MUNIHOLDINGS FLORIDA INSURED FUND V
N-2, 1999-06-30
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<PAGE>   1


     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1999



                                               SECURITIES ACT FILE NO. 333-


                                       INVESTMENT COMPANY ACT FILE NO. 811-09331

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                    FORM N-2
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933         [X]

                          PRE-EFFECTIVE AMENDMENT NO.                       [X]


                        POST-EFFECTIVE AMENDMENT NO.                        [ ]

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


                                AMENDMENT NO. 3                             [X]


                        (Check appropriate box or boxes)
                            ------------------------

                      MUNIHOLDINGS FLORIDA INSURED FUND V

               (Exact Name of Registrant as Specified in Charter)
                            ------------------------
              800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
                    (Address of Principal Executive Offices)
                            ------------------------
                                 (609) 282-2800
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
                            ------------------------

                                 TERRY K. GLENN


                      MUNIHOLDINGS FLORIDA INSURED FUND V

                             800 SCUDDERS MILL ROAD
                          PLAINSBORO, NEW JERSEY 08536
        MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
                    (Name and Address of Agent for Service)
                            ------------------------
                                   COPIES TO:

<TABLE>
<S>                                                          <C>
                MICHAEL J. HENNEWINKEL, ESQ.                                     FRANK P. BRUNO, ESQ.
                FUND ASSET MANAGEMENT, L.P.                                        BROWN & WOOD LLP
                       P.O. BOX 9011                                            ONE WORLD TRADE CENTER
              PRINCETON, NEW JERSEY 08543-9011                              NEW YORK, NEW YORK 10048-0557
</TABLE>

                            ------------------------
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
                            ------------------------
    If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [ ]

    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]

    If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
                            ------------------------
        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------

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

<TABLE>
<S>                                                           <C>              <C>              <C>              <C>
                                                                                                    PROPOSED
                                                                                   PROPOSED         MAXIMUM
                                                                   AMOUNT          MAXIMUM         AGGREGATE        AMOUNT OF
TITLE OF                                                           BEING        OFFERING PRICE      OFFERING       REGISTRATION
SECURITIES BEING REGISTERED                                    REGISTERED(1)     PER UNIT(1)        PRICE(1)          FEE(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Auction Market Preferred Shares.............................     40 Shares         $25,000         $1,000,000          $278
</TABLE>


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

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

(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA.


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

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


- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2

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

                             SUBJECT TO COMPLETION

                   PRELIMINARY PROSPECTUS DATED JUNE 30, 1999


PROSPECTUS

                              $



                      MUNIHOLDINGS FLORIDA INSURED FUND V

                  AUCTION MARKET PREFERRED SHARES ["AMPS(R)"]
                                   SHARES, SERIES A
                                   SHARES, SERIES B
                    LIQUIDATION PREFERENCE $25,000 PER SHARE
                            ------------------------


     MuniHoldings Florida Insured Fund V (the "Fund") is a recently organized,
non-diversified, closed-end management investment company that seeks to provide
shareholders with current income exempt from Federal income tax and the
opportunity to own shares whose value is exempt from Florida intangible personal
property tax. The Fund seeks to achieve its objective by investing primarily in
a portfolio of long-term, investment grade municipal obligations the interest on
which, in the opinion of bond counsel to the issuer, is exempt from Federal
income tax and which enable shares of the Fund to be exempt from Florida
intangible personal property tax. The Fund intends to invest in municipal
obligations that are rated investment grade or, if unrated, are considered by
the Fund's investment adviser to be of comparable quality. Under normal
circumstances, at least 80% of the Fund's assets will be invested in municipal
obligations with remaining maturities of one year or more that are covered by
insurance guaranteeing the timely payment of principal at maturity and interest.

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

     This prospectus contains information you should know before investing,
including information about risks. Please read it before you invest and keep it
for future reference. This Fund's statement of additional information contains
further information about the Fund and is incorporated by reference (legally
considered to be part of this prospectus). You may request a free copy by
writing or calling the Fund at (800) 637-3863.
                            ------------------------

     INVESTING IN THE AMPS INVOLVES CERTAIN RISKS, WHICH ARE DESCRIBED IN THE
"RISK FACTORS AND SPECIAL CONSIDERATIONS" SECTION BEGINNING ON PAGE 5 OF THIS
PROSPECTUS.


<TABLE>
<CAPTION>
                                         PER SHARE               TOTAL
                                         ----------              -----
<S>                                      <C>                  <C>
Public Offering Price...........         $25,000.00           $
Sales Load......................         $                    $
Proceeds, before expenses, to
  Fund..........................         $                    $
</TABLE>


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

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


     One certificate for each series of the AMPS will be ready for delivery to
the nominee of The Depository Trust Company on or about            , 1999.

- ---------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
                            ------------------------
                              MERRILL LYNCH & CO.
                            ------------------------


               The date of this prospectus is            , 1999.

<PAGE>   3

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
<S>                                                             <C>
Offering Summary............................................      3
Risk Factors and Special Considerations.....................      5
The Fund....................................................      7
Use of Proceeds.............................................      7
Capitalization..............................................      7
Portfolio Composition.......................................      7
Investment Objective and Policies...........................      8
Description of AMPS.........................................     15
The Auction.................................................     22
Rating Agency Guidelines....................................     32
Investment Advisory and Management Arrangements.............     33
Taxes.......................................................     34
Description of Capital Shares...............................     35
Custodian...................................................     38
Underwriting................................................     38
Transfer Agent, Dividend Disbursing Agent and Registrar.....     39
Legal Opinions..............................................     39
Experts.....................................................     39
Year 2000 Issues............................................     40
Table of Contents of Statement of Additional Information....     41
Glossary....................................................     42
</TABLE>


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

     INFORMATION ABOUT THE FUND CAN BE REVIEWED AND COPIED AT THE SEC'S PUBLIC
REFERENCE ROOM IN WASHINGTON, D.C. CALL 1-800-SEC-0330 FOR INFORMATION ON THE
OPERATION OF THE PUBLIC REFERENCE ROOM. THIS INFORMATION IS ALSO AVAILABLE ON
THE SEC'S INTERNET SITE AT HTTP://WWW.SEC.GOV AND COPIES MAY BE OBTAINED UPON
PAYMENT OF A DUPLICATING FEE BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC,
WASHINGTON, D.C. 20549-6009.

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

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

                                        2
<PAGE>   4

                                OFFERING SUMMARY

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


THE OFFERING    The Fund is offering a total of      Series A AMPS and
                Series B AMPS, each at a purchase price of $25,000 per share
                plus accumulated dividends, if any, from the date the shares are
                first issued. The AMPS are being offered by Merrill Lynch,
                Pierce, Fenner & Smith Incorporated, as underwriter.


                The AMPS of each series will be preferred shares of the Fund
                that entitle their holders to receive cash dividends at an
                annual rate that may vary for the successive dividend periods
                for each series. In general, except as described below, each
                dividend period for each series of AMPS following the initial
                dividend period will be seven days. The applicable dividend for
                a particular dividend period will be determined by an auction
                conducted on the business day next preceding the start of that
                dividend period.

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

                Generally, AMPS investors will not receive certificates
                representing ownership of their shares. Ownership of AMPS will
                be maintained in book-entry form by the securities depository
                (The Depository Trust Company) or its nominee for the account of
                the investor's agent member (generally the investor's
                broker-dealer). The investor's agent member, in turn, will
                maintain records of such investor's beneficial ownership of
                AMPS.


DIVIDENDS AND
DIVIDEND
PERIODS         Dividends on the Series A AMPS and Series B AMPS will be
                cumulative from the date the shares are first issued and payable
                beginning on           , 1999 in the case of Series A AMPS and
                          , 1999 in the case of Series B AMPS. Thereafter, in
                the case of dividend periods that are not special dividend
                periods, dividends generally will be payable on each succeeding
                      in the case of Series A AMPS and each succeeding
                in the case of Series B AMPS. After the initial dividend period,
                each dividend period for each series of AMPS will generally
                consist of seven days; provided, however, that before any
                auction, the Fund may decide, subject to certain limitations and
                only if it gives notice to holders, to declare a special
                dividend period of up to five years.


                Dividends for each series of AMPS will be paid through the
                securities depository (The Depository Trust Company) on each
                dividend payment date for each series.


                The cash dividend rate on the Series A AMPS for the initial
                dividend period ending           , 1999 will be      %
                annualized and the cash dividend rate on the Series B AMPS for
                the initial dividend period ending           , 1999 will be
                     % annualized. For each subsequent dividend period, the
                auction agent (IBJ Whitehall Bank & Trust Company) will hold an
                auction to determine the cash dividend rate on the shares of
                each series of AMPS.


                                        3
<PAGE>   5

DETERMINATION
OF MAXIMUM
DIVIDEND RATES  Generally, the applicable dividend rate for any dividend period
                for AMPS of each series will be subject to a maximum applicable
                rate. The maximum applicable rate for AMPS will depend on the
                credit rating assigned to the shares and on the length of the
                dividend period. There is no minimum applicable dividend rate
                for any dividend period.

ASSET
MAINTENANCE     Under the Fund's Certificate of Designation creating the AMPS,
                the Fund must maintain

                - asset coverage of the AMPS as required by the rating agencies
                  rating the AMPS, and

                - asset coverage of the AMPS of at least 200% as required by the
                  Investment Company Act of 1940.


                The Fund estimates that, based on the composition of its
                portfolio at            , 1999, asset coverage of the AMPS as
                required by the Investment Company Act of 1940 would be
                approximately    % immediately after the Fund issues the AMPS
                offered by this prospectus representing approximately   % of the
                Fund's capital.


MANDATORY
REDEMPTION      If the required asset coverage is not maintained or, when
                necessary, restored, the Fund must redeem AMPS at the price of
                $25,000 per share plus accumulated but unpaid dividends thereon
                (whether or not earned or declared). The provisions of the
                Investment Company Act of 1940 may restrict the Fund's ability
                to make such a mandatory redemption.

OPTIONAL
REDEMPTION      The Fund may, at its option, choose to redeem all or a portion
                of the AMPS of each series on any dividend payment date at the
                price of $25,000 per share, plus accumulated but unpaid
                dividends thereon (whether or not earned or declared) plus any
                applicable premium.

LIQUIDATION
PREFERENCE      The liquidation preference (that is, the amount the Fund must
                pay to AMPS shareholders if the Fund is liquidated) of each
                share of AMPS will be $25,000, plus an amount equal to
                accumulated but unpaid dividends (whether or not earned or
                declared).

RATINGS         The AMPS will be issued with a rating of "aaa" from Moody's
                Investors Service, Inc. and AAA from Standard & Poor's.

VOTING RIGHTS   The Investment Company Act of 1940 requires that the holders of
                AMPS and any other preferred shares, voting as a separate class,
                have the right to elect at least two trustees at all times and
                to elect a majority of the trustees at any time when dividends
                on the AMPS or any other preferred shares are unpaid for two
                full years. The Fund's Declaration of Trust and the Investment
                Company Act of 1940 require holders of AMPS and any other
                preferred shares to vote as a separate class on certain other
                matters.

                                        4
<PAGE>   6

                    RISK FACTORS AND SPECIAL CONSIDERATIONS

     Florida Municipal Bonds.  The Fund intends to invest the majority of its
portfolio in Florida municipal bonds. As a result, the Fund is more exposed to
risks affecting issuers of Florida municipal bonds than is a municipal bond fund
that invests more widely.

     Interest Rate and Credit Risk.  The Fund invests in municipal bonds, which
are subject to interest rate and credit risk. Interest rate risk is the risk
that prices of municipal bonds generally increase when interest rates decline
and decrease when interest rates increase. Prices of longer term securities
generally change more in response to interest rate changes than prices of
shorter term securities. Credit risk is the risk that the issuer will be unable
to pay the interest or principal when due. The degree of credit risk depends on
both the financial condition of the issuer and the terms of the obligation.

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

     Rating Categories.  The Fund intends to invest in municipal bonds that are
rated investment grade by Standard & Poor's, Moody's Investors Service, Inc. or
Fitch IBCA, Inc. It may also invest in unrated municipal bonds that the Fund's
investment adviser believes are of comparable quality. Obligations rated in the
lowest investment grade category have certain speculative characteristics.


     Private Activity Bonds.  The Fund may invest in certain tax-exempt
securities classified as "private activity bonds." These bonds may subject
certain investors in the Fund to the Federal alternative minimum tax.


     Portfolio Insurance.  The Fund will be subject to certain restrictions on
investments imposed by guidelines of the insurance companies issuing the
portfolio insurance. The Fund does not expect these guidelines to prevent the
Fund's investment adviser from managing the Fund's portfolio in accordance with
the Fund's investment objective and policies.

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

                                        5
<PAGE>   7


     Options and Futures Transactions.  The Fund may seek to hedge its portfolio
against changes in interest rates using options and financial futures contracts.
The Fund's hedging transactions are designed to reduce volatility, but come at
some cost. For example, the Fund may try to limit its risk of loss from a
decline in the price of a portfolio security by purchasing a put option.
However, the Fund must pay for the option, and the price of the security may not
in fact drop. In large part, the success of the Fund's hedging activities
depends on its ability to forecast movements in securities prices and interest
rates. The Fund does not, however, intend to enter into options and futures
transactions for speculative purposes. The Fund is not required to hedge its
portfolio and may choose not to do so. The Fund cannot guarantee that any
hedging strategies it uses will work.


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

     Investment Considerations.  Investors in AMPS should consider the following
factors:

          - The credit ratings of the AMPS could be reduced while an investor
            holds the AMPS.

          - Neither broker-dealers nor the Fund are obligated to purchase AMPS
            in an auction or otherwise nor is the Fund required to redeem shares
            of AMPS in the event of a failed auction.

          - If sufficient bids do not exist in an auction, the applicable
            dividend rate will be the maximum applicable dividend rate, and in
            such event, owners of AMPS wishing to sell will not be able to sell
            all, and may not be able to sell any, AMPS in the auction. As a
            result, investors may not have liquidity of investment.

