As filed with the Securities and Exchange Commission on October 13, 2005.



Securities Act Registration No. 333-126503

Investment Company Registration No. 811-02328



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-2

           REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933   |X|
                        Pre-Effective Amendment No. 3                |X|
                       Post-Effective Amendment No. ___              | |
                                     and/or
                          REGISTRATION STATEMENT UNDER
                     THE INVESTMENT COMPANY ACT OF 1940              |X|
                              AMENDMENT NO. 12                       |X|


                       Boulder Growth & Income Fund, Inc.
               (Exact Name of Registrant as Specified In Charter)

                           1680 38th Street, Suite 800
                             Boulder, Colorado 80301
                    (Address of Principal Executive Offices)

                                 (303) 444-5483
              (Registrant's Telephone Number, including Area Code)

                             Stephen C. Miller, Esq.
                        Boulder Investment Advisers, LLC
                           1680 38th Street, Suite 800
                             Boulder, Colorado 80301

                     (Name and Address of Agent for Service)

                                   Copies to:

                             Arthur L. Zwickel, Esq.
                     Paul, Hastings, Janofsky & Walker, LLP
                       515 South Flower Street, 25th Floor
                              Los Angeles, CA 90071

                                       And

                          Leonard B. Mackey, Jr., Esq.
                             Clifford Chance US LLP
                               31 West 52nd Street
                            New York, New York 10019




APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:  As soon as practicable  after the
effective date of this Registration Statement.

If any securities  being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities  offered in connection with a dividend  reinvestment plan, check
the following box. [ ]


        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

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

                                                                                                     
                                                                                     

                                                                             Proposed            Proposed          
Title of Securities                                       Amount Being   Maximum Offering    Maximum Aggregate     Amount of
Being Registered                                           Registered     Price per Unit       Offering Price   Registration Fee (1)
------------------------------------------------------- ---------------- ------------------- ------------------- ------------------
Shares of Preferred  Stock, par value $.01 per share,
liquidation value $25,000 per share.................    1,000 shares     $25,000             $25,000,000         $2,942.50
------------------------------------------------------- ---------------- ------------------- ------------------- ------------------

(1) Previously paid.



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 that specifically  states that this Registration  Statement
shall  thereafter  become  effective  in  accordance  with  Section  8(a) of the
Securities Act of 1933, as amended,  or until this Registration  Statement shall
become effective on such date as the Securities and Exchange Commission,  acting
pursuant to said Section 8(a), may determine.




                       BOULDER GROWTH & INCOME FUND, INC.

                                     Form N2

                              CROSS REFERENCE SHEET


                                                                           
Items In 
Part A     Caption                                                               Location in Prospectus
---------- ------------------------------------------------------------------------------------------------------------------------


Item 1.    Outside Front Cover.................................................. Front Cover Page

Item 2.    Inside Front and Outside Back Cover Page............................. Front Cover Page

Item 3.    Fee Table and Synopsis............................................... Prospectus Summary and Fee Table

Item 4.    Financial Highlights................................................. Financial Highlights

Item 5.    Plan of Distribution................................................. Front Cover Page; Prospectus Summary; The Auction;
                                                                                 Underwriting

Item 6.    Selling Shareholders................................................. Not Applicable

Item 7.    Use of Proceeds...................................................... Use of Proceeds

Item 8.    General Description of the Registrant................................ Cover   Page;  Prospectus   Summary;   The   Fund;
                                                                                 Investment  Objective  and  Policies;   Investment
                                                                                 Philosophy; Risk  Factors;  Determination  of  Net
                                                                                 Asset Value; Capitalization  of the Fund and Other
                                                                                 Matters

Item 9.    Management........................................................... Prospectus  Summary;   Management   of  the  Fund;
                                                                                 Portfolio Contents; Description of AMPS

Item 10.   Capital Stock , Long-Term Debt, and Other Securities................. Capitalization; Description  of AMPS; The Auction;
                                                                                 Capitalization  of the  Fund  and  Other  Matters;
                                                                                 Federal Income Tax Matters

Item 11.   Defaults and Arrears on Senior Securities...........................  Not Applicable

Item 12.   Legal Proceedings.................................................... Not Applicable

Item 13.   Table of Contents of the Statement of Additional                      Table of Contents of the Statement  of  Additional
                                                                                 Information
           Information.........................................................

Items In 
Part B                                    Caption                                Location in Statement of Additional Information
-----------------------------------------------------------------------------------------------------------------------------------


Item 14.    Cover Page.........................................................  Front Cover Page

Item 15.    Table of Contents..................................................  Front Cover Page

Item 16.    General Information and History....................................  Not Applicable

Item 17.    Investment Objective and Policies..................................  Investment  Objective  and  Policies;   Investment
                                                                                 Philosophy;

Item 18.    Management.........................................................  Management of the Fund;

Item 19.    Control Persons and Principal Holders of Securities................  Management of  the  Fund;  Security  Ownership  of
                                                                                 Certain  Beneficial Owners;  Ownership of the Fund
                                                                                 by Directors

Item 20.    Investment Advisory and Other Services.............................  Management  of  the  Fund;  Compensation   to  the
                                                                                 Advisers and  Administrator; Factors Considered by
                                                                                 the   Independent   Directors in   Approving   the
                                                                                 Investment   Advisory   Agreements;  Duration  and
                                                                                 Termination; Conflicts of Interest

Item 21.    Brokerage Allocation and Other Practices...........................  Portfolio  Transactions,  Brokerage Allocation and
                                                                                 Other Practices

Item 22.    Tax Status.........................................................  Federal Income Tax Matters

Item 23.    Financial Statements...............................................  Financial Statements



PART C OTHER INFORMATION

Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.



The  information  in this  Prospectus  is not  complete  and may be  changed.  A
Registration  Statement  relating  to the  securities  has been  filed  with the
Securities and Exchange Commission.  We may not sell these securities until this
Registration  Statement is  effective.  This  Prospectus is not an offer to sell
these  securities and it is not  soliciting an offer to buy these  securities in
any state where the Offer, solicitation or sale is not permitted.

                              Subject to Completion

PROSPECTUS       Preliminary Prospectus Dated October 11, 2005


                                   $25,000,000
                       Boulder Growth & Income Fund, Inc.
                    Auction Market Preferred Shares ("AMPS")

                            1,000 Shares, Series M28
                    Liquidation Preference $25,000 Per Share
                                 -------------


     The Boulder  Growth & Income  Fund,  Inc.  (the  "Fund") is offering  1,000
shares,  Series M28  preferred  stock,  par value $.01 per share,  designated as
Auction Market Preferred  Shares.  The shares are referred to in this prospectus
as  "AMPS."  The Fund is a  closed-end,  non-diversified  management  investment
company.

     Description of AMPS. The AMPS will have a liquidation preference of $25,000
per share, plus an amount equal to accumulated but unpaid dividends  (whether or
not earned or  declared).  The AMPS are  preferred  shares  that  entitle  their
holders  to  receive  dividends  when,  as and if  authorized  by the  Board and
declared by the Fund,  out of funds legally  available  therefor,  at a rate per
annum that may vary for successive dividend periods.  After the initial dividend
period,  the applicable rate for a particular  dividend period for the AMPS will
be determined by auction.  The AMPS will rank on parity with any other series of
preferred shares of the Fund as to the payment of dividends and the distribution
of assets upon  liquidation.  Each share of AMPS  carries one vote on matters on
which  AMPS  can be  voted.  The  AMPS,  when  issued,  will be  fully  paid and
non-assessable  and have no preemptive,  conversion or cumulative voting rights.
The AMPS will not be convertible into shares of common stock, par value $.01 per
share,  or other shares of the Fund.  The AMPS will be subject to  redemption at
the option of the Fund on any dividend  payment date for the AMPS (except during
the initial  dividend period and during a Non-Call Period) at a redemption price
generally equal to $25,000 per share plus accumulated and unpaid  dividends.  In
certain  circumstances,  the AMPS will be subject to mandatory redemption by the
Fund at a  redemption  price of $25,000  per share plus  accumulated  and unpaid
dividends. See "Description of AMPS" below.

                                                   (continued on following page)


     Investing  in the AMPS  involves  risks  that are  described  in the  "risk
factors" section  beginning on page 20 of this prospectus.  The minimum purchase
amount of the AMPS is $25,000.

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

                                                                        
                                                               Per Share      Total
                                                               -------------- -------------

Public offering price (1).................................     $25,000        $25,000,000

Sales load................................................        $250           $250,000

Estimated offering expenses...............................        $195           $195,000

Proceeds, after expenses, to the Fund.....................     $24,555        $24,555,000



(1)  The  public  offering  price per share will be  increased  by the amount of
     dividends,  if any, that have  accumulated from the date the AMPS are first
     issued.

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

     The  underwriter  is offering the AMPS subject to various  conditions.  The
underwriter  expects to deliver  the AMPS to  purchasers,  in  book-entry  form,
through the  facilities  of The  Depository  Trust  Company  ("DTC") on or about
               , 2005.


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

                               Merrill Lynch & Co.

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


                 The date of this Prospectus is            2005



     Investment Objective.  The Fund's investment objective is total return. The
Fund  seeks to  produce  both  income  and  long-term  capital  appreciation  by
investing  in a  portfolio  of  equity  and debt  securities.  The Fund  invests
primarily in common  stocks,  including  dividend  paying  common stocks such as
those  issued  by  utilities,   real  estate  investment  trusts  ("REITs")  and
closed-end  registered  investment  companies.  The Fund also  invests  in fixed
income  securities  such as U.S.  government  securities,  preferred  stocks and
bonds. The Fund invests primarily in securities of U.S.-based companies and to a
lesser extent in foreign  equity  securities  and  sovereign  debt, in each case
denominated in foreign currency.  The Fund has no restrictions on its ability to
invest in foreign securities.  The Fund is concentrated in REITs, which means it
must invest more than 25% of its total assets in REITs and companies in the real
estate  industry.  No  assurance  can be given  that the Fund will  achieve  its
investment objective.

     Investment Advisers.  Boulder Investment Advisers,  LLC ("BIA") and Stewart
West Indies Trading  Company,  Ltd. d/b/a Stewart  Investment  Advisers  ("SIA")
(collectively the "Advisers") act as the co-investment advisers to the Fund. The
address of the Fund and BIA is 1680 38th Street,  Suite 800,  Boulder,  Colorado
80301. The address of SIA is Bellerive, Queen Street, St. Peter, Barbados.



     You should read this prospectus, which sets forth concisely the information
about the Fund  that a  prospective  investor  ought to know  before  investing,
before  deciding  whether  to  invest  in the AMPS,  and  retain  it for  future
reference.  A Statement  of  Additional  Information  dated             ,  2005,
containing  additional  information  about the  Fund,  has been  filed  with the
Securities  and  Exchange  Commission  and is  incorporated  by reference in its
entirety  into this  prospectus.  You can  review the table of  contents  of the
Statement  of  Additional  Information  on page 44 of this  prospectus.  You may
request a free copy of the  Statement of  Additional  Information  or the Fund's
annual and semi-annual  reports,  request other  information  about the Fund, or
make shareholder  inquiries by calling (877) 561-7914 or by writing to the Fund.
The Fund's  Statement  of  Additional  Information  and  annual and  semi-annual
reports   are  also   available   free  of   charge   on  the   Fund's   website
(http://www.boulderfunds.net)  and on the Securities  and Exchange  Commission's
website  (http://www.sec.gov),  which also contains other  information about the
Fund. You may also email requests for these documents to  publicinfo@sec.gov  or
make a request in writing to the  Securities  and Exchange  Commission's  Public
Reference Section,  Washington,  D.C. 20549-0102. The Fund's registration number
under the  Investment  Company  Act of 1940,  as  amended  (the  "1940  Act") is
811-02328.


     The  AMPS  do not  represent  a  deposit  or  obligation  of,  and  are not
guaranteed or endorsed by, any bank or other insured depository  institution and
are not federally  insured by the Federal  Deposit  Insurance  Corporation,  the
Federal Reserve Board or any other government agency.

     The Fund is offering 1,000 AMPS. The AMPS have a liquidation  preference of
$25,000 per share, plus any accumulated,  unpaid  dividends.  The AMPS also have
priority  over the  Fund's  common  shares  as to  distribution  of  assets,  as
described in this  prospectus.  It is a condition of closing this  offering that
the  AMPS be  assigned  a  rating  of Aaa by  Moody's  Investor  Services,  Inc.
("Moody's") and AAA by Fitch, Inc. ("Fitch").


     The  dividend  rate for the AMPS for the  initial  dividend  period will be
     %.  The initial  dividend  period for the AMPS is from the date of issuance
through                ,  2005.  For  subsequent  periods,  the  AMPS  will  pay
dividends based on a rate set at auction,  usually held every twenty-eight days.
Prospective  purchasers should carefully review the auction procedures described
in this  prospectus  and should note:  (1) a buy order (called a "bid order") or
sell  order is a  commitment  to buy or sell  AMPS  based on the  results  of an
auction;  and (2)  purchases  and sales will be settled on the next business day
after the auction.


     The AMPS will not be listed on an  exchange.  You may only buy or sell AMPS
through an order placed at an auction with or through certain  broker-dealers or
in a secondary market maintained by certain broker-dealers. These broker-dealers
are not  required  to  maintain  this  market,  and it may not  provide you with
liquidity.





                                TABLE OF CONTENTS


Prospectus Summary.............................................................1
Financial Highlights .........................................................23
The Fund......................................................................25
Use of Proceeds...............................................................25
Capitalization................................................................26
Investment Objective and Policies.............................................26
Investment Philosophy.........................................................28
Portfolio Contents............................................................29
Risk Factors..................................................................34
Management of the Fund........................................................40
Description of AMPS...........................................................47
The Auction...................................................................55
Federal Income Tax Matters....................................................61
Determination of Net Asset Value..............................................64
Capitalization of the Fund and Other Matters..................................65
Underwriting..................................................................68
Privacy Principles of the Fund................................................69
Table of Contents of the Statement of Additional Information..................71


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

     You should rely only on the  information  contained in or  incorporated  by
reference into this  prospectus.  During the period that the Fund is required to
deliver this prospectus,  the Fund will promptly provide  investors with written
information  fully  describing any material  changes to the  information in this
prospectus.  The Fund has not, and the  underwriters  have not,  authorized  any
other person to provide you with different  information.  If anyone provides you
with different or inconsistent information,  you should not rely on it. The Fund
is not, and the  underwriters  are not, making an offer to sell these securities
in any  jurisdiction  where the offer or sale is not permitted.  The information
appearing in this  prospectus  is given as of the date of this  prospectus.  The
Fund's business,  financial  condition,  results of operations and prospects may
have changed since the date of this prospectus.




                               PROSPECTUS SUMMARY

The  following  is only a summary.  This  summary  does not  contain  all of the
information  that you should consider before  investing in the AMPS,  especially
the  information  set forth under the heading "Risk  Factors." You should review
the more  detailed  information  contained in the body of this  prospectus,  the
Statement  of  Additional  Information  and the  Fund's  Articles  Supplementary
creating  and fixing  the  rights of the  Auction  Market  Preferred  Stock (the
"Articles  Supplementary") attached as Appendix B to the Statement of Additional
Information.

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

The   Fund..........Boulder  Growth & Income  Fund,  Inc. is a  non-diversified,
                    closed-end  management investment company that was organized
                    in October 1972 and began  investment  activities in January
                    1974.  The Fund's  common  shares are traded on the New York
                    Stock  Exchange  (the "NYSE")  under the symbol "BIF." As of
                    August  31,  2005,  the Fund had  11,327,784  common  shares
                    outstanding. The average weekly trading volume of the Fund's
                    common  shares on the NYSE  during the period from August 1,
                    2005 through August 31, 2005 was 14,043 shares. As of August
                    31,   2005,   the  total   net   assets  of  the  Fund  were
                    approximately   $108,438,000,   including   $20,000,000   in
                    leverage.

                    As of August 31, 2005, the Fund had a bank line of credit in
                    the amount of $20,000,000  (the "Bank Debt") of which it had
                    drawn down $20,000,000. The Bank Debt is used for investment
                    and will be repaid entirely in conjunction with the Offering
                    (defined below) out of the proceeds of the Offering.

                    The  Fund's  investment   advisers  are  Boulder  Investment
                    Advisers,  LLC  ("BIA")  and  Stewart  West  Indies  Trading
                    Company, Ltd. d/b/a Stewart Investment Advisers ("SIA"). The
                    address of the Fund and BIA is 1680 38th Street,  Suite 800,
                    Boulder,  Colorado  80301.  The address of SIA is Bellerive,
                    Queen Street, St. Peter, Barbados.

---------------------------- ---------------------------------------------------
The Offering........The Fund is offering an  aggregate  of 1,000 Series M28 AMPS
                    at a purchase price of $25,000 per share plus dividends,  if
                    any,  that  have  accumulated  from the date the Fund  first
                    issues the AMPS (the "Offering"). The AMPS are being offered
                    through a group of underwriters (the  "Underwriters") led by
                    Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
                    Lynch").

                    The AMPS entitle their holders to receive cash  dividends at
                    an  annual  rate  that  may  vary  for  successive  dividend
                    periods. In general,  except as described under "Description
                    of  AMPS"  and  "Dividends  and  Rate  Periods"  below,  the
                    dividend period for each series of AMPS will be twenty-eight
                    days.  Deutsche  Bank Trust  Company  Americas (the "Auction
                    Agent") will  determine  the dividend  rate for any dividend
                    period  by  an  auction   conducted   on  the  business  day
                    immediately prior to the start of that dividend period.  See
                    "The Auction."

                    The AMPS are not listed on an exchange.  Instead,  investors
                    may buy or sell AMPS at an auction by  submitting  orders to
                    broker-dealers    that   have   entered   into    agreements
                    ("Broker-Dealer   Agreements")   with  the   Auction   Agent
                    ("Broker-Dealers")  or to  broker-dealers  that have entered
                    into separate agreements with a Broker-Dealer.

                    Generally,   investors   in  the  AMPS   will  not   receive
                    certificates  representing  ownership of their  shares.  The
                    Depository  Trust Company or any successor (the  "Securities
                    Depository"  or "DTC") or its nominee for the account of the
                    investor's  Broker-Dealer  will maintain record ownership of
                    AMPS in book-entry  form. An  investor's  Broker-Dealer,  in
                    turn, will maintain  records of that  investor's  beneficial
                    ownership of AMPS.

---------------------------- ---------------------------------------------------
Investment Objective and     
Principal Investment         
Strategies..........The Fund's  investment  objective is total return.  The Fund
                    seeks  to  produce   both  income  and   long-term   capital
                    appreciation  by investing in a portfolio of equity and debt
                    securities.  The Fund invests  primarily  in common  stocks,
                    including dividend paying common stocks such as those issued
                    by utilities,  real estate  investment  trusts ("REITs") and
                    regulated  investment  companies  under the Code (as defined
                    below)  ("RICs").  The Fund  also  invests  in fixed  income
                    securities  such as U.S.  government  securities,  preferred
                    stocks and bonds.  The Fund invests  primarily in securities
                    of  U.S.-based  companies  and to a lesser extent in foreign
                    equity   securities   and  sovereign   debt,  in  each  case
                    denominated   in   foreign   currency.   The   Fund  has  no
                    restrictions on its ability to invest in foreign securities.
                    The  Fund is  concentrated  in  REITs,  which  means it must
                    invest  more  than 25% of its  total  assets  in  REITs  and
                    companies in the real estate  industry.  No assurance can be
                    given that the Fund will achieve its  investment  objective.
                    See "Investment Objective and Policies."

                    The  Fund  is a  "non-diversified"  investment  company,  as
                    defined in the 1940 Act, which means that it is permitted to
                    invest its assets in a more  limited  number of issuers than
                    "diversified"  investment  companies.  A diversified company
                    may not,  with  respect to 75% of its total  assets,  invest
                    more than 5% of its total  assets in the  securities  of any
                    one issuer and may not own more than 10% of the  outstanding
                    voting  securities of any one issuer.  However,  pursuant to
                    the  requirements  of  Subchapter M of the Internal  Revenue
                    Code of 1986, as amended (the "Code"), (A) not more than 25%
                    of the Fund's total assets may be invested in  securities of
                    any one issuer (other than U.S.  government  securities  and
                    RICs) or of any two or more issuers  controlled  by the Fund
                    which may be deemed to be  engaged  in the same,  similar or
                    related trades or businesses, and (B) with respect to 50% of
                    the total value of the Fund's  portfolio,  (i) the Fund must
                    limit  to 5% the  portion  of  its  assets  invested  in the
                    securities of a single  issuer  (other than U.S.  government
                    securities  and  RICs),  and  (ii) the Fund may not own more
                    than 10% of the  outstanding  voting  securities  of any one
                    issuer (other than U.S. government securities and RICs). The
                    Fund intends to concentrate its common stock  investments in
                    a few issuers and to take large  positions in those issuers,
                    consistent with being a "non-diversified" fund. As a result,
                    the Fund may be  subject  to a  greater  risk of loss than a
                    diversified   fund  or  a  fund  that  has  diversified  its
                    investments  more broadly.  Taking larger  positions is also
                    likely to increase  the  volatility  of the Fund's net asset
                    value,  reflecting  fluctuation  in the value of large  Fund
                    holdings.

                    The Fund has  adopted a  concentration  policy  pursuant  to
                    which it must, under normal market  conditions,  invest more
                    than 25% of its total  assets in REITs or  companies  in the
                    real  estate  industry.  The Fund  must  obtain  shareholder
                    approval  prior to changing this policy.  The portion of the
                    Fund's  total  assets  invested  in  REITs  and  such  other
                    companies  will vary based on market  conditions,  but it is
                    not expected to exceed 50% of total assets. As of August 31,
                    2005,  29.6% of the Fund's  total  assets  were  invested in
                    REITs. Although the Fund can invest in REITs of any size, it
                    currently   intends   to   invest  in  REITs   with   market
                    capitalizations  of greater than $500 million.  Although the
                    Fund  generally  invests in U.S.  REITs,  such companies may
                    invest  directly or indirectly in non-U.S.  properties,  and
                    the Fund may make direct investments in foreign REITs. As of
                    August  31,   2005,   the  Fund  owned  five   foreign  REIT
                    securities.

                    Under the 1940 Act,  the Fund must limit to 10% the  portion
                    of its assets  invested in RICs, and under  Subchapter M, no
                    single  investment can exceed 25% of the Fund's total assets
                    at the time of purchase.  These  percentage  limitations are
                    calculated  at the time of  investment,  and the Fund is not
                    required  to dispose of assets if  holdings  increase  above
                    these  levels due to  appreciation.  As of August 31,  2005,
                    none of the Fund's assets were  invested in RICs,  and 23.8%
                    of the  Fund's  total  assets  were  invested  in  Berkshire
                    Hathaway,  Inc. (NYSE: BRK). The Fund has no restrictions on
                    its  ability to invest in foreign  securities.  As of August
                    31, 2005,  15.9% of the Fund's total assets were invested in
                    foreign securities.

                    Under normal market  conditions,  the Fund intends to invest
                    at least 80% of its net assets in common  stocks,  primarily
                    domestic  common stocks and  secondarily  in foreign  common
                    stocks  denominated  in  foreign   currencies.   The  Fund's
                    investments in common stocks may include, but is not limited
                    to,  RICs  whose  objective  is  income,  REITs,  and  other
                    dividend-paying  common  stocks.  The  portion of the Fund's
                    assets  that  are  not  invested  in  common  stocks  may be
                    invested in fixed income  securities,  cash  equivalents and
                    other  income-producing  securities.  The term "fixed income
                    securities"  includes but is not limited to corporate bonds,
                    U.S.  government  securities,   notes,  bills,   debentures,
                    preferred   stocks,   convertible   securities,   bank  debt
                    obligations,  repurchase  agreements  and  short-term  money
                    market obligations.

                    Under normal circumstances, the Fund will not have more than
                    10% of its assets in cash or cash equivalents. The Fund may,
                    for temporary defensive purposes,  allocate a higher portion
                    of its  assets  to  cash  and  cash  equivalents.  For  this
                    purpose,  cash  equivalents  consist of, but are not limited
                    to,  short-term  (less than twelve months to maturity)  U.S.
                    government  securities,  certificates  of deposit  and other
                    bank  obligations,  investment grade corporate bonds,  other
                    debt instruments and repurchase agreements.

                    Except  for  the  Fund's  investment   objective,   industry
                    concentration  and  fundamental  investment  restrictions as
                    described  in  this  prospectus  and  in  the  Statement  of
                    Additional  Information,   the  percentage  limitations  and
                    investment  policies  set  forth in this  prospectus  can be
                    changed  by the  Fund's  Board of  Directors  (the  "Board")
                    without shareholder approval.


---------------------------- ---------------------------------------------------
Use of Leverage   
by the Fund.........The Fund expects to utilize financial leverage on an ongoing
                    basis  for  investment  purposes  specifically  through  the
                    issuance of the AMPS. After completion of the Offering,  the
                    Fund  anticipates  its total  leverage  from the issuance of
                    AMPS will be approximately 22.1% of the Fund's total assets.
                    This   amount  may  change  but  the  Fund  will  not  incur
                    additional  leverage in the form of preferred shares if as a
                    result  its total  leverage  would  exceed 50% of the Fund's
                    total  assets.  Although  the Fund may in the  future  offer
                    other  preferred  shares,  increase  the number of AMPS,  or
                    incur other  indebtedness,  which would further leverage the
                    Fund, the Fund does not currently  intend to offer preferred
                    shares  other  than  the  AMPS  offered  hereby  or to incur
                    indebtedness,  other than  short-term  credits in connection
                    with the settlement of portfolio transactions.

                    The Fund generally will not utilize leverage if the Advisers
                    anticipate  that leverage  would result in a lower return to
                    holders  of the  Fund's  common  shares  over  time.  Use of
                    financial  leverage  creates an  opportunity  for  increased
                    returns for the holders of the Fund's  common shares but, at
                    the same time,  creates the  possibility  for  greater  loss
                    (including the likelihood of greater volatility of net asset
                    value  and  market  price  of  the  common   shares  and  of
                    dividends),  and there can be no assurance that a leveraging
                    strategy will be successful during any period in which it is
                    employed.   Because  the  fees  paid  to  the  Advisers  and
                    Administrator  (defined  below)  will be  calculated  on the
                    basis of the Fund's managed assets,  the fees will be higher
                    when leverage  (including the AMPS) is utilized,  giving the
                    Advisers an incentive to utilize leverage.

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

Risk   
Condsiderations.....The  following  is a  summary  of  the  principal  risks  of
                    investing  in the AMPS.  You should read the more  extensive
                    discussion in this prospectus under "Risk Factors".

                    Risks  of  Investing  in the  AMPS.  The  primary  risks  of
                    investing in the AMPS are:


                             |X|      If an auction fails you may not be able to
                                      sell some or all of your shares.


                             |X|      Because of the nature of the market for
                                      AMPS, you may receive less than the price
                                      you paid for your AMPS if you sell them
                                      outside of the auction, especially when
                                      market interest rates are rising.

                             |X|      A rating agency could, at any time,
                                      downgrade or withdraw its rating assigned
                                      to the AMPS without prior notice to the
                                      Fund or shareholders. Any downgrading or
                                      withdrawal of rating could affect the
                                      liquidity of the AMPS in an auction.

                             |X|      The Fund may be forced to redeem AMPS to
                                      meet regulatory or rating agency
                                      requirements or may voluntarily redeem
                                      your shares in certain circumstances.

                             |X|      In certain circumstances, the Fund may not
                                      earn sufficient income from its
                                      investments to pay dividends on the AMPS.

                             |X|      If interest rates rise, the value of the
                                      Fund's investment portfolio will decline,
                                      reducing the asset coverage for AMPS.

                    Leverage Risk. The AMPS leverage  creates an opportunity for
                    increased return but, at the same time, will involve special
                    risk considerations. Leveraging resulting from the AMPS will
                    magnify declines as well as increases in the net asset value
                    of the  Fund's  common  stock  and in the net  return on its
                    portfolio. Although the principal amount of the AMPS will be
                    fixed, the Fund's assets may change in value during the time
                    the  AMPS  are  outstanding,  thus  increasing  exposure  to
                    capital  risk.  To the extent the  return  derived  from the
                    assets obtained with the AMPS proceeds  exceeds the interest
                    and  other  expenses  that the Fund  will  have to pay,  the
                    Fund's net return will be greater than if AMPS  leverage was
                    not used. Conversely, however, if the return from the assets
                    obtained with the AMPS  proceeds is not  sufficient to cover
                    the cost of  borrowing,  the net  return of the Fund will be
                    less than if AMPS  leverage was not used,  and therefore the
                    amount available for distribution to the Fund's shareholders
                    as dividends will be reduced.

                    Interest  Rate  Risk.  The  AMPS  pay  dividends   based  on
                    shorter-term interest rates. The Fund presently has invested
                    the  proceeds  of the Bank Debt in REITs and other  dividend
                    paying  and  income  producing   securities   (collectively,
                    "Income Producing Securities") and anticipates continuing to
                    do  so  in  order  to  generate  sufficient  income  to  pay
                    dividends on the AMPS when due. The dividends and rates paid
                    by  the  Income  Producing  Securities  can be  expected  to
                    fluctuate. If short-term interest rates rise, dividend rates
                    on the AMPS will also rise  since the  auction  setting  the
                    dividend rate on AMPS will compete for investors  with other
                    short-term  instruments.  A significant  increased  dividend
                    rate on the AMPS could result in the Fund  under-earning its
                    AMPS  dividend,  which  would lead to the AMPS  shareholders
                    receiving a return of capital, assuming there are no capital
                    gains to be paid  out.  Similarly,  if the  rating  agencies
                    lower the rating  assigned to the AMPS, the dividend rate on
                    the AMPS will likely  increase.  The Fund may pay  dividends
                    and make other  distributions  only from  legally  available
                    funds  and must pay all its  expenses  before it can pay any
                    dividends, including any AMPS dividends.

                    Risk Associated with  Concentrating  in REITs.  The Fund has
                    adopted  an  investment  policy of  concentrating  in REITs.
                    Under  normal  market  conditions,  the Fund is  required to
                    maintain over 25% of its  investments in REITs and companies
                    in  the  real   estate   industry.   The  Fund  must  obtain
                    shareholder  approval  prior to changing  this policy,  thus
                    limiting its  flexibility  to liquidate  REITs in the future
                    should   market   conditions   warrant.   Since   the   Fund
                    concentrates  its assets in the real  estate  industry,  the
                    Fund's  performance  will be impacted by the  performance of
                    the REIT markets. Property values may fall due to increasing
                    vacancies or declining rents resulting from economic, legal,
                    cultural or technological developments. REIT prices also may
                    drop  because of the failure of borrowers to pay their loans
                    and poor  management.  Many REITs  utilize  leverage,  which
                    increases  investment  risk  and  could  adversely  affect a
                    REIT's  operations  and  market  value in  periods of rising
                    interest  rates as well as risks  normally  associated  with
                    debt financing. In addition, there are risks associated with
                    particular sectors of real estate investments (e.g., retail,
                    office,  hotel,  healthcare  and  multifamily   properties),
                    although the Fund does not intend to focus on any particular
                    sector of real estate investments.

                    Auction Risk. The dividend rate for the AMPS normally is set
                    through an auction process. In the auction,  holders of AMPS
                    may  indicate  the  dividend  rate at  which  they  would be
                    willing to hold or sell their  AMPS or  purchase  additional
                    AMPS.  The auction also  provides  liquidity for the sale of
                    AMPS.  An auction  fails if there are more AMPS  offered for
                    sale than there are buyers. You may not be able to sell your
                    AMPS at an auction  if the  auction  fails.  A holder of the
                    AMPS  therefore can be given no assurance that there will be
                    sufficient  clearing  bids in any auction or that the holder
                    will be able to sell its AMPS in an  auction.  Also,  if you
                    place bid orders  (orders to retain AMPS) at an auction only
                    at a specified dividend rate, and that rate exceeds the rate
                    set  at  the  auction,   you  will  not  retain  your  AMPS.
                    Additionally,  if you  buy  AMPS or  elect  to  retain  AMPS
                    without specifying a dividend rate below which you would not
                    wish  to buy or  continue  to hold  those  AMPS,  you  could
                    receive a lower  rate of return on your AMPS than the market
                    rate.  Finally,  the  dividend  periods  for the AMPS may be
                    changed by the Fund,  subject to certain conditions and with
                    notice to the  holders of AMPS,  which could also affect the
                    liquidity of your investment.


                    As noted above, if there are more AMPS offered for sale than
                    there are buyers for those AMPS in any auction,  the auction
                    will  fail  and you  may not be able to sell  some or all of
                    your AMPS at that time.  The  relative  buying  and  selling
                    interest  of  market  participants  in your  AMPS and in the
                    auction  rate  securities  market as a whole  will vary over
                    time,  and such  variations  may be affected by, among other
                    things,  news relating to the Fund,  the  attractiveness  of
                    alternative  investments,  the perceived  risk of owning the
                    security (whether related to credit,  liquidity or any other
                    risk),  the tax  treatment  accorded  the  instruments,  the
                    accounting   treatment  accorded  auction  rate  securities,
                    including recent  clarifications of U.S.  generally accepted
                    accounting  principles  relating to the treatment of auction
                    rate  securities,  reactions to regulatory  actions or press
                    reports,  financial  reporting  cycles and market  sentiment
                    generally.  Shifts  of  demand  in  response  to any  one or
                    simultaneous  particular  events cannot be predicted and may
                    be short-lived or exist for longer periods.

                    Secondary  Market Risk. If you try to sell your AMPS between
                    auctions you may not be able to sell any or all of your AMPS
                    or you may not be able to sell them for $25,000 per share or
                    $25,000 per share plus accumulated but unpaid dividends.  If
                    the Fund has designated a special dividend  period,  changes
                    in interest  rates could affect the price you would  receive
                    if you  sold  your  AMPS in the  secondary  market.  You may
                    transfer  AMPS  outside  of  auctions  only to or  through a
                    Broker-Dealer   that  has  entered   into  a   Broker-Dealer
                    Agreement, or other persons as the Fund permits.


                    Securities and Exchange Commission Inquiries.  Merrill Lynch
                    has   advised   the   Fund   that  it  and   various   other
                    broker-dealers  and  other  firms  that  participate  in the
                    auction rate  securities  market  received  letters from the
                    staff  of the  Securities  and  Exchange  Commission  in the
                    spring of 2004.  The  letters  requested  that each of these
                    firms  voluntarily  conduct an  investigation  regarding its
                    respective practices and procedures in that market. Pursuant
                    to these requests, Merrill Lynch conducted its own voluntary
                    review and  reported  its  findings  to the  Securities  and
                    Exchange  Commission staff. At the staff's request,  Merrill
                    Lynch is engaging in discussions  with the staff  concerning
                    its inquiry.  Neither Merrill Lynch nor the Fund can predict
                    the ultimate outcome of the inquiry or how that outcome will
                    affect the market for the AMPS or the auctions.


                    Ratings and Asset Coverage  Risk.  While it is expected that
                    Moody's  will assign a rating of Aaa and Fitch will assign a
                    rating of AAA to the AMPS,  such ratings do not eliminate or
                    necessarily  mitigate  the risks of  investing  in the AMPS.
                    Moody's or Fitch could  downgrade  its rating of the AMPS or
                    withdraw its rating of the AMPS at any time,  which may make
                    your shares  less  liquid at an auction or in the  secondary
                    market and may materially and adversely  affect the value of
                    the AMPS if sold  outside an  auction.  If the Fund fails to
                    satisfy   the  asset   coverage   ratios   discussed   under
                    "Description  of AMPS - Rating Agency  Guidelines  and Asset
                    Coverage,"  the Fund will be required  to redeem,  at a time
                    that may not be favorable to the Fund or its shareholders, a
                    sufficient  number  of  the  AMPS  in  order  to  return  to
                    compliance with the asset coverage ratios.

                    Restrictions   on   Dividends   and   Other   Distributions.
                    Restrictions  imposed  on the  declaration  and  payment  of
                    dividends  or  other  distributions  to the  holders  of the
                    Fund's common shares and AMPS, by the 1940 Act, Maryland law
                    and by requirements imposed by rating agencies, might impair
                    the  Fund's  ability  to  maintain  its  qualification  as a
                    regulated   investment   company  for  federal   income  tax
                    purposes.

                    General  Risks of Investing  in the Fund.  The Fund is not a
                    complete investment program and should only be considered as
                    an addition to an investor's existing diversified  portfolio
                    of   investments.   Due  to  uncertainty   inherent  in  all
                    investments,  there can be no  assurance  that the Fund will
                    achieve its investment objectives.


                    |X|  Non-Diversified  Status Risk. The Fund is classified as
                         "non-diversified"  under the 1940 Act. As a result,  it
                         can   invest  a  greater   portion  of  its  assets  in
                         obligations  of a single  issuer  than a  "diversified"
                         fund. The Fund will therefore be more  susceptible than
                         a diversified  fund to being adversely  affected by any
                         single  corporate,  economic,  political or  regulatory
                         occurrence.   The  Fund   intends  to   diversify   its
                         investments  to the extent  necessary  to qualify,  and
                         maintain its status, as a regulated  investment company
                         under U.S. federal income tax laws. See "Risk Factors -
                         General  Risks of  Investing  in the Fund" and "Federal
                         Income Tax Matters."


                    |X|  Investments  in  Common  Stocks.  The Fund  expects  to
                         invest,  under normal market  conditions,  in excess of
                         80% of its assets in  publicly  traded  common  stocks.
                         Common stocks  generally have greater risk exposure and
                         reward  potential over time than bonds.  The volatility
                         of common  stock prices has  historically  been greater
                         than bonds, and as the Fund invests primarily in common
                         stocks,   the  Fund's  net  asset  value  may  also  be
                         volatile.  Further,  because  the time  horizon for the
                         Fund's  investments in common stock is longer, the time
                         necessary  for the Fund to  achieve  its  objective  of
                         total return will likely be longer than for a fund that
                         invests solely for income.


                    |X|  Reinvestment  Risk.  Income  from the Fund's  portfolio
                         will decline if the Fund  invests the income  from,  or
                         proceeds  from  the  sale  of  its,  Income   Producing
                         Securities into lower yielding  instruments.  A decline
                         in  income  could  affect  the  Fund's  ability  to pay
                         dividends on the AMPS.

                    |X|  Concentration Risk. The Fund intends to concentrate its
                         common stock  investments  in a few issuers and to take
                         large positions in those issuers, consistent with being
                         a "non-diversified"  fund. As a result, the Fund may be
                         subject  to a greater  risk of loss than a  diversified
                         fund or a fund  that has  diversified  its  investments
                         more broadly. Taking larger positions is also likely to
                         increase the  volatility of the Fund's net asset value,
                         reflecting  fluctuation  in the  value  of  large  Fund
                         holdings.

                    |X|  Investment in Berkshire  Hathaway.  The Fund  presently
                         has invested a significant  percentage of its portfolio
                         in Berkshire Hathaway,  Inc. (NYSE: BRK) ("Berkshire").
                         As of August  31,  2005,  the Fund  held 310  Berkshire
                         Class A shares,  representing 23.8% of the Fund's total
                         assets.   The  Advisers  do  not  currently  intend  to
                         liquidate  any  portion  of  the  Fund's   position  in
                         Berkshire.  Although not an insurance  company  itself,
                         Berkshire   owns  Geico   Insurance   and   General  Re
                         Insurance,  and therefore derives a significant portion
                         of its income,  and its value, from these two insurance
                         companies.  The insurance business can be significantly
                         affected by interest rates as well as price competition
                         within the industry.  In addition, an insurance company
                         may experience  significant changes in its year to year
                         operating  performance based both on claims paid and on
                         performance of invested assets. Insurance companies can
                         also be  affected  by  government  regulations  and tax
                         laws, which may change from time to time. A significant
                         decline in the market  price of  Berkshire or any other
                         company in which the Fund has made a significant common
                         stock  investment  (i) would  result  in a  significant
                         decline in the Fund's net asset value,  (ii) may result
                         in a  proportionate  decline in the market price of the
                         Fund's common  shares,  and (iii) may result in greater
                         risk and market fluctuation than a fund that has a more
                         diversified portfolio.

                    |X|  Investments   in   REITs.   The  Fund  has   adopted  a
                         concentration  policy pursuant to which it must,  under
                         normal market  conditions,  invest more than 25% of its
                         total  assets in REITs or  companies in the real estate
                         industry.  The Fund must  obtain  shareholder  approval
                         prior  to  changing  this  policy,  thus  limiting  its
                         flexibility  to  liquidate  REITs in the future  should
                         market   conditions   warrant.   Since  the  Fund  will
                         concentrate its assets in the real estate industry, the
                         Fund's   performance   will  be  generally   linked  to
                         performance of the real estate markets. Property values
                         may fall due to increasing vacancies or declining rents
                         resulting   from   economic,    legal,    cultural   or
                         technological  developments.  REIT prices also may drop
                         because of the failure of  borrowers to pay their loans
                         and poor management. Many REITs utilize leverage, which
                         increases  investment risk and could adversely affect a
                         REIT's operations and market value in periods of rising
                         interest  rates,  as well as risks normally  associated
                         with  debt  financing.  In  addition,  there  are risks
                         associated  with  particular  sectors  of  real  estate
                         investments (e.g., retail,  office,  hotel,  healthcare
                         and multifamily properties), although the Fund does not
                         intend to focus on any particular sector of real estate
                         investments.

                    |X|  Leveraging  Risk. The Fund is currently  leveraged with
                         the Bank Debt which will be replaced with leverage from
                         the AMPS.  Use of leverage may have a number of adverse
                         effects on the Fund and its shareholders including: (i)
                         leverage may magnify market  fluctuations in the Fund's
                         underlying  holdings  thus  causing a  disproportionate
                         change in the Fund's net asset  value;  (ii) the Fund's
                         cost  of   leverage   may  exceed  the  return  on  the
                         underlying securities acquired with the proceeds of the
                         leverage, thereby diminishing rather than enhancing the
                         return to shareholders  and generally making the Fund's
                         total return to such shareholders more volatile;  (iii)
                         the Fund may be required to sell  investments  in order
                         to meet  dividend or  interest  payments on the debt or
                         preferred   stock  it  has   issued   when  it  may  be
                         disadvantageous  to do so; (iv) leveraging  through the
                         issuance of preferred  stock  requires that the holders
                         of the  preferred  stock  have class  voting  rights on
                         various  matters that could make it more  difficult for
                         the  holders of the Fund's  common  stock to change the
                         investment  objective  or  fundamental  policies of the
                         Fund, to convert it to an open-end fund or make certain
                         other changes; and (v) the Fund may be forced to redeem
                         some or all of the AMPS at  inopportune  times due to a
                         decline in market  value of Fund  investments.  Because
                         the fees  paid to the  Advisers  and the  Administrator
                         (defined  below) will be calculated on the basis of the
                         Fund's  managed  assets (which equals the aggregate net
                         asset value of the common  shares plus the  liquidation
                         preference  of the AMPS),  the fee will be higher  when
                         leverage is utilized,  giving the Advisers an incentive
                         to utilize leverage.

                    |X|  Discount   From  Net  Asset  Value.   Common  stock  of
                         closed-end  funds  frequently  trade at a market  price
                         that  is  less  than  the  value  of  the  net   assets
                         attributable  to  those  shares  (a  "discount").   The
                         possibility  that the  Fund's  shares  will  trade at a
                         discount  from net asset value is a risk  separate  and
                         distinct  from the risk that the Fund's net asset value
                         will  decrease.  The  risk of  purchasing  shares  of a
                         closed-end  fund  that  might  trade at a  discount  or
                         unsustainable  premium is more pronounced for investors
                         who wish to sell  their  shares in a  relatively  short
                         period   of  time   because,   for   those   investors,
                         realization  of a gain or loss on their  investments is
                         likely to be more  dependent  upon the  existence  of a
                         premium or discount than upon portfolio performance.

                    |X|  Size of the Fund.  As of August 31, 2005,  the Fund had
                         total  net  assets  of  approximately  $108.4  million,
                         including  $20  million in  leverage.  As a fund with a
                         relatively small asset base, the Fund may be subject to
                         certain operational  inefficiencies  including:  higher
                         expense  ratio,  less  coverage  by  analysts  and  the
                         marketplace  in general which can  contribute to a less
                         active   trading  market  for  the  Fund's  shares  and
                         consequently a wider discount,  more limited ability to
                         attract  new   investors   and/or  take   advantage  of
                         investment  opportunities  and  less  ability  to  take
                         advantage  of  lower  transaction  costs  available  to
                         larger investors.

                    |X|  Repurchase  of the Fund's  Common  Shares.  The Fund is
                         authorized to repurchase  its common shares on the open
                         market when the shares are  trading at a discount  from
                         net asset value as determined by the Board from time to
                         time. The acquisition of common shares by the Fund will
                         decrease the total  assets of the Fund and,  therefore,
                         have the effect of increasing  the Fund's expense ratio
                         and may  adversely  affect  the  ability of the Fund to
                         achieve its  investment  objectives.  Furthermore,  the
                         acquisition  of common  shares by the Fund may  require
                         the  Fund to  redeem  the  AMPS in  order  to  maintain
                         certain asset coverage requirements.  To the extent the
                         Fund  may  need  to  liquidate   investments   to  fund
                         repurchase  of  common  shares,   this  may  result  in
                         portfolio  turnover  which  will  result in  additional
                         expenses being borne by the Fund.

                    |X|  Dependence on Key Personnel. The Advisers are dependent
                         upon the  expertise  of Stewart  Horejsi  in  providing
                         advisory   services   with   respect   to  the   Fund's
                         investments.  If the Advisers were to lose the services
                         of Mr. Horejsi, their ability to service the Fund could
                         be adversely affected. There can be no assurance that a
                         suitable  replacement could be found for Mr. Horejsi in
                         the  event of his  death,  resignation,  retirement  or
                         inability to act on behalf of the Advisers.

                    |X|  Issuer  Risk.  The value of the  Fund's  portfolio  may
                         decline for a number of reasons which  directly  relate
                         to the issuers of the securities in the portfolio, such
                         as  management  performance,   financial  leverage  and
                         reduced demand for an issuer's goods and services.

                    |X|  Inflation  Risk.  Inflation  risk is the risk  that the
                         value of  assets  or income  from  investments  will be
                         worth less in the  future as  inflation  decreases  the
                         value of money. As inflation increases,  the real value
                         of the Fund's portfolio can decline.

                    |X|  Repurchase Agreements. The use of repurchase agreements
                         involves certain risks.  For example,  if the seller of
                         securities under a repurchase agreement defaults on its
                         obligation to repurchase the underlying securities,  as
                         a result of bankruptcy or otherwise, the Fund will seek
                         to  dispose  of such  securities,  which  action  could
                         involve  costs  or  delays.   If  the  seller   becomes
                         insolvent and subject to liquidation or  reorganization
                         under  applicable  bankruptcy or other laws, the Fund's
                         ability to dispose of the underlying  securities may be
                         restricted.  Finally,  it is possible that the Fund may
                         not  be  able  to  substantiate  its  interest  in  the
                         underlying securities.

                    |X|  Foreign  Securities  Risk.  The  Fund is  permitted  to
                         invest in foreign  securities.  Investment  in non-U.S.
                         issuers may involve  unique risks compared to investing
                         in  securities  of U.S.  issuers.  These risks are more
                         pronounced  to the  extent  that  the  Fund  invests  a
                         significant portion of its non-U.S.  investments in one
                         region or in the securities of emerging market issuers.
                         These risks may include:

                             o           Less information about non-U.S. issuers
                                         or markets may be available due to less
                                         rigorous disclosure, accounting
                                         standards or regulatory practices.

                             o           Many non-U.S. markets are smaller, less
                                         liquid and more volatile. In a changing
                                         market, the Advisers may not be able to
                                         sell the Fund's portfolio securities at
                                         times, in amounts and at prices they
                                         consider reasonable.

                             o           Currency exchange rates or controls may
                                         adversely affect the value of the
                                         Fund's investments.

                             o           The economies of non-U.S. countries may
                                         grow at slower rates than expected or
                                         may experience downturns or recessions.

                             o           Withholdings and other non-U.S. taxes 
                                         may decrease the Fund's return.

                    |X|  Currency Risk. The Fund currently holds  investments in
                         foreign  securities  and thus a portion  of the  Fund's
                         assets  may  be  quoted  or   denominated  in  non-U.S.
                         currencies.  These securities may be adversely affected
                         by fluctuations in relative currency exchange rates and
                         by exchange control regulations.  The Fund's investment
                         performance may be negatively affected by a devaluation
                         of a  currency  in which  the  Fund's  investments  are
                         quoted or denominated.  Further,  the Fund's investment
                         performance  may  be  significantly  affected,   either
                         positively or  negatively,  by currency  exchange rates
                         because the U.S.  dollar value of securities  quoted or
                         denominated  in  another   currency  will  increase  or
                         decrease  in  response  to changes in the value of such
                         currency in relation to the U.S. dollar.  The Fund does
                         not currently  hedge  against the potential  decline in
                         value of foreign currencies against the U.S. dollar and
                         does not foresee  hedging  currency risk in the future,
                         though it is not precluded from doing so.

                    |X|  Sovereign debt risk. An investment in debt  obligations
                         of   non-U.S.    governments    and   their   political
                         subdivisions  ("sovereign debt") involves special risks
                         that are not present in corporate debt obligations. The
                         non-U.S.  issuer of the sovereign  debt or the non-U.S.
                         governmental  authorities that control the repayment of
                         the debt may be unable or unwilling to repay  principal
                         or  interest  when due,  and the Fund may have  limited
                         recourse in the event of a default.  During  periods of
                         economic  uncertainty,  the market  prices of sovereign
                         debt  may  be  more   volatile   than  prices  of  debt
                         obligations  of  U.S.  issuers.  In the  past,  certain
                         non-U.S.  countries have  encountered  difficulties  in
                         servicing their debt obligations,  withheld payments of
                         principal  and interest  and declared  moratoria on the
                         payment of principal  and  interest on their  sovereign
                         debt.

                    |X|  Liquidity Risk.  Although the Fund invests primarily in
                         securities traded on national exchanges,  it may invest
                         in less  liquid  assets  from time to time that are not
                         readily  marketable and may be subject to  restrictions
                         on resale. Illiquid securities may be more difficult to
                         value or may impair the Fund's  ability to realize  the
                         full value of its assets in the event of a voluntary or
                         involuntary  liquidation  of such  assets  and thus may
                         cause a decline in the Fund's net asset value. The Fund
                         has no  limitation on the amount of its assets that may
                         be  invested  in  securities   which  are  not  readily
                         marketable  or are subject to  restrictions  on resale,
                         although  it may not invest  more than 30% of the value
                         of its  total  assets  in  securities  which  have been
                         acquired   through   private   placement.   In  certain
                         situations,  the Fund could find it more  difficult  to
                         sell such securities at desirable times and/or prices.

                    |X|  Market  Disruption  Risk. The terrorist  attacks in the
                         United  States on  September  11, 2001 had a disruptive
                         effect  on the  securities  markets.  The  Fund  cannot
                         predict the effects of similar  events in the future on
                         the U.S.  economy.  These terrorist attacks and related
                         events,  including the war in Iraq, its aftermath,  and
                         continuing occupation of Iraq by coalition forces, have
                         led to increased  short-term  market volatility and may
                         have long-term  effects on U.S. and world economies and
                         markets.  A similar disruption of the financial markets
                         could  impact  interest  rates,   auctions,   secondary
                         trading,  ratings,  credit  risk,  inflation  and other
                         factors relating to the AMPS.

                    |X|  Anti-Takeover  Provisions Risk. The Fund's charter (the
                         "Charter") and bylaws (the "Bylaws") include provisions
                         that  could  limit the  ability  of other  entities  or
                         persons to acquire control of the Fund or to change the
                         composition of its Board.  Such provisions  could limit
                         the ability of  shareholders  to sell their shares at a
                         premium over prevailing market prices by discouraging a
                         third party from seeking to obtain control of the Fund.
                         These  provisions  include advance notice  requirements
                         for  shareholder  proposals and  super-majority  voting
                         requirements for certain  transactions with affiliates,
                         open-ending  the Fund or a merger,  liquidation,  asset
                         sale or similar transaction.

---------------------------- ---------------------------------------------------
Investment Advisers.The Fund is co-advised by Boulder Investment  Advisers,  LLC
                    and Stewart West Indies Trading Company,  Ltd. d/b/a Stewart
                    Investment  Advisers.   The  Advisers  have  been  providing
                    advisory  services to the Fund since  January  2002,  and to
                    Boulder  Total Return  Fund,  Inc.  since March 1999.  As of
                    August 31, 2005, the Advisers had a total of $456 million in
                    assets  under  management.  The Fund  pays the  Advisers  an
                    aggregate  monthly  fee at the  annual  rate of 1.25% of the
                    Fund's average  monthly net asset value (the "Adviser Fee").
                    The  liquidation  value of any  outstanding  preferred stock
                    (e.g.,  the AMPS) is included in determining  the Fund's net
                    asset  value  on  which  fees  are  calculated.  The  Fund's
                    co-administrator is Fund Administrative Services, LLC ("FAS"
                    or  the  "Administrator")  which  is  an  affiliate  of  the
                    Advisers. FAS receives a monthly fee calculated at an annual
                    rate of 0.20% of the value of the Fund's average monthly net
                    assets  up to $250  million;  0.18%  of the  Fund's  average
                    monthly  net assets on the next $150  million;  and 0.15% on
                    the value of the Fund's  average  monthly  assets  over $400
                    million.  FAS has  agreed to waive a  portion  of its fee in
                    order to limit the Fund's the total  monthly  administration
                    expenses   (including   administration,   co-administration,
                    transfer  agent and  custodian  fees) to 0.30% of the Fund's
                    average monthly net assets.

---------------------------- ---------------------------------------------------
Trading Market..... The AMPS will not be listed on an exchange. Instead, you may
                    buy or sell the AMPS at an  auction  that  normally  is held
                    every   twenty-eight   days  by   submitting   orders  to  a
                    Broker-Dealer or to a broker-dealer  that has entered into a
                    separate agreement with a Broker-Dealer.  In addition to the
                    auctions,   Broker-Dealers  and  other   broker-dealers  may
                    maintain a secondary  trading  market in the AMPS outside of
                    auctions  but may  discontinue  this  activity  at any time.
                    There is no assurance  that a secondary  market will provide
                    holders  of  AMPS  with  liquidity.  You may  transfer  AMPS
                    outside of auctions only to or through a Broker-Dealer  or a
                    broker-dealer   that  has  entered   into  a   Broker-Dealer
                    Agreement, or other persons as the Fund permits.


                    The table  below shows the first  auction  date for the AMPS
                    and the day on which the  subsequent  auctions will normally
                    be held.  The  first  auction  date for the AMPS will be the
                    business  day  before  the  dividend  payment  date  for the
                    initial  dividend  period  for the AMPS.  The start date for
                    subsequent  dividend  periods  normally will be the business
                    day  following  the  auction  date  unless the then  current
                    dividend  period is a special  dividend  period,  or the day
                    that normally  would be the auction date or the first day of
                    the subsequent dividend period is not a business day.


                    Series          First Auction Date    Subsequent Auction Day
                  --------------------------------------------------------------
                    Series M28..                , 2005     Every fourth Monday

---------------------------- ---------------------------------------------------
Dividends and 
Rate Periods........The  table  below  shows  the  initial  dividend  rate,  the
                    dividend  payment  date for the  initial  rate  period,  the
                    subsequent  dividend  payment day and the number of days for
                    the  initial  rate  period  of  the  AMPS  offered  in  this
                    prospectus.  For subsequent rate periods,  the AMPS will pay
                    dividends  based on a rate  set at  auctions  normally  held
                    every 28 days. In most  instances,  dividends are payable on
                    the first business day following the end of the rate period.


                    The  rate  set  at  auction  will  not  exceed  the  maximum
                    applicable  rate. The dividend payment date for special rate
                    periods will be set out in the notice  designating a special
                    rate period.

                    Dividends on the AMPS will be  cumulative  from the date the
                    AMPS  are  first  issued  and  will be paid  out of  legally
                    available funds.



                                                                  
                                Dividend Payment        
                Initial         Date for Initial Rate   Subsequent Dividend   Number of Days in Initial 
AMPS            Dividend Rate   Period                  Payment Day           Rate Period
------------------------------------------------------------------------------------------------------------------------------------
Series M28              %                    ,2005      Every fourth Tuesday  




                    The Fund  may,  subject  to  certain  conditions,  designate
                    special  dividend periods of more than 28 days. The Fund may
                    not designate a special  dividend  period unless  sufficient
                    clearing  bids were made in the most recent  auction for the
                    AMPS. In addition,  full cumulative  dividends,  any amounts
                    due with respect to mandatory redemptions and any additional
                    dividends  payable  prior to such date must be paid in full.
                    The Fund also must have received  confirmation  from Moody's
                    and Fitch or any substitute  rating agency that the proposed
                    special  dividend  period  will not  adversely  affect  such
                    agency's  then-current  rating  on the  AMPS  and  the  lead
                    Underwriter designated by the Fund, initially Merrill Lynch,
                    must not  have  objected  to the  declaration  of a  special
                    dividend  period.  See  "Description of AMPS - Dividends and
                    Rate Periods" and "Designation of Special Dividend  Periods"
                    and "The Auction".

                    The  AMPS  will  entitle   their  holders  to  receive  cash
                    dividends  at a  rate  per  annum  that  may  vary  for  the
                    successive  dividend periods for such shares. The applicable
                    rate for a particular  dividend period will be determined by
                    an  auction   conducted  on  the  business  day  immediately
                    preceding  the start of such  dividend  period.  A "business
                    day" is a day on  which  the NYSE is open  for  trading  and
                    which is not a Saturday,  Sunday or other day on which banks
                    in New  York  City are  authorized  or  obligated  by law to
                    close.

                    Determination  of Maximum  Applicable Rate.  Generally,  the
                    applicable rate for any regular dividend period for the AMPS
                    will  not be more  than the  maximum  applicable  rate.  The
                    maximum  applicable  rate will  depend on the credit  rating
                    assigned  to the AMPS and on the  duration  of the  dividend
                    period.  The maximum  applicable  rate will be the higher of
                    the  applicable  percentage  of the  reference  rate  or the
                    applicable  spread plus the  reference  rate.  The reference
                    rate (the "Reference Rate") is the applicable LIBOR Rate (as
                    defined in "Description of AMPS - Dividends and Rate Periods
                    - Determination of Maximum  Applicable Rate") for a dividend
                    period  of fewer  than 365 days or the  applicable  Treasury
                    Index Rate (as defined in  "Description  of AMPS - Dividends
                    and Rate  Periods  -  Determination  of  Maximum  Applicable
                    Rate")  for a  dividend  period  of 365  days or  more.  The
                    applicable  percentage or applicable spread as so determined
                    is further subject to upward but not downward  adjustment in
                    the discretion of the Board after consultation with the lead
                    underwriter,  initially  Merrill  Lynch.  In the  case  of a
                    special dividend period, the maximum applicable rate will be
                    specified by the Fund in the notice of the special  dividend
                    period for such special dividend payment period.


                    The applicable percentage and spread are as follows:


                       Applicable Percentage Payment Table
-------------------------------------------------------------------------------


      Credit Ratings            Applicable Percentage Applicable Spread
----------------------------    --------------------- -----------------
Moody's         Fitch
-------         -----
                                             

Aaa             AAA             125%                  1.25%
Aa3 to Aa1      AA- to AA+      150%                  1.50%
A3 to A1        A- to A+        200%                  2.00%
Baa3 to Baa1    BBB- to BBB+    250%                  2.50%
Ba1 and lower   BB+ and lower   300%                  3.00%





                    There  is no  minimum  applicable  rate  in  respect  of any
                    dividend  period.  See  "Description of AMPS - Dividends and
                    Rate Periods."

                    Assuming  the Fund  maintains a Aaa/AAA  rating on the AMPS,
                    the  practical  effect  of the  different  methods  used  to
                    calculate the maximum  applicable rate is shown in the table
                    below:



                                                       
                        Maximum
                        Applicable Rate                         Method Used to
                        Using the         Maximum Applicable    Determine the
                        Applicable        Rate Using the        Maximum Applicable
Reference Rate          Percentage        Applicable Spread     Rate
----------------        ---------------   ------------------    ------------------
1%                      1.25%             2.25%                 Spread
2%                      2.50%             3.25%                 Spread
3%                      3.75%             4.25%                 Spread
4%                      5.00%             5.25%                 Spread
5%                      6.25%             6.25%                 Either
6%                      7.50%             7.25%                 Percentage



                    Prior to each dividend payment date, the Fund is required to
                    deposit  with the  Auction  Agent  sufficient  funds for the
                    payment of  declared  dividends.  The failure to make such a
                    deposit will result in the  cancellation  of any auction and
                    the  dividend  rate will be the 5% maximum  applicable  rate
                    until  such  failure  to  deposit is cured or, if not timely
                    cured, a non-payment rate of 300% of the Reference Rate. The
                    Fund  does not  intend to  establish  any  reserves  for the
                    payment of dividends.


---------------------------- ---------------------------------------------------
Ratings...........  The AMPS.are expected to receive ratings of Aaa from Moody's
                    and AAA from Fitch.  These  ratings are an assessment of the
                    capacity and willingness of an issuer to pay preferred stock
                    obligations.   The  ratings  are  not  a  recommendation  to
                    purchase,  hold or sell the AMPS inasmuch as the rating does
                    not  comment  as  to  market  price  or  suitability  for  a
                    particular  investor.  The  ratings  also do not address the
                    likelihood  that an owner of AMPS  will be able to sell such
                    shares in an auction or otherwise.  The ratings are based on
                    information  obtained from the Fund and other  sources.  The
                    ratings  may be  changed,  suspended,  or  withdrawn  in the
                    rating  agencies'  discretion  as a result of changes in, or
                    the unavailability of, such information. See "Description of
                    AMPS - Rating Agency Guidelines and Asset Coverage."

---------------------------- ---------------------------------------------------
Redemption......... The Fund is  required  to  redeem  AMPS if the Fund does not
                    meet the asset  coverage  ratio required by the 1940 Act, or
                    to correct a failure to meet a rating agency  guideline in a
                    timely  manner.  The Fund may  voluntarily  redeem AMPS,  in
                    whole  or  in  part,  subject  to  certain  conditions.  See
                    "Description of AMPS - Redemption" and  "Description of AMPS
                    - Rating Agency Guidelines and Asset Coverage."

---------------------------- ---------------------------------------------------
Asset Maintenance...Under the Articles  Supplementary,  which  establish and fix
                    the  rights  and  preferences  of the  AMPS,  the Fund  must
                    maintain  asset  coverage  of the  AMPS as  required  by the
                    rating  agency or agencies  rating the AMPS (the  "Preferred
                    Stock Basic Maintenance Amount").  The Preferred Stock Basic
                    Maintenance   Amount  is  the  sum  of  (a)  the   aggregate
                    liquidation   preference  of  the  AMPS  then   outstanding,
                    together  with the aggregate  liquidation  preference on any
                    other  series  of   preferred   shares  of  the  Fund  (plus
                    redemption  premium,  if any) and (b)  certain  accrued  and
                    projected  dividend  and other  payment  obligations  of the
                    Fund.  Moody's  and  Fitch  have each  established  separate
                    guidelines for  calculating  discounted  value of the Fund's
                    assets for  purposes  of this asset  coverage  test.  To the
                    extent any particular  portfolio  holding does not satisfy a
                    rating  agency's  guidelines,   all  or  a  portion  of  the
                    holding's  value will not be included in the rating agency's
                    calculation  of  discounted  value.  The  Moody's  and Fitch
                    guidelines also impose certain diversification  requirements
                    on the Fund's portfolio.


                    As  required  by the 1940 Act,  the Fund must also  maintain
                    asset  coverage of at least 200% with respect to outstanding
                    senior  securities that are preferred  stock,  including the
                    AMPS (the "1940 Act Asset Coverage").

                    In the event that the Fund does not satisfy  these  coverage
                    tests,  some or all of the AMPS will be subject to mandatory
                    redemption. See "Description of AMPS - Redemption."

                    Based  on the  composition  of the  Fund's  portfolio  as of
                    August 31, 2005, the asset coverage of the AMPS, as measured
                    pursuant to the 1940 Act, would be approximately 452% if the
                    Fund were to issue AMPS representing  approximately 22.1% of
                    the Fund's managed assets.

---------------------------- ---------------------------------------------------
Mandatory      
Redemption......... If the Preferred Stock Basic Maintenance  Amount or the 1940
                    Act  Asset   Coverage  is  not  maintained  or  restored  as
                    specified  herein,  the AMPS will be  subject  to  mandatory
                    redemption,  out of funds legally available therefor, at the
                    mandatory  redemption  price of  $25,000  per share  plus an
                    amount equal to dividends  accumulated  thereon  (whether or
                    not  earned or  declared)  but  unpaid to the date fixed for
                    redemption.  Any  such  redemption  will be  limited  to the
                    minimum  number of AMPS  necessary to restore the  Preferred
                    Stock  Basic  Maintenance  Amount  or  the  1940  Act  Asset
                    Coverage,  as the case may be.  The  Fund's  ability to make
                    such  a  mandatory  redemption  may  be  restricted  by  the
                    provisions of the 1940 Act.

---------------------------- ---------------------------------------------------
Optional Redemption.The AMPS are  redeemable  at the  option of the  Fund,  as a
                    whole or in part, on any dividend payment date (except on an
                    initial  dividend  payment date or a special dividend period
                    with respect to which the Fund has agreed not to redeem AMPS
                    voluntarily   (a   "Non-Call   Period"))   at  the  optional
                    redemption price of $25,000 per share,  plus an amount equal
                    to  dividends  thereon  (whether or not earned or  declared)
                    accumulated but unpaid to the date fixed for redemption plus
                    the premium,  if any,  resulting  from the  designation of a
                    Premium  Call  Period.  A "Premium  Call Period" is a period
                    during which AMPS are only  redeemable  at the option of the
                    Fund at a price per share equal to $25,000 plus  accumulated
                    but unpaid dividends, plus a premium determined by the Fund,
                    after   consultation   with  the   Auction   Agent  and  the
                    Broker-Dealers.

---------------------------- ---------------------------------------------------
Liquidation      
Preference......... The liquidation  preference for the AMPS will be $25,000 per
                    share plus accumulated but unpaid dividends, if any, whether
                    or not declared. See "Description of AMPS - Liquidation."

---------------------------- ---------------------------------------------------
Voting Rights...... The holders of preferred shares,  including the AMPS, voting
                    as a  separate  class,  have the right to elect at least two
                    Directors  of the Fund at all times.  Such holders also have
                    the right to elect a majority of the  Directors in the event
                    that two  years'  dividends  on such  preferred  shares  are
                    unpaid.  In  each  case,  the  remaining  Directors  will be
                    elected by holders of common  shares and  preferred  shares,
                    including the AMPS,  voting together as a single class.  The
                    holders of preferred  shares,  including the AMPS, will vote
                    as a separate  class or classes  on  certain  other  matters
                    required under the Articles  Supplementary and the 1940 Act.
                    The holders of preferred  shares,  including the AMPS,  will
                    generally vote together with the holders of common shares as
                    a  single   class  on  all  other   matters   submitted   to
                    stockholders. See "Description of AMPS - Voting Rights."

---------------------------- ---------------------------------------------------
Auction Procedure...Unless otherwise  permitted by the Fund,  investors may only
                    participate in auctions  through their  Broker-Dealers.  The
                    process  for  determining  the  applicable  rate on the AMPS
                    described  in this  section is referred  to as the  "Auction
                    Procedures"  and  each  setting  of the  applicable  rate is
                    referred to as an "auction."


                    Prior to the  submission  deadline on each auction date each
                    customer of a Broker-Dealer  who is listed on the records of
                    that Broker-Dealer (or, if applicable, the Auction Agent) as
                    a beneficial  owner of such shares may submit the  following
                    types  of   orders   with   respect   to   shares   to  that
                    Broker-Dealer:

                    1. Hold Order - indicating its desire to hold shares without
                    regard to the applicable rate for the next dividend period.

                    2. Bid -  indicating  its  desire  to  purchase  or hold the
                    indicated  number  of  shares  at  $25,000  per share if the
                    applicable  rate for shares for the next dividend  period is
                    not less than the rate  specified in the bid. A bid order by
                    an existing  holder will be deemed an  irrevocable  offer to
                    sell shares at $25,000 per share if the applicable  rate for
                    shares  for the next  dividend  period is less than the rate
                    specified in the bid.

                    3. Sell  Order -  indicating  its  desire to sell  shares at
                    $25,000 per share without regard to the applicable  rate for
                    the next dividend period.


                    A beneficial  owner may submit  different types of orders to
                    its  Broker-Dealer  with respect to different AMPS then held
                    by the beneficial  owner. A beneficial  owner of such shares
                    that  submits  its bid with  respect  to such  shares to its
                    Broker-Dealer   having  a  rate   higher  than  the  maximum
                    applicable  rate for such shares on the auction date will be
                    treated   as   having   submitted   a  sell   order  to  its
                    Broker-Dealer.  A  beneficial  owner of shares that fails to
                    submit an order to its  Broker-Dealer  with  respect to such
                    shares will  ordinarily  be deemed to have  submitted a hold
                    order  with  respect  to such  shares to its  Broker-Dealer.
                    However,  if a beneficial owner of shares fails to submit an
                    order with respect to such shares to its  Broker-Dealer  for
                    an auction  relating  to a special  dividend  period of more
                    than 91 days, such  beneficial  owner will be deemed to have
                    submitted  a sell order to its  Broker-Dealer.  A sell order
                    constitutes an irrevocable offer to sell the AMPS subject to
                    the sell order. A beneficial owner that offers to become the
                    beneficial owner of additional AMPS is, for purposes of such
                    offer, a potential holder as discussed below.


                    A  potential  holder is a customer of a  Broker-Dealer  that
                    either (i) is not a  beneficial  owner of AMPS but wishes to
                    purchase  shares or (ii) is a beneficial  owner of AMPS that
                    wishes to purchase additional shares. A potential holder may
                    submit  bids to its  Broker-Dealer  in  which it  offers  to
                    purchase  shares at $25,000 per share if the applicable rate
                    for shares for the next dividend period is not less than the
                    specified  rate in such bid.  A bid  placed  by a  potential
                    holder of shares  specifying  a rate higher than the maximum
                    applicable  rate for shares on the auction  date will not be
                    accepted.

                    The  Broker-Dealers  in turn will submit the orders of their
                    respective customers who are beneficial owners and potential
                    holders  to  the  Auction  Agent.  The  Broker-Dealers  will
                    designate  themselves  (unless  otherwise  permitted  by the
                    Fund) as  existing  holders  of  shares  subject  to  orders
                    submitted or deemed submitted to them by beneficial  owners.
                    They will  designate  themselves  as  potential  holders  of
                    shares  subject  to orders  submitted  to them by  potential
                    beneficial owners. However, neither the Fund nor the Auction
                    Agent will be responsible for a  Broker-Dealer's  failure to
                    comply with these Auction Procedures.  Any order placed with
                    the Auction Agent by a  Broker-Dealer  as or on behalf of an
                    existing holder or a potential  holder will be treated as an
                    order placed with a Broker-Dealer  by a beneficial  owner or
                    potential  beneficial  owner.  Similarly,  any  failure by a
                    Broker-Dealer  to submit to the  Auction  Agent an order for
                    any AMPS held by it or customers who are  beneficial  owners
                    will be treated as a beneficial owner's failure to submit to
                    its  Broker-Dealer an order in respect of AMPS held by it. A
                    Broker-Dealer  may also submit  orders to the Auction  Agent
                    for its own  account  as an  existing  holder  or  potential
                    holder,  provided that the Broker-Dealer is not an affiliate
                    of the Fund.


                    There are sufficient  clearing bids for shares in an auction
                    if the  number of shares  subject to bids  submitted  to the
                    Auction Agent by  Broker-Dealers  for potential holders with
                    rates  or  spreads  equal  to  or  lower  than  the  maximum
                    applicable  rate is at least  equal to or exceeds the sum of
                    the number of shares  subject to sell  orders and the number
                    of shares subject to bids specifying rates or spreads higher
                    than  the  maximum   applicable  rate  submitted  or  deemed
                    submitted  to  the  Auction  Agent  by  Broker-Dealers   for
                    existing holders.  If there are sufficient clearing bids for
                    shares,   the  applicable  rate  for  shares  for  the  next
                    succeeding  dividend  period thereof will be the lowest rate
                    specified in the submitted  bids which,  taking into account
                    such rate and all lower rates bid by Broker-Dealers as or on
                    behalf of existing  holders  and  potential  holders,  would
                    result in existing holders and potential  holders owning the
                    shares available for purchase in the auction.


                    If there are not  sufficient  clearing bids for such shares,
                    the applicable rate for the next dividend period will be the
                    maximum applicable rate on the auction date. However, if the
                    Fund has  declared a special  dividend  period and there are
                    not  sufficient  clearing  bids,  the  election of a special
                    dividend  period will not be  effective  and the  applicable
                    rate for the next rate period will be the same as during the
                    current rate period.  If there are not  sufficient  clearing
                    bids,  beneficial  owners of AMPS that have submitted or are
                    deemed to have submitted sell orders may not be able to sell
                    in the auction all shares  subject to such sell  orders.  If
                    all of the  applicable  outstanding  AMPS are the subject of
                    submitted hold orders,  then the dividend  period  following
                    the  auction  will  automatically  be the same length as the
                    minimum dividend period and the applicable rate for the next
                    dividend  period  will be 90% of the  Reference  Rate on the
                    date of the applicable auction.

                    The  Auction  Procedures  include a pro rata  allocation  of
                    shares for purchase and sale which may result in an existing
                    holder continuing to hold or selling,  or a potential holder
                    purchasing,  a number  of AMPS  that is  different  than the
                    number of shares  specified in its order.  To the extent the
                    allocation procedures have that result,  Broker-Dealers that
                    have designated  themselves as existing holders or potential
                    holders in respect of  customer  orders  will be required to
                    make appropriate pro rata allocations among their respective
                    customers.

                    The  following  is a  simplified  example  of how a  typical
                    auction  works.  Assume that the Fund has 1,000  outstanding
                    AMPS and three current  holders.  The three current  holders
                    and  three   potential   holders   submit   orders   through
                    broker-dealers at the auction:



                                                          
Holder                          Goal                            Action

Current Holder A...........     Owns 500 shares, wants to       Bid order of 4.1% rate for
                                sell all 500 shares if          all 500 shares
                                auction rate is less than
                                4.1%

Current Holder B...........     Owns 300 shares, wants to       Hold order - will take the
                                hold                            auction rate

Current Holder C...........     Owns 200 shares, wants to       Bid order of 3.9% rate for
                                sell all 200 shares if          all 200 shares
                                auction rate is less than
                                3.9%

Potential Holder D.........     Wants to buy 200 shares         Places order to buy at or
                                                                above 4.0%

Potential Holder E.........     Wants to buy 300 shares         Places order to buy at or
                                                                above 3.9%

Potential Holder F.........     Wants to buy 200 shares         Places order to buy at or
                                                                above 4.1%



                             

                    The lowest  dividend rate that will result in all 1,000 AMPS
                    in the  above  example  continuing  to be held is 4.0%  (the
                    offer by D).  Therefore,  the  dividend  rate  will be 4.0%.
                    Current  holders B and C will  continue to own their shares.
                    Current  holder A will sell its shares  because A's dividend
                    rate bid was higher than the dividend rate. Potential holder
                    D will buy 200  shares and  potential  holder E will buy 300
                    shares because their bid rates were at or below the dividend
                    rate. Potential holder F will not buy any shares because its
                    bid rate was above the dividend rate.

---------------------------- ---------------------------------------------------
Federal Income      
Taxation...........The Fund intends to take the position that under present law,
                    the AMPS will  constitute  stock of the Fund.  Distributions
                    with  respect  to the  AMPS  (other  than  distributions  in
                    redemption  of the AMPS that are  treated  as  exchanges  of
                    stock  under  Section  302(b) of the Code)  will  constitute
                    dividends to the extent of the Fund's current or accumulated
                    earnings and profits as calculated  for U.S.  federal income
                    tax  purposes.  The dividends  generally  will be taxable as
                    ordinary income.  Distributions of net capital gain that are
                    designated  by the Fund as capital gain  dividends,  if any,
                    however,  will be treated as long-term capital gains without
                    regard to the length of time the shareholder has held shares
                    of the Fund.

---------------------------- ---------------------------------------------------
Administrator, Custodian,    
Transfer Agent, Registrar    
and Dividend Disbursing      
Agent...............Fund  Administrative  Services,  LLC  ("FAS")  serves as the
                    Fund's co-administrator.  Under its Administration Agreement
                    with the  Fund,  FAS  provides  certain  administrative  and
                    executive   management   services  to  the  Fund  including:
                    providing  the  Fund's   principal   offices  and  executive
                    officers,   overseeing  and   administering  all  contracted
                    service  providers,  making  recommendations  to  the  Board
                    regarding  policies  of  the  Fund,  conducting  shareholder
                    relations,  authorizing  expenses  and other  administrative
                    tasks.


                    Under the Administration  Agreement,  FAS receives a monthly
                    fee  calculated  at an annual  rate of 0.20% of the value of
                    the Fund's  average  monthly net assets up to $250  million;
                    0.18% of the Fund's  average  monthly net assets on the next
                    $150 million;  and 0.15% on the value of the Fund's  average
                    monthly assets over $400 million.  FAS has agreed to waive a
                    portion  of its fee in order to limit the  Fund's  the total
                    monthly administration  expenses (including  administration,
                    co-administration,  transfer  agent and  custodian  fees) to
                    0.30% of the Fund's average  monthly net assets.  The equity
                    owners of FAS are Evergreen Atlantic, LLC and the Lola Brown
                    Trust  No.  1B,  each  of  which  is  considered  to  be  an
                    "affiliated  person"  of the Fund as that term is defined in
                    the 1940 Act.


                    Investors Bank & Trust Company  ("Investors Bank") serves as
                    the Fund's  co-administrator and custodian.  As compensation
                    for  its   services,   Investors   Bank   receives   certain
                    out-of-pocket  expenses,  transaction  fees and  asset-based
                    fees of 0.058% annually (or a minimum of $10,500 per month),
                    which are accrued daily and paid monthly.


                    PFPC Inc. ("PFPC"), an indirect,  majority-owned  subsidiary
                    of PNC Financial  Services Group, Inc., serves as the Fund's
                    transfer agent,  dividend-paying agent and registrar for the
                    Fund's common stock. As compensation  for PFPC's services as
                    such,  the  Fund  pays  PFPC  a  monthly  fee  plus  certain
                    out-of-pocket expenses.


                    Deutsche Bank Trust  Company  Americas will serve as Auction
                    Agent,  transfer agent,  dividend paying agent and registrar
                    for the AMPS.




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

                              FINANCIAL HIGHLIGHTS


     The table below sets forth selected  financial  data,  including  operating
performance  data,  total investment  returns,  ratios to average net assets and
other  supplemental  data,  for a share of the Fund's  common stock  outstanding
throughout the period presented.  The per share operating performance and ratios
for the period  ending June 30, 2001 and prior years were  audited by the Fund's
previous independent  registered public accounting firm. The per share operating
performance  and ratios for the periods ended June 30, 2002,  November 30, 2002,
2003 and 2004 were audited by KPMG LLP, the Fund's independent registered public
accounting  firm, as stated in their report which is  incorporated  by reference
into the Statement of Additional  Information.  The following information should
be read in conjunction  with the Financial  Statements and Notes thereto,  which
are incorporated by reference into the Statement of Additional Information.







