhibits to the  registration  statement or any
such amendment).

      (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 securityholders 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)  covering a twelve-month  period beginning not
later  than the first day of the  Funds'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,


                                       9


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 the
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)  Trading of the Shares on the New York  Stock  Exchange  will begin no
later than four weeks from the date of the Prospectus.

      SECTION 4. Payment of Expenses.  The Fund will pay all expenses incidental
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 its  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.

      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


                                       10


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 Rogers & Wells,
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  each have been duly
      authorized,  executed and delivered by the Fund and each complies with all
      applicable provisions of the 1940 Act.


                                       11


            (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,  and no default
      exists in the due  performance  or observance of any material  obligation,
      agreement,  covenant or condition  contained in any  contract,  indenture,
      mortgage,  loan agreement,  note,  lease or other instrument 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


                                       12


      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 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


                                       13


      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  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 addition to providing the opinion required by subsection (b) (1) of
this  Section,  Rogers & Wells  shall also state that  nothing has come to their
attention that would lead them to believe that the Registration Statement on the
date it became  effective or at the  Representation  Date,  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 or
that the Prospectus, as of the date the Registration Statement became effective,
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,  contained or contain any untrue  statement of a material fact or
omitted 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.  In  making  such  statement,  Rogers  & Wells  may  state  that the
limitations inherent in the independent  verification of factual matters and the
character  of  determinations  involved  in the  registration  process are such,
however,   that  it  does  not  assume  any  responsibility  for  the  accuracy,
completeness  or  fairness  of the  statements  contained  in  the  Registration
Statement and Prospectus,  except to the limited extent stated in paragraph b(l)
(xiii) above.  In addition,  it does not express any opinion or belief as to the
financial statements  contained in the Registration  Statement or the Prospectus
and  understands  that the  Underwriters  are  relying  upon  Deloitte & Touche,
certified public accountants, as to the form and content of financial statements
contained in the Registration Statement and Prospectus. In giving their opinion,
Rogers  & Wells  may  rely as to  matters  involving  the  laws of the  State of
Maryland upon the opinion of Ginsburg,  Feldman and Bress, Chartered.  Ginsburg,
Feldman and Bress, Chartered and Rogers & Wells may rely, as to matters of fact,
upon certificates


                                       14


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 the Prospectus  shall 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,  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
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) and (b) 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:


                                       15


            (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 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;


                                       16


            (2) the  favorable  opinion of Rogers & Wells,  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; and

            (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 omission,  or any such
      alleged untrue statement or omission, if such settlement is


                                       17


          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


                                       18


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, 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


                                       19


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.

      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:  _________,
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.


                                       20


      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,

                                       MUNIASSETS 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


                                       21


                                                                       Exhibit A

                                6,700,000 Shares
                              MuniAssets Fund, Inc
                            (a Maryland corporation)

                                  Common Stock
                           (Par Value $.l0 Per Share)

                                PRICING AGREEMENT


                                                                   June __, 1993

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 June ___,  1993 (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
MuniAssets  Fund,  Inc.  (the "Fund") and relating to the option  granted to the
Underwriter  to purchase up to an additional  1,005,000  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  purchase  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 $_________ being an amount equal to the applicable  initial
public offering price set forth above less (i) $_____ per share for purchases in
single  transactions  of less  than  3,500  Shares;  (ii)  $_____  per share for
purchases  in single  transactions  of 3,500 or more  Shares but less than 7,000
Shares and (iii) $_____ 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,

                                               MUNIASSETS 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

EX-7.B

                                                                    Exhibit 7(b)

                                                        Revised October 29, 1990

[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 Rules of Fair  Practice  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 Section
24 of Article III of the Rules of Fair  Practice 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  Sections  8 and 36 of
Article  III of such Rules of Fair  Practice  and to comply  with  Section 25 of
Article III thereof as that Section  applies to a non-member  foreign  dealer or
bank. You represent that you are fully familiar with the above provisions of the
Rules of Fair Practice 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  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.


                                       2


      13. This Agreement shall be governed by the laws of the State of New York.

      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:  /s/ Fred F. Hessinger
                                              ---------------------------------
                                                   Name: Fred F. Hessinger

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)


                                        3

EX-9

                                                                       Exhibit 9

                                CUSTODY AGREEMENT

      Agreement made as of this 14th day of June, 1993, between MuniAssets Fund,
Inc.,  a  corporation  organized  and  existing  under  the laws of the State of
Maryland   having   its   principal    office   and   place   of   business   at
                                    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. "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.