     Secondary Market.  The broker-dealers intend to maintain a secondary
trading market in the AMPS outside of auctions; however, they have no obligation
to do so and there can be no assurance that a secondary market for the AMPS will
develop or, if it does develop, that it will provide holders with a liquid
trading market. The AMPS will not be registered on any stock exchange or on any
automated quotation system. An increase in the level of interest rates likely
will have an adverse effect on the secondary market price of the AMPS, and a
selling shareholder may have to sell AMPS between auctions at a price per share
of less than $25,000.

                                        6
<PAGE>   8

                                    THE FUND


     MuniHoldings Florida Insured Fund V (the "Fund") is a recently organized,
non-diversified, closed-end management investment company. The Fund was
organized under the laws of the Commonwealth of Massachusetts on May 10, 1999,
and has registered under the 1940 Act. The Fund's principal office is located at
800 Scudders Mill Road, Plainsboro, New Jersey 08536, and its telephone number
is (609) 282-2800.



     The Fund commenced operations on         , 1999 upon the closing of an
initial public offering of           of its common shares. The proceeds of such
offering were approximately $            after the payment of offering expenses.
In connection with the initial public offering of the Fund's common shares, the
underwriter was granted an option to purchase up to an additional
shares to cover over-allotments.


                                USE OF PROCEEDS


     The estimated net proceeds of this offering will be $           after the
payment of offering expenses (estimated to be $        ) and the sales load.


     The net proceeds of the offering will be invested in accordance with the
Fund's investment objective and policies during a period estimated not to exceed
three months from the offer and sale of such shares of AMPS depending on market
conditions and the availability of appropriate securities. Pending such
investment, it is anticipated that the proceeds will be invested in short-term
tax-exempt securities. See "Investment Objective and Policies."

                                 CAPITALIZATION


     The following table sets forth the unaudited capitalization of the Fund as
of            , 1999 and as adjusted to give effect to the issuance of the AMPS
offered hereby.



<TABLE>
<CAPTION>
                                                                ACTUAL         AS ADJUSTED
                                                             ------------      ------------
<S>                                                          <C>               <C>
Shareholders' equity:
     Shares of Beneficial Interest (unlimited shares
       authorized)
     Preferred Shares, par value $.10 per share (no shares
       issued;      AMPS issued and outstanding, as
       adjusted, at $25,000 per share liquidation
       preference).........................................            --      $
     Common Shares, par value $.10 per share (
       shares issued and outstanding)......................  $
     Capital in excess of par value attributable to Common
       Shares..............................................
     Undistributed investment income-net...................
     Unrealized appreciation on investments-net............
                                                             ------------      ------------
     Net assets............................................  $                 $
                                                             ============      ============
</TABLE>


                             PORTFOLIO COMPOSITION

     As of            , 1999, approximately     % of the market value of the
Fund's portfolio was invested in long-term municipal obligations and
approximately     % of the market value of the

                                        7
<PAGE>   9


Fund's portfolio was invested in short-term municipal obligations. The following
table sets forth certain information with respect to the composition of the
Fund's investment portfolio as of            , 1999.



<TABLE>
<CAPTION>
                                          NUMBER OF       VALUE
             S&P*               MOODY'S*   ISSUES     (IN THOUSANDS)   PERCENT
             ----               --------  ---------   --------------   -------
<S>                             <C>       <C>         <C>              <C>
 ..............................                           $                   %
 ..............................
 ..............................
                                             --          --------       -----
          Total...............                           $                   %
                                             ==          ========       =====
</TABLE>


- ---------------
* Ratings: Using the higher of Standard & Poor's ("S&P") or Moody's Investors
  Service, Inc. ("Moody's") ratings on the Fund's municipal obligations. See
  "Schedule of Investments." S&P rating categories may be modified further by a
  plus (+) or minus (-) in AA, A, BBB, BB, B and C ratings. Moody's rating
  categories may be modified further by a 1, 2 or 3 in Aa, A, Baa, Ba and B
  ratings.

                       INVESTMENT OBJECTIVE AND POLICIES

     The Fund's investment objective is to provide shareholders with current
income exempt from Federal and income tax and the opportunity to own shares
whose value is exempt from Florida intangible personal property tax. The Fund
seeks to achieve its investment objective by investing primarily in a portfolio
of long-term, investment grade municipal obligations issued by or on behalf of
the State of Florida, its political subdivisions, agencies and
instrumentalities, and other qualifying issuers, each of which pays interest
which, in the opinion of bond counsel to the issuer, is exempt from Federal
income tax and which enable shares of the Fund to be exempt from Florida
intangible personal property tax ("Florida Municipal Bonds"). The Fund intends
to invest substantially all (at least 80%) of its assets in Florida Municipal
Bonds, except at times when the Fund's investment adviser, Fund Asset
Management, L.P. (the "Investment Adviser"), considers that Florida Municipal
Bonds of sufficient quality and quantity are unavailable for investment at
suitable prices by the Fund. To the extent the Investment Adviser considers that
suitable Florida Municipal Bonds are not available for investment, the Fund may
purchase other long-term municipal obligations that are exempt from Federal
income taxes but whose value is not exempt from Florida intangible personal
property taxes ("Municipal Bonds"). The Fund will maintain at least 65% of its
assets in Florida Municipal Bonds and at least 80% of its assets in Florida
Municipal Bonds and Municipal Bonds, except during interim periods pending
investment of the net proceeds of public offerings of the Fund's securities and
during temporary defensive periods. Under normal circumstances, at least 80% of
the Fund's assets will be invested in municipal obligations with remaining
maturities of one year or more that are covered by insurance guaranteeing the
timely payment of principal at maturity and interest. The Fund's investment
objective is a fundamental policy that may not be changed without a vote of a
majority of the Fund's outstanding voting securities, as defined in the
statement of additional information under "Investment Restrictions." There can
be no assurance that the investment objective of the Fund will be realized. At
times the Fund may seek to hedge its portfolio through the use of options and
futures transactions to reduce volatility in the net asset value of its shares
of common shares.
                                        8
<PAGE>   10


     The Fund ordinarily does not intend to realize significant interest income
that is subject to Federal income tax or have significant assets subject to
Florida intangible personal property tax. The Fund may invest all or a portion
of its assets in certain tax-exempt securities classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities) that may
subject certain investors in the Fund to a Federal alternative minimum tax.


     The Fund also may invest in securities not issued by or on behalf of a
state or territory or by an agency or instrumentality thereof, if the Fund
nevertheless believes such securities pay interest or distributions that are
exempt from Federal income taxation ("Non-Municipal Tax-Exempt Securities").
Non-Municipal Tax-Exempt Securities may include securities issued by other
investment companies that invest in Florida Municipal Bonds and Municipal Bonds,
to the extent such investments are permitted by the Investment Company Act of
1940, as amended (the "1940 Act"). Other Non-Municipal Tax-Exempt Securities
could include trust certificates or other instruments evidencing interests in
one or more long-term Florida Municipal Bonds or Municipal Bonds. Certain
Non-Municipal Tax-Exempt Securities may be characterized as derivative
instruments. Non-Municipal Tax-Exempt Securities are considered "Florida
Municipal Bonds" or "Municipal Bonds" for purposes of the Fund's investment
objective and policies.

     The investment grade Florida Municipal Bonds and Municipal Bonds in which
the Fund will primarily invest are those Florida Municipal Bonds and Municipal
Bonds that are rated at the date of purchase in the four highest rating
categories of S&P, Moody's or Fitch IBCA, Inc. ("Fitch") or, if unrated, are
considered to be of comparable quality by the Investment Adviser. In the case of
long-term debt, the investment grade rating categories are AAA through BBB for
S&P, Aaa through Baa for Moody's and AAA through BBB for Fitch. In the case of
short-term notes, the investment grade rating categories are SP-l+ through SP-3
for S&P, MIG-1 through MIG-3 for Moody's and F-1+ through F-3 for Fitch. In the
case of tax-exempt commercial paper, the investment grade rating categories are
A-1+ through A-3 for S&P, Prime-1 through Prime-3 for Moody's and F-l+ through
F-3 for Fitch. Obligations ranked in the lowest investment grade rating category
(BBB, SP-3 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moody's; and BBB and F-3
for Fitch), while considered "investment grade," may have certain speculative
characteristics. There may be sub-categories or gradations indicating relative
standing within the rating categories set forth above. Appendix B to the
statement of additional information contains a description of S&P's, Moody's and
Fitch's ratings of Florida Municipal Bonds and Municipal Bonds. In assessing the
quality of Florida Municipal Bonds and Municipal Bonds with respect to the
foregoing requirements, the Investment Adviser will take into account the
portfolio insurance as well as the nature of any letters of credit or similar
credit enhancement to which particular Municipal Bonds are entitled and the
creditworthiness of the insurance company or financial institution that provided
such insurance or credit enhancement. Consequently, if Florida Municipal Bonds
or Municipal Bonds are covered by insurance policies issued by insurers whose
claims-paying ability is rated AAA by S&P or Fitch or Aaa by Moody's, the
Investment Adviser may consider such municipal obligations to be equivalent to
AAA- or Aaa- rated securities, as the case may be, even though such Florida
Municipal Bonds or Municipal Bonds would generally be assigned a lower rating if
the rating were based primarily upon the credit characteristics of the issuers
without regard to the insurance feature. The insured Florida Municipal Bonds and
Municipal Bonds must also comply with the standards applied by the insurance
carriers in determining eligibility for portfolio insurance.

                                        9
<PAGE>   11


     The Fund's investments may also include variable rate demand obligations
("VRDOs") and VRDOs in the form of participation interests ("Participating
VRDOs") in variable rate tax-exempt obligations held by a financial institution,
typically a commercial bank. The VRDOs in which the Fund may invest are
tax-exempt obligations, in the opinion of counsel to the issuer, that contain a
floating or variable interest rate adjustment formula and a right of demand on
the part of the holder thereof to receive payment of the unpaid principal
balance plus accrued interest on a short notice period not to exceed seven days.
Participating VRDOs provide the Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDOs from the
financial institution on a specified number of days' notice, not to exceed seven
days. There is, however, the possibility that because of default or insolvency,
the demand feature of VRDOs or Participating VRDOs may not be honored. The Fund
has been advised by its counsel that the Fund should be entitled to treat the
income received on Participating VRDOs as interest from tax-exempt obligations
for Federal income tax purposes.



     The average maturity of the Fund's portfolio securities will vary based
upon the Investment Adviser's assessment of economic and market conditions. The
net asset value of the common shares of a closed-end investment company, such as
the Fund, which invests primarily in fixed-income securities, changes as the
general levels of interest rates fluctuate. When interest rates decline, the
value of a fixed-income portfolio generally can be expected to rise. Conversely,
when interest rates rise, the value of a fixed-income portfolio generally can be
expected to decline. Prices of longer-term securities generally fluctuate more
in response to interest rate changes than do short-term or medium-term
securities. These changes in net asset value are likely to be greater in the
case of a fund having a leveraged capital structure, such as that used by the
Fund.



     The Fund intends to invest primarily in long-term Florida Municipal Bonds
and Municipal Bonds with a maturity of more than ten years. Also, the Fund may
invest in intermediate-term Florida Municipal Bonds and Municipal Bonds with a
maturity of between three years and ten years. The Fund may invest in
short-term, tax-exempt securities, short-term U.S. Government securities,
repurchase agreements or cash. Such short-term securities or cash will not
exceed 20% of its total assets except during interim periods pending investment
of the net proceeds of public offerings of the Fund's securities or in
anticipation of the repurchase or redemption of the Fund's securities and
temporary periods when, in the opinion of the Investment Adviser, prevailing
market or economic conditions warrant. The Fund does not ordinarily intend to
realize significant interest income that is subject to Federal income tax or to
hold assets which would subject the Fund to Florida intangible personal property
taxes. For a more complete description of Florida Municipal Bonds and Municipal
Bonds, see "Investment Objective and Policies" in the statement of additional
information.


     The Fund is classified as non-diversified within the meaning of the 1940
Act, which means that the Fund is not limited by the 1940 Act in the proportion
of its assets that it may invest in securities of a single issuer. However, the
Fund's investments will be limited so as to qualify the Fund for special tax
treatment afforded regulated investment companies under the Federal tax laws.
See "Taxes" herein and in the statement of additional information. To qualify,
among other requirements, the Fund will limit its investments so that, at the
close of each quarter of the taxable year, (i) not more than 25% of the market
value of the Fund's total assets will be invested in the securities (other than
U.S. Government securities) of a single issuer, and (ii) with respect to 50% of
the market value
                                       10
<PAGE>   12

of its total assets, not more than 5% of the market value of its total assets
will be invested in the securities (other than U.S. Government securities) of a
single issuer. A fund that elects to be classified as "diversified" under the
1940 Act must satisfy the foregoing 5% requirement with respect to 75% of its
total assets. To the extent that the Fund assumes large positions in the
securities of a small number of issuers, the Fund's yield may fluctuate to a
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers.

PORTFOLIO INSURANCE

     Under normal circumstances, at least 80% of the Fund's assets will be
invested in Florida Municipal Bonds and Municipal Bonds either (i) insured under
an insurance policy purchased by the Fund or (ii) insured under an insurance
policy obtained by the issuer thereof or any other party. The Fund will seek to
limit its investments to municipal obligations insured under insurance policies
issued by insurance carriers that have total admitted assets (unaudited) of at
least $75,000,000 and capital and surplus (unaudited) of at least $50,000,000
and insurance claims-paying ability ratings of AAA from S&P or Fitch or Aaa from
Moody's. There can be no assurance that insurance from insurance carriers
meeting these criteria will be available. See Appendix C to the statement of
additional information for a brief description of S&P's, Fitch's and Moody's
insurance claims-paying ability ratings. Currently, it is anticipated that a
majority of the insured Florida Municipal Bonds and Municipal Bonds in the
Fund's portfolio will be insured by the following insurance companies that
satisfy the foregoing criteria: AMBAC Indemnity Corporation, Financial Guaranty
Insurance Company, Financial Security Assurance and Municipal Bond Investors
Assurance Corporation. The Fund also may purchase Florida Municipal Bonds and
Municipal Bonds covered by insurance issued by any other insurance company that
satisfies the foregoing criteria. It is anticipated that initially a majority of
insured Florida Municipal Bonds and Municipal Bonds held by the Fund will be
insured under policies obtained by parties other than the Fund.