                                       Six Months          Year Ended           Five Month         Year Ended June 30,
                                         Ended            November 30,            Period
                                        May 31,                                   Ended
                                         2005                                   November 30,
                                      (Unaudited)      2004         2003         2002(b)         2002       2001       2000
                                      ------------- ------------ ------------ --------------- ---------- ---------- ---------
                                                                                               
OPERATING PERFORMANCE:
                                      ------------- ------------ ------------ --------------- ---------- ---------- ---------
Net asset value, beginning of period  $7.58         $6.65        $6.59        $7.15           $8.65      $8.96      $10.07
                                      ------------- ------------ ------------ --------------- ---------- ---------- ---------
Net investment income/(loss)          0.07          0.01         (0.03)       0.02            0.58       0.70       0.67

Net realized and unrealized           0.03          0.95         1.23         (0.58)          (1.49)     (0.31)     (1.02)
gain/(loss) on investments
                                      ------------- ------------ ------------ --------------- ---------- ---------- ---------
Total from investment operations      0.10          0.96         1.20         (0.56)          (0.91)     0.39       (0.35)
                                      ------------- ------------ ------------ --------------- ---------- ---------- ---------
DISTRIBUTIONS:

Dividends paid from net investment    --            (0.03)       (0.07)       --              (0.59)     (0.70)     (0.76)
income to shareholders
                                      ------------- ------------ ------------ --------------- ---------- ---------- ---------

Total distributions                   --            (0.03)       (0.07)       --              (0.59)     (0.70)     (0.76)
                                      ------------- ------------ ------------ --------------- ---------- ---------- ---------
Dilutive Impact of Rights Offering++  --            --           (1.07)       --              --         --         --
                                      ------------- ------------ ------------ --------------- ---------- ---------- ---------
Net asset value, end of period        $7.68         $7.58        $6.65        $6.59           $7.15      $8.65      $8.96
                                      ============= ============ ============ =============== ========== ========== =========
Market value, end of period           $6.51         $6.63        $5.50        $5.22           $6.78      $8.50      $8.25
                                      ============= ============ ============ =============== ========== ========== =========
Total investment return based on      1.32%         14.44%       2.37%        (7.83)%         (11.36)%   4.41%      (3.70)%
net asset value(a,c)
                                      ============= ============ ============ =============== ========== ========== =========
Total investment return based on      (1.81)%       21.02%       6.89%        (23.01)%        (14.47)%   11.77%     (6.81)%
market value(a,c)
                                      ============= ============ ============ =============== ========== ========== =========
RATIOS AND SUPPLEMENTAL DATA:

Ratio of operating expenses to        1.98%+++      2.00%        1.93%        4.40%+++        1.95%+     1.82%+     2.51%+
average net assets

Ratio of operating expenses to        2.03%+++      2.06%        --           --              --         --         --
average net assets
without fee waivers

Ratio of operating expenses           2.62%+++      2.38%        2.30%        --              --         --         --
including interest
expense to average net assets

Ratio of net investment income to     1.44%+++      0.01%        0.08%        0.79%+++        6.96%      8.03%      7.08%
average
net assets

SUPPLEMMENTAL DATA:

Portfolio turnover rate               8%            33%          40%          21%             180%       83%        53%

Net assets, end of period (in 000's)  $86,988       $85,896      $75,286      $37,309         $40,514    $48,990    $50,591

Number of shares outstanding at the   11,328        11,328       11,328       5,664           5,664      5,664      5,644
end of
period (in 000's)


(a)  Assumes  reinvestment of  distributions at the price obtained by the Fund's
     Dividend Reinvestment Plan.

(b)  Fiscal  year-end  changed to November  30.  Prior to this,  the fiscal year
     ended June 30.

(c)  Total return is not annualized for periods less than one year.

+    For the years ended June 30, 2002, 2001, and 2000, the ratio of expenses to
     average net assets excluding the costs  attributable to a proxy contest and
     related matters was 1.65%, 1.26% and 1.55%, respectively.

++   The Rights Offering was fully  subscribed at a subscription  price of $4.34
     for 5,663,892 shares which equals $24,581,291 in gross proceeds. The Rights
     Offering had a $(1.06) NAV impact and the  $159,614 of expenses  associated
     with the Rights Offering had a $(0.01) NAV impact.

+++  Annualized.


     The  information  above  represents  the operating  performance  data for a
common share outstanding,  total investment return, ratios to average net assets
and other supplemental data for the period indicated.  This information has been
determined based upon financial information provided in the financial statements
and market value data for the Fund's common shares.


     As of August 31, 2005,  the Fund had a bank line of credit in the amount of
$20,000,000  (defined  above as the  "Bank  Debt")  of which it had  drawn  down
$20,000,000. The Bank Debt is used for investment and will be repaid entirely in
conjunction with the Offering out of the proceeds of the Offering. The following
table  depicts the  outstanding  Bank Debt as of August 31, 2005 and end of each
fiscal year within the most recent 10 years  during  which the Fund had the Bank
Debt or any other bank debt outstanding.


                                                                  
              Year              Total Amount Outstanding Exclusive      Asset Coverage of Outstanding Bank
                                of Treasury Securities                  Debt
-----------------------------------------------------------------------------------------------------------------
              11/30/2003        $20,000,000                             4.79
              11/30/2004        $18,000,000                             5.80
               8/31/2005        $20,000,000                             5.42





                                    THE FUND


     The Fund is a  non-diversified,  closed-end  management  investment company
organized as a Maryland  corporation in October 1972.  From its  inception,  and
prior to April 26,  2002,  the Fund was named USLife  Income Fund,  Inc. and was
virtually 100% invested in corporate  bonds. In January 2002, the Fund's largest
shareholder,  the Ernest Horejsi Trust No. 1B,  succeeded in replacing the Board
of  Directors  with a slate of its  nominees.  Soon  thereafter,  in April 2002,
shareholders  approved  changing the Fund's  investment  objective and corporate
name, changing the Fund's classification from diversified to non-diversified and
changing  or  eliminating  a  number  of  the  Fund's   fundamental   investment
restrictions.  Thereafter,  the  Fund  began  the  process  of  liquidating  its
corporate bond  portfolio and started  investing in common  equities  consistent
with the new investment objective.

     As of August  31,  2005,  the Fund had  11,327,784  shares of common  stock
outstanding.  The Fund's  common  shares are traded on the NYSE under the symbol
"BIF." The average  weekly trading volume of the Fund's common stock on the NYSE
during the period from August 1, 2005 through August 31, 2005 was 14,043 shares.
As of August 31,  2005,  the total net assets of the Fund,  including  leverage,
were approximately $108.4 million.


     The following  provides  information about the Fund's outstanding shares as
of August 31, 2005:



                                                                       Amount held by
                                                                        the Fund or for
                                                          Amount              its               Amount
         Title of Class                                 Authorized          Account          Outstanding
                                                                                    


         Common Shares..........................       250,000,000             0              11,327,784
         AMPS...................................            0                  0                  0





                                 USE OF PROCEEDS


     The net proceeds of the Offering will be  approximately  $24,555,000  after
payment  of  offering   expenses  and  sales  load  estimated  to  be  $445,000.
Approximately  $20,000,000  of the net proceeds  will be used to redeem the Bank
Debt  (which has an  interest  rate of 4.64% and  matures on  demand),  with the
balance being invested in accordance  with the Fund's  investment  objective and
policies as soon as practicable.  The Fund  anticipates  that it will be able to
invest  substantially all of such net proceeds within approximately three months
after completion of this offering. Pending such investment, the Fund anticipates
investing the proceeds in short-term securities issued by the U.S. government or
its agencies or  instrumentalities  or in high quality,  short-term or long-term
debt obligations or money market instruments.



                           CAPITALIZATION (UNAUDITED)


     The Fund's Charter  authorizes the issuance of 250,000,000 shares of common
stock, par value $0.01 per share. The Board has authorized the  reclassification
of up to  10,000  of these  shares  in one or more  series  of  preferred  stock
designated  as AMPS, of which 1,000 will be  reclassified  as AMPS and issued in
connection with this Offering.  In 2002, Fund shareholders approved an amendment
to the Fund's Charter which authorizes the Board, without shareholder  approval,
to increase the Fund's authorized  capital.  Pursuant to such amendment,  and in
connection  with a rights  offering in 2002,  the Board resolved to increase the
authorized capital of the Fund to its current level.

     The following table sets forth the  capitalization of the Fund as of August
31,  2005,  and as adjusted to give effect to the  issuance of the AMPS  offered
hereby  assuming  the Fund issues 1,000 of the AMPS  representing  approximately
22.1% of the Fund's  total  assets  (including  estimated  offering  expenses of
$195,000 and a sales load of $250 per AMPS).  The common  shareholders'  paid in
capital is charged with the cost of issuance of the AMPS.



                                                                             
                                                              Actual                As Adjusted
AMPS, $0.01 par value, $25,000 stated value per share,
at liquidation value, including dividends payable; 
no shares issued; 1,000 shares issued,
as adjusted                                                           $0            $25,000,000

Shareholder's Equity:
   Common shares, $0.01 par value per share;
   24,999,000 shares authorized, 11,327,784 shares
   outstanding (1)                                              $113,278               $113,278

   Undistributed net investment income                          $818,105               $818,105

   Accumulated net realized gain/loss on investments         $(8,023,999)           $(8,023,999)

   Net unrealized appreciation/depreciation on
   investments                                                $13,168,217           $13,168,217

   Paid in Capital in excess of par value of
   common shares                                              $82,326,370           $81,917,370

   Net assets attributable to common shares                   $88,437,971           $87,992,971

   Net assets, plus liquidation preferences of AMPS           $88,437,971          $112,992,971


(1) None of these outstanding shares are held by or for the account of the Fund.




                        INVESTMENT OBJECTIVE AND POLICIES

     Investment Objective.  The Fund's investment objective is total return. The
Fund  seeks to  produce  both  income  and  long-term  capital  appreciation  by
investing  in a  portfolio  of  equity  and debt  securities.  The Fund  invests
primarily in common  stocks,  including  dividend  paying  common stocks such as
those issued by utilities,  REITs and closed-end  RICs. The Fund also invests in
fixed income securities such as U.S. government securities, preferred stocks and
bonds. The Fund invests primarily in securities of U.S.-based companies and to a
lesser extent in foreign  equity  securities  and  sovereign  debt, in each case
denominated in foreign currency.  The Fund has no restrictions on its ability to
invest in foreign  securities.  The Fund is concentrated in REITs which means it
must invest more than 25% of its total assets in REITs and companies in the real
estate  industry.  No  assurance  can be given  that the Fund will  achieve  its
investment objective.

     Investment Policies. The Fund is a "non-diversified" investment company, as
defined in the 1940 Act,  which means that it is  permitted to invest its assets
in a more limited number of issuers than "diversified"  investment companies.  A
diversified  company may not,  with respect to 75% of its total  assets,  invest
more than 5% of its total assets in the securities of any one issuer and may not
own more  than  10% of the  outstanding  voting  securities  of any one  issuer.
However,  pursuant to the requirements of Subchapter M of the Code, (A) not more
than 25% of the Fund's  total  assets may be invested in  securities  of any one
issuer (other than U.S.  government  securities  and RICs) or of any two or more
issuers  controlled  by the Fund  which may be deemed to be engaged in the same,
similar  or related  trades or  businesses,  and (B) with  respect to 50% of the
total value of the Fund's  portfolio,  (i) the Fund must limit to 5% the portion
of its assets  invested in the  securities  of a single  issuer (other than U.S.
government  securities and RICs), and (ii) the Fund may not own more than 10% of
the outstanding voting securities of any one issuer (other than U.S.  government
securities  and  RICs).  The  Fund  intends  to  concentrate  its  common  stock
investments  in a few  issuers  and to take large  positions  in those  issuers,
consistent  with being a  "non-diversified"  fund. As a result,  the Fund may be
subject  to a greater  risk of loss than a  diversified  fund or a fund that has
diversified its investments more broadly. Taking larger positions is also likely
to increase the volatility of the Fund's net asset value, reflecting fluctuation
in the value of large Fund holdings.


     As a matter of investment  policy, the Fund is concentrated in REITs, which
means it must, under normal market conditions, invest more than 25% of its total
assets in REITs or companies in the real estate  industry.  The Fund must obtain
shareholder  approval  prior to changing this policy.  The portion of the Fund's
assets  invested  in REITs and such  other  companies  will vary based on market
conditions,  but it is not expected to exceed 50% of total assets.  As of August
31, 2005, 29.6% of the Fund's total assets were invested in REITs.  Although the
Fund can invest in REITs of any size,  it  currently  intends to invest in REITs
with market  capitalizations  of greater  than $500  million.  Although the Fund
generally  invests  in  U.S.  REITs,  such  companies  may  invest  directly  or
indirectly in non-U.S.  properties,  and the Fund may make direct investments in
foreign REITs. The Fund presently owns one foreign REIT security.

     Under normal market conditions,  the Fund intends to invest at least 80% of
its  net  assets  in  common  stocks,   primarily  domestic  common  stocks  and
secondarily in foreign  common stocks  denominated  in foreign  currencies.  The
Fund's  investments in commons  stocks may include,  but is not limited to, RICs
whose objective is income, REITs, and other dividend-paying common stocks. Under
the 1940 Act,  the Fund must limit to 10% the portion of its assets  invested in
RICs, and under Subchapter M, no single  investment can exceed 25% of the Fund's
total  assets  at  the  time  of  purchase.  These  percentage  limitations  are
calculated at the time of investment, and the Fund is not required to dispose of
assets if holdings increase above these levels due to appreciation. As of August
31,  2005,  none of the Fund's  assets were  invested in RICs,  and 23.8% of the
Fund's total assets were invested in Berkshire  Hathaway,  Inc.  Class A shares.
The Fund has no restrictions on its ability to invest in foreign securities.  As
of August 31, 2005,  15.9% of the Fund's  total assets were  invested in foreign
securities.


     The portion of the Fund's assets that are not invested in common stocks may
be  invested  in fixed  income  securities  (including  bonds,  U.S.  government
securities, notes, bills, debentures,  preferred stocks, convertible securities,
bank  debt  obligations,  repurchase  agreements  and  short-term  money  market
obligations),  cash equivalents and income-producing common stocks. Under normal
circumstances,  the Fund will not have  more  than 10% of its  assets in cash or
cash equivalents.  The Fund may, for temporary  defensive  purposes,  allocate a
higher  portion of its assets to cash and cash  equivalents.  For this  purpose,
cash  equivalents  consist  of, but are not limited  to,  short-term  (less than
twelve months to maturity) U.S. government  securities,  certificates of deposit
and  other  bank  obligations,  investment  grade  corporate  bonds  other  debt
instruments and repurchase agreements.

     The Fund is also subject to the following fundamental  policies,  which may
only be changed with shareholder approval. The Fund may not:

     1.   Issue any senior securities except as permitted under the 1940 Act.

     2.   Invest in the  securities  of  companies  conducting  their  principal
          business  activity in the same  industry  if,  immediately  after such
          investment, the value of its investments in such industry would exceed
          25% of the value of its total assets;  provided  that this  limitation
          will not apply to REITs or related  companies in the same  industry as
          REITs.


     3.   Participate  on a joint or a joint and  several  basis in any  trading
          account  in  securities,  except  that the  Fund  may,  to the  extent
          permitted  by  rules,  regulations  or orders  of the  Securities  and
          Exchange Commission,  combine orders with others for the purchases and
          sales of securities in order to achieve the best overall execution.

     4.   Purchase or sell interests in oil, gas or other mineral exploration or
          development programs.

     5.   Purchase or sell real  estate,  except  that the Fund may  purchase or
          sell  interests  in REITs and  securities  secured  by real  estate or
          interests  therein issued by companies owning real estate or interests
          therein.

     6.   Purchase or sell commodities or commodity contracts.


     7.   Make loans other than  through  the  purchase  of debt  securities  in
          private  placements  and  the  loaning  of  portfolio   securities.


     8.   Borrow money in an amount  exceeding the maximum  permitted  under the
          1940 Act.

     9.   Underwrite  securities of other  issuers,  except insofar as it may be
          deemed to be an underwriter in selling a portfolio  security which may
          require registration under the Securities Act of 1933, as amended (the
          "Securities Act").

     10.  Invest  more than 30% of the value of its total  assets in  securities
          which have been acquired through private placements.

     11.  Purchase or retain the  securities  of any  issuer,  if, to the Fund's
          knowledge,  those officers and directors of the Fund or its investment
          advisers who individually own beneficially  more than 1/2 of 1% of the
          outstanding securities of such issuer,  together own beneficially more
          than 5% of such outstanding securities.

     12.  Pledge,  mortgage or hypothecate  its assets except in connection with
          permitted borrowing and to the extent related to transactions in which
          the Fund is authorized to engage.

     Except for the Fund's  investment  objective,  industry  concentration  and
fundamental  investment  restrictions as described in this prospectus and in the
Statement of Additional  Information,  the percentage limitations and investment
policies  set forth in this  prospectus  can be  changed  by the  Board  without
shareholder approval.

     Other  Investment  Techniques.  The  Fund  may  engage  in  other  types of
transactions,  including,  but not  limited to,  investment  in  restricted  and
illiquid securities,  repurchase agreements,  when-issued and forward commitment
transactions,  borrowing,  securities  lending  and  other  transactions.  For a
description  of  such  types  of  transactions,  see  "Investment  Policies  and
Techniques" and "Other  Investment  Policies and Techniques" in the Statement of
Additional Information.


                              INVESTMENT PHILOSOPHY

     Common  Stocks.  With respect to the Fund's common stock  portfolio  (other
than common stocks purchased  primarily for their  income-producing  potential),
the Advisers use an  "intrinsic  value"  approach to selecting  and managing the
Fund's assets.  The Advisers define  intrinsic value as the discounted  value of
the  cash  that  can be taken  out of a  business  during  its  remaining  life.
Accordingly,  in their securities  selection  process,  the Advisers put primary
emphasis on analysis of balance  sheets,  cash flows,  the quality of management
and its  ability  to  efficiently  and  effectively  allocate  capital,  various
internal returns which indicate profitability,  and the relationships that these
factors have to the price of a given  security.  The intrinsic value approach is
based on the  belief  that the  securities  of certain  companies  may sell at a
discount from the Advisers'  estimate of such companies'  "intrinsic value". The
Advisers  will  attempt  to  identify  and invest in such  securities,  with the
expectation  that such value  discount  will narrow  over time and thus  provide
capital  appreciation  for the Fund. When the Fund makes an investment in common
stock of an issuer,  it will likely make a significant  investment and typically
hold such stock for a long period of time.  Over time,  the Fund  believes  that
value investing produces superior total returns.

     Fixed Income Investments.  In seeking its total return objective,  the Fund
may  invest a portion  of its assets in U.S.  government  securities,  preferred
stocks,  bonds  and  other  income  producing  securities.   In  selecting  such
investments,   the  Advisers  consider,   among  other  things,  current  yield,
liquidity,  price variability and the underlying fundamental  characteristics of
the issuer, with particular emphasis on debt to equity and debt coverage ratios.


     Bonds.  Prior to April 26, 2002,  the Fund was called  USLIFE  Income Fund,
Inc. and was virtually 100% invested in corporate bonds.  Since the Fund changed
its investment  objective on April 26, 2002, the Advisers have liquidated all of
the Fund's bond portfolio.



                               PORTFOLIO CONTENTS

     At any given  time,  the Fund has some or all of the  types of  investments
described below. Under normal market conditions, the Fund invests primarily in a
portfolio of common  stocks and income  producing  securities  such as stocks of
REITs, RICs and utilities, bonds and preferred stocks.

     Common  Stocks.  The Fund may  invest  all or any  portion of its assets in
common stock.  Common stock is defined as shares of a  corporation  that entitle
the  holder  to a pro rata  share of the  profits  of the  corporation,  if any,
without  preference  over  any  other  shareholder  or  class  of  shareholders,
including holders of the corporation's  preferred stock and other senior equity.
Common  stock  usually  carries  with it the  right  to vote and  frequently  an
exclusive  right to do so. Upon  liquidation,  holders of common stock also have
the right to participate in the assets of the corporation after all other claims
are paid.



     In  selecting  common  stocks  for  investment,  the Fund  expects to focus
primarily on U.S.-based  companies,  although the Fund is permitted to invest in
companies  outside the U.S.  Generally,  target  companies have  consistent high
returns  on  equity,  while  using  modest  amounts  of debt  relative  to their
industries.  The Fund seeks  investments in businesses  the Advisers  understand
which  have  fairly   predictable  and  improving  future  earnings,   and  most
importantly,  are reasonably  priced  relative to the  businesses'  earnings and
anticipated  growth in  earnings.  The Fund does not  focus its  investments  in
"large-cap",  "mid-cap" or "small-cap"  companies since the Advisers  believe it
would be unwise to impose such investment limitations.

     Real Estate  Investment Trusts (REITs).  As a matter of investment  policy,
the Fund is  concentrated  in REITs,  which means it will,  under normal  market
conditions,  invest more than 25% of its total  assets in REITs or  companies in
the real estate  industry.  The Fund must obtain  shareholder  approval prior to
changing this policy.  REITs are trusts that invest primarily in commercial real
estate or real  estate-related  loans. A REIT is not taxed on income distributed
to its shareholders or unit-holders if it complies with regulatory  requirements
relating  to  its  organization,  ownership,  assets  and  income,  and  with  a
regulatory requirement that it distribute to its shareholders or unit-holders at
least 90% of its taxable income for each taxable year.  Generally,  REITs can be
classified as equity REITs, mortgage REITs and hybrid REITs. Equity REITs invest
the majority of their assets  directly in real  property and derive their income
primarily  from rents and  capital  gains  from  appreciation  realized  through
property  sales.  Mortgage  REITs  invest the  majority of their  assets in real
estate  mortgages  and derive their income  primarily  from  interest  payments.
Hybrid REITs combine the  characteristics  of both equity and mortgage REITs. By
investing in REITs indirectly through the Fund,  shareholders will bear not only
the  proportionate  share of the  expenses  of the Fund,  but also,  indirectly,
similar  expenses of underlying  REITs.  The Fund invests in REITs primarily for
income.

     The Fund  may be  subject  to  certain  risks  associated  with the  direct
investments of the REITs.  REITs may be affected by changes in their  underlying
properties  and by  defaults by  borrowers  or  tenants.  Mortgage  REITs may be
affected by the quality of the credit extended. Furthermore, REITs are dependent
on specialized  management skills.  Some REITs may have limited  diversification
and  may be  subject  to  risks  inherent  in  financing  a  limited  number  of
properties.  REITs depend  generally on their  ability to generate  cash flow to
make  distributions  to  shareholders  or  unit-holders,  and may be  subject to
defaults by  borrowers  and to  self-liquidations.  In  addition,  a REIT may be
affected by its failure to qualify for tax-free pass-through of income under the
Code or its failure to maintain exemption from registration under the 1940 Act.

     Registered  Investment Companies (RICs). The Fund is permitted to invest up
to 10% of its  assets  in  securities  issued  by  RICs.  The  common  stock  of
closed-end RICs can trade at a substantial  discount to the underlying net asset
value of the RIC, and the Fund may,  from time to time,  invest in common stocks
issued by RICs when they are trading at discounts or when the Advisers otherwise
deem market conditions appropriate.  The Fund intends to normally invest in RICs
that pay dividends.  RICs that pay regular dividends typically own interest rate
sensitive  securities,  which  tend to  increase  in value when  interest  rates
decline, and decrease in value when interest rates increase.  To the extent that
the Fund  invests in RICs,  the Fund's  shareholders  will incur  expenses  with
respect to both the Fund and that portion of the Fund's assets invested in other
RICs.  However,  as common  stocks of closed-end  RICs can trade at  substantial
discounts  to their  underlying  net asset  values,  the  Advisers  may deem the
"double"  expense to have minimal  impact when compared to the discount at which
the Fund may buy their  shares.  The net asset value and market  value of common
stock issued by RICs will fluctuate with the value of the underlying assets. The
Fund may invest in the auction market  preferred stock of other closed-end funds
primarily as a means of investing  the Fund's cash for the  short-term in higher
yielding  alternatives to repurchase  agreements or US treasury securities.  The
Fund will consider  investing cash in these  instruments,  and other  short-term
money market type alternatives,  when the yield spread is adequately  attractive
over repurchase agreements and US treasuries.  The Fund generally will invest in
auction  market  preferred  stocks that are rated AAA  although it may invest in
lower rated securities from time to time.


     Preferred Stocks.  The Fund may invest in preferred  securities.  Preferred
securities are equity  securities,  but they have many  characteristics of fixed
income  securities,  such as a fixed  dividend  payment  rate and/or a liquidity
preference  over  the  issuer's  common  shares.   However,   because  preferred
securities  are  equity  securities,  they  may be  more  susceptible  to  risks
traditionally  associated with equity  investments than fixed income securities.
Unlike common stock, preferred securities typically do not have voting rights.


     Fixed  rate  preferred  stocks  have  fixed  dividend  rates.  They  can be
perpetual,  with no mandatory  redemption date, or issued with a fixed mandatory
redemption  date.  Certain issues of preferred stock are convertible  into other
equity  securities.   Perpetual   preferred  stocks  provide  a  fixed  dividend
throughout the life of the issue, with no mandatory retirement  provisions,  but
may be callable.  Sinking fund preferred  stocks provide for the redemption of a
portion of the issue on a regularly  scheduled  basis with,  in most cases,  the
entire issue being retired at a future date.  The value of fixed rate  preferred
stocks can be expected to vary inversely with interest  rates.  Adjustable  rate
preferred stocks have a variable dividend rate which is determined periodically,
typically  quarterly,  according  to a formula  based on a specified  premium or
discount to the yield on  particular  U.S.  Treasury  securities,  typically the
highest  base-rate yield of one of three U.S.  Treasury  securities:  the 90-day
Treasury  bill;  the 10-year  Treasury  note;  and either the 20-year or 30-year
Treasury  bond or  other  index.  The  premium  or  discount  to be  added to or
subtracted from this base-rate yield is fixed at the time of issuance and cannot
be changed  without the approval of the holders of the adjustable rate preferred
stock.  Some adjustable rate preferred  stocks have a maximum and a minimum rate
and in some cases are convertible into common stock.



     Auction rate  preferred  stocks pay dividends that adjust based on periodic
auctions. Such preferred stocks are similar to short-term corporate money market
instruments in that an auction rate preferred stockholder has the opportunity to
sell the preferred stock at par in an auction, normally conducted at least every
49 days, through which buyers set the dividend rate in a bidding process for the
next period.  The dividend rate set in the auction depends on market  conditions
and the credit quality of the  particular  issuer.  Typically,  the auction rate
preferred stock's dividend rate is limited to a specified maximum  percentage of
an external commercial paper index as of the auction date. Further, the terms of
the auction rate preferred stocks generally  provide that they are redeemable by
the issuer at certain times or under certain conditions.

     The Fund may, from time to time,  invest in preferred  securities  that are
rated, or whose issuer's senior debt is rated,  investment  grade by Moody's and
Standard & Poor's  ("S&P") at the time of  investment,  although the Fund is not
limited to investments in investment  grade preferred  securities.  In addition,
the Fund may acquire  unrated  issues that the Advisers deem to be comparable in
quality to rated issues in which the Fund is authorized to invest.

     Money Market Instruments.  Under normal conditions, the Fund may hold up to
10% of its  assets in cash or money  market  instruments.  The Fund  intends  to
invest in money market  instruments  pending  investments in common  stocks,  to
serve as collateral in connection  with certain  investment  techniques,  and to
hold as a reserve  pending  the  payment of  dividends  to  investors.  When the
Advisers  believe  that  economic  circumstances  warrant a temporary  defensive
posture,  the Fund may invest  without  limitation  in  short-term  money market
instruments.

     Money  market  instruments  that  the  Fund  may  acquire  usually  will be
securities rated in the highest  short-term rating category by Moody's or S&P or
the equivalent from another major rating service,  or securities of issuers that
have received such ratings with respect to other  short-term  debt or comparable
unrated securities. Money market instruments in which the Fund typically expects
to invest include:  Government  Securities (as defined below);  bank obligations
(including  certificates of deposit,  time deposits and bankers'  acceptances of
U.S. or foreign  banks);  commercial  paper rated P-l by Moody's or A-1 by S&P ;
and repurchase agreements.

     Repurchase Agreements. The Fund may invest temporarily, without limitation,
in repurchase agreements,  which are agreements pursuant to which securities are
acquired by the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date.  These  agreements
may be made with respect to any of the portfolio securities in which the Fund is
authorized  to  invest.  Repurchase  agreements  may be  characterized  as loans
secured  by the  underlying  securities.  The Fund  may  enter  into  repurchase
agreements  with (i) member  banks of the Federal  Reserve  System  having total
assets in excess of $500 million and (ii) securities dealers, provided that such
banks or dealers  meet certain  creditworthiness  standards  established  by the
Board.  The resale price reflects the purchase price plus an agreed-upon  market
rate of interest  which is  unrelated  to the coupon rate or date of maturity of
the  purchased  security.  The  collateral  is  marked  to  market  daily.  Such
agreements  permit  the  Fund to keep  all its  assets  earning  interest  while
retaining  "overnight"  flexibility  in pursuit of  investments of a longer term
nature.

     Government  Securities.  The Fund may invest in government  securities that
include direct  obligations of the United States and obligations  issued by U.S.
government agencies and instrumentalities  ("Government  Securities").  Included
among direct obligations of the United States are treasury bills, treasury notes
and treasury bonds,  which differ  principally in terms of their  maturities and
are  supported by the full faith and credit of the U.S.  government.  Securities
issued  by  U.S.  government  agencies  and   instrumentalities   include  other
securities  that are supported by the full faith and credit of the United States
(such as Government National Mortgage Association certificates); securities that
are supported by the right of the issuer to borrow from the U.S.  Treasury (such
as securities of Federal Home Loan Banks);  and securities that are supported by
the credit of the instrumentality (such as Federal National Mortgage Association
and Federal Home Loan  Mortgage  Corporation  bonds).  No assurance can be given
that the U.S.  government will provide  financial  support in the future to U.S.
government agencies,  authorities or instrumentalities that are not supported by
the full faith and  credit of the United  States.  Securities  guaranteed  as to
principal  and interest by the U.S.  government,  its agencies,  authorities  or
instrumentalities  include (i) securities for which the payment of principal and
interest  is  backed  by an  irrevocable  letter  of  credit  issued by the U.S.
government or any of its agencies,  authorities or  instrumentalities;  and (ii)
participations in loans made to non-U.S.  governments or other entities that are
so  guaranteed.  The  secondary  market for certain of these  participations  is
limited and therefore may be regarded as illiquid.

     Zero Coupon  Securities.  The Fund may invest up to 10% of its total assets
in zero  coupon  securities  issued  by the U.S.  government,  its  agencies  or
instrumentalities, as well as custodial receipts or certificates underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal  payments  or both  on  certain  government  securities.  Zero  coupon
securities  pay no cash income to their holders until they mature and are issued
at substantial  discounts  from their value at maturity.  When held to maturity,
their entire return comes from the  difference  between their purchase price and
their maturity value.  Because interest on zero coupon securities is not paid on
a current  basis,  the values of  securities of this type are subject to greater
fluctuations  than are the values of securities that distribute income regularly
and may be more  speculative than such  securities.  Accordingly,  the values of
these  securities  may be highly  volatile  as interest  rates rise or fall.  In
addition,  the Fund's  investments  in zero  coupon  securities  will  result in
special tax  consequences.  Although zero coupon securities do not make interest
payments,  for tax  purposes a portion of the  difference  between a zero coupon
security's  maturity  value and its purchase price is taxable income of the Fund
each year.

     Custodial  receipts  evidencing  specific coupon or principal payments have
the same general  attributes as zero coupon  Government  Securities  but are not
considered to be Government Securities.  Although typically under the terms of a
custodial  receipt the Fund is authorized to assert its rights directly  against
the issuer of the  underlying  obligation,  the Fund may be  required  to assert
through  the  custodian  bank such rights as may exist  against  the  underlying
issuer.  Thus, in the event the underlying  issuer fails to pay principal and/or
interest  when due,  the Fund may be subject to delays,  expenses and risks that
are greater than those that would have been involved if the Fund had purchased a
direct  obligation  of the issuer.  In addition,  in the event that the trust or
custodial  account  in which  the  underlying  security  has been  deposited  is
determined  to  be  an  association  taxable  as  a  corporation,  instead  of a
non-taxable  entity,  the yield on the  underlying  security would be reduced in
respect of any taxes paid.



     Lending of Securities.  The Fund is authorized to lend  securities it holds
to  brokers,  dealers  and other  financial  organizations,  although  it has no
current intention of doing so. Loans of the Fund's securities, if and when made,
may not  exceed  33-1/3%  of the  Fund's  total  assets.  The  Fund's  loans  of
securities  will be  collateralized  by cash,  letters  of credit or  Government
Securities that will be maintained at all times in a segregated account with the
Fund's  custodian in an amount at least equal to the current market value of the
loaned  securities.  From time to time,  the Fund may pay a part of the interest
earned from the investment of collateral  received for securities  loaned to the
borrower  and/or a third  party that is  unaffiliated  with the Fund and that is
acting as a "finder."

     By lending its  portfolio  securities,  the Fund can increase its income by
continuing to receive interest on the loaned  securities,  by investing the cash
collateral  in  short-term  instruments  or by  obtaining  yield  in the form of
interest paid by the borrower when Government Securities are used as collateral.
The risk in lending  portfolio  securities,  as with other extensions of credit,
consists of the  possible  delay in recovery of the  securities  or the possible
loss of rights in the collateral should the borrower fail financially.  The Fund
will adhere to the following  conditions  whenever it lends its securities:  (i)
the Fund must receive at least 100% cash  collateral  or  equivalent  securities
from the borrower, which will be maintained by daily marking-to-market; (ii) the
borrower  must  increase  the  collateral  whenever  the  market  value  of  the
securities  loaned rises above the level of the collateral;  (iii) the Fund must
be able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends,  interest or other distributions
on the loaned  securities and any increase in market value; (v) the Fund may pay
only  reasonable  custodian  fees in connection  with the loan;  and (vi) voting
rights on the loaned  securities  may pass to the  borrower,  except that,  if a
material  event  adversely  affecting the  investment  in the loaned  securities
occurs,  the Board must  terminate  the loan and regain the Fund's right to vote
the securities.

     Portfolio  Turnover.  Although the Advisers are not restricted with respect
to portfolio  turnover,  it is not the Fund's  policy to engage in  transactions
with the objective of seeking  profits from short-term  trading.  It is expected
that  the  annual  portfolio  turnover  rate of the Fund  will be less  than 50%
excluding  securities  having a  maturity  of one year or  less.  Because  it is
difficult to accurately predict portfolio turnover rates, actual turnover may be
higher or lower.  Higher portfolio  turnover results in increased Fund expenses,
including brokerage commissions,  dealer mark-ups and other transaction costs on
the sale of securities  and on the  reinvestment  in other  securities.  For the
fiscal years ended November 30, 2003 and November 30, 2004, the Fund's portfolio
turnover rates were 40% and 33%, respectively.


                                  RISK FACTORS

     Risk is inherent in all  investing.  Investing  in any  investment  company
security  involves  risk,  including the risk that you may receive  little or no
return on your  investment or that you may lose part or all of your  investment.
Therefore,  before  investing you should consider  carefully the following risks
that you assume when you invest in AMPS.


     Leverage  Risk.  The Fund expects to use  financial  leverage on an ongoing
basis for  investment  purposes.  Taking into account the AMPS being  offered in
this  prospectus,  and the  retirement of the Bank Debt with the proceeds of the
AMPS,  the  amount  of  leverage  would,  as  of  August  31,  2005,   represent
approximately  22.1% of the Fund's total assets.  The Fund's  leveraged  capital
structure  creates special risks not associated with unleveraged  funds having a
similar  investment  objectives and policies.  These include the  possibility of
higher  volatility  of both the net  asset  value  of the Fund and the  value of
assets serving as asset coverage for the AMPS.

     Because the fees paid to the  Advisers  and FAS will be  calculated  on the
basis of the Fund's  managed  assets (which equals the aggregate net asset value
of the common shares plus the liquidation  preference of the AMPS), the fee will
be higher when leverage is utilized, giving the Advisers an incentive to utilize
leverage.

     Interest Rate Risk. The AMPS pay dividends based on  shorter-term  interest
rates.  The Fund  presently  has invested the proceeds of the Bank Debt in REITs
and other  dividend  paying and income  producing  securities  (defined above as
"Income Producing  Securities") and anticipates  continuing to do so in order to
generate  sufficient  income to pay interest on the AMPS when due. The dividends
and rates paid by the Income Producing  Securities can be expected to fluctuate.
If short-term  interest  rates rise,  dividend  rates on the AMPS will also rise
since the auction  setting the dividends on AMPS will compete for investors with
other short-term instruments.  A significant increased dividend rate on the AMPS
could result in the Fund  under-earning  its AMPS dividend,  which would lead to
the AMPS  shareholders  receiving  a return of  capital,  assuming  there are no
capital gains to be paid out. Similarly, if the rating agencies lower the rating
assigned to the AMPS,  the dividend rate on the AMPS will likely  increase.  The
Fund may pay dividends and make other  distributions only from legally available
funds and must pay all its expenses  before it can pay any dividends,  including
any AMPS dividends.

     Auction  Risk.  The dividend  rate for the AMPS  normally is set through an
auction process. In the auction,  holders of AMPS may indicate the dividend rate
at which they would be willing to hold or sell their AMPS or purchase additional
AMPS. The auction also provides liquidity for the sale of AMPS. An auction fails
if there are more AMPS  offered for sale than there are  buyers.  You may not be
able to sell your AMPS at an auction if the auction  fails. A holder of the AMPS
therefore can be given no assurance that there will be sufficient  clearing bids
in any  auction or that the holder  will be able to sell its AMPS in an auction.
Also,  if you place bid orders  (orders to retain  AMPS) at an auction only at a
specified dividend rate, and that rate exceeds the rate set at the auction,  you
will not retain your AMPS. Additionally, if you buy AMPS or elect to retain AMPS
without  specifying  a dividend  rate  below  which you would not wish to buy or
continue  to hold those AMPS,  you could  receive a lower rate of return on your
AMPS than the market rate.  Finally,  the  dividend  periods for the AMPS may be
changed by the Fund, subject to certain conditions with notice to the holders of
AMPS,  which  could  also  affect  the  liquidation  of  your  investment.   See
"Description of AMPS" and "The Auction - Auction Procedures."




     As noted above, if there are more auction rate securities  offered for sale
than there are buyers for those  auction rate  securities  in any  auction,  the
auction  will fail and you may not be able to sell  some or all of your  auction
rate securities at that time. The relative buying and selling interest of market
participants  in your auction rate securities and in the auction rate securities
market as a whole will vary over time,  and such  variations may be affected by,
among  other  things,  news  relating  to  the  issuer,  the  attractiveness  of
alternative  investments,  the  perceived  risk of owning the security  (whether
related to credit,  liquidity or any other risk), the tax treatment accorded the
instruments,   the  accounting   treatment  accorded  auction  rate  securities,
including recent clarifications of U.S. generally accepted accounting principles
relating to the  treatment of auction rate  securities,  reactions to regulatory
actions or press  reports,  financial  reporting  cycles  and  market  sentiment
generally.  Shifts of demand in response to any one or  simultaneous  particular
events cannot be predicted and may be short-lived or exist for longer periods.


     Secondary  Market Risk.  If you try to sell your AMPS between  auctions you
may not be able to sell  any or all of your  AMPS or you may not be able to sell
them for  $25,000  per share or $25,000  per share plus  accumulated  but unpaid
dividends.  If the Fund has designated a special  dividend period (a rate period
of more than  twenty-eight  days),  changes in interest  rates could  affect the
price you would receive if you sold your AMPS in the secondary  market.  You may
transfer  AMPS outside of auctions only to or through a  Broker-Dealer  that has
entered into a  Broker-Dealer  Agreement,  or other persons as the Fund permits.
The Fund does not anticipate imposing  significant  restrictions on transfers to
other  persons.  However,  unless  any such  other  person  has  entered  into a
relationship  with  a  Broker-Dealer  that  has  entered  into  a  Broker-Dealer
Agreement with the Auction Agent, that person will not be able to submit bids at
auctions  with  respect to the AMPS.  Broker-Dealers  that  maintain a secondary
trading  market for AMPS are not required to maintain this market,  and the Fund
is not  required to redeem AMPS either if an auction or an  attempted  secondary
market sale fails because of a lack of buyers.  The AMPS will not be listed on a
stock  exchange  or the  Nasdaq  National  Market.  If you sell  your  AMPS to a
Broker-Dealer between auctions, you may receive less than the price you paid for
them,  especially if market interest rates have risen since the last auction. In
addition, a Broker-Dealer may, in its own discretion, decide to sell the AMPS in
the  secondary  market to investors  at any time and at any price,  including at
prices equivalent to, below or above the par value of the AMPS.


     Securities and Exchange Commission Inquiries. Merrill Lynch has advised the
Fund that it and various other  broker-dealers  and other firms that participate
in the auction rate  securities  market  received  letters from the staff of the
Securities and Exchange  Commission in the spring of 2004. The letters requested
that each of these firms  voluntarily  conduct an  investigation  regarding  its
respective practices and procedures in that market.  Pursuant to these requests,
Merrill Lynch  conducted  its own voluntary  review and reported its findings to
the Securities and Exchange  Commission  staff. At the staff's request,  Merrill
Lynch is engaging in discussions with the staff concerning its inquiry.  Neither
Merrill  Lynch nor the Fund can predict the  ultimate  outcome of the inquiry or
how that outcome will affect the market for the AMPS or the auctions.


     Ratings and Asset  Coverage  Risk.  While it is expected  that Moody's will
assign a rating of Aaa to the AMPS and Fitch will  assign a rating of AAA to the
AMPS,  such  ratings  do not  eliminate  or  necessarily  mitigate  the risks of
investing in AMPS.  Moody's or Fitch could  downgrade  its rating of the AMPS or
withdraw  its rating of the AMPS at any time,  which may make your  shares  less
liquid at an auction or in the secondary market and may materially and adversely
affect the value of the AMPS if sold  outside an auction.  Moody's and Fitch are
not required to provide  prior notice of a decision to downgrade  the AMPS or to
withdraw  their rating.  If Moody's or Fitch  downgrades  the AMPS, the Fund may
alter its portfolio or redeem AMPS in an effort to improve the rating,  although
there is no assurance  that it will be able to do so to the extent  necessary to
restore the prior rating. If the Fund fails to satisfy the asset coverage ratios
discussed  under  "Description  of AMPS - Rating  Agency  Guidelines  and  Asset
Coverage," the Fund will be required to redeem,  at a time that is not favorable
to the Fund or its shareholders,  a sufficient number of AMPS in order to return
to compliance with the asset coverage ratios. The Fund may be required to redeem
AMPS at a time when it is not  advantageous for the Fund to make such redemption
or to liquidate  portfolio  securities in order to have  available cash for such
redemption.  The Fund may voluntarily redeem AMPS under certain circumstances in
order to meet asset  maintenance  tests.  While a sale of substantially  all the
assets of the Fund or the merger of the Fund into another  entity would  require
the  approval  of the holders of AMPS  voting as a separate  class as  discussed
under  "Description  of AMPS - Voting Rights," a sale of  substantially  all the
assets of the Fund or the merger of the Fund with or into  another  entity would
not be treated as a  liquidation  of the Fund nor  require  that the Fund redeem
AMPS, in whole or in part,  provided that the Fund  continued to comply with the
asset  coverage  ratios  discussed  under  "Description  of AMPS - Rating Agency
Guidelines  and  Asset  Coverage."  See  "Description  of AMPS -  Rating  Agency
Guidelines and Asset Coverage" for a description of the asset  maintenance tests
the Fund must meet.

     Restrictions on Dividends and Other Distributions.  Restrictions imposed on
the declaration and payment of dividends or other  distributions  to the holders
of the Fund's  common  shares  and AMPS,  by the 1940 Act,  Maryland  law and by
requirements  imposed by rating  agencies,  might  impair the Fund's  ability to
maintain its  qualification as a RIC for federal income tax purposes.  While the
Fund may redeem AMPS to enable the Fund to distribute  its income as required to
maintain its  qualification  as a RIC under the Code,  there can be no assurance
that such  redemptions  can be effected in time to meet the  requirements of the
Code. See "Federal Income Tax Matters."


     General  Risks  of  Investing  in the  Fund.  The  Fund  is not a  complete
investment program and should only be considered as an addition to an investor's
existing  diversified  portfolio of investments.  Due to uncertainty inherent in
all  investments,  there  can be no  assurance  that the Fund will  achieve  its
investment objective.


     Non-Diversified  Status Risk.  The Fund is classified as  "non-diversified"
     under the 1940 Act.  As a result,  it can  invest a greater  portion of its
     assets in  obligations  of a single issuer than a  "diversified"  fund. The
     Fund will therefore be more  susceptible  than a diversified  fund to being
     adversely  affected  by  any  single  corporate,   economic,  political  or
     regulatory occurrence. The Fund intends to diversify its investments to the
     extent  necessary  to qualify,  and  maintain  its  status,  as a regulated
     investment  company under U.S. federal income tax laws. See "Federal Income
     Tax Matters."


     Investments  in Common  Stocks.  The Fund  expects to invest,  under normal
     market conditions, in excess of 80% of its assets in publicly traded common
     stocks.  Common  stocks  generally  have greater  risk  exposure and reward
     potential  over time than bonds.  The volatility of common stock prices has
     historically  been greater than bonds, and as the Fund invests primarily in
     common  stocks,  the Fund's net asset value may also be volatile.  Further,
     because the time  horizon  for the Fund's  investments  in common  stock is
     longer,  the time  necessary for the Fund to achieve its objective of total
     return  will  likely be  longer  than for a fund that  invests  solely  for
     income.


     Reinvestment  Risk.  Income from the Fund's  portfolio  will decline if the
     Fund  invests  the  income  from or  proceeds  from the sale of its  Income
     Producing  Securities into lower yielding  instruments or Income  Producing
     Securities  with a lower  spread over the base  lending  rate. A decline in
     income could affect the Fund's ability to pay dividends on the AMPS.


     Concentration Risk. The Fund is classified as  "non-diversified"  under the
     1940 Act,  which  means it can  invest a greater  portion  of its assets in
     obligations  of a single issuer than a  "diversified"  fund.  The Fund will
     therefore be more  susceptible  than a diversified  fund to being adversely
     affected  by  any  single  corporate,  economic,  political  or  regulatory
     occurrence.  Taking  larger  positions  is  also  likely  to  increase  the
     volatility  of the Fund's net asset value,  reflecting  fluctuation  in the
     value of large Fund holdings.


     Investments  in  REITs.  As a  matter  of  investment  policy,  the Fund is
     concentrated in REITs, which means, under normal market conditions, it must
     maintain over 25% of its  investments  in REITs and other  companies in the
     real estate industry.  The Fund must obtain  shareholder  approval prior to
     changing this policy,  thus limiting its  flexibility to liquidate REITs in
     the future should market  conditions  warrant.  Since the Fund concentrates
     its assets in the real  estate  industry,  the Fund's  performance  will be
     generally linked to performance of the real estate markets. Property values
     may fall due to  increasing  vacancies or declining  rents  resulting  from
     economic, legal, cultural or technological  developments.  REIT prices also
     may drop  because of poor  management  or the failure of  borrowers  to pay
     their loans.  Many REITs utilize  leverage which increases  investment risk
     and could adversely affect a REIT's  operations and market value in periods
     of rising  interest  rates as well as risks normally  associated  with debt
     financing.  The  dividend  income  paid out by the REIT may be  reduced  or
     eliminated,  depending on the income produced by the underlying  properties
     owned by the REITs. In the normal course of business, REITs face risks that
     are either  non-financial  or  non-quantifiable.  These  risks  principally
     include credit risk as well as legal risk. Because most REITs are typically
     financed with debt instruments,  they are also interest rate sensitive.  In
     addition, there are risks associated with particular sectors of real estate
     investments  (e.g.,  retail,  office,  hotel,  healthcare  and  multifamily
     properties),  although the Fund does not intend to focus on any  particular
     sector of real estate investments.

     Investments  in  Berkshire  Hathaway.  The Fund  presently  has  invested a
     significant  percentage of its portfolio in  low-dividend  or  non-dividend
     paying  common  stocks  such  as  Berkshire  Hathaway,   Inc.  (NYSE:  BRK)
     ("Berkshire").  As of August 31, 2005, the Fund held 310 Berkshire  Class A
     shares,  representing 23.8% of the Fund's total assets. The Advisers do not
     currently  intend to  liquidate  any  portion  of the  Fund's  position  in
     Berkshire.  Although not an insurance company itself,  Berkshire owns Geico
     Insurance  and General Re Insurance,  and  therefore  derives a significant
     portion of its income,  and its value, from these two insurance  companies.
     The insurance  business can be significantly  affected by interest rates as
     well as price competition  within the industry.  In addition,  an insurance
     company may  experience  significant  changes in its year to year operating
     performance  based  both on  claims  paid and on  performance  of  invested
     assets.  Insurance companies can also be affected by government regulations
     and tax laws, which may change from time to time. A significant  decline in
     the market price of  Berkshire  or any other  company in which the Fund has
     made  a  significant   common  stock  investment  (i)  would  result  in  a
     significant  decline in the Fund's  net asset  value,  (ii) may result in a
     proportionate  decline in the market price of the Fund's common shares, and
     (iii) may result in greater  risk and market  fluctuation  than a fund that
     has a more diversified portfolio.

     Leveraging.  The Fund is currently  leveraged with the Bank Debt which will
     be replaced with leverage from the AMPS.  Use of leverage may have a number
     of adverse effects on the Fund and its shareholders including: (i) leverage
     may magnify  market  fluctuations  in the Fund's  underlying  holdings thus
     causing a  disproportionate  change in the Fund's net asset value; (ii) the
     Fund's cost of leverage may exceed the return on the underlying  securities
     acquired with the proceeds of the leverage, thereby diminishing rather than
     enhancing the return to shareholders  and generally making the Fund's total
     return to such shareholders  more volatile;  (iii) the Fund may be required
     to sell  investments in order to meet dividend or interest  payments on the
     debt or preferred stock it has issued when it may be  disadvantageous to do
     so; (iv)  leveraging  through the issuance of preferred stock requires that
     the  holders of the  preferred  stock have class  voting  rights on various
     matters  that could make it more  difficult  for the  holders of the Fund's
     common stock to change the investment  objective or fundamental policies of
     the Fund, to convert it to an open-end fund or make certain other  changes;
     and (v)  the  Fund  may be  forced  to  redeem  some or all of the  AMPS at
     inopportune times due to a decline in market value of Fund investments.


     Discounts from Net Asset Value. Common stock of closed-end funds frequently
     trade at a market  price  that is less  than  the  value of the net  assets
     attributable  to those  shares (a  "discount").  The  possibility  that the
     Fund's  shares  will  trade at a  discount  from net asset  value is a risk
     separate  and  distinct  from the risk that the Fund's net asset value will
     decrease.  The risk of  purchasing  shares of a closed-end  fund that might
     trade  at a  discount  or  unsustainable  premium  is more  pronounced  for
     investors  who wish to sell their  shares in a  relatively  short period of
     time because,  for those investors,  realization of a gain or loss on their
     investments  is likely to be more dependent upon the existence of a premium
     or discount than upon portfolio performance.


     Size of the Fund.  As of August 31, 2005,  the Fund had total net assets of
     approximately $108.4 million,  including $20 million in leverage. As a fund
     with a  relatively  small  asset  base,  the Fund may be subject to certain
     operational  inefficiencies including:  higher expense ratio, less coverage
     by analysts and the  marketplace  in general which can contribute to a less
     active  trading  market for the  Fund's  shares  and  consequently  a wider
     discount,  more  limited  ability  to attract  new  investors  and/or  take
     advantage of investment opportunities and less ability to take advantage of
     lower transaction costs available to larger investors.


     Repurchase of the Fund's Common Stock. The Fund is authorized to repurchase
     its common  shares on the open  market  when the  shares  are  trading at a
     discount from net asset value as determined by the Board from time to time.
     The acquisition of common shares by the Fund will decrease the total assets
     of the Fund and,  therefore,  have the  effect  of  increasing  the  Fund's
     expense ratio and may  adversely  affect the ability of the Fund to achieve
     its investment objectives. Furthermore, the acquisition of common shares by
     the  Fund may  require  the Fund to  redeem  the AMPS in order to  maintain
     certain  asset  coverage  requirements.  To the extent the Fund may need to
     liquidate  investments to fund repurchase of common shares, this may result
     in portfolio turnover which will result in additional  expenses being borne
     by the Fund.


     Dependence on Key Personnel.  The Advisers are dependent upon the expertise
     of Stewart  Horejsi in  providing  advisory  services  with  respect to the
     Fund's  investments.  If the  Advisers  were to lose  the  services  of Mr.
     Horejsi,  their  ability to service the Fund could be  adversely  affected.
     There can be no assurance  that a suitable  replacement  could be found for
     Mr. Horejsi in the event of his death, resignation, retirement or inability
     to act on behalf of the Advisers.

     Issuer Risk. The value of the Fund's  portfolio may decline for a number of
     reasons  which  directly  relate to the  issuers of the  securities  in the
     portfolio,  such as management performance,  financial leverage and reduced
     demand for the issuer's goods and services.

     Inflation  Risk.  Inflation  risk is the risk  that the  value of assets or
     income  from  investment  will be worth  less in the  future  as  inflation
     decreases the value of money. As inflation increases, the real value of the
     common shares and distributions thereon can decline.

     Repurchase  Agreements.  The use of repurchase  agreements involves certain
     risks.  For  example,  if the  seller  of  securities  under  a  repurchase
     agreement   defaults  on  its   obligation  to  repurchase  the  underlying
     securities,  as a result of bankruptcy or otherwise,  the Fund will seek to
     dispose of such securities,  which action could involve costs or delays. If
     the seller becomes  insolvent and subject to liquidation or  reorganization
     under applicable bankruptcy or other laws, the Fund's ability to dispose of
     the underlying  securities may be restricted.  Finally, it is possible that
     the Fund may not be able to  substantiate  its  interest in the  underlying
     securities. To minimize this risk, the securities underlying the repurchase
     agreement  will be held by the custodian at all times in an amount at least
     equal to the repurchase price,  including  accrued interest.  If the seller
     fails to  repurchase  the  securities,  the  Fund may  suffer a loss to the
     extent  proceeds from the sale of the  underlying  securities are less than
     the repurchase price.

     Foreign  Securities  Risk.  The Fund may  invest  without  limit in foreign
     securities.  Investment  in  non-U.S.  issuers  may  involve  unique  risks
     compared to investing in securities of U.S.  issuers.  These risks are more
     pronounced to the extent that the Fund invests a significant portion of its
     non-U.S.  investment in one region or in the securities of emerging  market
     issuers. These risks may include:

          o    Less  information  about  non-U.S.  issuers  or  markets  may  be
               available due to less rigorous  disclosure,  accounting standards
               or regulatory practices.

          o    Many non-U.S. markets are smaller, less liquid and more volatile.
               In a changing  market,  the  Advisers may not be able to sell the
               Fund's  portfolio  securities at times,  in amounts and at prices
               they consider reasonable.

          o    Currency  exchange  rates or controls  may  adversely  affect the
               value of the Fund's investments.

          o    The economies of non-U.S. countries may grow at slower rates than
               expected or may experience a downturn or recession.

          o    Withholdings  and other  non-U.S.  taxes may  decrease the Fund's
               return.


     Currency Risk. The Fund currently holds  investments in foreign  securities
     and thus a portion of the Fund's  assets  may be quoted or  denominated  in
     non-U.S.   currencies.  These  securities  may  be  adversely  affected  by
     fluctuations in relative  currency  exchange rates and by exchange  control
     regulations.  The Fund's investment  performance may be negatively affected
     by a devaluation of a currency in which the Fund's  investments  are quoted
     or  denominated.   Further,  the  Fund's  investment   performance  may  be
     significantly  affected,  either  positively  or  negatively,  by  currency
     exchange  rates  because  the U.S.  dollar  value of  securities  quoted or
     denominated  in another  currency  will increase or decrease in response to
     changes in the value of such currency in relation to the U.S.  dollar.  The
     Fund does not currently  hedge  against the  potential  decline in value of
     foreign  currencies  against the U.S.  dollar and does not foresee  hedging
     currency risk in the future, though it is not precluded from doing so.


     Sovereign  Debt  Risk.  An  investment  in  debt  obligations  of  non-U.S.
     governments and their political  subdivisions  ("sovereign  debt") involves
     special  risks that are not  present in  corporate  debt  obligations.  The
     non-U.S.  issuer  of  the  sovereign  debt  or  the  non-U.S.  governmental
     authorities  that  control  the  repayment  of the  debt may be  unable  or
     unwilling to repay  principal  or interest  when due, and the Fund may have
     limited  recourse  in the event of a default.  During  periods of  economic
     uncertainty,  the market prices of sovereign debt may be more volatile than
     prices of debt obligations of U.S. issuers.  In the past,  certain non-U.S.
     countries   have   encountered   difficulties   in  servicing   their  debt
     obligations,  withheld  payments of  principal  and  interest  and declared
     moratoria on the payment of principal and interest on their sovereign debt.

     A sovereign  debtor's  willingness  or ability to repay  principal  and pay
     interest in a timely  manner may be affected by, among other  factors,  its
     cash flow  situation,  the extent of its  foreign  currency  reserves,  the
     availability of sufficient non-U.S. exchange, the relative size of the debt
     service  burden,   the  sovereign  debtor's  policy  toward  its  principal
     international  lenders and local political  constraints.  Sovereign debtors
     may also be dependent on expected disbursements from non-U.S.  governments,
     multilateral  agencies and other entities to reduce  principal and interest
     arrearages  on their debt.  The failure of a sovereign  debtor to implement
     economic reforms, achieve specified levels of economic performance or repay
     principal  or  interest  when  due  may  result  in  the   cancellation  of
     third-party  commitments to lend funds to the sovereign  debtor,  which may
     further impair such debtor's ability or willingness to service its debts.


     Liquidity Risk. Although the Fund invests primarily in securities traded on
     national  exchanges,  it may invest in less liquid assets from time to time
     that are not  readily  marketable  and may be  subject to  restrictions  on
     resale.  Illiquid  securities  may be more difficult to value or may impair
     the Fund's  ability to realize the full value of its assets in the event of
     a voluntary or involuntary  liquidation of such assets and thus may cause a
     decline in the Fund's net asset value.  The Fund has no  limitation  on the
     amount of its  assets  that may be  invested  in  securities  which are not
     readily  marketable or are subject to restrictions  on resale,  although it
     may not invest more than 30% of the value of its total assets in securities
     which have been acquired through private placement.  In certain situations,
     the Fund could find it more difficult to sell such  securities at desirable
     times and/or prices.


     Market  Disruption  Risk.  The  terrorist  attacks in the United  States on
     September 11, 2001 had a disruptive effect on the securities  markets.  The
     Fund cannot predict the effects of similar events in the future on the U.S.
     economy.  These terrorist attacks and related events,  including the war in
     Iraq, its aftermath, and continuing occupation of Iraq by coalition forces,
     have led to increased  short-term  market volatility and may have long-term
     effects on U.S. and world  economies and markets.  A similar  disruption of
     the financial  markets could impact  interest  rates,  auctions,  secondary
     trading,  ratings, credit risk, inflation and other factors relating to the
     AMPS.


     Anti-Takeover  Provisions  Risk.  The Fund's  Charter  and  Bylaws  include
     provisions  that could  limit the  ability of other  entities or persons to
     acquire control of the Fund or to change the composition of its Board. Such
     provisions  could limit the ability of shareholders to sell their shares at
     a premium over prevailing  market prices by discouraging a third party from
     seeking to obtain control of the Fund.  These  provisions  include  advance
     notice  requirements  for  shareholder  proposals,   super-majority  voting
     requirements for certain transactions with affiliates, open-ending the Fund
     and a merger, liquidation, asset sale or similar transaction.

                             MANAGEMENT OF THE FUND


     The business and affairs of the Fund are managed under the direction of the
Board of  Directors.  Accordingly,  the  Board is  responsible  for the  overall
management of the Fund,  including  supervision  of the duties  performed by the
Advisers.  There are  currently  five  directors of the Fund,  one of whom is an
"interested person" of the Fund (as defined in the 1940 Act).


     Information about Directors and Officers.  Set forth in the following table
is certain  information about each Director of the Fund,  including his address,
age, position with the Fund, term of office, length of time served and principal
occupation during the last five years:



                                                                                          
-------------------------- ------------------------- --------------------------------------------- ----------------
Name, Address*, Age        Position, Length of       Principal Occupation(s) and Other             Number of
                           Term Served, and Term     Directorships Held During the Past Five       Funds in Fund
                           of Office**               Years                                         Complex
                                                                                                   Overseen by
                                                                                                   Director+
-------------------------- ------------------------- --------------------------------------------- ----------------
Independent Directors

Joel W. Looney,            Director of the Fund      Partner, Financial Management Group, LLC      2
Chairman                   since January, 2002.      (investment adviser), since July 1999; CFO,
Age:  43                   Chairman of the Board     Bethany College, 1995-1999; Director,
                           of the Fund since         Boulder Total Return Fund, Inc., since
                           October 2004.             January 2001; Director and Chairman of the
                                                     Board, First Financial Fund, Inc., since
                                                     August 2003.

Alfred G. Aldridge, Jr.    Director of the Fund      Executive Vice President, Business            2
Brig. Gen. (Retired)       since January 2002.       Development Specialists (sales and
Cal. Air National Guard                              marketing consulting) since 2004; Sales
Age: 67                                              Manager, Shamrock Foods Company,1982-2002;
                                                     Director, Arizona Sports Foundation, since
                                                     1997;  Director, Boulder Total Return Fund,
                                                     Inc., since 1999; Director, Maricopa Youth
                                                     Assistance Foundation, since 2004.

Richard I. Barr            Director of the Fund      Retired; Manager, Advantage Sales and         2
Age:  67                   since January 2002.       Marketing, Inc. (food brokerage),
                                                     1963-2001; Director, Boulder Total Return
                                                     Fund, Inc., since 1999 and Chairman of the
                                                     Board since 2003; Director, First Financial
                                                     Fund, Inc., since 2001.

Dennis R. Causier***       Director of the Fund      Retired; Managing Director and Chairman,      1
Age:  57                   since October 2004.       P.S. Group PLC (engineering and
                                                     construction), 1966-2001; Owner,
                                                     Professional Yacht Management Services
                                                     (yacht management) 2002-present; Director,
                                                     First Financial Fund, Inc., since October,
                                                     2004.
-------------------------- ------------------------- --------------------------------------------- ----------------
Interested Director
-------------------------- ------------------------- --------------------------------------------- ----------------
John S. Horejsi++          Director of the Fund      Director of Horejsi Charitable Foundation     1
Age: 38                    since May 2004.           (a private charitable foundation), since
                                                     1997.




* Unless  otherwise  specified,  the  Directors'  respective  addresses  are c/o
Boulder  Growth & Income  Fund,  Inc.,  1680 38th  Street,  Suite 800,  Boulder,
Colorado 80301.

** Each Director's current term expires at the annual meeting of shareholders in
2006.


*** Mr. Causier is a British  citizen and a resident of Spain and  substantially
all of his assets are located outside the United States.  As a result, it may be
difficult to realize  judgments of courts of the United States  predicated  upon
civil liabilities under federal  securities laws of the United States.  The Fund
has been advised that there is substantial doubt as to (i) the enforceability in
Spain of such civil  remedies  and  criminal  penalties  as are  afforded by the
federal  securities  laws of the United States,  (ii) whether the Spanish courts
would enforce  judgments of United States courts obtained in actions against Mr.
Causier predicated upon the civil liability provisions of the federal securities
laws, or (iii) whether  Spanish  courts would  enforce,  in an original  action,
liabilities  against Mr. Causier  predicated solely on federal  securities laws.
Mr. Causier has appointed the Secretary of the Fund (presently  Stephanie Kelley
in Boulder, Colorado) as his agent for service of process in any legal action in
the United States,  thus subjecting him to the jurisdiction of the United States
courts.


+ The "fund  complex"  consists of the Fund and Boulder Total Return Fund,  Inc.
which is also managed by the Advisers.

++  Mr.  Horejsi  is an  "interested  person"  of  the  Fund  by  virtue  of his
relationship  with Stewart Horejsi,  the Fund's primary portfolio manager and an
employee of BIA and SIA.

     Messrs. Looney, Barr and Causier also serve as directors of First Financial
Fund, Inc., an investment  company  acknowledged to be under common control with
the Advisers.  From the late 1980's until  January,  2001,  Mr.  Looney  served,
without compensation,  as one of three trustees of the Mildred Horejsi Trust, an
affiliate of the Fund's  largest  shareholder,  the Ernest  Horejsi Trust No. 1B
(the "EH  Trust").  The  address  for the EH Trust is 3601 C Street,  Suite 600,
Anchorage, Alaska 99503.


     The EH Trust holds 20.8% of the Fund's outstanding shares and is the Fund's
largest shareholder.  The EH Trust has asserted,  and the Fund has acknowledged,
that the EH Trust is a "control  person" as  contemplated  by the 1940 Act.  The
sole  trustees of the EH Trust are Badlands  Trust  Company,  LLC  ("Badlands"),
Larry Dunlap and Susan Ciciora,  Stewart Horejsi's daughter  (collectively,  the
"EH  Trustees").  The EH  Trustees  may also be deemed to be control  persons by
virtue of their trusteeship with the EH Trust. The EH Trustees disclaim any such
control relationship.  The Stewart R. Horejsi Trust No. 2A (the "SRH Trust"), an
irrevocable  grantor trust established by Stewart Horejsi for the benefit of his
issue, is the sole equity owner of Badlands and may be deemed indirectly to be a
control person by virtue of its ownership of Badlands.  The SRH Trust  disclaims
any such control relationship.


     As discussed above, the EH Trust owns 20.8% of the Fund's common shares, is
a "control  person" as  contemplated  under the 1940 Act and is affiliated  with
entities who own the Advisers and FAS (i.e., the Horejsi Affiliates). As a large
shareholder,  EH Trust is able to significantly influence any matters upon which
the  holders of common  stock may vote,  including  the  election  of the Fund's
directors and any change in the Fund's investment adviser.  Since all members of
the Board are elected  annually,  the EH Trust may be able to effect a change of
control  with  respect  to the  entire  Board in a single  election.  Similarly,
several of the Fund's corporate governance  provisions grant shareholders voting
power or decrease the voting requirement necessary to take certain actions. As a
large shareholder, the EH Trust will have greater influence over the adoption or
failure  of  certain   corporate   actions   requiring  a  vote  of  the  Fund's
shareholders.  In  particular,  the EH Trust would have a greater  influence  in
compelling  a special  meeting  with the support of only a small  percentage  of
other  non-Horejsi  shareholders.  Nonetheless,  since most of the other actions
under the Fund's corporate governance provisions require the support of either a
majority or two-thirds of outstanding  shares for a future change,  the EH Trust
cannot  effect any such change  without the support of a  substantial  number of
non-Horejsi shareholders.  However, in these instances, where an action requires
a majority or  two-thirds  voting  approval,  the EH Trust may have an effective
veto.


     Together with other trusts and entities  affiliated with the Horejsi family
(more particularly defined below as the "Horejsi Affiliates"),  the EH Trust has
asserted control with respect to two other investment  companies,  Boulder Total
Return Fund, Inc.  ("BTF") and First Financial Fund, Inc.  ("FF").  As discussed
below,  the  Horejsi  Affiliates  also  own the  Advisers  and FAS,  the  Fund's
co-administrator.   The  following   table  shows  security   ownership  by  the
Independent Directors with respect to BTF and FF as of August 31, 2005.








                                                              Aggregate Dollar Range of Equity
                            Dollar Range of Equity Securities          Securities in the
                                     in the Fund (1)                 Fund, BTF and FF (1)
                                    ---------------                 ------------------------
                                                                
Alfred G. Aldridge, Jr.            $10,001 to $ 50,000                 $50,001 to $100,000
Richard I. Barr                    $50,001 to $100,000                    Over $100,000
Joel W. Looney                     $10,001 to $ 50,000                    Over $100,000
Dennis R. Causier                  $10,001 to $ 50,000                 $50,001 to $100,000

(1)  Based on closing prices on August 31, 2005.





     Direct  ownership of the Fund's common shares by all officers and directors
of the Fund is less than one percent.  John Horejsi,  an interested  director of
the Fund, is a  discretionary  beneficiary  of the EH Trust and may be deemed to
have indirect beneficial ownership of the common stock held by the EH Trust. Mr.
Horejsi disclaims all such beneficial  ownership.  Mr. Horejsi does not directly
own any shares of the Fund. Stephen Miller, the Fund's president,  is an officer
and  director  of  Badlands  and may be  deemed  to have  in  direct  beneficial
ownership of the common shares held by the EH Trust. However, because two of the
EH  Trustees  are  required  in  order  for the EH  Trust  to  vote or  exercise
dispositive  authority with respect to shares owned by the EH Trust,  Mr. Miller
disclaims beneficial ownership of such shares.


     The names of the  officers of the Fund and certain  additional  information
are listed in the table  below.  Each officer was elected to office by the Board
at a meeting held on April 26, 2005.  Each officer will hold such office until a
successor has been elected by the Board.



                                                    
------------------------------ -------------------------- ----------------------------------------------------------
                               Position, Length of Term
Name, Address, Age             Served, and Term of        Principal Occupation(s) and Other Directorships Held
                               Office                     During the Past Five Years
------------------------------ -------------------------- ----------------------------------------------------------
Stephen C. Miller              President of the Fund      President of and General Counsel for BIA, since 1999;
1680 38th Street,              since January 2002 and     Manager, FAS, since 1999; Vice President of SIA, since
Suite 800                      Director from January      1998; Director and President of Boulder Total Return
Boulder, CO 80301              2002 through October       Fund, Inc., since 1999 (resigned as Director in 2004);
Age:  53                       2004.  Appointed           Director and President of First Financial Fund, Inc.
                               annually.                  since 2003 (resigned as Director and Chairman in 2004);
                                                          President and General Counsel, Horejsi, Inc. (liquidated in 1999);
                                                          General Counsel, Brown Welding Supply, LLC (sold in 1999);
                                                          officer of various other entities affiliated with the
                                                          Horejsi family; Of Counsel, Krassa & Miller, LLC since
                                                          1991.



Carl D. Johns                  Chief Financial Officer,   Vice President and Treasurer of BIA and Assistant
1680 38th Street,              Chief Accounting           Manager of FAS, since April, 1999; Vice President, Chief
Suite 800                      Officer, Vice President    Financial Officer and Chief Accounting Officer, Boulder
Boulder, CO 80301              and Treasurer since        Total Return Fund, Inc., since 1999 and First Financial
Age: 42                        January 2002.  Appointed   Fund, Inc., since August 2003.
                               annually.

Stephanie J. Kelley            Secretary since January    Secretary, Boulder Total Return Fund, Inc., since
1680 38th Street,              2002.  Appointed           October 2000 and First Financial Fund, Inc., since
Suite 800                      annually.                  August 2003; Assistant Secretary and Assistant Treasurer
Boulder, CO 80301                                         of various other entities affiliated with the Horejsi
Age:  48                                                  family; Employee, FAS, since March 1999.

Nicole L. Murphey              Assistant Secretary        Assistant Secretary, Boulder Total Return Fund, Inc.,
1680 38th Street,              since January 2002.        since October 2000 and First Financial Fund, Inc. since
Suite 800                      Appointed annually.        August 2003; Employee, FAS, since July 1999.
Boulder, CO 80301
Age:  28

Candace Cavalier               Assistant Secretary        Assistant Secretary, Boulder Total Return Fund, Inc. and
200 Clarendon Street           since April 2005.          First Financial Fund, Inc. since January 2005; Associate
Boston, MA 02116               Appointed annually         Counsel, Investors Bank & Trust Company, since March
Age: 33                                                   2004; Consultant at Deutsche Asset Management from
                                                          September 2002 to September 2003; Associate at
                                                          Hinckley, Allen & Snyder LLP from July 2001 to July 2002;
                                                          Staff Attorney at Securities and Exchange Commission
                                                          from September 1998 to June 2001.

Laura Healy                    Assistant Treasurer        Assistant Treasurer, Boulder Total Return Fund, Inc. and
200 Clarendon Street           since January 2005.        First Financial Fund, Inc. since January 2005; Senior
Boston, MA 02116               Appointed annually.        Director, Investors Bank & Trust Company, since January
Age: 41                                                   2002; Assistant Treasurer at MFS Investment Management
                                                          from December 1996 to January 2002.

Janice Desmond                 Assistant Treasurer        Assistant Treasurer, Boulder Total Return Fund, Inc. and
200 Clarendon Street           since January 2005.        First Financial Fund, Inc. since January 2005; Director,
Boston, MA 02116               Appointed annually.        Investors Bank & Trust Company, since January 2005; Vice
Age: 54                                                   President of Deutsche Asset Management from February
                                                          2001 to January 2005; Assistant Vice President of
                                                          Wellington Asset Management from September 1999 to February 2001.



     Information Regarding the Advisers and Other Service Providers. The Fund is
co-advised  by BIA and SIA.  Since  January  of 2002,  the  Advisers  have  been
providing advisory services to the Fund and, since March of 1999, to the Boulder
Total Return Fund,  Inc. As of August 31, 2005, the Advisers had a total of $456
million in assets under management.

     Boulder  Investment  Advisers,  LLC. BIA was formed on April 8, 1999,  as a
Colorado limited  liability  company and is registered as an investment  adviser
under the  Investment  Advisers Act of 1940, as amended.  Together with SIA, BIA
serves as the  investment  co-adviser to two  registered  closed-end  investment
companies,  the Fund and Boulder Total Return Fund, Inc (together,  the "Boulder
Funds").  At the present time,  BIA has only one other client,  also  co-advised
with SIA,  which is an affiliated  private  foundation,  the Horejsi  Charitable
Foundation. Stewart R. Horejsi is an employee of and investment manager for both
Advisers and has  extensive  experience  managing  common stocks for the Fund as
well as for the various  other trusts and entities  affiliated  with the Horejsi
family (the "Horejsi  Affiliates").  The members of BIA are Evergreen  Atlantic,
LLC, a Colorado limited liability  company,  located at 1680 38th Street,  Suite
800,  Boulder,  Colorado  80301 and the Lola Brown Trust No. 1B, an  irrevocable
Alaska domiciled trust, whose address is c/o Badlands Trust Company, LLC, 3601 C
Street,  Suite 600,  Anchorage,  Alaska 99503 (the "Members").  The Members each
hold a 50% interest in BIA. The Members are "affiliated persons" of the Fund (as
that term is defined in the 1940 Act). Both Mr. Horejsi and John S. Horejsi, Mr.
Horejsi's son and one of the Fund's  "interested"  directors,  are discretionary
beneficiaries  under the Lola Brown Trust No. 1B as well as under other  Horejsi
family affiliated trusts which own Evergreen Atlantic,  LLC.  Accordingly,  as a
result of this  relationship,  both  Stewart R.  Horejsi and John S. Horejsi may
directly or indirectly benefit from the relationship between the Fund and BIA.


     Stewart  Investment  Advisers.  SIA is a  Barbados  international  business
company,  incorporated on November 12, 1996. As discussed above,  SIA,  together
with BIA,  serves as the  investment  co-adviser  to the  Boulder  Funds and the
Horejsi Charitable  Foundation,  which presently are SIA's only clients.  SIA is
wholly owned by the Stewart West Indies Trust, an irrevocable trust domiciled in
Alaska,  established  by Stewart  Horejsi in 1996 primarily to benefit his issue
(the "West Indies Trust"). The West Indies Trust's address is c/o Badlands Trust
Company, LLC, 3601 C Street, Suite 600, Anchorage,  Alaska 99503. Mr. Horejsi is
not a beneficiary  under the West Indies Trust.  However,  John S. Horejsi,  Mr.
Horejsi's  son  and  the  Fund's  "interested"   director,  is  a  discretionary
beneficiary  under  the  West  Indies  Trust  and  thus,  as a  result  of  this
relationship,  may directly or indirectly benefit from the relationship  between
SIA and the Fund.

     SIA is not  domiciled  in the United  States and  substantially  all of its
assets are located outside the United States.  As a result,  it may be difficult
to  realize  judgments  of courts of the  United  States  predicated  upon civil
liabilities  under federal  securities  laws of the United States.  The Fund has
been advised that there is  substantial  doubt as to (i) the  enforceability  in
Barbados of such civil  remedies and  criminal  penalties as are afforded by the
federal  securities  laws of the United  States,  (ii)  whether the  appropriate
foreign  courts would  enforce  judgments of United  States  courts  obtained in
actions  against  SIA  predicated  upon the civil  liability  provisions  of the
federal securities laws, or (iii) whether a Barbados court would enforce,  in an
original action, liabilities against SIA predicated solely on federal securities
laws.  Pursuant to the  advisory  agreement  between  SIA and the Fund,  SIA has
appointed  the  Secretary of the Fund  (presently  Stephanie  Kelley in Boulder,
Colorado)  as its agent for service of process in any legal action in the United
States, thus subjecting it to the jurisdiction of the United States courts.



     Portfolio  Managers.  Stewart R. Horejsi is the Fund's  primary  investment
manager  and,  together  with Carl D.  Johns,  the  Fund's  Vice  President  and
Treasurer, is responsible for the day-to-day management of the Fund's assets and
is primarily responsible for the Fund's asset allocation.  Mr. Horejsi is 68 and
has been an employee of both BIA and SIA since  2001.  Mr.  Horejsi has been the
President  or  Manager  of  various   subsidiaries  of  various  Horejsi  family
affiliates  since June 1986,  and the  investment  manager for  various  Horejsi
Affiliates  since 1982. He was a director of the Boulder Total Return Fund, Inc.
until November,  2001;  General  Manager of Brown Welding Supply,  LLC from 1994
until 1999;  and a director of Sunflower Bank from 1982 to 2000. Mr. Horejsi has
been the Director and President of the Horejsi Charitable Foundation, Inc. since
1997. He received a Masters Degree in Economics from Indiana  University in 1961
and a Bachelor of Science Degree in Industrial Management from the University of
Kansas in 1959.


     Carl D.  Johns,  the Fund's  Vice  President  and  Treasurer,  is also Vice
President and Treasurer for BIA and,  together with Mr. Horejsi,  is responsible
for research,  managing the Fund's fixed income  portfolio and BIA's  day-to-day
advisory  activities.  He has worked for BIA since 1999. Since 1999, he has been
Chief Financial Officer,  Chief Accounting Officer, Vice President and Treasurer
of the Boulder Total Return Fund,  Inc. Mr. Johns is also the assistant  manager
of FAS.  Prior to joining  BIA,  Mr.  Johns  worked at  Flaherty  and  Crumrine,
Incorporated,  from  1992  to  1998.  During  that  period  he was an  Assistant
Treasurer  for the Preferred  Income Fund  Incorporated,  the  Preferred  Income
Opportunity  Fund  Incorporated,   and  the  Preferred  Income  Management  Fund
Incorporated. Mr. Johns received a Bachelors degree in Mechanical Engineering at
the  University  of Colorado in 1985,  and a Masters  degree in Finance from the
University of Colorado in 1991.

     Additional  information  regarding  the portfolio  managers'  compensation,
other accounts managed and ownership of Fund shares is included in the Statement
of Additional Information.

     The  Investment  Co-Advisory  Agreements.  The  Advisers  and the  Fund are
parties to  investment  co-advisory  agreements  dated as of April 26, 2002 (the
"Advisory Agreements"). Under the terms of the Advisory Agreements, the Advisers
provide advisory services  regarding asset allocation,  manage the investment of
the Fund's assets and provide such investment research,  advice and supervision,
in conformity with the Fund's  investment  objective and policies,  as necessary
for the operations of the Fund.  The Advisory  Agreements  provide,  among other
things,  that  the  Advisers  will  bear all  expenses  in  connection  with the
performance of their services under the Advisory  Agreements,  although the Fund
will bear  certain  other  expenses to be incurred in its  operation,  including
organizational  expenses,  taxes, interest,  brokerage costs and commissions and
stock  exchange  fees;  fees of Directors of the Fund who are not also officers,
directors or employees of the Advisers; Securities and Exchange Commission fees;
state Blue Sky  qualification  fees;  insurance  premiums;  outside auditing and
legal expenses; costs of maintenance of the Fund's existence; membership fees in
trade associations; stock exchange listing fees and expenses; and litigation and
other extraordinary or non-recurring expenses.