      2. "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.

      3. "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,  and the term  Certificate  shall  also  include
instructions by the Fund to the Custodian communicated by a Terminal Link.

      4.  "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.




      5.  "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.

      6. "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.

      7.  "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 Directors  specifically approving deposits therein by the
Custodian.

      8. "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.

      9. "Futures Contract" shall mean a Financial Futures Contract and/or Stock
Index Futures Contracts.

      10.  "Futures  Contract  Option"  shall mean an option  with  respect to a
Futures Contract.

      11.  "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.


                                      -2-


      12.  "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.

      13.  "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.

      14.  "Officers"  shall  be  deemed  to  include  the  President,  any Vice
President,  the  Secretary,   the  Treasurer,  the  Controller,   any  Assistant
Secretary,  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 Directors 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  A or such  other  Certificate  as may be  received  by the
Custodian from time to time.

      15.  "Option" shall mean a Call Option,  Covered Call Option,  Stock Index
Option and/or a Put Option.

      16. "Oral Instructions"  shall mean verbal instructions  actually received
by the  Custodian  from an Officer or from a person  reasonably  believed by the
Custodian to be an Officer.

      17. "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.

      18. "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.

      19.  "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


                                      -3-


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.

      20.  "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.

      21.  "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.

      22.  "Shares" shall mean the shares of capital stock of the Fund,  each of
which is, in the case of a Fund having Series, allocated to a particular Series.

      23.  "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 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.

      24. "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.

      25.  "Terminal  Link"  shall mean an  electronic  data  transmission  link
between the Fund and the Custodian  requiring in connection with each use of the
Terminal Link by or on behalf of the Fund use of an authorization  code provided
by the Custodian and at least two access codes established by the Fund.


                                      -4-


                                   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 Fund's  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 Directors 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
Directors 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 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


                                      -5-


      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 Directors, 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


                                      -6-


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  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 B 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.


                                      -7-


      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  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,


                                      -8-


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,  a  Certificate  or Oral
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


                                      -9-


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 or Oral 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 or
Oral 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 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 or Oral 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

                                      -10-


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.

      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


                                      -11-


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 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


                                      -12-


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 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


                                      -13-


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


                                      -14-


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 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,


                                      -15-


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.

      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.


                                      -16-


                                  ARTICLE VII.

                            FUTURES CONTRACT 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
Future 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 of 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 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


                                      -17-


(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:


                                      -18-


(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;  (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.


                                      -19-


      9.  Futures  Contracts  acquired  by the Funds 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  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


                                      -20-


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  or  Oral  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 or Oral 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 or Oral Instructions to the Custodian  specifying:  (a)
the Reverse Repurchase  Agreement being 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 or Oral Instructions,  make the payment to the broker or dealer, and
the  withdrawals,  if any, from the Senior Security  Account,  specified in such
Certificate or Oral Instructions.


                                      -21-


                                   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.


                                      -22-


                                   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.


                                      -23-


      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 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 Directors  of the Fund,  certified  by the  Secretary or any  Assistant
Secretary, 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  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
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.


                                      -24-


                                  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.  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) A resolution by the Board of Directors of the Fund directing the
                Transfer Agent to redeem the Shares; and

            (b) A  Certificate  specifying  the  number  and  Series  of  Shares
                redeemed; and

            (c) 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.


                                      -25-


                                  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  or Oral  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 1/2%  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 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


                                      -26-


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.

                                  TERMINAL LINK

      1. At no time and under no  circumstances  shall the Fund be  obligated to
have or utilize the Terminal  Link,  and the  provisions  of this Article  shall
apply if, but only if, the Fund in its sole and  absolute  discretion  elects to
utilize the Terminal Link to transmit Certificates to the Custodian.

      2. The Terminal Link shall be utilized by the Fund only for the purpose of
the Fund providing  Certificates  to the Custodian with respect to  transactions
involving  Securities  or for the transfer of money to be applied to the payment
of


                                      -27-


dividends, distributions or redemptions of Fund Shares, and shall be utilized by
the Custodian  only for the purpose of providing  notices to the Fund.  Such use
shall  commence  only after the Fund shall have  delivered  to the  Custodian  a
Certificate  substantially  in the form of Exhibit D and shall have  established
access  codes.  Each use of the  Terminal  Link by the Fund shall  constitute  a
representation  and warranty  that the Terminal  Link is being used only for the
purposes  permitted  hereby,  that at least two Officers  have each  utilized an
access code, that such safekeeping procedures have been established by the Fund,
and that such use does not  contravene  the  Investment  Company Act of 1940, as
amended, or the rules or regulations thereunder.