     The Fund may purchase, but has no obligation to purchase, separate
insurance policies (the "Policies") from insurance companies meeting the
criteria set forth above that guarantee the payment of principal and interest on
specified eligible Florida Municipal Bonds and Municipal Bonds purchased by the
Fund. A Florida Municipal Bond or a Municipal Bond will be eligible for coverage
if it meets certain requirements of the insurance company set forth in a Policy.
In the event interest or principal on an insured Florida Municipal Bond or
Municipal Bond is not paid when due, the insurer will be obligated under its
Policy to make such payment not later than 30 days after it has been notified
by, and provided with documentation from, the Fund that such nonpayment has
occurred.

     The Policies will be effective only as to insured Florida Municipal Bonds
and Municipal Bonds beneficially owned by the Fund. In the event of a sale of
any Florida Municipal Bonds and Municipal Bonds held by the Fund, the issuer of
the relevant Policy will be liable only for those payments of interest and
principal that are then due and owing. The Policies will not guarantee the
market value of the insured Florida Municipal Bonds and Municipal Bonds or the
value of the shares of the Fund.

     The insurer will not have the right to withdraw coverage on securities
insured by their Policies and held by the Fund so long as such securities remain
in the Fund's portfolio. In addition, the insurer may not cancel its Policies
for any reason except failure to pay premiums when due. The
                                       11
<PAGE>   13

Board of Trustees of the Fund will reserve the right to terminate any of the
Policies if it determines that the benefits to the Fund of having its portfolio
insured under such policy are not justified by the expense involved.

     The premiums for the Policies are paid by the Fund and the yield on the
Fund's portfolio is reduced thereby. The Investment Adviser estimates that the
cost of the annual premiums for the Policies currently ranges from approximately
 .02 of 1% to .15 of 1% of the principal amount of the Florida Municipal Bonds
and Municipal Bonds covered by such Policies. The estimate is based on the
expected composition of the Fund's portfolio of Florida Municipal Bonds and
Municipal Bonds. In instances in which the Fund purchases Florida Municipal
Bonds and Municipal Bonds insured under policies obtained by parties other than
the Fund, the Fund does not pay the premiums for such policies; rather, the cost
of such policies may be reflected in the purchase price of the Florida Municipal
Bonds and Municipal Bonds.

     It is the intention of the Investment Adviser to retain any insured
securities that are in default or in significant risk of default and to place a
value on the insurance, which ordinarily will be the difference between the
market value of the defaulted security and the market value of similar
securities which are not in default. In certain circumstances, however, the
Investment Adviser may determine that an alternative value for the insurance,
such as the difference between the market value of the defaulted security and
its par value, is more appropriate. The Investment Adviser will be unable to
manage the portfolio to the extent it holds defaulted securities, which may
limit its ability in certain circumstances to purchase other Florida Municipal
Bonds and Municipal Bonds. See "Net Asset Value" in the statement of additional
information for a more complete description of the Fund's method of valuing
defaulted securities and securities that have a significant risk of default.

     There can be no assurance that insurance with the terms and issued by
insurance carriers meeting the criteria described above will continue to be
available to the Fund. In the event the Board of Trustees determines that such
insurance is unavailable or that the cost of such insurance outweighs the
benefits to the Fund, the Fund may modify the criteria for insurance carriers or
the terms of the insurance, or may discontinue its policy of maintaining
insurance for all or any of the Florida Municipal Bonds and Municipal Bonds held
in the Fund's portfolio. Although the Investment Adviser periodically reviews
the financial condition of each insurer, there can be no assurance that the
insurers will be able to honor their obligations under the circumstances.


     The portfolio insurance reduces financial or credit risk (i.e., the
possibility that the owners of the insured Florida Municipal Bonds or Municipal
Bonds will not receive timely scheduled payments of principal or interest).
However, the insured Florida Municipal Bonds or Municipal Bonds are subject to
market risk (i.e., fluctuations in market value as a result of changes in
prevailing interest rates or other market conditions).


SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL BONDS

     The Fund ordinarily will invest at least 80% of its total assets in Florida
Municipal Bonds, and therefore it is more susceptible to factors adversely
affecting issuers of Florida Municipal Bonds than is a municipal bond mutual
fund that is not concentrated in issuers of Florida Municipal Bonds to this
degree. Many different social, environmental and economic factors may affect the
financial condition of Florida and its political subdivisions. From time to time
Florida and its political

                                       12
<PAGE>   14

subdivisions have encountered financial difficulties. Florida is highly
dependent upon sales and uses taxes, which account for the majority of its
General Fund revenues. The Florida Constitution does not permit a state or local
personal income tax. The structure of personal income in Florida is also
different from the rest of the nation in that the State has a proportionally
greater retirement age population that is dependent upon transfer payments
(social security, pension benefits, etc.). Such transfer payments can be
affected by Federal legislation. Florida's economic growth is also highly
dependent upon other factors such as changes in population growth, tourism,
interest rates and hurricane activity. In combination, two amendments to the
Florida Constitution may limit the State's ability to raise revenues and may
have an adverse effect on the finances of Florida and its political
subdivisions. The Investment Adviser does not believe that the current economic
conditions in Florida will have a significant adverse effect on the Fund's
ability to invest in investment grade Florida Municipal Bonds. As of December 2,
1998, the State had a high bond rating from Moody's Investors Service, Inc.
(Aa2), Standard & Poor's (AA+) and Fitch IBCA, Inc. (AA) on all of its general
obligation bonds. For a discussion of economic and other conditions in the State
of Florida, see Appendix A, "Economic and Other Conditions in Florida" to the
statement of additional information.

OTHER INVESTMENT POLICIES

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

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

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

     Indexed and Inverse Floating Obligations.  The Fund may invest in Florida
Municipal Bonds and Municipal Bonds yielding a return based on a particular
index of value or interest rates. For example, the Fund may invest in Florida
Municipal Bonds and Municipal Bonds that pay interest based on an index of
Municipal Bond interest rates. The principal amount payable upon maturity of
certain Florida Municipal Bonds and Municipal Bonds also may be based on the
value of an index.
                                       13
<PAGE>   15

To the extent the Fund invests in these types of Municipal Bonds, the Fund's
return on such Florida Municipal Bonds and Municipal Bonds will be subject to
risk with respect to the value of the particular index. Also, the Fund may
invest in so-called "inverse floating obligations" or "residual interest bonds"
on which the interest rates typically vary inversely with a short-term floating
rate (which may be reset periodically by a dutch auction, a remarketing agent,
or by reference to a short-term tax-exempt interest rate index). The Fund may
purchase in the secondary market synthetically-created inverse floating rate
bonds evidenced by custodial or trust receipts. Generally, income on inverse
floating rate bonds will decrease when short-term interest rates increase, and
will increase when short-term interest rates decrease. Such securities have the
effect of providing a degree of investment leverage, since they may increase or
decrease in value in response to changes, as an illustration, in market interest
rates at a rate that is a multiple (typically two) of the rate at which
fixed-rate, long-term, tax-exempt securities increase or decrease in response to
such changes. As a result, the market values of such securities generally will
be more volatile than the market values of fixed-rate tax-exempt securities. To
seek to limit the volatility of these securities, the Fund may purchase inverse
floating obligations with shorter-term maturities or limitations on the extent
to which the interest rate may vary. The Investment Adviser believes that
indexed and inverse floating obligations represent a flexible portfolio
management instrument for the Fund that allows the Investment Adviser to vary
the degree of investment leverage relatively efficiently under different market
conditions.

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

     Repurchase Agreements.  The Fund may invest in Florida Municipal Bonds,
Municipal Bonds and U.S. Government securities pursuant to repurchase
agreements. Repurchase agreements may be entered into only with a member bank of
the Federal Reserve System or a primary dealer in U.S. Government securities or
an affiliate thereof. Under such agreements, the seller agrees, upon entering
into the contract, to repurchase the security at a mutually agreed-upon time and
price, thereby determining the yield during the term of the agreement. The Fund
may not invest in repurchase agreements maturing in more than seven days if such
investments, together with all other illiquid investments, would exceed 15% of
the Fund's net assets. In the event of default by the seller under a repurchase
agreement, the Fund may suffer time delays and incur costs or possible losses in
connection with the disposition of the underlying securities.

     In general, for Federal income tax purposes, repurchase agreements are
treated as collateralized loans secured by the securities "sold." Therefore,
amounts earned under such agreements will not be considered tax-exempt
securities.

                                       14
<PAGE>   16

OPTIONS AND FUTURES TRANSACTIONS

     The Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates through the use of options and certain financial
futures contracts and options thereon. While the Fund's use of hedging
strategies is intended to reduce the volatility of the net asset value of the
common shares, the net asset value of the common shares will fluctuate. There
can be no assurance that the Fund's hedging transactions will be effective. For
so long as the AMPS are rated by Moody's and S&P, the Fund's use of options and
financial futures contracts will be subject to the limitations described under
"Rating Agency Guidelines" herein and in the statement of additional
information. Furthermore, the Fund may only engage in hedging activities from
time to time and may not necessarily be engaging in hedging activities when
movements in interest rates occur. The Fund has no obligation to enter into
hedging transactions and may not do so.

     Certain Federal income tax requirements may limit the Fund's ability to
engage in hedging transactions. Gains from transactions in options and futures
contracts distributed to shareholders will be taxable as ordinary income or, in
certain circumstances, as long-term capital gains to shareholders. See
"Taxes -- Tax Treatment of Options and Futures Transactions" in the statement of
additional information. In addition, in order to obtain ratings of the preferred
shares from one or more nationally recognized statistical rating organizations
("NRSROs"), the Fund may be required to limit its use of hedging techniques in
accordance with the specified guidelines of such rating organizations.

     For a description of the options and futures transactions in which the Fund
may engage, limitations on the Fund's use of such transactions and risks
associated with these transactions, see "Investment Objective and
Policies -- Options and Futures Transactions" in the statement of additional
information. The investment policies with respect to the hedging transactions of
the Fund are not fundamental policies and may be modified by the Board of
Trustees of the Fund without the approval of the Fund's shareholders.

                              DESCRIPTION OF AMPS

GENERAL

     Certain of the capitalized terms used herein are defined in the Glossary
that appears at the back of this prospectus.

     The AMPS of each series will be preferred shares that entitle their holders
to receive dividends when, as and if declared by the Board of Trustees, out of
funds legally available therefor, at a rate per annum that may vary for the
successive Dividend Periods for each such series. After the Initial Dividend
Period, each Subsequent Dividend Period for each series of AMPS generally will
be a 7-Day Dividend Period; provided, however, that prior to any Auction, the
Fund may elect, subject to certain limitations described herein, upon giving
notice to holders thereof, a Special Dividend Period. The Applicable Rate for a
particular Dividend Period 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 therefor,
although, except in the case of a Special Dividend Period, Beneficial Owners
desiring to continue to hold all of their AMPS regardless of the Applicable Rate
resulting from Auctions need not participate. For an explanation of Auctions

                                       15
<PAGE>   17

and the method of determining the Applicable Rate, see "The Auction" herein and
in the statement of additional information.

     The following is a brief description of the terms of the AMPS. This
description does not purport to be complete and is subject to and qualified in
its entirety by reference to the Fund's Declaration of Trust and Certificate of
Designation, including the provisions thereof establishing the AMPS. The Fund's
Declaration of Trust and the form of Certificate of Designation establishing the
terms of the AMPS have been filed as exhibits to the Registration Statement of
which this prospectus is a part.

DIVIDENDS

     General.  The holders of shares of each series of AMPS will be entitled to
receive, when, as and if declared by the Board of Trustees of the Fund, out of
funds legally available therefor, cumulative cash dividends on their shares, at
the Applicable Rate determined as set forth below under "Determination of
Dividend Rate," payable on the respective dates set forth below. Dividends on
the AMPS so declared and payable shall be paid (i) in preference to and in
priority over any dividends so declared and payable on the Common Shares, and
(ii) to the extent permitted under the Code and to the extent available, out of
net tax-exempt income earned on the Fund's investments. Generally, dividends on
AMPS, to the extent that they are derived from interest paid on Municipal Bonds,
will be exempt from Federal income taxes, subject to possible application of the
alternative minimum tax. See "Taxes" in the statement of additional information.


     Dividends on the AMPS will accumulate from the date on which the Fund
originally issues the shares of AMPS (the "Date of Original Issue") and will be
payable on each series of AMPS on the dates described below. Dividends on shares
of each series of AMPS with respect to the Initial Dividend Period shall be
payable on the Initial Dividend Payment Date with respect to each series of
AMPS. Following the Initial Dividend Payment Date for each series of AMPS,
dividends on each series of AMPS will be payable, at the option of the Fund,
either (i) with respect to any 7-Day Dividend Period and any Short Term Dividend
Period of 35 or fewer days, on the day next succeeding the last day thereof or
(ii) 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 day next succeeding the last day thereof (each such
date referred to in clause (i) or (ii) being referred to herein as a "Normal
Dividend Payment Date"), except that if such Normal Dividend Payment Date is not
a Business Day, the Dividend Payment Date shall be the first Business Day next
succeeding such Normal Dividend Payment Date. Thus, following the Initial
Dividend Payment Date for each series of AMPS, dividends generally will be
payable (in the case of Dividend Periods which are not Special Dividend Periods)
on each succeeding       in the case of Series A AMPS and on each succeeding
        in the case of Series B AMPS. Although any particular Dividend Payment
Date may not occur on the originally scheduled date because of the exceptions
discussed above, the next succeeding Dividend Payment Date, subject to such
exceptions, will occur on the next following originally scheduled date. If for
any reason a Dividend Payment Date cannot be fixed as described above, then the
Board of Trustees shall fix the Dividend Payment Date. The Board of Trustees by
resolution prior to authorization of a dividend by the Board of Trustees may
change a Dividend Payment Date if such change does not adversely affect the
contract rights of the holders of AMPS set forth in the Declaration of Trust.
The Initial Dividend Period,


                                       16
<PAGE>   18

7-Day Dividend Periods and Special Dividend Periods are hereinafter sometimes
referred to as "Dividend Periods." Each dividend payment date determined as
provided above is hereinafter referred to as a "Dividend Payment Date."

     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
Fund does not intend to establish any reserves for the payment of dividends.