     The Advisory Agreements provide that the Fund shall pay to the Advisers for
their  services  an  aggregate  monthly  fee at the annual  rate of 1.25% of the
Fund's average  monthly net assets (the "Adviser Fee")  (including the principal
amount of leverage,  if any).  Under the terms of the Advisory  Agreements,  the
Advisers split the Adviser Fee as determined by the Advisers and approved by the
Board from time to time. Presently, the Adviser Fee is split between BIA and SIA
25% and 75%, respectively.  Although the Advisers intend to devote such time and
effort to the business of the Fund as is  reasonably  necessary to perform their
respective  duties to the Fund,  the services of the Advisers are not  exclusive
and the Advisers may provide similar services to other investment  companies and
other clients and may engage in other activities.

     The Advisory  Agreements  provide that the Advisers shall not be liable for
any error of judgment or mistake of law or omission or any loss  suffered by the
Fund in connection with the matters to which the agreements relate, although the
agreements  do not  protect  or  purport to protect  the  Advisers  against  any
liability to the Fund to which the Advisers would otherwise be subject by reason
of  willful  misfeasance,  bad faith or gross  negligence  on their  part in the
performance  of  their  duties  or from  reckless  disregard  by  them of  their
obligations  and duties  under the  agreements.  Each  Advisory  Agreement  also
provides for  indemnification  by the Fund of the  Advisers and their  partners,
members,  officers,  employees,  agents  and  control  persons  for  liabilities
incurred  by them in  connection  with their  services  to the Fund,  subject to
certain limitations and conditions.

     Each Advisory  Agreement  will continue in effect without a term so long as
its continuation is specifically approved at least annually by both (i) the vote
of a majority of the Board or the vote of a majority of the  outstanding  voting
securities of the Fund (as such term is defined in the 1940 Act) and (ii) by the
vote  of a  majority  of the  directors  who are not  parties  to such  Advisory
Agreement or interested persons (as such term is defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval.  Any of the Advisory  Agreements  may be  terminated as a whole at any
time by the  Fund,  without  the  payment  of any  penalty,  upon  the vote of a
majority of the Board or a majority of the outstanding  voting securities of the
Fund or by the Advisers on 60 days' written notice by either party to the other.
Except as otherwise provided by order of the Securities and Exchange  Commission
or any rule or provision of the 1940 Act, each of the Advisory  Agreements  will
terminate  automatically  in the  event of  their  assignment  (as such  term is
defined in the 1940 Act and the rules thereunder).



     Fund  Administrative  Services,  LLC. The Fund's  co-administrator  is Fund
Administrative  Services,  LLC  ("FAS" or the  "Administrator").  FAS  (formerly
Boulder  Administrative  Services,  LLC) is a Colorado limited liability company
whose  principal  place of business  is 1680 38th  Street,  Suite 800,  Boulder,
Colorado  80301.  The  members  of FAS are Lola  Brown  Trust  No.  1B (50%) and
Evergreen Atlantic, L.L.C. (50%) (the "Members"), each of which is considered to
be an  "affiliated  person" of the Fund as that term is defined in the 1940 Act.
The officers of FAS are Stephen C.  Miller,  manager;  Carl D. Johns,  assistant
manager; Laura Rhodenbaugh, secretary/treasurer; and Stephanie Kelley, assistant
secretary. Since January 2002, FAS has been providing certain administrative and
executive  management  services  to  the  Fund,  including  among  other  things
negotiation  of service  provider  contracts,  oversight  of service  providers,
maintenance of the Fund's policies and procedures,  and provision of compliance,
legal and fund accounting  services.  FAS has also provided such  administrative
and executive  management  services to the Boulder Total Return Fund, Inc. since
March 1999, and to First Financial Fund, Inc. since August 2003.


     The Fund and FAS are parties to an Administration  Agreement dated February
1, 2004 (the "Administration  Agreement").  FAS is owned by the Members, who, as
indicated  above,  are also the  owners  of BIA and are  included  in the  group
referred to herein as the Horejsi  Affiliates.  As discussed above, both Stewart
R. Horejsi and his son John S. Horejsi,  the Fund's only "interested"  director,
are  discretionary  beneficiaries  under the Lola Brown Trust No. 1B, one of the
Members of FAS, and under the trusts that own Evergreen Atlantic, LLC, the other
Member of FAS.


     Under  the  Administration  Agreement,  the  Fund  pays FAS a  monthly  fee
calculated at an annual rate of 0.20% of the value of the Fund's average monthly
net assets up to $250 million; 0.18% of the Fund's average monthly net assets on
the next $150 million;  and,  0.15% on the value of the Fund's  average  monthly
assets  over $400  million.  Notwithstanding,  FAS has  agreed to cap the Fund's
total    administration    costs    at    0.30%    (including    administration,
co-administration,  transfer  agent and custodian  fees).  Accordingly,  FAS has
agreed to waive a portion  of its fee should  the total  monthly  administration
expenses exceed 0.30%.

     Investors Bank & Trust Company.  Investors Bank & Trust Company ("Investors
Bank"), located at 200 Clarendon Street, Boston,  Massachusetts 02116, serves as
the Fund's co-administrator and custodian.  As co-administrator,  Investors Bank
provides certain services including fund accounting and preparation of materials
for Board  meetings.  Under an  administration  agreement and custody  agreement
between the Fund and Investors  Bank,  the Fund pays  Investors  Bank a combined
monthly fee for both  co-administrative  and custodian services calculated at an
annual rate of 0.058% of the value of the Fund's  average  monthly net assets up
to $300 million and 0.04% on the value of the Fund's average  monthly net assets
over $300 million,  or a minimum monthly fee of $10,500.  Presently,  because of
the level of the Fund's average monthly net assets, the Fund pays the minimum of
$10,500  monthly.  In addition,  Investors Bank receives  certain  out-of-pocket
expenses,  transaction fees and certain charges for securities transactions. All
customary fees of the custodian are paid by the Fund.

     PFPC Inc. The transfer agent,  dividend  disbursing agent and registrar for
the common shares of the Fund is PFPC Inc. ("PFPC"), an indirect, majority-owned
subsidiary of the PNC  Financial  Services  Group,  Inc. PFPC is located at 4400
Computer Drive, Westborough, MA 01581-5120. As compensation for PFPC's services,
the Fund pays PFPC a monthly fee plus certain out-of-pocket expenses.


                               DESCRIPTION OF AMPS


     The following is a brief description of the material terms of the AMPS. For
the complete terms of the AMPS, please refer to the detailed  description of the
AMPS in the Articles  Supplementary  (Appendix B to the  Statement of Additional
Information).

     General. The Charter authorizes the Board to cause the Fund to issue shares
of preferred  stock  ("preferred  shares") in one or more classes or series with
rights as determined by the Board,  without the approval of common shareholders.
The AMPS will have a liquidation preference of $25,000 per share, plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared).

     The AMPS are  preferred  shares  that  entitle  their  holders  to  receive
dividends  when, as and if authorized by the Board and declared by the Fund, out
of funds  legally  available  therefor,  at a rate per  annum  that may vary for
successive  dividend periods.  After the initial dividend period, the applicable
rate for a  particular  dividend  period for the AMPS will be  determined  by an
auction  conducted on the business day before the start of such dividend period.
Beneficial  owners and potential  beneficial  owners of AMPS may  participate in
auctions,  although,  except in the case of special  dividend  periods of longer
than 91 days,  beneficial  owners desiring to continue to hold all of their AMPS
regardless of the applicable  rate resulting from auctions need not  participate
in order to continue to hold the AMPS.  For an  explanation  of auctions and the
method of determining the applicable  rate, see "Dividends and Rate Periods" and
"The Auction" below.

     The nominee of the Securities  Depository is expected to be the sole holder
of record of the AMPS.  Accordingly,  each purchase of AMPS must rely on (i) the
procedures of the Securities  Depository  and, if such purchaser is not a member
of the Securities Depository, such purchaser's Agent Member (members of DTC that
will act on behalf of  existing  or  potential  holders of AMPS are  referred to
herein as "Agent Member"),  to receive dividends,  distributions and notices and
to exercise  voting rights (if and when  applicable) and (ii) the records of the
Securities  Depository  and, if such purchaser is not a member of the Securities
Depository,  such purchaser's Agent Member, to evidence its beneficial ownership
of the AMPS.

     The AMPS will rank on parity with any other series of  preferred  shares of
the Fund as to the  payment of  dividends  and the  distribution  of assets upon
liquidation.  Each  share of AMPS  entitles  the  holder  thereof to one vote on
matters on which AMPS can be voted.  When issued and sold,  the AMPS will have a
liquidation  preference of $25,000 per share plus an amount equal to accumulated
but  unpaid  dividends  (whether  or not  declared)  and will be fully  paid and
non-assessable. See "Liquidation." The AMPS, when issued, will be fully paid and
non-assessable  and have no  appraisal,  preemptive,  conversion  or  cumulative
voting  rights.  The AMPS will not be  convertible  into common  shares or other
shares of the Fund, and the holders thereof will have no preemptive  rights. The
AMPS will not be subject to any sinking  fund but will be subject to  redemption
at the  option of the Fund on any  dividend  payment  date for the AMPS  (except
during the initial dividend period and during a Non-Call Period) at a redemption
price  generally  equal  to  $25,000  per  share  plus  accumulated  and  unpaid
dividends.  In certain  circumstances,  the AMPS will be  subject  to  mandatory
redemption  by the  Fund  at a  redemption  price  of  $25,000  per  share  plus
accumulated and unpaid dividends. See "Redemption."


Dividends and Rate Periods.



     General.  The  following is a general  description  of  dividends  and rate
periods for the AMPS.  The initial rate period for the AMPS will be         days
and the dividend rate for this period will be        %.  Subsequent rate periods
will  generally be 28 days, and the dividend rate will be determined by auction.
The Fund,  subject to certain  conditions,  may change the length of  subsequent
rate periods by designating  them as special rate periods.  See  "Designation of
Special Rate Periods" below.



     Dividend  Payment  Dates.  Dividends on the AMPS are cumulative and will be
payable,  when, as and if authorized by the Board and declared by the Fund,  out
of legally  available funds in accordance with the Fund's Charter and applicable
law.  Dividend  periods  generally will begin on the first business day after an
auction.  If  dividends  are payable on a day that is not a business  day,  then
dividends  will  generally  be payable on the next day if such day is a business
day, or as  otherwise  specified in the  Articles  Supplementary.  If a dividend
payment  date is not a business  day because the NYSE is closed for business for
more  than  three  consecutive  business  days  due to an act  of  God,  natural
disaster, act of war, civil or military disturbance, act of terrorism, sabotage,
riots or a loss or malfunction of utilities or communications  services,  or the
dividend payable on such date cannot be paid for any such reason, then:


     o    the dividend payment date for the affected dividend period will be the
          next business day on which the Fund and its paying agent,  if any, are
          able to cause the  dividend  to be paid using  their  reasonable  best
          efforts;

     o    the affected  dividend  period will end on the day it would have ended
          had such event not occurred and the dividend payment date had remained
          the scheduled date; and

     o    the next  dividend  period will begin and end on the dates on which it
          would  have  begun  and  ended had such  event  not  occurred  and the
          dividend payment date remained the scheduled date.

     Dividends  will be paid  through DTC on each  dividend  payment  date.  The
dividend payment date will normally be the first business day after the dividend
period ends.  DTC, in  accordance  with its current  procedures,  is expected to
distribute  dividends  received from the Auction Agent in same-day funds on each
dividend payment date to Agent Members. These Agent Members are in turn expected
to distribute  such dividends to the persons for whom they are acting as agents.
Each of the  current  Broker-Dealers  has  indicated  to the Fund that  dividend
payments will be available in same-day  funds on each  dividend  payment date to
customers  that  use a  Broker-Dealer  or a  Broker-Dealer's  designee  as Agent
Member.



     Calculation of Dividend Payment.  The Fund computes the dividends per share
payable on the AMPS by multiplying  the applicable rate in effect by a fraction.
The  numerator of this  fraction will normally be the number of days in the rate
period and the denominator will normally be 360. This rate is then multiplied by
$25,000  to  arrive  at the  dividends  per  share.  Dividends  on the AMPS will
accumulate  from the date of their original issue,  which is            ,  2005.
For each  dividend  payment  period after the initial rate period,  the dividend
will be the dividend rate determined at auction.  The dividend rate that results
from an auction will not be greater than the maximum rate described below.


     Determination of Maximum  Applicable Rate. The maximum  applicable rate for
any regular  period will be the higher of (as set forth in the table  below) the
applicable  percentage of the Reference Rate or the  applicable  spread plus the
Reference Rate. The Reference Rate is the applicable  LIBOR Rate (for a dividend
period or a special  dividend  period of fewer than 365 days), or the applicable
Treasury Index Rate (for a special  dividend period of 365 days or more). In the
case of a special rate period,  the maximum applicable rate will be specified by
the Fund in the notice of the  special  rate  period for such  dividend  payment
period.  In the case of a special rate period,  the maximum  applicable  rate is
specified by the Fund in a notice of special  dividend period and the applicable
percentage  and  applicable  spread are determined on the date two business days
before the first day of such special dividend period. The applicable  percentage
or applicable  spread will be determined based on the lower of the credit rating
or ratings assigned to the AMPS by Moody's and Fitch.

     The  "LIBOR  Rate,"  as  described  in  greater   detail  in  the  Articles
Supplementary,  is the applicable London Inter-Bank Offered Rate for deposits in
U.S. dollars for the period most closely  approximating the applicable  dividend
period for the AMPS.

     The "Treasury  Index Rate," as described in greater  detail in the Articles
Supplementary,  is the average  yield to  maturity  for  certain  U.S.  Treasury
securities  having  substantially  the same length to maturity as the applicable
dividend period for the AMPS.




                       Applicable Percentage Payment Table
--------------------------------------------------------------------------------
                                               Applicable
             Credit Ratings                    Percentage       Applicable Spread
------------------------------------------     -----------      -----------------
   Moody's              Fitch
------------------------------------------
                                                       
   
   Aaa                  AAA                    125%             1.25%
   Aa3 to Aa1           A- to AA+              150%             1.50%
   A3 to A1             A- to A+               200%             2.00%
   Baa3 to Baa1         BBB- to BBB+           250%             2.50%
   Ba1 and lower        BB+ and lower          300%             3.00%



     Assuming the Fund  maintains an Aaa/AAA  rating on the AMPS,  the practical
effect of the different methods used to calculate the maximum applicable rate is
shown in the table below:




                       Maximum Applicable
                       Rate Using the       Maximum Applicable      Method Used to
                       Applicable           Rate Using the          Determine the Maximum
   Reference Rate      Percentage           Applicable Spread       Applicable Rate
                                                           

   1%                  1.25%                2.25%                   Spread
   2%                  2.50%                3.25%                   Spread
   3%                  3.75%                4.25%                   Spread
   4%                  5.00%                5.25%                   Spread
   5%                  6.25%                6.25%                   Either
   6%                  7.50%                7.25%                   Percentage




     The Board may amend the maximum  applicable rate to increase the percentage
amount by which the Reference Rate described above is multiplied, or to increase
the spread added to the Reference Rate, to determine the maximum applicable rate
shown  without  the  vote or  consent  of the  holders  of  AMPS,  or any  other
shareholder of the Fund, but only with confirmation from each rating agency then
rating the AMPS that such  action  will not impair  such  agency's  then-current
rating of the AMPS,  provided that  immediately  following any such increase the
Fund could meet the  Preferred  Stock Basic  Maintenance  Amount test  discussed
below under "Rating Agency Guidelines and Asset Coverage."


     Prior to each dividend  payment date,  the Fund is required to deposit with
the Auction Agent  sufficient funds for the payment of declared  dividends.  The
failure to make such deposit will result in the  cancellation of any auction and
the  dividend  rate will be the maximum  applicable  rate until such  failure to
deposit  is cured or, if not timely  cured,  a  non-payment  rate of 300% of the
applicable  Reference  Rate.  The Fund does not intend to establish any reserves
for the payment of dividends.


     Restrictions  on Dividends and Other  Distributions.  While any of the AMPS
are outstanding, the Fund, except as provided below, may not declare, pay or set
apart for payment,  any dividend or other  distribution in respect of its common
shares.  In addition,  the Fund may not call for redemption or redeem any of its
common shares. However, the Fund is not confined by the above restrictions if:

     o    immediately after such transaction, the discounted value of the Fund's
          portfolio  would be equal to or greater than the Preferred Stock Basic
          Maintenance  Amount  and the value of the  Fund's  portfolio  would be
          equal to or  greater  than the 1940 Act Asset  Coverage  (see  "Rating
          Agency Guidelines and Asset Coverage" below);

     o    full  cumulative  dividends on the AMPS due on or prior to the date of
          the  transaction  have  been  declared  and  paid or shall  have  been
          declared and sufficient  funds for the payment thereof  deposited with
          the Auction Agent; and

     o    the Fund has redeemed the full number of AMPS  required to be redeemed
          by any provision for  mandatory  redemption  contained in the Articles
          Supplementary.

     The Fund  generally  will not  declare,  pay or set apart for  payment  any
dividend on any class or series of shares of the Fund ranking, as to the payment
of  dividends,  on a parity with AMPS unless the Fund has  declared  and paid or
contemporaneously  declares  and  pays  full  cumulative  dividends  on the AMPS
through its most recent dividend  payment date.  However,  when the Fund has not
paid  dividends in full upon the AMPS through the most recent  dividend  payment
date or upon any other class or series of shares of the Fund ranking,  as to the
payment of dividends, on a parity with AMPS through their most recent respective
dividend payment dates,  the amount of dividends  declared per share on AMPS and
such  other  class or series of shares  will in all cases bear to each other the
same ratio that accumulated  dividends per share of AMPS and such other class or
series of shares bear to each other.

     Designation of Special Rate Periods.  The Fund may, in certain  situations,
declare a special  rate period.  Prior to  declaring a special rate period,  the
Fund will give notice (a "notice of special rate  period") to the Auction  Agent
and to each  Broker-Dealer.  The notice will state that the next succeeding rate
period for the AMPS will be a number of days as specified  in such  notice.  The
Fund may not  designate a special rate period  unless an auction was held on the
immediately  preceding  business day and  sufficient  clearing bids were made in
that  auction.  In addition,  full  cumulative  dividends,  any amounts due with
respect to mandatory  redemptions and any additional  dividends payable prior to
such date must be paid in full or  deposited  with the Auction  Agent.  The Fund
also must have received  confirmation  from Moody's and Fitch or any  substitute
rating agency that the proposed  special rate period will not  adversely  affect
such agency's then-current rating on the AMPS and the Underwriter  designated by
the Fund,  initially  Merrill Lynch,  must not have objected to declaration of a
special rate period.  A notice of special rate period also will specify  whether
the  shares of the AMPS will be  subject  to  optional  redemption  during  such
special rate period and, if so, the redemption  premium,  if any, required to be
paid by the Fund in connection with such optional redemption.


     Non-Payment Period and Late Charge. A "failure to deposit," with respect to
the AMPS,  means a failure by the Fund to pay to the  Auction  Agent,  not later
than 12:00 noon,  New York City time, (A) on the business day next preceding any
dividend  payment date for the AMPS in funds available on such dividend  payment
date in the City of New York, New York, the full amount of any dividend (whether
or not earned or  declared) to be paid on such  dividend  payment date or (B) on
the business day next preceding any redemption  date in funds  available on such
redemption  date in the City of New York, New York,  the redemption  price to be
paid on such  redemption  date after notice of redemption  is mailed;  provided,
however,  that the foregoing clause (B) shall not apply to the Fund's failure to
pay the  redemption  price in  respect  of the AMPS when the  related  notice of
redemption  provides  that  redemption  of such shares is subject to one or more
conditions  precedent  and any such  condition  precedent  shall  not have  been
satisfied  at the time or times and in the manner  specified  in such  notice of
redemption.  If a failure to deposit  occurs but,  prior to 12:00 noon, New York
City time,  on the third  business  day next  succeeding  the date on which such
failure to deposit  occurred,  such failure to deposit shall have been cured and
the Fund shall have paid to the  Auction  Agent a late  charge  ("Late  Charge")
equal to the sum of (1) if such  failure to deposit  consisted of the failure to
timely pay to the Auction Agent the full amount of dividends with respect to any
dividend  period,  an amount  computed by multiplying  (x) 300% of the Reference
Rate for the dividend  period during which such failure to deposit occurs on the
dividend payment date for such dividend period by (y) a fraction,  the numerator
of which  shall be the number of days for which such  failure to deposit has not
been cured  (including  the day such failure to deposit occurs and excluding the
day such failure to deposit is cured) and the denominator of which shall be 360,
and applying the rate obtained against the aggregate  liquidation  preference of
the outstanding AMPS and (2) if such failure to deposit consisted of the failure
to timely pay to the Auction Agent the redemption  price of the shares,  if any,
for which notice of redemption  has been mailed by the Fund, an amount  computed
by  multiplying  (x) 300% of the Reference  Rate for the dividend  period during
which such failure to deposit occurs on the  redemption  date by (y) a fraction,
the  numerator  of which  shall be the number of days for which such  failure to
deposit is not cured  (including  the day such  failure  to  deposit  occurs and
excluding the day such failure to deposit is cured) and the denominator of which
shall be 360, and applying the rate obtained  against the aggregate  liquidation
preference  of the  outstanding  shares to be redeemed,  then no auction will be
held for the subsequent  dividend  period thereof and the dividend rate for such
subsequent  dividend  period will be the maximum  applicable rate on the auction
date for such subsequent  dividend period.  If any failure to deposit shall have
occurred with respect to the AMPS during any dividend period thereof, and, prior
to 12:00 noon, New York City time, on the third business day next succeeding the
date on which such failure to deposit  occurred,  such failure to deposit  shall
not have been cured or the Fund shall not have paid the  applicable  Late Charge
to the Auction  Agent,  no auction will be held in respect of AMPS for the first
subsequent  dividend period thereafter (or for any dividend period thereafter to
and  including  the dividend  period during which (1) such failure to deposit is
cured and (2) the Fund pays the applicable Late Charge to the Auction Agent (the
condition  set forth in this  clause (2) to apply  only in the event  Moody's is
rating such shares at the time the Fund cures such failure to deposit),  in each
case no later than 12:00 noon,  New York City time,  on the fourth  business day
prior to the end of such  dividend  period)  (a  "non-payment  period")  and the
dividend rate for each such subsequent dividend period shall be a rate per annum
(the "non-payment period rate") equal to 300% of the applicable  Reference Rate,
provided  that the Board shall have the  authority to adjust,  modify,  alter or
change  from time to time such  initial  rate if the  Board  determines  and the
rating  agencies (or any  substitute  rating  agency) advise the Fund in writing
that such  adjustment,  modification,  alteration  or change will not  adversely
affect the then-current ratings on the AMPS.




Redemption


     Mandatory  Redemption.  The Fund is required to maintain  (a) a  discounted
value of  eligible  portfolio  securities  equal to the  Preferred  Stock  Basic
Maintenance  Amount  and (b) the 1940 Act Asset  Coverage  (at  least  200% with
respect to senior securities which are equity shares,  including AMPS). Eligible
portfolio  securities  for  purposes of the  Preferred  Stock Basic  Maintenance
Amount will be determined  from time to time by the rating  agencies then rating
the AMPS. If the Fund fails to maintain such asset coverage amounts and does not
timely  cure such  failure in  accordance  with the  requirements  of the rating
agencies that rate the AMPS,  the Fund must redeem all or a portion of the AMPS.
This mandatory redemption will take place on a date that the Board specifies out
of legally  available funds, in accordance with the Articles  Supplementary  and
applicable  law, at the redemption  price of $25,000 per share plus  accumulated
but unpaid  dividends  (whether or not declared) to (but not including) the date
fixed for redemption.  The number of AMPS that must be redeemed in order to cure
such  failure  will be  allocated  pro rata  among  the  outstanding  AMPS.  The
mandatory  redemption  will be limited to the  number of AMPS  necessary,  after
giving  effect to such  redemption,  in order that the  discounted  value of the
Fund's portfolio equals or exceeds the Preferred Stock Basic Maintenance Amount,
and the  value of the  Fund's  portfolio  equals or  exceeds  the 1940 Act Asset
Coverage.  In  determining  the  number  of  AMPS  required  to be  redeemed  in
accordance  with the  foregoing,  the Fund will  allocate  the  number of shares
required to be redeemed to satisfy the Preferred Stock Basic Maintenance  Amount
or the 1940 Act Asset Coverage,  as the case may be, pro rata among the AMPS and
any other preferred  shares of the Fund subject to redemption or retirement.  If
fewer than all outstanding shares are, as a result, to be redeemed, the Fund may
redeem such shares by lot or other method that it deems fair and equitable.

     Optional  Redemption.  To the  extent  permitted  under  the  1940  Act and
Maryland law, the Fund at its option may,  without the consent of the holders of
AMPS,  redeem AMPS having a dividend  period of one year or less, in whole or in
part,  on the business day after the last day of such  dividend  period upon not
less than 15 calendar  days' and not more than 40 calendar  days' prior  notice.
The  optional  redemption  price per share  will be $25,000  per share,  plus an
amount equal to accumulated but unpaid dividends  thereon (whether or not earned
or  declared)  to the  date  fixed  for  redemption  plus the  premium,  if any,
resulting from the designation of a Premium Call Period.  AMPS having a dividend
period of more than one year are  redeemable at the option of the Fund, in whole
or in part,  prior to the end of the relevant  dividend  period,  subject to any
specific  redemption  provisions,  which may include  the payment of  redemption
premiums  to the  extent  required  under  any  applicable  specific  redemption
provisions.  The Fund will not make any optional redemption unless, after giving
effect  thereto,  (i) the Fund has available  certain  deposit  securities  with
maturities  or tender  dates not later  than the day  preceding  the  applicable
redemption  date and  having a value not less  than the  amount  (including  any
applicable  premium) due to holders of AMPS by reason of the  redemption of AMPS
on such date fixed for the redemption and (ii) the Fund has eligible assets with
an  aggregate  discounted  value at least  equal to the  Preferred  Stock  Basic
Maintenance Amount.  Notwithstanding the foregoing,  AMPS may not be redeemed at
the option of the Fund unless all dividends in arrears on the  outstanding  AMPS
and  all   other   outstanding   preferred   shares   have  been  or  are  being
contemporaneously  paid or set aside for  payment.  This would not  prevent  the
lawful  purchase or exchange offer for AMPS made on the same terms to holders of
all outstanding preferred shares.




Liquidation


     If the Fund is liquidated, the holders of outstanding AMPS will receive the
liquidation  preference,  plus all accumulated but unpaid dividends,  before any
payment is made to the  holders of common  shares.  The  holders of AMPS will be
entitled to receive  these  amounts  from the assets of the Fund  available  for
distribution to its shareholders.  In addition, the rights of holders of AMPS to
receive  these  amounts are subject to the rights of holders of other  preferred
shares  ranking  on parity  with the AMPS with  respect to the  distribution  of
assets upon liquidation of the Fund. After the payment to the holders of AMPS of
the full  preferential  amounts as  described,  the holders of AMPS will have no
right or claim to any of the remaining assets of the Fund.


     For  purpose  of  the  foregoing  paragraph,  a  voluntary  or  involuntary
liquidation of the Fund does not include:

     o    the sale of all or  substantially  all the property or business of the
          Fund;

     o    the  merger  or  consolidation  of the  Fund  into or with  any  other
          business trust or corporation; or

     o    the merger or consolidation of any other business trust or corporation
          into or with the Fund.



     In addition,  none of the foregoing would result in the Fund being required
to redeem any AMPS if after such  transaction  the Fund continued to comply with
the rating agency guidelines and asset coverage ratios.

     In  determining  whether  a  distribution  (other  than upon  voluntary  or
involuntary dissolution) by dividend,  redemption or other acquisition of shares
of stock of the Fund or  otherwise  is  permitted  under  the  Maryland  General
Corporation Law, amounts that would be needed,  if the Fund were to be dissolved
at the  time of the  distribution,  to  satisfy  the  preferential  rights  upon
dissolution  of the  holders of the AMPS will not be added to the  Fund's  total
liabilities.

     Rating Agency  Guidelines and Asset  Coverage.  It is expected that Moody's
will  assign a rating of Aaa and Fitch will  assign a rating of AAA to the AMPS.
Securities  rated Aaa by Moody's are  considered  by Moody's as the best quality
investment  grade  securities and carry the smallest degree of investment  risk.
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,  the  changes  that can be  expected  are most  unlikely  to impair  the
fundamentally  strong  position of such  issues.  Securities  rated AAA by Fitch
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.

     The Fund is  required  under  guidelines  of Moody's  and Fitch to maintain
assets  having  in the  aggregate  a  discounted  value  at  least  equal to the
Preferred  Stock  Basic  Maintenance   Amount.   Moody's  and  Fitch  have  each
established separate guidelines for calculating  discounted value. To the extent
any particular  portfolio holding does not satisfy a rating agency's guidelines,
all or a portion  of the  holding's  value  will not be  included  in the rating
agency's  calculation of discounted value. The Moody's and Fitch guidelines also
impose certain diversification requirements on the Fund's portfolio. The Moody's
and Fitch  guidelines  do not impose any  limitations  on the  percentage of the
Fund's assets that may be invested in holdings not eligible for inclusion in the
calculation  of the  discounted  value of the  Fund's  portfolio.  The amount of
ineligible  assets  included  in the  Fund's  portfolio  at any  time  may  vary
depending  upon the rating,  diversification  and other  characteristics  of the
eligible assets included in the portfolio. The Preferred Stock Basic Maintenance
Amount is the sum of (a) the aggregate  liquidation  preference of the AMPS then
outstanding,  together  with the aggregate  liquidation  preference on any other
series of preferred  shares (plus redemption  premium,  if any), and (b) certain
accrued and projected dividend and other payment obligations of the Fund.

     The Fund is also required under the 1940 Act to maintain the 1940 Act Asset
Coverage.  The Fund's 1940 Act Asset  Coverage is tested as of the last business
day of each month in which any senior equity  securities  are  outstanding.  The
minimum  required  1940 Act Asset  Coverage  amount of 200% may be  increased or
decreased if the 1940 Act is amended.  Based on the composition of the portfolio
of the Fund and  market  conditions  as of August 31,  2005,  the 1940 Act Asset
Coverage  with  respect  to all of the Fund's  preferred  shares,  assuming  the
issuance  on that  date of all AMPS  offered  hereby  and  giving  effect to the
deduction of related  sales load and related  offering  costs  (estimated  at an
aggregate of approximately $445,000) would have been computed as follows:



                                                                       


   Value of Fund assets less liabilities not           $ 112,992,971               
        constituting senior securities
----------------------------------------------  =     ----------------------  =   452%
 Senior securities representing indebtedness
    plus liquidation value of the preferred
                   shares                              $  25,000,000



     In the event the Fund does not  timely  cure a failure  to  maintain  (a) a
discounted  value of its portfolio at least equal to the  Preferred  Stock Basic
Maintenance  Amount  or (b)  the  1940  Act  Asset  Coverage,  in  each  case in
accordance  with the  requirements  of the rating agency or agencies then rating
the AMPS,  the Fund will be required  to redeem  preferred  shares as  described
under "Redemption - Mandatory Redemption" above.


     The Fund  may,  but is not  required  to,  adopt any  modifications  to the
guidelines  that may be  established  by Moody's or Fitch.  Failure to adopt any
such modifications,  however,  may result in a change in the ratings assigned to
the AMPS or a withdrawal of ratings altogether.  In addition,  any rating agency
providing  a rating for the AMPS may, at any time,  change or withdraw  any such
rating. The Board may, without shareholder approval, modify, alter or repeal any
or all of the definitions and related  provisions which have been adopted by the
Fund pursuant to the rating agency guidelines in the event such rating agency is
no longer rating the AMPS or the Fund receives written confirmation from Moody's
or Fitch, as the case may be, that any such  modification,  alteration or repeal
would not impair the rating then assigned to the AMPS.

     As recently  described by Moody's and Fitch, a preferred stock rating is an
assessment of the capacity and  willingness of an issuer to pay preferred  stock
obligations. The rating on the AMPS is not a recommendation to purchase, hold or
sell those shares, inasmuch as the rating does not comment as to market price or
suitability for a particular  investor.  The rating agency guidelines  described
above also do not address the  likelihood  that an owner of AMPS will be able to
sell such  shares in an  auction  or  otherwise.  The rating is based on current
information  furnished  to  Moody's  and Fitch by the Fund and the  Adviser  and
information obtained from other sources. The rating may be changed, suspended or
withdrawn as a result of changes in, or the unavailability of, such information.
The common  shares have not been rated by a  nationally  recognized  statistical
rating organization.


     The rating  agency's  guidelines will apply to the AMPS only so long as the
rating  agency is rating the shares.  The Fund will pay certain  fees to Moody's
and Fitch for rating the AMPS.

     Voting  Rights.  Except as  otherwise  provided  in this  prospectus  or as
otherwise  required by law,  holders of AMPS will have equal voting  rights with
holders of common shares and any other preferred shares (one vote per share) and
will vote together with holders of common shares and any other preferred  shares
as a single class.

     Holders  of  outstanding  preferred  shares,  including  AMPS,  voting as a
separate class, are entitled to elect two of the Fund's Directors. The remaining
Directors  are  elected  by  holders  of common  shares  and  preferred  shares,
including AMPS, voting together as a single class. The term of Directors elected
by holders of preferred  stock,  such as the AMPS, will terminate  automatically
upon  redemption  in full  of the  preferred  stock.  If at any  time  dividends
(whether or not earned or declared) on outstanding  preferred shares,  including
AMPS, are due and unpaid in an amount equal to two full years of dividends,  and
sufficient cash or specified securities have not been deposited with the Auction
Agent for the  payment of such  dividends,  then,  the sole remedy of holders of
outstanding  preferred  shares,  including AMPS, is that the number of Directors
constituting the Board will automatically  increase by the smallest number that,
when added to the two Directors elected  exclusively by the holders of preferred
shares,  including AMPS, as described above,  would constitute a majority of the
Board.  The holders of preferred  shares,  including  AMPS,  will be entitled to
elect that  smallest  number of  additional  Directors  at a special  meeting of
shareholders  as soon as  practicable  and at all  subsequent  meetings at which
Directors  are to be  elected.  The  terms  of  office  of the  persons  who are
Directors at the time of that election  will  continue.  If the Fund  thereafter
shall pay, or declare and set apart for payment,  in full, all dividends payable
on all outstanding  preferred shares,  including AMPS, the special voting rights
stated  above will cease,  and the terms of office of the  additional  Directors
elected by the holders of preferred shares,  including AMPS, will  automatically
terminate.

     As long as any AMPS  are  outstanding,  the  Fund  will  not,  without  the
affirmative  vote or consent of the  holders of at least a majority  of the AMPS
outstanding at the time (voting together as a separate class):

          (a)  authorize,  create or issue any class or series of shares ranking
     prior to or on a parity with the AMPS with  respect to payment of dividends
     or the distribution of assets on dissolution, liquidation or winding up the
     affairs of the Fund, or authorize, create or issue additional shares of any
     series  of AMPS or any  other  preferred  shares,  unless,  in the  case of
     preferred  shares  on a parity  with the  AMPS,  the Fund  obtains  written
     confirmation  from  Moody's (if Moody's is then rating  preferred  shares),
     Fitch (if Fitch is then rating preferred  shares) or any substitute  rating
     agency  (if any such  substitute  rating  agency is then  rating  preferred
     shares)  that the issuance of a class or series would not impair the rating
     then assigned by such rating  agency to the AMPS and the Fund  continues to
     comply  with  Section  13 of the 1940  Act,  the 1940  Act  Asset  Coverage
     requirements and the Preferred Stock Basic Maintenance Amount requirements,
     in  which  case  the  vote or  consent  of the  holders  of the AMPS is not
     required;

          (b) amend,  alter or repeal the  provisions of the Charter or Articles
     Supplementary  by merger,  consolidation  or otherwise,  so as to adversely
     affect  any  preference,  right or power  of the AMPS or  holders  of AMPS;
     provided,  however, that (i) none of the actions permitted by the exception
     to (a) above will be deemed to affect such  preferences,  rights or powers,
     (ii) a division of AMPS will be deemed to affect such  preferences,  rights
     or powers only if the terms of such division  adversely  affect the holders
     of AMPS and (iii) the  authorization,  creation  and issuance of classes or
     series of shares  ranking junior to the AMPS with respect to the payment of
     dividends and the distribution of assets upon  dissolution,  liquidation or
     winding  up of the  affairs  of the Fund  will be  deemed  to  affect  such
     preferences,  rights or powers  only if Moody's or Fitch is then rating the
     AMPS and such issuance  would,  at the time thereof,  cause the Fund not to
     satisfy  the  1940  Act  Asset  Coverage  or  the  Preferred   Stock  Basic
     Maintenance Amount; or

          (c) convert the Fund from a closed-end company to an open-end company.

So long as any shares of the AMPS are  outstanding,  the Fund will not,  without
the  affirmative  vote or consent of the holders of at least 66 2/3% of the AMPS
outstanding  at the  time,  in person or by  proxy,  either in  writing  or at a
meeting,  voting as a separate  class,  file a voluntary  application for relief
under federal  bankruptcy law or any similar  application under state law for so
long as the Fund is solvent and does not foresee becoming insolvent.


     To the extent  permitted  under the 1940 Act, the Fund will not approve any
of the actions set forth in (a) or (b) above which adversely  affects the rights
expressly  set forth in the  Charter or  Articles  Supplementary  of a holder of
preferred  shares  differently  than  those of a holder of any  other  preferred
shares  without  the  affirmative  vote or consent of the  holders of at least a
majority  of the  shares  of each  series  adversely  affected.  Unless a higher
percentage  is provided  for under the Charter or  Articles  Supplementary,  the
affirmative  vote of the holders of a majority of the  outstanding  AMPS (within
the  meaning  of the 1940  Act),  voting  together  as a single  class,  will be
required  to  approve   any  plan  of   reorganization   (including   bankruptcy
proceedings)  adversely  affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act.

     The foregoing voting  provisions will not apply with respect to AMPS if, at
or prior to the time when a vote is required, such shares have been (i) redeemed
or (ii) called for redemption  and  sufficient  funds have been deposited in the
Fund to effect such redemption.



                                   THE AUCTION


     General.  The  Articles  Supplementary  provide  that,  except as otherwise
described in this prospectus, the applicable rate for the AMPS for each dividend
period after the initial  dividend  period will be the rate that results from an
auction conducted as set forth in the Articles Supplementary, the material terms
of which are summarized below. In such an auction,  persons determine to hold or
offer to sell or, based on dividend rates bid by them, offer to purchase or sell
AMPS. See the Articles  Supplementary included as Appendix B in the Statement of
Additional Information for a more complete description of the auction process.


     Auction  Agency  Agreement.  The Fund will  enter  into an  auction  agency
agreement  with the  Auction  Agent  (currently,  Deutsche  Bank  Trust  Company
Americas) which provides, among other things, that the Auction Agent will follow
the Auction  Procedures to determine the applicable rate for the AMPS so long as
the applicable rate for the AMPS is to be based on the results of an auction.


     The  Auction  Agent  will act as  agent  for the  Fund in  connection  with
auctions.  In the absence of bad faith or  negligence  on its part,  the Auction
Agent will not be liable for any action taken,  suffered or omitted,  or for any
error of judgment made, by it in the performance of its duties under the auction
agency  agreement  and will not be liable for any error of judgment made in good
faith unless the Auction  Agent shall have been  negligent in  ascertaining  the
pertinent facts. Pursuant to the auction agency agreement,  the Fund is required
to indemnify the Auction Agent for certain  losses and  liabilities  incurred by
the Auction Agent without negligence or bad faith on its part in connection with
the performance of its duties under such agreement.

     The Auction Agent may terminate the auction agency agreement upon notice to
the Fund no earlier than 60 days after  delivery of said notice.  If the Auction
Agent should resign or its appointment is terminated  during any period that any
AMPS are  outstanding,  the Fund  will use its  best  efforts  to enter  into an
agreement with a successor auction agent containing substantially the same terms
and conditions as the auction agency agreement.  The Fund may remove the Auction
Agent provided that,  prior to removal,  the Fund has entered into a replacement
agreement with a successor auction agent.


     Broker-Dealer Agreements. Each auction requires the participation of one or
more  Broker-Dealers.  The Auction Agent will enter into agreements with several
Broker-Dealers  selected by the Fund,  which  provide for the  participation  of
those Broker-Dealers in auctions for AMPS.

     The Auction Agent will pay to each Broker-Dealer  after each auction,  from
funds  provided  by the Fund,  a service  charge:  (i) for any  twenty-eight-day
dividend period,  at the annual rate of 1/4 of 1% of the liquidation  preference
(such  liquidation  preference  being  $25,000  per share) of the AMPS held by a
Broker-Dealer's customer upon settlement in an auction (equal to $62.50 per AMPS
per year) and (ii) for any special  dividend  period,  as  determined  by mutual
consent of the Fund and any such Broker-Dealer or Broker-Dealers and which shall
be based upon a selling  concession  that would be applicable to an underwriting
of fixed or variable  rate  preferred  shares with a similar  fixed  maturity or
variable rate dividend period, respectively, at the commencement of the dividend
period with respect to such auction. This service charge applies to AMPS held on
account  of the  Broker-Dealer's  clients  as  well  as to  AMPS  held  for  the
Broker-Dealer's  own account.  A  Broker-Dealer  may share a portion of any such
fees  with   non-participating   broker-dealers   that  submit   orders  to  the
Broker-Dealer  for an  auction  that are  placed by that  Broker-Dealer  at such
auction.


     The  Fund  may  request  that  the  Auction  Agent  terminate  one or  more
Broker-Dealer  Agreements at any time upon five days'  notice,  provided that at
least  one  Broker-Dealer  Agreement  is in  effect  after  termination  of  the
Agreement(s).


     Auction Procedures.  The following is a brief summary of the material terms
of the procedures to be used in conducting  auctions.  This summary is qualified
by reference to the Auction Procedures set forth in the Articles  Supplementary,
which is attached as Appendix B to the Statement of Additional Information.  The
settlement  procedures  to be used with  respect  to  auctions  are set forth in
Appendix C to the Articles Supplementary.

     Prior to the  submission  deadline on each auction date for the AMPS,  each
customer of a Broker-Dealer  who is listed on the records of that  Broker-Dealer
(or, if applicable,  the Auction Agent) as a holder of AMPS, or a  Broker-Dealer
that holds AMPS for its own account,  may submit the  following  types of orders
with respect to the AMPS to that Broker-Dealer:



          1.   Hold Order - indicating  its desire to hold shares without regard
               to the applicable rate for the next dividend period.

          2.   Bid -  indicating  its desire to purchase  or hold the  indicated
               number of shares at $25,000 per share if the applicable  rate for
               the next dividend  period is not less than the rate  specified in
               the bid.  A bid  order by an  existing  holder  will be deemed an
               irrevocable  offer to sell  shares  at  $25,000  per share if the
               applicable  rate for the next  dividend  period  is less than the
               rate specified in the bid.

          3.   Sell Order - indicating  its desire to sell shares at $25,000 per
               share without regard to the applicable rate for the next dividend
               period.


     A  beneficial   owner  may  submit   different   types  of  orders  to  its
Broker-Dealer  with respect to different AMPS then held by the beneficial owner.
A beneficial owner that submits a bid to its Broker-Dealer  having a rate higher
than the maximum  applicable  rate on the auction date will be treated as having
submitted a sell order to its  Broker-Dealer.  A beneficial  owner that fails to
submit an order to its Broker-Dealer will ordinarily be deemed to have submitted
a hold order to its  Broker-Dealer.  However,  if a  beneficial  owner  fails to
submit  an order to its  Broker-Dealer  for an  auction  relating  to a  special
dividend  period of more than 91 days such  beneficial  owner  will be deemed to
have submitted a sell order to its  Broker-Dealer.  A sell order  constitutes an
irrevocable offer to sell the AMPS subject to the sell order. A beneficial owner
that offers to become the beneficial  owner of additional  AMPS is, for purposes
of such offer, a potential holder as discussed below.

     A potential  beneficial owner is either a customer of a Broker-Dealer  that
is not a beneficial  owner of AMPS but that wishes to purchase shares or that is
a  beneficial  owner of shares  that  wishes to purchase  additional  shares.  A
potential  beneficial  owner may submit  bids to its  Broker-Dealer  in which it
offers to purchase shares at $25,000 per share if the applicable rate for shares
for the next dividend  period is not less than the specified rate in such bid. A
bid placed by a  potential  holder of shares  specifying  a rate higher than the
maximum applicable rate for shares on the auction date will not be accepted.


     The  Broker-Dealers  in turn will  submit  the  orders of their  respective
customers who are beneficial  owners and potential holders to the Auction Agent.
They will  designate  themselves  (unless  otherwise  permitted  by the Fund) as
existing  holders of shares subject to orders  submitted or deemed  submitted to
them by beneficial owners.  They will designate  themselves as potential holders
of shares subject to orders  submitted to them by potential  beneficial  owners.
However,  neither  the Fund nor the  Auction  Agent  will be  responsible  for a
Broker-Dealer's  failure to comply  with  these  Auction  Procedures.  Any order
placed with the Auction Agent by a Broker-Dealer  as or on behalf of an existing
holder or a potential  holder  will be treated  the same way as an order  placed
with a Broker-Dealer by a beneficial owner or potential  holder. A Broker-Dealer
may also submit  orders to the Auction  Agent for its own account as an existing
holder or potential holder,  provided that the Broker-Dealer is not an affiliate
of the Fund.  If a  Broker-Dealer  submits  an order for its own  account in any
auction,  it may have  knowledge of orders placed through it in that auction and
therefore have an advantage over other bidders, but such Broker-Dealer would not
have knowledge of orders submitted by other Broker-Dealers in that auction. As a
result of bidding by the  Broker-Dealer  in an auction,  the auction rate may be
higher or lower than the rate that would have  prevailed  had the  Broker-Dealer
not bid.


     There are  sufficient  clearing bids for shares in an auction if the number
of shares subject to bids submitted or deemed  submitted to the Auction Agent by
Broker-Dealers  for  potential  holders with rates or spreads  equal to or lower
than the maximum  applicable rate is at least equal to or exceeds the sum of the
number of shares subject to sell orders and the number of shares subject to bids
specifying rates or spreads higher than the maximum applicable rate submitted or
deemed submitted to the Auction Agent by Broker-Dealers for existing holders. If
there are  sufficient  clearing bids for shares,  the  applicable  rate for such
shares for the next  succeeding  dividend period thereof will be the lowest rate
specified  in the  submitted  bids which,  taking into account such rate and all
lower  rates  bid by  Broker-Dealers  as or on behalf of  existing  holders  and
potential holders, would result in existing holders and potential holders owning
the shares available for purchase in the auction.


     If there are not sufficient  clearing bids for shares,  the applicable rate
for the next dividend period will be the maximum  applicable rate on the auction
date.  If the  Fund has  declared  a  special  rate  period  and  there  are not
sufficient  clearing  bids,  the  election of a special  rate period will not be
effective  and the  applicable  rate for the next rate  period  will be  maximum
applicable rate. If there are not sufficient clearing bids, beneficial owners of
AMPS that have  submitted or are deemed to have submitted sell orders may not be
able to sell in the auction all shares  subject to such sell  orders.  If all of
the applicable  outstanding AMPS are the subject of submitted hold orders,  then
the dividend period following the auction will  automatically be the same length
as the minimum  dividend  period and the  applicable  rate for the next dividend
period will be 90% of the Reference Rate.

     A  Broker-Dealer  may bid in an  auction  in order to  prevent  what  would
otherwise  be (i) a  failed  auction,  (ii) an  "all-hold"  auction  or (iii) an
applicable rate that the Broker-Dealer  believes,  in its sole discretion,  does
not  reflect  the  market  rate  for the  AMPS at the  time  of the  auction.  A
Broker-Dealer,  may, but is not obligated to, advise  beneficial  owners of AMPS
that the applicable rate that would apply in an "all-hold"  auction may be lower
than the rate that would apply if owners submit bids and such advice,  if given,
may  facilitate the submission of bids by owners that would avoid the occurrence
of an "all-hold" auction.

     The Auction Procedures include a pro rata allocation of shares for purchase
and sale which may result in an existing  holder  continuing to hold or selling,
or a potential  holder  purchasing,  a number of AMPS that is different than the
number of shares specified in its order. To the extent the allocation procedures
have that result,  Broker-Dealers  that have  designated  themselves as existing
holders or potential  holders in respect of customer  orders will be required to
make appropriate pro rata allocations among their respective customers.


     Settlement  of  purchases  and sales will be made on the next  business day
(which is also a dividend  payment  date)  after the  auction  date  through the
Securities Depository.  Purchasers will make payment through their Agent Members
in  same-day  funds  to the  Securities  Depository  against  delivery  to their
respective  Agent Members.  The Securities  Depository  will make payment to the
sellers'  Agent Members in accordance  with DTC's normal  procedures,  which now
provide for payment against delivery by their Agent Members in same day funds.


     If an auction  date is not a business  day  because  the NYSE is closed for
business due to an act of God, natural  disaster,  act of war, civil or military
disturbance,  act of  terrorism,  sabotage,  riots or a loss or  malfunction  of
utilities  or  communications  services,  or the  Auction  Agent  is not able to
conduct  an auction  in  accordance  with the  Auction  Procedures  for any such
reason,  then the auction rate for the next dividend  period will be the auction
rate determined on the previous auction date.


     The  following  is a  simplified  example of how a typical  auction  works.
Assume that the Fund has 1,000  outstanding AMPS and three current holders.  The
three  current  holders  and  three  potential  holders  submit  orders  through
Broker-Dealers at the auction:



                                                                    
Holder                            Goal                                    Action

Current Holder A...........       Owns 500 shares, wants to sell all      Bid order of 4.1% rate for all 500 shares
                                  500 shares if auction rate is less
                                  than 4.1%

Current Holder B...........       Owns 300 shares, wants to hold          Hold order - will take the auction rate

Current Holder C...........       Owns 200 shares, wants to sell all      Bid order of 3.9% rate for all 200 shares
                                  200 shares if auction rate is less
                                  than 3.9%

Potential Holder D.........       Wants to buy 200 shares if auction      Places order to buy at or above 4.0%
                                  rate is equal to or greater than 4.0%

Potential Holder E.........       Wants to buy 300 shares if auction      Places order to buy at or above 3.9%
                                  rate is equal to or greater than 3.9%

Potential Holder F.........       Wants to buy 200 shares if auction      Places order to buy at or above 4.1%
                                  rate is equal to or greater than 4.1%



     The lowest  dividend  rate that will  result in all 1,000 AMPS in the above
example continuing to be held is 4.0% (the offer by D). Therefore,  the dividend
rate will be 4.0%.  Current  holders B and C will  continue to own their shares.
Current  holder A will sell its shares  because A's dividend rate bid was higher
than the dividend  rate.  Potential  holder D will buy 200 shares and  potential
holder E will buy 300  shares  because  their  bid  rates  were at or below  the
dividend rate.  Potential  holder F will not buy any shares because its bid rate
was above the dividend rate.


     Submission  of Orders by  Broker-Dealers  to Auction  Agent.  Prior to 1:00
p.m.,  New York City  time,  on each  auction  date,  or such  other time on the
auction  date  as may  be  specified  by  the  Auction  Agent  (the  "submission
deadline"),  each  Broker-Dealer  will submit to the Auction Agent in writing or
through the Auction Agent's auction  processing system all orders obtained by it
for the auction to be conducted on such auction date, designating itself (unless
otherwise  permitted by the Fund) as the existing holder or potential  holder in
respect of the AMPS subject to such orders.  Any order submitted by a beneficial
owner  or  a  potential   beneficial  owner  to  its  Broker-Dealer,   or  by  a
Broker-Dealer  to the Auction Agent,  prior to the  submission  deadline for any
auction date, shall be irrevocable. Orders submitted by Broker-Dealers within 40
minutes  after the  submission  deadline or before the time at which the auction
agent begins to disseminate results of the auction to the  Broker-Dealers,  will
be accepted by the Auction Agent and deemed a  representation  by the submitting
Broker-Dealer  that the order was either  received by the  Broker-Dealer  from a
beneficial owner or potential  beneficial owner prior to the submission deadline
or initiated  internally by the  Broker-Dealer  for its own account prior to the
submission deadline.



     If the rate per annum specified in any bid contains more than three figures
to the right of the decimal  point,  the Auction  Agent will round such rate per
annum up to the next highest  one-thousandth  (.001) of  one-percent.  If one or
more orders of an existing  holder are  submitted to the Auction  Agent and such
orders cover in the aggregate more than the number of  outstanding  AMPS held by
such  existing  holder,  such orders will be  considered  valid in the following
order of priority:


          (i)  any hold order will be  considered  valid up to and including the
               number of outstanding AMPS held by such existing holder, provided
               that if more than one hold order is  submitted  by such  existing
               holder and the number of AMPS subject to such hold orders exceeds
               the number of outstanding AMPS held by such existing holder,  the
               number  of AMPS  subject  to each of  such  hold  orders  will be
               reduced pro rata so that such hold orders, in the aggregate, will
               cover  exactly  the  number  of  outstanding  AMPS  held  by such
               existing holder;

          (ii) any bids will be  considered  valid,  in the  ascending  order of
               their  respective  rates  per  annum  if  more  than  one  bid is
               submitted by such existing holder, up to and including the excess
               of the number of  outstanding  AMPS held by such existing  holder
               over the  number of  outstanding  AMPS  subject to any hold order
               referred  to in  clause  (i)  above  (and  if more  than  one bid
               submitted by such  existing  holder  specifies  the same rate per
               annum and together they cover more than the  remaining  number of
               shares that can be the subject of valid bids after application of
               clause (i) above and of the foregoing portion of this clause (ii)
               to any bid or bids  specifying  a lower  rate or rates per annum,
               the number of shares subject to each of such bids will be reduced
               pro rata so that such bids, in the aggregate,  cover exactly such
               remaining  number  of  outstanding  shares);  and the  number  of
               outstanding  shares, if any, subject to bids not valid under this
               clause  (ii)  shall  be  treated  as  the  subject  of a bid by a
               potential holder; and

          (iii)any sell order will be  considered  valid up to and including the
               excess of the number of  outstanding  AMPS held by such  existing
               holder over the sum of the number of AMPS  subject to hold orders
               referred to in clause (i) above and the number of AMPS subject to
               valid bids by such  existing  holder  referred  to in clause (ii)
               above; provided that, if more than one sell order is submitted by
               any  existing  holder and the number of AMPS subject to such sell
               orders is greater than such excess, the number of AMPS subject to
               each of such sell  orders  will be reduced  pro rata so that such
               sell orders,  in the aggregate,  will cover exactly the number of
               AMPS equal to such excess.


     If more than one bid of any  potential  holder is submitted in any auction,
each bid  submitted in such  auction will be  considered a separate bid with the
rate per annum and number of AMPS therein specified.

     Notification of Results and Settlement.  The Auction Agent will advise each
Broker-Dealer  who submitted a bid or sell order in an auction  whether such bid
or sell order was accepted or rejected in whole or in part and of the applicable
rate for the next  dividend  period for the related AMPS by telephone or through
the Auction Agent's auction  processing  system at approximately  3:00 p.m., New
York City time,  on the auction date for such auction.  Each such  Broker-Dealer
that  submitted  an order for the  account of a customer  then will  advise such
customer  whether such bid or sell order was accepted or rejected,  will confirm
purchases and sales with each customer purchasing or selling AMPS as a result of
the auction and will advise each  customer  purchasing  or selling  AMPS to give
instructions  to its  Agent  Member  of the  Securities  Depository  to pay  the
purchase price against delivery of such shares or to deliver such shares against
payment  therefor as appropriate.  If a customer  selling AMPS as a result of an
auction  fails to  instruct  its  Agent  Member  to  deliver  such  shares,  the
Broker-Dealer  that  submitted  such  customer's bid or sell order will instruct
such  Agent  Member to  deliver  such  shares  against  payment  therefor.  Each
Broker-Dealer  that submitted a hold order in an auction on behalf of a customer
also will advise  such  customer of the  applicable  rate for the next  dividend
period for the AMPS.  The Auction Agent will record each transfer of AMPS on the
record book of existing holders to be maintained by the Auction Agent.


     In accordance with the Securities  Depository's  normal procedures,  on the
day after each auction date, the  transactions  described above will be executed
through the  Securities  Depository,  and the accounts of the  respective  Agent
Members at the Securities  Depository  will be debited and credited as necessary
to  effect  the  purchases  and  sales of AMPS as  determined  in such  auction.
Purchasers  will make payment  through their Agent Members in same-day  funds to
the Securities  Depository  against  delivery  through their Agent Members;  the
Securities   Depository   will  make  payment  in  accordance  with  its  normal
procedures,  which now provide for payment in same-day  funds. If the procedures
of the Securities  Depository applicable to AMPS shall be changed to provide for
payment in next-day  funds,  then  purchasers may be required to make payment in
next-day funds.

     If any existing  holder  selling  AMPS in an auction  fails to deliver such
AMPS,  the  Broker-Dealer  of any person that was to have purchased AMPS in such
auction  may deliver to such person a number of whole AMPS that is less than the
number of AMPS that otherwise was to be purchased by such person. In such event,
the number of AMPS to be so delivered will be determined by such  Broker-Dealer.
Delivery of such  lesser  number of AMPS will  constitute  good  delivery.  Each
Broker-Dealer  Agreement also will provide that neither the Fund nor the Auction
Agent will have  responsibility  or  liability  with respect to the failure of a
beneficial owner,  potential  beneficial owner or their respective Agent Members
to deliver AMPS or to pay for AMPS  purchased or sold  pursuant to an auction or
otherwise.

     Secondary   Market   Trading  and  Transfers  of  Preferred   Shares.   The
Broker-Dealers  may  maintain  a  secondary  trading  market in AMPS  outside of
auctions,  but are not obligated to do so, and may discontinue  such activity at
any time.  There can be no assurance  that any secondary  trading market in AMPS
will  provide  owners  with  liquidity  of  investment.  The  AMPS  will  not be
registered on any stock exchange or on the Nasdaq National Market. Investors who
purchase  AMPS in an auction  (particularly  if the Fund has  declared a special
dividend  period) should note that because the dividend rate on such shares will
be fixed for the length of that  dividend  period,  the value of such shares may
fluctuate in response to the changes in interest rates,  and may be more or less
than  their  original  cost if sold on the open  market in  advance  of the next
auction thereof,  depending on market conditions.  In addition,  a Broker-Dealer
may, in its own discretion,  decide to sell AMPS in the secondary trading market
to investors at any time and at any price,  including at prices  equivalent  to,
below or above the par value of the AMPS.

     A beneficial  owner or an existing  holder may sell,  transfer or otherwise
dispose of AMPS only in whole shares and only:


     o    pursuant  to a bid or sell  order  placed  with the  Auction  Agent in
          accordance with the Auction Procedures;

     o    to a Broker-Dealer; or


     o    to such  other  persons  as may be  permitted  by the Fund;  provided,
          however,  that a sale,  transfer or other  disposition  of AMPS from a
          customer  of a  Broker-Dealer  who is  listed on the  records  of that
          Broker  Dealer as the holder of such shares to that  Broker-Dealer  or
          another  customer  of that  Broker-Dealer  shall not be deemed to be a
          sale, transfer or other disposition if such Broker-Dealer  remains the
          existing holder of the shares;  and in the case of all transfers other
          than pursuant to auctions,  the  Broker-Dealer  (or other  person,  if
          permitted  by the Fund) to whom such  transfer is made will advise the
          Auction Agent of such transfer.



                           FEDERAL INCOME TAX MATTERS


     The following is a summary  discussion of certain U.S.  federal  income tax
consequences  that may be relevant to a shareholder  of  acquiring,  holding and
disposing  of AMPS of the Fund.  This  discussion  addresses  only U.S.  federal
income tax consequences to U.S.  shareholders  that hold their shares as capital
assets and does not address all of the U.S. federal income tax consequences that
may be  relevant  to  particular  shareholders  in  light  of  their  individual
circumstances.  This  discussion  also does not address the tax  consequences to
shareholders who are subject to special rules,  including,  without  limitation,
banks and financial institutions,  insurance companies, dealers in securities or
foreign currencies, foreign shareholders,  shareholders who hold their shares as
or in a hedge  against  currency  risk,  a  constructive  sale,  or a conversion
transaction,  shareholders  who are subject to the  alternative  minimum tax, or
tax-exempt  or  tax-deferred  plans,  accounts,  or entities.  In addition,  the
discussion does not address any state,  local, or foreign tax consequences,  and
it does not address any U.S.  federal tax  consequences  other than U.S. federal
income tax  consequences.  The  discussion  reflects  applicable tax laws of the
United States as of the date of this  prospectus,  which tax laws may be changed
or  subject to new  interpretations  by the  courts,  Treasury  or the  Internal
Revenue Service (the "IRS")  retroactively or prospectively.  No attempt is made
to present a  detailed  explanation  of all U.S.  federal  income  tax  concerns
affecting the Fund and its  shareholders,  and the  discussion  set forth herein
does not  constitute  tax advice.  Investors  are urged to consult their own tax
advisers to determine the specific tax  consequences to them of investing in the
Fund,   including  the  applicable   federal,   state,  local  and  foreign  tax
consequences to them and the effect of possible changes in tax laws.


     The Fund  intends  to elect to be  treated  and to  qualify  each year as a
"regulated investment company" under Subchapter M of the Code and to comply with
applicable  distribution  requirements  so that it  generally  will not pay U.S.
federal income tax on income and capital gains  distributed to shareholders.  In
order to qualify as a regulated  investment  company,  which  qualification  the
following  discussion assumes, the Fund must satisfy certain tests regarding the
sources  of its  income  and the  diversification  of its  assets.  If the  Fund
qualifies as a regulated  investment  company and,  for each  taxable  year,  it
distributes to its  shareholders  an amount equal to or exceeding the sum of (i)
90% of its  "investment  company  taxable income" as that term is defined in the
Code (which includes, among other things,  dividends,  taxable interest, and the
excess of any net short-term capital gains over net long-term capital losses, as
reduced by certain  deductible  expenses)  without  regard to the  deduction for
dividends paid and (ii) 90% of the excess of its gross tax-exempt  interest over
certain  disallowed  deductions,  the Fund  generally  will be  relieved of U.S.
federal income tax on any income of the Fund,  including "net capital gain" (the
excess  of net long  term  capital  gain  over  net  short-term  capital  loss),
distributed  to  shareholders.  However,  if the Fund  meets  such  distribution
requirements  but chooses to retain some portion of investment  company  taxable
income or net capital gain, it generally will be subject to U.S.  federal income
tax at regular  corporate  rates on the  amount  retained.  The Fund  intends to
distribute at least annually all or substantially all of its investment  company
taxable income, net tax exempt interest and net capital gain. If for any taxable
year the Fund did not qualify as a  regulated  investment  company,  it would be
treated as a corporation  subject to U.S. federal income tax thereby  subjecting
any  income  earned by the Fund to tax at the  corporate  level  and,  when such
income is distributed, to a further tax at the shareholder level.


     Under the Code,  the Fund will be  subject  to a  nondeductible  4% federal
excise tax on a portion of its  undistributed  ordinary  income and capital gain
net income if it fails to meet certain distribution requirements with respect to
each calendar  year. The Fund intends to make  distributions  in a timely manner
and  accordingly  does not expect to be subject to the excise tax, but there can
be no assurance that the Fund's  distributions  will be sufficient to avoid this
tax entirely.


     Based in part on the lack of any present  intention on the part of the Fund
to redeem or purchase  the AMPS at any time in the future,  the Fund  intends to
take the position that under present law the AMPS will  constitute  stock of the
Fund and  distributions  with respect to the AMPS (other than  distributions  in
redemption of the AMPS that are treated as exchanges under Section 302(b) of the
Code)  will  constitute  dividends  to the  extent  of  the  Fund's  current  or
accumulated  earnings  and profits as  calculated  for U.S.  federal  income tax
purposes. This view relies in part on a published ruling of the IRS stating that
certain preferred stock similar in many material respects to the AMPS represents
equity.  It is possible,  however,  that the IRS might take a contrary  position
asserting,  for  example,  that the AMPS  constitute  debt of the Fund.  If this
position were upheld,  the  discussion of the treatment of  distributions  below
would not  apply.  Instead  distributions  by the Fund to  holders of AMPS would
constitute interest, whether or not such distributions exceeded the earnings and
profits of the Fund,  would be included in the income of the recipient and would
be taxed as ordinary income.


     In  general,  assuming  the  Fund has  sufficient  current  or  accumulated
earnings and profits,  dividends  from  investment  company  taxable  income are
taxable  as  ordinary  income  and  dividends  from net  capital  gain  that are
designated as capital gain dividends are taxable as long-term  capital gains for
U.S.  federal  income  tax  purposes  without  regard to the  length of time the
shareholder  has held shares of the Fund.  Since not all of the Fund's income is
derived from interest, some portion of its dividends from its investment company
taxable income may constitute "qualified dividend income" for federal income tax
purposes and thus may be eligible for the favorable  federal  long-term  capital
gain tax rates on qualified dividend income.  Capital gain dividends distributed
by the Fund to individual  shareholders  generally  will qualify for the maximum
15% U.S. federal income tax rate on long-term capital gains.  Under current law,
the maximum 15% U.S.  federal  income tax rate on long-term  capital  gains will
cease to apply to taxable years beginning after December 31, 2008.

     If a portion of the Fund's income consists of qualifying  dividends paid by
U.S.  corporations  (other than REITs),  a portion of the dividends  paid by the
Fund to  corporate  stockholders,  if properly  designated,  may qualify for the
dividend received  deduction or "DRD". In addition,  for taxable years beginning
on or before December 31, 2008, distributions of investment income designated by
the Fund as derived from qualified dividend income will be taxed in the hands of
individuals at the rates applicable to long-term capital gain,  provided holding
period  and  other  requirements  are met by both the Fund and the  stockholder.
Specifically,  a dividend paid by the Fund to a stockholder  will not be treated
as qualified  dividend income of the stockholder (1) if the dividend is received
with respect to any share held for fewer than 61 days during the 121-day  period
beginning  on the date  which is 60 days  before  the date on which  such  share
becomes  ex-dividend  with respect to such dividend,  (2) to the extent that the
recipient is under an obligation (whether pursuant to a short sale or otherwise)
to make related payments with respect to positions in  substantially  similar or
related  property or (3) if the recipient elects to have the dividend treated as
investment  income for purposes of the limitation on deductibility of investment
interest. Qualified dividend income is, in general, dividend income from taxable
domestic  corporations  and  certain  "qualified  foreign  corporations"  (e.g.,
generally,  foreign  corporations  incorporated  in a  possession  of the United
States or in certain  countries with a qualifying  comprehensive tax treaty with
the United States, or the stock of which and with respect to which such dividend
is paid is readily  tradable on an established  securities  market in the United
States),  but does not include a foreign  corporation which for the taxable year
of the  corporation  in which the dividend was paid,  or the  preceding  taxable
year, is a "passive foreign  investment  company," as defined in the Code. There
can be no assurance of what portion, if any, of the Fund's distributions will be
entitled to the lower tax rates that apply to qualified dividend income.

     Although dividends  generally will be treated as distributed when paid, any
dividend  declared  by the  Fund as of a record  date in  October,  November  or
December and paid during the following  January will be treated for U.S. federal
income tax purposes as received by  shareholders  on December 31 of the calendar
year in which it is declared.

     Distributions  by the Fund in excess of the Fund's current and  accumulated
earnings  and  profits  will be  treated as a return of capital to the extent of
(and in  reduction  of) the  shareholder's  tax basis in its shares and any such
amount in excess of that  basis will be treated as gain from the sale of shares,
as discussed below. The U.S. federal income tax status of all distributions will
be reported to shareholders annually.

     If the Fund retains any net capital gain for a taxable  year,  the Fund may
designate  the retained  amount as  undistributed  capital  gains in a notice to
shareholders  who, if subject to U.S.  federal  income tax on long-term  capital
gains,  (i) will be  required to include in income for U.S.  federal  income tax
purposes,  as  long-term  capital  gain,  their  proportionate  shares  of  such
undistributed  amount,  and (ii) will be entitled to credit their  proportionate
shares of the tax paid by the Fund on the  undistributed  amount  against  their
U.S. federal income tax liabilities,  if any, and to claim refunds to the extent
the credit exceeds such liabilities.



     The IRS has taken the position that if a regulated  investment  company has
two or more  classes of shares,  it must  designate  distributions  made to each
class in any year as consisting of no more than such class's proportionate share
of particular  types of income,  including  ordinary income and capital gains. A
class's  proportionate  share  of a  particular  type of  income  is  determined
according to the percentage of total dividends paid by the regulated  investment
company  to such  class.  Consequently,  if both  common  shares  and  AMPS  are
outstanding,  the Fund intends to designate distributions made to the classes of
particular  types of income in accordance  with each such class's  proportionate
share of such income.  The Fund will designate  dividends  qualifying as capital
gain  dividends  and other  taxable  dividends in a manner that  allocates  such
income  between the holders of common shares and AMPS in proportion to the total
dividends  paid to each class during the taxable  year, or otherwise as required
by applicable law.

     Sales and other  dispositions  of the Fund's  shares  generally are taxable
events for  shareholders  that are subject to tax.  Shareholders  should consult
their own tax advisers  with  reference  to their  individual  circumstances  to
determine  whether any  particular  transaction in the Fund's shares is properly
treated as a sale for tax  purposes  (including a  redemption  of AMPS),  as the
following  discussion  assumes,  and the tax  treatment  of any  gains or losses
recognized in such transactions. In general, if shares of the Fund are sold, the
shareholder  will  recognize  gain or loss equal to the  difference  between the
amount realized on the sale and the  shareholder's  adjusted basis in the shares
sold.  Such gain or loss  generally will be treated as long-term gain or loss if
the  shares  were held for more than one year and  otherwise  generally  will be
treated as short-term  gain or loss. Any loss  recognized by a shareholder  upon
the sale or other  disposition of shares with a tax holding period of six months
or less will be treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gains with respect to such shares.
Losses on sales or other  dispositions  of shares may be disallowed  under "wash
sale"  rules  in the  event  substantially  identical  shares  of the  Fund  are
purchased  (including  those made pursuant to reinvestment  of dividends  and/or
capital gains distributions) within a period of 61 days beginning 30 days before
and ending 30 days after a sale or other disposition of shares.

     If, in connection with the selection of a long-term  dividend  period,  (i)
the Fund provides that a Premium Call Period will follow a Non-Call Period, (ii)
based on all the facts and  circumstances  at the time of the designation of the
long-term  dividend  period the Fund is more  likely than not to redeem the AMPS
during the Premium Call Period, and (iii) the premium to be paid upon redemption
during  the  Premium  Call  Period  exceeds  a  reasonable   penalty  for  early
redemption,  it is  possible  that the holder of AMPS will be required to accrue
such  premium as a dividend  (to the extent of the Fund's  earnings and profits)
over the term of the Non-Call Period.


     The Fund is  required  in  certain  circumstances  to  backup  withhold  on
reportable  payments,  including  dividends,  capital gains  distributions,  and
proceeds  of sales or other  dispositions  of the Fund's  shares paid to certain
holders of the  Fund's  shares who do not  furnish  the Fund with their  correct
Social Security number or other taxpayer  identification number and make certain
other certifications, or who are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld from payments made to
a  shareholder  may be refunded  or credited  against  such  shareholder's  U.S.
federal income tax liability,  if any, provided that the required information is
furnished to the IRS.

     The foregoing is a general and abbreviated summary of the provisions of the
Code and the Treasury  regulations  currently in effect as they generally affect
the taxation of the Fund and its shareholders.  As noted above, these provisions
are subject to change by legislative, judicial or administrative action, and any
such change may be retroactive.  A further discussion of the U.S. federal income
tax rules  applicable  to the Fund can be found in the  Statement of  Additional
Information   which  is   incorporated   by  reference  into  this   prospectus.
Shareholders  are  urged  to  consult  their  tax  advisers  regarding  specific
questions as to U.S. federal, foreign, state, and local income or other taxes.

     As required by U.S. Treasury  Regulations  governing tax practice,  you are
hereby advised that any written tax advice  contained  herein was not written or
intended  to be used (and  cannot be used) by any  taxpayer  for the  purpose of
avoiding penalties that may be imposed under the Code.

     The advice was  prepared  to support  the  promotion  or  marketing  of the
transactions or matters addressed by the written advice.

     Any person  reviewing  this  discussion  should seek  advice  based on such
person's particular circumstances from an independent tax adviser.


                        DETERMINATION OF NET ASSET VALUE


     The net asset value of common shares of the Fund is computed based upon the
value of the Fund's portfolio  securities and other assets.  Net asset value per
common share of the Fund is  determined  as of the close of the regular  trading
session on the NYSE no less  frequently  than the last business day of each week
and month, provided, however, that if any such day is a holiday or determination
of net  asset  value  on such  day is  impracticable,  the net  asset  value  is
calculated on such earlier or later day as determined by the Advisers.  The Fund
calculates  net asset  value per  common  share of the Fund by  subtracting  the
Fund's  liabilities  (including  accrued  expenses,  dividends  payable  and any
borrowings of the Fund) and the liquidation  value of any outstanding  preferred
stock from the Fund's total assets (the value of the  securities  the Fund holds
plus cash or other assets,  including interest accrued but not yet received) and
dividing  the  result  by  the  total  number  of  common  shares  of  the  Fund
outstanding.


     The Fund values its holdings by using market quotations provided by pricing
services,  prices  provided  by market  makers  or  estimates  of market  values
obtained from yield data  relating to  instruments  or  securities  with similar
characteristics  in  accordance  with  procedures   established  by  the  Board.
Short-term  securities  having  a  maturity  of 60 days or less  are  valued  at
amortized cost, which approximates  market value. Any securities or other assets
for which  current  market  quotations  are not readily  available are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision and responsibility of the Board.


                  CAPITALIZATION OF THE FUND AND OTHER MATTERS

     Repurchase  of Common  Shares.  Shares of closed-end  investment  companies
often  trade at a discount  to their net asset  values,  and the  Fund's  common
shares  have in the past and may in the future  trade at a discount to their net
asset value.  The market price of the Fund's common shares is determined by such
factors as relative  demand for and supply of such common  shares in the market,
the Fund's net asset value,  general  market and economic  conditions  and other
factors beyond the control of the Fund.  Although the Fund's common shareholders
do not have the right to require the Fund to redeem  their  common  shares,  the
Fund may take action, from time to time, to repurchase common shares in the open
market or make  tender  offers for its common  shares at their net asset  value.
This may,  but will not  necessarily,  have the  effect of  reducing  any market
discount from net asset value.


     The acquisition of common shares by the Fund will decrease the total assets
of the Fund and,  therefore,  have the effect of increasing  the Fund's  expense
ratio and may adversely affect the ability of the Fund to achieve its investment
objectives.  Furthermore,  the  acquisition  of  common  shares  by the Fund may
require the Fund to redeem the AMPS in order to maintain  certain asset coverage
requirements.  To the extent the Fund may need to liquidate  investments to fund
repurchase of common  shares,  this may result in portfolio  turnover which will
result in  additional  expenses  being  borne by the Fund.  The Board  currently
considers  the  following  factors to be  relevant  to a  potential  decision to
repurchase common shares: the extent and duration of the discount, the liquidity
of  the  Fund's  portfolio,  the  impact  of  any  action  on  the  Fund  or its
stockholders and market  considerations.  Any share repurchases or tender offers
will be made in  accordance  with the  requirements  of the Exchange Act and the
1940 Act. See "U.S.  Federal  Taxation" for a  description  of the potential tax
consequences of a repurchase of common shares. See "Repurchase of Shares" in the
Statement of Additional Information.

     Capitalization.  The Charter  authorizes the issuance of 250,000,000 shares
of  common  stock,   par  value  $0.01  per  share.  The  Board  has  authorized
reclassification  of up to  10,000  of these  shares  in one or more  series  of
preferred stock  designated as AMPS, of which 1,000 will be reclassified as AMPS
and issued in connection with this Offering. In 2002, Fund shareholders approved
an  amendment  to  the  Fund's  charter  which  authorizes  the  Board,  without
shareholder  approval,  to increase the Fund's authorized  capital.  Pursuant to
such  amendment,  and in connection  with a rights  offering in 2002,  the Board
approved  an  amendment  to  increase  the  authorized  stock of the Fund to its
current level.



     Rights with Regard to Dividends,  Voting and Liquidation.  When issued, the
Fund's common shares are fully paid and non-assessable. The Fund's common shares
have no preemptive,  conversion,  exchange or redemption  rights.  Each share of
common stock has one vote and shares equally in dividends and distributions when
and if declared by the Fund and in the Fund's net assets upon  liquidation.  All
voting  rights for the election of directors are  non-cumulative.  Consequently,
the holders of more than 50% of the shares can elect 100% of the directors  then
nominated  for election if they choose to do so (subject to the right of holders
of preferred  shares to elect  directors) and, in such event, the holders of the
remaining common shares will not be able to elect any directors.



     Common Stock.  Although the Fund  conducted a rights  offering in 2002, and
may do so again in the future, the Fund has no present intention of offering any
additional  shares of capital stock other than the AMPS  described  herein.  Any
additional  offerings of shares of capital stock, if made, will require approval
by the Board.  Any  additional  offering of common shares will be subject to the
requirements  of the 1940 Act that  common  shares  may not be issued at a price
below the then current net asset value (exclusive of underwriting  discounts and
commissions)  except in connection with an offering to existing  stockholders or
with the consent of a majority of the Fund's common shareholders.


     The Fund's  common shares traded on the NYSE from January 1974 to April 29,
2002,  under the symbol  "UIF".  From April 30, 2002 to the present,  the common
shares have traded on the NYSE under the symbol "BIF". On August 31, 2005, there
were  11,327,784  shares of common stock issued and  outstanding,  the net asset
value per common  share was $7.81 and the closing  price per common share on the
NYSE was $6.55.

     Preferred Stock. Under the Charter, the Board is authorized to classify and
reclassify  any  unissued  shares  of the  Fund's  common  shares  as part of an
issuance of preferred  stock.  The Board is also authorized to set or change the
preferences,   conversion  or  other  rights,   voting   powers,   restrictions,
limitations as to dividends and other distributions,  qualifications or terms or
conditions of  redemption of such shares of stock.  Under the 1940 Act, the Fund
is permitted  to have  outstanding  more than one series of preferred  shares so
long  as  no  single  series  has a  priority  over  another  series  as to  the
distribution  of assets of the Fund or the  payment  of  dividends.  Holders  of
common shares and  outstanding  preferred  shares of the Fund have no preemptive
right to purchase any preferred  shares that might be issued.  On July 29, 2005,
the Board authorized the reclassification of up to 10,000 of the Fund's unissued
shares of common stock as preferred stock.


     Anti-Takeover  Provisions  of the  Charter  and  Bylaws.  At a  meeting  of
shareholders held in May 2004,  shareholders  approved a comprehensive  range of
corporate   governance   proposals  which  abolished  or  changed  a  number  of
anti-takeover  provisions previously adopted by the Fund. These included,  among
others,  proposals  to (i)  declassify  the  Board,  (ii) elect  directors  by a
plurality of votes cast, (iii) permit  shareholders to effect Bylaw  amendments,
(iv) set the number of directors at exactly five, and (v) prohibit the Fund from
opting  into the  Maryland  Unsolicited  Takeovers  Act.  Nonetheless,  the Fund
presently  has  provisions  in its Charter  and Bylaws  which may still have the
effect of limiting the ability of other  entities or persons to acquire  control
of the Fund,  to cause it to engage in  certain  transactions  or to modify  its
structure (commonly referred to as "anti-takeover" provisions):



          (1)  The Charter  requires the affirmative vote of at least two-thirds
               of the votes  entitled to be cast by holders of common  shares to
               approve,  adopt or authorize  (a) certain  business  combinations
               (e.g.,  merger,  consolidation  or liquidation,  or sale,  lease,
               exchange,  mortgage, pledge, transfer or other disposition of the
               Fund's assets, etc.); (b) voluntary liquidation or dissolution of
               the  Fund;  (c)  shareholder   proposals   regarding   investment
               decisions;  (d)  conversion  from  a  closed-end  to an  open-end
               investment  company;  or (e) a self-tender for, or acquisition by
               the Fund of,  more than 25% of the Fund's  outstanding  shares of
               stock, during any twelve-month period.