      3. The Fund shall  obtain and  maintain  at its own cost and  expense  all
equipment and services,  including,  but not limited to communications services,
necessary for it to utilize the Terminal  Link,  and the Custodian  shall not be
responsible  for the  reliability  or  availability  of any  such  equipment  or
services.

      4. The Fund acknowledges that any data bases made available as part of, or
through  the  Terminal  Link  and any  proprietary  data,  software,  processes,
information and  documentation  (other than any such which are or become part of
the public  domain or are legally  required to be made  available to the public)
(collectively,  the "Information"),  are the exclusive and confidential property
of the Custodian.  The Fund shall,  and shall cause others to which it discloses
the Information, to keep the Information confidential by using the same care and
discretion  it uses with  respect  to its own  confidential  property  and trade
secrets,  and shall neither make nor permit any  disclosure  without the express
prior written consent of the Custodian.

      5. Upon  termination  of this  Agreement  for any  reason,  the Fund shall
return to the Custodian any and all copies of the  Information  which are in the
Fund's  possession or under its control,  or which the Fund distributed to third
parties. The provisions of this Article shall not affect the copyright status of
any of  the  Information  which  may  be  copyrighted  and  shall  apply  to all
Information whether or not copyrighted.

      6. The Custodian  reserves the right to modify the Terminal Link from time
to time without notice to the Fund except that the Custodian shall give the Fund
notice  not  less  than 75 days  in  advance  of any  modification  which  would
materially  adversely affect the Fund's operation,  and the Fund agrees that the
Fund  shall not  modify or  attempt to modify  the  Terminal  Link  without  the
Custodian's  prior written consent.  The Fund  acknowledges that any software or
procedures  provided the Fund as part of the  Terminal  Link are the property of
the Custodian and,  accordingly,  the Fund agrees that any  modifications to the
Terminal Link, whether by the Fund, or by


                                      -28-


the Custodian and whether with or without the Custodian's consent,  shall become
the property of the Custodian.

      7. Neither the Custodian nor any  manufacturers  and suppliers it utilizes
or the Fund utilizes in connection  with the Terminal Link makes any  warranties
or  representations,  express or implied,  in fact or in law,  including but not
limited to warranties of merchantability and fitness for a particular purpose.

      8.  The  Fund  will  cause  its  Officers  and   employees  to  treat  the
authorization  codes and the  access  codes  applicable  to  Terminal  Link with
extreme care, and irrevocably authorizes the Custodian to act in accordance with
and rely on  Certificates  received by it through the  Terminal  Link.  The Fund
acknowledges that it is its  responsibility to assure that only its Officers use
the Terminal Link on its behalf,  and that a Custodian  shall not be responsible
nor liable for use of the Terminal  Link on the Fund's  behalf by persons  other
than  such  persons  or  Officers,  or by  only a  single  Officer,  nor for any
alteration, omission, or failure to promptly forward.

      9 (a). Except as otherwise  specifically  provided in Section 9(b) of this
Article,  the  Custodian  shall  have  no  liability  for any  losses,  damages,
injuries,  claims,  costs or expenses  arising out of or in connection  with any
failure,  malfunction or other problem  relating to the Terminal Link except for
money damages  suffered as the direct result of the  negligence of the Custodian
in an amount not exceeding for any incident $25,000 provided,  however, that the
Custodian  shall have no  liability  under  this  Section 9 if the Fund fails to
comply with the provisions of Section 11.