     Each dividend will be paid to the record holder of the AMPS, which holder
is expected to be the nominee of the Securities Depository. See "The
Auction -- Securities Depository." The Securities Depository will credit the
accounts of the Agent Members of the Existing Holders in accordance with the
Securities Depository's normal procedures which provide for payment in same-day
funds. The Agent Member of an Existing Holder will be responsible for holding or
disbursing such payments on the applicable Dividend Payment Date to such
Existing Holder in accordance with the instructions of such Existing Holder.
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 nominee
of the Securities Depository. Any dividend payment made on AMPS first shall be
credited against the earliest declared but unpaid dividends accumulated with
respect to such series.

     Holders of AMPS will not be entitled to any dividends, whether payable in
cash, property or stock, in excess of full cumulative dividends except as
described under "Additional Dividends" and "Non-Payment Period; Late Charge." No
interest will be payable in respect of any dividend payment or payments on the
shares of AMPS which may be in arrears.

     The amount of cash dividends per share of any series of AMPS payable (if
declared) on the Initial Dividend Payment Date, each 7-Day Dividend Period and
each Dividend Payment Date of each Short Term Dividend Period shall be computed
by multiplying the Applicable Rate for such Dividend Period by a fraction, the
numerator of which will be the number of days in such Dividend Period or part
thereof that such share was outstanding and for which dividends are payable on
such Dividend Payment Date and the denominator of which will be 365, multiplying
the amount so obtained by $25,000, and rounding the amount so obtained to the
nearest cent. During any Long Term Dividend Period, the amount of cash dividends
per share of AMPS payable (if declared) on any Dividend Payment Date shall be
computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be such number of days in such part of
such Dividend Period that such share was outstanding and for which dividends are
payable on such Dividend Payment Date and the denominator of which will be 360,
multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent.

     Notification of Dividend Period.  With respect to each Dividend Period that
is a Special Dividend Period, the Fund, at its sole option and to the extent
permitted by law, by telephonic and written notice (a "Request for Special
Dividend Period") to the Auction Agent and to each Broker-Dealer, may request
that the next succeeding Dividend Period for a series of AMPS will be a number
of days (other than seven), evenly divisible by seven, and not fewer than seven
nor 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 shall be null and void)
unless, for any Auction occurring after the initial Auction, Sufficient Clearing
Bids were

                                       17
<PAGE>   19

made in the last occurring Auction and unless full cumulative dividends, any
amounts due with respect to redemptions, and any Additional Dividends payable
prior to such date have been paid in full. Such Request for Special Dividend
Period, in the case of a Short Term Dividend Period, shall be given on or prior
to the second Business Day but not more than seven Business Days prior to an
Auction Date for the AMPS 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 28 days prior
to an Auction Date for the AMPS. Upon receiving such Request for Special
Dividend Period, the Broker-Dealers jointly shall determine whether, given the
factors set forth below, it is advisable that the Fund issue a Notice of Special
Dividend Period for a series of AMPS as contemplated by such Request for Special
Dividend Period and the Optional Redemption Price of the AMPS during such
Special Dividend Period and the Specific Redemption Provisions and shall give
the 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 the event the Response indicates that it is advisable that the Fund
give a notice of a Special Dividend Period for the AMPS, 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 and each Broker-Dealer. See "Description of AMPS --
Dividends -- Notification of Dividend Period" in the statement of additional
information for a detailed description of these procedures.

     Determination of Dividend Rate.  The dividend rate on shares of each series
of AMPS during the period from and including the Date of Original Issue for each
series of AMPS to but excluding the Initial Dividend Payment Date for each
series of AMPS (the "Initial Dividend Period") will be the rate per annum set
forth above under "Offering Summary." Commencing on the Initial Dividend Payment
Date for each series of AMPS, the Applicable Rate on the shares of such series
of AMPS for each Subsequent Dividend Period, which Subsequent Dividend Period
shall be a period commencing on and including a Dividend Payment Date and ending
on and including the calendar day prior to the next Dividend Payment Date (or
last Dividend Payment Date in a Dividend Period if there is more than one
Dividend Payment Date), shall be equal to the rate per annum that results from
the Auction with respect to such Subsequent Dividend Period. The Initial
Dividend Period and Subsequent Dividend Period for each series of AMPS is
referred to herein as a "Dividend Period." Cash dividends shall be calculated as
set forth above under "Dividends -- General."


     Restrictions on Dividends and Other Payments.  Under the 1940 Act, the Fund
may not declare dividends or make other distributions on Common Shares or
purchase any such shares if, at the time of the declaration, distribution or
purchase, as applicable (and after giving effect thereto), asset coverage (as
defined in the 1940 Act) with respect to the outstanding AMPS would be less than
200% (or such other percentage as in the future may be required by law). The
Fund estimates that, based on the composition of its portfolio at            ,
1999, asset coverage with respect to AMPS would be approximately    %
immediately after the issuance of the AMPS offered hereby. Under the Code, the
Fund, among other things, must distribute at least 90% of its investment company
taxable income each year in order to maintain its qualification for tax
treatment as a regulated investment company. The foregoing limitations on
dividends, distributions and purchases under certain circumstances may impair
the Fund's ability to maintain such qualification. See "Taxes" in the statement
of additional information.


                                       18
<PAGE>   20

     Upon any failure to pay dividends on AMPS for two years or more, the
holders of the AMPS will acquire certain additional voting rights. See "Voting
Rights" below. Such rights shall be the exclusive remedy of the holders of AMPS
upon any failure to pay dividends on shares of the Fund.

     Additional Dividends.  If the Fund retroactively allocates any net capital
gains or other income subject to regular Federal income taxes to shares of AMPS
without having given advance notice thereof to the Auction Agent as described
under "The Auction -- Auction Date; Advance Notice of Allocation of Taxable
Income; Inclusion of Taxable Income in Dividends" below, which may only happen
when such allocation is made as a result of the redemption of all or a portion
of the outstanding AMPS or the liquidation of the Fund (the amount of such
allocation referred to herein as a "Retroactive Taxable Allocation"), the Fund,
within 90 days (and generally within 60 days) after the end of the Fund's fiscal
year for which a Retroactive Taxable Allocation is made, will provide notice
thereof to the Auction Agent and to each holder of shares (initially Cede as
nominee of the Securities Depository) during such fiscal year at such holder's
address as the same appears or last appeared on the stock books of the Fund. The
Fund, within 30 days after such notice is given to the Auction Agent, will pay
to the Auction Agent (who then will distribute to such holders of AMPS), out of
funds legally available therefor, an amount equal to the aggregate Additional
Dividend (as defined below) with respect to all Retroactive Taxable Allocations
made to such holders during the fiscal year in question. See "Taxes" in the
statement of additional information.


     An "Additional Dividend" means payment to a present or former holder of
shares of AMPS of an amount which, when taken together with the aggregate amount
of Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question, would cause such holder's dividends in dollars (after
Federal income tax consequences) from the aggregate of both the Retroactive
Taxable Allocations and the Additional Dividend to be equal to the dollar amount
of the dividends which would have been received by such holder if the amount of
the aggregate Retroactive Taxable Allocations had been excludable from the gross
income of such holder. Such Additional Dividend shall be calculated (i) without
consideration being given to the time value of money; (ii) assuming that no
holder of AMPS is subject to the Federal alternative minimum tax with respect to
dividends received from the Fund; and (iii) assuming that each Retroactive
Taxable Allocation would be taxable in the hands of each holder of AMPS at the
greater of: (a) the maximum combined marginal regular Federal individual income
tax rate applicable to ordinary income or capital gains depending on the taxable
character of the distribution (including any surtax); or (b) the maximum
combined marginal regular Federal and Florida corporate income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (taking into account in both (a) and (b) the
Federal income tax deductibility of state taxes paid or incurred but not any
phase out of, or provision limiting, personal exemptions, itemized deductions,
or the benefit of lower tax brackets and assuming the taxability of Federally
tax-exempt dividends to corporations for Florida state franchise tax purposes).
Although the Fund generally intends to designate any Additional Dividend as an
exempt-interest dividend to the extent permitted by applicable law, it is
possible that all or a portion of any Additional Dividend will be taxable to the
recipient thereof. See "Taxes -- Tax Treatment of Additional Dividends" in the
statement of additional information. The Fund will not pay a further Additional
Dividend with respect to any taxable portion of an Additional Dividend.


                                       19
<PAGE>   21

     If the Fund does not give advance notice of the amount of taxable income to
be included in a dividend on AMPS in the related Auction, the Fund may include
such taxable income in a dividend on shares of AMPS if it increases the dividend
by an additional amount calculated as if such income were a Retroactive Taxable
Allocation and the additional amount were an Additional Dividend and notifies
the Auction Agent of such inclusion at least five days prior to the applicable
Dividend Payment Date. See "The Auction -- Auction Procedures -- Auction Date;
Advance Notice of Allocation of Taxable Income; Inclusion of Taxable Income in
Dividends" below.

ASSET MAINTENANCE

     The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Certificate of Designation. These
requirements are summarized below.

     1940 Act AMPS Asset Coverage.  The Fund will be required under the
Certificate of Designation to maintain, with respect to AMPS, as of the last
Business Day of each month in which any AMPS are outstanding, asset coverage of
at least 200% with respect to senior securities which are stock, including the
AMPS (or such other asset coverage as in the future may be specified in or under
the 1940 Act as the minimum asset coverage for senior securities which are stock
of a closed-end investment company as a condition of paying dividends on its
common stock) ("1940 Act AMPS Asset Coverage"). If the Fund fails to maintain
1940 Act AMPS Asset Coverage and such failure is not cured as of the last
Business Day of the following month (the "1940 Act Cure Date"), the Fund will be
required under certain circumstances to redeem certain of the AMPS. See
"Redemption" below.

     The 1940 Act AMPS Asset Coverage immediately following the issuance of AMPS
offered hereby (after giving effect to the deduction of the sales load and
offering expenses for the AMPS) will be computed as follows:


<TABLE>
<S>                              <C>        <C>            <C>        <C>
  Value of Fund assets less
 liabilities not constituting               ------------
      senior securities           =         $    $          =           %
- -----------------------------
      Senior securities
  representing indebtedness
plus liquidation value of the
              AMPS
</TABLE>


     AMPS Basic Maintenance Amount.  So long as AMPS are outstanding, the Fund
will be required under the Certificate of Designation to maintain as of each
Business Day (a "Valuation Date") S&P Eligible Assets and Moody's Eligible
Assets each having in the aggregate a Discounted Value at least equal to the
AMPS Basic Maintenance Amount. The AMPS Basic Maintenance Amount includes the
sum of (i) the aggregate liquidation value of AMPS then outstanding and (ii)
certain accrued and projected payment obligations of the Fund. See "Description
of AMPS -- Asset Maintenance -- AMPS Basic Maintenance Amount" in the statement
of additional information. If the Fund fails to meet such requirement as of any
Valuation Date and such failure is not cured on or before the sixth Business Day
after such Valuation Date (the "AMPS Basic Maintenance Cure Date"), the Fund
will be required under certain circumstances to redeem certain of the AMPS. Upon
any failure to maintain the required Discounted Value, the Fund will use its

                                       20
<PAGE>   22

best efforts to alter the composition of its portfolio to reattain a Discounted
Value at least equal to the AMPS Basic Maintenance Amount on or prior to the
AMPS Basic Maintenance Cure Date. See "Redemption" herein and in the statement
of additional information.

REDEMPTION

     Optional Redemption.  To the extent permitted under the 1940 Act and under
Maryland law, upon giving a Notice of Redemption, as provided in the statement
of additional information, the Fund, at its option, may redeem AMPS of any
series, in whole or in part, out of funds legally available therefor, at the
Optional Redemption Price per share on any Dividend Payment Date; provided that
no share of AMPS may be redeemed at the option of the Fund during (a) the
Initial Dividend Period with respect to a series of shares or (b) a Non-Call
Period to which such share is subject. "Optional Redemption Price" means $25,000
per share of AMPS plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) to the date fixed for redemption plus any
applicable redemption premium, if any, attributable to the designation of a
Premium Call Period. In addition, holders of AMPS may be entitled to receive
Additional Dividends in the event of redemption of such AMPS to the extent
provided herein. See "Dividends -- Additional Dividends" above. The Fund has the
authority to redeem the AMPS for any reason and may redeem all or part of the
outstanding AMPS if it anticipates that the Fund's leveraged capital structure
will result in a lower rate of return to holders of common shares for any
significant period of time than that obtainable if the common shares were
unleveraged.

     Mandatory Redemption.  The Fund will be required to redeem, out of funds
legally available therefor, at the Mandatory Redemption Price per share, AMPS to
the extent permitted under the 1940 Act and Maryland law, on a date fixed by the
Board of Trustees, if the Fund fails to maintain S&P Eligible Assets and Moody's
Eligible Assets each with an aggregate Discounted Value equal to or greater than
the AMPS Basic Maintenance Amount or to satisfy the 1940 Act AMPS Asset Coverage
and such failure is not cured on or before the AMPS Basic Maintenance Cure Date
or the 1940 Act Cure Date (herein collectively referred to as a "Cure Date"), as
the case may be. "Mandatory Redemption Price" means $25,000 per share of AMPS
plus an amount equal to accumulated but unpaid dividends (whether or not earned
or declared) to the date fixed for redemption. In addition, holders of AMPS may
be entitled to receive Additional Dividends in the event of redemption of such
AMPS to the extent provided herein. See "Dividends -- Additional Dividends"
above.

     For a discussion of the allocation procedures to be used if fewer than all
of the outstanding AMPS of either series are to be redeemed and for a discussion
of other redemption procedures, see "Description of AMPS -- Redemption" in the
statement of additional information.