          (2)  The Fund's Bylaws  contain  provisions  the effect of which is to
               prevent matters,  including nominations of Directors,  from being
               considered  at  shareholders'  meetings  where  the  Fund has not
               received sufficient prior notice of the matters.


     The percentage of votes required under these provisions,  which are greater
than the minimum  requirements  under Maryland law or the 1940 Act, make it more
difficult to effect a change in the Fund's business or management and could have
the effect of  depriving  holders  of common  shares of an  opportunity  to sell
shares at a premium over prevailing  market prices by discouraging a third party
from  seeking  to  obtain  control  of the  Fund in a tender  offer  or  similar
transaction.  The Board, however, has considered these anti-takeover  provisions
and believes that they are in the best interests of shareholders.


     Reports to Shareholders.  The Fund sends unaudited  semiannual  reports and
audited annual reports, including lists of investments held, to shareholders.


     Available   Information.   The  Fund  is  subject   to  the   informational
requirements of the Exchange Act and the 1940 Act and in accordance therewith is
required  to file  reports,  proxy  statements  and other  information  with the
Securities and Exchange Commission. Any such reports, proxy statements and other
information  can be inspected and copied at the public  reference  facilities of
the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
the  Commission's  New York Regional Office at 233 Broadway,  New York, New York
10279 and its Chicago Regional Office at Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago,  Illinois 60661. Reports, proxy statements and
other  information  concerning  the Fund can also be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.


     Additional  information regarding the Fund and the Offering is contained in
the  Registration  Statement  on Form N-2,  including  amendments,  exhibits and
schedules  thereto,  relating to the AMPS filed by the Fund with the  Securities
and Exchange Commission. This prospectus does not contain all of the information
set forth in the Registration Statement, including any amendments,  exhibits and
schedules  thereto.  For further  information  with  respect to the Fund and the
shares  offered  hereby,  reference  is  made  to  the  Registration  Statement.
Statements  contained in this  Prospectus  as to the contents of any contract or
other  document  referred to are not  necessarily  complete and in each instance
reference  is made to the copy of such  contract or other  document  filed as an
exhibit to the  Registration  Statement,  each such statement being qualified in
all respects by such reference.


     A copy of the Registration Statement may be inspected without charge at the
Securities and Exchange Commission's  principal office in Washington,  D.C., and
copies of all or any part thereof may be obtained from the  Commission  upon the
payment of certain fees prescribed by the Commission. The Commission maintains a
website  (http://www.sec.gov)  that contains the Registration  Statement,  other
documents  incorporated by reference,  and other  information the Fund has filed
electronically with the Commission, including proxy statements and reports filed
under the Exchange Act.


                                  UNDERWRITING



     Subject to the terms and conditions stated in the purchase  agreement dated
            , 2005 (the "Purchase Agreement"), each Underwriter named below, for
which  Merrill  Lynch,  Pierce,   Fenner  &  Smith  Incorporated  is  acting  as
representative,  has  severally  agreed to purchase,  and the Fund has agreed to
sell to such Underwriter, the number of AMPS set forth opposite the name of such
Underwriter.




                                                             

Underwriter                                                     Number of AMPS


Merrill Lynch, Pierce, Fenner & Smith 
            Incorporated                                        1,000
                                                               ---------
            Total                                               1,000




The Purchase  Agreement  provides that the  obligations of the  Underwriters  to
purchase  the shares  included in this  offering  are subject to the approval of
certain  legal  matters by counsel and to certain  other  conditions,  including
without  limitation  the  receipt  by  the  Underwriters  of  customary  closing
certificates,  opinions and other documents,  and the receipt by the Fund of Aaa
and AAA ratings on the AMPS by Moody's and Fitch,  respectively,  as of the time
of the offering. The Underwriters are obligated to purchase all the AMPS if they
purchase any of the AMPS. In the Purchase Agreement,  the Fund and Advisers have
agreed to indemnify the  Underwriters  against  certain  liabilities,  including
liabilities  arising under the  Securities  Act, or to  contribute  payments the
Underwriters may be required to make for any of those liabilities.


     The  Underwriters  propose to initially  offer some of the AMPS directly to
the  public at the  public  offering  price set forth on the cover  page of this
prospectus and some of the AMPS to certain  dealers at the public offering price
less a concession not in excess of $          per share. The sales load the Fund
will pay of $250 per share is equal to 1% of the initial  offering  price of the
AMPS. After the Offering,  the Underwriters may change the public offering price
and the concession. Investors must pay for any AMPS purchased in the Offering on
or before             , 2005.



     The Fund  anticipates  that the  Underwriters  may from time to time act as
brokers or dealers in executing  the Fund's  portfolio  transactions  after they
have ceased to be Underwriters. The Underwriters are active underwriters of, and
dealers in,  securities and act as market makers in a number of such securities,
and  therefore  can be expected to engage in portfolio  transactions  with,  and
perform services for, the Fund.



     Merrill Lynch has advised the Fund that it and various other broker-dealers
and other firms that participate in the auction rate securities  market received
letters from the staff of the Securities  and Exchange  Commission in the spring
of 2004. The letters requested that each of those firms  voluntarily  conduct an
investigation  regarding its respective practices and procedures in that market.
Pursuant to these requests, Merrill Lynch conducted its own voluntary review and
reported its findings to the Securities and Exchange  Commission  staff.  At the
staff's  request,  Merrill  Lynch is  engaging  in  discussions  with the  staff
concerning  its  inquiry.  Neither  Merrill  Lynch nor the Fund can  predict the
ultimate  outcome of the inquiry or how that  outcome will affect the market for
the AMPS or the auctions.



     The Fund anticipates  that the Underwriters or their respective  affiliates
may, from time to time,  act in auctions as  Broker-Dealers  and receive fees as
set forth under "The Auction" and in the Statement of Additional Information.


     The principal  business  address of Merrill Lynch,  Pierce,  Fenner & Smith
Incorporated is 4 World Financial Center, New York, New York, 10080.


     In connection  with this offering,  certain of the  Underwriters or dealers
may distribute prospectuses electronically. The settlement date for the purchase
of the AMPS will be                ,  2005, as agreed upon by the  Underwriters,
the Fund and the Advisers pursuant to Rule 15c6-1 under the Securities  Exchange
Act of 1934, as amended (the "Exchange Act").




                          CUSTODIAN AND TRANSFER AGENT


     Investors  Bank & Trust Company serves as the Fund's  co-administrator  and
custodian and will maintain custody of the securities and cash of the Fund. PFPC
Inc.  serves as the  transfer  agent of the Fund.  Deutsche  Bank Trust  Company
Americas will serve as Auction Agent,  transfer agent, dividend paying agent and
registrar for the AMPS.



                                  LEGAL MATTERS


     Certain  legal  matters  in  connection  with the AMPS will be passed on by
Paul, Hastings, Janofsky & Walker LLP, Los Angeles,  California,  counsel to the
Fund in connection  with the  Offering,  and Venable LLP,  Baltimore,  Maryland.
Certain  matters will be passed upon for the  Underwriters by Clifford Chance US
LLP,  New York,  New York.  Clifford  Chance US LLP may rely on the  opinion  of
Venable LLP as to certain matters of Maryland law.



                  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


     The data in the "Financial Highlights" section of this prospectus are based
upon financial  statements  for the 6 months ending May 31, 2005,  that have not
been audited and  financial  statements  for the year ending  November 30, 2004,
that have been audited by KPMG LLP,  the Fund's  independent  registered  public
accounting  firm,  located at 99 High Street,  Boston,  Massachusetts  02110, as
indicated  in their  reports  with  respect  thereto,  and are  incorporated  by
reference  herein in  reliance  on their  reports  given on their  authority  as
experts in auditing and accounting.




                             ADDITIONAL INFORMATION


     The prospectus  and the Statement of Additional  Information do not contain
all of the information set forth in the Registration Statement that the Fund has
filed with the Securities  and Exchange  Commission.  The complete  Registration
Statement  may be obtained  from the  Securities  and Exchange  Commission  upon
payment of the fee  prescribed  by its rules and  regulations.  The Statement of
Additional Information can be obtained without charge by calling (877) 561-7914.
Statements  contained in this  prospectus  as to the contents of any contract or
other documents referred to are not necessarily complete, and, in each instance,
reference  is made to the copy of such  contract or other  document  filed as an
exhibit to the  Registration  Statement of which this  prospectus  forms a part,
each such statement being qualified in all respects by such reference.


                         PRIVACY PRINCIPLES OF THE FUND


     The Fund has established the following policy regarding  information  about
the Fund's  shareholders:  We consider  all  shareholder  data to be private and
confidential,  and we hold ourselves to the highest standards in its safekeeping
and use. The Fund collects nonpublic  information (e.g., name,  address,  Social
Security Number,  Fund holdings) about  shareholders  from  transactions in Fund
shares.  The  Fund  will  not  release   information  about  current  or  former
shareholders (except as permitted by law) unless one of the following conditions
is met: (i) we receive your prior written consent; (ii) we believe the recipient
to be you or your authorized representative;  or (iii) we are required by law to
release  information  to the  recipient.  The  Fund  has not and will not in the
future give or sell information about its current or former  shareholders to any
other company,  individual, or group (except as permitted by law). The Fund will
only use information  about its shareholders as necessary to service or maintain
shareholder  accounts in the ordinary  course of business.  Internally,  we also
restrict  access to shareholder  personal data to those who have a specific need
for the records. We maintain physical, electronic and procedural safeguards that
comply with Federal  standards to guard your personal  data.  The Fund's primary
service providers (i.e., advisers, administrators,  transfer agent and custodian
(the "Service Providers")) have adopted individual privacy policies that conform
with and assure the Fund's compliance with the foregoing.

     The Fund and its Service Providers  restrict access to non-public  personal
information  about  its  shareholders  to  employees  of the  Fund's  investment
advisers  and  their  affiliates  with  a  legitimate   business  need  for  the
information.  The Fund maintains physical,  electronic and procedural safeguards
designed to protect the non-public personal information of its shareholders. For
more   information   about   the   Fund's   privacy   policies,   please   visit
http://www.boulderfunds.net.


          TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION



                                                                                                                   
The Fund...............................................................................................................2
Use of Proceeds........................................................................................................2
Investment Objective and Policies......................................................................................2
Investment Policies and Restrictions...................................................................................2
Investment Policies and Techniques.....................................................................................3
Management of the Fund.................................................................................................9
Security Ownership of Certain Beneficial Owners........................................................................9
Ownership of the Fund by Directors.....................................................................................10
Director and Officer Compensation......................................................................................10
Committees of the Board of Directors...................................................................................11
Investment Advisers and Other Service Providers........................................................................12
Compensation to the Advisers and Administrators........................................................................14
Factors Considered by the Independent Directors in Approving the Investment Advisory Agreements........................14
Duration and Termination...............................................................................................16
Potential Conflicts of Interest........................................................................................16
Proxy Voting...........................................................................................................17
Code of Ethics.........................................................................................................17
Portfolio Transactions, Brokerage Allocation and Other Practices.......................................................17
Additional Information Concerning the Auctions for AMPS................................................................18
Rating Agency Guidelines...............................................................................................19
Repurchase of Shares...................................................................................................20
Federal Income Tax Matters.............................................................................................21
Performance-Related, Comparative and Other Information.................................................................25
Financial Statements...................................................................................................26
Additional Information.................................................................................................26


Appendix A - Proxy Voting Policies and Procedures
Appendix B - Articles Supplementary Creating and Fixing the Rights of Auction Market Preferred Stock
Appendix C - Rating Agency Guidelines






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


                                   $25,000,000
                       Bboulder Growth & Income Fund, Inc.

                    Auction Market Preferred Shares ("AMPS")
                            1,000 Shares, Series M28
                    Liquidation Preference $25,000 Per Share

                               


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




                              Merrill Lynch & Co.







                                          , 2005
--------------------------------------------------------------------------------






                  SUBJECT TO COMPLETION, DATED OCTOBER 11, 2005





                       BOULDER GROWTH & INCOME FUND, INC.

                       STATEMENT OF ADDITIONAL INFORMATION



     Boulder  Growth  &  Income  Fund,   Inc.  (the  "Fund")  is  a  closed-end,
non-diversified  management  investment  company.  This  Statement of Additional
Information does not constitute a prospectus,  but should be read in conjunction
with the prospectus  relating hereto dated           , 2005 (the  "Prospectus").
This Statement of Additional Information does not include all information that a
prospective  investor should consider before participating in the auction market
preferred shares ("Preferred Shares") offering (the "Offering") described in the
Prospectus  or  otherwise  purchasing  the Fund's  common  stock.  A copy of the
Prospectus may be obtained without charge by calling the Fund's co-administrator
(Fund  Administrative  Services,  LLC) at (877) 561-7914.  You may also obtain a
copy of the  Prospectus  on the  Securities  and Exchange  Commission's  website
(http://www.sec.gov).  Capitalized  terms used but not defined in this Statement
of Additional Information have the meanings given to them in the Prospectus.



THE INFORMATION IN THIS STATEMENT OF ADDITIONAL  INFORMATION IS NOT COMPLETE AND
MAY BE  CHANGED.  WE MAY  NOT  SELL  THESE  SECURITIES  UNTIL  THE  REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE  COMMISSION IS EFFECTIVE.  THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE  SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.



This Statement of Additional Information is dated             , 2005.



                                TABLE OF CONTENTS

                                                                                                                      

The Fund                                                                                                                 2
Use of Proceeds                                                                                                          2
Investment Objective and Policies                                                                                        2
Investment Policies and Restrictions                                                                                     2
Investment Policies and Techniques                                                                                       3
Management of the Fund                                                                                                   9
Security Ownership of Certain Beneficial Owners                                                                          9
Ownership of the Fund by Directors                                                                                       10
Director and Officer Compensation                                                                                        10
Committees of the Board of Directors                                                                                     11
Investment Advisers and Other Service Providers                                                                          12
Compensation to the Advisers and Administrators                                                                          14
Factors Considered by the Independent Directors in Approving the Investment Advisory Agreements                          14
Duration and Termination                                                                                                 16
Potential Conflicts of Interest                                                                                          16
Proxy Voting                                                                                                             17
Code of Ethics                                                                                                           17
Portfolio Transactions, Brokerage Allocation and Other Practices                                                         17
Additional Information Concerning the Auctions for Preferred Shares                                                      18
Rating Agency Guidelines                                                                                                 19
Repurchase of Shares                                                                                                     20
Federal Income Tax Matters                                                                                               21
Performance-Related, Comparative and Other Information                                                                   25
Financial Statements                                                                                                     26
Additional Information                                                                                                   26


Appendix A - Proxy Voting Policies and Procedures
Appendix B - Articles  Supplementary  Creating  and Fixing the Rights of Auction
  Preferred Stock
Appendix C - Rating Agency Guidelines




                                    THE FUND


From its  inception in 1972 until 2002,  the Fund was called USLIFE Income Fund,
Inc. (the  "Predecessor  Fund").  The Predecessor Fund was managed to provide "a
high level of current  income," was virtually  100% invested in corporate  bonds
and was  classified as a diversified  fund under the  Investment  Company Act of
1940,  as amended (the "1940  Act").  At a special  shareholder  meeting held in
April 2002,  shareholders approved changes in the Fund's name, in the investment
objective to "total return" and in the Fund's classification from diversified to
non-diversified,  and  eliminated or changed  certain of the Fund's  fundamental
investment   policies.   See  "Fundamental   Policies"  below.  After  the  Fund
implemented these changes,  the Fund's advisers liquidated a substantial portion
of the Fund's bond  portfolio.  As of August 31, 2005, none of the Fund's assets
were invested in bonds.


                                 USE OF PROCEEDS

The  majority of the net  proceeds of the  Offering  will be used to pay off $20
million  drawn from a line of credit the Fund  currently  uses as leverage.  The
balance  of the  proceeds  will  be  invested  in  accordance  with  the  Fund's
investment  objective and policies as soon as practicable.  The Fund anticipates
that it will be able to invest  substantially  all of such net  proceeds  within
approximately  three  months after  completion  of this  offering.  Pending such
investment,  the net proceeds may be invested in U.S.  government  securities or
high grade, short-term money market instruments. If necessary, the Fund may also
purchase, as temporary investments,  securities of other open-end and closed-end
investment companies that invest in equity and fixed-income securities.



                        INVESTMENT OBJECTIVE AND POLICIES


The Fund's investment  objective is total return. The Fund seeks to produce both
income and long-term capital  appreciation by investing in a portfolio of equity
and debt  securities.  The Fund invests  primarily in common  stocks,  including
dividend  paying common  stocks such as those issued by  utilities,  real estate
investment  trusts  ("REITs")  and  closed-end  regulated  investment  companies
("RICs").  The  Fund  also  invests  in  fixed  income  securities  such as U.S.
government securities, preferred stocks and bonds. The Fund invests primarily in
securities  of U.S.-based  companies  and to a lesser  extent in foreign  equity
securities  and  sovereign  debt,  in each  case  denominated  in the  sovereign
currency.  The Fund has no  restrictions  on its  ability  to invest in  foreign
securities.  The Fund is concentrated in REITs,  which means it must invest more
than 25% of its total assets in REITs and companies in the real estate industry.
No assurance can be given that the Fund will achieve its investment objective.


The Fund is a "non-diversified"  investment company, as defined in the 1940 Act,
which means that it is permitted  to invest its assets in a more limited  number
of issuers than "diversified"  investment  companies.  A diversified company may
not, with respect to 75% of its total  assets,  invest more than 5% of its total
assets in the  securities of any one issuer and may not own more than 10% of the
outstanding  voting  securities  of any one  issuer.  However,  pursuant  to the
requirements  of  Subchapter M of the Internal  Revenue Code of 1986, as amended
(the  "Code"),  (A) not more than 25% of the Fund's total assets may be invested
in securities of any one issuer (other than U.S. government securities and RICs)
or of any two or more issuers  controlled  by the Fund which may be deemed to be
engaged  in the same,  similar  or related  trades or  businesses,  and (B) with
respect  to 50% of the total  value of the Fund's  portfolio,  (i) the Fund must
limit to 5% the  portion of its assets  invested in the  securities  of a single
issuer (other than U.S.  government  securities and RICs), and (ii) the Fund may
not own more than 10% of the  outstanding  voting  securities  of any one issuer
(other  than  U.S.  government   securities  and  RICs).  The  Fund  intends  to
concentrate  its common  stock  investments  in a few  issuers and to take large
positions in those issuers, consistent with being a "non-diversified" fund. As a
result,  the Fund may be  subject to a greater  risk of loss than a  diversified
fund or a fund that has diversified its investments more broadly.  Taking larger
positions  is also likely to  increase  the  volatility  of the Fund's net asset
value, reflecting fluctuations in the value of large Fund holdings.

Under normal market  conditions,  the Fund intends to invest at least 80% of its
net assets in common stocks,  primarily  domestic common stocks, and secondarily
in foreign common stocks denominated in foreign currencies.



                      INVESTMENT POLICIES AND RESTRICTIONS


INDUSTRY  CONCENTRATION  POLICY. As a matter of investment  policy,  the Fund is
concentrated  in REITs,  which means it must,  under normal  market  conditions,
invest  more than 25% of its  total  assets  in REITs or  companies  in the real
estate industry (the "Concentration  Policy").  The Fund must obtain shareholder
approval prior to changing this policy,  thus limiting the Fund's flexibility to
liquidate  its  investments  in REITs in the  future  should  market  conditions
warrant.



FUNDAMENTAL POLICIES. A number of the Fund's investment policies,  listed below,
are "fundamental"  policies (the "Fundamental  Policies"),  which means that the
policies may not be changed without the approval of the holders of a majority of
the Fund's  outstanding  voting securities (which for this purpose and under the
1940 Act 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 Fund may not:

     1.   Issue any senior securities except as permitted under the 1940 Act.

     2.   Invest in the  securities  of  companies  conducting  their  principal
          business  activity in the same  industry  if,  immediately  after such
          investment, the value of its investments in such industry would exceed
          25% of the value of its total assets;  provided  that this  limitation
          will not apply to REITs or related  companies in the same  industry as
          REITs.

     3.   Participate  on a joint or a joint and  several  basis in any  trading
          account  in  securities,  except  that the  Fund  may,  to the  extent
          permitted by rules,  regulations or orders of the SEC,  combine orders
          with  others for the  purchases  and sales of  securities  in order to
          achieve the best overall execution.

     4.   Purchase or sell interests in oil, gas or other mineral exploration or
          development programs.

     5.   Purchase or sell real  estate,  except  that the Fund may  purchase or
          sell REITs and securities  secured by real estate or interests therein
          issued by companies owning real estate or interests therein.

     6.   Purchase or sell commodities or commodity contracts.


     7.   Make loans other than  through  the  purchase  of debt  securities  in
          private  placements  and  the  loaning  of  portfolio   securities.


     8.   Borrow money in an amount  exceeding the maximum  permitted  under the
          1940 Act.

     9.   Underwrite  securities of other  issuers,  except insofar as it may be
          deemed to be an underwriter in selling a portfolio  security which may
          require registration under the Securities Act of 1933.

     10.  Invest  more than 30% of the value of its total  assets in  securities
          which have been acquired through private placements.

     11.  Purchase or retain the  securities  of any  issuer,  if, to the Fund's
          knowledge,  those officers and directors of the Fund or its investment
          adviser who individually  own beneficially  more than 1/2 of 1% of the
          outstanding securities of such issuer,  together own beneficially more
          than 5% of such outstanding securities.

     12.  Pledge,  mortgage or hypothecate  its assets except in connection with
          permitted borrowing and to the extent related to transactions in which
          the Fund is authorized to engage.

With the exception of the Fund's  investment  objective  (i.e.,  total  return),
Concentration Policy and Fundamental Policies,  all other policies,  statements,
objectives, terms and conditions may be changed by the Fund's Board of Directors
(the "Board") without shareholder approval.



                       INVESTMENT POLICIES AND TECHNIQUES

The following  information  supplements the discussion of the Fund's  investment
objective, policies and techniques that are described in the Prospectus.


PORTFOLIO  INVESTMENTS.  Under  normal  market  conditions,  the Fund intends to
invest at least  80% of its net  assets in  common  stocks,  primarily  domestic
common stocks and  secondarily in foreign  common stocks  denominated in foreign
currencies.  The Fund's  investments in commons  stocks may include,  but is not
limited to, RICs whose  objective is income,  REITs,  and other  dividend-paying
common stocks.  The portion of the Fund's assets that are not invested in common
stocks may be invested in fixed income  securities,  cash  equivalents and other
income-producing  securities. The term "fixed income securities" includes but is
not limited to  corporate  bonds,  U.S.  government  securities,  notes,  bills,
debentures,  preferred stocks,  convertible  securities,  bank debt obligations,
repurchase agreements and short-term money market obligations.

     COMMON  STOCKS.  The Fund may  invest  all or any  portion of its assets in
common stock.  Common stock is defined as shares of a  corporation  that entitle
the  holder  to a pro rata  share of the  profits  of the  corporation,  if any,
without  preference  over  any  other  shareholder  or  class  of  shareholders,
including holders of the corporation's  preferred stock and other senior equity.
Common  stock  usually  carries  with it the  right  to vote and  frequently  an
exclusive  right to do so.  Holders  of  common  stock  also  have the  right to
participate in the assets of the corporation  upon  liquidation  after all other
claims are paid or provided for.




In selecting  common stocks for investment,  the Fund expects to focus primarily
on U.S.-based companies and secondarily on the common stock of foreign companies
denominated  in foreign  currencies.  The Fund is  permitted  to invest  without
limitation in companies outside the U.S.  Generally,  target companies will have
consistent  high returns on equity,  while using modest amounts of debt relative
to their  industries.  The Fund seeks investments in businesses which the Fund's
investment advisers,  Boulder Investment Advisers,  LLC ("BIA") and Stewart West
Indies  Trading  Company,   Ltd.  d/b/a  Stewart  Investment   Advisers  ("SIA")
(collectively  the "Advisers"),  understand,  which have fairly  predictable and
improving future earnings, and most importantly,  are priced reasonably relative
to the businesses'  earnings and anticipated  growth in earnings.  The Fund will
not necessarily  focus its investments in "large-cap",  "mid-cap" or "small-cap"
companies  since  the  Advisers  believe  it  would be  unwise  to  impose  such
investment limitations.  Investments in small or middle capitalization companies
involve  greater  risk  than  is  customarily   associated  with  larger,   more
established  companies due to the greater business risks of small size,  limited
markets and financial  resources,  narrow product lines and the frequent lack of
depth of management. The securities of small or medium-sized companies are often
traded over-the-counter,  and may not be traded in volumes typical of securities
traded on a  national  securities  exchange.  Consequently,  the  securities  of
smaller  companies may have limited market  stability and may be subject to more
abrupt or erratic market  movements than securities of larger,  more established
companies or the market averages in general.

When the Fund makes an  investment  in a common  stock,  it will  likely  make a
significant  investment  and typically hold it for a long period of time. In the
long run,  the Fund  believes  that  value  investing  produces  superior  total
returns.  However,  value stocks can remain undervalued for long periods of time
and may never reach what the Advisers  believe are their full intrinsic  values,
or, as with any  security may decline in value.  In  addition,  value stocks may
fall out of favor with  investors  and may  under-perform  growth  stocks during
given periods.


     REAL ESTATE INVESTMENT  TRUSTS. As a matter of investment  policy, the Fund
is concentrated in REITs,  which means it will, under normal market  conditions,
invest  more than 25% of its  total  assets  in REITs or  companies  in the real
estate  industry.  The Fund must obtain  shareholder  approval prior to changing
this  policy.   REITs  invest  primarily  in  commercial  real  estate  or  real
estate-related  loans.  A  REIT  is  not  taxed  on  income  distributed  to its
shareholders  or  unit-holders  if  it  complies  with  regulatory  requirements
relating  to  its  organization,  ownership,  assets  and  income,  and  with  a
regulatory requirement that it distribute to its shareholders or unit-holders at
least 90% of its taxable income for each taxable year.  Generally,  REITs can be
classified as equity REITs, mortgage REITs and hybrid REITs. Equity REITs invest
the majority of their assets  directly in real  property and derive their income
primarily  from rents and  capital  gains  from  appreciation  realized  through
property  sales.  Mortgage  REITs  invest the  majority of their  assets in real
estate  mortgages  and derive their income  primarily  from  interest  payments.
Hybrid REITs combine the  characteristics  of both equity and mortgage REITs. By
investing in REITs indirectly through the Fund,  shareholders will bear not only
the  proportionate  share of the  expenses  of the Fund,  but also,  indirectly,
similar  expenses of underlying  REITs.  The Fund invests in REITs primarily for
income.


The Fund may be subject to certain risks associated with the direct  investments
of the REITs.  REITs may be affected by changes in their  underlying  properties
and by defaults by borrowers or tenants.  Mortgage  REITs may be affected by the
quality of the credit extended.  Furthermore, REITs are dependent on specialized
management  skills.  Some  REITs  may have  limited  diversification  and may be
subject to risks  inherent in financing a limited  number of  properties.  REITs
depend generally on their ability to generate cash flow to make distributions to
shareholders or unit-holders, and may be subject to defaults by borrowers and to
self-liquidations. In addition, a REIT may be affected by its failure to qualify
for  tax-free  pass-through  of income under the Code or its failure to maintain
exemption from registration under the 1940 Act.


     REGISTERED INVESTMENT COMPANIES.  The Fund is permitted to invest up to 10%
of its assets in other  registered  investment  companies or RICs under the 1940
Act. The common stock of closed-end RICs can trade at a substantial  discount to
the  underlying net asset value of the RIC, and the Fund may, from time to time,
invest in common  stocks  issued by RICs when they are trading at  discounts  or
when the Advisers otherwise deem market conditions appropriate. The Fund intends
to normally invest in RICs that pay dividends.  RICs that pay regular  dividends
typically  own interest  rate  sensitive  securities,  which tend to increase in
value when interest  rates  decline,  and decrease in value when interest  rates
increase.  To the extent that the Fund invests in RICs, the Fund's  shareholders
will incur expenses with respect to both the Fund and that portion of the Fund's
assets invested in other RICs.  However, as common stocks of closed-end RICs can
trade at  substantial  discounts  to their  underlying  net  asset  values,  the
Advisers may deem the "double"  expense to have minimal  impact when compared to
the  discount  at which the Fund may buy their  shares.  The net asset value and
market value of common stock issued by RICs will fluctuate with the value of the
underlying  assets. The Fund may invest in the auction market preferred stock of
other closed-end funds primarily as a means of investing the Fund's cash for the
short-term in higher  yielding  alternatives  to  repurchase  agreements or U.S.
treasury securities. The Fund will consider investing cash in these instruments,
and other  short-term money market type  alternatives,  when the yield spread is
adequately attractive over repurchase  agreements and U.S. treasuries.  The Fund
generally  will  invest in auction  market  preferred  stocks that are rated AAA
although it may invest in lower rated securities from time to time.


     BONDS.  Prior to April 26, 2002,  the Fund was called  USLIFE  Income Fund,
Inc. and was virtually 100% invested in corporate bonds.  Since the Fund changed
its investment  objective on April 26, 2002, the Advisers have liquidated all of
the Fund's bond portfolio. As of August 31, 2005, none of the Fund's assets were
invested in bonds.


Bonds,  or fixed  income  securities,  are debt  obligations  issued by the U.S.
government and its agencies,  corporations,  municipalities and other borrowers.
The  market  values of fixed  income  investments  will  change in  response  to
interest  rate changes and other  factors.  During  periods of falling  interest
rates,  the  values of  outstanding  fixed  income  securities  generally  rise.
Conversely,  during  periods  of  rising  interest  rates,  the  values  of such
securities  generally  decline.  Changes by  recognized  rating  agencies in the
rating of any fixed  income  security  and in the  ability  of an issuer to make
payments of interest and principal  also affect the value of these  investments.
Changes in the value of portfolio  securities will not  necessarily  affect cash
income  derived  from  these  securities,  but will  affect the Fund's net asset
values.


Corporations  issue bonds and notes to raise  money for  working  capital or for
capital  expenditures  such  as  plant  construction,  equipment  purchases  and
expansion.  In return for the money loaned to the  corporation,  the corporation
promises to pay  bondholders  interest and to repay the principal  amount of the
bond or note.

     PREFERRED STOCKS.  The Fund may invest in preferred  securities.  Preferred
securities are equity securities,  but they typically have many  characteristics
of fixed  income  securities,  such as a fixed  dividend  payment  rate and/or a
preference over the issuer's common shares as to the payment of dividends and/or
the distribution of assets upon liquidation.  However,  because preferred shares
are  equity  securities,  they may be more  susceptible  to risks  traditionally
associated with equity investments than fixed income  securities.  Unlike common
stock, preferred securities typically do not have general voting rights.


Fixed rate preferred  stocks have fixed dividend  rates.  They can be perpetual,
with no mandatory  redemption date, or issued with a fixed mandatory  redemption
date.  Certain  issues of  preferred  stock are  convertible  into other  equity
securities.  Perpetual  preferred stocks provide a fixed dividend throughout the
life of the issue, with no mandatory retirement provisions, but may be callable.
Sinking fund  preferred  stocks  provide for the  redemption of a portion of the
issue on a regularly scheduled basis with, in most cases, the entire issue being
retired  at a future  date.  The value of fixed  rate  preferred  stocks  can be
expected to vary inversely with interest rates. Adjustable rate preferred stocks
have a  variable  dividend  rate  which is  determined  periodically,  typically
quarterly,  according to a formula  based on a specified  premium or discount to
the  yield  on  particular  U.S.  Treasury  securities,  typically  the  highest
base-rate yield of one of three U.S.  Treasury  securities:  the 90-day Treasury
bill; the 10-year Treasury note; and either the 20-year or 30-year Treasury bond
or other index.  The premium or discount to be added to or subtracted  from this
base-rate  yield is fixed at the time of issuance and cannot be changed  without
the  approval  of the  holders of the  adjustable  rate  preferred  stock.  Some
adjustable  rate preferred  stocks have a maximum and a minimum rate and in some
cases are convertible into common stock.

Auction  rate  preferred  stocks pay  dividends  that  adjust  based on periodic
auctions. Such preferred stocks are similar to short-term corporate money market
instruments in that an auction rate preferred stockholder has the opportunity to
sell the preferred stock at par in an auction, normally conducted at least every
49 days, through which buyers set the dividend rate in a bidding process for the
next period.  The dividend rate set in the auction depends on market  conditions
and the credit quality of the  particular  issuer.  Typically,  the auction rate
preferred stock's dividend rate is limited to a specified maximum  percentage of
an external commercial paper index as of the auction date. Further, the terms of
the auction rate preferred stocks generally  provide that they are redeemable by
the issuer at certain times or under certain conditions.

The Fund may, from time to time, invest in preferred  securities that are rated,
or whose issuer's senior debt is rated, investment grade by Moody's and Standard
& Poor's ("S&P") at the time of investment,  although the Fund is not limited to
investments in investment grade preferred securities.  In addition, the Fund may
acquire  unrated  issues that the Advisers  deem to be  comparable in quality to
rated issues in which the Fund is authorized to invest.

     MONEY MARKET INSTRUMENTS.  Under normal conditions, the Fund may hold up to
10% of its  assets in cash or money  market  instruments.  The Fund  intends  to
invest in money market  instruments  pending  investments in common  stocks,  to
serve as collateral in connection  with certain  investment  techniques,  and to
hold as a reserve  pending  the  payment of  dividends  to  investors.  When the
Advisers  believe  that  economic  circumstances  warrant a temporary  defensive
posture,  the Fund may invest  without  limitation  in  short-term  money market
instruments.


Money market  instruments  that the Fund may acquire will be securities rated in
the highest  short-term rating category by Moody's or S&P or the equivalent from
another  major rating  service,  securities  of issuers that have  received such
ratings with respect to other short-term debt or comparable unrated  securities.
Money market  instruments in which the Fund typically expects to invest include:
U.S. government securities; bank obligations (including certificates of deposit,
time deposits and bankers'  acceptances  of U.S. or foreign  banks);  commercial
paper rated P-l by Moody's or A-1 by S&P ; and repurchase agreements.

     REPURCHASE AGREEMENTS. The Fund may invest temporarily, without limitation,
in repurchase agreements,  which are agreements pursuant to which securities are
acquired by the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date.  These  agreements
may be made with respect to any of the portfolio securities in which the Fund is
authorized  to  invest.  Repurchase  agreements  may be  characterized  as loans
secured  by the  underlying  securities.  The Fund  may  enter  into  repurchase
agreements  with (i) member  banks of the Federal  Reserve  System  having total
assets in excess of $500 million and (ii) securities dealers, provided that such
banks or dealers  meet  certain  creditworthiness  standards.  The resale  price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased security.  The
collateral is marked to market daily.  Such  agreements  permit the Fund to keep
all its assets  earning  interest  while  retaining  "overnight"  flexibility in
pursuit of investments of a longer term nature.

The use of repurchase  agreements  involves certain risks.  For example,  if the
seller of securities under a repurchase  agreement defaults on its obligation to
repurchase  the  underlying  securities,  as  a  result  of  its  bankruptcy  or
otherwise, the Fund will seek to dispose of such securities,  which action could
involve  costs or  delays.  If the  seller  becomes  insolvent  and  subject  to
liquidation or  reorganization  under  applicable  bankruptcy or other laws, the
Fund's  ability to  dispose  of the  underlying  securities  may be  restricted.
Finally,  it is  possible  that  the Fund  may not be able to  substantiate  its
interest in the  underlying  securities.  To minimize this risk,  the securities
underlying the  repurchase  agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued interest.
If the seller fails to repurchase the securities,  the Fund may suffer a loss to
the extent proceeds from the sale of the underlying securities are less than the
repurchase price.

     GOVERNMENT  SECURITIES.  The Fund may  invest in  securities  that  include
direct  obligations  of  the  United  States  and  obligations  issued  by  U.S.
government agencies and instrumentalities  ("Government  Securities").  Included
among direct obligations of the United States are Treasury bills, Treasury notes
and Treasury  bonds,  which  differ  principally  in terms of their  maturities.
Securities  issued  by  U.S.  government  agencies  and  instrumentalities  are:
securities  that are supported by the full faith and credit of the United States
(such as Government National Mortgage Association certificates); securities that
are supported by the right of the issuer to borrow from the U.S.  Treasury (such
as securities of Federal Home Loan Banks);  and securities that are supported by
the credit of the instrumentality (such as Federal National Mortgage Association
and Federal Home Loan  Mortgage  Corporation  bonds).  No assurance can be given
that the U.S.  government will provide  financial  support in the future to U.S.
government agencies,  authorities or instrumentalities that are not supported by
the full faith and  credit of the United  States.  Securities  guaranteed  as to
principal  and interest by the U.S.  government,  its agencies,  authorities  or
instrumentalities  include (i) securities for which the payment of principal and
interest  is  backed  by an  irrevocable  letter  of  credit  issued by the U.S.
government or any of its agencies,  authorities or  instrumentalities;  and (ii)
participations in loans made to non-U.S.  governments or other entities that are
so  guaranteed.  The  secondary  market for certain of these  participations  is
limited and therefore may be regarded as illiquid.

     ZERO COUPON  SECURITIES.  The Fund may invest up to 10% of its total assets
in zero  coupon  securities  issued  by the U.S.  government,  its  agencies  or
instrumentalities as well as custodial receipts or certificates  underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal  payments  or both  on  certain  government  securities.  Zero  coupon
securities  pay no cash income to their holders until they mature and are issued
at substantial  discounts  from their value at maturity.  When held to maturity,
their entire return comes from the  difference  between their purchase price and
their maturity value.  Because interest on zero coupon securities is not paid on
a current  basis,  the values of  securities of this type are subject to greater
fluctuations  than are the values of securities that distribute income regularly
and may be more  speculative than such  securities.  Accordingly,  the values of
these  securities  may be highly  volatile  as interest  rates rise or fall.  In
addition,  the Fund's  investments  in zero  coupon  securities  will  result in
special tax  consequences.  Although zero coupon securities do not make interest
payments,  for tax  purposes a portion of the  difference  between a zero coupon
security's  maturity  value and its purchase price is taxable income of the Fund
each year.

Custodial  receipts  evidencing  specific coupon or principal  payments have the
same  general  attributes  as  zero  coupon  Government  Securities  but are not
considered to be Government Securities.  Although typically under the terms of a
custodial  receipt the Fund is authorized to assert its rights directly  against
the issuer of the  underlying  obligation,  the Fund may be  required  to assert
through  the  custodian  bank such rights as may exist  against  the  underlying
issuer.  Thus, in the event the underlying  issuer fails to pay principal and/or
interest  when due,  the Fund may be subject to delays,  expenses and risks that
are greater than those that would have been involved if the Fund had purchased a
direct  obligation  of the issuer.  In addition,  in the event that the trust or
custodial  account  in which  the  underlying  security  has been  deposited  is
determined  to  be  an  association  taxable  as  a  corporation,  instead  of a
non-taxable  entity,  the yield on the  underlying  security would be reduced in
respect of any taxes paid.



     BORROWINGS.  The Fund  reserves  the  right to borrow  funds to the  extent
permitted by its Fundamental  Policies.  See  "Fundamental  Policies" above. The
proceeds of borrowings  may be used for any valid  purpose,  including,  without
limitation,  liquidity,  investing and repurchases of capital stock of the Fund.
The Fund may borrow  money only in an amount up to one-third of the value of the
Fund's  total  assets.  Borrowing  is a form of leverage  and, in that  respect,
entails risks,  including volatility in net asset value, market value and income
available for distribution.


     LENDING OF SECURITIES.  The Fund is authorized to lend  securities it holds
to  brokers,  dealers  and other  financial  organizations,  although  it has no
current intention of doing so. Loans of the Fund's securities, if and when made,
may not  exceed  33-1/3%  of the  Fund's  total  assets.  The  Fund's  loans  of
securities  will be  collateralized  by cash,  letters  of credit or  Government
Securities that will be maintained at all times in a segregated account with the
Fund's  custodian in an amount at least equal to the current market value of the
loaned  securities.  From time to time,  the Fund may pay a part of the interest
earned from the investment of collateral  received for securities  loaned to the
borrower  and/or a third  party that is  unaffiliated  with the Fund and that is
acting as a "finder."

By  lending  its  portfolio  securities,  the Fund can  increase  its  income by
continuing to receive interest on the loaned  securities,  by investing the cash
collateral  in  short-term  instruments  or by  obtaining  yield  in the form of
interest paid by the borrower when Government Securities are used as collateral.
The risk in lending  portfolio  securities,  as with other extensions of credit,
consists of the  possible  delay in recovery of the  securities  or the possible
loss of rights in the collateral should the borrower fail financially.  The Fund
will adhere to the following  conditions  whenever it lends its securities:  (i)
the Fund must receive at least 100% cash  collateral  or  equivalent  securities
from the borrower, which will be maintained by daily marking-to-market; (ii) the
borrower  must  increase  the  collateral  whenever  the  market  value  of  the
securities  loaned rises above the level of the collateral;  (iii) the Fund must
be able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends,  interest or other distributions
on the loaned  securities and any increase in market value; (v) the Fund may pay
only  reasonable  custodian  fees in connection  with the loan;  and (vi) voting
rights on the loaned  securities  may pass to the  borrower,  except that,  if a
material  event  adversely  affecting the  investment  in the loaned  securities
occurs,  the Board must  terminate  the loan and regain the Fund's right to vote
the securities.

     SHORT SALES AGAINST THE BOX. The Fund may make short sales of securities in
order to reduce  market  exposure  and/or to increase its income if at all times
when a short  position is open, the Fund owns an equal or greater amount of such
securities or owns preferred stock, debt or warrants convertible or exchangeable
into an equal or greater number of the shares of common stocks sold short. Short
sales of this  kind are  referred  to as short  sales  "against  the  box."  The
broker-dealer  that executes a short sale generally invests the cash proceeds of
the sale  until  they are paid to the  Fund.  Arrangements  may be made with the
broker-dealer  to obtain a portion of the  interest  earned by the broker on the
investment  of short  sale  proceeds.  The Fund will  segregate  the  securities
against  which short sales  against the box have been made in a special  account
with its custodian. Not more than 10% of the Fund's net assets (taken at current
value) may be held as collateral for such sales at any one time.

     ILLIQUID   SECURITIES.   The  Fund  may  invest  in  illiquid   securities.
Historically,   illiquid   securities  have  included   securities   subject  to
contractual  or  legal  restrictions  on  resale  because  they  have  not  been
registered  under  the 1933 Act,  securities  which are  otherwise  not  readily
marketable  and  repurchase  agreements  having a maturity  of longer than seven
days.  Restricted  securities are securities  that may not be sold freely to the
public  absent   registration   under  the  1933  Act,  or  an  exemption   from
registration. The Fund has no limitation on the amount of its assets that may be
invested  in  securities  which are not  readily  marketable  or are  subject to
restrictions on resale, although it may not invest more than 30% of the value of
its  total  assets  in  securities  which  have been  acquired  through  private
placement.

The Board has  delegated  the function of making  day-to-day  determinations  of
liquidity to the Advisers pursuant to guidelines approved by the Board. The Fund
is a  closed-end  fund which means that  managing  liquidity  for the purpose of
shareholder  redemptions  is not an  issue  as it  might  otherwise  be  with an
open-end fund.  Accordingly,  the Advisers are not constrained in this regard in
their day-to-day  management of the portfolio,  knowing that redemptions are not
an issue.  Moreover, a majority of the securities in the Fund, both historically
and currently, are exchange-traded securities with relatively good liquidity. In
the few cases where the liquidity of certain securities is less so, the Advisers
will take into  account a number of factors  in  reaching  liquidity  decisions,
including, but not limited to: (1) the frequency of trades for the security, (2)
the number of dealers  willing and ready to purchase and sell the security,  (3)
whether any dealers have agreed to make a market in the security, (4) the number
of other  potential  purchasers  for the  security,  and (5) the  nature  of the
securities and the nature of the marketplace trades.


     WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT TRANSACTIONS. The Fund
may  purchase  and  sell  securities,  including  Government  Securities,  on  a
when-issued,  delayed delivery or forward commitment basis. Typically, no income
accrues on  securities  the Fund has  committed  to  purchase  prior to the time
delivery  of the  securities  is made,  although  the Fund  may earn  income  on
securities it has segregated.

When  purchasing  a security  on a  when-issued,  delayed  delivery,  or forward
commitment  basis,  the Fund  assumes the rights and risks of  ownership  of the
security, including the risk of price fluctuations,  and takes such fluctuations
into  account  when  determining  its net asset  value.  Because the Fund is not
required to pay for the  security  until the delivery  date,  these risks are in
addition to the risks associated with the Fund's other investments.  If the Fund
remains  substantially  fully  invested  at a  time  when  when-issued,  delayed
delivery,  or forward  commitment  purchases are outstanding,  the purchases may
result in a form of leverage.

When the Fund has sold a security on a when-issued, delayed delivery, or forward
commitment  basis,  the Fund does not participate in future gains or losses with
respect to the security. If the other party to a transaction fails to deliver or
pay for  the  securities,  the  Fund  could  miss a  favorable  price  or  yield
opportunity  or could suffer a loss.  The Fund may dispose of or  renegotiate  a
transaction after it is entered into, and may sell when-issued, delayed delivery
or forward commitment securities before they are delivered,  which may result in
a capital gain or loss. There is no percentage limitation on the extent to which
the Fund may purchase or sell securities on a when-issued,  delayed delivery, or
forward commitment basis.


OTHER INVESTMENT TECHNIQUES AND POLICIES


     PREFERRED SHARES LEVERAGE. The Prospectus  contemplates an offering whereby
the Fund will be leveraged with 1,000  Preferred  Shares.  The Preferred  Shares
will be senior to the common stock and will result in the  financial  leveraging
of the common stock. Dividends on Preferred Shares are cumulative. The Fund will
be required to meet certain asset  coverage  tests with respect to the Preferred
Shares.  If the Fund fails to meet these  requirements and does not correct such
failure,  the Fund may be required to redeem,  in part or in full, the Preferred
Shares at a  redemption  price of $25,000 per share plus an amount  equal to the
accumulated  and  unpaid  dividends  on such  shares  in  order  to  meet  these
requirements.  Additionally,  failure to meet the foregoing  asset  requirements
could restrict the Fund's ability to pay dividends to common stock  shareholders
and  could  lead  to  sales  of  portfolio   securities  at  inopportune  times.
Nevertheless, the Fund's management believes that well-managed leverage can have
a beneficial effect on common  shareholders' total return.  Leverage can provide
enough additional income to pay a substantial portion of Fund expenses, if there
is enough of a positive  spread between the borrowed money and the return on the
assets  acquired with such monies.  Use of leverage may have a number of adverse
effects on the Fund and its  shareholders,  including:  (i) leverage may magnify
market  fluctuations  in  the  Fund's  underlying   holdings,   thus  causing  a
disproportionate  change in the Fund's net asset value;  (ii) the Fund's cost of
leverage may exceed the return on the  underlying  securities  acquired with the
proceeds of the leverage,  thereby  diminishing rather than enhancing the return
to  shareholders   and  generally   making  the  Fund's  total  return  to  such
shareholders  more volatile;  (iii) the Fund may be required to sell investments
in order to meet  dividend or interest  payments on the debt or preferred  stock
when  it may be  disadvantageous  to do so;  and  (iv)  leveraging  through  the
issuance of preferred  stock  requires that the holders of the  preferred  stock
have class voting  rights on various  matters that could make it more  difficult
for the  holders  of the  common  stock to change the  investment  objective  or
fundamental  policies  of the Fund,  to convert it to an  open-end  fund or make
certain other changes.

Although the Fund will focus its use of leverage on producing  income,  the Fund
may also purchase  other  income-producing  securities  (e.g.,  RICs,  REITs and
dividend-paying  common  stocks)  or   non-dividend-paying   common  stocks  for
long-term  appreciation.  The  Fund is  limited  in its use of  leverage  to the
maximum amount permitted pursuant to Section 18 of the 1940 Act.


     RISKS ASSOCIATED WITH LEVERAGE. The Preferred Shares leverage (or any other
leverage) will create an opportunity for increased return but, at the same time,
will involve special risk  considerations.  Leveraging will magnify  declines as
well as  increases  in the net asset  value of the  common  stock and in the net
return on the Fund's  portfolio.  Although the principal of the Fund's Preferred
Shares will be fixed,  the Fund's assets may change in value during the time the
Preferred Shares are outstanding,  thus increasing  exposure to capital risk. To
the extent the return derived from the assets obtained with the Preferred Shares
proceeds exceeds the interest and other expenses that the Fund will have to pay,
the Fund's net return will be greater than if Preferred  Shares leverage was not
used.  Conversely,  however,  if the return  from the assets  obtained  with the
Preferred  Shares  proceeds is not sufficient to cover the dividends and cost of
the Preferred Shares,  the net return of the Fund will be less than if Preferred
Shares   leverage  was  not  used,  and  therefore  the  amount   available  for
distribution to the Fund's shareholders as dividends will be reduced.


     BORROWING THROUGH  REPURCHASE  AGREEMENTS.  The Fund may borrow by entering
into reverse  repurchase  agreements with any member bank of the Federal Reserve
System and any broker-dealer or any foreign bank that has been determined by the
Advisers to be  creditworthy.  Under a reverse  repurchase  agreement,  the Fund
would sell securities and agree to repurchase them at a mutually agreed date and
price. At the time the Fund enters into a reverse repurchase agreement,  it will
establish  and maintain a segregated  account with its custodian or a designated
sub-custodian,  containing  cash or liquid  obligations  having a value not less
than the repurchase  price  (including  accrued  interest).  Reverse  repurchase
agreements  involve the risk that the market value of the  securities  purchased
with the  proceeds  of the sale of  securities  received by the Fund may decline
below the price of the securities  the Fund is obligated to  repurchase.  In the
event the buyer of securities  under a reverse  repurchase  agreement  files for
bankruptcy  or  becomes  insolvent,  the buyer or its  trustee or  receiver  may
receive  an  extension  of time to  determine  whether  to  enforce  the  Fund's
obligation to repurchase the  securities,  and the Fund's use of the proceeds of
the reverse  repurchase  agreement may  effectively  be  restricted  pending the
decision.  Any reverse  repurchase  agreements  entered into by the Fund will be
treated  as  borrowings  for  purposes  of  calculating  the  Fund's   borrowing
limitation.



                             MANAGEMENT OF THE FUND


The  business  and affairs of the Fund are managed  under the  direction  of the
Board of  Directors.  Accordingly,  the  Board is  responsible  for the  overall
management of the Fund,  including  supervision  of the duties  performed by the
Advisers.  There are five  Directors  of the Fund.  One of the  Directors  is an
"interested  person" of the Fund (as defined in the 1940 Act). The Directors who
are not "interested  persons" of the Fund are referred to herein as "Independent
Directors."  See the  "Management  of the Fund" in the Prospectus for additional
information about the Directors and officers of the Fund.




                 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS


The following  table sets forth  certain  information  regarding the  beneficial
ownership  of the Fund's  shares as of August 31,  2005,  by each  person who is
known by the Fund to beneficially own 5% or more of the Fund's common stock.



                                                                               
                                        Number of Shares        Number of Shares        Percentage
Name and Address* of Owner
                                        Directly Owned          Beneficially Owned      Beneficially Owned
-------------------------------------   ------------------      ----------------------  -----------------------
Ernest  Horejsi Trust No.1B (the        2,354,600               2,354,600               20.79%
"EH Trust")

Badlands Trust Company, LLC                                     ---**                   20.79%

Stewart R. Horejsi Trust No. 2A                                 ---**                   20.79%
-------------------------------------   ------------------      ----------------------  -----------------------
Aggregate Shares Owned**                2,354,600               2,354,600               20.79%
=====================================   ==================      ======================  =======================
Philip Goldstein+                       765,700                 765,700                 6.76%

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


* The  address  of  each  listed  owner  is  c/o  Badlands  Trust  Company,  LLC
("Badlands"), 3601 C Street, Suite 600, Anchorage, Alaska 99503.

** Excludes  shares owned by the EH Trust.  Badlands is one of three trustees of
the EH Trust.  Badlands is a private trust company  organized  under the laws of
Alaska  and is  wholly  owned  by the  Stewart  R.  Horejsi  Trust  No.  2A,  an
irrevocable  trust organized by Stewart R. Horejsi for the benefit of his issue.
The managers of Badlands are Larry Dunlap, Stephen C. Miller, Laura Rhodenbaugh,
Laura Tatooles,  and Ron Kukes,  each of whom disclaim  beneficial  ownership of
shares owned by the EH Trust. Mr. Miller is an officer and director of Badlands.
Because two of the Trust's  trustees are required in order for the Trust to vote
or exercise dispositive authority with respect to shares owned by the Trust, Mr.
Miller disclaims beneficial ownership of such shares.


+ As stated in Schedule 13D/A filed with the Securities and Exchange  Commission
on August 22, 2005.


Information  as to  beneficial  ownership  in the  previous  paragraph  has been
obtained from a representative of the beneficial  owners;  all other information
as to  beneficial  ownership is based on reports filed with the  Securities  and
Exchange Commission (the "SEC") by such beneficial owners.


As of August 31, 2005, Cede & Co., a nominee partnership of the Depository Trust
Fund, held of record, but not beneficially, 10,469,401 shares or 92.4% of common
stock outstanding of the Fund. As of August 31, 2005,  officers and Directors of
the  Fund,  as a  group,  owned  2,396,539 shares  of the  Fund's  common  stock
(including  the  aggregate  shares of common  stock owned by the EH Trust as set
forth above), representing 21.2% of common stock outstanding.





                       OWNERSHIP OF THE FUND BY DIRECTORS


     Set forth in the  following  table  are the  current  members  of the Board
together with the dollar range of equity securities  beneficially  owned by each
Director as of August 31,  2005,  as well as the  aggregate  dollar range of the
Fund's  equity  securities  in all  funds  overseen  in  the  Fund's  family  of
investment  companies  (i.e.,  other funds managed by BIA and SIA and which hold
themselves out as related companies).


                                                                  
-------------------------------------- -------------------------------- ---------------------------------
                                       Dollar Range of Equity           Aggregate Dollar Range of
                                       Securities in the Fund           Equity Securities in All Funds
                                                                        in the Family of Investment
                                                                        Companies
-------------------------------------- -------------------------------- ---------------------------------
Independent Directors
-------------------------------------- -------------------------------- ---------------------------------
Alfred G. Aldridge, Jr.                $10,001 to $50,000               $50,001 to $100,000
Richard I. Barr                        $50,001 to $100,000              Over $100,000
Joel W. Looney                         $10,001 to $50,000               Over $100,000
Dennis R. Causier                      $10,001 to $50,000               $50,001 to $100,000
Interested Director
-------------------------------------- -------------------------------- ---------------------------------
John S. Horejsi                        Over $100,000+                   Over $100,000



+  2,354,600  shares  of the  Fund are held by the EH  Trust.  Accordingly,  Mr.
Horejsi may be deemed to have indirect beneficial  ownership of such Shares. Mr.
Horejsi disclaims all such beneficial  ownership.  Mr. Horejsi does not directly
own any shares of the Fund.

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

     None  of  the   Independent   Directors  or  their  family   members  owned
beneficially  or of record any securities of the Advisers or any person directly
or  indirectly  controlling,  controlled  by, or under  common  control with the
Advisers.



                        DIRECTOR AND OFFICER COMPENSATION

     The  following   table  sets  forth  certain   information   regarding  the
compensation of the Independent Directors for the fiscal year ended November 30,
2004.  No persons  other than the  Independent  Directors,  as set forth  below,
currently  receive  compensation  from the  Fund for  acting  as a  Director  or
officer. Directors and officers of the Fund do not receive pension or retirement
benefits from the Fund.




                                                                  
                                                Aggregate               Total Compensation from
Name of Person and Position with the            Compensation from       the Fund and Fund Complex
Fund                                            the Fund                Paid to Directors
-----------------------------------------       -------------------     ----------------------------
Alfred G. Aldridge, Jr., Director               $23,000                 $49,500
                                                                        (2 funds)
                                                $23,000                 $53,500
Richard I. Barr, Director
                                                                        (2 funds)
Joel W. Looney, Director and Chairman           $25,000                 $53,500
of the Board                                                            (2 funds)
Dennis R. Causier, Director                     $4,533                  $4,533




     Each  Independent  Director  receives a fee of $8,000 per annum plus $3,000
for each in person meeting,  $500 for each Audit Committee  meeting and $500 for
each telephonic meeting of the Board. In addition, the Chairman of the Board and
the Chairman of the Audit Committee  receives an additional  $1,000 per meeting.
Each Independent Director of the Fund is reimbursed for travel and out-of-pocket
expenses associated with attending Board and Committee meetings.  The Board held
eight meetings (four of which were held by telephone conference call) during the
fiscal year ended  November 30, 2004.  Each Director  currently  serving in such
capacity  for the entire  fiscal year  attended at least 75% of the  meetings of
Directors and any Committee of which he is a member. Directors currently serving
and who served less than the entire  fiscal  year  attended at least 75% of such
meetings held during their tenure as a Director. The aggregate remuneration paid
to the  Independent  Directors  of the Fund for acting as such during the fiscal
year ended November 30, 2004 amounted to $75,532.97.




                      COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE. The Fund has an audit committee consisting solely of all of the
Fund's Independent Directors (i.e., Messrs. Looney, Aldridge,  Causier and Barr)
(the "Audit  Committee").  The purpose of the Audit  Committee  is to assist the
Board in its oversight of the integrity of the Fund's financial statements,  the
Fund's   compliance   with   legal   and   regulatory   requirements,   and  the
qualifications,   independence   and  performance  of  the  Fund's   independent
registered  public accounting firm (the  "independent  accountants").  The Audit
Committee  reviews  the scope and  results of the Fund's  annual  audit with the
Fund's independent accountants and recommends the engagement of such independent
accountants.   Management,   however,   is  responsible  for  the   preparation,
presentation  and  integrity  of  the  Fund's  financial  statements,   and  the
independent  accountants  are  responsible  for planning and carrying out proper
audits and reviews.  The Board adopted a written charter for the Audit Committee
on January 23, 2002 and most recently amended the Charter on January 23, 2004. A
copy of the Audit  Committee  Charter was  attached as an appendix to the Fund's
proxy statement in 2004.  Each member of the Audit Committee is independent,  as
that term is defined by the New York Stock Exchange ("NYSE") Listing  Standards.
The Audit  Committee  met two times  during the fiscal year ended  November  30,
2004.

NOMINATING  COMMITTEE.  The Board has a nominating  committee  (the  "Nominating
Committee") consisting solely of the Independent Directors, which is responsible
for considering  candidates for election to the Board in the event a position is
vacated or created.  Each member of the Nominating Committee is independent,  as
that term is defined by the NYSE Listing Standards. The Nominating Committee met
three times during the fiscal year ended November 30, 2004.

The  Nominating  Committee  does  not  have a  formal  process  for  identifying
candidates. The Nominating Committee takes into consideration such factors as it
deems  appropriate  when  nominating  candidates.   These  factors  may  include
judgment,  skill,  diversity,  experience  with  investment  companies and other
organizations  of comparable  purpose,  complexity,  size and subject to similar
legal  restrictions and oversight,  the interplay of the candidate's  experience
with  the  experience  of other  Board  members,  and the  extent  to which  the
candidate would be a desirable addition to the Board and any committees thereof.
The  Nominating  Committee  will consider all  qualified  candidates in the same
manner.  The  Nominating  Committee may modify its policies and  procedures  for
director  nominees  and  recommendations  in  response  to changes in the Fund's
circumstances, and as applicable legal or listing standards change.


The  Nominating  Committee  will consider  director  candidates  recommended  by
shareholders  (if a vacancy  were to exist) and  submitted  in  accordance  with
applicable law and the following  procedures.  Pursuant to the Fund's Bylaws, at
any annual  meeting of the  shareholders,  only  business that has been properly
brought before the meeting will be conducted.  To be properly brought before the
annual  meeting,  the business  must be (i)  specified in the notice of meeting,
(ii) by or at the direction of the Board,  or (iii) otherwise  properly  brought
before the meeting by a shareholder.  For business to be properly brought before
the annual  meeting by a  shareholder,  the  shareholder  must have given timely
notice  thereof  in  writing  to the  Secretary  of the Fund.  To be  timely,  a
shareholder's  notice must be  delivered  to the  Secretary of the Fund no later
than 5:00 p.m.,  Mountain Time, on the 120th day prior to the first  anniversary
of the date of mailing of the notice for the preceding  year's  annual  meeting.
However,  if the date of the annual  meeting is advanced or delayed by more than
30 days from the first  anniversary  of the date of the preceding  year's annual
meeting,  for notice by the  shareholder to be timely,  it must be delivered not
later than 5:00 p.m.,  Mountain Time, on the later of the 120th day prior to the
date of such annual  meeting or the tenth day  following the day on which public
announcement of the date of such meeting is first made. The public  announcement
of a  postponement  or adjournment of an annual meeting shall not commence a new
time period for the giving of a shareholder's notice as described above.


Pursuant to the Fund's Bylaws,  such shareholder's  notice shall set forth as to
each  individual  whom the  shareholder  proposes  to nominate  for  election or
reelection  as a director,  (A) the name,  age,  business  address and residence
address of such  individual,  (B) the class,  series and number of any shares of
stock of the Fund that are beneficially  owned by such individual,  (C) the date
such shares were acquired and the  investment  intent of such  acquisition,  (D)
whether  such  shareholder  believes  any  such  individual  is,  or is not,  an
"interested  person" of the Fund,  as  defined  in the 1940 Act and  information
regarding such individual that is sufficient,  in the discretion of the Board or
any  committee  thereof  or any  authorized  officer  of the Fund,  to make such
determination and (E) all other information  relating to such individual that is
required to be disclosed in  solicitations  of proxies for election of directors
in an election  contest  (even if an election  contest is not  involved),  or is
otherwise  required,  in each case pursuant to Regulation  14A (or any successor
provision) under the Securities  Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules thereunder  (including such individual's written consent to
being named in the proxy  statement as a nominee and to serving as a director if
elected).





                 INVESTMENT ADVISERS AND OTHER SERVICE PROVIDERS



The Fund is co-advised by Boulder Investment  Advisers,  LLC ("BIA") and Stewart
West Indies Trading  Company,  Ltd. d/b/a Stewart  Investment  Advisers  ("SIA")
(collectively,  the  "Advisers").  The  Advisers  have been  providing  advisory
services to the Fund since January, 2002, and to Boulder Total Return Fund, Inc.
since  March,  1999.  As of August 31,  2005,  the  Advisers had a total of $456
million in assets under management.


BOULDER INVESTMENT ADVISERS, LLC. BIA was formed on April 8, 1999, as a Colorado
limited liability  company and is registered as an investment  adviser under the
Investment  Advisers Act of 1940, as amended.  Stewart R. Horejsi is an employee
of and  investment  manager  for  both  Advisers  and has  extensive  experience
managing  common stocks for the Fund as well as for the various other trusts and
entities  affiliated  with the Horejsi  family (the "Horejsi  Affiliates").  The
members of BIA are Evergreen  Atlantic,  LLC, whose address is 1680 38th Street,
Suite 800,  Boulder,  Colorado  80301,  and the Lola Brown  Trust No. 1B,  whose
address is c/o Badlands Trust Company, LLC, 3601 C Street, Suite 600, Anchorage,
Alaska  99503 (the  "Members").  Each of the Members hold a 50% interest in BIA.
The Members are "affiliated persons" of the Fund (as that term is defined in the
1940 Act).  Both Mr.  Horejsi and John S.  Horejsi,  Mr.  Horejsi's  son and the
Fund's  "interested"  Director,  are discretionary  beneficiaries under the Lola
Brown Trust No. 1B as well as under other Horejsi Affiliates which own Evergreen
Atlantic,  LLC. Accordingly,  as a result of this relationship,  both Stewart R.
Horejsi  and  John S.  Horejsi  may  directly  or  indirectly  benefit  from the
relationship between the Fund and BIA.


STEWART INVESTMENT ADVISERS.  SIA is a Barbados  international  business company
incorporated  on November  12,  1996.  SIA is wholly  owned by the Stewart  West
Indies Trust (the "West Indies Trust"), an irrevocable trust domiciled in Alaska
and established by Mr. Horejsi in 1996 primarily to benefit his issue.  The West
Indies Trust's address is c/o Badlands Trust Company,  LLC, 3601 C Street, Suite
600,  Anchorage,  Alaska 99503. Mr. Horejsi is not a beneficiary  under the West
Indies  Trust.  However,  John S.  Horejsi,  Mr.  Horejsi's  son and the  Fund's
"interested"  Director,  is a  discretionary  beneficiary  under the West Indies
Trust and thus,  as a result of this  relationship,  may directly or  indirectly
benefit from the relationship between SIA and the Fund.

SIA is not  domiciled in the United States and  substantially  all of its assets
are located  outside the United  States.  As a result,  it may be  difficult  to
realize  judgments  of  courts  of  the  United  States  predicated  upon  civil
liabilities  under federal  securities  laws of the United States.  The Fund has
been  advised  that  there  is  substantial  doubt as to the  enforceability  in
Barbados of such civil  remedies and  criminal  penalties as are afforded by the
federal securities laws of the United States. Pursuant to the advisory agreement
between SIA and the Fund, SIA has appointed the Secretary of the Fund (presently
Stephanie  Kelley in Boulder,  Colorado)  as its agent for service of process in
any legal action in the United States, thus subjecting it to the jurisdiction of
the United States courts.

CO-ADVISORY  AGREEMENTS.  The  Advisers  and the Fund are parties to  investment
co-advisory  agreements dated as of April 26, 2002 (the "Advisory  Agreements").
Under  the terms of the  Advisory  Agreements,  the  Advisers  provide  advisory
services regarding asset allocation,  manage the investment of the Fund's assets
and provide such investment research, advice and supervision, in conformity with
the Fund's investment objective and policies, as necessary for the operations of
the Fund. The Advisory Agreements provide, among other things, that the Advisers
will bear all expenses in  connection  with the  performance  of their  services
under the Advisory Agreements.

The  Advisory  Agreements  provide  that the Fund shall pay to the  Advisers for
their  services  an  aggregate  monthly  fee at the annual  rate of 1.25% of the
Fund's average monthly net assets,  including the principal  amount of leverage,
if any (the "Adviser Fee"). The Adviser Fee is higher than the fees paid by most
similarly situated U.S.  investment  companies.  Under the terms of the Advisory
Agreements, the Advisers share the Adviser Fee as determined by the Advisers and
approved by the Board from time to time. Presently,  BIA and SIA receive 25% and
75%,  respectively,  of the Adviser Fee.  Although the Advisers intend to devote
such  time  and  effort  to the  business  of the Fund as they  deem  reasonably
necessary to perform their  respective  duties to the Fund,  the services of the
Advisers are not  exclusive  and the Advisers  may provide  similar  services to
other investment companies and other clients and may engage in other activities.

The Advisory  Agreements  provide that the Advisers  shall not be liable for any
error of judgment or mistake of law or omission or any loss suffered by the Fund
in  connection  with the matters to which the  agreements  relate,  although the
agreements  do not  protect  or  purport to protect  the  Advisers  against  any
liability to the Fund to which the Advisers would otherwise be subject by reason
of  willful  misfeasance,  bad faith or gross  negligence  on their  part in the
performance  of  their  duties  or from  reckless  disregard  by  them of  their
obligations  and duties  under the  agreements.  Each  Advisory  Agreement  also
provides for  indemnification  by the Fund of the  Advisers and their  partners,
members,  officers,  employees,  agents  and  control  persons  for  liabilities
incurred  by them in  connection  with their  services  to the Fund,  subject to
certain limitations and conditions.



PORTFOLIO MANAGERS.  Stewart R. Horejsi is the Fund's primary investment manager
and,  together with Carl D. Johns,  the Fund's Vice President and Treasurer,  is
responsible for the day-to-day  management of the Fund's assets.  Mr. Horejsi is
primarily  responsible for the Fund's asset allocation and Mr. Johns,  also Vice
President and Treasurer  for BIA, is  responsible  for research and managing the
Fund's fixed income portfolio.  Messrs. Horejsi and Johns are referred to herein
as the  "Portfolio  Managers".  The  Portfolio  Managers  act  as the  portfolio
managers with respect to the Fund and one other registered  investment  company,
the Boulder Total Return Fund,  Inc.  ("BTF").  As of November 30, 2004, BTF had
total assets,  including  leverage,  of approximately $323 million.  Mr. Horejsi
also acts as portfolio manager with respect to a client of the Advisers who is a
Horejsi Affiliate, the Horejsi Charitable Foundation,  which has total assets of
approximately  $17.5 million as of November 30, 2004. Mr. Horejsi also acts as a
financial  consultant to the Horejsi  Affiliates and manages their portfolios of
equities having an aggregate value of approximately  $695 million as of November
30, 2004.


The Portfolio Managers are compensated with fixed salaries which are established
based on a number of considerations, including, among others, job and portfolio
performance, industry compensation and comparables, and years of experience and
service with the Adviser. The Portfolio Managers are reviewed from time to time
and their salaries may be adjusted based on their recent and long-term job
performance and cost of living increases. Generally, the Portfolio Managers do
not receive bonuses. Conflicts of interest may arise in connection with the
Portfolio Managers' management of the Fund's investments. This is because the
Portfolio Managers also serve as portfolio managers to BTF and the other
accounts described above that may have investment objectives identical or
similar to those of the Fund. See "Potential Conflicts of Interest" below.


Mr. Horejsi does not directly own any shares of the Fund. However, the EH Trust,
which has engaged Mr. Horejsi as a financial consultant and of which Mr. Horejsi
is a discretionary beneficiary,  holds 2,354,600 shares of the Fund as of August
31, 2005.  Accordingly,  Mr.  Horejsi may be deemed to have indirect  beneficial
ownership of such shares which have a dollar range in excess of $1 million.  Mr.
Horejsi disclaims all such beneficial ownership. Mr. Johns holds between $10,001
and $50,000 of the shares of the Fund as of August 31, 2005.

FUND ADMINISTRATIVE  SERVICES, LLC. Fund Administrative Services, LLC ("FAS") is
the Fund's co-administrator.  FAS is a Colorado limited liability company formed
in 1994.  Its  principal  place of business is 200 S. Santa Fe, #4,  Salina,  KS
67401 and it has offices in Colorado at 1680 38th  Street,  Suite 800,  Boulder,
Colorado  80301.  The  members  of FAS are Lola  Brown  Trust  No.  1B (50%) and
Evergreen Atlantic, LLC (50%). Stewart R. Horejsi, the Fund's portfolio manager,
and his son John S. Horejsi, the Fund's "interested" Director, are discretionary
beneficiaries  of the Lola  Brown  Trust No.  1B,  and of the  trusts  which own
Evergreen  Atlantic,  LLC. The  officers of FAS are Stephen C. Miller,  manager;
Carl Johns,  assistant  manager;  Laura  Rhodenbaugh,  secretary/treasurer;  and
Stephanie  Kelley,  assistant  secretary.  Since  January of 2002,  FAS has been
providing certain  administrative and executive management services to the Fund,
including  among  other  things  negotiation  of  service  provider   contracts,
oversight  of  service  providers,   maintenance  of  the  Fund's  policies  and
procedures, and provision of compliance, legal and fund accounting services. FAS
has also  provided such  administrative  and  executive  management  services to
Boulder Total Return Fund, Inc. since March of 1999 and to First Financial Fund,
Inc. since August of 2003.


The Fund and FAS are parties to an  administration  agreement  dated February 1,
2004.  Under the  administration  agreement,  the Fund  pays FAS a  monthly  fee
calculated at an annual rate of 0.20% of the value of the Fund's average monthly
net assets up to $250 million; 0.18% of the Fund's average monthly net assets on
the next $150 million;  and,  0.15% on the value of the Fund's  average  monthly
assets over $400 million.  FAS has agreed to cap the Fund's total administration
costs at 0.30% (including administration,  co-administration, transfer agent and
custodian  fees),  and  therefore  waives a portion  of its fee should the total
monthly administration expenses exceed 0.30% on an annualized basis.


INVESTORS  BANK & TRUST  COMPANY.  Investors  Bank & Trust  Company  ("Investors
Bank"),  located at 200 Clarendon Street,  Boston MA 02116, serves as the Fund's
co-administrator  and custodian of its assets.  As  co-administrator,  Investors
Bank provides  certain  services,  including fund  accounting and preparation of
materials  for Board  meetings.  Under an  administration  agreement and custody
agreement  between the Fund and Investors  Bank,  the Fund pays Investors Bank a
combined  monthly  fee  for  both   co-administrative   and  custodian  services
calculated  at an  annual  rate of 0.058%  of the  value of the  Fund's  average
monthly  net  assets up to $300  million  and  0.04% on the value of the  Fund's
average  monthly  net assets  over $300  million,  or a minimum  monthly  fee of
$10,500.  Presently,  because of the level of the  Fund's  average  monthly  net
assets, the Fund pays the minimum fee of $10,500 monthly. In addition, Investors
Bank  receives  certain  out-of-pocket  expenses,  transaction  fees and certain
charges for  securities  transactions.  All customary  fees of the custodian are
paid by the Fund.





                 COMPENSATION TO THE ADVISERS AND ADMINISTRATORS

Information  is provided in this  Statement of  Additional  Information  and the
Prospectus  concerning the Advisers and  Administrator and their agreements with
the Fund.  The amounts paid to such  persons  during the last three fiscal years
or, if  shorter,  the period  during  which the entity was  retained  to provide
services to the Fund are as follows:




Name of Entity                                                 Fees Paid by the Fund (+)
                                                               -------------------------------------------------------
                                                                                           

                                                       fiscal  2002               2003              2004
-------------------------------------------------------------- ------------------ ----------------- ------------------
Boulder Investment Advisers, LLC                               $91,980            $222,257          $302,969
Stewart Investment Advisers                                    $275,941           $666,771          $908,906
Fund Administrative Services, LLC                              $106,163*          $226,631*         $165,514*
Investors Bank & Trust Company                                 --                 --                $24,393**


*Prior to February 1, 2004, from fees it received under the prior administration
agreement  between FAS and the Fund, FAS was required to pay  substantially  all
fees  respecting  services  provided  to the  Fund  by  any  sub-administrators,
custodian or transfer agent. Under this arrangement, out of the funds identified
in the Table above, FAS paid such outsourced service providers $71,720, $143,597
and $27,112 during fiscal year 2002, 2003 and 2004,  respectively.  At a regular
meeting  of  directors  held on  January  23,  2004,  the Board  approved  a new
administration agreement where by the Fund would separately pay FAS and all such
service providers.


** Investors Bank began providing administration services to the Fund on October
1, 2004.


+  All figures are on a cash basis.




        FACTORS CONSIDERED BY THE INDEPENDENT DIRECTORS IN APPROVING THE
                         INVESTMENT ADVISORY AGREEMENTS



The 1940 Act requires that a fund's investment  advisory  agreements be approved
annually by both the Board and a majority of the  Independent  Directors  voting
separately.  The  Independent  Directors have  determined  that the terms of the
Fund's Advisory Agreements are fair and reasonable and that the contracts are in
the Fund's best interests.  The Independent  Directors believe that the Advisory
Agreements  will  enable  the Fund to enjoy  high  quality  investment  advisory
services at a cost they deem  appropriate,  reasonable and in the best interests
of the Fund and its  shareholders.  At a  regularly  scheduled  meeting  held on
January 21, 2005, the Directors,  by a unanimous vote (including a separate vote
of the Independent Directors), approved the renewal of the Advisory Agreements.

FACTORS  CONSIDERED.  Generally,  the Board  considered  a number of  factors in
renewing the Advisory Agreements including,  among other things, (i) the nature,
extent and quality of services to be furnished by the Advisers to the Fund; (ii)
the investment  performance of the Fund compared to relevant  market indices and
the  performance  of peer groups of  closed-end  investment  companies  pursuing
similar strategies;  (iii) the advisory fees and other expenses paid by the Fund
compared to those of similar funds managed by other  investment  advisers;  (iv)
the profitability to the Advisers of their investment advisory relationship with
the Fund;  (v) the extent to which  economies  of scale would be realized as the
Fund grows and whether fee levels  reflect any economies of scale;  (vi) support
of the  Advisers  by the Fund's  principal  shareholders;  (vii) the  historical
relationship  between  the Fund and the  Advisers;  and (viii) the  relationship
between the Advisers and its affiliated  service  provider,  FAS. The Board also
reviewed  the  ability of the  Advisers  to provide  investment  management  and
supervision  services  to the Fund,  including  the  background,  education  and
experience  of the key  portfolio  management  and  operational  personnel,  the
investment  philosophy and decision-making  process of those professionals,  and
the ethical standards maintained by the Advisers.


DELIBERATIVE  PROCESS.  To assist the Board in its  evaluation of the quality of
the Advisers'  services and the  reasonableness  of the Advisers' fees under the
Advisory  Agreements,  the Board received a memorandum  from  independent  legal
counsel to the Independent  Directors  discussing the factors generally regarded
as appropriate to consider in evaluating  investment  advisory  arrangements and
the duties of directors in approving such  arrangements.  In connection with its
evaluation,  the Board also requested, and received,  various materials relating
to the  Advisers'  investment  services  under the  Advisory  Agreements.  These
materials included a report prepared by Lipper,  Inc.  ("Lipper")  comparing the
Fund's performance, advisory fees and expenses to a group of funds determined to
be most  similar  to the Fund  (the  "Peer  Group")  and a broader  universe  of
relevant  funds (the  "Universe"),  in each case as  determined  by Lipper.  The
Lipper  report also included a  performance  comparison  for the Fund against an
appropriate  index. In addition,  the Board received  reports and  presentations
from the Advisers that described,  among other things,  the Advisers'  financial
condition,  profitability  from its  relationship  with the  Fund,  soft  dollar
commission  and  trade  allocation  policies,   organizational   structure,  and
compliance  policies  and  procedures.  The Board  also  considered  information
received from the Advisers throughout the year, including investment performance
and expense ratio reports for the Fund.



In advance of the January 21, 2005 meeting,  the  Independent  Directors  held a
special  telephonic  meeting  with  counsel  to the Fund and  independent  legal
counsel to the Independent  Directors.  The principal purpose of the meeting was
to discuss  the  renewal of the  Advisory  Agreements  and review the  materials
provided  to the Board by the  Advisers  in  connection  with the annual  review
process. As a result of these discussions,  the Independent  Directors requested
that the  Advisers  provide  supplemental  materials  to assist the Board in its
evaluation of the Advisory Agreements.  The Board held additional discussions at
the January 21, 2005 Board meeting,  which included a private  session among the
Independent  Directors and their independent legal counsel at which no employees
or representatives of the Advisers were present.


BOARD   CONSIDERATIONS.   The   information   below   summarizes   the   Board's
considerations  in connection with its approval of the Advisory  Agreements.  In
deciding to approve the Advisory Agreements, the Board did not identify a single
factor as  controlling  and this  summary  does not  describe all of the matters
considered.  However,  the  Board  concluded  that each of the  various  factors
referred to below favored such approval.


     Nature,  Extent and Quality of the  Services  Provided;  Ability to Provide
Services.  The  Board  received  and  considered  various  data and  information
regarding the nature, extent and quality of services provided to the Fund by the
Advisers under the Advisory  Agreements.  Each Adviser's most recent  investment
adviser  registration form on the Securities and Exchange  Commission's Form ADV
was provided to the Board,  as were the responses of the Advisers to information
requests  submitted to the Advisers by the Independent  Directors  through their
independent legal counsel. The Board reviewed and analyzed the materials,  which
included  information  about the  background,  education  and  experience of the
Advisers' key portfolio  management and operational  personnel and the amount of
attention devoted to the Fund by the Advisers' portfolio  management  personnel.
In this regard,  it was noted that the Advisers'  only clients are the Fund, one
other  registered  investment  company  (Boulder Total Return Fund,  Inc.) and a
charitable foundation affiliated with the Horejsi family. Accordingly, the Board
was  satisfied  that  the  Advisers'  investment  personnel,  including  Stewart
Horejsi, the Fund's principal portfolio manager, devote a significant portion of
their time and attention to the success of the Fund and its investment strategy.
The  Board  also  considered  the  Advisers'   recently  enhanced  policies  and
procedures for ensuring  compliance with applicable laws and regulations.  Based
on the above factors,  the Board concluded that it was generally  satisfied with
nature,  extent and quality of the investment  advisory services provided to the
Fund by the Advisers, and that the Advisers possessed the ability to continue to
provide these services to the Fund in the future.