      9 (b).  The  Custodian's  liability  for its  negligence  in  executing or
failing to execute in accordance with a Certificate  received  through  Terminal
Link  shall be only with  respect to a  transfer  of funds  which is not made in
accordance with such  Certificate  after such  Certificate  shall have been duly
acknowledged  by the Custodian,  and shall be contingent upon the Fund complying
with the  provisions of Section 12 of this Article,  and shall be limited to (i)
restoration of the principal  amount  mistransferred,  if and to the extent that
the Custodian would be required to make such  restoration  under applicable law,
and (ii) the lesser of (A) a Fund's actual  pecuniary loss incurred by reason of
its  loss  of use of the  mistransferred  funds  or the  funds  which  were  not
transferred,  as the case may be, or (B) compensation for the loss of the use of
the  mistransferred  funds or the funds which were not transferred,  as the case
may be, at a rate per annum equal to the average  federal funds rate as computed
from the Federal Reserve Bank of New York's daily determination of the effective
rate for federal funds,  for the period during which a Fund has lost use of such
funds. In no event shall the Custodian have any liability for failing to execute
in


                                      -29-


accordance  with a  Certificate  a transfer  of funds where the  Certificate  is
received  by  the  Custodian  through  Terminal  Link  other  than  through  the
applicable  transfer  module for the particular  instructions  contained in such
Certificate.

      10. Without  limiting the  generality of the foregoing,  in no event shall
the  Custodian  or any  manufacturer  or  supplier  of its  computer  equipment,
software  or services  relating  to the  Terminal  Link be  responsible  for any
special, indirect,  incidental or consequential damages which the Fund may incur
or experience by reason of its use of the Terminal Link even if the Custodian or
any  manufacturer  or  supplier  has been  advised  of the  possibility  of such
damages, nor with respect to the use of the Terminal Link shall the Custodian or
any such  manufacturer or supplier be liable for acts of God, or with respect to
the following to the extent beyond such person's reasonable control:  machine or
computer breakdown or malfunction,  interruption or malfunction of communication
facilities, labor difficulties or any other similar or dissimilar cause.

      11. The Fund shall  notify  the  Custodian  of any  errors,  omissions  or
interruptions in, or delay or  unavailability  of, the Terminal Link as promptly
as  practicable,  and in any event  within 24 hours  after the  earliest  of (i)
discovery thereof, (ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error,  the
date of actual  receipt of the earliest  notice which  reflects  such error,  it
being agreed that  discovery  and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian  learns
of any errors,  omissions or interruption in, or delay or unavailability of, the
Terminal Link.

      12. The Custodian  shall verify to the Fund, by use of the Terminal  Link,
receipt of each  Certificate the Custodian  receives  through the Terminal Link,
and in the absence of such  verification  the Custodian  shall not be liable for
any  failure to act in  accordance  with such  Certificate  and the Fund may not
claim that such  Certificate was received by the Custodian.  Such  verification,
which may occur after the  Custodian has acted upon such  Certificate,  shall be
accomplished on the same day on which such Certificate is received.


                                      -30-


                                  ARTICLE XVI.

                DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
                 OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES

      1. The Custodian is authorized and instructed to employ,  as sub-custodian
for each Series'  Foreign  Securities  (as such term is defined in paragraph (c)
(1) of Rule 17f-5  under the  Investment  Company Act of 1940,  as amended)  and
other  assets,   the  foreign  banking   institutions  and  foreign   securities
depositories  and clearing  agencies  designated on Schedule I hereto  ("Foreign
Sub-Custodians")  to carry out their respective  responsibilities  in accordance
with the terms of the  sub-custodian  agreement  between  each such Foreign Sub-
Custodian and the Custodian,  copies of which have been previously  delivered to
the Fund and receipt of which is hereby  acknowledged  (each such  agreement,  a
"Foreign Sub-Custodian  Agreement").  The Custodian shall be liable for the acts
and omissions of each Foreign Sub-Custodian  constituting  negligence or willful
misconduct in the conduct of its responsibilities under the terms of the Foreign
Sub-Custodian  Agreement.  Upon  receipt  of  a  Certificate,  together  with  a
certified  resolution  substantially  in the form  attached  as Exhibit E of the
Fund's  Board of  Directors,  the  Fund may  designate  any  additional  foreign
sub-custodian  with which the  Custodian has an agreement for such entity to act
as the Custodian's  agent, as its sub-custodian and any such additional  foreign
sub-custodian shall be deemed added to Schedule I. Upon receipt of a Certificate
from the Fund,  the  Custodian  shall  cease the  employment  of any one or more
Foreign  Sub-Custodians  for  maintaining  custody of the Fund's assets and such
Foreign Sub-Custodian shall be deemed deleted from Schedule I.

      2. Each Foreign Sub-Custodian Agreement shall be substantially in the form
previously  delivered  to the  Fund  and  will  not  be  amended  in a way  that
materially adversely affects the Fund without the Fund's prior written consent.