LIQUIDATION RIGHTS

     Upon any liquidation, dissolution or winding up of the Fund, whether
voluntary or involuntary, the holders of all series of AMPS will be entitled to
receive, out of the assets of the Fund available for distribution to
shareholders, before any distribution or payment is made upon any common shares
or any other capital shares of the Fund ranking junior in right of payment upon
liquidation of AMPS, $25,000 per share together with the amount of any dividends
accumulated but unpaid (whether or not earned or declared) thereon to the date
of distribution, and after such payment the

                                       21
<PAGE>   23

holders of AMPS will be entitled to no other payments except for any Additional
Dividends. If such assets of the Fund shall be insufficient to make the full
liquidation payment on each outstanding series of AMPS and liquidation payments
on any other outstanding class or series of preferred shares of the Fund ranking
on a parity with the AMPS as to payment upon liquidation, then such assets will
be distributed among the holders of each such series of AMPS and the holders of
such other class or series ratably in proportion to the respective preferential
amounts to which they are entitled. After payment of the full amount of
liquidation distribution to which they are entitled, the holders of AMPS will
not be entitled to any further participation in any distribution of assets by
the Fund except for any Additional Dividends. A consolidation, merger or share
exchange of the Fund with or into any other entity or entities or a sale,
whether for cash, shares of stock, securities or properties, of all or
substantially all or any part of the assets of the Fund shall not be deemed or
construed to be a liquidation, dissolution or winding up of the Fund.

VOTING RIGHTS

     Except as otherwise indicated in this prospectus and the statement of
additional information and except as otherwise required by applicable law,
holders of AMPS will be entitled to one vote per share on each matter submitted
to a vote of shareholders and will vote together with holders of common shares
as a single class.

     The 1940 Act and the Certificate of Designation require that the holders of
preferred shares, including the AMPS, voting as a separate class, have the
rights to elect two of the Fund's Trustees at all times and to elect a majority
of the Trustees at any time that two full years' dividends on the AMPS are
unpaid. The holders of AMPS will vote as a separate class or classes on certain
other matters as required under the Certificate of Designation, the 1940 Act and
Maryland law. In addition, each series of AMPS may vote as a separate series
under certain circumstances. See "Description of AMPS -- Voting Rights" in the
statement of additional information.

                                  THE AUCTION

GENERAL

     Holders of the AMPS of each series will be entitled to receive cumulative
cash dividends on their shares when, as and if declared by the Board of Trustees
of the Fund, out of funds legally available therefor, on the Initial Dividend
Payment Date with respect to the Initial Dividend Period and, thereafter, on
each Dividend Payment Date with respect to a Subsequent Dividend Period
(generally a period of seven days subject to certain exceptions set forth under
"Description of AMPS -- Dividends -- General") at the rate per annum equal to
the Applicable Rate for each such Dividend Period.

     The provisions of the Certificate of Designation establishing the terms of
the AMPS offered hereby will provide that the Applicable Rate for each series of
AMPS for each Dividend Period after the Initial Dividend Period therefor will be
equal to the rate per annum that the Auction Agent advises has resulted on the
Business Day preceding the first day of such Dividend Period due to
implementation of the auction procedures set forth in the Certificate of
Designation (the "Auction Procedures") in which persons determine to hold or
offer to purchase or sell AMPS of such series. The Auction Procedures are
attached as Appendix E to the statement of additional information.

                                       22
<PAGE>   24

     Each periodic operation of such procedures with respect to the AMPS is
referred to hereinafter as an "Auction." If, however, the Fund should fail to
pay or duly provide for the full amount of any dividend on AMPS of any series or
the redemption price of AMPS of such series called for redemption, the
Applicable Rate for AMPS will be determined as set forth under "Description of
AMPS -- Dividends -- Non-Payment Period; Late Charge" in the statement of
additional information.

     Auction Agent Agreement.  The Fund will enter into an agreement (the
"Auction Agent Agreement") with IBJ Whitehall Bank & Trust Company (together
with any successor bank or trust company or other entity entering into a similar
agreement with this Fund, the "Auction Agent"), which provides, among other
things, that the Auction Agent will follow the Auction Procedures for the
purpose of determining the Applicable Rate for the AMPS. The Fund will pay the
Auction Agent compensation for its services under the Auction Agent Agreement.

     Broker-Dealer Agreements.  The Auction Agent will enter into agreements
with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Goldman, Sachs & Co., Lehman Government Securities Incorporated and Salomon
Smith Barney Inc. and may enter into similar agreements (collectively, the
"Broker-Dealer Agreements") with one or more other broker-dealers (collectively,
the "Broker-Dealers") selected by the Fund, which provide for the participation
of such Broker-Dealers in Auctions. Merrill Lynch is an affiliate of the
Investment Adviser in that they share a common parent, ML & Co.

     Securities Depository.  The Depository Trust Company initially will act as
the Securities Depository for the Agent Members with respect to the AMPS of each
series. One or more registered certificates for all of the shares of each series
of AMPS initially will be registered in the name of Cede, as nominee of the
Securities Depository. The certificate will bear a legend to the effect that
such certificate is issued subject to the provisions restricting transfers of
AMPS of the series to which it relates contained in the Certificate of
Designation. Cede initially will be the holder of record of all AMPS, and
Beneficial Owners will not be entitled to receive certificates representing
their ownership interest in such shares. The Securities Depository will maintain
lists of its participants and will maintain the positions (ownership interests)
of AMPS held by each Agent Member, whether as the Beneficial Owner thereof for
its own account or as nominee for the Beneficial Owner thereof. Payments made by
the Fund to holders of AMPS will be duly made by making payments to the nominee
of the Securities Depository.

AUCTION PROCEDURES

     The following is a brief discussion of the procedures to be used in
conducting Auctions. Separate auctions will be conducted for each series of
AMPS. This summary is qualified by reference to the Auction Procedures set forth
in Appendix E to the statement of additional information. The Settlement
Procedures to be used with respect to Auctions are set forth in Appendix D to
the statement of additional information.

     Auction Date; Advance Notice of Allocation of Taxable Income; Inclusion of
Taxable Income in Dividends.  An Auction to determine the Applicable Rate for
each series of AMPS offered hereby for each Dividend Period for such series
(other than the Initial Dividend Period therefor) will be

                                       23
<PAGE>   25


held on the first Business Day (as hereinafter defined) preceding the first day
of such Dividend Period, which first day is also the Dividend Payment Date for
the preceding Dividend Period (the date of each Auction being referred to herein
as an "Auction Date"). "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 the City of New York are authorized or obligated by law to close.
Auctions for Series A AMPS for Dividend Periods after the Initial Dividend
Period normally will be held every             after the preceding Dividend
Payment Date, and each subsequent Dividend Period normally will begin on the
following             (also a Dividend Payment Date). Auctions for Series B AMPS
for Dividend Periods after the Initial Dividend Period normally will be held
every             after the preceding Dividend Payment Date, and each subsequent
Dividend Period normally will begin on the following             (also a
Dividend Payment Date). The Auction Date and the first day of the related
Dividend Period (both of which must be Business Days) need not be consecutive
calendar days. For example, in most cases, if the             that normally
would be an Auction Date for Series A AMPS is not a Business Day, then such
Auction Date will be the preceding             and the first day of the related
Dividend Period will continue to be the following             . See "Description
of AMPS -- Dividends" for information concerning the circumstances under which a
Dividend Payment Date may fall on a date other than the days specified above,
which may affect the Auction Date.


     Except as noted below, whenever the Fund intends to include any net capital
gains or other income subject to regular Federal income taxes in any dividend on
AMPS, the Fund will notify the Auction Agent of the amount to be so included at
least five Business Days prior to the Auction Date on which the Applicable Rate
for such dividend is to be established. Whenever the Auction Agent receives such
notice from the Fund, in turn it will notify each Broker-Dealer, who, on or
prior to such Auction Date, in accordance with its Broker-Dealer Agreement, will
notify its customers who are Beneficial Owners and Potential Beneficial Owners
believed to be interested in submitting an Order in the Auction to be held on
such Auction Date. The Fund also may include such income in a dividend on AMPS
without giving advance notice thereof if it increases the dividend by an
additional amount calculated as if such income were a Retroactive Taxable
Allocation and the additional amount were an Additional Dividend; provided that
the Fund will notify the Auction Agent of the additional amounts to be included
in such dividend at least five Business Days prior to the applicable Dividend
Payment Date. See "Description of AMPS -- Dividends -- Additional Dividends"
above.

     Orders by Beneficial Owners, Potential Beneficial Owners, Existing Holders
and Potential Holders.  On or prior to each Auction Date:

          (a) each Beneficial Owner may submit to its Broker-Dealer by telephone
     a:

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

             (ii) Bid -- indicating the number of outstanding AMPS, if any, that
        such Beneficial Owner desires to continue to hold, provided that the
        Applicable Rate for the next Dividend Period for such shares is not less
        than the rate per annum then specified by such Beneficial Owner; and/or

                                       24
<PAGE>   26

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

          (b) Broker-Dealers will contact customers who are Potential Beneficial
     Owners of AMPS to determine whether such Potential Beneficial Owners desire
     to submit Bids indicating the number of AMPS which they offer to purchase
     provided that the Applicable Rate for the next Dividend Period for such
     shares is not less than the rates per annum specified in such Bids.

     The communication by a Beneficial Owner or Potential Beneficial Owner to a
Broker-Dealer and the communication by a Broker-Dealer, whether or not acting
for its own account, to the Auction Agent of the foregoing information is
hereinafter referred to as an "Order" and collectively as "Orders." A Beneficial
Owner or a Potential Beneficial Owner placing an Order, including a
Broker-Dealer acting in such capacity for its own account, is hereinafter
referred to as a "Bidder" and collectively as "Bidders." 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.

     In an Auction, a Beneficial Owner may submit different types of Orders with
respect to AMPS then held by such Beneficial Owner, as well as Bids for
additional AMPS. For information concerning the priority given to different
types of Orders placed by Beneficial Owners, see "Submission of Orders by
Broker-Dealers to Auction Agent" below.

     The Maximum Applicable Rate for AMPS will be the Applicable Percentage of
the Reference Rate. The Auction Agent will 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. The Auction Agent
will not round the applicable Reference Rate as part of its calculation of the
Maximum Applicable Rate.

     The Maximum Applicable Rate for AMPS will depend on the credit rating or
ratings assigned to such shares. The Applicable Percentage will be determined
based on (i) the lower of the credit rating or ratings assigned on such date to
such shares by Moody's and S&P (or if Moody's or S&P or both shall not make such
rating available, the equivalent of either or both of such ratings by a
Substitute Rating Agency or two Substitute Rating Agencies or, in the event that
only one such rating shall be available, such rating) and (ii) whether the Fund
has provided notification to the Auction Agent prior to the Auction establishing
the Applicable Rate for any dividend that net capital gains or other taxable
income will be included in such dividend on shares of AMPS as follows:

<TABLE>
<CAPTION>
             CREDIT RATINGS
- -----------------------------------------    APPLICABLE      APPLICABLE
  REFERENCE RATE --     REFERENCE RATE --   PERCENTAGE OF   PERCENTAGE OF
   NO NOTIFICATION        NOTIFICATION         MOODY'S           S&P
- ---------------------   -----------------   -------------   -------------
<S>                     <C>                 <C>             <C>
"aa3" or higher         AA- or Higher            110%            150%
"a3" or "a1"            A- to A                  125%            160%
"baa3" to "baa1"        BBB- to BBB+             150%            250%
Below "baa3"            Below BBB-               200%            275%
</TABLE>

                                       25
<PAGE>   27

     There is no minimum Applicable Rate in respect of any Dividend Period.

     The Fund will take all reasonable action necessary to enable S&P and
Moody's to provide a rating for the AMPS. If either S&P or Moody's, or both,
shall not make such a rating available, the Underwriter or its affiliates and
successors, after consultation with the Fund, will select another nationally
recognized statistical rating organization (a "Substitute Rating Agency") or two
other nationally recognized statistical rating organizations ("Substitute Rating
Agencies") to act as a Substitute Rating Agency or Substitute Rating Agencies,
as the case may be.

     Any Bid by a Beneficial Owner specifying a rate per annum higher than the
Maximum Applicable Rate will be treated as a Sell Order, and any Bid by a
Potential Beneficial Owner specifying a rate per annum higher than the Maximum
Applicable Rate will not be considered. See "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and
Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares."

     Neither the Fund nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing.

     A Broker-Dealer also may hold AMPS in its own account as a Beneficial
Owner. A Broker-Dealer thus may submit Orders to the Auction Agent as a
Beneficial Owner or a Potential Beneficial Owner and therefore participate in an
Auction as an Existing Holder or Potential Holder on behalf of both itself and
its customers. Any Order placed with the Auction Agent by a Broker-Dealer as or
on behalf of a Beneficial Owner or a Potential Beneficial Owner will be treated
in the same manner as an Order placed with a Broker-Dealer by a Beneficial Owner
or a Potential Beneficial Owner. Similarly, any failure by a Broker-Dealer to
submit to the Auction Agent an Order in respect of any AMPS held by it or its
customers who are Beneficial Owners will be treated in the same manner as a
Beneficial Owner's failure to submit to its Broker-Dealer an Order in respect of
AMPS held by it, as described in the next paragraph. Inasmuch as a Broker-Dealer
participates in an Auction as an Existing Holder or a Potential Holder only to
represent the interests of a Beneficial Owner or Potential Beneficial Owner,
whether it be its customers or itself, all discussion herein relating to the
consequences of an Auction for Existing Holders and Potential Holders also
applies to the underlying beneficial ownership interests represented thereby.
For information concerning the priority given to different types of Orders
placed by Existing Holders, see "Submission of Orders by Broker-Dealers to
Auction Agent." Each purchase or sale in an Auction will be settled on the
Business Day next succeeding the Auction Date at a price per share equal to
$25,000. See "Notification of Results; Settlement" below.

     If one or more Orders covering in the aggregate all of the outstanding AMPS
held by a Beneficial Owner are not submitted to the Auction Agent prior to the
Submission Deadline, either because a Broker-Dealer failed to contact such
Beneficial Owner or otherwise, the Auction Agent shall deem a Hold Order (in the
case of an Auction relating to a Dividend Period which is not a Special Dividend
Period of 28 days or more) and a Sell Order (in the case of an Auction relating
to a Special Dividend Period of 28 days or more) to have been submitted on
behalf of such Beneficial Owner covering the number of outstanding AMPS held by
such Beneficial Owner and not subject to Orders submitted to the Auction Agent.

     If all of the outstanding AMPS are subject to Submitted Hold Orders, the
Dividend Period next succeeding the Auction automatically shall be the same
length as the immediately preceding
                                       26
<PAGE>   28

Dividend Period, and the Applicable Rate for the next Dividend Period for all
AMPS will be 40% of the Reference Rate on the date of the applicable Auction (or
60% of such rate if the Fund has provided notification to the Auction Agent
prior to the Auction establishing the Applicable Rate for any dividend that net
capital gains or other taxable income will be included in such dividend on
AMPS).