     Investment Performance.  The Board considered the investment performance of
the Fund since January 2002,  when the Advisers  became the investment  managers
for the Fund, as compared to both relevant  indices and the  performance  of the
Fund's  peer group  universe.  The Board noted  favorably  that for the one- and
three-year  periods ending December 31, 2004, the Fund's  performance based upon
total return ranked in the second quintile of its Universe (i.e.,  the upper 40%
of the funds in the Universe),  and had  outperformed  the Standard & Poor's 500
index,  the  Fund's  primary  relevant  benchmark,  as  well  as the  Dow  Jones
Industrial  Average and the Nasdaq Composite,  the Fund's secondary  benchmarks.
The  Board   acknowledged   that  the  Universe   included  both  leveraged  and
non-leveraged closed-end funds to provide a more statistically significant group
for  comparison  purposes,  even though the Fund is leveraged  and comparing the
Fund only to Funds that use  leverage  may yield a different  result.  The Board
also noted that the investment  performance  for the Fund continued the superior
investment  performance  record achieved by Mr. Horejsi prior to his association
with the Fund in managing his family's extensive investment portfolio.  Based on
these  factors,  the  Board  concluded  that  the  overall  performance  results
supported the renewal of the Advisory Agreements.


     Costs of  Services  Provided  and  Profits  Realized  by the  Advisers.  In
evaluating the costs of the services  provided to the Fund by the Advisers,  the
Board  received  statistical  and other  information  regarding the Fund's total
expense  ratio  and  its  various  components,  including  management  fees  and
investment-related  expenses.  This  information  included a  comparison  of the
Fund's  various  expenses  to  the  Peer  Group  and  the  Universe.  The  Board
acknowledged that the level of fees charged by the Advisers is at the higher end
of the  spectrum of fees charged by similarly  situated  investment  advisers of
closed-end funds. The Fund's management fee expense ranked in the fifth quintile
of the nine funds  included in the Peer Group and in the fourth  quintile of the
Universe.  The Board noted that the Fund's  shareholders had removed most of the
Fund's investment  limitations,  resulting in a much broader (and more difficult
to  assess)  universe  of  investment  possibilities  for the  Fund  than  might
otherwise be the case for other  "sector" or "industry"  oriented  funds,  which
requires  a greater  degree  of  portfolio  management  skill on the part of the
Advisers. The Board also considered that the Advisers do not participate in soft
dollar or directed brokerage  transactions.  Instead, the Advisers bear the cost
of third party  research  utilized by the Advisers,  increasing  the cost to the
Advisers of providing investment  management services to the Fund and decreasing
the  Fund's  transaction  expenses.  It was also noted  that the  Advisers  have
historically  waived fees when the Fund held  significant  levels of un-invested
cash.



The Board also obtained detailed information regarding the overall profitability
of the Advisers and the combined  profitability  of the Advisers and FAS,  which
acts as co-administrator  for the Fund. The combined  profitability  information
was  obtained to assist the Board in  determining  the  overall  benefits to the
Advisers  from their  relationship  to the Fund.  Based on its  analysis of this
information,  the  Board  determined  that the  level of  profits  earned by the
Advisers from managing the Fund bear a reasonable  relationship  to the services
rendered.


Based on these  factors,  the Board  concluded  that the fee under the  Advisory
Agreements  was  reasonable  and fair in light of the nature and  quality of the
services provided by the Advisers.


     Economies of Scale. The Board considered  whether there have been economies
of scale  with  respect  to the  management  of the Fund,  whether  the Fund has
appropriately  benefited from any economies of scale, and whether the management
fee rate is  reasonable  in relation to the Fund's  assets and any  economies of
scale that may exist.  Based on the relatively small size of the Fund, the Board
determined  that no  meaningful  economies of scale would be realized  until the
Fund achieved  significantly  higher asset levels. The Board also noted that the
Advisers' internal costs of providing investment management services to the Fund
had increased, in part due to administrative burdens and expenses resulting from
recent  legislative and regulatory  actions.  Based on these factors,  the Board
concluded that the absence of  breakpoints  in the Fund's  current  advisory fee
schedule was acceptable.


     Shareholder  Support and Historical  Relationship  with the Fund. The Board
placed  considerable  weight on the views of the  Fund's  largest  shareholders,
which are affiliated with Mr. Horejsi and the Advisers. As of December 31, 2004,
these  shareholders  held  approximately  21% of the Fund's  outstanding  common
shares,  representing  approximately $17 million of the Fund's net assets of $90
million,  excluding  leverage,  on that  date.  The Board  understands  from Mr.
Horejsi that these  shareholders  are supportive of the Advisers and the renewal
of the Advisory Agreements.  The Board also noted that the Fund had not received
any negative feedback from other Fund shareholders with respect to the levels of
investment management fees and expenses experienced by the Fund.


APPROVAL.  The Board based its  decision to approve the renewal of the  Advisory
Agreements  on a  careful  analysis,  in  consultation  with  Fund  counsel  and
independent counsel for the Independent  Directors,  of these and other factors.
In approving the Advisory Agreements,  the Board concluded that the terms of the
Fund's investment  advisory  agreements are reasonable and fair and that renewal
of the  Advisory  Agreements  is in the  best  interests  of the  Fund  and  its
shareholders.



                            DURATION AND TERMINATION


The terms of the  Advisory  Agreements  were  approved by the Board at a regular
meeting of the Board held on  January  21,  2005,  including  a majority  of the
Directors  who are not parties to the agreement or  "interested  persons" of any
such party (as such term is defined in the 1940 Act).


Each Advisory  Agreement  will continue in effect  without a term so long as its
continuation is specifically  approved at least annually by both (i) the vote of
a majority  of the Board or the vote of a  majority  of the  outstanding  voting
securities of the Fund (as such term is defined in the 1940 Act) and (ii) by the
vote  of a  majority  of the  directors  who are not  parties  to such  Advisory
Agreement or interested persons (as such term is defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval.  Any of the Advisory  Agreements  may be  terminated as a whole at any
time by the  Fund,  without  the  payment  of any  penalty,  upon  the vote of a
majority of the Board or a majority of the outstanding  voting securities of the
Fund or by the Advisers on 60 days' written notice by either party to the other.
Except as otherwise provided by order of the SEC or any rule or provision of the
1940 Act, each of the Advisory  Agreements will terminate  automatically  in the
event of its  assignment  (as such term is defined in the 1940 Act and the rules
thereunder).


                         POTENTIAL CONFLICTS OF INTEREST


The Fund is managed by the Advisers,  who also serve as  investment  advisers to
another  closed-end  investment  company  and at least  one other  account  with
investment  objectives  identical or similar to those of the Fund.  Mr.  Horejsi
also manages a substantial  portfolio of securities for the Horejsi  Affiliates.
Securities  frequently  meet the investment  objectives of the Fund, the Horejsi
Affiliates  and such other funds and  accounts.  In such cases,  the decision to
recommend  a purchase to one fund or account  rather than  another is based on a
number of  factors.  The  determining  factors  in most  cases are the amount of
securities of the issuer then outstanding, the value of those securities and the
market for them.  Other  factors  considered in the  investment  recommendations
include  other  investments  that  each  fund  or  account  presently  has  in a
particular  industry and the  availability  of investment  funds in each fund or
account. It is possible that at times identical  securities will be held by more
than one fund and/or account. However,  positions in the same issue may vary and
the length of time that any fund or account may choose to hold its investment in
the same issue may likewise vary.



To the  extent  that  more  than one of the  funds or  accounts  managed  by the
Advisers seeks to acquire the same security at about the same time, the Fund may
not be able to acquire as large a position in such  security as it desires or it
may have to pay a higher price for the  security.  However,  with respect to the
Horejsi  Affiliates and the other private account  managed by the Advisers,  the
Horejsi  Affiliates  and such other private  account have consented to allow the
funds managed by the Adviser to complete  their  transactions  in any particular
security  before the Horejsi  Affiliates or such other  private  account will be
allowed to  transact  in such  security,  thus  giving the funds  managed by the
Advisers the first opportunity to trade in a particular  security.  The Fund may
not be able to  obtain  as large an  execution  of an order to sell or as high a
price for any particular  portfolio  security if the Advisers  decide to sell on
behalf of another  account the same portfolio  security at the same time. On the
other hand, if the same  securities  are bought or sold at the same time by more
than one fund or account,  the resulting  participation  in volume  transactions
could produce better executions for the Fund. In the event more than one account
purchases or sells the same  security on a given date,  the  purchases and sales
will normally be made as nearly as practicable on a pro rata basis in proportion
to the amounts  desired to be  purchased or sold by each  account.  Although the
other fund  managed  by the  Advisers  may have the same or  similar  investment
objectives and policies as the Fund, its portfolio does not generally consist of
the same  investments  as the Fund and its  performance  results  are  likely to
differ from those of the Fund.


                                  PROXY VOTING


The Board has  delegated  to BIA the  authority to vote proxies on behalf of the
Fund.  The Board has approved the proxy voting  guidelines  of the Fund and will
review the guidelines and suggest changes they deem advisable.  A summary of the
Fund's and BIA's proxy  voting  policies  and  procedures  are  attached to this
Statement of Additional Information as Appendix A. Information regarding how the
Fund voted  proxies  relating  to  portfolio  securities  during the most recent
12-month  period ended June 30 is available  without  charge,  upon request,  by
calling 1-877-561-7914, and on the Securities and Exchange Commission's website,
at www.sec.gov.



                                 CODE OF ETHICS

The Fund and the Advisers  have adopted a joint code of ethics  pursuant to Rule
17j-1  under  the  1940  Act  that is  applicable  to  officers,  directors  and
designated  employees of the Fund and the Advisers,  as applicable (the "Code of
Ethics").  The Code of Ethics  permits  such  personnel  to  engage in  personal
securities transactions for their own account,  including securities that may be
purchased  or held by the Fund,  and is designed to prescribe  means  reasonably
necessary to prevent  conflicts  of interest  from  arising in  connection  with
personal  securities  transactions.  The Code of Ethics is on file with,  and is
available from, the Securities and Exchange  Commission's  Public Reference Room
in Washington,  D.C.  Information on the operation of the Public  Reference Room
may be obtained  by calling  the  Commission  at  1-(202)-942-8090.  The Code of
Ethics is also  available  on the EDGAR  database on the  Commission's  internet
website at  http://www.sec.gov.  Copies of the Code of Ethics  may be  obtained,
after paying a duplicating  fee, by electronic  request to the following  e-mail
address:  publicinfo@sec.gov,  or by writing the  Commission's  Public Reference
Section, Washington, D.C. 20549-0102.


        PORTFOLIO TRANSACTIONS, BROKERAGE ALLOCATION AND OTHER PRACTICES


All orders for the purchase or sale of portfolio securities are placed on behalf
of the Fund by the  Advisers  pursuant to  authority  contained  in the Advisory
Agreements. The Advisers seek best execution in selecting brokers and dealers to
effect  the  Fund's  transactions  and  negotiating  prices  and  any  brokerage
commissions.  The Fund may purchase  certain money market  instruments  directly
from an issuer,  in which case no commissions or discounts are paid. No separate
brokerage commission is typically paid on bond transactions, which are typically
executed on a principal basis, in contrast to common stock  transactions,  where
brokerage  commissions  are the  norm.  The  Fund  paid  approximately  $16,000,
$55,000,  and  $19,000  in  brokerage  commissions  for the fiscal  years  ended
November 30, 2002, 2003 and 2004, respectively.


The Advisers are  responsible for effecting the Fund's  securities  transactions
and will do so in a manner it deems fair and reasonable to  shareholders  of the
Fund and not according to any formula.  The Advisers' primary  considerations in
selecting  the manner of  executing a  securities  transaction  for the Fund are
prompt execution of orders, the size and breadth of the market for the security,
the reliability,  integrity, financial condition and execution capability of the
firm,  the  difficulty  in  executing  the order,  and the best net  price.  The
Advisers have established procedures whereby it monitors, periodically evaluates
and reports to the Board the cost and quality of execution  services provided by
brokers  selected by the  Advisers  to execute  transactions  for the Fund.  The
evaluation is made  primarily  based on a comparison of  commissions  charged by
other broker with similar capabilities and trade execution.


There are many  instances  when, in the judgment of the Advisers,  more than one
firm can offer  comparable  execution  services.  In selecting among such firms,
consideration  may be given to those  firms  which  supply  research  and  other
services in addition to execution services, although the Fund does not typically
rely on such research. The Advisers have adopted a policy against using any kind
of soft dollar  arrangements.  The Advisers utilize  purchased  research only in
regards to the REIT  industry,  but do not use soft dollars as a means of paying
for such research.  Rather,  the Advisers have arranged that a higher commission
would be paid only with regard to REIT trades that  involve  REITs  covered by a
particular  research  company,  in which  case the Fund pays only the  amount of
commission  typically  paid to other brokers and the Advisers pay any portion of
such commission that exceeds this typical brokerage commission.  This policy has
been  disclosed  to and  approved  by the Board.  During  the fiscal  year ended
November 30, 2004,  the  Advisers  directed  $10,690,854  in  transactions  with
related  commissions  of $14,206 to Green  Street  Advisers for the REIT related
research  described  above.  Of the  $14,206  in  commissions  related  to these
transactions, the Advisers reimbursed the Fund for $7,103, the portion which the
Advisers  deemed to be in excess of the  commissions  the Fund would likely have
paid to a broker which provided best execution.

Although the Advisory  Agreements contain no restrictions on portfolio turnover,
it is not the Fund's  policy to engage in  transactions  with the  objective  of
seeking profits from short-term  trading.  The annual portfolio turnover rate of
the Fund is generally less than 50%,  excluding  securities having a maturity of
one year or less.  Because  it is  difficult  to  accurately  predict  portfolio
turnover  rates,  actual  turnover  may be  higher or  lower.  Higher  portfolio
turnover results in increased Fund expenses,  including  brokerage  commissions,
dealer mark-ups and other transaction costs on the sale of securities and on the
reinvestment in other  securities.  For the fiscal years ended November 30, 2003
and November 30, 2004,  the Fund's  portfolio  turnover  rates were 40% and 33%,
respectively.


       ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR PREFERRED SHARES


GENERAL.  The Depository  Trust Company ("DTC" or the  "Securities  Depository")
will act as the Securities  Depository with respect to the Preferred Shares. One
certificate  for all of the  Preferred  Shares will be registered in the name of
Cede & Co., as nominee of the Securities Depository.  Such certificate will bear
a legend to the effect that it is issued subject to the  provisions  restricting
transfers  of  shares  of  the  Preferred   Shares  contained  in  the  Articles
Supplementary  creating and fixing the Rights of Auction Market  Preferred Stock
(the "Articles  Supplementary"),  which is attached hereto as Appendix B. Cede &
Co.  will be the  holder of record of the  Preferred  Shares  and owners of such
shares will not be entitled to receive certificates representing their ownership
interest  in such  shares.  DTC,  a New  York-chartered  limited  purpose  trust
company,  performs  services for its  participants,  some of whom (and/or  their
representatives)  own DTC.  DTC  maintains  lists of its  participants  and will
maintain the positions  (ownership  interests) held by each such  participant in
the  Preferred  Shares,  whether for its own account or as a nominee for another
person.


THE AUCTION AGENT.  Deutsche Bank Trust Company  Americas (the "Auction  Agent")
will act as agent for the Fund in connection  with the auctions of the Preferred
Shares  (the  "Auctions").  In  the  absence  of  willful  misconduct  or  gross
negligence  on its part,  the  Auction  Agent  will not be liable for any action
taken,  suffered,  or  omitted  or for any error of  judgment  made by it in the
performance  of its duties under the auction agency  agreement  between the Fund
and the Auction  Agent and will not be liable for any error of judgment  made in
good faith unless the Auction Agent was grossly  negligent in  ascertaining  the
pertinent facts.


The Auction Agent may  conclusively  rely upon, as evidence of the identities of
the holders of the Preferred  Shares,  the Auction Agent's  registry of holders,
and the results of auctions and notices from any broker-dealer ("Broker-Dealer")
that has entered  into an  agreement  with the Auction  Agent (a  "Broker-Dealer
Agreement")  (or other  person,  if  permitted  by the  Fund)  with  respect  to
transfers  described under "The Auction - Secondary Market Trading and Transfers
of Preferred  Shares" in the  Prospectus  and notices from the Fund. The Auction
Agent is not  required  to accept any such  notice  for an auction  unless it is
received by the Auction Agent by 1:00 p.m.,  New York City time, on the business
day preceding such Auction.


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



BROKER-DEALERS.  The Auction Agent, after each Auction for the Preferred Shares,
will pay to each  Broker-Dealer,  from  funds  provided  by the Fund,  a service
charge at the  annual  rate:  (i) in the case of any  Auction  date  immediately
preceding a dividend  period other than a special  dividend  period of less than
one year,  the product of (A) a fraction the numerator of which is the number of
days in such dividend period  (calculated by counting the date of original issue
of such shares to but excluding  the next  succeeding  dividend  payment date of
such shares) and the denominator of which is 360, times (B) 1/4 of 1%, times (C)
$25,000  times (D) the sum of the  aggregate  number  of  shares of  outstanding
Preferred  Shares for which the Auction is conducted and (ii) in the case of any
special  dividend  period of one year or more,  the amount  determined by mutual
consent  of the Fund  and any  such  Broker-Dealers  and  shall be based  upon a
selling  concession  that would be  applicable  to an  underwriting  of fixed or
variable rate  Preferred  Shares with a similar final  maturity or variable rate
dividend period,  respectively,  at the commencement of the dividend period with
respect  to such  Auction.  For the  purposes  of the  preceding  sentence,  the
Preferred  Shares will be placed by a Broker-Dealer  if such shares were (a) the
subject of hold orders deemed to have been submitted to the Auction Agent by the
Broker-Dealer and were acquired by such  Broker-Dealer for its customers who are
beneficial   owners,   or  (b)  the  subject  of  an  order  submitted  by  such
Broker-Dealer that is (i) a submitted bid of an existing holder that resulted in
the existing holder continuing to hold such shares as a result of the Auction or
(ii) a submitted bid of a potential bidder that resulted in the potential holder
purchasing such shares as a result of the Auction, or (iii) a valid hold order.


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

Each  Broker-Dealer  Agreement  provides  that a  Broker-Dealer  (other  than an
affiliate of the Fund) may submit orders in Auctions for its own account, unless
the Fund  notifies  all  Broker-Dealers  that they may no longer do so, in which
case Broker-Dealers may continue to submit hold orders and sell orders for their
own  accounts.  Any  Broker-Dealer  that is an  affiliate of the Fund may submit
orders in Auctions,  but only if such orders are not for its own  account.  If a
Broker-Dealer submits an order for its own account in any Auction, it might have
an advantage  over other bidders  because it would have  knowledge of all orders
submitted by it in that Auction;  such  Broker-Dealer,  however,  would not have
knowledge of orders submitted by other Broker-Dealers in that Auction.


                            RATING AGENCY GUIDELINES


The composition of the Fund's  portfolio  reflects  rating agency  guidelines of
Moody's  Investors  Services,  Inc.  ("Moody's")  and Fitch,  Inc.  ("Fitch") in
connection  with the Fund's  receipt of a rating of "Aaa" and "AAA" from Moody's
and  Fitch,  respectively,   for  the  Preferred  Shares.  These  rating  agency
guidelines  (collectively,  the "Rating Agency Guidelines")  relate, among other
things,  to  credit  quality  characteristics  of  issuers  and  diversification
requirements  and  specify  various  discount  factors  for  different  types of
securities  (with the level of  discount  greater  as the  rating of a  security
becomes lower). Under the Rating Agency Guidelines,  certain types of securities
in which the Fund may otherwise invest  consistent with its investment  strategy
are not eligible for inclusion in the calculation of the discounted value of the
Fund's portfolio.  Such instruments  include,  for example,  private  placements
(other than Rule 144A  securities)  and other  securities  not within the Rating
Agency Guidelines.  Accordingly,  although the Fund reserves the right to invest
in such securities to the extent set forth herein, they have not constituted and
it is  anticipated  that they will not  constitute a significant  portion of the
Fund's portfolio.

The Rating Agency  Guidelines  require that the Fund  maintain  assets having an
aggregate  discounted  value,  determined  on the  basis  of the  Rating  Agency
Guidelines,  greater than the aggregate liquidation  preference of the Preferred
Shares plus specified liabilities,  payment obligations and other amounts, as of
periodic  valuation dates. The Rating Agency Guidelines also require the Fund to
maintain  asset  coverage  required  by the 1940 Act as a  condition  to  paying
dividends or other  distributions  on the Fund's  common  shares.  The effect of
compliance with the Rating Agency  Guidelines may be to cause the Fund to invest
in higher quality assets and/or to maintain relatively  substantial  balances of
highly  liquid  assets  or to  restrict  the  Fund's  ability  to  make  certain
investments  that  would  otherwise  be  deemed  potentially  desirable  by  the
Advisers.  The Rating Agency  Guidelines are subject to change from time to time
with the consent of the relevant  rating  agency and would not apply if the Fund
in the  future  elected  not to use  financial  leverage  consisting  of  senior
securities  rated  by  one or  more  rating  agencies,  although  other  similar
arrangements  might apply with respect to other senior  securities that the Fund
may issue.

The Fund intends to maintain,  at specified  times,  a discounted  value for its
portfolio at least equal to the amount specified by each rating agency.  Moody's
and Fitch have each established  separate guidelines for determining  discounted
value.  To the extent any  particular  portfolio  holding  does not  satisfy the
applicable Rating Agency's Guidelines,  all or a portion of such holding's value
will not be included in the calculation of discounted  value (as defined by such
rating  agency).  The Rating Agency  Guidelines do not impose any limitations on
the  percentage  of Fund's  assets that may be invested in holdings not eligible
for  inclusion  in  the  calculation  of the  discounted  value  of  the  Fund's
portfolio.  The amount of such assets  included in the Fund's  portfolio  at any
time  may  vary   depending   upon  the   rating,   diversification   and  other
characteristics  of the Fund's  assets that are  eligible  for  inclusion in the
discounted value of the Fund's portfolio under the Rating Agency Guidelines. For
a more detailed  description of the Rating Agency Guidelines,  see Appendix C to
this Statement of Additional Information.




                              REPURCHASE OF SHARES

The  Fund  is  a  closed-end   investment   company  and  therefore  its  common
shareholders  do not have the right to cause the Fund to  redeem  their  shares.
Instead,  the Fund's common shares trade in the open market at a price that is a
function of several  factors,  including  net asset value,  dividend  stability,
relative demand for and supply of such shares in the market,  general market and
economic  conditions,  dividend  stability,  dividend  levels (which are in turn
affected  by  expenses),  and other  factors.  Because  shares  of a  closed-end
investment  company may frequently trade at prices lower than net asset value (a
"Discount"),  the Board may  consider  actions  that might be taken to reduce or
eliminate any material  Discount in respect of common shares,  which may include
the repurchase of such shares in the open market or in private transactions, the
making of a tender offer for such shares at net asset value,  or the  conversion
of the Fund to an open-end investment company.  The Board may not decide to take
any of  these  actions.  In  addition,  there  can be no  assurance  that  share
repurchases or tender offers, if undertaken, will reduce any Discount.

Once the Fund issues the  Preferred  Shares,  the Fund's  ability to  repurchase
shares of, or tender for, its common stock may be limited by the asset  coverage
requirements  of the 1940  Act and by  asset  coverage  and  other  requirements
imposed by various  rating  agencies.  No assurance  can be given that the Board
will decide to undertake  share  repurchases or tenders or, if undertaken,  that
repurchases  and/or tender offers will result in the Fund's common stock trading
at a price  that is close to,  equal to or above net asset  value.  The Fund may
borrow to finance repurchases and/or tender offers. Any tender offer made by the
Fund for its shares may be at a price  equal to or less than the net asset value
of such shares.  Any service fees incurred in  connection  with any tender offer
made by the Fund  will be borne by the  Fund  and  will not  reduce  the  stated
consideration to be paid to tendering shareholders.

Subject  to its  investment  limitations,  the Fund may  borrow to  finance  the
repurchase  of  common  shares  or to  make  a  tender  offer.  Interest  on any
borrowings to finance share repurchase  transactions or the accumulation of cash
by the Fund in  anticipation  of share  repurchases  or tenders  will reduce the
Fund's net income. Any share repurchase, tender offer or borrowing that might be
approved by the Board would have to comply  with the  Exchange  Act and the 1940
Act and the rules and regulations under each of those Acts.

Although the  decision to take action in response to a Discount  will be made by
the Board at the time it considers such issue, it is the Board's present policy,
which may be changed by the Board, not to authorize repurchases of common shares
or a tender  offer for such  shares if (1) such  transactions,  if  consummated,
would (a) result in the  delisting  of the common  shares from the NYSE,  or (b)
impair the Fund's status as a regulated investment company under the Code (which
would make the Fund a taxable  entity,  causing the Fund's income to be taxed at
the  corporate  level in addition to the  taxation of  shareholders  who receive
dividends from the Fund) or as a registered  closed-end investment company under
the 1940 Act; (2) the Fund would not be able to liquidate  portfolio  securities
in an orderly manner and  consistent  with the Fund's  investment  objective and
policies  in order  to  repurchase  shares;  or (3)  there  is,  in the  Board's
judgment,  any (a) material legal action or proceeding  instituted or threatened
challenging such transactions or otherwise  materially  adversely  affecting the
Fund, (b) general  suspension of or limitation on prices for trading  securities
on the  NYSE,  (c)  declaration  of a banking  moratorium  by  Federal  or state
authorities  or any  suspension  of  payment  by U.S.  banks in  which  the Fund
invests,  (d)  material  limitation  affecting  the Fund or the  issuers  of its
portfolio  securities by Federal or state authorities on the extension of credit
by lending institutions or on the exchange of foreign currency, (e) commencement
of war, armed  hostilities or other  international or national calamity directly
or indirectly involving the United States, or (f) other event or condition which
would have a material  adverse effect  (including any adverse tax effect) on the
Fund or its shareholders if shares were repurchased. The Board may in the future
modify these conditions in light of experience.

The  repurchase by the Fund of its common shares at prices below net asset value
will result in an  increase  in the net asset value of those  shares that remain
outstanding.  However,  there can be no  assurance  that  share  repurchases  or
tenders at or below net asset  value will  result in the  Fund's  common  shares
trading at a price equal to their net asset value.  Nevertheless,  the fact that
the Fund's shares may be the subject of repurchase or tender offers at net asset
value  from  time to time,  or that the Fund  may be  converted  to an  open-end
company,  may be helpful in reducing  any spread  between  market  price and net
asset value that might otherwise exist.


In  addition,  a purchase  by the Fund of its common  shares will  decrease  the
Fund's total assets, which would likely have the effect of increasing the Fund's
expense  ratio.  Any  purchase  by the Fund of its common  shares at a time when
preferred  shares are outstanding  will increase the leverage  applicable to the
outstanding  common shares then remaining and decrease the asset coverage of the
preferred shares.

Before deciding  whether to take any action if the common shares trade below net
asset value, the Board would likely consider all relevant factors, including the
extent and duration of the Discount, the liquidity of the Fund's portfolio,  the
impact of any  action  that might be taken on the Fund or its  shareholders  and
market considerations.  Based on these considerations, even if the Fund's shares
should trade at a Discount, the Board may determine that, in the interest of the
Fund and its shareholders, no action should be taken.


                           FEDERAL INCOME TAX MATTERS


The  following  is a summary  discussion  of  certain  U.S.  federal  income tax
consequences  that may be  relevant  to a  shareholder  acquiring,  holding  and
disposing of Preferred  Shares.  This  discussion  addresses  only U.S.  federal
income tax  consequences to U.S.  shareholders  who hold their shares as capital
assets and does not address all of the U.S. federal income tax consequences that
may be  relevant  to  particular  shareholders  in  light  of  their  individual
circumstances.  This  discussion  also does not address the tax  consequences to
shareholders that are subject to special rules,  including,  without limitation,
banks and financial institutions,  insurance companies, dealers in securities or
foreign  currencies,  foreign  shareholders,  tax-exempt or tax-deferred  plans,
accounts,  or  entities,  or  investors  who  engage  in  constructive  sale  or
conversion  transactions.  In addition,  the discussion  does not address state,
local or foreign tax consequences,  and it does not address any tax consequences
other  than U.S.  federal  income  tax  consequences.  The  discussion  reflects
applicable  tax laws of the United  States as of the date of this  Statement  of
Additional  Information,  which  tax  laws  may be  changed  or  subject  to new
interpretations  by the courts,  Treasury or the Internal  Revenue  Service (the
"IRS") retroactively or prospectively.  No attempt is made to present a detailed
explanation of all U.S.  federal  income tax concerns  affecting the Fund or its
shareholders,  and the  discussion  set forth  herein  does not  constitute  tax
advice.  Investors  are urged to consult their own tax advisers to determine the
specific  tax  consequences  to them of  investing  in the Fund,  including  the
applicable  federal,  state,  local and foreign tax consequences to them and the
effect of possible changes in tax laws.


As required by U.S. Treasury Regulations governing tax practice,  you are hereby
advised that any written tax advice contained herein was not written or intended
to be used (and  cannot be used) by any  taxpayer  for the  purpose of  avoiding
penalties that may be imposed under the Code.

The  advice  was  prepared  to  support  the   promotion  or  marketing  of  the
transactions or matters addressed by the written advice.

Any person  reviewing this discussion  should seek advice based on such person's
particular circumstances from an independent tax adviser.

The Fund has  qualified  and  elected  to be treated  each year as a  "regulated
investment company" under Subchapter M of the Code and to comply with applicable
distribution  requirements so that it generally will not pay U.S. federal income
tax on  income  of  the  Fund,  including  net  capital  gains,  distributed  to
shareholders.  In order to  qualify  as a  regulated  investment  company  under
Subchapter M of the Code, which qualification this discussion assumes,  the Fund
must,  among  other  things,  derive at least 90% of its gross  income  for each
taxable year from  dividends,  interest,  payments  with  respect to  securities
loans, gains from the sale or other disposition of stock,  securities or foreign
currencies,  or other income (including gains from options,  futures and forward
contracts)  derived  with  respect to its  business of  investing in such stock,
securities or currencies (the "90% income test").  In addition to satisfying the
requirements  described  above,  the Fund must satisfy an asset  diversification
test in order to qualify as a regulated investment company.  Under this test, at
close of each quarter of the Fund's  taxable  year, at least 50% of the value of
the Fund's assets must consist of cash and cash items  (including  receivables),
U.S. Government securities,  securities of other regulated investment companies,
and  securities  of other  issuers (as to which the Fund must not have  invested
more than 5% of the value of the Fund's  total assets in  securities  of any one
such  issuer  and as to which  the Fund  must not have held more than 10% of the
outstanding  voting securities of any one such issuer),  and no more than 25% of
the value of its total assets may be invested in the securities (other than U.S.
Government securities and securities of other regulated investment companies) of
any one issuer,  or of two or more issuers which the Fund controls and which are
engaged in the same or similar or related trades or businesses.

The American Jobs Creation Act of 2004 (the "2004 Tax Act"), which the President
recently  signed  into  law,  provides  that for  taxable  years of a  regulated
investment  company beginning after October 22, 2004, net income derived from an
interest in a "qualified  publicly traded  partnership," as defined in the Code,
will be treated as  qualifying  income for purposes of the 90% income test,  and
for the  purposes  of the  diversification  requirements  described  above,  the
outstanding  voting securities of any issuer includes the equity securities of a
qualified  publicly  traded  partnership  and no more than 25% of the value of a
regulated investment company's total assets may be invested in the securities of
one or more qualified publicly traded  partnerships.  In addition,  the separate
treatment for publicly traded  partnerships  under the passive loss rules of the
Code  applies  to a  regulated  investment  company  holding  an  interest  in a
qualified  publicly traded  partnership,  with respect to items  attributable to
such interest.


If the Fund  qualifies as a regulated  investment  company and, for each taxable
year, it distributes to its shareholders an amount equal to or exceeding the sum
of (i) 90% of its "investment company taxable income" as that term is defined in
the Code (which includes, among other things,  dividends,  taxable interest, and
the  excess of any net  short-term  capital  gains  over net  long-term  capital
losses, as reduced by certain deductible expenses) and (ii) 90% of the excess of
its gross tax-exempt interest, if any, over certain disallowed  deductions,  the
Fund generally  will not be subject to U.S.  federal income tax on any income of
the Fund, including "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), distributed to shareholders.  However, if the
Fund has met such  distribution  requirements but chooses not to distribute some
portion  of its  investment  company  taxable  income or net  capital  gain,  it
generally will be subject to U.S. federal income tax at regular  corporate rates
on the amount retained.  The Fund intends to distribute at least annually all or
substantially  all of its  investment  company  taxable  income,  net tax-exempt
interest, and net capital gain. If for any taxable year the Fund did not qualify
as a regulated  investment company, it would be treated as a corporation subject
to U.S.  federal  income tax and all  distributions  out of earnings and profits
would be taxed to shareholders as ordinary income.  In addition,  the Fund could
be required to  recognize  unrealized  gains,  pay taxes and make  distributions
(which could be subject to interest charges) before  requalifying as a regulated
investment company.

Under the Code,  the Fund will be subject  to a  nondeductible  4% U.S.  federal
excise tax on a portion of its undistributed taxable ordinary income and capital
gains if it fails to meet certain distribution requirements with respect to each
calendar  year.  The Fund intends to make  distributions  in a timely manner and
accordingly  does not expect to be subject to the excise tax,  but as  described
below,  there  can  be no  assurance  that  the  Fund's  distributions  will  be
sufficient to avoid entirely this tax.

Based in part on the lack of any  present  intention  on the part of the Fund to
redeem or purchase  the  Preferred  Shares at any time in the  future,  the Fund
intends to take the position that under  present law the  Preferred  Shares will
constitute  stock of the Fund and  distributions  with respect to the  Preferred
Shares (other than  distributions in redemption of the Preferred Shares that are
treated as exchanges under Section 302(b) of the Code) will constitute dividends
to the  extent of the Fund's  current or  accumulated  earnings  and  profits as
calculated for U.S.  federal income tax purposes.  This view relies in part on a
published  ruling of the IRS stating that certain  preferred  stock,  similar in
many  material  respects  to the  Preferred  Shares,  represents  equity.  It is
possible,  however,  that the IRS might take a contrary position asserting,  for
example, that the Preferred Shares constitute debt of the Fund. If this position
were upheld,  the discussion of the treatment of  distributions  below would not
apply.  Instead  distributions  by the Fund to holders of Preferred Shares would
constitute interest, whether or not such distributions exceeded the earnings and
profits of the Fund, would be included in the income of the recipient, and would
be taxed as ordinary income.

In  general,  assuming  that the  Fund  has  sufficient  earnings  and  profits,
dividends from investment  company taxable income are taxable as ordinary income
and distributions  from net capital gain, if any, that are designated as capital
gain  dividends are taxable as long-term  capital gains for U.S.  federal income
tax  purposes  without  regard to the  length of time the  shareholder  has held
shares of the Fund. Since the Fund's income is derived  primarily from interest,
dividends of the Fund from its investment  company taxable income generally will
not constitute  "qualified  dividend income" for federal income tax purposes and
thus will not be eligible for the favorable  federal  long-term capital gain tax
rates on qualified  dividend income.  In addition,  the Fund's dividends are not
expected to qualify for any dividends-received deduction that might otherwise be
available for certain dividends  received by shareholders that are corporations.
Capital  gain  dividends  distributed  by the  Fund to  individual  shareholders
generally  will  qualify for the maximum 15% U.S.  federal tax rate on long-term
capital  gains.  Under  current  law,  the maximum 15% U.S.  federal tax rate on
qualified  dividend  income and  long-term  capital gains will cease to apply to
taxable years beginning after December 31, 2008.

Distributions  by the Fund in  excess  of the  Fund's  current  and  accumulated
earnings  and  profits  will be  treated as a return of capital to the extent of
(and in  reduction  of) the  shareholder's  tax basis in its shares and any such
amount in excess of that  basis will be treated as gain from the sale of shares,
as discussed below. The U.S. federal income tax status of all distributions will
be reported to shareholders  annually.  If the Fund retains any net capital gain
for a taxable year, the Fund may designate the retained amount as  undistributed
capital gains in a notice to shareholders who, if subject to U.S. federal income
tax on long-term  capital  gains,  (i) will be required to include in income for
U.S. federal income tax purposes, as long-term capital gain, their proportionate
shares of such  undistributed  amount, and (ii) will be entitled to credit their
proportionate  shares  of the tax paid by the Fund on the  undistributed  amount
against their U.S. federal income tax liabilities,  if any, and to claim refunds
to the extent the credit exceeds such liabilities.


Although  dividends  generally  will be treated as  distributed  when paid,  any
dividend  declared  by the  Fund as of a record  date in  October,  November  or
December and paid during the following  January will be treated for U.S. federal
income tax purposes as received by  shareholders  on December 31 of the calendar
year in which it is declared.  In addition,  certain  other  distributions  made
after the close of a taxable year of the Fund may be "spilled  back" and treated
as paid by the Fund  (except  for  purposes  of the 4% excise  tax)  during such
taxable year.  In such case,  shareholders  generally  will be treated as having
received  such  dividends  in the taxable year in which the  distributions  were
actually made.

If the Fund invests in certain pay-in-kind  securities,  zero coupon securities,
deferred interest securities or, in general,  any other securities with original
issue  discount  (or with market  discount if the Fund elects to include  market
discount in income  currently),  the Fund  generally  must accrue income on such
investments for each taxable year,  which generally will be prior to the receipt
of the corresponding cash payments.  However, the Fund must distribute, at least
annually,  all or substantially all of its investment company taxable income and
net tax-exempt  interest,  including such accrued  income,  to  shareholders  to
qualify as a regulated  investment company under the Code and avoid U.S. federal
income  and  excise  taxes.  Therefore,  the  Fund may  have to  dispose  of its
portfolio  securities under  disadvantageous  circumstances to generate cash, or
may have to borrow the cash, to satisfy distribution requirements.

The Fund may invest  significantly  in debt  obligations  that are in the lowest
rating  categories or are unrated,  including  debt  obligations  of issuers not
currently paying interest or who are in default. Investments in debt obligations
that are at risk of or in default  present  special tax issues for the Fund. Tax
rules are not  entirely  clear  about  issues such as when the Fund may cease to
accrue interest,  original issue discount or market  discount,  when and to what
extent  deductions  may be taken  for bad  debts or  worthless  securities,  how
payments  received  on  obligations  in  default  should  be  allocated  between
principal  and income and whether  exchanges  of debt  obligations  in a workout
context are taxable.  These and other  issues will be addressed by the Fund,  in
the event it  invests  in such  securities,  in order to seek to ensure  that it
distributes  sufficient income to preserve its status as a regulated  investment
company and does not become subject to U.S. federal income or excise tax.

If the Fund utilizes  leverage through  borrowing or issuing preferred shares, a
failure by the Fund to meet the asset coverage  requirements imposed by the 1940
Act or by any rating  organization  that has rated such leverage,  or additional
restrictions  that may be imposed by certain lenders on the payment of dividends
or distributions  potentially  could limit or suspend the Fund's ability to make
distributions  on  its  common  shares.  Such  a  limitation  or  suspension  or
limitation  could  prevent  the  Fund  from  distributing  at  least  90% of its
investment  company  taxable income and net  tax-exempt  interest as is required
under the Code and  therefore  might  jeopardize  the Fund's  qualification  for
taxation as a regulated  investment  company under the Code and/or might subject
the Fund to the 4% excise tax  discussed  above.  Upon any  failure to meet such
asset coverage requirements,  the Fund may, in its sole discretion,  purchase or
redeem  shares of preferred  stock in order to maintain or restore the requisite
asset  coverage  and  avoid  the  adverse  consequences  to  the  Fund  and  its
shareholders of failing to satisfy the distribution requirement. There can be no
assurance,  however,  that any such action would achieve these  objectives.  The
Fund will endeavor to avoid restrictions on its ability to distribute dividends.

For U.S. federal income tax purposes,  the Fund is permitted to carry forward an
unused net capital loss for any year to offset its capital gains, if any, for up
to eight years following the year of the loss. To the extent subsequent  capital
gains are offset by such losses,  they would not result in U.S.  federal  income
tax  liability  to the Fund and are not  expected to be  distributed  as such to
shareholders.

At the time of an investor's  purchase of Fund shares, a portion of the purchase
price may be attributable  to realized or unrealized  appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently,  subsequent
distributions by the Fund with respect to these shares from such appreciation or
income  may be  taxable  to such  investor  even  if the  trading  value  of the
investor's  shares  is,  as a result  of the  distributions,  reduced  below the
investor's cost for such shares and the distributions  economically  represent a
return of a portion of the investment.

Foreign  exchange  gains and  losses  realized  by the Fund in  connection  with
certain  transactions  involving foreign  currency-denominated  debt securities,
certain  options and futures  contracts  relating to foreign  currency,  foreign
currency  forward  contracts,  foreign  currencies,  or payables or  receivables
denominated in a foreign  currency are subject to Section 988 of the Code, which
generally  causes  such gains and losses to be  treated as  ordinary  income and
losses and may affect the  amount,  timing and  character  of  distributions  to
shareholders.  Under Treasury regulations that may be promulgated in the future,
any gains from such  transactions  that are not  directly  related to the Fund's
principal business of investing in stock or securities (or its options contracts
or futures contracts with respect to stock or securities) may have to be limited
in order to enable the Fund to satisfy the 90% income  test.  If the net foreign
exchange loss for a year were to exceed the Fund's  investment  company  taxable
income (computed  without regard to such loss), the resulting  ordinary loss for
such year  would not be  deductible  by the Fund or its  shareholders  in future
years.


Sales and other  dispositions of Fund shares are taxable events for shareholders
that are subject to tax. Shareholders should consult their own tax advisers with
reference to their individual  circumstances to determine whether any particular
transaction  in Fund shares is properly  treated as a sale for tax purposes,  as
the following  discussion assumes,  and the tax treatment of any gains or losses
recognized  in such  transactions.  In  general,  if Fund  shares are sold,  the
shareholder  will  recognize  gain or loss equal to the  difference  between the
amount  realized  on the sale and the  shareholder's  adjusted  tax basis in the
shares sold. Such gain or loss will be treated as long-term capital gain or loss
if the shares sold were held for more than one year and otherwise generally will
be  treated  as  short-term  capital  gain  or  loss.  Any  loss  realized  by a
shareholder  upon the sale or other  disposition  of shares  with a tax  holding
period of six months or less will be treated as a long-term  capital loss to the
extent of any amounts treated as distributions  of long-term  capital gains with
respect to such shares.  Losses on sales or other  dispositions of shares may be
disallowed under "wash sale" rules in the event  substantially  identical shares
of the Fund are  purchased  (including  those made pursuant to  reinvestment  of
dividends  and/or  capital  gains  distributions)  within  a  period  of 61 days
beginning  30 days  before  and  ending  30 days  after a  redemption  or  other
disposition  of  shares.  In such a case,  the  disallowed  portion  of any loss
generally would be included in the U.S. federal tax basis of the shares acquired
in the other investments.  The ability to otherwise deduct capital losses may be
subject to other limitations under the Code.

The Fund may, at its  option,  redeem the  Preferred  Shares in whole or in part
subject to certain limitations and to the extent permitted under applicable law,
and is required to redeem all or a portion of the Preferred Shares to the extent
required to maintain the Preferred Shares Basic  Maintenance  Amount (as defined
in the  Prospectus)  and the 1940 Act Preferred Share Asset Coverage (as defined
in the  Prospectus).  Gain or  loss,  if any,  resulting  from a  redemption  of
Preferred  Shares  generally  will be  taxed  as gain or loss  from  the sale of
Preferred  Shares under  Section 302 of the Code rather than as a dividend,  but
only  if the  redemption  distribution  (a)  is  deemed  not  to be  essentially
equivalent  to a dividend,  (b) is in  complete  redemption  of a  shareholder's
interest in the Fund, (c) is substantially  disproportionate with respect to the
shareholder,  or (d) with respect to a non-corporate shareholder,  is in partial
liquidation of the shareholder's  interest in the Fund. For the purposes of (a),
(b), and (c) above,  a  shareholder's  ownership of common  shares and Preferred
Shares will be taken into  account and the common  shares and  Preferred  Shares
held by persons who are related to the redeemed  shareholder may also have to be
taken into  account.  If none of the  conditions  (a) through  (d) are met,  the
redemption proceeds may be considered to be a dividend  distribution  taxable as
ordinary  income as  discussed  above.  In  addition,  any  declared  but unpaid
dividends  distributed to  shareholders  in connection with a redemption will be
taxable to shareholders as dividends as described above.

Under Treasury regulations,  if a shareholder  recognizes a loss with respect to
shares of $2 million or more for an  individual  shareholder,  or $10 million or
more for a  corporate  shareholder,  in any  single  taxable  year (or a greater
amount over a combination of years),  the  shareholder  must file with the IRS a
disclosure  statement on Form 8886.  Shareholders  who own portfolio  securities
directly are in many cases excepted from this reporting  requirement  but, under
current  guidance,  shareholders  of  regulated  investment  companies  are  not
excepted. A shareholder who fails to make the required disclosure to the IRS may
be subject to substantial  penalties.  The fact that a loss is reportable  under
these regulations does not affect the legal  determination of whether or not the
taxpayer's  treatment of the loss is proper.  Shareholders  should  consult with
their tax advisers to determine the  applicability of these regulations in light
of their  individual  circumstances.  Options  written or purchased  and futures
contracts  entered into by the Fund on certain  securities,  indices and foreign
currencies, as well as certain forward foreign currency contracts, may cause the
Fund to  recognize  gains or losses  from  marking-to-market  even  though  such
options may not have lapsed, been closed out, or exercised,  or such futures and
forward  contracts  may not have been  performed  or closed  out.  The tax rules
applicable to these  contracts may affect the  characterization  of some capital
gains and  losses  realized  by the Fund as  long-term  or  short-term.  Certain
options,  futures and forward  contracts  relating to foreign  currencies may be
subject to Section 988, as described above, and accordingly may produce ordinary
income or loss.  Additionally,  the Fund may be required to recognize gain if an
option, futures contract, short sale or other transaction that is not subject to
the mark-to-market  rules is treated as a "constructive sale" of an "appreciated
financial  position"  held by the Fund under  Section 1259 of the Code.  Any net
mark-to-market  gains and/or gains from  constructive  sales may also have to be
distributed  to satisfy  the  distribution  requirements  referred to above even
though the Fund may receive no corresponding  cash amounts,  possibly  requiring
the  disposition  of portfolio  securities  or borrowing to obtain the necessary
cash. Losses on certain options,  futures or forward contracts and/or offsetting
positions  (portfolio  securities or other  positions  with respect to which the
Fund's risk of loss is substantially  diminished by one or more options, futures
or forward  contracts)  may also be deferred under the tax straddle rules of the
Code, which may also affect the characterization of capital gains or losses from
straddle  positions and certain successor  positions as long-term or short-term.
Certain tax elections may be available  that would enable the Fund to ameliorate
some adverse effects of the tax rules described in this paragraph. The tax rules
applicable to options,  futures,  forward contracts and straddles may affect the
amount,  timing and character of the Fund's income and gains or losses and hence
of its distributions to shareholders.


The  federal  income tax  treatment  of the Fund's  investment  in  transactions
involving  swaps,  caps,  floors,  and  collars  and  structured  securities  is
uncertain and may be subject to recharacterization by the IRS. To the extent the
tax treatment of such securities or transactions  differs from the tax treatment
expected by the Fund,  the timing or character of income  recognized by the Fund
could  be  affected,  requiring  the Fund to  purchase  or sell  securities,  or
otherwise change its portfolio, in order to comply with the tax rules applicable
to regulated investment companies under the Code.

The IRS has taken the position  that if a regulated  investment  company has two
classes or more of shares, it must designate distributions made to each class in
any year as  consisting  of no more than  such  class's  proportionate  share of
particular  types of income,  including  ordinary income and net capital gain. A
class's  proportionate  share  of a  particular  type of  income  is  determined
according to the percentage of total dividends paid by the regulated  investment
company to such class. Consequently,  if both common shares and Preferred Shares
are outstanding, the Fund intends to designate distributions made to the classes
of  particular  types of income in  accordance  with the classes'  proportionate
shares of such income.  Thus,  the Fund will  designate  dividends  constituting
capital gain  dividends and other taxable  dividends in a manner that  allocates
such  income  between  the  holders  of common  shares and  Preferred  Shares in
proportion to the total dividends paid to each class during the taxable year, or
otherwise as required by applicable law.

The Fund may be  subject  to  withholding  and other  taxes  imposed  by foreign
countries, including taxes on interest, dividends and capital gains with respect
to its investments in those countries, which would, if imposed, reduce the yield
on or return from those investments.  Tax conventions  between certain countries
and the U.S. may reduce or eliminate such taxes in some cases. The Fund does not
expect to satisfy the requirements for passing through to its shareholders their
pro rata shares of qualified  foreign  taxes paid by the Fund,  with the general
result that  shareholders  would not be entitled to any  deduction or credit for
such taxes on their own tax returns.

Federal law requires  that the Fund  withhold (as "backup  withholding")  28% of
reportable  payments,  including  dividends,  capital gain distributions and the
proceeds of redemptions  and exchanges or  repurchases  of Fund shares,  paid to
shareholders who have not complied with IRS regulations.  In order to avoid this
withholding   requirement,   shareholders   must   certify   on  their   Account
Applications,  or on separate IRS Forms W-9, that the Social  Security Number or
other  Taxpayer  Identification  Number they provide is their correct number and
that they are not  currently  subject  to backup  withholding,  or that they are
exempt  from  backup  withholding.  The Fund may  nevertheless  be  required  to
withhold if it receives notice from the IRS or a broker that the number provided
is  incorrect  or backup  withholding  is  applicable  as a result  of  previous
underreporting of interest or dividend income.

The  description of certain U.S.  federal tax  provisions  above relates only to
U.S. federal income tax  consequences  for  shareholders  who are U.S.  persons,
i.e., U.S. citizens or residents or U.S. corporations,  partnerships,  trusts or
estates,  and who are subject to U.S.  federal income tax.  Investors other than
U.S.  persons  may be subject to  different  U.S.  tax  treatment,  including  a
non-resident alien U.S.  withholding tax at the rate of 30% or at a lower treaty
rate on  amounts  treated as  ordinary  dividends  from the Fund and,  unless an
effective  IRS Form W-8BEN or other  authorized  withholding  certificate  is on
file, to backup  withholding  at the rate of 28% on certain other  payments from
the Fund.  Under the provisions the 2004 Tax Act,  dividends paid by the Fund to
non-U.S.  shareholders  that are  derived  from  short-term  capital  gains  and
qualifying net interest  income  (including  income from original issue discount
and  market  discount),  and  that  are  properly  designated  by  the  Fund  as
"interest-related  dividends"  or  "short-term  capital  gain  dividends,"  will
generally not be subject to U.S. withholding tax, provided that the income would
not be  subject  to  federal  income  tax if  earned  directly  by the  non-U.S.
shareholder.  In addition,  pursuant to the 2004 Tax Act,  distributions  of the
Fund  attributable  to gains  from sales or  exchanges  of "U.S.  real  property
interests" (as defined in the Code and regulations) (including certain U.S. real
property holding corporations) will generally be subject to U.S. withholding tax
and may give rise to an  obligation on the part of the non-U.S.  shareholder  to
file a United States tax return.  The  provisions  contained in the 2004 Tax Act
relating to  distributions to shareholders  who are non-U.S.  persons  generally
will apply to distributions  with respect to taxable years of the Fund beginning
after December 31, 2004 and before January 1, 2008.  Shareholders should consult
their own tax advisers on these matters and on state,  local,  foreign and other
applicable tax laws.


             PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION

PERFORMANCE-RELATED  INFORMATION.  From time to time, in  advertisements,  sales
literature or reports to  shareholders,  the past performance of the Fund may be
illustrated and/or compared with that of other investment companies with similar
investment  objectives.  For example, yield or total return of the Fund's shares
may be  compared to averages  or  rankings  prepared by Lipper,  Inc.,  a widely
recognized  independent service which monitors mutual fund performance;  the S&P
500 Index; the Dow Jones  Industrial  Average;  or other  comparable  indices or
investment  vehicles.  In addition,  the performance of the Fund's shares may be
compared to  alternative  investment  or savings  vehicles  and/or to indices or
indicators of economic activity, e.g., inflation or interest rates. The Fund may
also  include  securities  industry  or  comparative   performance   information
generally  and  in  advertising  or  materials   marketing  the  Fund's  shares.
Performance  rankings and listings  reported in newspapers or national  business
and financial publications,  such as Barron's,  Business Week, Consumers Digest,
Consumer Reports,  Financial World, Forbes,  Fortune,  Investors Business Daily,
Kiplinger's  Personal Finance Magazine,  Money Magazine,  New York Times,  Smart
Money, USA Today, U.S. News and World Report, The Wall Street Journal and Worth,
may also be cited (if the Fund is listed  in any such  publication)  or used for
comparison,  as well as  performance  listings and rankings  from various  other
sources including  Bloomberg  Financial  Markets,  CDA/Wiesenberger,  Donoghue's
Mutual  Fund  Almanac,  Ibbotson  Associates,  Investment  Company  Data,  Inc.,
Johnson's  Charts,  Kanon Bloch Carre and Co.,  Lipper,  Inc.,  Micropal,  Inc.,
Morningstar,  Inc.,  Schabacker  Investment  Management and Towers Data Systems,
Inc. In addition,  from time to time,  quotations  from articles from  financial
publications such as those listed above may be used in advertisements,  in sales
literature or in reports to shareholders of the Fund. The Fund may also present,
from time to time, historical  information depicting the value of a hypothetical
account in one or more classes of the Fund since inception.


Past performance is not indicative of future results. At any time in the future,
yields  and  total  return  may be higher or lower  than past  yields  and total
return, and there can be no assurance that any historical results will continue.

THE  ADVISERS.  From time to time,  the Advisers may use, in  advertisements  or
information  furnished  to  present  or  prospective  shareholders,  information
regarding the Advisers  including,  without  limitation,  information  regarding
their  investment  style,  countries of  operation,  organization,  professional
staff, clients (including other registered investment  companies),  assets under
management  and  performance  record.  These  materials may refer to opinions or
rankings of the Advisers' overall investment management performance contained in
third-party reports or publications.


                              FINANCIAL STATEMENTS


INDEPENDENT  REGISTERED  PUBLIC  ACCOUNTING  FIRM.  The statements of assets and
liabilities and operations of the Fund as of November 30, 2004,  incorporated by
reference  into this Statement of Additional  Information,  have been audited by
KPMG LLP ("KPMG"),  the Fund's independent registered public accounting firm, as
set forth in its report thereon appearing  elsewhere herein,  and is included in
reliance  upon such report  given upon the  authority of such firm as experts in
accounting and auditing. KPMG, located at 99 High Street, Boston,  Massachusetts
02110, has served as the Fund's  independent  registered  public accounting firm
since January 23, 2002,  and has been selected to serve in such capacity for the
Fund's fiscal year ending November 30, 2005. The financial statements and report
of the independent  registered  public accounting firm incorporated by reference
into this Statement of Additional  Information have been so incorporated and the
financial  highlights  included  in the  prospectus  have  been so  included  in
reliance upon the report of KPMG given on their authority as experts in auditing
and accounting.

INCORPORATION  BY REFERENCE.  The Fund's audited  Portfolio of  Investments  and
Statement of Assets and Liabilities  dated November 30, 2004;  audited Statement
of Operations and Statement of Changes in Net Assets for the year ended November
30, 2004; and report of the independent  registered  public  accounting firm for
the year ended  November 30, 2004,  are included in the Fund's Annual Report for
the fiscal year ended November 30, 2004, and  incorporated  herein by reference.
The Fund's  unaudited  Portfolio  of  Investments  and  Statement  of Assets and
Liabilities  dated May 31, 2005 and the unaudited  Statement of  Operations  and
Statement of Changes in Net Assets for the six months  ended May 31,  2005,  are
included in the Fund's Semi-Annual Report for the six months ended May 31, 2005,
and  incorporated  herein  by  reference.  You may  request  a free copy of this
Statement  of  Additional  Information  or the  Fund's  annual  and  semi-annual
reports, request other information about the Fund, or make shareholder inquiries
by  calling  (877)  561-7914  or by  writing  to the  Fund.  This  Statement  of
Additional  Information  and annual and  semi-annual  reports are also available
free of charge on the Fund's  website  (http://www.boulderfunds.net)  and on the
Securities and Exchange  Commission's website  (http://www.sec.gov),  which also
contains other information about the Fund. You may also email requests for these
documents to  publicinfo@sec.gov  or make a request in writing to the Securities
and Exchange Commission's Public Reference Section, Washington, D.C. 20549-0102.
The Fund's registration number under the 1940 Act is 811-02328.



                             ADDITIONAL INFORMATION

A Registration Statement on Form N-2, including amendments thereto,  relating to
the shares  offered  hereby,  has been filed by the Fund with the Securities and
Exchange  Commission,  Washington,  D.C. The  prospectus  and this  Statement of
Additional  Information do not contain all of the  information  set forth in the
Registration  Statement,  including  any exhibits  and  schedules  thereto.  For
further  information  with  respect to the Fund and the shares  offered  hereby,
reference is made to the  Registration  Statement.  Statements  contained in the
prospectus  and this  Statement of Additional  Information as to the contents of
any contract or other document  referred to are not necessarily  complete and in
each instance  reference is made to the copy of such contract or other  document
filed as an exhibit to the  Registration  Statement,  each such statement  being
qualified in all respects by such reference.




                                   APPENDIX A

                       PROXY VOTING POLICIES & PROCEDURES

                            Proxy Voting Procedures

     The Board of Directors of the Boulder  Total Return Fund,  Inc. and Boulder
Growth  & Income  Fund,  Inc.  (collectively,  the  "Funds")  hereby  adopt  the
following  policies and procedures  with respect to voting  proxies  relating to
portfolio securities held by the Funds (collectively, the "Voting Policies").

     1. Policy. It is the policy of each of the Boards of Directors of the Funds
(the  "Board") to delegate the  responsibility  for voting  proxies  relating to
portfolio  securities held by the Funds to Boulder Investment  Advisers,  L.L.C.
(the  "Adviser")  as a part of the  Adviser's  general  management of the Funds,
subject  to the  Board's  continuing  oversight.(1)  The voting of proxies is an
integral part of the investment  management  services that the Adviser  provides
pursuant to the advisory  contract.  Proxy voting  policies and  procedures  are
required by Rule 206 (4)-6 of the  Investment  Advisers Act of 1940, and will be
effective August 6, 2003.

     2.  Fiduciary  Duty.  The right to vote a proxy with  respect to  portfolio
securities held by the Funds is a significant asset of the Fund. The Adviser, to
which  authority  to vote on behalf of the Funds is  delegated,  exercises  this
voting  responsibility as a fiduciary,  and votes proxies in a manner consistent
with the best interest of the Funds and its  shareholders,  and with the goal of
maximizing the value of the Funds and the shareholders' investments.

     3.  Procedures.  The following are the procedures  adopted by the Board for
the administration of this policy:

          a. Review of Adviser Proxy Voting Procedures. The Adviser, with advice
     and  counsel  from the  Board,  shall  present  to the Board its  policies,
     procedures  and other  guideline for voting  proxies at least annually (the
     "Voting  Guidelines"),  and must notify the Board  promptly of any material
     changes.  In accordance  with the foregoing,  the Adviser has developed the
     Voting Guidelines which are attached hereto as Exhibit A.

          b. Voting Record Reporting.  No less than annually,  the Adviser shall
     report to the Board a record of each proxy voted with  respect to portfolio
     securities of the Funds during the respective  year.  With respect to those
     proxies the Adviser has identified as involving a conflict of  interest(2),
     the Adviser  shall submit a separate  report  indicating  the nature of the
     conflict of interest and how that conflict was resolved with respect to the
     voting of the proxy.

     4. Revocation. The delegation by the Board of the authority to vote proxies
relating to portfolio  securities of the Funds is entirely  voluntary and may be
revoked by the Board, in whole or in part, at any time. This disclosure shall be
included in any  registration  statement filed on behalf of the Funds after July
1, 2003.

     5. Annual Filing.  The Fund shall file an annual report of each proxy voted
with respect to portfolio securities of the Funds during the twelve-month period
ended June 30 on Form N-PX not later than August 31 of each year.  The Fund must
file the complete proxy voting record on an annual basis on this form. Form N-PX
must contain complete proxy voting records for the 12 month period stated above,
and must be signed on behalf of the Fund by the  principal  executive  officers.
This form must provide the following information:  (i) Name of the issuer of the
portfolio security; (ii) Exchange ticker symbol; (iii) CUSIP #; (iv) Shareholder
meeting date;  (v) Brief  indication of the matter voted on; (vi) Whether matter
was proposed by the issuer or by a security holder;  (vii) Whether the Fund cast
its vote on the matter;  (viii) How the Fund cast its vote; and (ix) Whether the
Fund cast its vote for or against management

     6. Disclosures.

     a.   The Fund shall include in any future registration statement:

          i.   A   description   of  the   Voting   Policies   and  the   Voting
               Guidelines(3); and

          ii.  A statement  disclosing that  information  regarding how the Fund
               voted proxies  relating to portfolio  securities  during the most
               recent 12-month period ended June 30 is available without charge,
               upon request,  by calling the Funds' toll-free  telephone number;
               or through a specified Internet address;  or both; and on the SEC
               website.(4)


     b.   The Fund  shall  include  in its  Annual  and  Semi-Annual  Reports to
          shareholders:

          i.   A  statement  disclosing  that the  Voting  Policies  and  Voting
               Guidelines are available without charge, upon request, by calling
               the Funds'  toll-free  telephone  number;  or through a specified
               Internet address; and on the SEC website.(5)

          ii.  A statement  disclosing that  information  regarding how the Fund
               voted proxies  relating to portfolio  securities  during the most
               recent 12-month period ended June 30 is available without charge,
               upon request,  by calling the Fund's toll-free  telephone number;
               or through a specified Internet address;  or both; and on the SEC
               website.(6)

     7.  Recordkeeping  Requirements.  SEC  Rule  204-2,  as  amended,  requires
advisers to retain:

          1. Proxy voting policies and procedures
          2. Proxy statements received regarding client securities
          3. Records of votes cast on behalf of clients
          4. Records of written client requests
          5. Any documents prepared by the adviser material to making a decision
          how to vote, or that memorialized the basis for the decision.

     8. Review of Policy. At least annually,  the Board shall review this Policy
to  determine  its  sufficiency  and shall make and approve any changes  that it
deems necessary from time to time.



                          EXHIBIT A - VOTING GUIDLINES

     The Funds' and Advisors' proxy voting principles are summarized below, with
specific  examples of voting  decisions for the types of proposals that are most
frequently presented:


                                                                                 
-------------------------------------- ----------------------------------------------- --------------------------------------------
Category                               Guideline                                       Voting
-------------------------------------- ----------------------------------------------- --------------------------------------------
BOARD OF DIRECTOR ISSUES               The board of directors' primary role is to
                                       protect the interests of all shareholders. Key
                                       functions of the board are to approve the
                                       direction of corporate strategy, ensure
                                       succession of management and evaluate
                                       performance of the corporation as well as
                                       senior management. The board is
                                       accountable to shareholders, and must
                                       operate independently from management.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Routine Elections                 Generally we will vote with management's        Generally FOR
                                       recommendation
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Board Classification              Generally we are opposed to entrenchment        Generally AGAINST
                                       mechanisms and will vote against
                                       proposals to classify a board. We prefer
                                       annual election of directors in order that
                                       shareholders have more power to replace
                                       directors deemed to not be acting in the
                                       shareholders' interest.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Independence of Directors         The majority of board members should be         We will generally support boards that have a
                                       independent from the corporation, management    majority of board members classified as
                                       or a majority shareholder. An independent       independent.
                                       member shoulde not be a former employee of the
                                       company or a representative of a key
                                       supplier to or a key client of the company.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Director Indemnification          Mandatory indemnification of directors          Generally FOR
                                       and officers is necessary to attract quality
                                       candidates.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Director Attendance               Board membership requires a significant amount  We look for attendance records to be in the
                                       of time in order for responsibilities to be     75% participation range.
                                       executed, and attendance at Board and
                                       Committee meetings is noted.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Term Limits                       We are more concerned with the performance      Generally AGAINST but will look at on a
                                       of directors and not with the term limits       case-by-case basis.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Separation of Chair and CEO       In most cases it is advisable for there to be   In most cases we would support a
                                       a separation between the CEO and the Chair to   recommendation to separate
                                       enhance separation of management interests and  the Chair from the CEO. Lead directors are
                                       shareholders.                                   considered acceptable, and in this situation
                                                                                       an independent Corporate Governance
                                                                                       committee must also be in place.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Committees of the Board           Audit, Compensation, Governance and Nominating  We support the establishment of these
                                       committees are the most significant committees  committees, however  independent director
                                       of the board.                                   membership on these committees is the
                                                                                       primary concern. Two-thirds independent
                                                                                       membership is satisfactory, provided that
                                                                                       the chair of each committee is independent.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Audit Process                     The members of an audit committee should be     We will generally support the choice of
                                       independent directors, and the auditor must     auditors recommended by the Audit
                                       also be independent. The auditor should report  Committee. In the event that the auditor
                                       directly to the Audit committee                 supplies other services for a fee other than
                                       and not to management.                          the audit, each situation will be reviewed
                                                                                       on a case-by-case basis.
-------------------------------------- ----------------------------------------------- --------------------------------------------
VOTING AND ENTRENCHMENT ISSUES
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Shareholder Right to Call                                                         Generally FOR
     Special Meeting
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Shareholder Right to Act by                                                       Generally FOR
     Written Consent
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Cumulative Voting                 Our experience has been that cumulative voting  Generally AGAINST, although we may consider
                                       is generally proposed by large shareholders who if the board has been unresponsive to
                                       may wish to exert undue influence on the board. shareholders.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Confidentiality of Shareholder    Like any other electoral system, the voting     We will support any proposals to introduce
     Voting                            at annual and special meetings should be        or maintain confidential voting.
                                       confidential and free from any potential
                                       coercion and/or impropriety.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Size of Board of Directors        Generally boards should be comprised of a       The independence of the board is a greater
                                       minimum of seven to a maximum of fifteen.       concern than the  number of members.
                                       However the complexity of the company has an    However should a chance in board size be
                                       impact on required board size.                  proposed as potentially an anti-takeover
                                                                                       measure we would vote against.
-------------------------------------- ----------------------------------------------- --------------------------------------------
COMPENSATION ISSUES
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Director Compensation             Directors should be compensated fairly for the  We support recommendations where a portion
                                       time and expertise they devote on behalf of     of the renumeration is to be in the form of
                                       shareholders. We favor directors personally     common stock. We do not support options
                                       owning shares in the corporation, and that      for directors, and do not support retirement
                                       they receive a substantial portion of their     bonuses or benefits for directors.
                                       remuneration in the form of shares.
-------------------------------------- ----------------------------------------------- --------------------------------------------
MANAGEMENT COMPENSATION                Compensation plans for executives should be     Executive compensation will be considered
                                       designed to attract and retain the right people on a case-by-case basis.
                                       with exceptional skills to manage the company
                                       successfully long-term. These plans should be
                                       competitive within the company's respective
                                       industry without being excessive and should
                                       attempt to align the executive's interests
                                       with the long-term interest of shareholders.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Stock Options and Incentive       Compensation plans should be designed to        We will not support plans with options
     Compensation Plans                reward good performance of executives.          priced below current market value or the
                                       They should also encourage management to        lowering of the exercise price on any
                                       own stock so as to align their financial        previously granted options. We will not
                                       interests with those of the shareholders.       support any plan amendment that is not
                                       It is important that these plans are            capped or that results in anything but
                                       disclosed to the shareholders in detail for     negligible dilution. We believe that
                                       their approval.                                 shareholders should have a say in all
                                                                                       aspects of option plans and therefore will
                                                                                       not support omnibus stock option plans or
                                                                                       plans where the Board is given discretion to
                                                                                       set the terms. Plans will be considered on
                                                                                       a case-by-case basis.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Adopt/Amend Employee Stock                                                        Considered on a case-by-case basis.
     Purchase Plans
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Golden Parachutes                 Although we believe that "golden parachutes"    Generally opposed but will consider on a
                                       may be a good way to attract, retain and        case-by-case basis.
                                       encourage objectivity of qualified executives
                                       by providing financial security in the case of
                                       a change in the structure or control of a
                                       company, golden parachutes can be excessive.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Require Shareholder Approval of                                                   Generally FOR
     Golden Parachutes
-------------------------------------- ----------------------------------------------- --------------------------------------------
TAKEOVER PROTECTIONS                   Some companies adopt shareholder rights plans   We will review each situation on a
                                       that incorporate anti-takeover measures, which  case-by-case basis. We will generally
                                       may include:  poison pills, crown jewel         support proposals that protect the rights
                                       defense, payment of greenmail, going private    and share value  of shareholders
                                       transactions, leveraged buyouts, lock-up
                                       arrangements, Fair price amendments,
                                       Re-incorporation.  Rights plans should be
                                       designed to ensure that all shareholders are
                                       treated equally in the event there is a change
                                       in control of a company. These plans should
                                       also provide the Board with sufficient time to
                                       ensure that the appropriate course of action
                                       is chosen to ensure shareholder interests have
                                       been protected. However, many shareholder
                                       rights plans can be used to prevent bids that
                                       might in fact be in the shareholders best
                                       interests. Depending on their contents, these
                                       plans may also adversely influence current
                                       share prices and long-term shareholder value.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Dual Class Shares                 It is not unusual for certain classes of        Generally AGAINST.
                                       shares to have more than one vote per share.
                                       This is referred to as a dual class share
                                       structure and can result in a minority of
                                       shareholders having the ability to make
                                       decisions that may not be in the best
                                       interests of the majority of shareholders.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Super-Majority Voting Provisions  Super-majority voting (e.g., 67% of votes cast   Generally AGAINST. We will generally
                                       or a majority of outstanding shares), although   oppose proposals for voting requirements
                                       fairly common, can, from a practical point of    that are greater than a majority of votes
                                       view, be difficult to obtain, and essentially    cast. That said, we will review
                                       are a bar from effective challenges to           supermajority proposals on a case-by-case
                                       entrenched management, regardless of             basis.
                                       performance or popularity. A very high
                                       requirement can be unwieldy and therefore not
                                       in the best interest of the majority of
                                       shareholders. 
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Issuance of Authorized Shares                                                     Generally FOR
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Issuance of Unlimited or          Corporations may increase their authorized      Generally AGAINST. We will generally
     Additional Shares                 number of shares in order to implement a        oppose proposals to increase the number of
                                       stock split, to support an acquisition or       authorized shares to "unlimited", but will
                                       restructuring plan, to use in a stock option    consider any proposals to increase the
                                       plan or to implement an anti-takeover plan.     number of authorized shares on a case-by-
                                       Shareholders should approve of the specific     case basis for a valid business purpose
                                       business need for the increase in the
                                       number of shares and should understand that
                                       the issuance of new shares can have a
                                       significant effect on the value of existing
                                       shares.  
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Shareholder Proposals             Shareholders should have the opportunity to     Shareholder proposals will be reviewed on a
                                       raise their concerns or issues to company       case-by-case basis.
                                       management, the board and other shareholders.
                                       As long as these proposals deal with
                                       appropriate issues and are not for the
                                       purposes of airing personal grievances or to
                                       obtain publicity, they should be included on
                                       the proxy ballot for consideration.
-------------------------------------- ----------------------------------------------- --------------------------------------------
OTHER MATTERS
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Stock Repurchase Plans                                                            Generally FOR
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Stock Splits                                                                      Generally FOR
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Require Shareholder Approval to                                                   Generally FOR
     issue Preferred Stock
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Corporate Loans to                Corporate loans, or the guaranteeing of loans,  Generally AGAINST.
     Employees                         to enable employees to purchase company stock
                                       or options should be avoided. These types of
                                       loans can be risky if the company stock
                                       declines or the employee is terminated.
-------------------------------------- ----------------------------------------------- --------------------------------------------
     Blank-cheque Preferred            The authorization of blank-cheque preferred     Generally AGAINST.
                                       shares gives the board of directors' complete
                                       discretion to fix voting, dividend, conversion
                                       and other rights and privileges. Once these
                                       shares have been authorized, the shareholders
                                       have no authority to determine how or when
                                       they will be allocated. There may be valid
                                       business reasons for the issuance of
                                       these shares but the potential for abuse
                                       outweighs the benefits.



(1) This  policy is  adopted  for the  purpose  of the  disclosure  requirements
adopted  by the  Securities  and  Exchange  Commission,  Releases  No.  33-8188,
34-47304, IC-25922.

(2) As it is used in this document,  the term "conflict of interest" refers to a
situation  in which the  Adviser or  affiliated  persons of the  adviser  have a
financial interest in a matter presented by a proxy other than the obligation it
incurs as  investment  adviser  to the Funds  which  compromises  the  Adviser's
independence of judgment and action with respect to the voting of the proxy.

(3) This disclosure shall be included in the  registration  statement next filed
on behalf of the Funds after July 1, 2003.

(4) This disclosure shall be included in the  registration  statement next filed
on behalf of the Funds after August 31, 2004.

(5) This disclosure  shall be included in the report next filed on behalf of the
Funds after July 1, 2003.

(6) This disclosure  shall be included in the report next filed on behalf of the
Funds after August 31, 2004.



                                   APPENDIX B

                             ARTICLES SUPPLEMENTARY


                       BOULDER GROWTH & INCOME FUND, INC.

                             ARTICLES SUPPLEMENTARY

                         AUCTION MARKET PREFERRED STOCK


BOULDER GROWTH & INCOME FUND, a Maryland corporation  (referred to herein as the
"Fund" or the  "Corporation"),  certifies to the State Department of Assessments
and Taxation of Maryland that:

FIRST:  Under a power  contained in Article IV of the charter of the Corporation
(which, together with these Articles Supplementary, is referred to herein as the
"Charter"),  the Board of Directors of the  Corporation  has, by resolution duly
adopted,  classified  1,000  authorized but unissued shares of common stock, par
value  $.01 per  share,  of the  Corporation  as a  series  of  preferred  stock
designated as Series  M28Auction  Market  Preferred  Shares,  par value $.01 per
share, liquidation preference $25,000 per share.

SECOND:  The Auction  Market  Preferred  Shares have the following  preferences,
rights,  voting  powers,  restrictions,  limitations  as to dividends  and other
distributions,  qualifications,  and terms and  conditions of redemption  which,
upon any  restatement  of the  Charter,  shall  become part of Article IV of the
Charter,  with any necessary or  appropriate  renumbering  or relettering of the
sections or subsections thereof.

SERIES M28 AUCTION MARKET PREFERRED SHARES

DESIGNATION


AMPS:  1,000  authorized but unissued shares of common stock, par value $.01 per
share,  of the  Corporation  are  classified  as a  series  of  preferred  stock
designated as Series M28 Auction Market  Preferred  Shares,  $0.01 par value per
share,  liquidation  preference $25,000 per share ("AMPS"). The Initial Dividend
Period for the AMPS shall be the period from and  including  the Original  Issue
Date  thereof  to and  including           ,  2005.  Each  AMPS  shall  have  an
Applicable  Rate for its Initial  Dividend Period equal to       % per annum and
an initial  Dividend  Payment Date of              , 2005.  Each AMPS shall have
such other preferences,  rights, voting powers, restrictions,  limitations as to
dividends and other  distributions,  qualifications  and terms and conditions of
redemption,  in addition to those required by applicable law or set forth in the
Charter applicable to shares of Preferred Stock ("Preferred  Stock"), as are set
forth  in Part I and  Part  II of  these  terms  of the  AMPS.  The  AMPS  shall
constitute a separate series of Preferred Stock.


Subject to the provisions of Section 11 of Part I hereof, the Board of Directors
may, in the future,  authorize  the  issuance of  additional  AMPS with the same
preferences,  rights, voting powers,  restrictions,  limitations as to dividends
and other  distributions,  qualifications and terms and conditions of redemption
and other terms herein described,  except that the Initial Dividend Period,  the
Applicable Rate for the Initial Dividend Period and the initial Dividend Payment
Date  shall  be as set  forth in the  Articles  Supplementary  relating  to such
additional AMPS.

Capitalized  terms  used in Part I and Part II of these  terms of the AMPS shall
have the  meanings  (with the terms  defined in the singular  having  comparable
meanings when used in the plural and vice versa)  provided in the  "Definitions"
section immediately following, unless the context otherwise requires.

DEFINITIONS

As used in Parts I and II of these terms of the AMPS, the following  terms shall
have  the  following  meanings  (with  terms  defined  in  the  singular  having
comparable meanings when used in the plural and vice versa),  unless the context
otherwise requires:

"1940 Act" means the  Investment  Company Act of 1940,  as amended  from time to
time, and the rules and regulations thereunder.

"1940 Act Cure Date",  with  respect to the failure by the Fund to maintain  the
1940 Act Preferred  Share Asset  Coverage (as required by Section 5 of Part I of
these terms of the AMPS) as of the last  Business Day of each month,  shall mean
the last Business Day of the following month.

"1940 Act Preferred Share Asset Coverage" shall mean asset coverage,  as defined
in  Section  18(h) of the  1940  Act,  of at  least  200%  with  respect  to all
outstanding  senior  securities of the Fund which are shares of stock  including
all  Outstanding  AMPS (or such  other  asset  coverage  as may in the future be
specified  in or under the 1940 Act as the  minimum  asset  coverage  for senior
securities  which are shares or stock of a  closed-end  investment  company as a
condition of declaring dividends on its common shares or stock).


"Affected  Series" has the meaning set forth in Section  4(c) of Part I of these
terms of the AMPS.

"Affiliate"  means any Person known to the Auction Agent to be controlled by, in
control of, or under common control with, the Fund.

"Agent Member" means a member of, or participant  in, the Securities  Depository
that will act on behalf of a  Beneficial  Owner of one or more AMPS or on behalf
of a Potential Beneficial Owner.

"Annual  Valuation Date" means the last Friday before the fiscal year end of the
Fund (or if the last  Friday is a holiday,  then the  immediate  prior  business
day).

"Applicable  Percentage" and "Applicable Spread" mean the percentage  determined
based on the lower of the credit  ratings  assigned  to the AMPS on such date by
Moody's and Fitch (or if Moody's and Fitch are not making such rating available,
the equivalent of such rating by a substitute rating agency):



                      Applicable Percentage Payment Table
   ---------------------------------------------------------------------------
                                                                  
           Credit Ratings                   Applicable Percentage       Applicable Spread
   ---------------------------------------  ---------------------       -----------------
      Moody's             Fitch
   --------------- -----------------------
        Aaa                AAA              125%                        1.25%
    Aa3 to Aa1          AA- to AA+          150%                        1.50%
     A3 to A1            A- to A+           200%                        2.00%
   Baa3 to Baa1        BBB- to BBB+         250%                        2.50%
   Ba1 and lower      BB+ and lower         300%                        3.00%


The Applicable  Percentage and the Applicable  Spread as so determined  shall be
further  subject to upward but not downward  adjustment in the discretion of the
Board of Directors (as defined below),  provided that immediately  following any
such  increase the Fund would be in compliance  with the  Preferred  Stock Basic
Maintenance Amount (as defined below). The Fund shall take all reasonable action
necessary to enable  Moody's and Fitch to provide a rating for the AMPS. If both
Moody's and Fitch shall not make such a rating available,  the Fund shall select
another Rating Agency to act as a Substitute  Rating Agency.  However,  the Fund
shall not be required to have more than one Rating  Agency  provide a rating for
the AMPS.

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

"Approved  Price" means the "fair value" as determined by the Fund in accordance
with  the  valuation  procedures  adopted  from  time to time  by the  Board  of
Directors and for which the Fund receives a  marked-to-market  price (which, for
the purpose of clarity,  shall not mean Market Value) from an independent source
at least semi-annually.

"Auction" means a periodic operation of the Auction Procedures.