      3. The Custodian  shall  identify on its books as belonging to each Series
of the  Fund  the  Foreign  Securities  of such  Series  held  by  each  Foreign
Sub-Custodian.  At  the  election  of the  Fund,  it  shall  be  entitled  to be
subrogated to the rights of the Custodian with respect to any claims by the Fund
or any Series  against a Foreign  Sub-Custodian  as a  consequence  of any loss,
damage,  cost, expense,  liability or claim sustained or incurred by the Fund or
any Series if and to the extent  that the Fund or such  Series has not been made
whole for any such loss, damage, cost, expense, liability or claim.


                                      -31-


      4. Upon request of the Fund, the Custodian will, consistent with the terms
of the applicable  Foreign  Sub-Custodian  Agreement,  use reasonable efforts to
arrange for the independent accountants of the Fund to be afforded access to the
books and records of any Foreign Sub-Custodian insofar as such books and records
relate to the performance of such Foreign Sub-Custodian under its agreement with
the Custodian on behalf of the Fund.

      5. The  Custodian  will supply to the Fund from time to time,  as mutually
agreed upon,  statements in respect of the  securities  and other assets of each
Series  held by  Foreign  Sub-Custodians,  including  but  not  limited  to,  an
identification of entities having possession of each Series' Foreign  Securities
and other  assets,  and advices or  notifications  of any  transfers  of Foreign
Securities  to or from each  custodial  account  maintained  by a  Foreign  Sub-
Custodian for the Custodian on behalf of the Series.

      6. The Custodian  shall furnish  annually to the Fund, as mutually  agreed
upon,  information  concerning  the  Foreign  Sub-Custodians   employed  by  the
Custodian. Such information shall be similar in kind and scope to that furnished
to the Fund in  connection  with the Fund's  initial  approval  of such  Foreign
Sub-Custodians  and, in any event, shall include  information  pertaining to (i)
the Foreign Custodians'  financial strength,  general reputation and standing in
the  countries  in which they are  located  and their  ability  to  provide  the
custodial services required,  and (ii) whether the Foreign  Sub-Custodians would
provide a level of safeguards  for  safekeeping  and custody of  securities  not
materially  different from those prevailing in the United States.  The Custodian
shall monitor the general operating  performance of each Foreign  Sub-Custodian,
and at least annually obtain and review the annual financial report published by
such Foreign  Sub-Custodian to determine that it meets the financial criteria of
an "Eligible Foreign Custodian" under Rule 17f-5(c)(2)(i) or (ii). The Custodian
will  promptly  inform the Fund in the event that the  Custodian  learns  that a
Foreign Sub-Custodian no longer satisfies the financial criteria of an "Eligible
Foreign  Custodian"  under  such Rule.  The  Custodian  agrees  that it will use
reasonable care in monitoring  compliance by each Foreign Sub-Custodian with the
terms of the relevant Foreign  Sub-Custodian  Agreement and that if it learns of
any breach of such Foreign Sub-Custodian  Agreement believed by the Custodian to
have a material adverse effect on the Fund or any Series it will promptly notify
the Fund of such  breach.  The  Custodian  also  agrees  to use  reasonable  and
diligent efforts to enforce its rights under the relevant Foreign  Sub-Custodian
Agreement.

      7. The Custodian shall transmit promptly to the Fund all notices,  reports
or  other  written  information   received  pertaining  to  the  Fund's  Foreign
Securities,  including without limitation,  notices of corporate action, proxies
and proxy solicitation materials.


                                      -32-


      8.  Notwithstanding  any  provision  of this  Agreement  to the  contrary,
settlement and payment for securities received for the account of any Series and
delivery of securities maintained for the account of such Series may be effected
in accordance with the customary or established securities trading or securities
processing  practices and procedures in the  jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser  thereof or to a dealer  therefor  (or an agent for such  purchaser or
dealer)  against a receipt with the  expectation of receiving  later payment for
such securities from such purchaser or dealer.

                                  ARTICLE XVII.

                            CONCERNING THE CUSTODIAN

      1. Except as hereinafter  provided,  or as provided in Article XVI 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 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;


                                      -33-


             (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  matters  relating to  Securities  held in the
Depository, unless the Custodian shall have actually received


                                      -34-


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  in  addition  to  the   employment  of  Foreign
Sub-Custodians  pursuant to Article XVI 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 or by
any  Foreign  Sub-Custodian,  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.