     For the purposes of an Auction, AMPS for which the Fund shall have given
notice of redemption and deposited moneys therefor with the Auction Agent in
trust or segregated in an account at the Fund's custodian bank for the benefit
of the Auction Agent, as set forth under "Description of AMPS -- Redemption" in
the statement of additional information, will not be considered as outstanding
and will not be included in such Auction. Pursuant to the Certificate of
Designation of the Fund, the Fund will be prohibited from reissuing and its
affiliates (other than the Underwriter) will be prohibited from transferring
(other than to the Fund) any shares of AMPS they may acquire. Neither the Fund
nor any affiliate of the Fund (other than the Underwriter) may submit an Order
in any Auction, except that an affiliate of the Fund that is a Broker-Dealer may
submit an Order.

     Submission of Orders by Broker-Dealers to Auction Agent.  Prior to 1:00
p.m., Eastern 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 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 on any
Auction Date, shall be irrevocable.

     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 1%.

     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
                                       27
<PAGE>   29

     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 shares 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.

     Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate.  Not earlier than the Submission Deadline for each Auction, the Auction
Agent will assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such "Hold Order," "Bid" or "Sell Order" as submitted or
deemed submitted by a Broker-Dealer hereinafter being referred to as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order") and will determine the excess of the
number of outstanding shares of AMPS over the number of outstanding AMPS subject
to Submitted Hold Orders (such excess being referred to as the "Available AMPS")
and whether Sufficient Clearing Bids have been made in such Auction. Sufficient
Clearing Bids will have been made if the number of outstanding AMPS that are the
subject of Submitted Bids of Potential Holders with rates per annum not higher
than the Maximum Applicable Rate equals or exceeds the number of outstanding
shares that are the subject of Submitted Sell Orders (including the number of
shares subject to Bids of Existing Holders specifying rates per annum higher
than the Maximum Applicable Rate).

     If Sufficient Clearing Bids have been made, the Auction Agent will
determine the lowest rate per annum specified in the Submitted Bids (the
"Winning Bid Rate") which would result in the number of shares subject to
Submitted Bids specifying such rate per annum or a lower rate per annum being at
least equal to the Available AMPS. If Sufficient Clearing Bids have been made,
the Winning Bid Rate will be the Applicable Rate for the next Dividend Period
for all AMPS then outstanding.

     If Sufficient Clearing Bids have not been made (other than because all
outstanding shares of AMPS are the subject of Submitted Hold Orders), the
Dividend Period next following the Auction automatically will be a 7-Day
Dividend Period, and the Applicable Rate for such Dividend Period will be equal
to the Maximum Applicable Rate. If Sufficient Clearing Bids have not been made,
Beneficial Owners that have Submitted Sell Orders will not be able to sell in
the Auction all, and may not be able to sell any, AMPS subject to such Submitted
Sell Orders. See "Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares." Thus, under some circumstances, Beneficial
Owners may not have liquidity of investment.

                                       28
<PAGE>   30

     Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares.  Based on the determinations described under
"Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate" and subject to the discretion of the Auction Agent to round as described
below, Submitted Bids and Submitted Sell Orders will be accepted or rejected in
the order of priority set forth in the Auction Procedures with the result that
Existing Holders and Potential Holders of AMPS will sell, continue to hold
and/or purchase AMPS as set forth below. Existing Holders that submit or are
deemed to have submitted Hold Orders will continue to hold the AMPS subject to
such Hold Orders.

     If Sufficient Clearing Bids have been made:

          (a) each Existing Holder that placed a Submitted Bid specifying a rate
     per annum higher than the Winning Bid Rate or a Submitted Sell Order will
     sell the outstanding AMPS subject to such Submitted Bid or Submitted Sell
     Order;

          (b) each Existing Holder that placed a Submitted Bid specifying a rate
     per annum lower than the Winning Bid Rate will continue to hold the
     outstanding AMPS subject to such Submitted Bid;

          (c) each Potential Holder that placed a Submitted Bid specifying a
     rate per annum lower than the Winning Bid Rate will purchase the number of
     AMPS subject to such Submitted Bid;

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

          (e) each Potential Holder that placed a Submitted Bid specifying a
     rate per annum equal to the Winning Bid Rate will purchase any Available
     AMPS not accounted for in clause (b), (c) or (d) above on a pro rata basis
     based on the AMPS subject to all such Submitted Bids of Potential Holders.

     If Sufficient Clearing Bids have not been made (other than because all
outstanding shares of AMPS are the subject of Submitted Hold Orders):

          (a) each Existing Holder that placed a Submitted Bid specifying a rate
     per annum equal to or lower than the Maximum Applicable Rate will continue
     to hold the outstanding AMPS subject to such Submitted Bid;

          (b) each Potential Holder that placed a Submitted Bid specifying a
     rate per annum equal to or lower than the Maximum Applicable Rate will
     purchase the number of AMPS subject to such Submitted Bid; and

          (c) each Existing Holder that placed a Submitted Bid specifying a rate
     per annum higher than the Maximum Applicable Rate or a Submitted Sell Order
     will sell a number of

                                       29
<PAGE>   31

     outstanding AMPS determined on a pro rata basis based on the outstanding
     AMPS subject to all such Submitted Bids and Submitted Sell Orders.

     If as a result of the Auction Procedures described above any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of AMPS, the Auction
Agent, in such manner as, in its sole discretion, it shall determine, will round
up or down the number of AMPS being sold or purchased on such Auction Date so
that each share sold or purchased by each Existing Holder or Potential Holder
will be a whole share of AMPS. If any Potential Holder would be entitled or
required to purchase less than a whole share of AMPS, the Auction Agent, in such
manner as, in its sole discretion, it shall determine, will allocate AMPS for
purchase among Potential Holders so that only whole shares of AMPS are purchased
by any such Potential Holder, even if such allocation results in one or more of
such Potential Holders not purchasing any AMPS.

     Notification of Results; 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 at
approximately 3:00 P.M., Eastern 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 shall fail 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 the certificates for AMPS are not held by the Securities
Depository or its nominee, payment will be made in same-day funds to the Auction
Agent against delivery of such certificates.

     If any Existing Holder selling AMPS in an Auction fails to deliver such
shares, 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 shares that otherwise was to be purchased

                                       30
<PAGE>   32

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 shares 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 Potential Beneficial Owner, Beneficial Owner or
their respective Agent Members to deliver AMPS or to pay for AMPS purchased or
sold pursuant to an Auction or otherwise.

BROKER-DEALERS

     General.  The Broker-Dealer Agreements provide that a Broker-Dealer may
submit Orders in Auctions for its own account, unless the Fund notifies all
Broker-Dealers that they no longer may do so; provided that Broker-Dealers may
continue to submit Hold Orders and Sell Orders. If a Broker-Dealer submits an
Order for its own account in any Auction of any series of AMPS, 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.

     Fees.  The Auction Agent after each Auction will pay a service charge from
funds provided by the Fund to each Broker-Dealer on the basis of the purchase
price of AMPS placed by such Broker-Dealer at such Auction. The service charge
(i) for any 7-Day Dividend Period shall be payable at the annual rate of 0.25%
of the purchase price of the AMPS placed by such Broker-Dealer in any such
Auction and (ii) for any Special Dividend Period shall be determined by mutual
consent of the Fund and any such Broker-Dealer or 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,
AMPS will be placed by a Broker-Dealer if such shares were (i) the subject of
Hold Orders deemed to have been made by Beneficial Owners that were acquired by
such Beneficial Owners through such Broker-Dealer or (ii) the subject of the
following Orders submitted by such Broker-Dealer: (A) a Submitted Bid of a
Beneficial Owner that resulted in such Beneficial Owner continuing to hold such
shares as a result of the Auction, (B) a Submitted Bid of a Potential Beneficial
Owner that resulted in such Potential Beneficial Owner purchasing such shares as
a result of the Auction or (C) a Submitted Hold Order.

     Secondary Trading Market.  The Broker-Dealers intend to maintain a
secondary trading market in the AMPS outside of Auctions; however, they have no
obligation to do so and there can be no assurance that a secondary market for
the AMPS will develop or, if it does develop, that it will provide holders with
a liquid trading market (i.e., trading will depend on the presence of willing
buyers and sellers and the trading price is subject to variables to be
determined at the time of the trade by the Broker-Dealers). The AMPS will not be
registered on any stock exchange or on any automated quotation system. An
increase in the level of interest rates, particularly during any Long-Term
Dividend Period, likely will have an adverse effect on the secondary market
price of the AMPS, and a selling shareholder may sell AMPS between Auctions at a
price per share of less than $25,000.

                                       31
<PAGE>   33

                            RATING AGENCY GUIDELINES

     Certain of the capitalized terms used herein are defined in the Glossary
that appears at the end of this prospectus.

     The Fund intends that, so long as AMPS are outstanding, the composition of
its portfolio will reflect guidelines established by Moody's and S&P in
connection with the Fund's receipt of a rating for such shares on or prior to
their Date of Original Issue of at least "aaa" from Moody's and AAA from S&P.
Moody's and S&P, which are NRSROs, issue ratings for various securities
reflecting the perceived creditworthiness of such securities. The guidelines
described below have been developed by Moody's and S&P in connection with
issuances of asset-backed and similar securities, including debt obligations and
variable rate preferred stock, generally on a case-by-case basis through
discussions with the issuers of these securities. The guidelines are designed to
ensure that assets underlying outstanding debt or preferred stock will be varied
sufficiently and will be of sufficient quality and amount to justify
investment-grade ratings. The guidelines do not have the force of law but have
been adopted by the Fund in order to satisfy current requirements necessary for
Moody's and S&P to issue the above-described ratings for AMPS, which ratings
generally are relied upon by institutional investors in purchasing such
securities. The guidelines provide a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act. See "Description of AMPS -- Asset
Maintenance" herein and in the statement of additional information.

     The Fund intends to maintain a Discounted Value for its portfolio at least
equal to the AMPS Basic Maintenance Amount. Moody's and S&P each has established
separate guidelines for determining Discounted Value. To the extent any
particular portfolio holding does not satisfy the applicable rating agency's
guidelines, all or a portion of such holding's value will not be included in the
calculation of Discounted Value (as defined by such rating agency). The Moody's
and S&P guidelines do not impose any limitations on the percentage of Fund
assets that may be invested in holdings not eligible for inclusion in the
calculation of the Discounted Value of the Fund's portfolio.

     Upon any failure to maintain the required Discounted Value, the Fund will
seek to alter the composition of its portfolio to reattain a Discounted Value at
least equal to the AMPS Basic Maintenance Amount on or prior to the AMPS Basic
Maintenance Cure Date, thereby incurring additional transaction costs and
possible losses and/or gains on dispositions of portfolio securities. To the
extent any such failure is not cured in a timely manner, AMPS will be subject to
redemption. See "Description of AMPS -- Asset Maintenance" and "Description of
AMPS -- Redemption" herein and in the statement of additional information.

     The Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of ratings altogether. In addition, any rating agency
providing a rating for the AMPS, at any time, may change or withdraw any such
rating. As set forth in the Certificate of Designation, the Board of Trustees,
without shareholder approval, may modify certain definitions or restrictions
that have been adopted by the Fund pursuant to the rating agency guidelines,
provided the Board of Trustees has obtained written confirmation from Moody's
and S&P that any such change would not impair the ratings then assigned by
Moody's and S&P to the AMPS.

                                       32
<PAGE>   34

     As described by Moody's and S&P, a preferred stock rating is an assessment
of the capacity and willingness of an issuer to pay preferred stock obligations.
The ratings on the AMPS are not recommendations to purchase, hold or sell AMPS,
inasmuch as the ratings do not comment as to market price or suitability for a
particular investor, nor do the rating agency guidelines described above address
the likelihood that a holder of AMPS will be able to sell such shares in an
Auction. The ratings are based on current information furnished to Moody's and
S&P by the Fund and the Investment Adviser and information obtained from other
sources. The ratings may be changed, suspended or withdrawn as a result of
changes in, or the unavailability of, such information. The Common Shares have
not been rated by a nationally recognized statistical rating organization.

     For additional information concerning the Moody's and S&P ratings
guidelines, see "Rating Agency Guidelines" in the statement of additional
information.

                INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS


     The Investment Adviser, which is owned and controlled by ML & Co., a
financial services holding company and the parent of Merrill Lynch, provides the
Fund with investment advisory and management services. The Asset Management
Group of ML & Co. (which includes the Investment Adviser) acts as the investment
adviser to more than 100 other registered investment companies and offers
investment advisory services to individuals and institutional accounts. As of
April 1999, the Asset Management Group had a total of approximately $523 billion
in investment company and other portfolio assets under management (approximately
$40 billion of which were invested in municipal securities). This amount
includes assets managed for certain affiliates of the Investment Adviser. The
Investment Adviser is a limited partnership, the partners of which are ML & Co.
and Princeton Services. The principal business address of the Investment Adviser
is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.


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


     The Investment Adviser provides the portfolio management for the Fund. Such
portfolio management will consider analyses from various sources (including
brokerage firms with which the Fund does business), make the necessary
investment decisions, and place orders for transactions accordingly. The
Investment Adviser will also be responsible for the performance of certain
administrative and management services for the Fund. Robert A. DiMella and
Robert D. Sneeden, Jr. are the portfolio managers of the Fund and are primarily
responsible for the Fund's day-to-day management.


     For the services provided by the Investment Adviser under the Investment
Advisory Agreement, the Fund will pay a monthly fee at an annual rate of 0.55 of
1% of the Fund's average weekly net assets (i.e., the average weekly value of
the total assets of the Fund, including proceeds from the issuance of preferred
shares, minus the sum of accrued liabilities of the Fund and accumulated
dividends on the preferred shares). For purposes of this calculation, average
weekly net assets are determined at the end of each month on the basis of the
average net assets of the Fund for each

                                       33
<PAGE>   35

week during the month. The assets for each weekly period are determined by
averaging the net assets at the last business day of a week with the net assets
at the last business day of the prior week.