"Auction  Agent" means  Deutsche  Bank Trust Company  Americas  unless and until
another commercial bank, trust company or other financial  institution appointed
by a resolution of the Board of Directors or a duly authorized committee thereof
enters into an agreement with the Fund to follow the Auction  Procedures for the
purpose  of  determining  the  Applicable  Rate  and to act as  transfer  agent,
registrar, dividend disbursing agent and redemption agent for the AMPS.

"Auction  Date" with respect to any Dividend  Period shall mean the Business Day
next preceding the first day of such Dividend Period.

"Auction  Procedures" means the procedures for conducting  Auctions set forth in
Part II of these terms of the AMPS.

"Auditors'  Confirmation" has the meaning set forth in Section 6(c) of Part I of
these terms of the AMPS.


"Available AMPS" shall have the meaning  specified in paragraph (a) of Section 3
of Part II of these terms of the AMPS.

"Beneficial  Owner"  means a customer  of a  Broker-Dealer  who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder
of AMPS or a Broker-Dealer that holds AMPS for its own account.

"Bid" and "Bids" shall have the respective  meanings  specified in paragraph (a)
of Section 1 of Part II of these terms of the AMPS.

"Bidder" and "Bidders" shall have the respective meanings specified in paragraph
(a) of Section 1 of Part II of these terms of the AMPS; provided,  however, that
neither the Fund nor any affiliate  thereof shall be permitted to be a Bidder in
an Auction,  except that any Broker-Dealer  that is an affiliate of the Fund may
be a Bidder in an Auction,  but only if the Orders placed by such  Broker-Dealer
are not for its own account.

"Board of Directors" " means the Board of Directors of the Fund.

"Broker-Dealer"  means any  broker-dealer,  or other entity  permitted by law to
perform the functions  required of a Broker-Dealer  in Part II of these terms of
the  AMPS,  that  has  been  selected  by  the  Fund  and  has  entered  into  a
Broker-Dealer Agreement with the Auction Agent that remains effective.

"Broker-Dealer  Agreement"  means an agreement  between the Auction  Agent and a
Broker-Dealer  pursuant  to  which  such  Broker-Dealer  agrees  to  follow  the
procedures specified in Part II of these terms of the AMPS.

"Business  Day"  means a day on which the New York  Stock  Exchange  is open for
trading and which is not a  Saturday,  Sunday or other day on which banks in New
York City are authorized or obligated by law to close.

"Closing  Transaction" has the meaning set forth in Section 8(b)(i) of Part I of
these terms of the AMPS.

"Code"  means the Internal  Revenue Code of 1986,  as amended from time to time.
Each  reference  herein to a section of the Code shall be deemed to include  the
United States  Treasury  Regulations in effect  thereunder and applicable to the
AMPS or the use of proceeds thereof, and also includes all applicable amendments
or successor provisions unless the context requires otherwise.

"Common Stock" means the common stock, par value $0.01 per share, of the Fund.

"Cure Date" shall mean the Preferred  Stock Basic  Maintenance  Cure Date or the
1940 Act Cure Date.

"Date of Original Issue" means,  with respect to any AMPS, the date on which the
Fund first issues such share.

"Deposit  Securities"  means  cash and  portfolio  securities  rated at least A2
(having a  remaining  maturity  of 12 months or less),  P-1,  VMIG-1 or MIG-1 by
Moody's or A (having a remaining  maturity of 12 months or less),  A-1+ or SP-1+
by S&P.

"Discount Factor" means a Fitch Discount Factor or a Moody's Discount Factor, as
applicable.

"Discounted  Value" of any asset of the Fund  means the  quotient  of the Market
Value of an Eligible Asset divided by the applicable Discount Factor.

"Dividend  Payment  Date,"  with  respect to AMPS,  shall mean any date on which
dividends are payable on the AMPS pursuant to the provisions of paragraph (d) of
Section 2 of Part I of these terms of the AMPS.

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

"Eligible  Asset"  means a Fitch  Eligible  Asset (if Fitch is then  rating  the
AMPS), a Moody's  Eligible Asset (if Moody's is then rating the AMPS) and/or any
asset  included in the  calculations  used by any Rating  Agency then rating the
AMPS for purposes of  determining  such Rating  Agency's  rating on the AMPS, as
applicable.

"Existing  Holder" means a  Broker-Dealer,  or any such other Person that may be
permitted  by the Fund,  that is  listed as the  holder of record of AMPS in the
Share Books.

"Exposure  Period" on a Valuation Date means the period  commencing on such date
and ending 42 days thereafter for Fitch and 49 days  thereafter for Moody's,  as
such  exposure  period may be modified by  resolution of the Board of Directors;
provided,  however,  that the Fund shall have received  confirmation  in writing
from each Rating Agency that any such  modification  shall not adversely  affect
such Rating Agency's then-current rating of the AMPS.


"Failure to Deposit",  with respect to shares of a series of AMPS,  shall mean a
failure by the Fund to pay to the Auction Agent,  not later than 12:00 noon, New
York City time, (A) on the Business Day next preceding any Dividend Payment Date
for shares of such series,  in funds available on such Dividend  Payment Date in
the City of New York, New York, the full amount of any dividend  (whether or not
earned or  declared)  to be paid on such  Dividend  Payment Date on any share of
such series or (B) on the Business Day next  preceding  any  redemption  date in
funds available on such redemption date for shares of such series in the City of
New York, New York, the Redemption  Price to be paid on such redemption date for
any share of such  Series  after  Notice of  Redemption  is mailed  pursuant  to
paragraph  (c) of  Section  9 of Part I of these  terms of the  AMPS;  provided,
however,  that the foregoing clause (B) shall not apply to the Fund's failure to
pay the  Redemption  Price  in  respect  of AMPS  when  the  related  Notice  of
Redemption  provides  that  redemption  of such shares is subject to one or more
conditions  precedent  and any such  condition  precedent  shall  not have  been
satisfied  at the time or times and in the manner  specified  in such  Notice of
Redemption.

"Fitch" means Fitch Ratings or its successors.

"Fitch  Discount  Factor"  means  the  discount  factors  set forth in the Fitch
Guidelines for use in calculating  the Discounted  Value of the Fund's assets in
connection with Fitch's ratings of the AMPS.

"Fitch  Eligible  Assets"  means  assets  of the  Fund set  forth  in the  Fitch
Guidelines as eligible for inclusion in calculating the Discounted  Value of the
Fund's assets in connection with Fitch's ratings of the AMPS.

"Fitch  Guidelines" shall mean the Fitch Preferred Stock Guidelines,  as amended
from time to time as  provided  below.  The terms of the AMPS are subject to the
Fitch  Guidelines  for so long  as the  AMPS  are  rated  by  Fitch.  The  Fitch
Guidelines may be amended by Fitch without the vote,  consent or approval of the
Fund, the Board of Directors or any holder of shares of the AMPS,  including any
series of AMPS, or any other stockholder of the Fund.

"Forward  Commitment"  has the meaning set forth in Section 8(a)(v) of Part I of
these terms of the AMPS.

"Fund's  Rating  Agencies"  shall mean,  collectively,  Moody's and Fitch or any
Substitute  Rating Agency (as defined  below) in lieu of Moody's or Fitch in the
event Moody's or Fitch shall not rate the AMPS.

"Holder"  means a Person  identified  as a holder of record of AMPS in the Share
Register.

"Hold Order" and "Hold Orders" shall have the respective  meanings  specified in
paragraph (a) of Section 1 of Part II of these terms of the AMPS.

"Independent  Accountant" means a nationally recognized  accountant,  or firm of
accountants, that is, with respect to the Fund, an independent public accountant
or firm of independent  public  accountants under the Securities Act and serving
as such for the Fund.

"Initial  Dividend  Period,"  with respect to shares of a series of AMPS,  shall
have the meaning specified with respect to shares of such series in Section 2(d)
of Part I of these terms of the AMPS.

"Late  Charge"  shall have the meaning  specified in  subparagraph  (e)(i)(B) of
Section 2 of Part I of these terms of the AMPS.

"LIBOR Dealer" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and such
other  dealer or dealers as the Fund from time to time may  appoint  or, in lieu
thereof, their respective affiliates and successors.

"LIBOR  Rate," on any  Auction  Date,  means (i) the rate for  deposits  in U.S.
dollars for the designated  Dividend Period,  which appears on display page 3750
of Moneyline's  Telerate  Service  ("Telerate Page 3750") (or such other page as
may replace that page on that service,  or such other service as may be selected
by the LIBOR Dealer or its successors  that are LIBOR Dealers) as of 11:00 a.m.,
London time,  on the day that is the London  Business Day  preceding the Auction
Date (the "LIBOR  Determination  Date"), or (ii) if such rate does not appear on
Telerate  Page 3750 or such other page as may replace such  Telerate  Page 3750,
(A) the  LIBOR  Dealer  shall  determine  the  arithmetic  mean  of the  offered
quotations  of the  Reference  Banks to leading  banks in the  London  interbank
market for deposits in U.S.  dollars for the  designated  Dividend  Period in an
amount  determined by such LIBOR Dealer by reference to requests for  quotations
as of  approximately  11:00 a.m.  (London  time) on such date made by such LIBOR
Dealer  to the  Reference  Banks,  (B) if at least  two of the  Reference  Banks
provide such quotations, the LIBOR Rate shall equal such arithmetic mean of such
quotations,  (C) if  only  one or  none  of the  Reference  Banks  provide  such
quotations,  the LIBOR  Rate  shall be deemed to be the  arithmetic  mean of the
offered  quotations  that leading  banks in The City of New York selected by the
LIBOR Dealer (after  obtaining the Fund's  approval) are quoting on the relevant
LIBOR  Determination  Date  for  deposits  in U.S.  dollars  for the  designated
Dividend Period in an amount determined by the LIBOR Dealer (after obtaining the
Fund's approval) that is representative  of a single  transaction in such market
at such time by reference to the  principal  London  offices of leading banks in
the London interbank market; provided, however, that if one of the LIBOR Dealers
does not quote a rate required to determine the LIBOR Rate,  the LIBOR Rate will
be  determined  on the basis of the  quotation  or  quotations  furnished by any
Substitute  LIBOR Dealer or  Substitute  LIBOR  Dealers  selected by the Fund to
provide  such rate or rates not being  supplied  by the LIBOR  Dealer;  provided
further,  that if the LIBOR Dealer and Substitute LIBOR Dealers are required but
unable to  determine a rate in  accordance  with at least one of the  procedures
provided  above,  the LIBOR Rate shall be the LIBOR  Rate as  determined  on the
previous  Auction Date. If the number of Dividend  Period days shall be (i) 7 or
more but fewer than 21 days,  such rate shall be the seven-day  LIBOR rate; (ii)
more than 21 but fewer  than 49 days,  such rate  shall be the  one-month  LIBOR
rate;  (iii) 49 or more but fewer than 77 days, such rate shall be the two-month
LIBOR  rate;  (iv) 77 or more but fewer  than 112 days,  such rate  shall be the
three-month LIBOR rate; (v) 112 or more but fewer than 140 days, such rate shall
be the  four-month  LIBOR rate;  (vi) 140 or more but fewer than 168 days,  such
rate shall be the  five-month  LIBOR rate;  (vii) 168 or more but fewer than 189
days, such rate shall be the six-month LIBOR rate;  (viii) 189 or more but fewer
than 217 days, such rate shall be the  seven-month  LIBOR rate; (ix) 217 or more
but fewer than 252 days, such rate shall be the eight-month  LIBOR rate; (x) 252
or more but fewer than 287 days,  such rate shall be the nine-month  LIBOR rate;
(xi) 287 or more but fewer than 315 days, such rate shall be the ten-month LIBOR
rate;  (xii)  315 or more  but  fewer  than 343  days,  such  rate  shall be the
eleven-month  LIBOR rate;  and (xiii) 343 or more but fewer than 365 days,  such
rate shall be the twelve-month LIBOR rate.


"Lien" means any material lien, mortgage,  pledge, security interest or security
agreement of any kind.

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

"London Business Day" means any day on which commercial banks are generally open
for business in London.

"Long Term Dividend  Period"  means a Special  Dividend  Period  consisting of a
specific period of one whole year or more but not greater than five years.

"Market  Value"  of any  asset of the Fund  shall be the  market  value  thereof
determined  by a Pricing  Service.  Market Value of any asset shall  include any
interest accrued thereon. A Pricing Service shall value portfolio  securities at
the quoted bid prices or the mean  between the quoted bid and asked price or the
yield equivalent when quotations are not readily available. Securities for which
quotations are not readily available shall be valued at fair value as determined
by a Pricing  Service using methods  which include  consideration  of: yields or
prices of securities of comparable quality, type of issue, coupon,  maturity and
rating;  indications as to value from dealers; and general market conditions.  A
Pricing Service may employ electronic data processing techniques and/or a matrix
system to  determine  valuations.  In the event a Pricing  Service  is unable to
value a security,  the security  shall be valued at the lower of two dealer bids
obtained by the Fund from dealers who are members of the National Association of
Securities Dealers,  Inc. and who make a market in the security, at least one of
which shall be in writing.  Futures  contracts and options are valued at closing
prices for such  instruments  established  by the  exchange or board of trade on
which they are traded,  or if market quotations are not readily  available,  are
valued at fair value on a  consistent  basis using  methods  determined  in good
faith by the Board of Directors.

"Maximum  Applicable  Rate" with respect to AMPS for any Dividend  Period is the
higher of the Applicable  Percentage of the Reference Rate or the Reference Rate
plus the Applicable Spread. The Applicable  Percentage and the Applicable Spread
for any regular  dividend  period shall be determined  based on the lower of the
credit ratings assigned to the AMPS by Moody's and Fitch on the auction date for
such  period  as set  forth in the  definition  of  "Applicable  Percentage  and
Applicable  Spread".  If Moody's and/or Fitch do not make such rating available,
the rate shall be  determined  by reference to  equivalent  ratings  issued by a
Substitute Rating Agency. In the case of a special rate period,  (1) the Maximum
Applicable Rate shall be specified by the Fund in the Notice of Special Dividend
Period for such Dividend  Payment Period and (2) the  Applicable  Percentage and
Applicable  Spread shall be  determined on the date two business days before the
first day of such Special  Dividend  Period.  The Auction Agent shall round each
applicable Maximum Applicable Rate to the nearest  one-thousandth (0.001) of one
percent per annum,  with any such number ending in five  ten-thousandths  of one
percent  being  rounded  upwards to the  nearest  one-thousandth  (0.001) of one
percent.


"Minimum Dividend Period" shall mean any Dividend Period of [twenty-eight  (28)]
days. "Moody's" means Moody's Investors Service, Inc. or its successors.

"Moody's  Discount  Factor" means the discount  factors set forth in the Moody's
Guidelines for use in calculating  the Discounted  Value of the Fund's assets in
connection with Moody's ratings of the AMPS.

"Moody's  Eligible  Assets"  means  assets of the Fund set forth in the  Moody's
Guidelines as eligible for inclusion in calculating the Discounted  Value of the
Fund's assets in connection with Moody's ratings of the AMPS.

"Moody's  Guidelines"  shall mean the Moody's  Preferred  Stock  Guidelines,  as
amended from time to time as provided  below.  The terms of the AMPS are subject
to the  Moody's  Guidelines  for so long as the AMPS are rated by  Moody's.  The
Moody's  Guidelines  may be  amended  by Moody's  without  the vote,  consent or
approval  of the Fund,  the Board of  Directors  or any  holder of shares of the
AMPS, including any series of AMPS, or any other stockholder of the Fund.

"Municipal  Obligations" means municipal obligations,  including municipal bonds
and  short-term  municipal  obligations,  the interest from which is exempt from
federal income taxes.

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

"Non-Payment  Period  Rate"  for  any  period  means,  initially,  300%  of  the
applicable  Reference Rate,  provided that the Board of Directors shall have the
authority  to  adjust,  modify,  alter or change  from time to time the  initial
Non-Payment  Period  Rate if the Board of  Directors  determines  and the Fund's
Rating Agencies advise the Fund in writing that such  adjustment,  modification,
alteration or change will not adversely  affect its then current  ratings on the
AMPS.

"Notice of  Redemption"  shall mean any notice with respect to the redemption of
AMPS  pursuant  to  paragraph  (c) of Section 9 of Part I of these  terms of the
AMPS.

"Notice of Special  Dividend  Period"  shall mean any notice  with  respect to a
Special Dividend Period of AMPS pursuant to paragraph (b) of Section 3 of Part I
of these terms of the AMPS.

"Optional  Redemption  Price"  means  $25,000 per share plus an amount  equal to
accumulated but unpaid dividends (whether or not earned or declared) to the date
fixed for redemption plus any applicable  redemption premium attributable to the
designation of a Premium Call Period.

"Order" and "Orders" shall have the respective  meanings  specified in paragraph
(a) of Section 1 of Part II of these terms of the AMPS.

"Outstanding"  means,  as of any date (i) AMPS  theretofore  issued  by the Fund
except,  without duplication,  (A) any AMPS theretofore canceled or delivered to
the Auction  Agent for  cancellation,  or redeemed by the Fund, or as to which a
Notice of  Redemption  shall have been given and Deposit  Securities  shall have
been  deposited in trust or segregated by the Fund pursuant to Section 9 of Part
I of these  terms  of the  AMPS  and (B) any  AMPS as to  which  the Fund or any
Affiliate (other than an Affiliate that is a  Broker-Dealer)  thereof shall be a
Beneficial  Owner,  provided  that  AMPS  held by an  Affiliate  shall be deemed
outstanding for purposes of calculating  the Preferred  Stock Basic  Maintenance
Amount and (ii) with respect to other  preferred  stock of the Fund, the meaning
equivalent to that for AMPS as set forth in clause (i) of this paragraph.

"Person"  means  and  includes  an  individual,  a  partnership,   a  trust,  an
unincorporated  association,  a joint venture or other entity or a government or
any agency or political subdivision thereof.

"Potential   Beneficial  Owner"  means  a  customer  of  a  Broker-Dealer  or  a
Broker-Dealer that is not a Beneficial Owner of AMPS but that wishes to purchase
such shares,  or that is a Beneficial  Owner that wishes to purchase  additional
AMPS.

"Potential  Holder" means any  Broker-Dealer  or any such other Person as may be
permitted by the Fund,  including any Existing Holder,  who may be interested in
acquiring AMPS (or, in the case of an Existing Holder, additional AMPS).

"Preferred Stock Basic Maintenance Amount", as of any Valuation Date, shall have
the meaning set forth in the respective Rating Agency Guidelines.


"Preferred Stock Basic  Maintenance  Cure Date",  with respect to the failure by
the Fund to satisfy the Preferred Stock Basic Maintenance Amount (as required by
Section 6 of Part I of these  terms of the AMPS) as of a given  Valuation  Date,
means the sixth Business Day following such Valuation Date.

"Preferred  Stock  Basic  Maintenance  Report"  means a report as of the related
Valuation  Date of the assets of the Fund,  the Market Value and the  Discounted
Value  thereof  (seriatim  and in  aggregate),  and the  Preferred  Stock  Basic
Maintenance Amount.

"Preferred Stock Paying Agent" means Deutsche Bank Trust Company Americas unless
and until  another bank or trust company has been  appointed as Preferred  Stock
Paying  Agent by a  resolution  of the Board of Directors  and  thereafter  such
substitute bank or trust company.

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

"Pricing Service" means any pricing service designated by the Board of Directors
of the Fund and  approved by the Fund's  Rating  Agencies,  as  applicable,  for
purposes of determining  whether the Fund has Eligible  Assets with an aggregate
Discounted  Value that equals or exceeds the Preferred  Stock Basic  Maintenance
Amount.

"Rating Agency" means a nationally recognized statistical rating organization.

"Rating Agency  Guidelines"  means the Fitch Guidelines (if Fitch is then rating
AMPS), Moody's Guidelines (if Moody's is then rating AMPS) and the guidelines of
any Other  Rating  Agency  (if any Other  Rating  Agency is then  rating  AMPS),
whichever is applicable.

"Receivables  for  Municipal  Obligations  Sold"  shall  mean  for  purposes  of
calculation  of  Eligible  Assets  as of any  Valuation  Date,  no more than the
aggregate of the following:

     (i) the book value of receivables for Municipal  Obligations  sold as of or
prior to such  Valuation Date if such  receivables  are due within five business
days of such Valuation Date, and if the trades which generated such  receivables
are (x) settled through  clearing house firms with respect to which the Fund has
received  prior  written  authorization  from  the  Rating  Agency  or (y)  with
counterparties  having the Rating  Agency's  long-term  debt  rating of at least
Baa3; and

     (ii) the Rating Agency's Discounted Value of Municipal  Obligations sold as
of or  prior  to  such  Valuation  Date  which  generated  receivables,  if such
receivables  are due within five business days of such Valuation Date but do not
comply with either of the conditions specified in (i) above.

"Redemption  Price"  shall mean the  applicable  redemption  price  specified in
paragraph (a) or (b) of Section 9 of Part I of these terms of the AMPS.

"Reference  Banks" means Merrill  Lynch,  Pierce,  Fenner & Smith  Incorporated,
Citigroup Global Markets Inc., UBS Securities LLC or any other major bank in the
London interbank market chosen by the LIBOR Dealer or Substitute LIBOR Dealer.

"Reference Rate" means (i) with respect to a dividend period having 364 or fewer
days,  the  applicable  LIBOR Rate and (ii) with  respect  to a dividend  period
having 365 or more days, the applicable Treasury Index Rate.

"Rule 2a-7 Money Market Funds" means investment  companies  registered under the
1940 Act that comply with Rule 2a-7 thereunder.

"Rule 144A Securities"  means securities which are restricted as to resale under
federal  securities laws but are eligible for resale pursuant to Rule 144A under
the Securities Act as determined by the Fund's  investment  manager or portfolio
manager acting pursuant to procedures approved by the Board of Directors.

"S&P" means  Standard & Poor's  Ratings  Group,  a division  of The  McGraw-Hill
Companies, Inc., or its successors.

"Securities Act" means the Securities Act of 1933, as amended from time to time.

"Securities  Depository"  means The Depository  Trust Company and its successors
and  assigns or any  successor  securities  depository  selected  by the Fund as
securities depository for the AMPS that agrees to follow the procedures required
to be followed by such securities depository in connection with the AMPS.

"Sell Order" and "Sell Orders" shall have the respective  meanings  specified in
paragraph (a) of Section 1 of Part II of these terms of the AMPS.


"Share  Books" means the books  maintained by the Auction Agent setting forth at
all times a current  list,  as  determined  by the  Auction  Agent,  of Existing
Holders of the AMPS.

"Share Register" means the register of Holders  maintained on behalf of the Fund
by the Auction  Agent in its capacity as transfer  agent and  registrar  for the
AMPS.

"Short Term Dividend  Period" means a Special  Dividend  Period  consisting of a
specified  number of days,  evenly  divisible by seven and not fewer than 28 nor
more than 364.

"Special  Dividend  Period",  with respect to shares of a series of AMPS,  shall
have the  meaning  specified  in  paragraph  (a) of Section 3 of Part I of these
terms of the AMPS.

"Special Redemption Provisions" shall have the meaning specified in subparagraph
(a)(i) of Section 9 of Part I of these terms of the AMPS.

"Specific  Redemption  Provisions"  means,  with  respect to a Special  Dividend
Period either, or both, of

     (i)  a  period  (a  "Non-Call  Period")   determined  by  the  Fund,  after
consultation  with the Auction  Agent and the  Broker-Dealers,  during which the
AMPS subject to such  Dividend  Period shall not be subject to redemption at the
option of the Fund; and

     (ii) a period (a  "Premium  Call  Period")  determined  by the Fund,  after
consultation with the Auction Agent and the Broker-Dealers,  during each year of
which the AMPS subject to such Dividend Period shall be redeemable at the Fund's
option  at a price  per share  equal to  $25,000  plus  accumulated  but  unpaid
dividends plus a premium expressed as a percentage of $25,000,  as determined by
the Fund after consultation with the Auction Agent and the Broker-Dealers.

"Submission  Deadline"  shall mean 1:00 P.M. New York City time,  on any Auction
Date or such other time on any Auction Date by which Broker-Dealers are required
to submit  Orders to the Auction  Agent as specified  by the Auction  Agent from
time to time.

"Submitted  Bid"  and  "Submitted  Bids"  shall  have  the  respective  meanings
specified in paragraph (a) of Section 3 of Part II of these terms of the AMPS.

"Submitted  Hold Order" and  "Submitted  Hold Orders" shall have the  respective
meanings  specified in  paragraph  (a) of Section 3 of Part II of these terms of
the AMPS.

"Submitted  Order" and  "Submitted  Orders" shall have the  respective  meanings
specified in paragraph (a) of section 3 of part II of these terms of the AMPS.

"Submitted  Sell Order" and  "Submitted  Sell Orders" shall have the  respective
meanings  specified in  paragraph  (a) of Section 3 of Part II of these terms of
the AMPS.

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

"Substitute  LIBOR  Dealer"  means any LIBOR  dealer  selected by the Fund as to
which the Fund's Rating  Agencies  shall not have objected;  provided,  however,
that none of such entities shall be an existing LIBOR Dealer (as defined above).

"Substitute  Rating  Agency" means a means a nationally  recognized  statistical
rating organization  selected by the Fund to act as the substitute rating agency
to determine the credit ratings of the AMPS.

"Substitute  U.S.  Government  Securities  Dealer"  means  any  U.S.  Government
securities  dealer  selected by the Fund as to which the Fund's Rating  Agencies
shall not have objected;  provided, however, that none of such entities shall be
an existing U.S. Government Securities Dealer.

"Sufficient  Clearing Bids" has the meaning set forth in Section 3 of Part II of
these terms of the AMPS.


"Treasury Index Rate",  means the average yield to maturity for actively traded,
marketable U.S.  Treasury fixed interest rate securities  having the same number
of 30-day periods to maturity as the length of the applicable  Dividend  Period,
determined,  to the extent  necessary,  by linear  interpolation  based upon the
yield for such  securities  having the next  shorter and next  longer  number of
30-day periods to maturity  treating all Dividend  Periods with a length greater
than the longest  maturity for such  securities as having a length equal to such
longest  maturity,  in all cases  based  upon data set forth in the most  recent
weekly  statistical  release  published by the Board of Governors of the Federal
Reserve System (currently in H.15(519));  provided,  however, if the most recent
such  statistical  release  shall not have  been  published  during  the 15 days
preceding the date of  computation,  the foregoing  computations  shall be based
upon the average of comparable data as quoted to the Fund by at least three U.S.
Government  Securities Dealers selected by the Fund; provided further,  however,
that if one of the U.S.  Government  Securities  Dealers  does not  quote a rate
required to determine the Treasury  Index Rate,  the Treasury Index Rate will be
determined  on the  basis  of  the  quotation  or  quotations  furnished  by any
Substitute  U.S.  Government  Securities  Dealer or Substitute  U.S.  Government
Securities  Dealers selected by the Fund to provide such rate or rates not being
supplied by the U.S. Government Securities Dealer; provided further, that if the
U.S.  Government  Securities  Dealer and Substitute U.S.  Government  Securities
Dealers are required but unable to determine a rate in accordance  with at least
one of the  procedures  provided  above,  the  Treasury  Index Rate shall be the
Treasury Index Rate as determined on the previous Auction Date.

"U.S. Government Securities" means direct obligations of the United States or of
its agencies or instrumentalities that are entitled to the full faith and credit
of the  United  States and that,  other than  Treasury  Bills,  provide  for the
periodic  payment of interest  and the full  payment of principal at maturity or
call for redemption.

"U.S.   Government   Securities  Dealer"  means  Lehman  Government   Securities
Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc., Morgan Guaranty Trust
Company of New York and any other U.S. Government  Securities dealer selected by
the Fund as to which the Fund's Rating Agencies shall not have objected or their
respective  affiliates  or  successors,  if  such  entity  is a U.S.  Government
securities dealer.

"U.S.  Treasury  Securities"  means  direct  obligations  of the  United  States
Treasury that are entitled to the full faith and credit of the United States.

"U.S.  Treasury  Strips"  means  securities  based on U.S.  Treasury  Securities
created  through the Separate  Trading of  Registered  Interest and Principal of
Securities program.

"Valuation  Date"  means,  for  purposes  of  determining  whether  the  Fund is
maintaining the Preferred Stock Basic Maintenance  Amount, the last Business Day
of each week commencing with the Date of Original Issue.

"Valuation  Procedures"  means the  procedures  adopted from time to time by the
Board of Directors for valuing the assets of the Fund.

"Voting  Period" has the meaning set forth in Section 4 of Part I of these terms
of the AMPS.

"Winning Bid Rate" shall have the meaning  specified in paragraph (a) of Section
3 of Part II of these terms of the AMPS.

                                     PART I

     1. NUMBER OF  AUTHORIZED  SHARES.  1,000  shares of Common  Stock have been
classified  and authorized as a series of preferred  stock  designated as Series
M28 Auction Market  Preferred  Stock ("AMPS"),  par value $0.01 per share,  such
shares having the preferences, rights, voting powers, restrictions,  limitations
as to dividends and other distributions, qualifications and terms and conditions
of redemption as set forth herein.

     2. DIVIDENDS.

     (a)  Ranking.  The shares of a series of the AMPS shall rank on parity with
each other,  with shares of any other  series of the AMPS and with shares of any
other series of Preferred Stock as to the payment of dividends by the Fund.

     (b) Cumulative Cash  Dividends.  The Holders of any series of AMPS shall be
entitled to receive,  when,  as and if  authorized by the Board of Directors and
declared by the Fund,  out of funds legally  available  therefor,  in accordance
with these terms of the AMPS and applicable  law,  cumulative  cash dividends at
the  Applicable  Rate for  shares  of such  series,  determined  as set forth in
paragraph  (e) of this Section 2, and no more,  payable on the Dividend  Payment
Dates with respect to shares of such series determined pursuant to paragraph (d)
of this  Section  2.  Holders  of AMPS shall not be  entitled  to any  dividend,
whether  payable  in cash,  property  or  shares,  in excess of full  cumulative
dividends,  as herein provided, on AMPS. No interest, or sum of money in lieu of
interest,  shall be payable in respect of any  dividend  payment or  payments on
AMPS  which  may  be in  arrears,  and,  except  to  the  extent  set  forth  in
subparagraph  (e)(i) of this  Section  2, no  additional  sum of money  shall be
payable in  respect of any such  arrearage.  To the extent  permitted  under the
Code, dividends on AMPS will be designated as exempt-interest dividends. For the
purposes of this section, the term "net tax-exempt income" shall exclude capital
gains of the Fund.


     (c)  Dividends  Cumulative  From Date of Original  Issue.  Dividends on any
series of AMPS shall accumulate at the Applicable Rate for shares of such series
from the Date of Original Issue thereof.

     (d) Dividend Payment Dates and Adjustment Thereof.


          (i)  The  Dividend  Payment  Dates with  respect to the AMPS,  for the
               Initial Dividend Period, shall be           , 2005, except as may
               be provided in  accordance  with these terms of AMPS for any AMPS
               issued after the date AMPS are first issued.


          (ii) The Dividend  Payment  Date for any  Subsequent  Dividend  Period
               shall be:


               (A)  with  respect to any Minimum  Dividend  Period and any Short
                    Term  Dividend  Period of 35 or fewer days,  on the Business
                    Day next succeeding the last day of such Subsequent Dividend
                    Period; and


               (B)  with respect to any Short Term Dividend  Period of more than
                    35 days and with respect to any Long Term  Dividend  Period,
                    monthly on the first  Business  Day of each  calendar  month
                    during such Short Term Dividend Period or Long Term Dividend
                    Period and on the Business Day next  succeeding the last day
                    of such Subsequent  Dividend Period (each such date referred
                    to in  clause  (i) or (ii)  being  herein  referred  to as a
                    "Normal Dividend Payment Date"),  except that if such Normal
                    Dividend  Payment  Date  is not a  Business  Day,  then  the
                    Dividend  Payment Date shall be the first  Business Day next
                    succeeding such Normal Dividend  Payment Date.  Although any
                    particular  Dividend  Payment  Date  may  not  occur  on the
                    originally   scheduled   date  because  of  the   exceptions
                    discussed above, the next succeeding  Dividend Payment Date,
                    subject to such exceptions, will occur on the next following
                    originally scheduled Dividend Payment Date; and

          (iii) Notwithstanding  the  foregoing,  the Fund in its discretion may
               establish  Dividend  Payment  Dates  other  than as  provided  in
               paragraph  (d) of this  Section 2 of Part I of these terms of the
               AMPS in respect  of any  Special  Dividend  Period of shares of a
               series of AMPS consisting of more than a Minimum  Dividend Period
               (a "Special Dividend Payment Date"); provided, however, that such
               Special  Dividend  Payment Dates shall be set forth in the Notice
               of Special  Dividend Period (as defined herein)  relating to such
               Special Dividend Period, as delivered to the Auction Agent, which
               Notice  of  Special  Dividend  Period  shall  be  filed  with the
               Secretary  of the Fund;  and further  provided  that (1) any such
               Special Dividend Payment Date shall be a Business Day and (2) the
               last  Special  Dividend  Payment  Date in respect of such Special
               Dividend Period shall be the Business Day  immediately  following
               the last day thereof.

     (e)  Dividend Rates and Calculation of Dividends.

          (i)  Dividend  Rates.  The dividend rate on the AMPS during the period
               from and  after  the Date of  Original  Issue of  shares  of such
               series  to and  including  the last day of the  Initial  Dividend
               Period  of  shares of such  series  shall be equal to _____%  per
               annum.   The  initial   dividend  rate  on  any  series  of  AMPS
               subsequently  established by the Fund shall be the rate set forth
               in or determined in accordance  with the resolutions of the Board
               of  Directors  establishing  such  series.  For  each  Subsequent
               Dividend Period of shares of such series thereafter, the dividend
               rate on  shares  of such  series  shall  be equal to the rate per
               annum that  results  from an Auction for shares of such series on
               the Auction Date next preceding such Subsequent  Dividend Period;
               provided, however, that if:


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

               B.   any Failure to Deposit  shall have  occurred with respect to
                    shares of such series  during any  Dividend  Period  thereof
                    but,  prior to 12:00 Noon,  New York City time, on the third
                    Business Day next  succeeding the date on which such Failure
                    to Deposit occurred, such Failure to Deposit shall have been
                    cured in accordance with paragraph (f) of this Section 2 and
                    the Fund shall have paid to the Auction  Agent a late charge
                    ("Late  Charge")  equal to the sum of (1) if such Failure to
                    Deposit  consisted  of  the  failure  timely  to  pay to the
                    Auction  Agent the full amount of dividends  with respect to
                    any Dividend Period of the shares of such series,  an amount
                    computed by  multiplying  (x) 300% of the Reference Rate for
                    the  Dividend  Period  during  which such Failure to Deposit
                    occurs on the Dividend Payment Date for such Dividend Period
                    by (y) a  fraction,  the  numerator  of  which  shall be the
                    number of days for which such  Failure  to  Deposit  has not
                    been cured in accordance  with paragraph (f) of this Section
                    2  (including  the day such  Failure to  Deposit  occurs and
                    excluding  the day such Failure to Deposit is cured) and the
                    denominator  of which shall be 360,  and  applying  the rate
                    obtained against the aggregate Liquidation Preference of the
                    outstanding shares of such series and (2) if such Failure to
                    Deposit  consisted  of  the  failure  timely  to  pay to the
                    Auction Agent the Redemption Price of the shares, if any, of
                    such series for which Notice of  Redemption  has been mailed
                    by the Fund  pursuant to paragraph  (c) of Section 9 of this
                    Part I, an amount  computed by  multiplying  (x) 300% of the
                    Reference  Rate for the  Dividend  Period  during which such
                    Failure to Deposit  occurs on the  redemption  date by (y) a
                    fraction, the numerator of which shall be the number of days
                    for which such Failure to Deposit is not cured in accordance
                    with paragraph (f) of this Section 2 (including the day such
                    Failure to Deposit occurs and excluding the day such Failure
                    to Deposit is cured) and the  denominator  of which shall be
                    360, and applying the rate  obtained  against the  aggregate
                    Liquidation  Preference  of the  outstanding  shares of such
                    series  to be  redeemed,  then  no  Auction  will be held in
                    respect of shares of such series for the Subsequent Dividend
                    Period  thereof  and the  dividend  rate for  shares of such
                    series  for  such  Subsequent  Dividend  Period  will be the
                    Maximum  Applicable  Rate for  shares of such  series on the
                    Auction Date for such Subsequent Dividend Period; or

               C.   any Failure to Deposit  shall have  occurred with respect to
                    shares of such series  during any Dividend  Period  thereof,
                    and,  prior to 12:00 Noon,  New York City time, on the third
                    Business Day next  succeeding the date on which such Failure
                    to Deposit occurred,  such Failure to Deposit shall not have
                    been cured in accordance  with paragraph (f) of this Section
                    2 or the Fund shall not have paid the applicable Late Charge
                    to the  Auction  Agent,  then  no  Auction  will  be held in
                    respect of shares of such  series  for the first  Subsequent
                    Dividend  Period  thereafter  (or  for any  Dividend  Period
                    thereafter to and including the Dividend Period during which
                    (1) such  Failure  to Deposit  is cured in  accordance  with
                    paragraph  (f) of this  Section  2 and (2) the Fund pays the
                    applicable  Late Charge to the Auction Agent (the  condition
                    set  forth in this  clause  (2) to apply  only in the  event
                    Moody's  is rating  such  shares at the time the Fund  cures
                    such Failure to  Deposit),  in each case no later than 12:00
                    Noon,  New York City time, on the fourth  Business Day prior
                    to the end of such Dividend  Period),  and the dividend rate
                    for shares of such series for each such Subsequent  Dividend
                    Period  shall be a rate per annum  equal to the  Non-Payment
                    Period Rate for shares of such  series on the  Auction  Date
                    for such Subsequent Dividend Period.


          (ii) Calculation  of  Dividends.  The  amount of  dividends  per share
               payable  on  shares  of a  series  of AMPS on any  date on  which
               dividends  shall be  payable  on shares of such  series  shall be
               computed by multiplying  the  Applicable  Rate for shares of such
               series in effect for such Dividend Period or Dividend  Periods or
               part  thereof  for  which  dividends  have  not been  paid,  by a
               fraction,  the  numerator of which shall be the number of days in
               such Dividend Period or Dividend  Periods or part thereof and the
               denominator of which shall be 360, and applying the rate obtained
               against $25,000,  and rounding the amount obtained to the nearest
               cent.

     (f)  Curing a Failure to  Deposit.  A Failure to  Deposit  with  respect to
          shares of a series of AMPS shall  have been cured (if such  Failure to
          Deposit is not solely due to the  willful  failure of the Fund to make
          the  required  payment  to the  Auction  Agent)  with  respect  to any
          Dividend  Period of shares of such  series if,  within the  respective
          time periods  described in subparagraph  (e)(i) of this Section 2, the
          Fund  shall have paid to the  Auction  Agent (A) all  accumulated  and
          unpaid  dividends  and Late  Charges on shares of such  Series and (B)
          without duplication,  the Redemption Price for shares, if any, of such
          series  for which  Notice of  Redemption  has been  mailed by the Fund
          pursuant to paragraph (c) of Section 9 of Part I of these terms of the
          AMPS; provided, however, that the foregoing clause (B) shall not apply
          to the Fund's failure to pay the  Redemption  Price in respect of AMPS
          when the related Notice of Redemption provides that redemption of such
          shares is subject  to one or more  conditions  precedent  and any such
          condition precedent shall not have been satisfied at the time or times
          and in the manner specified in such Notice of Redemption.

     (g)  Dividend  Payments by Fund to Auction Agent. The Fund shall pay to the
          Auction  Agent,  not later than 12:00 Noon, New York City time, on the
          Business Day next preceding each Dividend Payment Date for shares of a
          series of AMPS,  an  aggregate  amount of funds  available on the next
          Business Day in the City of New York, New York, equal to the dividends
          to be paid to all  Holders of shares of such  series on such  Dividend
          Payment Date.

     (h)  Auction Agent as Trustee of Dividend Payments by Fund. All moneys paid
          to the Auction  Agent for the payment of dividends (or for the payment
          of any Late  Charge)  shall be held in trust for the  payment  of such
          dividends  (and any such Late  Charge)  by the  Auction  Agent for the
          benefit of the Holders  specified in paragraph  (i) of this Section 2.
          Any moneys paid to the Auction Agent in accordance  with the foregoing
          but not applied by the Auction Agent to the payment of dividends  (and
          any such Late Charge) will, to the extent  permitted by law, be repaid
          to the Fund at the end of 90 days from the date on which  such  moneys
          were to have been so applied.

     (i)  Dividends Paid to Holders.  Each dividend on AMPS shall be paid on the
          respective Dividend Payment Date to the Holders thereof as their names
          appear on the Share  Books on the  Business  Day next  preceding  such
          Dividend Payment Date.

     (j)  Dividends Credited Against Earliest  Accumulated but Unpaid Dividends.
          Any dividend  payment made on AMPS shall first be credited against the
          earliest  accumulated  but unpaid  dividends  due with respect to such
          shares.  Dividends  in  arrears  for any past  Dividend  Period may be
          declared  and  paid at any  time,  without  reference  to any  regular
          Dividend  Payment  Date,  to the Holders as their names  appear on the
          Share Books on such date,  not exceeding 15 days preceding the payment
          date thereof, as may be fixed by the Board of Directors.

     3.   DESIGNATION OF SPECIAL DIVIDEND PERIODS.

     (a) The  Fund,  at its  option  and to the  extent  permitted  by  law,  by
telephonic and written notice (a "Request for Special  Dividend  Period") to the
Auction Agent and to each  Broker-Dealer,  may request that the next  succeeding
Dividend  Period  for any  series of AMPS will be a number of days  (other  than
twenty-eight)  evenly divisible by seven, and not more than 364 in the case of a
Short Term  Dividend  Period or one whole year or more but not greater than five
years in the case of a Long Term  Dividend  Period,  specified  in such  notice,
provided that the Fund may not give a Request for Special  Dividend  Period (and
any such request will be null and void) unless,  for any Auction occurring after
the  initial  Auction,  (i) an Auction  for shares of such series is held on the
Auction  Date  immediately  preceding  the  first day of such  proposed  Special
Dividend Period,  (ii) Sufficient  Clearing Bids were made in such Auction,  and
(iii) full cumulative  dividends and any amounts due with respect to redemptions
have been paid in full,  and  provided  further  that the Fund may not request a
Special Dividend Period unless the Fund shall have received written confirmation
from the Fund's Rating Agencies that the Fund's election of the proposed Special
Dividend  Period would not impair the rating then  assigned by the Fund's Rating
Agencies of the applicable series of AMPS and the lead Broker-Dealer  designated
by the Fund, initially Merrill Lynch, Pierce, Fenner & Smith Incorporated,  does
not object to the declaration of such Special Dividend Period.  Such Request for
Special Dividend Period,  in the case of a Short Term Dividend Period,  shall be
given on or prior to the second  Business  Day but not more than seven  Business
Days prior to an Auction  Date for the AMPS of that series and, in the case of a
Long Term Dividend Period, shall be given on or prior to the second Business Day
but not more than  twenty-eight  days prior to an  Auction  Date for the AMPS of
that series.  Upon  receiving  such  Request for Special  Dividend  Period,  the
Broker-Dealers jointly shall determine the Optional Redemption Price of the AMPS
of that series during such Special  Dividend Period and the Specific  Redemption
Provisions  and shall  give the Fund and the  Auction  Agent  written  notice (a
"Response") of such determination by no later than the second Business Day prior
to such Auction  date. In making such  determination,  the  Broker-Dealers  will
consider (i) existing  short-term and long-term market rates and indices of such
short-term  and  long-term  rates,  (ii)  existing  market supply and demand for
short-term and long-term securities,  (iii) existing yield curves for short-term
and long-term  securities  comparable  to the AMPS,  (iv) industry and financial
conditions  which  may  affect  the  AMPS of  that  series,  (v) the  investment
objectives of the Fund and (vi) the Dividend Periods and dividend rates at which
current  and  potential  beneficial  holders of the AMPS would  remain or become
beneficial holders.



     (b) After providing the Request for Special  Dividend Period to the Auction
Agent and each  Broker-Dealer as set forth above, the Fund, by no later than the
second  Business Day prior to such Auction Date, may give a notice (a "Notice of
Special Dividend Period") to the Auction Agent, the Securities Depository,  each
Broker-Dealer  and the Rating  Agency  which notice will specify the duration of
the Special Dividend Period. The Fund will not give a Notice of Special Dividend
Period and, if such Notice of Special  Dividend  Period was given already,  will
give  telephonic and written notice of its revocation (a "Notice of Revocation")
to the Auction Agent,  each  Broker-Dealer,  the  Securities  Depository and the
Rating Agency on or prior to the Business Day prior to the relevant Auction Date
if (x) either the 1940 Act Preferred Share Asset Coverage or the Preferred Stock
Basic  Maintenance  Amount is not  satisfied,  on each of the two Business  Days
immediately preceding the Business Day prior to the relevant Auction Date or (y)
sufficient  funds  for the  payment  of  dividends  payable  on the  immediately
succeeding  Dividend Payment Date have not been  irrevocably  deposited with the
Auction  Agent by the close of business on the third  Business Day preceding the
Auction Date  immediately  preceding  such Dividend  Payment Date. The Fund also
shall  provide a copy of such Notice of Special  Dividend  Period to each Rating
Agency.  If the Fund is  prohibited  from  giving a Notice of  Special  Dividend
Period as a result of the  factors  enumerated  in clause (x) or (y) above or if
the Fund  gives a Notice of  Revocation  with  respect  to a Notice  of  Special
Dividend  Period,  the next  succeeding  Dividend Period for that series of AMPS
will be a Minimum Dividend Period. In addition, in the event Sufficient Clearing
Bids are not made in an  Auction,  or if an Auction is not held for any  reason,
the next succeeding  Dividend Period will be a Minimum Dividend Period,  and the
Fund may not  again  give a Notice  of  Special  Dividend  Period  (and any such
attempted notice will be null and void) until Sufficient Clearing Bids have been
made in an Auction with respect to a Minimum Dividend Period.


     4. VOTING RIGHTS.

     (a) One Vote Per Share of AMPS. Except as otherwise provided in the Charter
or as  otherwise  required by law,  (i) each Holder of AMPS shall be entitled to
one vote for each share of AMPS held by such Holder on each matter  submitted to
a vote of stockholders of the Fund, and (ii) the holders of outstanding AMPS and
any other  class or series of  Preferred  Stock and of Common  Stock  shall vote
together as a single class;  provided,  however, that the holders of outstanding
AMPS and any other class or series of Preferred  Stock shall be  entitled,  as a
class, to the exclusion of the holders of all classes and series of stock of the
Fund,  to elect two  Directors  of the Fund out of the entire Board of Directors
(regardless  of the number of  Directors),  each share of the AMPS and any other
class or series of Preferred  Stock  entitling  the holder  thereof to one vote;
provided,  further,  that the Board of Directors shall determine which Directors
are to be  elected by the  holders of the AMPS and any other  class or series of
Preferred  Stock and the  holders  of the AMPS and any other  class or series of
Preferred  Stock shall be entitled to elect only the  Directors so designated as
being  elected  by the  holders  of the AMPS and any  other  class or  series of
Preferred Stock, when their term shall have expired; provided, finally, that, if
the Board of Directors is divided into classes,  such  Directors  elected by the
holders  of the AMPS any  other  class or  series of  Preferred  Stock  shall be
allocated as evenly as possible  among the classes of Directors as determined by
the Board of Directors.  Subject to paragraph (b) of this Section 4, the holders
of  outstanding  Common Stock and  Preferred  Stock voting  together as a single
class, shall elect the balance of the Directors.


     (b) Voting For Additional Directors.

          (i)  Voting Period.  Except as otherwise provided in the Charter or as
               otherwise  required by law, during any period in which any one or
               more of the conditions  described in subparagraphs  (A) or (B) of
               this subparagraph  (b)(i) shall exist (such period being referred
               to  herein  as  a  "Voting  Period"),  the  number  of  Directors
               constituting the Board of Directors shall automatically  increase
               by the  smallest  number  that,  when added to the two  Directors
               elected exclusively by the holders of Preferred Stock,  including
               the AMPS,  would  constitute a majority of the Board of Directors
               as so  increased  by such  smallest  number,  and the  holders of
               Preferred Stock, including the AMPS, shall be entitled, voting as
               a class on a  one-vote-per-share  basis (to the  exclusion of the
               holders of all other classes or series of stock of the Fund),  to
               elect such smallest number of additional Directors, together with
               the two Directors  that such holders are in any event entitled to
               elect. A Voting Period shall commence:

               (A)  if at the close of business  on any  Dividend  Payment  Date
                    accumulated dividends (whether or not earned or declared) on
                    any  outstanding  AMPS,  equal to at least  two full  years'
                    dividends  shall be due and  unpaid and  sufficient  cash or
                    specified  securities shall not have been deposited with the
                    Auction Agent for the payment of such accumulated dividends;
                    or

               (B)  if at any time holders of  Preferred  Stock,  including  the
                    AMPS, are entitled under the 1940 Act to elect a majority of
                    the Directors of the Fund.

                    Upon the  termination of a Voting Period,  the voting rights
                    described in this subparagraph  (b)(i) shall cease,  subject
                    always,  however,  to the revesting of such voting rights in
                    the Holders upon the further occurrence of any of the events
                    described in this subparagraph (b)(i).

          (ii) Notice  of  Special  Meeting.  As soon as  practicable  after the
               accrual of any right of the Holders of Preferred Stock, including
               the  AMPS,  to  elect   additional   Directors  as  described  in
               subparagraph  (b)(i) of this Section 4, the Fund shall notify the
               Auction Agent and the Auction Agent shall call a special  meeting
               of such Holders,  by mailing a notice of such special  meeting to
               such Holders,  such meeting to be held not less than ten nor more
               than twenty days after the date of mailing of such notice. If the
               Fund  fails to send such  notice to the  Auction  Agent or if the
               Auction  Agent  does not call such a special  meeting,  it may be
               called by any such  Holder on like  notice.  The record  date for
               determining the Holders entitled to notice of and to vote at such
               special  meeting  shall be the  close of  business  on the  fifth
               Business Day preceding the day on which such notice is mailed. At
               any such  special  meeting  and at each  meeting  of  Holders  of
               Preferred Stock,  including the AMPS, held during a Voting Period
               at  which  Directors  are to be  elected,  such  Holders,  voting
               together as a class (to the exclusion of the holders of all other
               classes or series of stock of the  Fund),  shall be  entitled  to
               elect the number of Directors  prescribed in subparagraph  (b)(i)
               of this Section 4 on a one-vote-per-share basis.

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

          (iv) Terms  of  Office  of  Certain   Directors  to   Terminate   Upon
               Termination of Voting Period. Simultaneously with the termination
               of a  Voting  Period,  the  terms  of  office  of the  additional
               Directors  elected by the Holders and holders of other classes or
               series of Preferred Stock pursuant to subparagraph (b)(i) of this
               Section  4  shall  terminate,   the  remaining   Directors  shall
               constitute  the  Directors  of the Fund,  the number of Directors
               constituting  the Board of Directors  shall decrease  accordingly
               and the voting  rights of the Holders  and such other  holders to
               elect  additional  Directors  pursuant to subparagraph  (b)(i) of
               this Section 4 shall cease, subject to the provisions of the last
               sentence of subparagraph (b)(i) of this Section 4.


     (c) Holders of AMPS to Vote on Certain Other Matters.

          (i)  Increases in Capitalization  and Charter  Amendments.  So long as
               any AMPS  are  outstanding,  the  Fund  shall  not,  without  the
               affirmative vote or consent of the Holders of at least a majority
               of the AMPS  outstanding  at the  time,  in  person  or by proxy,
               either in writing or at a  meeting,  voting as a separate  class:
               (a)  authorize,  create  or issue  any  class or series of shares
               ranking prior to or on a parity with the AMPS with respect to the
               payment  of  dividends  or  the   distribution   of  assets  upon
               dissolution,  liquidation  or  winding  up of the  affairs of the
               Fund,  or  authorize,  create or issue  additional  shares of any
               series of AMPS (except that,  notwithstanding the foregoing,  but
               subject to the  provisions  of  paragraph  (c)(i) of Section 9 of
               this Part I, the Board of Directors,  without the vote or consent
               of the  Holders  of AMPS,  may from  time to time  authorize  and
               create,  and the  Fund may from  time to time  issue,  additional
               shares  of any  series  of AMPS or  classes  or  series  of other
               Preferred Stock ranking on a parity with AMPS with respect to the
               payment  of  dividends  and  the   distribution  of  assets  upon
               dissolution,  liquidation  or  winding  up of the  affairs of the
               Fund, if the Fund obtains  written  confirmation  from the Fund's
               Rating  Agencies that the issuance of a class or series would not
               impair the rating then assigned by such rating agency to the AMPS
               and the Fund continues to comply with Section 13 of the 1940 Act,
               the 1940 Act  Preferred  Share Asset  Coverage and the  Preferred
               Stock Basic Maintenance Amount requirements); or (b) amend, alter
               or repeal the provisions of the Charter  including these terms of
               the AMPS, whether by merger, consolidation or otherwise, so as to
               adversely  affect any preference,  right or power of such AMPS or
               the  Holders  thereof;  provided,  however,  that (i) none of the
               actions permitted by the exception to (a) above will be deemed to
               affect  such  preferences,  rights or powers,  (ii) a division of
               AMPS will be deemed to affect such preferences,  rights or powers
               only if the terms of such division  adversely  affect the Holders
               of AMPS and (iii) the  authorization,  creation  and  issuance of
               classes  or  series  of  shares  ranking  junior to the AMPS with
               respect  to the  payment of  dividends  and the  distribution  of
               assets upon dissolution, liquidation or winding up of the affairs
               of the Fund, will be deemed to affect such preferences, rights or
               powers  only if Moody's or Fitch is then rating the AMPS and such
               issuance  would,  at the  time  thereof,  cause  the  Fund not to
               satisfy  the 1940  Act  Preferred  Share  Asset  Coverage  or the
               Preferred Stock Basic  Maintenance  Amount. So long as any shares
               of the AMPS are  outstanding,  the Fund  shall not,  without  the
               affirmative vote or consent of the Holders of at least 66 2/3% of
               the AMPS  outstanding at the time, in person or by proxy,  either
               in writing or at a meeting,  voting as a separate  class,  file a
               voluntary  application for relief under Federal bankruptcy law or
               any similar  application  under state law for so long as the Fund
               is solvent and does not foresee becoming insolvent. If any action
               set forth above would adversely  affect the rights of one or more
               series (the "Affected Series") of AMPS in a manner different from
               any other  series of AMPS,  the Fund  will not  approve  any such
               action without the affirmative  vote or consent of the Holders of
               at least a majority  of the shares of each such  Affected  Series
               outstanding at the time, in person or by proxy, either in writing
               or at a meeting (each such  Affected  Series voting as a separate
               class).

          (ii) 1940  Act and  Other  Matters.  Unless  a  higher  percentage  is
               provided  for in the  Charter,  (A) the  affirmative  vote of the
               Holders of at least a  majority  of the AMPS  outstanding  at the
               time,  voting as a separate  class,  shall be required to approve
               any  conversion  of the Fund  from a  closed-end  to an  open-end
               investment company and (B) the affirmative vote of the Holders of
               a "majority of the outstanding AMPS," voting as a separate class,
               shall be required to approve any plan of reorganization  (as such
               term is used in the 1940 Act)  adversely  affecting  such shares.
               The  affirmative  vote  of  the  Holders  of a  "majority  of the
               outstanding  AMPS," voting as a separate class, shall be required
               to approve any action not described in the first sentence of this
               Section 4(c)(ii) requiring a vote of security holders of the Fund
               under  section  13(a)  of the  1940  Act.  For  purposes  of this
               subparagraph  (c)(ii),  "majority of the outstanding  AMPS" means
               (i) 67% or  more of such  shares  present  at a  meeting,  if the
               Holders  of  more  than  50%  of  such   shares  are  present  or
               represented  by  proxy,  or (ii)  more  than 50% of such  shares,
               whichever  is less.  In the  event a vote of  Holders  of AMPS is
               required  pursuant to the provisions of section 13(a) of the 1940
               Act, the Fund shall,  not later than ten  Business  Days prior to
               the date on which such vote is to be taken,  notify  Moody's  (if
               Moody's  is then  rating  the  AMPS)  and Fitch (if Fitch is then
               rating  the AMPS) that such vote is to be taken and the nature of
               the action  with  respect to which such vote is to be taken.  The
               Fund shall,  not later than ten  Business  Days after the date on
               which  such vote is taken,  notify  Moody's  (if  Moody's is then
               rating the AMPS) and Fitch (if Fitch is then  rating the AMPS) of
               the results of such vote.


     (d) Facts  Ascertainable  Outside  Charter.  The  rights of the AMPS or the
Holders  thereof,   including,   without   limitation,   the  interpretation  or
applicability of any or all covenants or other obligations of the Fund contained
herein or of the  definitions  of the terms listed  below,  all such  covenants,
obligations  and  definitions  having been  adopted  pursuant  to Rating  Agency
Guidelines,  may from time to time be modified, altered or repealed by the Board
of Directors in its sole  discretion,  based on a determination  by the Board of
Directors  that such action is  necessary  or  appropriate  in  connection  with
obtaining  or  maintaining  the rating of any Rating  Agency with respect to the
AMPS or revising the Fund's investment  restrictions or policies consistent with
guidelines of any Rating Agency, and any such modification, alteration or repeal
will not be deemed to affect  the  preferences,  rights or powers of AMPS or the
Holders  thereof,   provided  that  the  Board  of  Directors  receives  written
confirmation  from each  relevant  Rating Agency (with such  confirmation  in no
event being required to be obtained from a particular Rating Agency with respect
to  definitions or other  provisions  relevant only to and adopted in connection
with another  Rating  Agency's  rating of the AMPS) that any such  modification,
alteration or repeal would not adversely affect the rating then assigned by such
Rating Agency.


                                             
1940 Act Cure Date                              Forward Commitment
1940 Act Preferred Share Asset Coverage         Independent Accountant
Annual Valuation Date                           Market Value
Applicable Percentage                           Maximum Applicable Rate
Auditor's Confirmation                          Moody's Discount Factor
Closing Transaction                             Moody's Eligible Asset
Deposit Securities                              Moody's Hedging Transaction
Discount Factor                                 Moody's Industry Classification
Discounted Value                                Outstanding
Eligible Asset                                  Preferred Stock Basic Maintenance Amount
Exposure Period                                 Preferred Stock Basic Maintenance Cure Date
Failure to Deposit                              Preferred Stock Basic Maintenance Report
Fitch Discount Factor                           Pricing Service
Fitch Eligible Asset                            Receivables for Municipal Obligations Sold
Fitch Hedging Transaction                       Reference Rate
Fitch Loan Category                             Swap
Fitch Industry Classification                   Valuation Date



     (e) Rights Set Forth Herein Are Sole Rights.  Unless otherwise  required by
law, the Holders of AMPS shall not have any relative  rights or  preferences  or
other special rights other than those  specifically set forth herein.  No holder
of AMPS shall be  entitled to exercise  the rights of an  objecting  stockholder
under  Title  3,  Subtitle  2 of the  Maryland  General  Corporation  Law or any
successor statute.

     (f) No  Appraisal  Rights,  Preemptive  Rights Or  Cumulative  Voting.  The
Holders of AMPS shall have no preemptive rights or rights to cumulative voting.


     (g) Voting For Directors Sole Remedy For Trust's  Failure To Pay Dividends.
In the event that the Fund fails to pay any dividends on the AMPS, the exclusive
remedy of the Holders shall be the right to vote for  Directors  pursuant to the
provisions of this Section 4.

     (h) Holders Entitled To Vote. For purposes of determining any rights of the
Holders to vote on any matter,  whether  such right is created by these terms of
the AMPS, by the other  provisions  of the Charter by statute or  otherwise,  no
Holder shall be entitled to vote any share of AMPS and no share of AMPS shall be
deemed to be Outstanding  for the purpose of voting or determining the number of
shares  required to  constitute a quorum if, prior to or  concurrently  with the
time of  determination  of shares entitled to vote or shares deemed  outstanding
for quorum purposes, as the case may be, the requisite Notice of Redemption with
respect to such shares  shall have been mailed as provided in  paragraph  (c) of
Section 9 of this Part I and the  Redemption  Price for the  redemption  of such
shares  shall  have been  deposited  in trust  with the  Auction  Agent for that
purpose.  No share of AMPS held by the Fund or any affiliate of the Fund (except
for shares  held by a  Broker-Dealer  that is an  affiliate  of the Fund for the
account  of its  customers)  shall  have any  voting  rights  or be deemed to be
outstanding for voting or other purposes.

     (i) Terms of Office of Certain Directors to Terminate.  Simultaneously with
and at the time that none of the  issued  shares  of AMPS are  Outstanding,  the
terms of office of any Directors elected solely by the holders of such shares of
AMPS shall automatically  terminate and the remaining directors shall constitute
the directors of the Fund.

     5.   1940 ACT PREFERRED SHARE ASSET COVERAGE.  The Fund shall maintain,  as
          of the  last  Business  Day of  each  month  in  which  any  AMPS  are
          Outstanding, the 1940 Act Preferred Share Asset Coverage.

     6.   PREFERRED SHARES BASIC MAINTENANCE AMOUNT.

     (a) So long as AMPS are  Outstanding,  the  Fund  shall  maintain,  on each
Valuation Date, and shall verify to its  satisfaction  that it is maintaining on
such Valuation Date (i) Moody's  Eligible Assets having an aggregate  Discounted
Value equal to or greater than the Preferred Stock Basic Maintenance  Amount (if
Moody's  is then  rating  the AMPS) and (ii)  Fitch  Eligible  Assets  having an
aggregate  Discounted  Value equal to or greater than the Preferred  Stock Basic
Maintenance Amount (if Fitch is then rating the AMPS).

     (b) On or before 5:00 p.m.,  New York City time, on the third  Business Day
after a Valuation  Date on which the Fund fails to satisfy the  Preferred  Stock
Basic  Maintenance  Amount,  and on the third  Business Day after the  Preferred
Stock Basic  Maintenance Cure Date with respect to such Valuation Date, the Fund
shall  complete  and  deliver to Moody's  (if  Moody's is then rating the AMPS),
Fitch  (if Fitch is then  rating  the AMPS)  and the  Auction  Agent (if  either
Moody's or Fitch is then  rating the AMPS) a Preferred  Stock Basic  Maintenance
Report as of the date of such failure or such Preferred Stock Basic  Maintenance
Cure Date,  as the case may be,  which will be deemed to have been  delivered to
the Auction  Agent if the Auction  Agent  receives a copy or telecopy,  telex or
other electronic transcription thereof and on the same day the Fund mails to the
Auction  Agent for delivery on the next  Business Day the full  Preferred  Stock
Basic  Maintenance  Report.  The Fund shall also deliver a Preferred Stock Basic
Maintenance  Report to (i) the Auction Agent (if either Moody's or Fitch is then
rating the AMPS) as of the last Friday of each  calendar  month (or, if such day
is not a Business Day, the  immediately  prior Business  Day),  (ii) Moody's (if
Moody's is then rating the AMPS) and Fitch (if Fitch is then rating the AMPS) as
of the last  Friday of each  calendar  month (or,  if such day is not a Business
Day, the  immediately  prior  Business Day), in each case on or before the third
Business Day after such day. A failure by the Fund to deliver a Preferred  Stock
Basic Maintenance  Report pursuant to the preceding  sentence shall be deemed to
be  delivery  of a  Preferred  Stock Basic  Maintenance  Report  indicating  the
Discounted  Value for all  assets of the Fund is less than the  Preferred  Stock
Basic Maintenance Amount, as of the relevant Valuation Date.

     (c) Within ten  Business  Days after the date of  delivery  of a  Preferred
Stock Basic Maintenance  Report in accordance with paragraph (b) of this Section
6 relating to an Annual  Valuation  Date,  the Fund shall cause the  Independent
Accountant  to confirm in writing  to  Moody's  (if  Moody's is then  rating the
AMPS), Fitch (if Fitch is then rating the AMPS) and the Auction Agent (if either
Moody's or Fitch is then rating the AMPS):

          (i)  the mathematical  accuracy of the calculations  reflected in such
               Preferred  Stock  Basic  Maintenance  Report  (and  in any  other
               Preferred Stock Basic  Maintenance  Report,  randomly selected by
               the Independent Accountant,  that was prepared by the Fund during
               the quarter ending on such Quarterly Valuation Date),


          (ii) that, in such Preferred  Stock Basic  Maintenance  Report (and in
               such randomly selected Preferred Stock Basic Maintenance Report),
               the Fund correctly  determined in accordance  with this Statement
               the assets of the Fund which  constitute  Moody's Eligible Assets
               (if  Moody's is then rating the AMPS) and Fitch  Eligible  Assets
               (if Fitch is then rating the AMPS),

          (iii) that, in such Preferred Stock Basic  Maintenance  Report (and in
               such randomly selected Preferred Stock Basic Maintenance Report),
               the Fund  determined  whether  the Fund  had,  at such  Quarterly
               Valuation  Date  (and at the  Valuation  Date  addressed  in such
               randomly  selected  Report) in  accordance  with this  Statement,
               Moody's Eligible Assets of an aggregate Discounted Value at least
               equal to the Preferred Stock Basic  Maintenance  Amount and Fitch
               Eligible Assets of an aggregate  Discounted  Value at least equal
               to the Preferred Stock Basic Maintenance Amount,

          (iv) with  respect to the S&P ratings on portfolio  securities  of the
               Fund, the issuer name, issue size and coupon rate, if any, listed
               in such Report,  that the  Independent  Accountant  has requested
               that S&P verify such information and the Independent  Account and
               shall provide a listing in its letter of any differences,

          (v)  with respect to the Fitch ratings on portfolio  securities of the
               Fund, the issuer name, issue size and coupon rate, if any, listed
               in such  Preferred  Stock  Basic  Maintenance  Report,  that such
               information  has  been  verified  by  Fitch  (in the  event  such
               information is not verified by Fitch, the Independent  Accountant
               will  inquire of Fitch what such  information  is, and  provide a
               listing in its letter of any differences),

          (vi) with respect to the Moody's  ratings on portfolio  securities  of
               the Fund,  the issuer name,  issue size and coupon rate,  if any,
               listed in such Preferred  Stock Basic  Maintenance  Report,  that
               such  information has been verified by Moody's (in the event such
               information   is  not  verified  by  Moody's,   the   Independent
               Accountant will inquire of Moody's what such  information is, and
               provide a listing in its letter of any differences) and

          (vii) with  respect  to the bid or mean  price  (or  such  alternative
               permissible factor used in calculating the Market Value) provided
               by the custodian of the Fund's assets to the Fund for purposes of
               valuing  securities  in the  Fund's  portfolio,  the  Independent
               Accountant  has  traced the price  used in such  Preferred  Stock
               Basic Maintenance  Report to the bid or mean price listed in such
               Preferred Stock Basic Maintenance  Report as provided to the Fund
               and  verified  that such  information  agrees  (in the event such
               information  does not  agree,  the  Independent  Accountant  will
               provide  a  listing  in its  letter  of such  differences)  (such
               confirmation is herein called the "Auditor's Confirmation").

     (d) Within ten  Business  Days after the date of  delivery  of a  Preferred
Stock Basic Maintenance  Report in accordance with paragraph (b) of this Section
6  relating  to any  Valuation  Date on which  the Fund  failed to  satisfy  the
Preferred Stock Basic  Maintenance  Amount,  and relating to the Preferred Stock
Basic  Maintenance  Cure  Date with  respect  to such  failure  to  satisfy  the
Preferred Stock Basic Maintenance  Amount,  the Fund shall cause the Independent
Auditors to provide to Moody's  (if Moody's is then rating the AMPS),  Fitch (if
Fitch is then rating the AMPS) and the Auction Agent (if either Moody's or Fitch
is then rating the AMPS) an Auditors'  Confirmation  as to such Preferred  Stock
Basic Maintenance Report.

     (e) If any Auditor's  Confirmation  delivered  pursuant to paragraph (c) or
(d) of this Section 6 shows that an error was made in the Preferred  Stock Basic
Maintenance  Report for a  particular  Valuation  Date for which such  Auditor's
Confirmation  was  required  to be  delivered,  or shows that a lower  aggregate
Discounted Value for the aggregate of all Moody's Eligible Assets (if Moody's is
then  rating the AMPS) or Fitch  Eligible  Assets  (if Fitch is then  rating the
AMPS),  as the  case  may be,  of the Fund  was  determined  by the  Independent
Accountant, the calculation or determination made by such Independent Accountant
shall be final and  conclusive  and shall be binding  on the Fund,  and the Fund
shall accordingly amend and deliver the Preferred Stock Basic Maintenance Report
to Moody's (if Moody's is then rating the AMPS),  Fitch (if Fitch is then rating
the AMPS) and the Auction  Agent (if either  Moody's or Fitch is then rating the
AMPS) promptly following receipt by the Fund of such Auditors' Confirmation.


     (f) On or before 5:00 p.m.,  New York City time, on the first  Business Day
after  the Date of  Original  Issue of any AMPS,  the Fund  shall  complete  and
deliver to Moody's  (if  Moody's is then rating the AMPS) and Fitch (if Fitch is
then rating the AMPS) a Preferred Stock Basic Maintenance Report as of the close
of business on such Date of Original  Issue.  Within five  Business Days of such
Date of Original  Issue,  the Fund shall  cause the  Independent  Accountant  to
confirm  in  writing to the  Auction  Agent (if either  Moody's or Fitch is then
rating the AMPS),  Moody's  (if  Moody's is then  rating the AMPS) and Fitch (if
Fitch is then rating the AMPS) (i) the mathematical accuracy of the calculations
reflected in such Report and (ii) that the  Discounted  Value of Fitch  Eligible
Assets reflected thereon equals or exceeds the Preferred Stock Basic Maintenance
Amount reflected thereon.

     (g) On or before 5:00 p.m.,  New York City time, on the third  Business Day
after either (i) the Fund shall have redeemed  Common Stock or (ii) the ratio of
the Discounted  Value of Moody's Eligible Assets or the Fitch Eligible Assets to
the Preferred Stock Basic  Maintenance  Amount is less than or equal to 105%, or
(iii)  whenever  requested  by Moody's or Fitch,  the Fund  shall  complete  and
deliver to Moody's  (if  Moody's is then  rating the AMPS) or Fitch (if Fitch is
then rating the AMPS), as the case may be, a Preferred  Stock Basic  Maintenance
Report as of the date of such event.

     7. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.

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

     (b)  Dividends and Other  Distributions  with Respect to Common Stock Under
the 1940 Act. The Fund shall not declare any dividend (except a dividend payable
in Common Stock), or declare any other  distribution,  upon the Common Stock, or
purchase  Common Stock,  unless in every such case the AMPS have, at the time of
any  such  declaration  or  purchase,  an  asset  coverage  (as  defined  in and
determined  pursuant  to the 1940  Act) of at least  200% (or such  other  asset
coverage  as may in the  future  be  specified  in or under  the 1940 Act as the
minimum  asset  coverage  for senior  securities  which are shares or stock of a
closed-end  investment  company as a condition  of  declaring  dividends  on its
common  shares  or  stock)  after   deducting  the  amount  of  such   dividend,
distribution or purchase price, as the case may be.

     (c) Other Restrictions on Dividends and Other Distributions. For so long as
any AMPS are  outstanding,  and  except  as set forth in  paragraph  (a) of this
Section 7 and paragraph (c) of Section 9 of this Part I,

          (A) the Fund  shall not  declare,  pay or set apart  for  payment  any
     dividend or other distribution  (other than a dividend or distribution paid
     in shares  of, or in  options,  warrants  or  rights  to  subscribe  for or
     purchase,  Common Stock or other shares, if any, ranking junior to the AMPS
     as to the  payment  of  dividends  and  the  distribution  of  assets  upon
     dissolution,  liquidation  or winding up) in respect of the Common Stock or
     any other shares of the Fund ranking junior to or on a parity with the AMPS
     as to  the  payment  of  dividends  or  the  distribution  of  assets  upon
     dissolution,  liquidation  or winding up, or call for  redemption,  redeem,
     purchase or  otherwise  acquire for  consideration  any Common Stock or any
     other such junior shares (except by conversion  into or exchange for shares
     of the Fund ranking  junior to the AMPS as to the payment of dividends  and
     the distribution of assets upon dissolution, liquidation or winding up), or
     any such parity shares (except by conversion into or exchange for shares of
     the Fund  ranking  junior to or on a parity  with AMPS as to the payment of
     dividends and the distribution of assets upon  dissolution,  liquidation or
     winding up), unless (i) full cumulative  dividends on shares of each series
     of AMPS through its most  recently  ended  Dividend  Period shall have been
     paid or shall  have been  declared  and  sufficient  funds for the  payment
     thereof deposited with the Auction Agent and (ii) the Fund has redeemed the
     full number of AMPS  required to be redeemed by any provision for mandatory
     redemption pertaining thereto, and


          (B) the Fund  shall not  declare,  pay or set apart  for  payment  any
     dividend or other distribution  (other than a dividend or distribution paid
     in shares  of, or in  options,  warrants  or  rights  to  subscribe  for or
     purchase,  Common Stock or other shares,  if any, ranking junior to AMPS as
     to  the  payment  of  dividends  and  the   distribution   of  assets  upon
     dissolution,  liquidation  or winding up) in respect of Common Stock or any
     other  shares  of the Fund  ranking  junior  to AMPS as to the  payment  of
     dividends or the  distribution of assets upon  dissolution,  liquidation or
     winding up, or call for redemption,  redeem,  purchase or otherwise acquire
     for  consideration any Common Stock or any other such junior shares (except
     by  conversion  into or exchange for shares of the Fund  ranking  junior to
     AMPS as to the payment of  dividends  and the  distribution  of assets upon
     dissolution,  liquidation  or winding up),  unless  immediately  after such
     transaction the Discounted  Value of Moody's Eligible Assets (if Moody's is
     then  rating the AMPS) and Fitch  Eligible  Assets (if Fitch is then rating
     the  AMPS)  would at least  equal the  Preferred  Stock  Basic  Maintenance
     Amount.

     8. RATING AGENCY RESTRICTIONS.

     (a)  Moody's  Restrictions.  For so long as any shares of AMPS are rated by
Moody's,  the Fund may buy or sell  option  contracts  or write call  options on
portfolio securities,  swaps and securities lending, however if the Fund intends
to buy or sell financial futures contracts, write, purchase or sell call options
on financial  futures  contracts  or purchase  put options on financial  futures
contracts,  it must receive written  confirmation from Moody's to engage in such
transactions  as they could  impair the ratings  then  assigned to the shares of
AMPS by Moody's,  (collectively "Moody's Hedging Transactions"),  subject to the
following limitations:

          (i)  Future And Call  Options:  For  purposes of the  Preferred  Stock
               Basic  Maintenance  Amount,  futures  held by the  Fund  and call
               options  sold  by the  Fund  shall  not be  included  as  Moody's
               Eligible Assets.  Likewise,  assets held in segregated  accounts,
               including  assets used to cover good faith  margin  deposits  and
               maximum daily variation payments, in connection with such futures
               and any  uncovered  call options shall not be included as Moody's
               Eligible  Assets.  For call options  purchased  by the Fund,  the
               Market  Value of the call  options  will be  included  as Moody's
               Eligible  Asset  subject to a Moody's  Discount  Factor  mutually
               agreed to between the Fund and Moody's.

          (ii) Securities Lending:  The Fund may engage in securities lending in
               an amount not to exceed 10% of the Fund's  total gross  assets or
               such other  percentage  as the Fund and  Moody's  may agree.  For
               purposes of  calculating  the Preferred  Stock Basic  Maintenance
               Amount,  such  securities  lent  shall  be  included  as  Moody's
               Eligible  Assets with the  appropriate  Moody's  Discount  Factor
               applied to each such lent security. The obligation to return such
               collateral shall not be included as an  obligation/liability  for
               purposes of  calculating  the Preferred  Stock Basic  Maintenance
               Amount.  Moreover,  the Fund may  reinvest  cash  collateral  for
               securities lent in conformity with its investment  objectives and
               policies  and  the  provisions  of  these  terms  of the  AMPS in
               securities  that  otherwise  would  qualify as  Moody's  Eligible
               Assets.  As collateral  for  securities  lent,  the Fund also may
               receive  securities  that  otherwise  would  qualify  as  Moody's
               Eligible  Assets.  In either such  event,  to the extent that the
               securities  lending  collateral   constitutes   Moody's  Eligible
               Assets, if the value of such collateral  exceeds,  whether due to
               appreciation or otherwise,  the value of the securities  lent, in
               each case after applying the appropriate Moody's Discount Factor,
               such  excess  shall be  included  as a  Moody's  Eligible  Asset.
               Conversely,  if the discounted  value of such securities  lending
               collateral is less than the  discounted  value of the  securities
               lent,    such    difference    shall    be    included    as   an
               obligation/liability  of the Fund for purposes of calculating the
               Preferred Stock Basic Maintenance Amount.

If not otherwise provided for in (a)(i)-(ii) above, derivative instruments shall
be treated as follows: Any derivative instruments will be valued pursuant to the
Valuation  Procedures  on a  Valuation  Date.  The  amount  of the  net  payment
obligation  and the  cost  of a  closing  transaction,  as  appropriate,  on any
derivative  instrument  on a Valuation  Date will be counted as a liability  for
purposes of  determining  the  Preferred  Stock Basic  Maintenance  Amount.  Any
derivative  instrument  with  respect  to which the Fund is owed  payment on the
Valuation Date that is not based upon an individual  security or securities that
are Moody's Eligible Assets will either have a mutually agreed upon valuation by
Moody's and the Fund for purposes of determining Moody's Eligible Assets or will
be excluded from Moody's Eligible Assets. Any derivative instrument with respect
to which the Fund is owed  payment on the  Valuation  Date that is based upon an
individual  security or securities  that are Moody's  Eligible  Assets (e.g.,  a
purchased call option on a bond that is in-the-money)  will be valued as follows
for purposes of determining  Moody's  Eligible  Assets:  (A) For such derivative
instruments  that are exchange traded,  the value of the in-the-money  amount of
the  payment  obligation  to the Fund will be reduced by  applying  the  Moody's
Discount Factor (as it would apply to the underlying security or securities) and
then added to Moody's Eligible Assets;  and (B) for such derivative  instruments
that are not  exchange  traded,  the  value of the  in-the-money  amount  of the
payment  obligation  to the Fund will be (1) reduced as described in (A) and (2)
further reduced by applying to the remaining  amount the Moody's Discount Factor
determined  by reference to the credit  rating of the  derivative  counterparty,
with the remaining  amount after these reductions then added to Moody's Eligible
Assets.


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

          (iii) Exchange Traded Future,  Etc. If the Fund purchases or sells any
               exchange-traded  futures,  option or option on  futures  contract
               based on an index  approved  by  Moody's,  it is  subject  to the
               following   limitations   (transactions   that  are   terminating
               contracts already held by the Fund are exempt):

          For financial  futures contracts based on an index the total number of
          contracts purchased should not exceed 10% of the average open interest
          for the 30 days preceding the purchase of such transaction as reported
          by The Wall Street Journal or other  respectable  news source approved
          by Moody's;

          Financial  futures contracts based on an index approved by Moody's are
          limited  to 80%  of  Moody's  Eligible  Assets  or  50% of the  Fund's
          holdings, whichever is greater; and

          Financial  futures  contracts  based on an index  should be limited to
          clearinghouses  that are rated no lower than A by Moody's  (or, if not
          rated by Moody's but rated by S&P or Fitch, rated A by S&P or Fitch).

The Fund may engage in financial  futures contracts to close out any outstanding
financial  futures  contract  based on any index  approved  by  Moody's,  if the
average open interest for the 30 days  preceding the  transaction as reported by
The Wall Street Journal or any other respectable news source approved by Moody's
is equal to or greater than the amount to be closed as determined by Moody's and
the Fund.

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

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

The Fund will not:

          (A)  Engage in options  and futures  transactions  for  leveraging  or
               speculative purposes;

          (B)  Write any call option or sell any financial futures contracts for
               the purpose of hedging an anticipated purchase of an asset;

          (C)  Enter into an option or futures  transaction  unless  Moody's has
               been  notified of the Fund's  intentions.  In addition,  the Fund
               must  present to Moody's  that it will  continue to have  Moody's
               Eligible  Assets with an aggregate  Discounted  Value equal to or
               greater than the Preferred Stock Basic Maintenance Amount.