                                      -35-


      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  allocated 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 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  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 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 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 given to the Custodian hereunder  concerning such transactions
provided  such  instructions  reasonably  appear to have been  received  from an
Officer.

      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


                                      -36-


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.  Subject to the  foregoing  provisions of this  Agreement,  including,
without limitation, those contained in Article XVI 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.

      15.  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.


                                      -37-


                                 ARTICLE XVIII.

                                   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  Directors of the Fund,  certified by
the Secretary or any Assistant  Secretary,  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  Directors  of the  Fund,  certified  by the
Secretary  or any  Assistant  Secretary,  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.

                                  ARTICLE XIX.

                                  MISCELLANEOUS

      1.  Annexed  hereto as  Appendix A is a  Certificate  signed by two of the
present  Officers of the Fund under its corporate seal,  setting forth the names
and the  signatures  of the  present  Officers  of the Fund.  The Fund agrees to
furnish to


                                      -38-


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.

      2. 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.

      3. 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.

      4. 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 Directors of the Fund.

      5. 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 Directors.

      6. 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.

      7. 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.


                                      -39-


      IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
executed by their respective  corporate Officers,  thereunto duly authorized and
their respective  corporate seals to be hereunto affixed, as of the day and year
first above written.

                                   MUNIASSET FUND, INC.

[SEAL]                             By: /s/ Gerald M Richard, Treasurer
                                       ---------------------------------
                                       GERALD M. RICHARD, TREASURER

Attest:
/s/ Mark B. Goldfus
- --------------------------

                                   THE BANK OF NEW YORK

[SEAL]                             By: /s/ Illegible
                                       -----------------------------

Attest:
/s/ Illegible
- --------------------------

EX-11

                                                                      Exhibit 11

                       Clifford Change Rogers & Wells LLP
                                200 Park Avenue
                         New York, New York 10166-0153
                              Tel +1 212 878 8000
                              Fax +1 212 878 8375
                             www.cliffordchance.com

September 10, 2001

MuniAssets Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536

Ladies and Gentlemen:

      We have  acted as  counsel  for  MuniAssets  Fund,  Inc.  (the  "Fund") in
connection with the proposed acquisition by the Fund of substantially all of the
assets and the  assumption of  substantially  all of the  liabilities of Merrill
Lynch High Income Municipal Bond Fund, Inc. ("High Income"),  in exchange solely
for an equal  aggregate value of newly issued shares of common stock of the Fund
to be distributed  thereafter to stockholders of High Income (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
(the "Registration Statement"),  relating to shares of common stock of the Fund,
each with a par value of $0.10 per  share  (the  "Shares"),  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 Shares. In addition,  we have examined and are familiar with the Articles of
Incorporation  of the Fund,  as amended,  the By-Laws of the Fund 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 by the stockholders of the Fund and of High Income of the Agreement and
Plan of  Reorganization  between the Fund and High Income set forth in the joint
proxy statement and prospectus constituting a part of the Registration Statement
(the "Proxy Statement and Prospectus"),  the Shares, 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 stock 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/ Clifford Chance Rogers & Wells LLP

EX-13

                                                                      Exhibit 13

AGREEMENT,  made  as  of  June  14,  1993,  between  MuniAssets  Fund,  Inc.,  a
corporation  organized  and  existing  under the laws of the  State of  Maryland
(hereinafter  referred to as the  "Customer"),  and The Bank of New York,  a New
York trust company (hereinafter referred to as the "Bank").

                                   WITNESSETH:

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  day 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;


                                      -2-


      (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

      (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.


                                      -3-


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.  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.


                                      -4-


                                    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.


                                      -5-


                                   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.


                                      -6-


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 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.


                                      -7-


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.

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.


                                      -8-


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 I.

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.


                                      -9-


                                   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.

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:                                      MUNIASSETS FUND, INC.


/s/ Mark B. Goldfus                          BY:  /s/ Gerald M. Richard
- -----------------------------                     ------------------------------
                                             Title: GERALD M. RICHARD, TREASURER


Attest:                                      THE BANK OF NEW YORK

/s/ Illegible                                BY:  /s/ Illegible
- -----------------------------                     ------------------------------
                                             Title: Vice President

EX-14.A

 Exhibit 14(a) 

EX-14.B

 Exhibit 14(b)