     The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the compensation of all Trustees of the Fund who are affiliated persons of the
Investment Adviser or any of its affiliates. The Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, expenses
for legal and auditing services, taxes, costs of printing proxies, listing fees,
if any, share certificates and shareholder reports, charges of the custodian and
the transfer and dividend disbursing agent and registrar, fees and expenses with
respect to the issuance of preferred shares, Securities and Exchange Commission
fees, fees and expenses of non-interested Trustees, accounting and pricing
costs, insurance, interest, brokerage costs, litigation and other extraordinary
or non-recurring expenses, mailing and other expenses properly payable by the
Fund. Accounting services are provided to the Fund by the Investment Adviser,
and the Fund reimburses the Investment Adviser for its costs in connection with
such services.

                                     TAXES

     In general, dividends on the AMPS will be exempt from Federal income tax in
the hands of holders of such AMPS, subject to the possible application of the
Federal alternative minimum tax. However, the Fund is required to allocate net
capital gains and other taxable income, if any, proportionately among the common
shares and each series of AMPS in accordance with the current position of the
Internal Revenue Service ("IRS") described under the heading "Taxes" in the
statement of additional information. The Fund may notify the Auction Agent of
the amount of any net capital gains or other anticipated taxable income to be
included in any dividend on the AMPS prior to the Auction establishing the
Applicable Dividend Rate for such dividend. The Auction Agent will in turn
notify holders of the AMPS and prospective purchasers. The amount of taxable
income allocable to each series of AMPS will depend upon the amount of such
income realized by the Fund and cannot be determined with certainty prior to the
end of the Fund's fiscal year, but it is not generally expected to be
significant.

     In general, shares of the Fund will be exempt from Florida intangible
personal property tax for Florida resident shareholders. Dividends paid to
individual Florida residents are not subject to personal income taxation by
Florida, because Florida does not impose a personal income tax. Shareholders not
subject to taxation by Florida do not benefit from the fact that shares of the
Fund will be exempt from the Florida intangible personal property tax.


     Generally, within 60 days after the end of the Fund's taxable year, the
Fund will tell you the amount of exempt-interest dividends and capital gain
dividends you received that year. Capital gain dividends are taxable as
long-term capital gains to you regardless of how long you have held your shares.
The tax treatment of distributions from the Fund is the same whether you choose
to receive distributions in cash or to have them reinvested in shares of the
Fund.


     If the Fund makes a Retroactive Taxable Allocation, it will pay Additional
Dividends to holders of AMPS who are subject to the Retroactive Taxable
Allocation. See "Description of AMPS -- Dividends -- Additional Dividends." The
Federal income tax consequences of Additional Dividends

                                       34
<PAGE>   36

under existing law are uncertain. The Fund intends to treat a holder as
receiving a dividend distribution in the amount of any Additional Dividend only
as and when such Additional Dividend is paid. An Additional Dividend generally
will be designated by the Fund as an exempt-interest dividend except as
otherwise required by applicable law. However, the IRS may assert that all or
part of an Additional Dividend is a taxable dividend either in the taxable year
for which the Retroactive Taxable Allocation is made or in the taxable year in
which the Additional Dividend is paid.

     Because the Fund may from time to time invest a substantial portion of its
portfolio in municipal securities bearing income that is taxable under the
Federal alternative minimum tax, the Fund would not ordinarily be a suitable
investment for investors who are subject to the alternative minimum tax.

     If at any time when AMPS are outstanding the Fund does not meet the asset
coverage requirements of the 1940 Act, the Fund will be required to suspend
distributions to holders of Common Shares until the asset coverage is restored.
See "Description of AMPS -- Restrictions on Dividends and Other Payments." This
may prevent the Fund from meeting certain distribution requirements for
qualification as a regulated investment company ("RIC"). Upon any failure to
meet the asset coverage requirements of the 1940 Act, the Fund, in its sole
discretion, may, and under certain circumstances will be required to, redeem
AMPS in order to maintain or restore the requisite asset coverage and avoid the
adverse consequences to the Fund and its shareholders of failing to qualify as a
RIC. See "Description of AMPS -- Redemption." There can be no assurance,
however, that any such action would achieve such objectives.

     By law, the Fund must withhold 31% of your distributions and proceeds if
you have not provided a taxpayer identification number or social security
number. For more information regarding the tax treatment of an investment in
AMPS, see "Taxes" in the statement of additional information.

     Shareholders are urged to consult their tax advisers regarding the
availability of any exemptions from state or local taxes and with specific
questions as to Federal, foreign, state or local taxes.

                         DESCRIPTION OF CAPITAL SHARES


     The Fund is authorized to issue an unlimited number of shares of beneficial
interest, par value $.10 per share. The Board of Trustees may authorize separate
classes of shares together with such designations and powers, preferences and
rights, qualifications, limitations and restrictions as may be determined from
time to time by the Trustees. Pursuant to such authority, the Trustees have
authorized the issuance of an unlimited number of Common Shares together with
1,000,000 Preferred Shares. In connection with the offering described herein,
the Trustees of the Fund have authorized the issuance of      AMPS. For a
description of the AMPS, see "Description of AMPS" herein and in the statement
of additional information.


     The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust of the Fund contains an express
disclaimer of shareholder liability for acts or obligations of the Fund and
provides for indemnification and reimbursement of expenses out of the Fund's
property for any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial
                                       35
<PAGE>   37

loss on account of shareholder liability is limited to circumstances in which
the Fund itself would be unable to meet its obligations. Given the nature of the
Fund's assets and operations, the possibility of the Fund being unable to meet
its obligations is remote and, in the opinion of Massachusetts counsel to the
Fund, the risk to Fund shareholders is remote.

     The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to any shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise from
his or her own bad faith, willful misfeasance, gross negligence, or reckless
disregard of their duties. It also provides that all third persons shall look
solely to the Fund property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.

     The following table shows the amount of (i) capital shares authorized, (ii)
capital shares held by the Fund for its own account and (iii) capital shares
outstanding for each class of authorized securities of the Fund as of
           , 1999.


<TABLE>
<CAPTION>
                                                                              AMOUNT OUTSTANDING
                                        AMOUNT     AMOUNT HELD BY FUND   (EXCLUSIVE OF AMOUNT HELD BY
           TITLE OF CLASS             AUTHORIZED   FOR ITS OWN ACCOUNT    FUND FOR ITS OWN ACCOUNT)
           --------------             ----------   -------------------   ----------------------------
<S>                                   <C>          <C>                   <C>
Common Shares.......................  Unlimited            -0-
Preferred Shares....................  1,000,000            -0-                          -0-
     Auction Market Preferred
       Shares.......................                       -0-                          -0-
</TABLE>


COMMON SHARES

     Holders of common shares are entitled to share equally in dividends
declared by the Board of Trustees payable to holders of common shares and in the
net assets of the Fund available for distribution to holders of common shares
after payment of the preferential amounts payable to holders of any outstanding
preferred shares. Neither holders of common shares nor holders of preferred
shares have pre-emptive or conversion rights and shares of common shares are not
redeemable. The outstanding shares of common shares are fully paid and
non-assessable.

     Holders of common shares are entitled to one vote for each share held and
will vote with the holders of any outstanding AMPS or other preferred shares on
each matter submitted to a vote of holders of common shares, except as described
under "Description of AMPS -- Voting Rights" herein and in the statement of
additional information.

     Shareholders are entitled to one vote for each share held. The common
shares, AMPS and any other preferred shares do not have cumulative voting
rights, which means that the holders of more than 50% of the common shares, AMPS
and any other preferred shares voting for the election of Trustees can elect all
of the Trustees standing for election by such holders, and, in such event, the
holders of the remaining common shares, AMPS and any other preferred shares will
not be able to elect any of such Trustees.

                                       36
<PAGE>   38

     So long as any AMPS or any other preferred shares are outstanding, holders
of common shares will not be entitled to receive any dividends of or other
distributions from the Fund unless all accumulated dividends on outstanding AMPS
and any other preferred shares have been paid, and unless asset coverage (as
defined in the 1940 Act) with respect to such AMPS and any other preferred
shares would be at least 200% after giving effect to such distributions. See
"Description of AMPS -- Restrictions on Dividends and Other Payments" herein and
in the statement of additional information.

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


     The common shares will commence trading on the NYSE on            , 1999.
At            , 1999, the net asset value per common share was $     .


PREFERRED SHARES


     Pursuant to the Fund's Declaration of Trust, the Fund is authorized to
issue up to           Preferred Shares. Under the Certificate of Designation,
the Fund is authorized to issue an aggregate of      AMPS. See "Description of
AMPS." Under the 1940 Act, the Fund is permitted to have outstanding more than
one series of preferred shares as long as no single series has priority over
another series as to the distribution of assets of the Fund or the payment of
dividends. Neither holders of common shares nor holders of preferred shares have
pre-emptive rights to purchase any AMPS or any other preferred shares that might
be issued. It is anticipated that the net asset value per share of the AMPS will
equal its original purchase price per share plus accumulated dividends per
share.


CERTAIN PROVISIONS OF THE DECLARATION OF TRUST

     The Fund's Declaration of Trust includes provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Trustees and could have
the effect of depriving shareholders of an opportunity to sell their shares at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Fund. A Trustee may be removed from office with or
without cause but only by vote of the holders of at least 66 2/3% of the votes
entitled to be voted on the matter. A Trustee elected by all of the holders of
capital shares may be removed only by action of such holders, and a Trustee
elected by the holders of AMPS and any other preferred shares may be removed
only by action of AMPS and any other preferred shares.

     In addition, the Declaration of Trust requires the favorable vote of the
holders of at least 66 2/3% of the Fund's outstanding shares, then entitled to
be voted, voting as a single class, to approve, adopt or authorize the
following:


     - a merger or consolidation or statutory share exchange of the Fund with
       any other entities,


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

     - a liquidation or dissolution of the Fund,
                                       37
<PAGE>   39

unless such action has been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of Trustees fixed in accordance
with the by-laws, in which case the affirmative vote of a majority of all of the
votes entitled to be cast by shareholders of the Fund, voting as a single class,
is required. Such approval, adoption or authorization of the foregoing would
also require the favorable vote of at least a majority of the Fund's preferred
shares then entitled to be voted, including the AMPS, voting as a separate
class.

     In addition, conversion of the Fund to an open-end investment company would
require an amendment to the Fund's Declaration of Trust. The amendment would
have to be declared advisable by the Board of Trustees prior to its submission
to shareholders. Such an amendment would require the favorable vote of the
holders of at least 66 2/3% of the Fund's outstanding capital shares (including
the AMPS and any other preferred shares) entitled to be voted on the matter,
voting as a single class (or a majority of such shares if the amendment was
previously approved, adopted or authorized by at least two-thirds of the total
number of Trustees fixed in accordance with the by-laws), and, the affirmative
vote of at least a majority of outstanding preferred shares of the Fund
(including the AMPS), voting as a separate class. Such a vote also would satisfy
a separate requirement in the 1940 Act that the change be approved by the
shareholders. Shareholders of an open-end investment company may require the
company to redeem their common shares at any time (except in certain
circumstances as authorized by or under the 1940 Act) at their net asset value,
less such redemption charge, if any, as might be in effect at the time of a
redemption. All redemptions will be made in cash. If the Fund is converted to an
open-end investment company, it could be required to liquidate portfolio
securities to meet requests for redemption. Conversion to an open-end investment
company would also require redemption of all outstanding preferred shares
(including the AMPS) and would require changes in certain of the Fund's
investment policies and restrictions, such as those relating to the issuance of
senior securities, the borrowing of money and the purchase of illiquid
securities.

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

                                   CUSTODIAN


     The Fund's securities and cash are held under a custody agreement with
                                                                               .


                                  UNDERWRITING

     Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions of a Purchase Agreement with the
Fund and the Investment Adviser, to purchase from the Fund all of the AMPS of
each series offered hereby. The Underwriter is committed to purchase all of such
shares if any are purchased.

     The Underwriter has advised the Fund that it proposes initially to offer
the AMPS to the public at the public offering price set forth on the cover page
of this prospectus, and to certain dealers at

                                       38
<PAGE>   40


such price less a concession not in excess of $     per share. The Underwriter
may allow, and such dealers may reallow, a discount not in excess of $     per
share to other dealers. After the initial public offering, the public offering
price, concession and discount may be changed. The sales load of $     per share
is equal to      % of the initial public offering price. Investors must pay for
any AMPS purchased in the initial public offering on or before             ,
1999.


     The Underwriter will act in Auctions as a Broker-Dealer as set forth under
"The Auction -- General -- Broker-Dealer Agreements" and will be entitled to
fees for services as a Broker-Dealer as set forth under "The
Auction -- Broker-Dealers." The Underwriter also may provide information to be
used in ascertaining the Reference Rate.

     The Fund anticipates that the Underwriter from time to time may act as a
broker in connection with the execution of the Fund's portfolio transactions.
The Fund has obtained exemptive orders permitting it to engage in certain
principal transactions with the Underwriter involving high quality, short-term,
tax-exempt securities, subject to certain conditions. See "Investment
Restrictions" and "Portfolio Transactions" in the statement of additional
information.

     The Underwriter is an affiliate of the Investment Adviser.

     The Fund and the Investment Adviser have agreed to indemnify the
Underwriter against certain liabilities including liabilities under the
Securities Act of 1933, as amended.

            TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

     The transfer agent, dividend disbursing agent and registrar for the shares
of AMPS will be IBJ Whitehall Bank & Trust Company, One State Street, New York,
New York 10004. The transfer agent, dividend disbursing agent and shareholder
servicing agent for the common shares is State Street Bank and Trust Company,
225 Franklin Street, Boston, Massachusetts 02110.

                                 LEGAL OPINIONS


     Certain legal matters in connection with the AMPS offered hereby will be
passed upon for the Fund and the Underwriter by Brown & Wood LLP, One World
Trade Center, New York, New York 10048-0557.


                                    EXPERTS


                           , independent auditors, have audited the statement of
assets, liabilities and capital of the Fund as of            , 1999 which is
included in the statement of additional information as set forth in their report
which appears in the statement of additional information. The statement of
assets, liabilities and capital is included in reliance upon their report, given
on their authority as experts in accounting and auditing. The selection of
independent auditors is subject to ratification by shareholders of the Fund.