For purposes of determining whether the Fund has Moody's Eligible Assets with an
aggregate  Discounted  Value that  equals or exceeds the  Preferred  Stock Basic
Maintenance  Amount,  the Discounted  Value of Moody's Eligible Assets which the
Fund is obligated to deliver to Moody's shall be as follows:

          (A)  The   call   option   written   by  the  Fund   must  be   either
               exchange-traded  and "readily  reversible"  or expires  within 49
               days  after  the date of  valuation  and  should be valued at the
               lesser of:

               (i)  The Discounted Value, or


               (ii) The exercise price of the call option written by the Fund;

          (B)  Assets  subject to call  options  written by the Fund not meeting
               the  requirements  of clause (A) of this  sentence  shall have no
               value;

          (C)  Assets subject to put options written by the Fund shall be valued
               at the lesser of:

               (i)  The exercise price of the put option, or

               (ii) The Discounted Value of the subject security; and

          (D)  Where  delivery of a security or class of securities  may be made
               to the Fund,  it shall take  delivery of the security or class of
               securities with the lowest Discounted Value.

          (iv) Adjustments  for Options and Futures  Contracts.  For purposes of
               determining  whether the Fund has Moody's Eligible Assets with an
               aggregate  Discounted  Value that equals or exceeds the Preferred
               Stock Basic  Maintenance  Amount,  the following amounts shall be
               subtracted  from the  aggregate  Discounted  Value of the Moody's
               Eligible Assets held by the Fund:

               (A)  10% of the exercise price of a written call option;

               (B)  The exercise price of any written put option;

               (C)  The settlement  price of the underlying  futures contract if
                    the Fund writes put options on a futures contract; and

               (D)  105% of the Market Value of the underlying futures contracts
                    if the Fund writes call  options on a futures  contract  and
                    does not own the underlying contract.

          (v)  Forward  Commitments.  For so  long  as any  AMPS  are  rated  by
               Moody's, the Fund may enter into contracts to purchase securities
               for a fixed price at a future date  beyond  customary  settlement
               time ("Forward Commitments"), provided that:

               (A) The Fund  will  maintain  in a  segregated  account  with its
          custodian   cash,   cash   equivalents  or  short-term,   fixed-income
          securities rated P-1, MTG-1, MIG-1, or Baa or higher by Moody's or, if
          not rated by Moody's,  rated  A1+/AA,  SP-1+/AA,  A or AA or higher by
          S&P, and maturing prior to the date of the Forward  Commitment  with a
          Market  Value  that  equals  or  exceeds  the  amount  of  the  Fund's
          obligations  under any Forward  Commitment to which it is from time to
          time a party or long-term fixed income  securities with a Market Value
          that equals or exceeds the amount of the Fund's  obligations under any
          Forward Commitment to which it is from time to time a party; and

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

          For  purposes of  determining  whether  the Fund has Moody's  Eligible
          Assets with an aggregate  Discounted  Value that equals or exceeds the
          Preferred  Stock Basic  Maintenance  Amount,  the Discounted  Value of
          Forward  Commitments  will be  calculated  by applying the  respective
          Moody's Discount Factor.

     (b) Fitch  Restrictions.  For so long as any AMPS are  rated by Fitch,  the
Fund  will not buy or sell  futures  contracts,  write,  purchase  or sell  call
options on futures  contracts  or purchase  put options on futures  contracts or
write call options (except covered call options) on portfolio  securities unless
it receives written  confirmation  from Fitch that engaging in such transactions
would not impair the ratings  then  assigned to such AMPS by Fitch,  except that
the Fund may enter into  Interest Rate Swaps,  purchase or sell  exchange-traded
financial  futures  contracts  based on any index  approved  by Fitch,  LIBOR or
Treasury Bonds, and purchase,  write or sell exchange-traded put options on such
futures contracts,  and purchase,  write or sell exchange-traded call options on
such  financial  futures  contracts,  and put and call options on such financial
futures  contracts  ("Fitch  Hedging  Transactions"),  subject to the  following
limitations:


          (i)  The Fund may not engage in any Fitch Hedging Transaction based on
               any  index  approved  by  Fitch  (other  than  transactions  that
               terminate  a futures  contract  or option held by the Fund by the
               Fund's   taking   the   opposite   position   thereto   ("Closing
               Transactions"))  that  would  cause  the Fund at the time of such
               transaction  to own or have sold  outstanding  financial  futures
               contracts  based on such  index  exceeding  in number  10% of the
               average number of daily traded financial  futures contracts based
               on such index in the 30 days preceding the time of effecting such
               transaction as reported by The Wall Street Journal;



          (ii) The Fund will not engage in any Fitch Hedging  Transaction  based
               on Treasury Bonds or LIBOR (other than Closing Transactions) that
               would  cause the Fund at the time of such  transaction  to own or
               have sold:

          (A) Outstanding financial futures contracts based on Treasury Bonds or
     LIBOR with such contracts having an aggregate Market Value exceeding 60% of
     the aggregate  Market Value of Fitch Eligible  Assets owned by the Fund and
     at least  rated AA by Fitch (or,  if not rated by Fitch  Ratings,  rated at
     least Aa by Moody's; or, if not rated by Moody's, rated AAA by S & P); or

          (B) Outstanding financial futures contracts based on Treasury Bonds or
     LIBOR with such contracts having an aggregate Market Value exceeding 40% of
     the aggregate  Market Value of all Fitch Eligible  Assets owned by the Fund
     (other  than Fitch  Eligible  Assets  already  subject  to a Fitch  Hedging
     Transaction)  and  rated at least A or BBB by Fitch  (or,  if not  rated by
     Fitch Ratings,  rated at least Baa by Moody's; or, if not rated by Moody's,
     rated at least A or AA by S&P) (for purposes of the  foregoing  clauses (i)
     and (ii),  the Fund shall be deemed to own futures  contracts that underlie
     any outstanding options written by the Fund);


          (iii) The Fund may  engage in  closing  transactions  to close out any
               outstanding   financial  futures  contract  based  on  any  index
               approved by Fitch if the amount of open interest in such index as
               reported by The Wall Street  Journal is less than an amount to be
               mutually determined by Fitch and the Fund; and


          (iv) The Fund may not  enter  into an option  or  futures  transaction
               unless,  after giving effect thereto,  the Fund would continue to
               have Fitch  Eligible  Assets with an aggregate  Discounted  Value
               equal to or greater than the  Preferred  Stock Basic  Maintenance
               Amount.


          (c) For so long as  shares  of AMPS are  rated by  either  Moody's  or
     Fitch, the Fund will not, unless it has received written  confirmation from
     Moody's or Fitch, as the case may be, that such action would not impair the
     ratings  then  assigned to shares of AMPS by Moody's or Fitch,  as the case
     may be:


          (i)  borrow money except for the purpose of clearing  transactions  in
               portfolio   securities   (which   borrowings   shall   under  any
               circumstances  be limited to the lesser of $____  million  and an
               amount  equal to 5% of the Market  Value of the Fund's  assets at
               the time of such borrowings and which  borrowings shall be repaid
               within 60 days and not be extended or renewed and shall not cause
               the aggregate  Discounted  Value of Moody's Eligible Assets to be
               less than the Preferred Stock Basic Maintenance Amount),


          (ii) engage in short sales of securities;

          (iii) issue  any class or  series  of stock  ranking  prior to or on a
               parity with the AMPS with  respect to the payment of dividends or
               the  distribution  of assets  upon  dissolution,  liquidation  or
               winding up of the Fund;


          (iv) reissue any AMPS previously purchased or redeemed by the Fund;

          (v)  merge or consolidate into or with any other investment company or
               entity;

          (vi) change the Pricing Service; or

          (vii) engage in reverse repurchase agreements.

     9. REDEMPTION.

     (a)  Optional Redemption.

          (i) To the extent  permitted  under the 1940 Act and Maryland law, the
     Fund at its option may, without the consent of the Holders of AMPS,  redeem
     AMPS having a Dividend  Period of one year or less, in whole or in part, on
     the business day after the last day of such  Dividend  Period upon not less
     than fifteen  calendar  days' and not more than forty  calendar days' prior
     notice.  The optional  redemption  price per share will be the  Liquidation
     Preference  per  share,  plus an amount  equal to  accumulated  but  unpaid
     Dividends thereon (whether or not earned or declared) to the date fixed for
     redemption.  AMPS  having  a  Dividend  Period  of more  than  one year are
     redeemable at the option of the Fund, in whole or in part, prior to the end
     of  the  relevant  Dividend  Period,  subject  to any  specific  redemption
     provision,  which may  include the  payment of  redemption  premiums to the
     extent required under any applicable  specific redemption  provisions.  The
     Fund will not make any optional  redemption  unless,  after  giving  effect
     thereto  (i)  the  Fund  has  available  certain  Deposit  Securities  with
     maturities or tender dates not later than the day preceding the  applicable
     Redemption Date and having a value not less than the amount  (including any
     applicable premium) due to holders of the AMPS by reasons of the redemption
     of the AMPS on such  date  fixed for the  redemption  and (ii) the Fund has
     eligible  assets with an aggregate  discounted  value at least equal to the
     Preferred Stock Basic Maintenance  Amount.  Notwithstanding  the foregoing,
     AMPS may not be redeemed at the option of the Fund unless all  dividends in
     arrears  on the  outstanding  AMPS,  and all other  shares  of  outstanding
     Preferred Stock have been or are being  contemporaneously paid or set aside
     for  payment.  A Notice of Special  Dividend  Period  relating to a Special
     Dividend  Period of shares of a series of AMPS, as delivered to the Auction
     Agent and filed with the Secretary of the Fund,  may provide that shares of
     such series  shall not be  redeemable  during the whole or any part of such
     Special Dividend Period or shall be redeemable during the whole or any part
     of such  Special  Dividend  Period  only upon  payment  of such  redemption
     premium or  premiums as shall be  specified  therein  ("Special  Redemption
     Provisions").


          (ii) If fewer than all of the  outstanding  shares of a series of AMPS
     are to be redeemed  pursuant to subparagraph (i) of this paragraph (a), the
     number of shares of such series to be redeemed  shall be  determined by the
     Board of  Directors,  and such shares  shall be redeemed  pro rata from the
     Holders of shares of such series in  proportion  to the number of shares of
     such series held by such Holders.

          (iii)  The  Fund  may not on any  date  mail a  Notice  of  Redemption
     pursuant  to  paragraph  (c) of this  Section 9 in respect of a  redemption
     contemplated  to be effected  pursuant to this paragraph (a) unless on such
     date (A) the Fund has available Deposit  Securities with maturity or tender
     dates not later than the day preceding the applicable  redemption  date and
     having a value not less than the amount (including any applicable  premium)
     due to Holders of AMPS by reason of the  redemption  of such shares on such
     redemption  date, and (B) the Discounted  Value of Moody's  Eligible Assets
     (if Moody's is then rating the AMPS) and Fitch Eligible Assets (if Fitch is
     then  rating  the AMPS)  each at least  equals the  Preferred  Stock  Basic
     Maintenance  Amount,  and would at least  equal the  Preferred  Stock Basic
     Maintenance  Amount  immediately  subsequent  to  such  redemption  if such
     redemption  were to occur on such date.  For  purposes  of  determining  in
     clause  (B) of the  preceding  sentence  whether  the  Discounted  Value of
     Moody's   Eligible  Assets  at  least  equals  the  Preferred  Stock  Basic
     Maintenance  Amount,  the Moody's  Discount  Factors  applicable to Moody's
     Eligible  Assets shall be  determined  by  reference to the first  Exposure
     Period  longer than the Exposure  Period then  applicable  to the Fund,  as
     described in the definition of Moody's Discount Factor herein.


     (b)  Mandatory  Redemption.  The Fund shall redeem,  at a redemption  price
equal to  $25,000  per share  plus  accumulated  but  unpaid  dividends  thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Directors  for  redemption,  certain of the AMPS,  if the Fund fails to
have either Moody's  Eligible  Assets or Fitch Eligible Assets with a Discounted
Value greater than or equal to the Preferred Stock Basic  Maintenance  Amount or
fails to maintain the 1940 Act  Preferred  Share Asset  Coverage,  in accordance
with the requirements of the rating agency or agencies then rating the AMPS, and
such  failure is not cured on or before the  Preferred  Stock Basic  Maintenance
Cure Date or the 1940 Act Cure  Date,  as the case may be. The number of AMPS to
be  redeemed  shall be equal to the  lesser of (i) the  minimum  number of AMPS,
together with all other Preferred Stock subject to redemption or retirement, the
redemption of which, if deemed to have occurred immediately prior to the opening
of business on the Cure Date,  would have resulted in the Fund's having  Moody's
Eligible Assets and Fitch Eligible  Assets with a Discounted  Value greater than
or equal to the Preferred Stock Basic Maintenance Amount or maintaining the 1940
Act  Preferred  Share  Asset  Coverage,  as the case may be,  on such  Cure Date
(provided,  however,  that if there is no such minimum  number of AMPS and other
Preferred  Stock the  redemption  or  retirement  of which  would  have had such
result,  all AMPS and other Preferred Stock then outstanding shall be redeemed),
and (ii) the maximum  number of AMPS,  together with all other  Preferred  Stock
subject to redemption or retirement, that can be redeemed out of funds otherwise
legally available therefor in accordance with the Charter and applicable law. In
determining  the AMPS required to be redeemed in accordance  with the foregoing,
the Fund shall  allocate  the number  required  to be  redeemed  to satisfy  the
Preferred Stock Basic  Maintenance  Amount or the 1940 Act Preferred Share Asset
Coverage,  as the case may be,  pro rata among  AMPS and other  Preferred  Stock
(and,  then,  pro rata  among each  series of AMPS)  subject  to  redemption  or
retirement.  The Fund shall effect such redemption on the date fixed by the Fund
therefor,  which date shall not be earlier than twenty days nor later than forty
days after such Cure Date,  except that if the Fund does not have funds  legally
available for the redemption of all of the required number of the AMPS and other
Preferred  Stock  which are  subject to  redemption  or  retirement  or the Fund
otherwise  is unable to effect such  redemption  on or prior to forty days after
such Cure Date, the Fund shall redeem those AMPS and other Preferred Stock which
it was unable to redeem on the earliest  practicable date on which it is able to
effect such redemption.  If fewer than all of the outstanding shares of a series
of AMPS are to be redeemed  pursuant to this  paragraph  (b), the shares of such
series to be redeemed  shall be  selected  by lot or such other  method that the
Fund deems fair and equitable.



     (c) Notice of Redemption.  If the Fund  determines or is required to redeem
shares of a series of AMPS  pursuant to paragraph  (a) or (b) of this Section 9,
it shall  mail a  Notice  of  Redemption  with  respect  to such  redemption  by
first-class mail,  postage prepaid,  to each Holder of the shares of such series
to be redeemed,  at such Holder's address as the same appears on the Share Books
on the record  date  established  by the Board of  Directors  and to the Auction
Agent.  Such Notice of  Redemption  shall be so mailed not less than fifteen nor
more than forty days prior to the date fixed for redemption. Each such Notice of
Redemption  shall state:  (i) the redemption date; (ii) the number of AMPS to be
redeemed  and the  series  thereof;  (iii) the CUSIP  number  for shares of such
series;   (iv)  the  Redemption  Price;  (v)  the  place  or  places  where  the
certificate(s) for such shares (properly  endorsed or assigned for transfer,  if
the Board of Directors  shall so require and the Notice of  Redemption  shall so
state) are to be  surrendered  for payment of the  Redemption  Price;  (vi) that
dividends  on the  shares  to be  redeemed  will  cease  to  accumulate  on such
redemption  date; (vii) that the Holders of any shares of a series of AMPS being
so redeemed shall not participate in the Auction, if any, immediately  preceding
the  redemption  date;  and (viii) the  provisions of this Section 9 under which
such  redemption  is made.  If fewer than all shares of a series of AMPS held by
any Holder are to be redeemed,  the Notice of  Redemption  mailed to such Holder
shall also specify the number of shares of such series to be redeemed  from such
Holder.  The  Fund  may  provide  in any  Notice  of  Redemption  relating  to a
redemption contemplated to be effected pursuant to paragraph (a) of this Section
9 that such redemption is subject to one or more  conditions  precedent and that
the Fund  shall not be  required  to effect  such  redemption  unless  each such
condition  shall  have been  satisfied  at the time or times  and in the  manner
specified in such Notice of Redemption.

     (d)  No  Redemption  Under  Certain   Circumstances.   Notwithstanding  the
provisions  of  paragraphs  (a) or (b) of this  Section 9, if any  dividends  on
shares of a series of AMPS  (whether or not earned or declared)  are in arrears,
no shares of such series shall be redeemed unless all outstanding shares of such
Series are simultaneously redeemed, and the Fund shall not purchase or otherwise
acquire any shares of such series;  provided,  however, that the foregoing shall
not prevent the purchase or acquisition of all outstanding shares of such series
pursuant  to the  successful  completion  of an  otherwise  lawful  purchase  or
exchange  offer  made on the same  terms to,  and  accepted  by,  Holders of all
outstanding shares of such series.

     (e)  Absence of Funds  Available  for  Redemption.  To the extent  that any
redemption  for which Notice of Redemption has been mailed is not made by reason
of the  absence of legally  available  funds  therefor  in  accordance  with the
Charter and applicable law, such redemption shall be made as soon as practicable
to the  extent  such funds  become  available.  Failure to redeem  AMPS shall be
deemed to exist at any time after the date  specified for redemption in a Notice
of Redemption  when the Fund shall have failed,  for any reason  whatsoever,  to
deposit in trust with the Auction Agent the Redemption Price with respect to any
shares for which such Notice of Redemption has been mailed;  provided,  however,
that the foregoing  shall not apply in the case of the Fund's failure to deposit
in trust with the Auction Agent the Redemption  Price with respect to any shares
where (1) the Notice of  Redemption  relating to such  redemption  provided that
such redemption was subject to one or more conditions precedent and (2) any such
condition  precedent  shall not have been  satisfied at the time or times and in
the manner specified in such Notice of Redemption. Notwithstanding the fact that
the Fund may not have redeemed  AMPS for which a Notice of  Redemption  has been
mailed,  dividends may be declared and paid on AMPS and shall include those AMPS
for which a Notice of Redemption has been mailed.

     (f) Auction  Agent as Trustee of Redemption  Payments by Trust.  All moneys
paid to the Auction Agent for payment of the Redemption Price of AMPS called for
redemption  shall be held in trust  by the  Auction  Agent  for the  benefit  of
Holders of shares so to be redeemed.

     (g)  Shares  for Which  Notice of  Redemption  Has Been Given Are no Longer
Outstanding.  Provided  a Notice  of  Redemption  has been  mailed  pursuant  to
paragraph (c) of this Section 9, upon the deposit with the Auction Agent (on the
Business Day next  preceding  the date fixed for  redemption  thereby,  in funds
available on the next  Business Day in The City of New York,  New York) of funds
sufficient to redeem the AMPS that are the subject of such notice,  dividends on
such shares shall cease to accumulate  and such shares shall no longer be deemed
to be outstanding  for any purpose,  and all rights of the Holders of the shares
so called for  redemption  shall cease and  terminate,  except the right of such
Holders to receive the  Redemption  Price,  but  without  any  interest or other
additional  amount,  except as provided in  subparagraph  (e)(i) of Section 2 of
this Part I. The Auction Agent shall pay the Redemption  Price to the Holders of
AMPS subject to redemption  upon  surrender of the  certificates  for the shares
(properly endorsed or assigned for transfer,  if the Board of Directors shall so
require  and the  Notice  of  Redemption  shall  so  state)  to be  redeemed  in
accordance with the Notice of Redemption. In the case that fewer than all of the
shares represented by any such certificate are redeemed, a new certificate shall
be  issued,  representing  the  unredeemed  shares,  without  cost to the Holder
thereof. The Fund shall be entitled to receive from the Auction Agent,  promptly
after the date fixed for  redemption,  any cash deposited with the Auction Agent
in  excess  of (i)  the  aggregate  Redemption  Price  of the  AMPS  called  for
redemption  on such date and (ii) all other  amounts  to which  Holders  of AMPS
called for redemption may be entitled. Any funds so deposited that are unclaimed
at the end of  ninety  days from  such  redemption  date  shall,  to the  extent
permitted by law, be repaid to the Fund, after which time the Holders of AMPS so
called for  redemption  may look only to the Fund for payment of the  Redemption
Price and all other amounts to which they may be entitled.


     (h) Compliance with Applicable Law. In effecting any redemption pursuant to
this Section 9, the Fund shall effect no redemption  except in  accordance  with
the 1940 Act and any applicable Maryland law.

     (i) Only Whole AMPS May be Redeemed. In the case of any redemption pursuant
to this Section 9, only whole AMPS shall be redeemed,  and in the event that any
provision of the Charter would require  redemption  of a fractional  share,  the
Auction  Agent  shall be  authorized  to round up so that only whole  shares are
redeemed.

     (j)  Modification  of  Redemption  Procedures.  Notwithstanding  any of the
foregoing  provisions  of this  Section 9, the Fund may modify any or all of the
requirements  relating  to the Notice of  Redemption  without the consent of the
Holders  of the AMPS or  holders  of Common  Stock,  provided  that (i) any such
modification does not materially and adversely affect any Holder of the relevant
series of AMPS,  and (ii) the Fund  receives  written  notice  from  Moody's (if
Moody's is then  rating  the AMPS) and Fitch (if Fitch is then  rating the AMPS)
that such  modification  would not impair the  ratings  assigned  by Moody's and
Fitch to shares of AMPS.

     10. LIQUIDATION RIGHTS.

     (a)  Ranking.  The shares of a series of AMPS  shall rank on a parity  with
each other,  with shares of any other series of Preferred  Stock and with shares
of any other series of AMPS as to the  distribution of assets upon  dissolution,
liquidation or winding up of the affairs of the Fund.

     (b) Distributions  Upon Liquidation.  Upon the dissolution,  liquidation or
winding up of the affairs of the Fund,  whether  voluntary or  involuntary,  the
Holders of AMPS then outstanding shall be entitled to receive and to be paid out
of the assets of the Fund available for distribution to its stockholders, before
any payment or  distribution  shall be made on the Common  Stock or on any other
class of  shares  of the Fund  ranking  junior  to the  AMPS  upon  dissolution,
liquidation or winding up, an amount equal to the  Liquidation  Preference  with
respect to such shares plus an amount equal to all dividends thereon (whether or
not earned or declared)  accumulated  but unpaid to (but not including) the date
of final distribution in same day funds. After the payment to the Holders of the
AMPS of the full  preferential  amounts  provided for in this paragraph (b), the
Holders  of AMPS as such  shall  have no right or claim to any of the  remaining
assets of the Fund.

     (c) Pro Rata  Distributions.  In the event the assets of the Fund available
for  distribution to the Holders of AMPS upon any dissolution,  liquidation,  or
winding up of the affairs of the Fund,  whether voluntary or involuntary,  shall
be  insufficient  to pay in full all amounts to which such  Holders are entitled
pursuant to paragraph (b) of this Section 10, no such distribution shall be made
on account of any shares of any other class or series of Preferred Stock ranking
on a parity with the AMPS with respect to the  distribution  of assets upon such
dissolution, liquidation or winding up unless proportionate distributive amounts
shall  be paid on  account  of the  AMPS,  ratably,  in  proportion  to the full
distributable   amounts  for  which  holders  of  all  such  parity  shares  are
respectively entitled upon such dissolution, liquidation or winding up.

     (d) Rights of Junior Shares. Subject to the rights of the holders of shares
of any series or class or classes  of shares  ranking on a parity  with the AMPS
with respect to the  distribution  of assets upon  dissolution,  liquidation  or
winding up of the  affairs of the Fund,  after  payment  shall have been made in
full to the Holders of the AMPS as provided in paragraph (b) of this Section 10,
but not prior  thereto,  any other series or class or classes of shares  ranking
junior to the AMPS with respect to the distribution of assets upon  dissolution,
liquidation  or winding  up of the  affairs  of the Fund  shall,  subject to the
respective  terms and  provisions  (if any)  applying  thereto,  be  entitled to
receive any and all assets remaining to be paid or distributed,  and the Holders
of the AMPS shall not be entitled to share therein.


     (e) Certain Events Not Constituting Liquidation. Neither the sale of all or
substantially  all the  property  or  business  of the Fund,  nor the  merger or
consolidation of the Fund into or with any business trust or corporation nor the
merger or  consolidation  of any business trust or corporation  into or with the
Fund shall be a dissolution,  liquidation  or winding up,  whether  voluntary or
involuntary, for the purposes of this Section 10.

     (f) Liquidation  Preference  Opt-Out. In determining whether a distribution
(other than upon voluntary or involuntary  dissolution) by dividend,  redemption
or other  acquisition  of shares of stock of the Fund or  otherwise is permitted
under the Maryland General Corporation Law, amounts that would be needed, if the
Fund  were to be  dissolved  at the time of the  distribution,  to  satisfy  the
preferential  rights  upon  dissolution  of the  Holders of the AMPS will not be
added to the Fund's total liabilities.

     11. MISCELLANEOUS.

     (a) Modification of Terms.  Subject to the provisions of these terms of the
AMPS,  the Board of  Directors  may,  without  stockholder  approval  (except as
otherwise  provided by these terms of the AMPS or required by  applicable  law),
modify  these terms of the AMPS to reflect any change  hereto which the Board of
Directors is entitled to adopt  pursuant to the terms of Section 4 hereof,  this
Section 11 or otherwise without stockholder approval.

     (b) No Fractional Shares. No fractional shares of AMPS shall be issued.

     (c) Status of AMPS Redeemed,  Exchanged or Otherwise  Acquired by the Fund.
AMPS which are  redeemed,  exchanged  or otherwise  acquired by the Fund  shall
return to the status of authorized  and unissued  shares of Common Stock without
further designation as to class or series.

     (d) Board May Resolve  Ambiguities.  To the extent  permitted by applicable
law, the Board of Directors  may modify,  interpret or adjust the  provisions of
these terms of the AMPS to resolve any  inconsistency  or ambiguity or to remedy
any formal  defect,  and may amend these  terms of the AMPS with  respect to any
series of AMPS prior to the issuance of shares of such series.

     (e) Headings Not  Determinative.  The headings  contained in these terms of
the AMPS are for  convenience of reference only and shall not affect the meaning
or interpretation hereof.

     (f) Notices.  All notices or communications,  unless otherwise specified in
the By-Laws of the Fund or these terms of the AMPS, shall be sufficiently  given
if in writing and  delivered in person or mailed by  first-class  mail,  postage
prepaid.

     (g) Certificate for AMPS. Except as may be otherwise  provided by the Board
of  Directors,  and  subject to Section 7 of Part II of these terms of the AMPS,
Holders of the AMPS are not entitled to certificates  representing the shares of
stock held by them.

                                    PART II

     1. ORDERS.

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

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

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

                    (B) the number of Outstanding shares, if any, of such series
               to be  purchased  or  held  by  such  Beneficial  Owner,  if  the
               Applicable  Rate for shares of such series for the next  Dividend
               Period  is not less  than the rate  specified  in the bid,  which
               shares such Beneficial  Owner shall be deemed to offer to sell if
               the  Applicable  Rate  for  shares  of such  series  for the next
               succeeding Dividend Period of shares of such series shall be less
               than the rate  per  annum  specified  by such  Beneficial  Owner;
               and/or


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

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

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

     (b)  Bidding and Selling.

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

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

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

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

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

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

                    (B) such number or a lesser number of Outstanding  shares of
               such  series  as set forth in clause  (iii) of  paragraph  (b) of
               Section 4 of this Part II if Sufficient  Clearing Bids for shares
               of  such  series  do  not  exist;   provided,   however,  that  a
               Broker-Dealer  that is an Existing  Holder with respect to shares
               of a series of AMPS shall not be liable to any Person for failing
               to sell such  shares  pursuant to a Sell Order  described  in the
               proviso to paragraph (c) of Section 2 of this Part II if (1) such
               shares were  transferred by the Beneficial  Owner thereof without
               compliance   by  such   Beneficial   Owner   or  its   transferee
               Broker-Dealer  (or other transferee  person,  if permitted by the
               Fund)  with the  provisions  of  Section 6 of this Part II or (2)
               such Broker-Dealer has informed the Auction Agent pursuant to the
               terms of its  Broker-Dealer  Agreement  that,  according  to such
               Broker-Dealer's  records,  such Broker Dealer  believes it is not
               the Existing Holder of such shares.


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

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

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

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

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

     (a) Each  Broker-Dealer  shall submit in writing to the Auction Agent prior
to the Submission  Deadline on each Auction Date all Orders for AMPS of a series
subject to an Auction  on such  Auction  Date  obtained  by such  Broker-Dealer,
designating  itself  (unless  otherwise  permitted  by the Fund) as an  Existing
Holder in respect of shares subject to Orders  submitted or deemed  submitted to
it by Beneficial  Owners and as a Potential  Holder in respect of shares subject
to Orders submitted to it by Potential Beneficial Owners, and shall specify with
respect to each Order for such shares:

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

     (f) Any Order  submitted  by a Beneficial  Owner or a Potential  Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.

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

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

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

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


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

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

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

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

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

               (B)  (I) each such Submitted Bid of Potential Holders  specifying
                    such lowest rate and (II) all other such  Submitted  Bids of
                    Potential  Holders  specifying  lower  rates were  accepted;
                    would result in such Existing Holders described in subclause
                    (A)  above   continuing  to  hold  an  aggregate  number  of
                    Outstanding  shares of such series which,  when added to the
                    number of Outstanding  shares of such series to be purchased
                    by such Potential  Holders described in subclause (B) above,
                    would equal not less than the Available AMPS of such series.

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

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

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

          (iii) if all of the  Outstanding  shares of such series are subject to
               Submitted  Hold Orders,  then the  Dividend  Period to which such
               Auction  relates  shall  be a  Minimum  Dividend  Period  and the
               Applicable  Rate  for all  shares  of such  series  for the  next
               succeeding Dividend Period thereof shall be 90% of the applicable
               Reference Rate on such Auction Date.

     4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES.

Existing  Holders shall  continue to hold the AMPS that are subject to Submitted
Hold Orders,  and, based on the determinations made pursuant to paragraph (a) of
Section 3 of this Part II, the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected by the Auction  Agent and the Auction Agent shall take such
other action as set forth below:

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


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

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

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

          (iv) each  Existing  Holder's  Submitted Bid for shares of such series
               specifying  a rate  that is  equal  to the  Winning  Bid Rate for
               shares of such series  shall be  rejected,  thus  entitling  such
               Existing  Holder to  continue  to hold the AMPS  subject  to such
               Submitted Bid,  unless the number of Outstanding  AMPS subject to
               all such  Submitted Bids shall be greater than the number of AMPS
               ("remaining  shares") in the excess of the Available AMPS of such
               series  over  the  number  of  AMPS  subject  to  Submitted  Bids
               described  in clauses  (ii) and (iii) of this  paragraph  (a), in
               which event such  Submitted Bid of such Existing  Holder shall be
               rejected in part,  and such Existing  Holder shall be entitled to
               continue to hold AMPS subject to such  Submitted Bid, but only in
               an amount equal to the number of AMPS of such series  obtained by
               multiplying  the number of  remaining  shares by a fraction,  the
               numerator of which shall be the number of  Outstanding  AMPS held
               by such  Existing  Holder  subject to such  Submitted Bid and the
               denominator of which shall be the aggregate number of Outstanding
               AMPS  subject to such  Submitted  Bids made by all such  Existing
               Holders  that  specified a rate equal to the Winning Bid Rate for
               shares of such series; and

          (v)  each Potential  Holder's  Submitted Bid for shares of such series
               specifying  a rate  that is  equal  to the  Winning  Bid Rate for
               shares of such  series  shall be  accepted  but only in an amount
               equal  to the  number  of  shares  of  such  series  obtained  by
               multiplying  the number of shares in the excess of the  Available
               AMPS of such series over the number of AMPS  subject to Submitted
               Bids described in clauses (ii) through (iv) of this paragraph (a)
               by a  fraction,  the  numerator  of which  shall be the number of
               Outstanding   AMPS  subject  to  such   Submitted   Bid  and  the
               denominator of which shall be the aggregate number of Outstanding
               AMPS subject to such  Submitted  Bids made by all such  Potential
               Holders  that  specified a rate equal to the Winning Bid Rate for
               shares of such series.

     (b) If  Sufficient  Clearing  Bids for  shares of a series of AMPS have not
been made (other than because all of the  Outstanding  shares of such series are
subject to Submitted Hold Orders), subject to the provisions of paragraph (d) of
this Section 4, Submitted  Orders for shares of such series shall be accepted or
rejected as follows in the following  order of priority and all other  Submitted
Bids for shares of such series shall be rejected:

          (i)  Existing  Holders'  Submitted  Bids  for  shares  of such  series
               specifying  any rate that is equal to or lower  than the  Maximum
               Applicable Rate for shares of such series shall be rejected, thus
               entitling  such  Existing  Holders to  continue  to hold the AMPS
               subject to such Submitted Bids;

          (ii) Potential  Holders'  Submitted  Bids for  shares  of such  series
               specifying  any rate that is equal to or lower  than the  Maximum
               Applicable Rate for shares of such series shall be accepted; and

          (iii) Each Existing  Holder's  Submitted Bid for shares of such series
               specifying  any rate that is higher than the  Maximum  Applicable
               Rate for shares of such series and the Submitted  Sell Orders for
               shares of such series of each Existing  Holder shall be accepted,
               thus  entitling  each Existing  Holder that submitted or on whose
               behalf was  submitted any such  Submitted  Bid or Submitted  Sell
               Order to sell the shares of such series subject to such Submitted
               Bid or Submitted Sell Order,  but in both cases only in an amount
               equal  to the  number  of  shares  of  such  series  obtained  by
               multiplying  the  number  of  shares of such  series  subject  to
               Submitted  Bids described in clause (ii) of this paragraph (b) by
               a  fraction,  the  numerator  of  which  shall be the  number  of
               Outstanding  shares of such series held by such  Existing  Holder
               subject to such  Submitted  Bid or  Submitted  Sell Order and the
               denominator of which shall be the aggregate number of Outstanding
               shares of such  series  subject  to all such  Submitted  Bids and
               Submitted Sell Orders.


     (c) If all of the  Outstanding  shares of a series of AMPS are  subject  to
Submitted  Hold Orders,  all  Submitted  Bids for shares of such series shall be
rejected.

     (d) If, as a result of the  procedures  described  in clause (iv) or (v) of
paragraph  (a) or clause (iii) of paragraph  (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any  Potential  Holder would be
entitled or required to  purchase,  a fraction of a share of a series of AMPS on
any Auction Date, the Auction Agent shall,  in such manner as it shall determine
in its sole discretion, round up or down the number of AMPS of such series to be
purchased  or sold by any Existing  Holder or  Potential  Holder on such Auction
Date as a result of such procedures so that the number of shares so purchased or
sold by each Existing  Holder or Potential  Holder on such Auction Date shall be
whole AMPS.

     (e) If, as a result of the procedures  described in clause (v) of paragraph
(a) of this  Section 4, any  Potential  Holder  would be entitled or required to
purchase  less than a whole share of a series of AMPS on any Auction  Date,  the
Auction  Agent  shall,  in  such  manner  as it  shall  determine  in  its  sole
discretion, allocate AMPS of such series for purchase among Potential Holders so
that only whole shares of AMPS of such Series are purchased on such Auction Date
as a result of such procedures by any Potential Holder,  even if such allocation
results in one or more Potential  Holders not purchasing  AMPS of such series on
such Auction Date.

     (f) Based on the  results of each  Auction  for shares of a series of AMPS,
the Auction Agent shall determine the aggregate  number of shares of such series
to be purchased and the aggregate  number of shares of such series to be sold by
Potential  Holders and  Existing  Holders and,  with  respect to each  Potential
Holder and Existing  Holder,  to the extent that such aggregate number of shares
to be purchased and such aggregate number of shares to be sold differ, determine
to which other Potential  Holder(s) or Existing Holder(s) they shall deliver, or
from which other Potential  Holder(s) or Existing  Holder(s) they shall receive,
as the case may be, AMPS of such series.  Notwithstanding  any  provision of the
Auction  Procedures  to the  contrary,  in  the  event  an  Existing  Holder  or
Beneficial  Owner of a  series  of AMPS  with  respect  to whom a  Broker-Dealer
submitted a Bid to the Auction  Agent for such shares that was accepted in whole
or in part,  or submitted  or is deemed to have  submitted a Sell Order for such
shares that was accepted in whole or in part, fails to instruct its Agent Member
to deliver such shares against payment therefor, partial deliveries of AMPS that
have been made in respect of Potential Holders' or Potential  Beneficial Owners'
submitted  Bids for shares of such series that have been accepted in whole or in
part shall  constitute  good  delivery to such  Potential  Holders and Potential
Beneficial Owners.

     (g) None of the Fund, the Advisers,  the Auction Agent nor any affiliate of
any of them,  shall have any  responsibility  or  liability  with respect to the
failure of an Existing  Holder,  a  Potential  Holder,  a  Beneficial  Owner,  a
Potential Beneficial Owner or its respective Agent Member to deliver AMPS of any
series  or to pay for  AMPS of any  series  sold or  purchased  pursuant  to the
Auction Procedures or otherwise.

     5.  AUCTION  AGENT.  For so long as any AMPS are  outstanding,  the Auction
Agent,  duly appointed by the Fund to so act, shall be in each case a commercial
bank, trust company or other financial  institution  independent of the Fund and
its   Affiliates   (which  however  may  engage  or  have  engaged  in  business
transactions  with the Fund or its  Affiliates) and at no time shall the Fund or
any of its  affiliates  act as the Auction Agent in connection  with the Auction
Procedures.  If the Auction Agent resigns or for any reason its  appointment  is
terminated  during  any  period  that  any AMPS are  outstanding,  the  Board of
Directors  shall use its best efforts  promptly  thereafter  to appoint  another
qualified commercial bank, trust company or financial  institution to act as the
Auction Agent.  The Auction Agent's  registry of Existing Holders of a series of
AMPS shall be conclusive and binding on the Broker-Dealers.  A Broker-Dealer may
inquire of the Auction  Agent between 3:00 p.m. on the Business Day preceding an
Auction for a series of AMPS and 9:30 a.m. on the Auction  Date for such Auction
to ascertain the number of shares of such series in respect of which the Auction
Agent has  determined  such  Broker-Dealer  to be an  Existing  Holder.  If such
Broker-Dealer  believes it is the Existing Holder of fewer shares of such series
than specified by the Auction Agent in response to such Broker-Dealer's inquiry,
such  Broker-Dealer  may so  inform  the  Auction  Agent  of that  belief.  Such
Broker-Dealer  shall not, in its  capacity as Existing  Holder of shares of such
series,  submit  Orders in such  Auction  in  respect  of shares of such  series
covering  in the  aggregate  more  than the  number  of  shares  of such  series
specified by the Auction Agent in response to such Broker-Dealer's inquiry.

                                     


     6. TRANSFER OF AMPS.  Unless otherwise  permitted by the Fund, a Beneficial
Owner or an Existing Holder may sell, transfer or otherwise dispose of AMPS only
in whole shares and only pursuant to a Bid or Sell Order placed with the Auction
Agent  in  accordance  with the  procedures  described  in this  Part II or to a
Broker-Dealer; provided, however, that (a) a sale, transfer or other disposition
of AMPS from a customer of a Broker-Dealer  who is listed on the records of that
Broker-Dealer  as the  holder of such  shares to that  Broker-Dealer  or another
customer  of that  Broker-Dealer  shall not be deemed to be a sale,  transfer or
other disposition for purposes of this Section 6 if such  Broker-Dealer  remains
the  Existing  Holder  of  the  shares  so  sold,  transferred  or  disposed  of
immediately after such sale,  transfer or disposition and (b) in the case of all
transfers other than pursuant to Auctions,  the  Broker-Dealer (or other Person,
if permitted by the Fund) to whom such transfer is made shall advise the Auction
Agent of such transfer.

     7. GLOBAL  CERTIFICATE.  Prior to the commencement of a Voting Period,  (i)
all of the  shares of a series of AMPS  outstanding  from time to time  shall be
represented by one global  certificate  registered in the name of the Securities
Depository  or its nominee and (ii) no  registration  of transfer of shares of a
series of AMPS shall be made on the books of the Fund to any  Person  other than
the Securities Depository or its nominee.

     8. FORCE MAJEURE.

     (a)  Notwithstanding  anything else set forth herein, if an Auction Date is
not a Business  Day because the New York Stock  Exchange is closed for  business
due  to an  act  of  God,  natural  disaster,  act of  war,  civil  or  military
disturbance,  act of  terrorism,  sabotage,  riots or a loss or  malfunction  of
utilities or communications services or the Auction Agent is not able to conduct
an Auction in accordance with the Auction  Procedures for any such reason,  then
the  Auction  Rate for the  next  Dividend  Period  shall  be the  Auction  Rate
determined on the previous Auction Date.

     (b)  Notwithstanding  anything else set forth herein, if a Dividend Payment
Date is not a Business  Day  because  the New York Stock  Exchange is closed for
business due to an act of God, natural  disaster,  act of war, civil or military
disturbance,  act of  terrorism,  sabotage,  riots or a loss or  malfunction  of
utilities or  communications  services or the dividend  payable on such date can
not be paid for any such reason, then:

          (i)  the Dividend Payment Date for the affected  Dividend Period shall
               be the next  Business Day on which the Fund and its paying agent,
               if any,  are able to cause the  dividend  to be paid using  their
               reasonable best efforts;

          (ii) the affected  Dividend  Period shall end on the day it would have
               ended had such event not occurred  and the Dividend  Payment Date
               had remained the scheduled date; and

          (iii) the next  Dividend  Period  will  begin  and end on the dates on
               which it would have  begun and ended had such event not  occurred
               and the Dividend Payment Date remained the scheduled date.



THIRD:  The shares of Auction Market  Preferred  Stock have been  classified and
designated  by the Board of  Directors  under  the  authority  contained  in the
Charter.

FOURTH:  These  Articles  Supplementary  have  been  approved  by the  Board  of
Directors in the manner and by the vote required by law.

FIFTH: The undersigned President of the Corporation  acknowledges these Articles
Supplementary  to be the corporate act of the Corporation and, as to all matters
or  facts  required  to  be  verified  under  oath,  the  undersigned  President
acknowledges that, to the best of his knowledge,  information and belief,  these
matters and facts are true in all material  respects and that this  statement is
made under the penalties for perjury.


                            [SIGNATURE PAGE FOLLOWS]



     IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be signed in its name and on its behalf by its  President  and attested to by
its Secretary on this ____ day of October ___,2005.




ATTEST:                               BOULDER GROWTH & INCOME FUND, INC.





_______________________________       By:_________________________________[SEAL)

Stephanie Kelley, Secretary                         Stephen C. Miller, President




                                   APPENDIX A

                              SETTLEMENT PROCEDURES



     Capitalized terms used herein shall have the respective  meanings specified
in the Articles Supplementary.

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

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

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

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

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

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

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

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

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

          (i)  in the case of a Broker-Dealer  that is a Buyer's  Broker-Dealer,
               instruct  each  Potential  Beneficial  Owner on whose behalf such
               Broker-Dealer  submitted a Bid that was accepted,  in whole or in
               part, to instruct such Potential  Beneficial Owner's Agent Member
               to pay to such  Broker-Dealer  (or its Agent Member)  through the
               Securities Depository the amount necessary to purchase the number
               of AMPS to be purchased  pursuant to such Bid against  receipt of
               such shares and advise  such  Potential  Beneficial  Owner of the
               Applicable Rate for the next succeeding Dividend Period;

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

        


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

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

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

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

     (d) On each Auction Date:

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

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

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

     (e) On the day after the Auction Date:

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

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

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

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





                                   APPENDIX C

                            RATING AGENCY GUIDELINES


                     ____________________ INVESTMENT COMPANY

                               MOODY'S GUIDELINES

     Below  is  set  forth  for   __________________   Investment  Company  (the
"Company") the Moody's Guidelines,  as defined in the Articles  Supplementary of
the auction  rate  preferred  stock (the "ARP  Shares").  Capitalized  terms not
defined  herein  shall  have  the  same  meanings  as  defined  in the  Articles
Supplementary.  Moody's may amend, alter or change these Moody's Guidelines,  in
its sole discretion, provided however, that Moody's provide any such amendments,
alterations or changes to the Company in writing.

1.   CERTAIN OTHER RESTRICTIONS

     For so long as any  principal  amount  of ARP  Shares  is  Outstanding  and
Moody's is then  rating the ARP  Shares,  the  Company  will not,  unless it has
received  written  confirmation  from  Moody's  (if  Moody's is then  rating ARP
Shares),  that any such action would not impair the rating then assigned by such
rating  agency  to a  series  of ARP  Shares,  engage  in any one or more of the
following transactions:

     (a) write unsecured put or uncovered call options on portfolio securities;

     (b) issue additional  series of ARP Shares or any class or series of shares
ranking  prior to or on a parity with ARP Shares with  respect to the payment of
interest  and  principal  or  the  distribution  of  assets  upon   dissolution,
liquidation or winding up of the Company,  or reissue any ARP Shares  previously
purchased or redeemed by the Company;

     (c) engage in any "naked"  short sales of securities in excess of either of
the following  limitations:  (i) measured on a daily basis,  the market value of
all such "naked" short sale positions will not exceed 2% of the Company's  total
assets,  and (ii) at the time of entering into any such short sales,  the market
value of all such short sale positions  immediately  following such  transaction
shall not exceed 2% of the Company's total assets;

     (d) lend portfolio securities; or

     (e) merge or consolidate into or with any other corporation.

2.   COMPLIANCE PROCEDURES FOR ASSET MAINTENANCE TESTS.

     (a) The  Company  shall  deliver to Moody's  (if Moody's is then rating ARP
Shares),  a certificate  with respect to the calculation of the ARP Shares Basic
Maintenance Amount (a "ARP Shares Basic Maintenance  Certificate") as of (A) the
Original Issue Date,  (B) the last  Valuation  Date of each month,  (C) any date
requested  by any  rating  agency,  (D) a  Business  Day on or before  any Asset
Coverage Cure Date  relating to the Company's  cure of a failure to meet the ARP
Shares Basic Maintenance Amount test, (E) any day that common shares,  preferred
shares or ARP Shares are redeemed  and (F) any day the  Eligible  Assets have an
aggregate  discounted  value less than or equal to 115% of the ARP Shares  Basic
Maintenance  Amount.  Such ARP Shares  Basic  Maintenance  Certificate  shall be
delivered in the case of clause  (i)(A) above on or before the seventh  Business
Day following the Original Issue Date and in the case of all other clauses above
on or before the seventh Business Day after the relevant Valuation Date or Asset
Coverage Cure Date.


     (b) The  Company  shall  deliver to Moody's  (if Moody's is then rating ARP
Shares),  a  certificate  with  respect to the  calculation  of the 1940 Act ARP
Shares Asset Coverage and the value of the portfolio  holdings of the Company (a
"1940 Act ARP Shares Asset Coverage  Certificate")  (i) as of the Original Issue
Date, and (ii) as of (A) the last Valuation Date of each quarter thereafter, and
(B) as of the Business Day on or before the Asset Coverage Cure Date relating to
the failure to satisfy the 1940 Act ARP Shares Asset Coverage. Such 1940 Act ARP
Shares Asset Coverage  Certificate  shall be delivered in the case of clause (i)
above on or before the seventh  Business Day following  the Original  Issue Date
and in the case of clause (ii) above on or before the seventh Business Day after
the relevant Valuation Date or the Asset Coverage Cure Date. The certificates of
(a) and (b) of this Section may be combined into a single certificate.

     (c) Within ten Business Days of the Original  Issue Date, the Company shall
deliver to the Auction Agent and Moody's (if Moody's is then rating ARP Shares),
a letter prepared by the Company's  independent  accountants  (an  "Accountant's
Certificate")  regarding the accuracy of the calculations made by the Company in
the MMP Share Basic  Maintenance  Certificate  and the 1940 Act ARP Shares Asset
Coverage  Certificate required to be delivered by the Company as of the Original
Issue  Date.  Within ten  Business  Days after the last  Valuation  Date of each
fiscal year of the Company on which a ARP Shares Basic  Maintenance  Certificate
is required to be  delivered,  the Company will deliver to the Auction Agent and
Moody's (if  Moody's is then rating ARP  Shares),  an  Accountant's  Certificate
regarding  the  accuracy  of the  calculations  made by the  Company in such ARP
Shares Basic  Maintenance  Certificate.  Within ten Business Days after the last
Valuation Date of each fiscal year of the Company on which a 1940 Act ARP Shares
Asset Coverage Certificate is required to be delivered, the Company will deliver
to the Auction  Agent and Moody's  (if  Moody's is then rating ARP  Shares),  an
Accountant's  Certificate regarding the accuracy of the calculations made by the
Company in such 1940 Act ARP Shares Asset Coverage Certificate. In addition, the
Company will deliver to the relevant persons specified in the preceding sentence
an Accountant's  Certificate  regarding the accuracy of the calculations made by
the Company on each ARP Shares Basic  Maintenance  Certificate  and 1940 Act ARP
Shares Asset Coverage Certificate delivered pursuant to clause (iv) of paragraph
(a) or clause  (ii)(B) of paragraph  (b) of as the case may be,  within ten days
after the relevant  Asset  Coverage  Cure Date. If an  Accountant's  Certificate
delivered with respect to an Asset Coverage Cure Date shows an error was made in
the  Company's  report  with  respect to such  Asset  Coverage  Cure  Date,  the
calculation or determination made by the Company's independent  accountants will
be conclusive  and binding on the Company with respect to such  reports.  If any
other Accountant's  Certificate shows that an error was made in any such report,
the calculation or determination made by the Company's  independent  accountants
will be conclusive  and binding on the Company;  provided,  however,  any errors
shown in the  Accountant's  Certificate  filed on a quarterly basis shall not be
deemed to be a failure to maintain  the ARP Shares Basic  Maintenance  Amount on
any prior Valuation Dates.


     (d)  The  Accountant's  Certificates  referred  to in  paragraph  (c)  will
confirm,  based upon the independent  accountant's  review, (i) the mathematical
accuracy  of  the  calculations  reflected  in  the  related  ARP  Shares  Basic
Maintenance Amount and 1940 Act ARP Shares Asset Coverage  Certificates,  as the
case may be, and (ii) that the Company  determined  whether the Company  had, at
such Valuation Date, Eligible Assets with an aggregate Discounted Value at least
equal  to  the  Basic  Maintenance   Amount  in  accordance  with  the  Articles
Supplementary.

3.   DEFINITIONS.

     (a) "APPROVED PRICE" means the "fair value" as determined by the Company in
accordance with the valuation  procedures adopted from time to time by the Board
of Directors of the Company and for which the Company  receives a mark-to-market
price (which,  for the purpose of clarity,  shall not mean Market Value) from an
independent source at least semi-annually.

     (b) "BANK LOANS" means direct purchases of, assignments of,  participations
in and  other  interests  in (a)  any  bank  loan  or (b)  any  loan  made by an
investment bank, investment fund or other financial  institution,  provided that
such loan under this clause (b) is similar to those typically made,  syndicated,
purchased or participated by a commercial bank or institutional loan investor in
the ordinary course of business.

     (c) "ARP SHARES BASIC  MAINTENANCE  AMOUNT" as of any Valuation  Date means
the dollar amount equal to:

          (i) the sum of (A) the product  resulting from  multiplying the number
     of  Outstanding  ARP  Shares on such date by  $25,000  plus any  redemption
     premium; (B) the aggregate amount of interest that will have accumulated at
     the  Applicable  Rate  (whether or not earned or declared) to and including
     the first Interest Payment Date that follows such Valuation Date (or to the
     30th day after such  Valuation  Date,  if such 30th day  occurs  before the
     first  following  Interest  Payment  Date);  (C) the amount of  anticipated
     Company non-interest  expenses for the 90 days subsequent to such Valuation
     Date;  (D)  the  amount  of  the  current   outstanding   balances  of  any
     indebtedness  which is  senior to the ARP  Shares  plus  interest  actually
     accrued   together  with  30  days  additional   interest  on  the  current
     outstanding  balances  calculated at the current rate;  and (E) any current
     liabilities,  payable during the 30 days subsequent to such Valuation Date,
     including,  without  limitation,  indebtedness  due within one year and any
     redemption  premium due with respect to ARP Shares or Preferred  Shares for
     which a Notice of Redemption has been given,  as of such Valuation Date, to
     the extent not reflected in any of (i)(A) through (i)(D); less

          (ii) the sum of any cash plus the value of any of the Company's assets
     irrevocably  deposited by the Company for the payment of any (i)(B) through
     (i)(E)  ("value,"  for purposes of this clause (ii),  means the  Discounted
     Value of the  security,  except that if the security  matures  prior to the
     relevant redemption payment date and is either fully guaranteed by the U.S.
     Government  or is rated at least P-1 by  Moody's,  it will be valued at its
     face value).

     (d)  "MOODY'S  DISCOUNT  FACTOR"  means,  for purposes of  determining  the
Discounted  Value of any Moody's  Eligible Asset,  the percentage  determined as
follows.  In addition to the reporting  required  above in Section 2 above,  the
Company must notify  Moody's if the portfolio  coverage  ratio of the Discounted
Value of Moody's  Eligible Assets to liabilities is less than 150%.  Computation
of  the  MMP  Share  Basic  Maintenance  Amount  test  requires  the  use of the
diversification  table under  Section  3(e) below prior to applying  the Moody's
Discount Factors noted below and after identifying  Moody's Eligible Assets. The
Moody's  Discount  Factor  for  any  Moody's  Eligible  Asset,  other  than  the
securities  set forth  below,  will be the  percentage  provided  in  writing by
Moody's.


          (i) Corporate debt securities:  The percentage determined by reference
     to the  rating  on such  asset  with  reference  to the  remaining  term to
     maturity of such asset,  in accordance  with the table set forth below (non
     convertibles).

                       TERM TO MATURITY OF CORPORATE DEBT

                             MOODY'S RATING CATEGORY


                                                                                       
SECURITY(1)                              AAA        AA          A          BAA        BA         B          UNRATED(2)
---------------------------------------- ---------- ---------- ----------- ---------- ---------- ---------- -----------
1 year or less                           109%       112%       115%        118%       137%       150%       250%
2 years or less (but longer than 1       15         18         122         125        146        160        250
year)
3 years or less (but longer than 2       120        123        127         131        153        168        250
years)
4 years or less (but longer than 3       126        129        133         138        161        176        250
years)
5 years or less (but longer than 4       132        135        139         144        168        185        250
years)
7 years or less (but longer than 5       139        143        147         152        179        197        250
years)
10 years or less (but longer than 7      145        150        155         160        189        208        250
years)
15 years or less (but longer than 10     150        155        160         165        196        216        250
years)
20 years or less (but longer than 15     150        155        160         165        196        228        250
years)
30 years or less (but longer than 20     150        155        160         165        196        229        250
years)
Greater than 30 years...........         165        173        181         189        205        240        250



(1)  The Moody's Discount Factors above for corporate debt securities shall also
     be applied to any  interest  rate swap or cap,  in which case the rating of
     the counterparty shall determine the appropriate rating category.

(2)  Unless  conclusions  regarding  liquidity risk as well as estimates of both
     the probability and severity of default for the Corporation's assets can be
     derived from other sources, securities rated below B by Moody's and unrated
     securities,  which are securities rated by neither Moody's,  S&P nor Fitch,
     are limited to 10% of Moody's Eligible Assets. If a corporate debt security
     is unrated by Moody's,  S&P or Fitch,  the Company will use the  percentage
     set forth under "Unrated" in this table.  Ratings  assigned by S&P or Fitch
     are generally accepted by Moody's at face value.

          However,   adjustments  to  face  value  may  be  made  to  particular
     categories  of credits for which the S&P and/or  Fitch rating does not seem
     to approximate a Moody's rating equivalent. Split rated securities assigned
     by S&P and Fitch will be accepted at the lower of the two ratings.

     For corporate debt securities that do not pay interest in U.S. dollars, the
     company  sponsor will  contact  Moody's to obtain the  applicable  currency
     conversion rates.


          (ii)  Preferred   stock:  The  Moody's  Discount  Factor  for  taxable
     preferred stock shall be:


                                                         

                          Aaa........................       150%
                          Aa.........................       155%
                          A..........................       160%
                          Baa........................       165%
                          Ba.........................       196%
                          B..........................       216%
                          Less than B or Not Rated          250%



     Preferred  stock whose  dividends are eligible for the  dividends  received
deduction under the Code ("DRD") will be assigned a different  Moody's  Discount
Factor.  Investment  grade DRDs will be given a 165% Moody's Discount Factor and
non-investment grade DRDs will receive a 216% Moody's Discount Factor.

          (iii)  Common stock:


                                  
COMMON STOCKS           UTILITY INDUSTRIAL FINANCIAL

7 week exposure period  170%    264%       41%


          (iv) Convertible securities (including convertible preferreds):

     Equity - the  convertibles  is this group  would  have a delta that  ranges
between 1-.8. For investment  grade bonds the discount  factor would be 195% and
for below investment grade securities the discount factor would be 229%.

     Total  Return - the  convertibles  in this  group  would  have a delta that
ranges between .8-.4.  For investment  grade bonds the discount  factor would be
192% and for below  investment  grade  securities  the discount  factor would be
226%.

     Yield  Alternative - the convertibles in this group would have a delta that
ranges  between .4-0.  For this category the discount  factors used are based on
Moody's rating for corporate debt securities table.

          Any unrated convertible bonds would receive a discount factor of 250%.

          Upon conversion to common stock,  the discount  factors  applicable to
     common stock in (iii) above will apply.

               (v)  Common Stock,  Preferred Stock and Corporate Debt Securities
                    of REITs:

                    (A)  For  corporate  debt  securities  of  REITs,  apply the
                         Moody's Discount Factors in (i) above.


                    (B)  For  common  stock and  preferred  stock of REITs,  the
                         Moody's   Discount   Factor  shall  be  the  percentage
                         specified in the table set forth below:


                                                                                      
                                                                                         MOODY'S DISCOUNT
                                                                                         FACTOR
                                                                                         -----------------------------
common stock of REITs...............................................................     154%

preferred stock of REITs with a Moody's S&P or Fitch rating (including a Senior          154%
Implied Rating).....................................................................

without a Moody's S&P or Fitch rating (including a Senior Implied Rating)...........     208%



                    (C)  Notwithstanding   the  above,  a  Moody's  Discount
                         Factor of 250% will be applied:  (1) to those assets in
                         a single NAREIT industry  category/sector  which exceed
                         30% of Moody's Eligible Assets but are not greater than
                         35% of Moody's  Eligible  Assets;  (2) if  dividends on
                         such securities have not been paid consistently (either
                         quarterly or annually)  over the previous  three years,
                         or for such  shorter  time period that such  securities
                         have   been   outstanding;   or  (3)   if  the   market
                         capitalization  (including  common stock and  preferred
                         stock) of an issuer is below $500 million.

          (vi) Short-Term  Instruments:  The Moody's  Discount Factor applied to
     short-term  portfolio  securities,  including without limitation  corporate
     debt securities and Short Term Money Market  Instruments  will be (A) 100%,
     so long as such portfolio securities mature or have a demand feature at par
     exercisable  within the Moody's Exposure Period;  (B) 115%, so long as such
     portfolio  securities do not mature within the Moody's  Exposure  Period or
     have a demand feature at par not  exercisable  within the Moody's  Exposure
     Period; and (C) 125%, if such securities are not rated by Moody's,  so long
     as such portfolio  securities are rated at least A-1+/AA or SP-1+/AA by S&P
     and mature or have a demand feature at par  exercisable  within the Moody's
     Exposure Period. A Moody's Discount Factor of 100% will be applied to cash.

          (vii) U.S. Government Securities and U.S. Treasury Strips:



                                                                          
REMAINING TERM TO MATURITY                      U.S. GOVERNMENT                 U.S. TREASURY STRIPS
                                                SECURITIES DISCOUNT FACTOR      DISCOUNT FACTOR
1 year or less                                  107%                            107%
2 years or less (but longer than 1 year)        113                             115
3 years or less (but longer than 2 years)       118                             121
4 years or less (but longer than 3 years)       123                             128
5 years or less (but longer than 4 years)       128                             135
7 years or less (but longer than 5 years)       135                             147
10 years or less (but longer than 7 years)      141                             163
15 years or less (but longer than 10 years)     146                             191
20 years or less (but longer than 15 years)     154                             218
30 years or less (but longer than 20 years)     154                             244




          (viii)  Sovereign  debt  securities:  The Moody's Discount Factor for
     sovereign debt securities of qualified  sovereign  nations shall be 250% if
     such obligation is denominated in U.S.  dollars or Euros. If the obligation
     is denominated in a currency other than U.S.  dollars or Euros, the Moody's
     Discount Factor above will be adjusted by a factor as determined in writing
     by Moody's.

          (ix) Rule 144A Securities: The Moody's Discount Factor applied to Rule
     144A  Securities  for Rule 144A  Securities  whose terms include  rights to
     registration  under  the  Securities  Act  within  one year  and Rule  144A
     Securities  which do not have  registration  rights within one year will be
     120% and 130%,  respectively,  of the Moody's  Discount  Factor which would
     apply were the securities registered under the Securities Act.

          (x) Bank Loans:  The Moody's  Discount  Factor  applied to senior Bank
     Loans ("Senior Loans") shall be the percentage specified in accordance with
     the table set forth below (or such lower  percentage as Moody's may approve
     in writing from time to time):



                             MOODY'S RATING CATEGORY
                                                                                           
                                                                             CAA AND BELOW INCLUDING
TYPE OF LOAN                           AAA-A          BAA AND BA(1)          DISTRESSED AND B(1)       UNRATED)(1)
-------------------------------------- -------------- ---------------------- ------------------------- ---------------
Senior Loans greater than $250 MM      118%           136%                   149%                      250%
non-Senior Loans greater than $250 MM  128%           146%                   159%                      250%
loans less than $250 MM                139%           156%                   169%                      270%



(1)  If a Senior Loan is not rated by any of Moody's,  S&P or Fitch Ratings, the
     Company  will use the  applicable  percentage  set forth  under the  column
     entitled "Caa and below  (including  distressed  and unrated)" in the table
     above.  Ratings  assigned  the S&P and/or Fitch are  generally  accepted by
     Moody's at face value.  However,  adjustments  to face value may be made to
     particular  categories  of  securities  for which the ratings by S&P and/or
     Fitch do not seem to approximate a Moody's rating  equivalent.  Split rated
     securities  assigned by S&P and Fitch (i.e.,  these rating  agencies assign
     different rating  categories to the security) will be accepted at the lower
     of the two ratings; provided however, that, in a situation where a security
     is rated "B" (or  equivalent)  by a given rating agency and rated "Ccc" (or
     equivalent) by another  rating agency,  the Company will use the applicable
     percentage set forth under the column entitled "B" in the table above.

     (e) "MOODY'S ELIGIBLE ASSETS" means:

          (i) cash  (including  interest and  dividends  due on assets rated (A)
     Baa3 or higher by Moody's if the payment date is within five  Business Days
     of the  Valuation  Date,  (B) A2 or  higher if the  payment  date is within
     thirty days of the Valuation Date, and (C) A1 or higher if the payment date
     is within the Moody's Exposure Period) and receivables for Moody's Eligible
     Assets  sold if the  receivable  is due within  five  Business  Days of the
     Valuation Date, and if the trades which generated such  receivables are (A)
     settled through clearing house firms or (B) (1) with counterparties  having
     a Moody's long-term debt rating of at least Baa3 or (2) with counterparties
     having a Moody's Short Term Money Market Instrument rating of at least P-1;


          (ii)  Short  Term  Money  Market  Instruments  so  long  as  (A)  such
     securities are rated at least P-1, (B) in the case of demand deposits, time
     deposits and overnight funds,  the supporting  entity is rated at least A2,
     or (C) in all other cases,  the  supporting  entity (1) is rated A2 and the
     security matures within one month, (2) is rated A1 and the security matures
     within three  months or (3) is rated at least Aa3 and the security  matures
     within six months; provided, however, that for purposes of this definition,
     such instruments (other than commercial paper rated by S&P and not rated by
     Moody's) need not meet any otherwise applicable S&P rating criteria;

          (iii) U.S. Government Securities and U.S. Treasury Strips;

          (iv) Rule 144A Securities;

          (v) Senior Loans and other Bank Loans approved by Moody's;

          (vi) corporate debt  securities if (A) such  securities are rated B3or
     higher by Moody's;  (B) such securities provide for the periodic payment of
     interest in cash in U.S. dollars or euros, except that such securities that
     do not pay interest in U.S.  dollars or euros shall be  considered  Moody's
     Eligible  Assets if they are  rated by  Moody's  or S&P or  Fitch;  (C) for
     securities  which provide for conversion or exchange into equity capital at
     some time over their lives, the issuer must be rated at least B3 by Moody's
     and the discount factor will be 250%; (D) for debt securities rated Ba1 and
     below, no more than 10% of the original amount of such issue may constitute
     Moody's Eligible Assets; (E) such securities have been registered under the
     Securities Act of 1933, as amended  ("Securities Act") or are restricted as
     to  resale  under  federal  securities  laws but are  eligible  for  resale
     pursuant  to Rule  144A  under  the  Securities  Act as  determined  by the
     Company's  investment  manager or  portfolio  manager  acting  pursuant  to
     procedures approved by the Board of Directors,  except that such securities
     that are not subject to U.S.  federal  securities  laws shall be considered
     Moody's  Eligible  Assets  if  they  are  publicly  traded;  and  (F)  such
     securities are not subject to extended settlement.

     Notwithstanding  the foregoing  limitations,  (x) corporate debt securities
not rated at least B3 by Moody's or not rated by Moody's  shall be considered to
be Moody's Eligible Assets only to the extent the Market Value of such corporate
debt securities does not exceed 10% of the aggregate Market Value of all Moody's
Eligible Assets;  provided,  however, that if the Market Value of such corporate
debt  securities  exceeds  10% of the  aggregate  Market  Value  of all  Moody's
Eligible  Assets,  a portion of such corporate debt securities  (selected by the
Company) shall not be considered  Moody's  Eligible  Assets,  so that the Market
Value of such corporate debt securities (excluding such portion) does not exceed
10% of the  aggregate  Market  Value of all  Moody's  Eligible  Assets;  and (y)
corporate debt  securities  rated by neither  Moody's nor S&P nor Fitch shall be
considered to be Moody's  Eligible Assets only to the extent such securities are
issued by entities which (i) have not filed for bankruptcy within the past three
years,  (ii) are current on all  principal  and  interest in their fixed  income
obligations,  (iii) are  current  on all  preferred  stock  dividends,  and (iv)
possess a current,  unqualified auditor's report without qualified,  explanatory
language.


          (vii)  preferred  stocks if (A) dividends on such preferred  stock are
     cumulative, or if non-cumulative the Discount Factor should be amplified by
     a factor  of 1.10x  Moody's  listed  Discount  Factor  (B) such  securities
     provide  for the  periodic  payment  of  dividends  thereon in cash in U.S.
     dollars or euros and do not provide for  conversion  or exchange  into,  or
     have warrants attached  entitling the holder to receive,  equity capital at
     any time over the respective  lives of such  securities,  (C) the issuer of
     such a preferred stock has common stock listed on either the New York Stock
     Exchange or the American Stock Exchange,  (D) if such security  consists of
     $1,000  par bonds  that tend to trade  over-the-counter,  (E) the issuer of
     such a preferred  stock has a senior  debt  rating from  Moody's of Baa1 or
     higher or a preferred  stock  rating from Moody's of Baa3 or higher and (F)
     such preferred stock has paid consistent cash dividends in U.S.  dollars or
     euros  over the last  three  years or has a  minimum  rating  of A1 (if the
     issuer of such preferred stock has other preferred issues  outstanding that
     have been paying dividends  consistently  for the last three years,  then a
     preferred stock without such a dividend history would also be eligible). In
     addition,  the preferred stocks must have the diversification  requirements
     set forth in the table below and the preferred  stock issue must be greater
     than $50 million;

          (viii)  common  stocks  (i)  which  (A)  are  traded  on a  nationally
     recognized   stock   exchange   (as   approved   by   Moody's)  or  in  the
     over-the-counter market, (B) if cash dividend paying, pay cash dividends in
     US  dollars  and  (C)  may be  sold  without  restriction  by the  Company;
     provided,  however,  that (y) common stock which,  while a Moody's Eligible
     Asset owned by the Company, ceases paying any regular cash dividend will no
     longer be considered a Moody's  Eligible Asset until 71 days after the date
     of the  announcement  of such  cessation,  unless  the issuer of the common
     stock has senior debt  securities  rated at least A3 by Moody's and (z) the
     aggregate Market Value of the Company's holdings of the common stock of any
     issuer in excess of 4% in the case of  utility  common  stock and 6% in the
     case of  non-utility  common  stock of the  aggregate  Market  Value of the
     Company's  holdings shall not be Moody's  Eligible  Assets,  (ii) which are
     securities  denominated  in  any  currency  other  than  the US  dollar  or
     securities of issuers formed under the laws of jurisdictions other than the
     United States,  its states and the District of Columbia for which there are
     dollar-denominated   American   Depository   Receipts   ("ADRs")  or  their
     equivalents  which  are  traded  in  the  United  States  on  exchanges  or
     over-the-counter  and are  issued  by banks  formed  under  the laws of the
     United  States,  its states or the  District of Columbia or (iii) which are
     securities of issuers formed under the laws of jurisdictions other than the
     United  States (and in existence for at least five years) for which no ADRs
     are traded;  provided,  however,  that the  aggregate  Market  Value of the
     Company's  holdings of securities  denominated in currencies other than the
     US dollar and ADRs in excess of (A) 6% of the aggregate Market Value of the
     Outstanding shares of common stock of such issuer thereof or (B) 10% of the
     Market  Value of the  Company's  Moody's  Eligible  Assets with  respect to
     issuers  formed  under the laws of any single  such  non-U.S.  jurisdiction
     other than Australia,  Belgium, Canada, Denmark,  Finland, France, Germany,
     Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden,
     Switzerland and the United Kingdom, shall not be a Moody's Eligible Asset;

          (ix) sovereign debt securities.  Debt securities of non-U.S. sovereign
     nations if they are obligations of qualified  sovereign nations provided in
     writing by Moody's.


          (x)  interest  rate swaps if:  (A) the  aggregate  notional  amount of
     interest  rate  swaps will not exceed  the  aggregate  principal  amount of
     outstanding  ARP Shares issued by the Company;  (B) the  counterparties  to
     interest rate swaps will not have senior unsecured  ratings which are below
     Moody's  A3. In  connection  with  interest  rate swaps,  the Company  will
     provide to Moody's full  disclosure of ISDA  agreements  with all companion
     credit  annexes  enumerating  termination  events  along  with terms of the
     interest rate swaps shall be provided to Moody's  within a reasonable  time
     frame prior to entering  into the interest  rate swap  arrangement  and all
     assignments  and amendments  will be disclosed by the Company in writing to
     Moody's.

     The ARP Shares Basic  Maintenance  Certificate  shall include the following
information  about each  interest rate swap held by the Company:  (A) term;  (B)
variation  margin;  (C) name of  counterparty;  and (D) termination  value.  The
variation  margin and termination  value of interest rate swaps will be factored
into the ARP Shares  Basic  Maintenance  Amount test as follows:  (A) the weekly
variation margin of swap when positive will count as Moody's Eligible Assets and
will  be by  discounted  by the  Moody's  Discount  Factor  for  corporate  debt
securities  in C.(i)  above  based on the  ratings  of the  interest  rate  swap
counterparties;  (B) the weekly  negative  variation  margin of an interest rate
swap will be deducted from aggregate Moody's Eligible Assets; (C) all segregated
assets in connection  with  interest  rate swaps will not be considered  Moody's
Eligible  Assets;  (D) the market value of an interest rate swap, when negative,
will not count as a Moody's Eligible Asset; and (E) the termination  value of an
interest  rate swap will be deemed to be a current  liability  for  purposes  of
calculating the ARP Shares Basic Maintenance Amount.

          (xi)  financial  contracts,   as  such  term  is  defined  in  Section
     3(c)(2)(B)(ii)  of the  Investment  Company Act of 1940,  as  amended,  not
     otherwise  provided  for in this  definition  but only upon  receipt by the
     Company of a letter from Moody's  specifying  any  conditions  on including
     such financial contract in Moody's Eligible Assets and assuring the Company
     that including such financial contract in the manner so specified would not
     affect the credit rating assigned by Moody's to the ARP Shares.

     Additionally,  in  order  to  merit  consideration  as an  eligible  asset,
securities should be issued by entities which:

               (A)  have not filed for bankruptcy with the past years;

               (B)  are  current on all  principle  and  interest in their fixed
                    income obligations;

               (C)  are current on all preferred stock dividends;

               (D)  possess a  current,  unqualified  auditor's  report  without
                    qualified, explanatory language.

     In addition,  portfolio  holdings  (except common stock) as described above
must be within the  following  diversification  and issue size  requirements  in
order to be included in Moody's Eligible Assets:




                                                                                   
                                         MAXIMUM SINGLE            MAXIMUM SINGLE           MINIMUM ISSUE SIZE ($
RATINGS(1)                               ISSUER(2)(3)              INDUSTRY(3)(4)           IN MILLION)(5)
---------------------------------------- ------------------------- ------------------------ -------------------------
Aaa............................          100%                      100%                     $100
Aa.............................          20                        60                       100
A..............................          10                        40                       100
Baa............................          6                         20                       100
Ba.............................          4                         12                       50(6)
B1-B2..........................          3                         8                        50(6)
B3 or Below....................          2                         2                        50(6)



                    (1) Refers to the preferred  stock and senior debt rating of
                    the portfolio holding.

                    (2) Companies subject to common ownership of 25% or more are
                    considered as one issuer.

                    (3) Percentages  represent a portion of the aggregate Market
                    Value of corporate debt securities.

                    (4) Industries are determined  according to Moody's Industry
                    Classifications,   as  defined  herein.

                    (5) Except for  preferred  stock,  which has a minimum issue
                    size of $50 million.

                    (6) Portfolio  holdings from issues ranging from $50 million
                    to $100  million  and are  limited  to 20% of the  Company's
                    total assets.



     Portfolio  holdings that are common stock as described above must be within
the  following  diversification  and  issue  size  requirements  in  order to be
included in Moody's Eligible Assets:


                                                                                 
                                MAXIMUM SINGLE ISSUER        MAXIMUM SINGLE INDUSTRY
INDUSTRY CATEGORY               (%)(1)                       (%)(1)                       STATE (%)(1)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Utility                         4                            50                           7(2)
Utility                         4                            45                           7
Financial                       5                            40                           6
Other                           6                            20                           n/a



     (1) Percentages  represent both a portion of the aggregate market value and
the number of  outstanding  shares of the common  stock  portfolio.
     (2)  Utility  companies   operating  in  more  than  one  state  should  be
diversified according to the State of incorporation.

     Where the Company sells an asset and agrees to repurchase such asset in the
future,  the Discounted  Value of such asset will constitute a Moody's  Eligible
Asset and the amount the  Company is  required  to pay upon  repurchase  of such
asset will count as a liability for the purposes of the  Preferred  Shares Basic
Maintenance  Amount.  Where the Company purchases an asset and agrees to sell it
to a third party in the future,  cash  receivable  by the Company  thereby  will
constitute a Moody's Eligible Asset if the long-term debt of such other party is
rated at least A2 by Moody's and such  agreement  has a term of 30 days or less;
otherwise the Discounted Value of such purchased asset will constitute a Moody's
Eligible  Asset.  For the purposes of  calculation of Moody's  Eligible  Assets,
portfolio securities which have been called for redemption by the issuer thereof
shall be valued at the lower of Market Value or the call price of such portfolio
securities.

     Notwithstanding  the  foregoing,  an asset will not be considered a Moody's
Eligible Asset to the extent that it (i) has been irrevocably  deposited for the
payment of (i)(A)  through  (i)(E)  under the  definition  of ARP  Shares  Basic
Maintenance  Amount or to the  extent it is  subject  to any  liens,  as well as
segregated assets,  except for (A) liens which are being contested in good faith
by appropriate  proceedings  and which Moody's has indicated to the Company will
not affect the status of such asset as a Moody's  Eligible Asset,  (B) liens for
taxes that are not then due and payable or that can be paid  thereafter  without
penalty,  (C) liens to secure payment for services  rendered or cash advanced to
the  Company by its  investment  manager or  portfolio  manager,  the  Company's
custodian,  transfer  agent or  registrar  or the  Auction  Agent  and (D) liens
arising  by  virtue of any  repurchase  agreement,  or (ii) has been  segregated
against obligations of the Company in connection with an outstanding  derivative
transaction.

     (f)  "MOODY'S  EXPOSURE  PERIOD"  means the  period  commencing  on a given
Valuation Date and ending 7 days thereafter.

     (g)   "MOODY'S   HEDGING   TRANSACTIONS"   means   purchases  or  sales  of
exchange-traded  financial  futures  contracts  based on any index  approved  by
Moody's or Treasury Bonds, and purchases,  writings or sales of  exchange-traded
put options on such financial futures  contracts,  any index approved by Moody's
or Treasury  Bonds,  and purchases,  writings or sales of  exchange-traded  call
options on such financial  futures  contracts,  any index approved by Moody's or
Treasury Bonds, subject to the following limitations:


          (i) the  Company  will not engage in any Moody's  Hedging  Transaction
     based on any index  approved  by  Moody's  (other  than  transactions  that
     terminate a future  contract or option held by the Company by the Company's
     taking the opposite  position thereto ("Closing  Transaction"))  that would
     cause the Company at the time of such transaction to own or have sold:

               (A)  Outstanding  financial futures contracts based on such index
                    exceeding  in  number  10% of the  average  number  of daily
                    traded  financial  futures  contracts based on such index in
                    the 30 days preceding the time of effecting such transaction
                    as reported by The Wall Street Journal; or

               (B)  Outstanding  financial  futures contracts based on any index
                    approved by Moody's  having a Market Value  exceeding 50% of
                    the Market Value of all portfolio  securities of the Company
                    constituting Moody's Eligible Assets owned by the Company;

          (ii) The Company  will not engage in any Moody's  Hedging  Transaction
     based on Treasury  Bonds  (other than  (Closing  Transactions))  that would
     cause the Company at the time of such transaction to own or have sold:

               (A)  Outstanding  financial  futures  contracts based on Treasury
                    Bonds with such contracts  having an aggregate  Market Value
                    exceeding  20% of the  aggregate  Market  Value  of  Moody's
                    Eligible Assets owned by the Company and rated Aa by Moody's
                    (or, if not rated by Moody's  but rated by S&P,  rated AA by
                    S&P and Fitch); or

               (B)  Outstanding  financial  futures  contracts based on Treasury
                    Bonds with such contracts  having an aggregate  Market Value
                    exceeding 50% of the aggregate Market Value of all portfolio
                    securities  of the  Company  constituting  Moody's  Eligible
                    Assets  owned by the Company  (other than  Moody's  Eligible
                    Assets already subject to a Moody's Hedging Transaction) and
                    rated Baa or A by Moody's  (or,  if not rated by Moody's but
                    rated by S&P, rated BBB or A by S&P or Fitch);

          (iii) The Company  will engage in (Closing  Transaction)  to close out
     any outstanding  financial  futures contract based on any index approved by
     Moody's if the amount of open  interest  in such index as  reported  by The
     Wall  Street  Journal is less than an amount to be mutually  determined  by
     Moody's and the Company;

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


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

          (vi) The Company (A) will not engage in  options,  including  caps and
     floors,  and futures  transactions for leveraging or speculative  purposes,
     except that an option or futures  transaction  shall not for these purposes
     be considered a leveraged  position or  speculative  and will not write any
     call options or sell any  financial  futures  contracts  for the purpose of
     hedging the  anticipated  purchase of an asset prior to  completion of such
     purchase; and

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

     (h)  "MOODY'S  INDUSTRY   CLASSIFICATIONS"   means,  for  the  purposes  of
determining   Moody's   Eligible   Assets,   each  of  the  following   industry
classifications (or such other  classifications as Moody's may from time to time
approve for application to the ARP Shares).

          (i) Aerospace and Defense:  Major  Contractor,  Subsystems,  Research,
     Aircraft Manufacturing, Arms, Ammunition.

          (ii) Automobile: Automobile Equipment, Auto-Manufacturing,  Auto Parts
     Manufacturing, Personal Use Trailers, Motor Homes, Dealers.

          (iii) Banking: Bank Holding, Savings and Loans, Consumer Credit, Small
     Loan, Agency, Factoring, Receivables.

          (iv) Beverage,  Food and Tobacco: Beer and Ale, Distillers,  Wines and
     Liquors,  Distributors,  Soft Drink Syrup,  Bottlers,  Bakery,  Mill Sugar,
     Canned  Foods,  Corn  Refiners,  Dairy  Products,  Meat  Products,  Poultry
     Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen
     Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil.

          (v)  Buildings  and Real  Estate:  Brick,  Cement,  Climate  Controls,
     Contracting,   Engineering,   Construction,   Hardware,   Forest   Products
     (building-related only), Plumbing,  Roofing,  Wallboard,  Real Estate, Real
     Estate Development, REITs, Land Development.

          (vi)  Chemicals,  Plastics and Rubber:  Chemicals  (non-agricultural),
     Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings,
     Paints, Varnish, Fabricating Containers.


          (vii)  Packaging and Glass:  Glass,  Fiberglass,  Containers  made of:
     Glass, Metal, Paper, Plastic, Wood or Fiberglass.

          (viii)  Personal  and  Non-Durable  Consumer  Products  (Manufacturing
     Only): Soaps, Perfumes,  Cosmetics,  Toiletries,  Cleaning Supplies, School
     Supplies.

          (ix) Diversified/Conglomerate Manufacturing.

          (x) Diversified/Conglomerate Service.

          (xi)  Diversified  Natural  Resources,  Precious  Metals and Minerals:
     Fabricating, Distribution.

          (xii) Ecological:  Pollution Control,  Waste Removal,  Waste Treatment
     and Waste Disposal.

          (xiii) Electronics: Computer Hardware, Electric Equipment, Components,
     Controllers,    Motors,    Household   Appliances,    Information   Service
     Communication  Systems,  Radios,  TVs, Tape Machines,  Speakers,  Printers,
     Drivers, Technology.

          (xiv) Finance: Investment Brokerage, Leasing, Syndication, Securities.

          (xv) Farming and Agriculture:  Livestock, Grains, Produce, Agriculture
     Chemicals, Agricultural Equipment, Fertilizers.

          (xvi) Grocery: Grocery Stores, Convenience Food Stores.

          (xvii) Healthcare, Education and Childcare: Ethical Drugs, Proprietary
     Drugs,  Research,  Health Care Centers,  Nursing  Homes,  HMOs,  Hospitals,
     Hospital Supplies, Medical Equipment.

          (xviii) Home and Office Furnishings,  Housewares, and Durable Consumer
     Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges.

          (xix) Hotels, Motels, Inns and Gaming.

          (xx) Insurance: Life, Property and Casualty, Broker, Agent, Surety.

          (xxi) Leisure,  Amusement,  Motion Pictures,  Entertainment:  Boating,
     Bowling, Billiards, Musical Instruments, Fishing, Photo Equipment, Records,
     Tapes, Sports, Outdoor Equipment (Camping),  Tourism,  Resorts,  Games, Toy
     Manufacturing,   Motion  Picture   Production   Theaters,   Motion  Picture
     Distribution.

          (xxii) Machinery (Non-Agricultural, Non-Construction, Non-Electronic):
     Industrial, Machine Tools, Steam Generators.

          (xxiii) Mining,  Steel, Iron and Non-Precious  Metals:  Coal,  Copper,
     Lead,  Uranium,  Zinc,  Aluminum,  Stainless Steel,  Integrated  Steel, Ore
     Production,  Refractories, Steel Mill Machinery,  Mini-Mills,  Fabricating,
     Distribution and Sales of the foregoing.


          (xxiv) Oil and Gas: Crude Producer, Retailer, Well Supply, Service and
     Drilling.

          (xxv) Printing,  Publishing,  and  Broadcasting:  Graphic Arts, Paper,
     Paper Products, Business Forms, Magazines, Books, Periodicals,  Newspapers,
     Textbooks, Radio, T.V., Cable Broadcasting Equipment.

          (xxvi) Cargo Transport: Rail, Shipping,  Railroads, Rail-car Builders,
     Ship Builders,  Containers,  Container  Builders,  Parts,  Overnight  Mail,
     Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo, Transport.

          (xxvii) Retail Stores: Apparel, Toy, Variety, Drugs, Department,  Mail
     Order Catalog, Showroom.

          (xxviii)  Telecommunications:   Local,  Long  Distance,   Independent,
     Telephone, Telegraph, Satellite, Equipment, Research, Cellular.

          (xxix)  Textiles  and  Leather:  Producer,  Synthetic  Fiber,  Apparel
     Manufacturer, Leather Shoes.

          (xxx) Personal Transportation: Air, Bus, Rail, Car Rental.

          (xxxi) Utilities: Electric, Water, Hydro Power, Gas.

          (xxxii) Diversified Sovereigns:  Semi-sovereigns,  Canadian Provinces,
     Supra-national Agencies.

     The Company will use SIC codes in determining which industry classification
is applicable to a particular  investment in  consultation  with the Independent
Accountant and Moody's, to the extent the Company considers necessary.

     (i)  "PERFORMING"  means  with  respect  to any  asset,  the issuer of such
investment is not in default of any payment obligations in respect thereof.

     (j) "PRICING SERVICE" means any pricing service  designated by the Board of
Directors of the Company and approved by Fitch or Moody's,  as  applicable,  for
purposes  of  determining  whether  the  Company  has  Eligible  Assets  with an
aggregate  Discounted  Value  that  equals  or  exceeds  the  ARP  Shares  Basic
Maintenance Amount.

     (k) "SENIOR IMPLIED  RATING" is an NRSRO's opinion of a corporate  family's
ability to honor its  financial  obligations  and is  assigned by the NRSRO to a
corporate family as if it had: a single class of debt; or a single  consolidated
legal entity structure.

     (l)  "SHORT-TERM  MONEY MARKET  INSTRUMENT"  means the  following  types of
instruments  if, on the date of  purchase  or other  acquisition  thereof by the
Company, the remaining term to maturity thereof is not in excess of 180 days:


          (i) commercial  paper rated A-1 if such commercial paper matures in 30
     days or A-1+ if such commercial paper matures in over 30 days;

          (ii)  demand  or  time  deposits  in,  and  banker's  acceptances  and
     certificates  of deposit of (A) a depository  institution  or trust company
     incorporated  under the laws of the  United  States of America or any state
     thereof or the District of Columbia or (B) a United States branch office or
     agency of a  foreign  depository  institution  (provided  that such  branch
     office or agency is  subject to  banking  regulation  under the laws of the
     United States, any state thereof or the District of Columbia);

          (iii) overnight funds;

          (iv) U.S. Government Securities; and

          (v) Eurodollar  demand or time deposits in, or certificates of deposit
     of, the head office or the London branch office of a depository institution
     or trust company if the certificates of deposit,  if any, and the long-term
     unsecured  debt  obligations  (other than such  obligations  the ratings of
     which  are  based on the  credit  of a person  or  entity  other  than such
     depository  institution or trust company) of such depository institution or
     fund company that has (1) credit ratings on such Valuation Date of at least
     P-1 from Moody's and either F1+ from Fitch or A-1+ from S&P, in the case of
     commercial paper or certificates of deposit, and (2) credit ratings on each
     Valuation  Date of at least Aa3 from  Moody's  and either AA- from Fitch or
     AA-  from  S&P,  in the  case  of  long-term  unsecured  debt  obligations;
     provided,  however, that in the case of any such investment that matures in
     no more  than  one  Business  Day  from  the  date  of  purchase  or  other
     acquisition  by the Company,  all of the  foregoing  requirements  shall be
     applicable except that the required long-term  unsecured debt credit rating
     of such depository institution or trust company from Moody's, Fitch and S&P
     shall be at least A2, A and A, respectively; and provided further, however,
     that the  foregoing  credit rating  requirements  shall be deemed to be met
     with  respect  to a  depository  institution  or trust  company if (1) such
     depository  institution  or  trust  company  is  the  principal  depository
     institution in a holding company system,  (2) the  certificates of deposit,
     if any, of such depository institution or fund company are not rated on any
     Valuation Date below P-1 by Moody's,  F1+ by Fitch or A-1+ by S&P and there
     is no long-term  rating,  and (3) the holding company shall meet all of the
     foregoing credit rating  requirements  (including the preceding  proviso in
     the case of  investments  that mature in no more than one Business Day from
     the date of purchase or other  acquisition  by the  Company);  and provided
     further,  that the interest  receivable by the Company shall not be subject
     to any withholding or similar taxes.

     (m)  "U.S.   GOVERNMENT   SECURITIES"   mean  securities  that  are  direct
obligations  of, and obligations the timely payment of principal and interest on
which is fully  guaranteed  by,  the  United  States of America or any agency or
instrumentality  of the United States of America,  the  obligations of which are
backed by the full faith and credit of the United  States of America  and in the
form of conventional bills, bonds and notes.

     (n) "U.S.  TREASURY  SECURITIES"  means  direct  obligations  of the United
States  Treasury  that are  entitled  to the full faith and credit of the United
States.

     (o)  "U.S.  TREASURY  STRIPS"  means  securities  based  on  U.S.  Treasury
Securities  created  through the  Separate  Trading of  Registered  Interest and
Principal of Securities program.





                        FITCH PREFERRED SHARES GUIDELINES

Below is set forth for each registered  investment  company listed in Appendix A
hereto  (each  are  referred  to as  the  "Fund")  the  Fitch  Preferred  Shares
Guidelines  ("Fitch  Guidelines"),  as  defined  in  the  Amended  and  Restated
Statement Establishing and Fixing the Rights and Preferences of Preferred Shares
(the  "Statement").  Capitalized  terms not defined  herein  shall have the same
meanings as defined in the  Statement.  Fitch may amend,  alter or change  these
Fitch Guidelines,  in its sole discretion,  provided however, that Fitch provide
any  such  amendments,  alterations  or  changes  to the  Fund in  writing.  Any
documents  provided to Fitch  pursuant to this  document  shall be  delivered to
Fitch      electronically      at     the     following      email      address:
funds.surveillance@fitchratings.com.  To the  extent  that the Fitch  Guidelines
conflict with the terms of the Statement, the Fitch Guidelines shall control.



1.   Definitions.

          a.  "Preferred  Shares Basic  Maintenance  Amount" as of any Valuation
     Date means:

               (i) Fitch Eligible  Assets having an aggregate  Fitch  Discounted
          Value equal to or greater than the dollar amount equal to the sum of:

                    (A)  the   product  of  the  number  of   Preferred   Shares
               outstanding  on  such  date  multiplied  by  $25,000,   plus  any
               redemption  premium  applicable  to  the  Preferred  Shares  then
               subject to redemption;

                    (B)  the  aggregate  amount  of  dividends  that  will  have
               accumulated  at the  respective  Applicable  Rates  to  (but  not
               including)  the  first  respective  Dividend  Payment  Dates  for
               Preferred Shares outstanding that follow such Valuation Date;

                    (C) the aggregate  amount of dividends that would accumulate
               on shares of each series of  Preferred  Shares  outstanding  from
               such first respective  Dividend Payment Date therefor through the
               45th  day  after  such  Valuation   Date,  at  the  Maximum  Rate
               (calculated  as if such  Valuation Date were the Auction Date for
               the Dividend Period commencing on such Dividend Payment Date) for
               a Standard  Dividend of shares of such series to commence on such
               Dividend  Payment  Date,  assuming,  solely for  purposes  of the
               foregoing,  that if on such  Valuation  Date the Fund  shall have
               delivered  a notice of  Special  Dividend  Period to the  Auction
               Agent  pursuant to Section 4(b) of Part I of the  Statement  with
               respect to shares of such series,  such Maximum Rate shall be the
               Maximum  Rate for the Special  Dividend  Period of Shares of such
               series to commence on such Dividend Payment Date (except that (1)
               if such Valuation Date occurs at a time when a Failure to Deposit
               (or, in the case of preferred shares other than Preferred Shares,
               a failure  similar to a Failure to Deposit) has occurred that has
               not been cured,  the dividend for purposes of  calculation  would
               accumulate at the current  dividend  rate then  applicable to the
               shares in respect of which such  failure has occurred and (2) for
               those days during the period described in this subparagraph (iii)
               in respect  of which the  Applicable  Rate in effect  immediately
               prior to such Dividend Payment Date will remain in effect (or, in
               the case of preferred  shares  other than  Preferred  Shares,  in
               respect of which the dividend rate or rates in effect immediately
               prior to such  respective  dividend  payment dates will remain in
               effect),   the  dividend  for  purposes  of   calculation   would
               accumulate at such  Applicable  Rate (or other rate or rates,  as
               the case may be in respect of those days);

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

                    (E) the amount of any  indebtedness  or  obligations  of the
               Fund senior in right of payments to the Preferred Shares; and

               (ii) any current  liabilities  to the extent not reflected in any
          of (i)(A) through (i)(E) (including,  without limitation, any payables
          for portfolio  securities  purchased as of such Valuation Date and any
          liabilities   incurred   for  the  purpose  of   clearing   securities
          transactions);   less  the  value  (i.e.,  the  face  value  of  cash,
          short-term  municipal  obligations and short-term  securities that are
          the direct  obligation of the U.S.  government,  provided in each case
          that such securities  mature on or prior to the date upon which any of
          (i)(A) though (i)(F) became  payable,  otherwise the Fitch  Discounted
          Value) of any of the Fund's assets  irrevocably  deposited by the Fund
          for the payment of any of (i)(A) through (i)(F);

          b.  "Approved  Price" means the "fair value" as determined by the Fund
     in accordance  with the valuation  procedures  adopted from time to time by
     the  Board of  Trustees  of the  Fund and for  which  the Fund  receives  a
     mark-to-market  price  (which,  for the purpose of clarity,  shall not mean
     Market Value) from an independent source at least weekly.

          c.  "Approved  Foreign  Nation"  shall have the  meaning  set forth in
     clause (D) of the definition of "Fitch Eligible Assets."

          d.  "Bank  Loans"  means  direct   purchases   of,   assignments   of,
     participations  in and other interests in (a) any bank loan or (b) any loan
     made by an investment bank, investment fund or other financial institution,
     provided that such loan under this clause (b) is similar to those typically
     made,  syndicated,  purchased  or  participated  by a  commercial  bank  or
     institutional loan investor in the ordinary course of business.

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

          f. "Date of  Original  Issue"  means,  with  respect to any  Preferred
     Shares Share, the date on which the Trust first issues such share.

          g. "Debt Securities" shall have the meaning set forth in clause (D) of
     the definition of "Fitch Eligible Assets."

          h.  "Emerging  Market Debt" shall have the meaning set forth in clause
     (E) of the definition of "Fitch Eligible Assets."

i.                "Fitch Discount Factor" means:

               (i) for purposes of determining the Discounted Value of any Fitch
          Eligible  Asset,  the  percentage is  determined as follows,  provided
          however,  that for unhedged  foreign  investments a discount factor of
          105% shall be applied to the Market  Value  thereof in addition to the
          Fitch Discount  Factor as determined in accordance with the procedures
          below,  provided  further that, if the foreign issuer of such unhedged
          foreign  investment is from a country whose sovereign debt rating in a
          non-local  currency is not assigned a rating of AA or better by Fitch,
          a discount factor of 117% shall be applied to the Market Value thereof
          in addition to the Fitch  Discount  Factor as determined in accordance
          with the procedures  below.  The Fitch  Discount  Factor for any Fitch
          Eligible Asset, other than the securities set forth below, will be the
          percentage provided in writing by Fitch.

                    (A) Preferred Stock: The percentage  determined by reference
               to the rating of a preferred  stock in accordance  with the table
               set forth below.


                                                                    
Preferred Stock(1)                                                     Fitch Discount Factor
AAA Taxable Preferred......................................            130%
AA Taxable Preferred.......................................            133%
A Taxable Preferred........................................            135%
BBB Taxable Preferred......................................            139%
BB Taxable Preferred.......................................            154%
Not rated or below BB Taxable Preferred....................            161%
Investment Grade DRD Preferred.............................            164%
Not rated or below Investment Grade DRD Preferred..........            200%



(1)  If a  security  is not rated by Fitch but is rated by two other  nationally
     recognized statistical ratings organizations  ("NRSRO"),  then the lower of
     the  ratings on the  security  from the two other  NRSRO's  will be used to
     determine the Fitch  Discount  Factor (e.g.,  where the S&P rating is A and
     the  Moody's  rating is Baa,  a Fitch  rating  of BBB will be  used).  If a
     security is not rated by Fitch but is rated by only one other  NRSRO,  then
     the rating on the  security  from the other NRSRO will be used to determine
     the Fitch Discount Factor (e.g.,  where the only rating on a security is an
     S&P rating of AAA, a Fitch  rating of AAA will be used,  and where the only
     rating on a security is a Moody's  rating of Ba, a Fitch  rating of BB will
     be used).  If a security  is not rated by any NRSRO,  the Fund will use the
     percentage set forth under "Not rated or below BB Taxable Preferred" in the
     table above.

                    (B) Middle Market Bank Preferred  Stock:  The Fitch Discount
               Factor applied to Middle Market Bank Preferred Stock is 266%.

                    (C) Debt Securities:  The percentage determined by reference
               to  the  rating  of  the  Debt  Security  with  reference  to the
               remaining  term to  maturity  of the Debt  Security  (other  than
               short-term  Debt  Securities  covered  by clause (E)  below),  in
               accordance with the table set forth below:



                                                                                    
                                                                                                      Not
Term to Maturity of Corporate Debt                                                                    Rated or
                  Security(1)                      AAA       AA         A         BBB        BB       Below BB

3 years or less ...............................    106.38%   108.11%    109.89%   111.73%    129.87%  151.52%
5 years or less (but longer than 3 years)......    111.11    112.99     114.94    116.96     134.24   151.52
7 years or less (but longer than 5 years)......    113.64    115.61     117.65    119.76     135.66   151.52
10 years or less (but longer than 7 years).....    115.61    117.65     119.76    121.95     136.74   151.52
15 years or less (but longer than 10 years)        119.76    121.95     124.22    126.58     139.05   151.52
More than 15 years.............................    124.22    126.58     129.03    131.58     144.55   151.52



(1)  If a security is not rated by Fitch but is rated by two other NRSRO's, then
     the lower of the ratings on the security from the two other NRSRO's will be
     used to determine the Fitch Discount Factor (e.g.,  where the S&P rating is
     A and the Moody's rating is Baa, a Fitch rating of BBB will be used).  If a
     security is not rated by Fitch but is rated by only one other  NRSRO,  then
     the rating on the  security  from the other NRSRO will be used to determine
     the Fitch Discount Factor (e.g.,  where the only rating on a security is an
     S&P rating of AAA, a Fitch  rating of AAA will be used,  and where the only
     rating on a security is a Moody's  rating of Ba, a Fitch  rating of BB will
     be used).  If a security  is not rated by any NRSRO,  the Fund will use the
     percentage set forth under "Not Rated or Below BB" in the table above.

     The Fitch Discount  Factors  presented in the  immediately  preceding table
apply to Debt Securities that are Performing and have a Market Value  determined
by a Pricing  Service or an Approved  Price.  The Fitch Discount Factor noted in
the table above for a Debt Security "Not Rated or Below BB" by Fitch shall apply
to any non-Performing Debt Security with a price equal to or greater than $0.90.
The Fitch  Discount  Factor  noted in the table above for a Debt  Security  "Not
Rated or Below BB" by Fitch shall apply to any non-Performing Debt Security with
a price less than $0.90 but equal to or greater than $0.20.  If a Debt  Security
does not have a Market  Value  determined  by a Pricing  Service or an  Approved
Price,  a rating  two  rating  categories  below the  actual  rating on the Debt
Security will be used (e.g.,  where the actual rating is A-, the rating for Debt
Securities  rated  BB- will be  used).  The  Fitch  Discount  Factor  for a Debt
Security issued by a limited  partnership that is not a Rule 144A Security shall
be the Fitch Discount  Factor  determined in accordance with the table set forth
above multiplied by 105%.

     The Fitch Discount  Factors  presented in the  immediately  preceding table
will also  apply to  interest  rate  swaps and caps,  whereby  the rating of the
counterparty  to the swap or cap will be the rating used to determine  the Fitch
Discount Factor in the table;  and (ii) TRACERs and TRAINs,  whereby the ratings
in the table will be applied to the  underlying  securities and the Market Value
of each underlying security will be its proportionate amount of the Market Value
of the TRACER or TRAIN. The Fitch Discount Factors  presented in the immediately
preceding table will also apply to corporate obligations backed by a guaranty, a
letter of credit or insurance issued by a third party. If the third-party credit
rating is the basis for the  rating on the  obligation,  then the  rating on the
third party will be used to determine the Fitch Discount Factor in the table.

     The Fitch Discount  Factors  presented in the  immediately  preceding table
will also apply to  preferred  trust  certificates,  the rating on which will be
determined  by the  underlying  debt  instruments  in  the  trust,  unless  such
preferred  trust  certificates  are determined by Fitch Ratings to qualify for a
traditional  equity  discount  factor,  in which case the Fitch Discount  Factor
shall be 370%.

                    (D)  Convertible  Securities:   The  Fitch  Discount  Factor
               applied  to  convertible  securities  is (A) 200% for  investment
               grade  convertibles  and (B)  222%  for  below  investment  grade
               convertibles so long as such convertible  securities have neither
               (x) conversion  premium greater than 100% nor (y) have a yield to
               maturity  or yield to worst of  greater  than  15.00%  above  the
               relevant Treasury curve.

                    The Fitch Discount Factor applied to convertible  securities
               which have  conversion  premiums of greater than 100% is (A) 152%
               for  investment  grade   convertibles  and  (B)  179%  for  below
               investment  grade   convertibles  so  long  as  such  convertible
               securities  do not have a yield to  maturity or yield to worst of
               greater than 15.00% above the relevant Treasury curve.

                    The Fitch Discount Factor applied to convertible  securities
               which have a yield to maturity or yield to worse of greater  than
               15.00% above the relevant Treasury curve is 370%.

                    If a  security  is not  rated by  Fitch  but is rated by two
               other NRSRO's, then the lower of the ratings on the security from
               the  two  other  NRSRO's  will be used  to  determine  the  Fitch
               Discount Factor (e.g.,  where the S&P rating is A and the Moody's
               rating is Baa, a Fitch rating of BBB will be used). If a security
               is not rated by Fitch but is rated by only one other NRSRO,  then
               the rating on the  security  from the other NRSRO will be used to
               determine the Fitch Discount Factor (e.g.,  where the only rating
               on a security is an S&P rating of AAA, a Fitch rating of AAA will
               be used,  and where the only  rating on a  security  is a Moody's
               rating of Ba, a Fitch  rating of BB will be used).  If a security
               is not rated by any NRSRO, the Fund will treat the security as if
               it were below investment grade.

                    (E)  Short-Term  Investments  and Cash:  The Fitch  Discount
               Factor  applied to  short-term  portfolio  securities,  including
               without  limitation  Debt  Securities,  Short Term  Money  Market
               Instruments and municipal debt obligations,  will be (A) 100%, so
               long as such portfolio securities mature or have a demand feature
               at par exercisable within the Fitch Exposure Period; (B) 115%, so
               long as such portfolio securities mature or have a demand feature
               at par not exercisable  within the Fitch Exposure Period; and (C)
               125%, so long as such  portfolio  securities  neither  mature nor
               have  a  demand  feature  at par  exercisable  within  the  Fitch
               Exposure  Period. A Fitch Discount Factor of 100% will be applied
               to cash.  Rule 2a-7 money  market funds rated by Fitch or another
               NRSRO will also have a discount  factor of 100%, and unrated Rule
               2a-7 money market funds will have a discount factor of 115%.

                    (F) Common Stock and Warrants: The Fitch Discount Factor for
               common  stock  is (A)  200% for  large-cap  stocks;  (B) 233% for
               mid-cap stocks,  (c) 286% for small-cap stocks;  and (D) 370% for
               other common stocks.

                    See "Fitch  Eligible Assets - common stocks" for definitions
               of large-cap, mid-cap and small-cap stocks.

                    (G) Master Limited  Partnership (MLP) Securities:  The Fitch
               Discount  Factor  applied to MLP  Securities  shall be applied in
               accordance with the table set forth below:




               Fitch Discount Factor
-----------------------------------------------------
                           

Large-cap stocks:             210%
Mid-cap stocks:               243%
Small-cap stocks:             296%
Others:                       370%



          Small-cap MLPs refer to MLPs with a market  capitalization  of greater
          than $250 million but less than $1 billion; Mid-cap MLPs refer to MLPs
          with a  market  capitalization  between  $1  billion  and $2  billion;
          Large-cap MLPs are MLPs with a market  capitalization over $2 billion.
          The  Fitch  Discount  Factor  applied  to  MLP  Securities  which  are
          restricted  as to  resale  will be 110% of the Fitch  Discount  Factor
          which would apply was the securities not so restricted.

                    (H) U.S. Government Securities and U.S. Treasury Strips:


                                                          
Time Remaining to Maturity                                   Discount Factor
1 year or less....................................           101.5%
2 years or less (but longer than 1 year)..........           103%
3 years or less (but longer than 2 years).........           105%
4 years or less (but longer than 3 years).........           107%
5 years or less (but longer than 4 years).........           109%
7 years or less (but longer than 5 years).........           112%
10 years or less (but longer than 7 years)........           114%
15 years or less (but longer than 10 years).......           122%
20 years or less (but longer than 15 years).......           130%
25 years or less (but longer than 20 years).......           146%
Greater than 25 years.............................           154%



                    (I) Emerging  Market  Debt:  The Fitch  Discount  Factor for
               Emerging  Market  Debt is (A) 285% for  investment  grade and (B)
               370% for non-investment grade.

                    (J)  Foreign  Bonds:  The Fitch  Discount  Factor  (A) for a
               Foreign Bond the principal of which (if not  denominated  in U.S.
               dollars) is subject to a currency hedging transaction will be the
               Fitch Discount  Factor that would otherwise apply to such Foreign
               Bonds  in  accordance  with  this  definition  and  (B) for (1) a
               Foreign Bond the principal of which (if not  denominated  in U.S.
               dollars) is not subject to a currency hedging transaction and (2)
               a  bond  issued  in a  currency  other  than  U.S.  dollars  by a
               corporation,  limited  liability  company or limited  partnership
               domiciled in, or the government or any agency, instrumentality or
               political subdivision of, a nation other than an Approved Foreign
               Nation, will be 370%.

                    (K) Rule 144A Securities:  The Fitch Discount Factor applied
               to Rule 144A Securities will be 110% of the Fitch Discount Factor
               which  would  apply  were the  securities  registered  under  the
               Securities Act.

                    (L)  Senior  Loans:  The Fitch  Discount  Factor  applied to
               senior,  secured  floating rate Loans made to corporate and other
               business  entities  ("Senior  Loans")  shall  be  the  percentage
               specified in the table below opposite such Fitch Loan Category:


                     
Fitch Loan Category     Discount Factor
-------------------     ---------------
A                       115%
B                       130%
C                       152%
D                       370%


               Notwithstanding any other provision contained above, for purposes
               of  determining  whether a Fitch  Eligible  Asset falls  within a
               specific  Fitch  Loan  Category,  to the  extent  that any  Fitch
               Eligible  Asset would fall within more than one of the Fitch Loan
               Categories,  such Fitch  Eligible  Asset  shall be deemed to fall
               into the Fitch Loan  Category  with the lowest  applicable  Fitch
               Discount Factor.

                    (M) Swaps  (including  Total Return Swaps and Interest  Rate
               Swaps): Total Return Swaps and Interest Rate Swaps are subject to
               the following provisions:

                    If the Trust has an outstanding gain from a swap transaction
               on a  Valuation  Date,  the  gain  will  be  included  as a Fitch
               Eligible  Asset  subject  to the  Fitch  Discount  Factor  on the
               counterparty  to the  swap  transaction.  At the  time a swap  is
               executed,  the Trust will only enter into swap transactions where
               the  counterparty  has at least a Fitch  rating of A- or  Moody's
               rating of A3.

                    (a) Only the  cumulative  unsettled  profit  and loss from a
               Total Return Swap transaction will be calculated when determining
               the Preferred Shares Basic  Maintenance  Amount. If the Trust has
               an outstanding  liability from a swap  transaction on a Valuation
               Date,  the Trust  will  count such  liability  as an  outstanding
               liability from the total Fitch Eligible Assets in calculating the
               Preferred Shares Basic Maintenance Amount.

                    (b) In addition,  for swaps other than Total  Return  Swaps,
               the Market Value of the position  (positive or negative)  will be
               included as a Fitch Eligible Asset. The aggregate  notional value
               of all swaps will not exceed the  Liquidation  Preference  of the
               Outstanding AMPS.

                    (c)(1) The underlying securities subject to a credit default
               swap sold by the Trust will be subject  to the  applicable  Fitch
               Discount Factor for each security subject to the swap; (2) If the
               Trust  purchases a credit  default swap and holds the  underlying
               security,  the Market  Value of the credit  default  swap and the
               underlying  security will be included as a Fitch  Eligible  Asset
               subject  to the  Fitch  Discount  Factor  assessed  based  on the
               counterparty  risk;  and (3) the Trust will not  include a credit
               default  swap as a Fitch  Eligible  Asset  purchase  by the Trust
               without  the Trust  holding the  underlying  security or when the
               Trust  busy a credit  default  swap for a  basket  of  securities
               without holding all the securities in the basket.

                    (N)  Securities  lending:  The Fund may engage in securities
               lending in an amount not to exceed 10% of the Fund's  total gross
               assets.  For purposes of calculating  the Preferred  Shares Basic
               Maintenance  Amount,  such  securities  lent shall be included as
               Fitch Eligible Assets with the appropriate  Fitch Discount Factor
               applied to such lent  security.  The  obligation  to return  such
               collateral shall not be included as an  obligation/liability  for
               purposes of calculating  the Preferred  Shares Basic  Maintenance
               Amount.  However,  the  Fund may  reinvest  cash  collateral  for
               securities lent in conformity with its investment  objectives and
               policies and the  provisions of these bylaws.  In such event,  to
               the  extent  that  securities  lending  collateral   received  is
               invested  by the Fund in  assets  that  otherwise  would be Fitch
               Eligible  Assets and the value of such assets  exceeds the amount
               of the Fund's  obligation to return the collateral on a Valuation
               Date,  such excess amount shall be included in the calculation of
               Fitch Eligible  Assets by applying the applicable  Fitch Discount
               Factor to this  amount  and adding  the  product  to total  Fitch
               Eligible  Assets.  Conversely,  if the  value of  assets in which
               securities  lending collateral has been invested is less then the
               amount of the Fund's  obligation  to return the  collateral  on a
               Valuation  Date,   such  difference   shall  be  included  as  an
               obligation/liability  of the Fund for purposes of calculating the
               Preferred Shares Basic Maintenance Amount. Collateral received by
               the Fund in a securities  lending  transaction  and maintained by
               the Fund in the form  received  shall not be  included as a Fitch
               Eligible Asset for purposes of calculating  the Preferred  Shares
               Basic Maintenance Amount.

                    (O) Real Estate Investment Trusts:

               (a) For common stock and preferred  stock of REITs and other real
          estate companies, the Fitch Discount Factor applied shall be:


                                                        
REIT or other real estate company preferred                154%*
stock.........................................  

REIT or other real estate company                          196%
 stock....................................................


* Where the  aggregate  Market Value of  securities  invested in REIT  preferred
stock exceeds 50% of the aggregate  Market Value of all Fitch  Eligible  Assets,
then the applicable  Fitch Discount Factor shall be 200%.

               (b) For corporate  debt  securities of REITs,  the Fitch Discount
          Factor applied shall be:


                                                                                  
Terms to Maturity                   AAA         AA         A          BBB        BB         B          Unrated
-----------------                   ---         --         -          ---        --         -          -------
1 year or less..................... 111%        114%       117%       120%       121%       127%       127%
2 years or less (but longer than
1 year)..................           116%        123%       125%       127%       132%       137%       137%
3 years or less (but longer than
2 years).....................       121%        125%       127%       131%       133%       140%       152%
4 years or less (but longer than
3 years)................            126%        126%       129%       132%       136%       140%       164%
5 year or less (but longer than 4
years)...............               131%        132%       135%       139%       144%       149%       185%
7 years or less (but longer than
5 years)................            140%        143%       146%       152%       159%       167%       228%
10 years or less (but longer than
7 years).................           141%        143%       147%       153%       160%       168%       232%
12 years or less (but longer than
7 years).................           144%        144%       150%       157%       165%       174%       249%
15 years or less (but longer than
12 years)................           148%        151%       155%       163%       172%       182%       274%
30 years or less (but longer than
15 years).......                    152%        156%       160%       169%       180%       191%       306%



                    If a  security  is not  rated by  Fitch  but is rated by two
               other  Rating  Agencies,  then the  lower of the  ratings  on the
               security  from  the two  other  Rating  Agencies  will be used to
               determine the Fitch Discount  Factor (e.g.,  where the S&P rating
               is A and the Moody's rating is Baa, a Fitch rating of BBB will be
               used).  If a security  is not rated by Fitch but is rated by only
               one other NRSRO,  then the rating on the security  from the other
               NRSRO will be used to determine the Fitch Discount  Factor (e.g.,
               where the only  rating on a  security  is an S&P rating of AAA, a
               Fitch rating of AAA will be used,  and where the only rating on a
               security is a Moody's  rating of Ba, a Fitch rating of BB will be
               used).  Securities rated either below B or not rated by any NRSRO
               shall be treated as "Unrated" in the table above.

                    (P) Futures and call options:  For purposes of the Preferred
               Shares Basic  Maintenance  Amount,  futures held by the Trust and
               call  options  sold by the Trust  shall not be  included as Fitch
               Eligible Assets.  However,  such assets shall be valued at Market
               Value by subtracting  the good faith margin and the maximum daily
               trading  variance  as of the  Valuation  Date.  For call  options
               purchased by the Trust,  the Market Value of the call option will
               be included as a Fitch Eligible Asset subject to a Fitch Discount
               Factor  mutually  agreed to between  the Trust and Fitch based on
               the  characteristics  of the option contract such as its maturity
               and the underlying security of the contract.

                    (Q)  Asset-backed  and   mortgage-backed   securities:   The
               percentage   determined   by  reference  to  the  asset  type  in
               accordance with the table set forth below:


                                                                                                  
Asset Type (with                                                                                     Discount Factor
time remaining to maturity, if applicable)
U.S. Treasury/agency securities (10 years or less)                                                   118%
U.S. Treasury/agency securities (greater than 10 years)                                              127%
U.S. agency sequentials (10 years or less)                                                           128%
U.S. agency sequentials (greater than 10 years)                                                      142%
U.S. agency principal only securities                                                                236%
U.S. agency interest only securities (with Market Value greater than $0.40)                          696%
U.S. agency interest only securities (with Market Value less than or equal to $0.40)                 214%
AAA LockOut securities, interest only                                                                236%
U.S. agency planned amortization class bonds (10 years or less)                                      115%
U.S. agency planned amortization class bonds (greater than 10 years)                                 136%
AAA sequentials (10 years or less)                                                                   118%
AAA sequentials (greater than 10 years)                                                              135%
AAA planned amortization class bonds (10 years or less)                                              115%
AAA planned amortization class bonds (greater than 10 years)                                         140%
Jumbo mortgage rated AAA(1)                                                                          123%
Jumbo mortgage rated AA(1)                                                                           130%
Jumbo mortgage rated A(1)                                                                            136%
Jumbo mortgage rated BBB(1)                                                                          159%
Commercial mortgage-backed securities rated AAA                                                      131%
Commercial mortgage-backed securities rated AA                                                       139%
Commercial mortgage-backed securities rated A                                                        148%
Commercial mortgage-backed securities rated BBB                                                      177%
Commercial mortgage-backed securities rated BB                                                       283%
Commercial mortgage-backed securities rated B                                                        379%
Commercial mortgage-backed securities rated CCC or not rated                                         950%


(1) Applies to jumbo  mortgages,  credit cards,  auto loans,  home equity loans,
manufactured housing and prime  mortgage-backed  securities not issued by a U.S.
agency or instrumentality.



                    (R) Catastrophe  Bonds: The Fitch Discount Factor applied to
               Catastrophe Bonds will be 333.33%.

                    (S) Structured  Notes:  The Fitch Discount Factor applied to
               Structured  Notes will be (a) in the case of a corporate  issuer,
               the Fitch Discount  Factor  determined in accordance  with clause
               (C) under this  definition,  whereby  the rating on the issuer of
               the Structured Note will be the rating on the Structured Note for
               purposes of determining the Fitch Discount Factor in the table in
               clause  (C);  and (b) in the case of an  issuer  that is the U.S.
               government  or an agency or  instrumentality  thereof,  the Fitch
               Discount  Factor  determined in accordance  with clause (E) under
               this definition.

                    (T) Municipal  Obligations:  The Fitch  Discount  Factor for
               Municipal  Obligations is the percentage  determined by reference
               to the rating on such asset and the shortest  Exposure Period set
               forth  opposite  such  rating  that is the same  length  as or is
               longer than the Exposure Period, in accordance with the table set
               forth below:



                                                   RATING CATEGORY
                                                                              
Exposure Period                       AAA*        AA*        A*         BBB*        F1**        Unrated***
---------------                       ---         --         -          ---         --          -------
7 weeks.............................. 151%        159%       166%       173%        136%        225%
8 weeks or less but
greater than 7 weeks................. 154%        161%       168%       176%        137%        231%
9 weeks or less but
greater than 8 weeks................. 158%        163%       170%       177%        138%        240%



*Fitch rating (or, if not rated by Fitch,  see the definition of "Fitch Eligible
Asset" below).

**Municipal  Obligations  rated F1 by Fitch (or, if not rated by Fitch,  see the
definition  of "Fitch  Eligible  Asset"  below),  which do not  mature or have a
demand  feature at par  exercisable in 30 days and which do not have a long-term
rating.

***Includes Municipal Obligations rated less than BBB by Fitch (or, if not rated
by Fitch,  see the  definition  of "Fitch  Eligible  Asset"  below) and  unrated
securities.  Notwithstanding  the foregoing,  (i) the Fitch Discount  Factor for
short-term  Municipal  Obligations  will be  115%,  so  long  as such  Municipal
Obligations  are rated at least F2 by Fitch  (or,  if not rated by Fitch,  rated
MIG-1,  VMIG-1 or P-1 by Moody's or at least A-1+ or SP-1+ by S&P) and mature or
have a demand  feature at par  exercisable in 30 days or less, and (ii) no Fitch
Discount  Factor  will  be  applied  to  cash or to  Receivables  for  Municipal
Obligations Sold.


          j.  "Fitch Eligible Asset" means:

                    (A) cash  (including  interest and  dividends  due on assets
               rated  (1) BBB or higher by Fitch or the  equivalent  by  another
               NRSRO if the  payment  date is within five  Business  Days of the
               Valuation  Date,  (2) A or higher by Fitch or the  equivalent  by
               another  NRSRO if the payment  date is within  thirty days of the
               Valuation  Date,  and (3) A+ or higher by Fitch or the equivalent
               by another NRSRO if the payment date is within the Fitch Exposure
               Period) and  receivables  for Fitch  Eligible  Assets sold if the
               receivable  is due within  five  Business  Days of the  Valuation
               Date,  and if the trades which  generated  such  receivables  are
               settled within five Business Days;

                    (B) Short Term Money Market  Instruments so long as (1) such
               securities  are rated at least F1+ by Fitch or the  equivalent by
               another NRSRO, (2) in the case of demand deposits,  time deposits
               and overnight funds, the supporting entity is rated at least A by
               Fitch or the  equivalent  by another  NRSRO,  or (3) in all other
               cases, the supporting  entity (x) is rated at least A by Fitch or
               the  equivalent by another NRSRO and the security  matures within
               three  months  or  (y) is  rated  at  least  AA by  Fitch  or the
               equivalent by another NRSRO and the security  matures  within six
               months;  in addition,  money  market  funds  subject to Rule 2a-7
               under the 1940 Act are also eligible investments;

                    (C) U.S. Government Securities and U.S. Treasury Strips;

                    (D) debt  securities if such securities have been registered
               under  the  U.S.   Securities  Act  ("Securities   Act")  or  are
               restricted as to resale under U.S.  federal  securities  laws but
               are  eligible  for  resale   pursuant  to  Rule  144A  under  the
               Securities  Act;  and such  securities  are  issued by (1) a U.S.
               corporation,  limited liability  company or limited  partnership,
               (2)  a  corporation,   limited   liability   company  or  limited
               partnership  or  similar  entity  domiciled  in a  country  whose
               sovereign  debt  rating in a  non-local  currency  is  assigned a
               rating of "AAA" ("Approved Foreign Nations"),  (3) the government
               of  any  Approved   Foreign   Nation  or  any  of  its  agencies,
               instrumentalities or political  subdivisions (the debt securities
               of Approved Foreign Nation issuers being referred to collectively
               as "Foreign Bonds"), (4) a corporation, limited liability company
               or limited  partnership  domiciled  in Canada or (5) the Canadian
               government or any of its agencies, instrumentalities or political
               subdivisions  (the debt  securities  of  Canadian  issuers  being
               referred to collectively as "Canadian Bonds"). Foreign Bonds held
               by the Fund will  qualify as Fitch  Eligible  Assets only up to a
               maximum  of 20% of  the  aggregate  Market  Value  of all  assets
               constituting  Fitch Eligible  Assets.  Similarly,  Canadian Bonds
               held by the Fund will qualify as Fitch Eligible Assets only up to
               a maximum  of 20% of the  aggregate  Market  Value of all  assets
               constituting   Fitch   Eligible   Assets.   Notwithstanding   the
               limitations  in the two  preceding  sentences,  Foreign Bonds and
               Canadian  Bonds held by the Fund will  qualify as Fitch  Eligible
               Assets only up to a maximum of 30% of the aggregate  Market Value
               of all assets  constituting  Fitch Eligible Assets.  In addition,
               bonds which are issued in connection with a reorganization  under
               U.S.  federal  bankruptcy  law  ("Reorganization  Bonds") will be
               considered debt securities  constituting Fitch Eligible Assets if
               (a) they provide for periodic payment of interest in cash in U.S.
               dollars  or euros;  (b) they do not  provide  for  conversion  or
               exchange  into equity  capital at any time over their lives;  (c)
               they  have  been  registered  under  the  Securities  Act  or are
               restricted  as to resale under  federal  securities  laws but are
               eligible for trading under Rule 144A promulgated  pursuant to the
               Securities Act as determined by the Fund's investment  manager or
               portfolio  manager acting pursuant to procedures  approved by the
               Board of  Trustees  of the Fund;  (d) they were  issued by a U.S.
               corporation,  limited liability  company or limited  partnership;
               and (e) at the time of  purchase  at least  one year had  elapsed
               since the issuer's reorganization.  Reorganization Bonds may also
               be considered debt securities  constituting Fitch Eligible Assets
               if they have been approved by Fitch,  which approval shall not be
               unreasonably   withheld.   All  debt  securities  satisfying  the
               foregoing  requirements  and  restrictions  of this paragraph are
               herein referred to as "Debt Securities";

                    (E) debt  securities  of a  corporation,  limited  liability
               company or limited  partnership or similar entity domiciled in an
               Emerging  Market (as defined  below) and debt  securities  of the
               government  of any  Emerging  Market  or  any  of  its  agencies,
               instrumentalities or political  subdivisions (the debt securities
               of Emerging  Market  issuers being  referred to  collectively  as
               "Emerging  Market  Debt.")  Emerging  markets  are (1)  countries
               classified  by the World Bank as having a "low" or  "middle"  per
               capital  income;   (2)  countries  that  have   restructured  its
               sovereign  debt  during  the  past  10  years  or  currently  has
               restructured   sovereign   external  debt  outstanding;   or  (3)
               countries assigned a long-term, foreign currency/sovereign rating
               below A3/A- by Fitch, Moody's or S&P ;

                    (F)  preferred  stocks if (1)  dividends  on such  preferred
               stock  are  cumulative,  (2)  such  securities  provide  for  the
               periodic payment of dividends  thereon in cash in U.S. dollars or
               Euros and do not provide for conversion or exchange into, or have
               warrants attached entitling the holder to receive, equity capital
               at any time over the respective lives of such securities, (3) the
               issuer of such a  preferred  stock  has  common  stock  listed on
               either the New York Stock  Exchange,  the American Stock Exchange
               or the  over-the-counter  market,  and  (4)  the  issuer  of such
               preferred  stock  has a senior  debt  rating or  preferred  stock
               rating from Fitch of BBB- or higher or the  equivalent  rating by
               another NRSRO. In addition,  the preferred stocks's issue must be
               at least $50 million;

                    (G) Middle Market Bank Preferred Stock;

                    (H)  municipal  obligations  that (i) pay  interest in cash,
               (ii) does not have its Fitch rating, as applicable,  suspended by
               Fitch, and (iii) is part of an issue of municipal  obligations of
               at least $10,000,000.  In addition,  municipal obligations in the
               Fund's   portfolio  must  be  within  the  following   investment
               guidelines to be Fitch Eligible Assets.


                                                                                    
                                               Minimum              Maximum Single
                                               Issue Size           Underlying Obligor       Maximum State Allowed
Rating                                         ($ Millions) (1)     Issuer (%) (2)           (%) (2)(3)
----------                                     -------------------  ------------------       -----------------
AAA.................................           10                   100                      100
AA..................................           10                   20                       60
A...................................           10                   10                       40
BBB.................................           10                   6                        20
BB..................................           10                   4                        12
B...................................           10                   3                        12
CCC.................................           10                   2                        12


(1) Preferred stock has a minimum issue size of $50 million.
(2) The  referenced  percentage  represents  maximum  cumulating  total  for the
related rating category and each lower rating category.
(3)  Territorial  bonds  (other  than those  issued by Puerto  Rico and  counted
collectively)   are  each  limited  to  10%  of  Fitch  Eligible   Assets.   For
diversification purposes, Puerto Rico will be treated as a state.

               For purposes of applying the foregoing  requirements and applying
          the applicable Fitch Discount Factor, if a Municipal Obligation is not
          rated  by  Fitch  but is rated by  Moody's  and  S&P,  such  Municipal
          Obligation (excluding short-term Municipal Obligations) will be deemed
          to have the Fitch  rating  which is the lower of the  Moody's  and S&P
          rating.  If a Municipal  Obligation is not rated by Fitch but is rated
          by Moody's or S&P, such  Municipal  Obligation  (excluding  short-term
          Municipal  Obligations)  will be deemed to have such rating.  Eligible
          Assets shall be  calculated  without  including  cash;  and  Municipal
          Obligations rated F1 by Fitch or, if not rated by Fitch,  rated MIG-1,
          VMIG-1 or P-1 by Moody's;  or, if not rated by Moody's,  rated A-1+/AA
          or SP-1+/AA by S&P shall be considered  to have a long-term  rating of
          A.  When  the  Trust  sells  a  Municipal  Obligation  and  agrees  to
          repurchase such Municipal  Obligation at a future date, such Municipal
          Obligation  shall be valued at its  Discounted  Value for  purposes of
          determining  Fitch Eligible  Assets,  and the amount of the repurchase
          price of such  Municipal  Obligation  shall be included as a liability
          for purposes of  calculating  the Preferred  Shares Basic  Maintenance
          Amount.  When the Trust purchases a Fitch Eligible Asset and agrees to
          sell it at a future date, such Fitch Eligible Asset shall be valued at
          the amount of cash to be received by the Trust upon such future  date,
          provided that the counterparty to the transaction has a long-term debt
          rating  of at least A by Fitch  and the  transaction  has a term of no
          more than 30 days;  otherwise,  such  Fitch  Eligible  Asset  shall be
          valued at the Discounted Value of such Fitch Eligible Asset.

               Notwithstanding the foregoing,  an asset will not be considered a
          Fitch Eligible Asset for purposes of determining the Preferred  Shares
          Basic  Maintenance  Amount  to the  extent  it is (i)  subject  to any
          material  lien,  mortgage,   pledge,  security  interest  or  security
          agreement of any kind  (collectively,  "Liens"),  except for (a) Liens
          which are being contested in good faith by appropriate proceedings and
          which  Fitch (if Fitch is then rating the AMPS) has  indicated  to the
          Trust will not  affect  the  status of such asset as a Fitch  Eligible
          Asset,  (b) Liens for taxes that are not then due and  payable or that
          can be paid thereafter  without  penalty,  (c) Liens to secure payment
          for services  rendered or cash advanced to the Trust by the investment
          adviser,  custodian or the Auction  Agent,  (d) Liens by virtue of any
          repurchase  agreement,  and (e) Liens in  connection  with any futures
          margin account;  or (ii) deposited  irrevocably for the payment of any
          liabilities  for purposes of  determining  the Preferred  Shares Basic
          Maintenance Amount.

                    (I)  common  stocks (i) (A) which are traded on the New York
               Stock   Exchange,   the  American   Stock   Exchange  or  in  the
               over-the-counter  market, (B) which, if cash dividend paying, pay
               cash dividends in U.S. dollars, and (C) which may be sold without
               restriction by the Fund; provided, however, that (1) common stock
               which,  while a Fitch  Eligible  Asset owned by the Fund,  ceases
               paying any regular cash  dividend  will no longer be considered a
               Fitch Eligible Asset until 60 calendar days after the date of the
               announcement of such  cessation,  unless the issuer of the common
               stock has senior debt  securities  rated at least A- by Fitch and
               (2) the  aggregate  Market  Value of the Fund's  holdings  of the
               common  stock of any  issuer in excess of 5% per US issuer of the
               number  of  Outstanding  shares  times the  Market  Value of such
               common  stock  shall  not  be  a  Fitch's  Eligible  Asset;  (ii)
               securities denominated in any currency other than the U.S. dollar
               and securities of issuers formed under the laws of  jurisdictions
               other than the United  States,  its  states and the  District  of
               Columbia   for  which  there  are   dollar-denominated   American
               Depository  Receipts  ("ADRs")  which are  traded  in the  United
               States on exchanges or  over-the-counter  and are issued by banks
               formed  under the laws of the  United  States,  its states or the
               District  of  Columbia;  provided,  however,  that the  aggregate
               Market Value of the Fund's holdings of securities  denominated in
               currencies other than the U.S. dollar and ADRs in excess of 3% of
               the aggregate  Market Value of the  Outstanding  shares of common
               stock of such  issuer or in excess of 10% of the Market  Value of
               the Fund's Fitch  Eligible  Assets with respect to issuers formed
               under the laws of any single  such  non-U.S.  jurisdiction  other
               than Argentina, Australia, Brazil, Chile, France, Germany, Italy,
               Japan, Korea,  Mexico, Spain or the United Kingdom (the "Approved
               Foreign  Nations")  shall not be a Fitch  Eligible  Asset;  (iii)
               Small-cap  stocks  refer  to stock  with a market  capitalization
               between $300 million to $2 billion; Mid-cap stocks refer to stock
               with a market  capitalization  greater  then $2 billion  but less
               than $10 billion;  Large-cap stocks are companies having a market
               capitalization greater $10 billion;



Fitch Common Stock Diversification Guidelines:
----------------------------------------------
                                             
Type:                                           Max. Single Issuer (%)(1)

Large-cap                                       5%
Mid-cap                                         5%
Small-cap                                       5%


(1)  Percentages  represent  both a portion of the  aggregate  market  value and
     number of outstanding shares of the common stock portfolio.

                    (J) warrants on common stocks described above;

                    (K) Master Limited Partnership (MLP) Securities, which shall
               include the following  securities,  restricted  or  unrestricted,
               issued by an MLP or an affiliate of an MLP: (1) common units, (2)
               convertible  subordinated units, (3) I-Shares,  (4) I-units,  (5)
               LLC  securities  and (6) debt  securities.  An  investment by the
               Company in the MLP  Securities  of any single issuer will qualify
               as a Fitch Eligible Asset only to the extent that such investment
               constitutes 10% of the total assets of the Company. The amount by
               which an  investment  in the MLP  Securities of any single issuer
               exceeds 10% of the total  assets of the Company  will not qualify
               as a Fitch Eligible Asset;

                    (L) Senior Loans;

                    (M) Rule 144A Securities;

                    (N) asset-backed and mortgage-backed securities;

                    (O) Catastrophe Bonds;

                    (P) REIT and other real estate company  securities,  subject
               to 5% issuer limitation  (including common,  preferred,  debt and
               other securities);

                    (Q) TRACERs, TRAINs and Structured Notes;

                    (R) Fitch Hedging Transactions; and

                    (S)  Swaps,   including  Total  Return  Swaps  entered  into
               according to ISDA;

     In  addition,  portfolio  holdings  as  described  below must be within the
following diversification and issue size requirements in order to be included in
Fitch's Eligible Assets:


                                                                       
         Security Rated At            Maximum Single           Maximum Single   Minimum Issue Size
         Least                        Issuer(1)                Industry(1,2)    ($ in million)(3)

         AAA                          100%                     100%             $100
         AA-                          20                       75               100
         A-                           10                       50               100
         BBB-                         6                        25               100
         BB-                          4                        16               50
         B-                           3                        12               50
         CCC                          2                         8               50



(1)  Percentages  represent  a  portion  of the  aggregate  market  value of the
portfolio holdings.
(2) Industries are determined according to Fitch's Industry Classifications,  as
defined herein.
(3)  Preferred  stock has a minimum  issue  size of $50  million  for all rating
categories in the table.



               k. "Fitch  Exposure  Period" means the period  commencing on (and
          including) a given Valuation Date and ending 41 days thereafter.

               l.  "Fitch  Hedging  Transactions"  means  purchases  or sales of
          exchange-traded   financial  futures  contracts  based  on  any  index
          approved by Fitch, LIBOR or Treasury Bonds, and purchases, writings or
          sales of exchange-traded  put options on such futures  contracts,  any
          index  approved  by Fitch,  LIBOR or  Treasury  Bonds  and  purchases,
          writings or sales of  exchange-traded  call options on such  financial
          futures  contracts,  any index  approved  by Fitch,  LIBOR or Treasury
          bonds, subject to the following limitations:v.

                    (i) The Fund may not engage in any Fitch Hedging Transaction
               based on any index  approved by Fitch  (other  than  transactions
               that  terminate a futures  contract or option held by the Fund by
               the  Fund's  taking  the  opposite   position  thereto  ("closing
               transactions"))  that  would  cause  the Fund at the time of such
               transaction  to own or have sold  outstanding  financial  futures
               contracts  based on such  index  exceeding  in number  10% of the
               average number of daily traded financial  futures contracts based
               on such index in the 30 days preceding the time of effecting such
               transaction as reported by The Wall Street Journal.

                    (ii)  The  Fund  will  not  engage  in  any  Fitch   Hedging
               Transaction  based on Treasury Bonds or LIBOR (other than closing
               transactions)  that  would  cause  the  Fund at the  time of such
               transaction to own or have sold:

                         (A) Outstanding  financial  futures  contracts based on
                    Treasury  Bonds or  LIBOR  with  such  contracts  having  an
                    aggregate market value exceeding 20% of the aggregate market
                    value of Fitch  Eligible  Assets owned by the Fund and rated
                    at least AA by Fitch  (or,  if not  rated by Fitch  Ratings,
                    rated at least Aa by  Moody's;  or, if not rated by Moody's,
                    rated at least AAA by S&P); or

                         (B) Outstanding  financial  futures  contracts based on
                    Treasury  Bonds or  LIBOR  with  such  contracts  having  an
                    aggregate market value exceeding 40% of the aggregate market
                    value of all Fitch Eligible  Assets owned by the Fund (other
                    than  Fitch  Eligible  Assets  already  subject  to a  Fitch
                    Hedging Transaction) and rated at least BBB by Fitch (or, if
                    not rated by Fitch  Ratings,  rated at least Baa by Moody's;
                    or, if not rated by  Moody's,  rated at least A by S&P) (for
                    purposes of the  foregoing  clauses  (i) and (ii),  the Fund
                    shall be deemed to own futures  contracts  that underlie any
                    outstanding options written by the Fund);

                    (iii) The Fund may engage in closing  transactions  to close
               out any outstanding financial futures contract based on any index
               approved by Fitch if the amount of open interest in such index as
               reported by The Wall Street  Journal is less than an amount to be
               mutually determined by Fitch and the Fund.

                    (iv)  The Fund  may not  enter  into an  option  or  futures
               transaction unless,  after giving effect thereto,  the Fund would
               continue  to  have  Fitch  Eligible   Assets  with  an  aggregate
               Discounted  Value equal to or greater than the  Preferred  Shares
               Basic Maintenance Amount.

          n.  "Fitch  Industry  Classifications"  means,  for  the  purposes  of
     determining  Fitch  Eligible  Assets,   each  of  the  following   industry
     classifications:

Aerospace & Defense
Automobiles
Banking, Finance & Real Estate
Broadcasting & Media
Building & Materials
Cable
Chemicals
Computers & Electronics
Consumer Products
Energy
Environmental Services
Farming & Agriculture
Food, Beverage & Tobacco
Gaming, Lodging & Restaurants
Healthcare & Pharmaceuticals
Industrial/Manufacturing
Insurance
Leisure & Entertainment
Metals & Mining
Miscellaneous
Packaging and Containers
Paper & Forest Products
Retail
Sovereign
Structured Finance Obligations
Supermarkets & Drugstores
Telecommunications
Textiles & Furniture
Transportation
Utilities

The Fund shall use its discretion in determining  which industry  classification
is applicable to a particular investment.

          o. "Fitch Loan Category" means the following four categories (and, for
     purposes of this categorization, the Market Value of a Fitch Eligible Asset
     trading at par is equal to $1.00):

               (i) "Fitch  Loan  Category A" means  Performing  Bank Loans which
          have a Market  Value or an  Approved  Price  greater  than or equal to
          $0.90.

               (ii) "Fitch Loan  Category B" means:  (A)  Performing  Bank Loans
          which have a Market Value or an Approved  Price  greater than or equal
          to $0.80 but less than $0.90; and (B) non-Performing  Bank Loans which
          have a Market  Value or an  Approved  Price  greater  than or equal to
          $0.85.

               (iii)  "Fitch Loan  Category C" means (A)  Performing  Bank Loans
          which have a Market Value or an Approved  Price  greater than or equal
          to $0.70 but less than $0.80; (B) non-Performing Bank Loans which have
          a Market Value or an Approved Price greater than or equal to $0.75 but
          less than $0.85;  and (C)  Performing  Bank Loans  without an Approved
          Price rated BB- or higher by Fitch Ratings. If a security is not rated
          by Fitch Ratings but is rated by two other NRSRO's,  then the lower of
          the ratings on the security  from the two other NRSROs will be used to
          determine the Fitch Discount Factor (e.g.,  where the S&P rating is A-
          and the Moody's rating is Baa1, a rating by Fitch Ratings of BBB+ will
          be used).  If a security is not rated by Fitch Ratings but is rated by
          only one other NRSRO,  then the rating on the security  from the other
          NRSRO will be used to determine the Fitch Discount Factor (e.g., where
          the only  rating on a security  is an S&P rating of AAA-,  a rating by
          Fitch  Ratings  of AAA- will be used,  and where the only  rating on a
          security is a Moody's  rating of Ba3, a rating by Fitch Ratings of BB-
          will be used).

               (iv) "Fitch Loan  Category D" means Bank Loans not  described  in
          any of the foregoing categories.

               Notwithstanding any other provision contained above, for purposes
          of determining  whether a Fitch Eligible Asset falls within a specific
          Fitch Loan Category, to the extent that any Fitch Eligible Asset would
          fall in  more  than  one of the  Fitch  Loan  Categories,  such  Fitch
          Eligible  Asset  shall be deemed to fall into the Fitch Loan  Category
          with the lowest applicable Fitch Discount Factor.

          p.  "Foreign  Bonds"  has the  meaning  set forth in clause (D) of the
     definition of "Fitch Eligible Assets."

          q.  "Interest  Rate Swap"  means an  arrangement  whereby  two parties
     (called  counterparties)  enter  into an  agreement  to  exchange  periodic
     interest  payments.  The dollar amount the counterparties pay to each other
     is an agreed-upon  periodic interest rate multiplied by some  predetermined
     dollar  principal,  called the notional  principal  amount. No principal is
     exchanged between parties to the transaction; only interest is exchanged.

          r. "Interest  Rate Cap" means an options  contract which puts an upper
     limit on a floating  exchange rate.  The contract  protects the holder from
     rises in short-term  interest  rates by making a payment to the holder when
     an underlying  interest rate (the index or reference interest rate) exceeds
     a specified strike rate (the cap rate).

          s.  "Middle  Market  Bank  Preferred  Stock"  means,  for  purposes of
     determining  the  applicable   Fitch  Discount   Factor,   adjustable  rate
     non-cumulative  perpetual  preferred  stock  issued by small- to  mid-sized
     banks with assets of between $200 million and $10 billion.

          t.  "Performing"  means with respect to any asset,  the issuer of such
     investment is not in default of any payment obligations in respect thereof.

          u. "Pricing Service" means any pricing service designated by the Board
     of Trustees of the Fund and  approved by Fitch or Moody's,  as  applicable,
     for purposes of  determining  whether the Fund has Eligible  Assets with an
     aggregate  Discounted  Value that  equals or exceeds the  Preferred  Shares
     Basic Maintenance Amount.

          v. "Short-Term  Money Market  Instrument" means the following types of
     instruments if, on the date of purchase or other acquisition thereof by the
     Fund, the remaining term to maturity thereof is not in excess of 180 days:

               (i) commercial  paper rated A-1 if such commercial  paper matures
          in 30 days or A-1+ if such commercial paper matures in over 30 days;

               (ii) demand or time  deposits  in, and banker's  acceptances  and
          certificates  of  deposit  of (A) a  depository  institution  or trust
          company incorporated under the laws of the United States of America or
          any state  thereof or the District of Columbia or (B) a United  States
          branch office or agency of a foreign depository  institution (provided
          that such  branch  office or agency is subject  to banking  regulation
          under the laws of the United States, any state thereof or the District
          of Columbia);

               (iii) overnight funds;

               (iv) U.S. Government Securities; and

               (v)  Eurodollar  demand or time deposits in, or  certificates  of
          deposit  of,  the  head  office  or  the  London  branch  office  of a
          depository  institution  or  trust  company  if  the  certificates  of
          deposit,  if any, and the long-term  unsecured debt obligations (other
          than such  obligations the ratings of which are based on the credit of
          a person or entity  other than such  depository  institution  or trust
          company) of such depository  institution or Fund company that have (1)
          credit ratings on such Valuation Date of at least P-1 from Moody's and
          either  F1+ from  Fitch or A-1+  from S&P,  in the case of  commercial
          paper or  certificates  of  deposit,  and (2)  credit  ratings on each
          Valuation  Date of at least Aa3 from Moody's and either AA- from Fitch
          or AA- from S&P, in the case of long-term  unsecured debt obligations;
          provided,  however,  that in the  case  of any  such  investment  that
          matures in no more than one  Business Day from the date of purchase or
          other acquisition by the Fund, all of the foregoing requirements shall
          be applicable except that the required long-term unsecured debt credit
          rating of such  depository  institution or trust company from Moody's,
          Fitch  and S&P  shall  be at  least  A2,  A and A,  respectively;  and
          provided   further,   however,   that  the  foregoing   credit  rating
          requirements  shall be deemed to be met with  respect to a  depository
          institution  or trust company if (1) such  depository  institution  or
          trust company is the  principal  depository  institution  in a holding
          company  system,  (2) the  certificates  of  deposit,  if any, of such
          depository  institution or Fund company are not rated on any Valuation
          Date below P-1 by Moody's, F1+ by Fitch or A-1+ by S&P and there is no
          long-term  rating,  and (3) the holding  company shall meet all of the
          foregoing credit rating requirements  (including the preceding proviso
          in the case of  investments  that mature in no more than one  Business
          Day from the date of purchase or other  acquisition by the Fund);  and
          provided further,  that the interest  receivable by the Fund shall not
          be subject to any withholding or similar taxes.

          w.  "Structured  Notes" means privately  negotiated  debt  obligations
     where the  principal  and/or  interest is  determined  by  reference to the
     performance of a benchmark asset or market (an "embedded  index"),  such as
     selected  securities  or  an  index  of  securities,  or  the  differential
     performance of two assets or markets, such as indices reflecting bonds.

          x.  "Swap"  means a  derivative  transaction  between  two parties who
     contractually  agree to exchange the returns (or  differentials in rates of
     return) to be exchanges or "swapped" between the parties, which returns are
     calculated with respect to a "notional  amount," i.e., a particular  dollar
     amount  invested  at  a  particular  interest  rate  or  in a  "basket"  of
     securities representing a particular index.

          y. "Total Return Swap" means an agreement  between  counterparties  in
     which one party agrees to make payments of the total return from underlying
     asset(s),  which  may  include  securities,   baskets  of  securities,   or
     securities  indices  during the  specified  period,  in return for payments
     equal to a fixed or  floating  rate of  interest  or the total  return from
     other underlying asset(s).

          z.  "TRACERs"  means  traded  custody  receipts   representing  direct
     ownership in a portfolio of underlying securities.

          aa. "TRAINs" means Targeted Return Index  Securities,  which are trust
     certificates  comprised  of bonds  that are  chosen  to track a  particular
     index.

          bb.  "U.S.  Government  Securities"  mean  securities  that are direct
     obligations  of, and  obligations  the  timely  payment  of  principal  and
     interest on which is fully  guaranteed  by, the United States of America or
     any  agency  or  instrumentality  of the  United  States  of  America,  the
     obligations  of which are backed by the full faith and credit of the United
     States of America and in the form of conventional bills, bonds and notes.

          cc. "U.S. Treasury  Securities" means direct obligations of the United
     States  Treasury  that are  entitled  to the full  faith and  credit of the
     United States.

          dd. "U.S.  Treasury Strips" means  securities  based on U.S.  Treasury
     Securities created through the Separate Trading of Registered  Interest and
     Principal of Securities program.

          ee.  "Valuation Date" means,  for purposes of determining  whether the
     Trust is maintaining the Preferred  Shares Basic  Maintenance  Amount,  the
     last Business Day of each week commencing with the Date of Original Issue.



                                                                      APPENDIX A

                                      FUNDS






Part C. Other Information.

Item 24.  Financial Statements and Exhibits

1.   Financial Statements:

     a.   Financial   Statements   included  in  Part  A  (Prospectus)  of  this
          Registration Statement:

          i.   Financial highlights for each of the five years ended 2000, 2001,
               2002, 2003, 2004 (1)

     b.   Financial  Statements  included  in Part B  (Statement  of  Additional
          Information) of this Registration Statement.

          i.   Report of Independent Accountants (2)

          ii.  Statement of assets and liabilities as of November 30, 2004 (2)

          iii. Statement of operations for the year ended November 30, 2004 (2)

          iv.  Statement of cash flows for the year ended November 30, 2004 (2)

          v.   Statement  of changes  in net assets for each of the years  ended
               November 30, 2004 and 2003 (2)

          vi.  Schedule of Investments as of November 30, 2004 (2)

2.   Exhibits

     a.   Fund's Charter

          i.   Articles of Incorporation of the Fund (3)

          ii.  Articles of Amendment dated October 9, 1991 (3)

          iii. Articles of Amendment dated November 24, 1998 (3)

          iv.  Articles Supplementary dated January 27, 2000 (3)

          v.   Articles of Amendment dated April 26, 2002 (3)

          vi.  Articles of Amendment dated October 21, 2002 (3)

          vii. Articles of Amendment dated October 23, 2002 (3)

          viii. Articles Supplementary dated April 8, 2004 (4)

          ix.  Articles of Amendment dated May 18, 2004 (4)

          x.   Articles of Amendment and Restatement dated May 18, 2004 (4)

          xi.  Articles of Amendment dated April 25, 2005 (4)


          xii. Articles   Supplementary   Creating  and  Fixing  the  Rights  of
               Preferred Stock (6)



     b.   Amended and Restated By-laws of the Fund (5)


     c.   Not applicable


     d.   Specimen share certificate (5)


     e.   Dividend Reinvestment Plan (4)

     f.   Not applicable

     g.   Investment Advisory Agreements

          i.   Investment  Co-Advisory  Agreement  between  the Fund and Boulder
               Investment Advisers, L.L.C. ("BIA") (3)

          ii.  Investment  Co-Advisory  Agreement  between  the Fund and Stewart
               West  Indies  Trading  Company,  Ltd.  d/b/a  Stewart  Investment
               Advisers ("SIA") (3)


     h.   Form  of  Purchase   Agreement  among  the  Fund,  BIA,  SIA  and  the
          Underwriters (5)


     i.   Deferred Compensation Plan of Kalman J. Cohen, Director. (3)

     j.   Custody  Agreement between the Fund and Investors Bank & Trust Company
          (4)




     k.   Other Agreements

          i.   Transfer Agency Agreement between the Fund and PFPC, Inc. (4)

          ii.  Administration Agreement between the Fund and Fund Administrative
               Services, LLC. (4)

          iii. Amendment to  Administration  Agreement between the Fund and Fund
               Administrative Services, LLC. (4)

          iv.  Administration  Agreement  between the Fund and Investors  Bank &
               Trust Company (4)

          v.   Collateral Securities Account Agreement (4)

          vi.  Loan and Pledge  Agreement  between the Fund and Custodial  Trust
               Company (4)

          vii. Delegation  Agreement between the Fund and Investors Bank & Trust
               Company (4)

          viii. Auction  Agency  Agreement  between the Fund and  Deutsche  Bank
               Trust Company Americas (5)


          ix.  Broker-Dealer Agreement between the Fund and Merrill Lynch Pierce
               Fenner & Smith Incorporated. (5)


     l.   Opinions of Counsel


          i.   Form of opinion and consent of Venable LLP (5)


     m.   Consents to Service of Process

          i.   Consent to Service of Process with respect to Dennis Causier,  an
               independent director of the Fund (5)

          ii.  Consent to Service of Process with respect to SIA (3)



     n.   Consent of KPMG LLP (7)



     o.   Not applicable


     p.   Not applicable


     q.   Not applicable

     r.   Code of Ethics of the Fund, BIA and SIA (4)

     s.   Power of Attorney (4)


(1)  Incorporated  herein by reference to the Registrant's Form N-CSR/A filed on
     August 23. 2005, 2005 for six months ending May 31, 2005.

(2)  Incorporated  herein by reference to the Registrant's Form N-CSR/A filed on
     August 23, 2005 for year ending November 30, 2004.


(3)  Incorporated  hereby by reference to  Amendment  No. 8 to the  Registration
     Statement  on Form  N-2/A of the  Registrant  filed on  November  20,  2002
     (Securities   Act   File   No.    33-100634;    EDGAR   Accession    Number
     0000950117-02-002800.


(4)  Incorporated  hereby by reference to  Amendment  No. 9 to the  Registration
     Statement  on  Form  N-2/A  of  the  Registrant  filed  on  July  11,  2005
     (Securities   Act   File   No.    333-126503;    EDGAR   Accession   Number
     0001099343-05-000027.


(5)  Incorporated  hereby by reference to Amendment  No. 10 to the  Registration
     Statement  on Form  N-2/A  of the  Registrant  filed  on  October  7,  2005
     (Securities   Act   File   No.    333-126503;    EDGAR   Accession   Number
     0001099343-05-000038.


(6)  Incorporated  hereby by reference to Amendment  No. 11 to the  Registration
     Statement  on Form  N-2/A of the  Registrant  filed  on  October  11,  2005
     (Securities   Act   File   No.    333-126503;    EDGAR   Accession   Number
     0001099343-05-000040.

(7)  Filed herewith.




Item 26. Marketing Arrangements. Reference is made to the Purchase Agreement for
the  Fund's  preferred  shares  to be filed by  amendment  to this  Registration
Statement.


Item 27. Other Expenses of Issuance and Distribution.  The Fund expects to incur
approximately  $195,000  of  expenses  in  connection  with  the  Offering.  The
following  table  identifies  the  significant   expenses  associated  with  the
Offering.


                                                  
Registration Fees                                    $3,000
Printing Costs (other than certificates)             $9,000
Accounting Fees and Expenses                         $17,000
Legal Fees and Expenses                              $94,000
Rating Agency Fees                                   $55,000
Miscellaneous                                        $17,000
TOTAL ESTIMATED COSTS                                $195,000






Item 28. Persons controlled by or under common control with the Fund. The Ernest
Horejsi Trust No. 1B (the "EH Trust") is the Fund's largest  shareholder and has
asserted the existence of control with respect to the Fund.  Together with other
trusts and  entities  affiliated  with the  Horejsi  family  (collectively,  the
"Horejsi  Affiliates"),  the EH Trust has  asserted  control with respect to two
other  investment  companies,  the Boulder Total Return Fund, Inc. and the First
Financial Fund,  Inc. The Horejsi  Affiliates also own the Advisers and FAS, the
Fund's  co-administrator.  The following table shows the relationship of each of
the related  companies to the Fund and each  company's  ownership by the Horejsi
Affiliates.



                                                                                              
------------------------------------------------------------- ------------------------------------- -------------------------
                                                              Principal Shareholder(s)/Equity       Percentage of shares
                                                              Holder(s)                             directly held in the
                                                                                                    respective company as
                                                                                                    of August 31, 2005
------------------------------------------------------------- ------------------------------------- -------------------------
The Fund                                                      EH Trust                              20.79%
------------------------------------------------------------- ------------------------------------- -------------------------
Boulder Total Return Fund, Inc. NYSE: BTF                     EH Trust                              27.66%
                                                              Lola Brown Trust No. 1B               11.11%
                                                              Evergreen Atlantic LLC                2.79%
                                                              Susan L. Ciciora Trust                0.58%
                                                              John S. Horejsi Trust                 0.43%
                                                              Evergreen Trust                       0.21%
                                                              Stewart West Indies Trust             0.85%
------------------------------------------------------------- ------------------------------------- -------------------------
First Financial Fund, Inc. NYSE: FF                           Stewart R. Horejsi Trust No. 2A       7.36%
                                                              EH Trust                              7.34%
                                                              Lola Brown Trust No. 1B               10.18%
                                                              Mildred Horejsi Trust                 8.34%
                                                              Susan L. Ciciora Trust                5.90%
------------------------------------------------------------- ------------------------------------- -------------------------
Boulder Investment Advisers, LLC                              Lola Brown Trust No. 1B               50%
                                                              Evergreen Atlantic LLC                50%
------------------------------------------------------------- ------------------------------------- -------------------------
Stewart West Indies Trading Company,  Ltd. doing business as  Stewart West Indies Trust             100%
Stewart Investment Advisers
------------------------------------------------------------- ------------------------------------- -------------------------
Fund Administrative Services, LLC                             Lola Brown Trust No. 1B               50%
                                                              Evergreen Atlantic LLC                50%
------------------------------------------------------------- ------------------------------------- -------------------------


The EH Trust was established by Ernest Horejsi,  Stewart  Horejsi's  father,  in
1966. It is an  irrevocable  grantor trust formed in Kansas but now domiciled in
Alaska.  The  Lola  Brown  Trust  No.  1B was  established  by Lola  Brown,  the
grandmother  of Stewart  Horejsi,  in 1967. It is an  irrevocable  grantor trust
formed in Kansas  but now  domiciled  in  Alaska.  The Susan  Ciciora  Trust was
established by Susan Ciciora, the daughter of Stewart Horejsi, in 1998. It is an
irrevocable  grantor  trust formed in South Dakota but now  domiciled in Alaska.
The John S. Horejsi Trust was  established  by John Horejsi,  the son of Stewart
Horejsi,  in 1998. It is an irrevocable grantor trust formed in South Dakota but
now domiciled in Alaska.  The Evergreen Trust was established by Stewart Horejsi
in 1995. It is an irrevocable  grantor trust formed in Bermuda but now domiciled
in  Alaska.  The  Stewart R.  Horejsi  Trust No. 2A was  established  by Stewart
Horejsi in 1968.  It is an  irrevocable  grantor  trust formed in Kansas but now
domiciled  in Alaska.  The  Mildred  Horejsi  Trust was  established  by Mildred
Horejsi,  Stewart Horejsi's mother, in 1965. It is an irrevocable  grantor trust
formed in New York but now  domiciled  in Alaska.  The Stewart West Indies Trust
was established by Stewart  Horejsi in 1998. It is an irrevocable  grantor trust
formed in South Dakota but now domiciled in Alaska.  Evergreen Atlantic LLC is a
Colorado limited liability company formed in 1995. Its members are the Evergreen
Trust (11%),  the Susan Ciciora Trust (30%), the John S. Horejsi Trust (15%) and
the Stewart West Indies Trust (44%).


Item 29. Number of Holders of Shares.



                                              
------------------------------------------------ ------------------------------------------
Title of Class                                   Record Holders as of August 31, 2005
------------------------------------------------ ------------------------------------------
Common Stock, par value $.01 per share           11,327,784
------------------------------------------------ ------------------------------------------


Item 30.  Indemnification.  Section 2-418 of the General  Corporation Law of the
State of Maryland,  Article VIII of the  Registrant's  Articles of Incorporation
(to be filed as an Exhibit to this Registration  Statement),  Article 5.2 of the
Registrant's  By-laws  (to be filed as an  Exhibit  to this  Registration),  the
Investment  Advisory  Agreements  (to be filed as Exhibits to this  Registration
Statement)  provide  for   indemnification.   Insofar  as  indemnification   for
liabilities  arising  under  the  Securities  Act of  1933  (the  "Act")  may be
permitted 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  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 the
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 Act and will be governed by the final adjudication of
such issue.


Item 31. Business and Other Connections of the Investment Adviser. Registrant is
fulfilling the requirement of this Item 31 to provide a list of the officers and
directors of its investment advisers,  together with information as to any other
business, profession,  vocation or employment of a substantial nature engaged in
by that entity or those of its officers and directors during the past two years,
by  incorporating  herein by reference the information  contained in the current
Form ADV filed with the Securities  and Exchange  Commission by each of BIA (SEC
File No. 801-56515) and SIA (SEC File No. 801-56522)  pursuant to the Investment
Advisers Act of 1940, as amended.


Item 32. Location of Accounts and Records.

Fund Administrative Services, L.L.C.            Co-Administrator
1680 38th Street (Suite 800)
Boulder, CO 80301

Investors Bank & Trust Company.                 Co-Administrator
200 Clarendon Street
P.O. Box 9130 Boston, MA 02117

PFPC, Inc.                                      Common Stock Transfer Agent
400 Bellevue Parkway
Wilmington, Delaware 19809

Investors Bank & Trust Company                  Custodian
200 Clarendon Street
P.O. Box 9130 Boston, MA 02117


Deutsche Bank Trust Company Americas            Preferred Stock Transfer Agent
60 Wall Street
27th Floor
New York, NY 10005


Item 33. Management Services. Not applicable.

Item 34. Undertakings

     1.   The Registrant hereby undertakes to suspend the offering of the shares
          until it amends its Prospectus if (a) subsequent to the effective date
          of its Registration Statement,  the net asset value declines more than
          10 percent  from its net asset value as of the  effective  date of the
          Registration  Statement  or (b) the net asset  value  increases  to an
          amount greater than its net proceeds as stated in the Prospectus.

     2.   Not applicable.

     3.   Not applicable.

     4.   Not applicable.

     5.   The Registrant hereby undertakes that:

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

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

     6.   The Registrant  hereby undertakes to send by first class mail or other
          means designed to ensure equally prompt delivery,  within two business
          days of  receipt  of an oral or  written  request,  any  Statement  of
          Additional Information.

SIGNATURES



Pursuant to the requirements of the Securities Act of 1933, as amended,  and the
Investment Company Act of 1940, as amended,  the Registrant has duly caused this
Amendment  to its  Registration  Statement  to be  signed  on its  behalf by the
undersigned,  thereunto duly authorized, in the City of Boulder and the State of
Colorado, on the 13th day of October, 2005.



                        BOULDER GROWTH & INCOME FUND, INC.



                        By: /s/ Stephen C. Miller
                            President