                                       39
<PAGE>   41

                                YEAR 2000 ISSUES

     Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Investment Adviser or other Fund
service providers do not properly address this problem before January 1, 2000.
The Investment Adviser expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Investment Adviser that they
also expect to resolve the Year 2000 Problem, and the Investment Adviser will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the issuers of securities
in which the Fund invests, and this could hurt the Fund's investment returns.

                                       40
<PAGE>   42

            TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION


<TABLE>
<S>                                                           <C>
Investment Objective and Policies...........................    2
Investment Restrictions.....................................    6
Description of AMPS.........................................    8
The Auction.................................................   15
Rating Agency Guidelines....................................   16
Trustees and Officers.......................................   24
Investment Advisory and Management Arrangements.............   26
Portfolio Transactions......................................   27
Taxes.......................................................   28
Net Asset Value.............................................   32
Additional Information......................................   33
Report of Independent Auditors..............................   34
Statement of Assets, Liabilities and Capital................   35
Financial Statements (Unaudited)............................   37
Appendix A -- Economic and Other Conditions in Florida......  A-1
Appendix B -- Ratings of Municipal Bonds....................  B-1
Appendix C -- Portfolio Insurance...........................  C-1
Appendix D -- Settlement Procedures.........................  D-1
Appendix E -- Auction Procedures............................  E-1
</TABLE>


                                       41
<PAGE>   43

                                    GLOSSARY

     " 'AA' (AA) Composite Commercial Paper Rate," on any Valuation Date, means
(i) the Interest Equivalent of the rate on commercial paper placed on behalf of
issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's or the
equivalent of such rating by another nationally recognized statistical rating
organization, as such rate is made available on a discount basis or otherwise by
the Federal Reserve Bank of New York for the Business Day immediately preceding
such date, or (ii) in the event that the Federal Reserve Bank of New York does
not make available such a rate, then the arithmetic average of the Interest
Equivalent of the rate on commercial paper placed on behalf of such issuers, as
quoted on a discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its successors that are Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate will be determined on the basis of the quotation or
quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Fund to provide such rate or rates not
being supplied by the Commercial Paper Dealer. If the number of Dividend Period
days shall be (i) 7 or more but fewer than 49 days, such rate shall be the
Interest Equivalent of the 30-day rate on such commercial paper; (ii) 49 or more
but fewer than 70 days, such rate shall be the Interest Equivalent of the 60-day
rate on such commercial paper; (iii) 70 or more days but fewer than 85 days,
such rate shall be the arithmetic average of the Interest Equivalent of the
60-day and 90-day rates on such commercial paper; (iv) 85 or more days but fewer
than 99 days, such rate shall be the Interest Equivalent of the 90-day rate on
such commercial paper; (v) 99 or more days but fewer than 120 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 90-day and
120-day rates on such commercial paper; (vi) 120 or more days but fewer than 141
days, such rate shall be the Interest Equivalent of the 120-day rate on such
commercial paper; (vii) 141 or more days but fewer than 162 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 120-day and
180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on
such commercial paper.


     "Additional Dividend" has the meaning set forth on page 19 of this
prospectus.


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

     "AMPS" means the Auction Market Preferred Shares, Series A and the Auction
Market Preferred Shares, Series B, each with a par value of $.10 per share and a
liquidation preference of $25,000 per share plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared), of the Fund.


     "AMPS Basic Maintenance Amount" has the meaning set forth on page 20 of
this prospectus.



     "AMPS Basic Maintenance Cure Date" has the meaning set forth on page 20 of
this prospectus.



     "AMPS Basic Maintenance Report" has the meaning set forth on page 12 of the
statement of additional information.


                                       42
<PAGE>   44

     "Anticipation Notes" means the following Florida Municipal Bonds: revenue
anticipation notes, tax anticipation notes, tax and revenue anticipation notes,
grant anticipation notes and bond anticipation notes.


     "Applicable Percentage" has the meaning set forth on page 25 of this
prospectus.


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

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

     "Auction Agent" means IBJ Whitehall Bank & Trust Company unless and until
another commercial bank, trust company or other financial institution appointed
by a resolution of the Board of Trustees of the Fund 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 Agent Agreement" means the agreement entered into between the Fund
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for the purpose of determining the Applicable
Rate.


     "Auction Date" has the meaning set forth on page 24 of this prospectus.


     "Auction Procedures" means the procedures for conducting Auctions set forth
in Appendix E to the statement of additional information.


     "Available AMPS" has the meaning set forth on page 28 of this prospectus.


     "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 shares of AMPS or a Broker-Dealer that holds AMPS for its own account.


     "Bid" has the meaning set forth on page 24 of this prospectus.



     "Bidder" has the meaning set forth on page 25 of this prospectus.


     "Board of Trustees" or "Board" means the Board of Trustees 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 the Auction Procedures,
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 entered into between the
Auction Agent and a Broker-Dealer, including Merrill Lynch, Pierce, Fenner &
Smith Incorporated, pursuant to which such Broker-Dealer agrees to follow the
Auction Procedures.

     "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 The
City of New York are authorized or obligated by law to close.

     "Cede" means Cede & Co., the nominee of DTC, and in whose name the AMPS
initially will be registered.
                                       43
<PAGE>   45

     "Certificate of Designation" means the Certificate of Designation of the
Fund specifying the powers, preferences and rights of the AMPS.

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

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

     "Common shares" means the common shares, par value $.10 per share, of the
Fund.

     "Date of Original Issue" means, with respect to each share of AMPS, the
date on which such share first is issued by the Fund.

     "Declaration of Trust" means the Declaration of Trust, as amended and
supplemented (including the Certificate of Designation), of the Fund.

     "Deposit Securities" means cash and Florida Municipal Bonds and Municipal
Bonds 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 Moody's Discount Factor or an S&P Discount
Factor, as the case may be.

     "Discounted Value" of any asset of the Fund means (i) with respect to an
S&P Eligible Asset, the quotient of the market value thereof divided by the
applicable S&P Discount Factor and (ii) with respect to a Moody's Eligible
Asset, the lower of par and the quotient of the market value thereof divided by
the applicable Moody's Discount Factor.


     "Dividend Payment Date" has the meaning set forth on page 16 of this
prospectus.


     "Dividend Period" has the meaning set forth on page 15 of this prospectus.

     "DTC" means The Depository Trust Company.

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

     "Existing Holder" means a Broker-Dealer or any such other person as may be
permitted by the Fund that is listed as the holder of record of AMPS in the
records of the Auction Agent.

     "Fitch" means Fitch IBCA, Inc. or its successors.

     "Florida Municipal Bonds" has the meaning set forth on page 8 of this
prospectus.


     "Forward Commitment" has the meaning set forth on page 23 of the statement
of additional information.



     "Fund" means MuniHoldings Florida Insured Fund V, a Massachusetts business
trust that is the issuer of the AMPS.


     "Hold Order" has the meaning set forth on page 24 of this prospectus.

                                       44
<PAGE>   46


     "Initial Dividend Payment Date" means with respect to each series of AMPS,
the first Dividend Payment Date for the AMPS.


     "Initial Dividend Period" means, with respect to the AMPS, the period from
and including the Date of Original Issue to but excluding the Initial Dividend
Payment Date for each series of AMPS.

     "Initial Margin" means the amount of cash or securities deposited with a
broker as a margin payment at the time of purchase or sale of a financial
futures contract.

     "Interest Equivalent" means a yield on a 360-day basis of a discount basis
security which is equal to the yield on an equivalent interest-bearing security.

     "Investment Adviser" means Fund Asset Management, L.P.

     "IRS" means the United States Internal Revenue Service.

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


     "Mandatory Redemption Price" has the meaning set forth on page 21 of this
prospectus.


     "Marginal Tax Rate" means the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate, whichever is greater.


     "Maximum Applicable Rate" has the meaning set forth on page 25 of this
prospectus.



     "Maximum Potential Additional Dividend Liability" has the meaning set forth
on page 12 of the statement of additional information.


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


     "Moody's Discount Factor" has the meaning set forth on page 20 of the
statement of additional information.



     "Moody's Eligible Assets" has the meaning set forth on page 21 of the
statement of additional information.


     "Moody's Exposure Period" means a period that is the same length or longer
than the number of days used in calculating the cash dividend component of the
AMPS Basic Maintenance Amount and initially shall be the period commencing on
and including a given Valuation Date and ending 48 days thereafter.


     "Moody's Hedging Transactions" has the meaning set forth on page 22 of the
statement of additional information.


                                       45
<PAGE>   47

     "Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:


<TABLE>
<CAPTION>
                % CHANGE IN                              MOODY'S
             MARGINAL TAX RATE                      VOLATILITY FACTOR
             -----------------                      -----------------
<S>                                                 <C>
less than or equal to 5%....................               292%


> 5% but less than or equal to 10%..........               313%


> 10% but less than or equal to 15%.........               338%


> 15% but less than or equal to 20%.........               364%


> 20% but less than or equal to 25%.........               396%


> 25% but less than or equal to 30%.........               432%


> 30% but less than or equal to 35%.........               472%


> 35% but less than or equal to 40%.........               520%
</TABLE>


     Notwithstanding the foregoing, the Moody's Volatility Factor may mean such
other potential dividend rate increase factor as Moody's advises the Fund in
writing is applicable.

     "Municipal Bonds" has the meaning set forth on page 8 of this prospectus.


     "Municipal Index" has the meaning set forth on page 19 of the statement of
additional information.


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


     "1940 Act AMPS Asset Coverage" has the meaning set forth on page 20 of this
prospectus.



     "1940 Act Cure Date" has the meaning set forth on page 20 of this
prospectus.


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


     "Non-Payment Period" has the meaning set forth on page 10 of the statement
of additional information.



     "Non-Payment Period Rate" has the meaning set forth on page 10 of the
statement of additional information.



     "Notice of Revocation" has the meaning set forth on page 9 of the statement
of additional information.



     "Notice of Special Dividend Period" has the meaning set forth on page 18 of
this prospectus.



     "Optional Redemption Price" has the meaning set forth on page 21 of this
prospectus.



     "Order" has the meaning set forth on page 25 of this prospectus.


     "Policy" means an insurance policy purchased by the Fund which guarantees
the payment of principal and interest on specified Florida Municipal Bonds or
Municipal Bonds during the period in which such Florida Municipal Bonds or
Municipal Bonds are owned by the Fund; provided, however, that, as long as the
AMPS are rated by Moody's and S&P, the Fund will not obtain any Policy

                                       46
<PAGE>   48

unless Moody's and S&P advise the Fund in writing that the purchase of such
Policy will not adversely affect their then-current rating on the AMPS.

     "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 shares of
AMPS).

     "Preferred shares" means preferred shares, par value $.10 per share, of the
Fund.

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


     "Receivables for Florida Municipal Bonds Sold," for purposes of determining
S&P Eligible Assets, has the meaning set forth on page 16 of the statement of
additional information.



     "Receivables for Florida Municipal Bonds or Municipal Bonds Sold," for
purposes of determining Moody's Eligible Assets, has the meaning set forth on
page 20 of the statement of additional information.


     "Reference Rate" means: (i) with respect to a Dividend Period or a Short
Term Dividend Period having 28 or fewer days, the higher of the applicable "AA"
Composite Commercial Paper Rate and the Taxable Equivalent of the Short Term
Municipal Bond Rate, (ii) with respect to any Short Term Dividend Period, having
more than 28 but fewer than 183 days, the applicable "AA" Composite Commercial
Paper Rate, (iii) with respect to any Short Term Dividend Period having 183 or
more but fewer than 364 days, the applicable U.S. Treasury Bill Rate and (iv)
with respect to any Long Term Dividend Period, the applicable U.S. Treasury Note
Rate.

     "Request for Special Dividend Period" has the meaning set forth on page 15
of this prospectus.


     "Response" has the meaning set forth on page 18 of this prospectus.



     "Retroactive Taxable Allocation" has the meaning set forth on page 19 of
this prospectus.


     "Series A AMPS" means the Auction Market Preferred Shares, Series A, with a
par value of $.10 per share and a liquidation preference of $25,000 per share
plus an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared), of the Fund.

     "Series B AMPS" means the Auction Market Preferred Shares, Series B, with a
par value of $.10 per share and a liquidation preference of $25,000 per share
plus an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared), of the Fund.

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


     "S&P Discount Factor" has the meaning set forth on page 16 of the statement
of additional information.


                                       47
<PAGE>   49


     "S&P Eligible Assets" has the meaning set forth on page 16 of the statement
of additional information.


     "S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure
Date, that the Fund has under the Certificate of Designation to cure any failure
to maintain, as of such Valuation Date, a Discounted Value for its portfolio at
least equal to the AMPS Basic Maintenance Amount.


     "S&P Hedging Transactions" has the meaning set forth on page 19 of the
statement of additional information.


     "S&P Volatility Factor" means 277% or such other potential dividend rate
increase factor as S&P advises the Fund in writing is applicable.

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

     "Sell Order" has the meaning specified in Subsection 10(b)(i) of the
Auction Procedures.

     "7-Day Dividend Period" means a Dividend Period consisting of seven days.

     "Short Term Dividend Period" means a dividend period the number of days in
which are evenly divisible by seven, and not fewer than seven days nor more than
364 days.


     "Special Dividend Period" has the meaning set forth on page 16 of this
prospectus.


     "Specific Redemption Provisions" means, with respect to a Special Dividend
Period, either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Board of Trustees of 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"), consisting of a number of whole years
and determined by the Board of Trustees of 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 Board of Trustees of
the Fund after consultation with the Auction Agent and the Broker-Dealers.


     "Submission Deadline" has the meaning set forth on page 27 of this
prospectus.



     "Submitted Bid" has the meaning set forth on page 28 of this prospectus.



     "Submitted Hold Order" has the meaning set forth on page 28 of this
prospectus.



     "Submitted Order" has the meaning set forth on page 28 of this prospectus.



     "Submitted Sell Order" has the meaning set forth on page 28 of this
prospectus.


     "Subsequent Dividend Period" means each Dividend Period after the Initial
Dividend Period.

     "Substitute Rating Agency" and "Substitute Rating Agencies" shall mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations,
                                       48
<PAGE>   50

respectively, selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated, or
its respective affiliates and successors, after consultation with the Fund, to
act as a substitute rating agency or substitute rating agencies, as the case may
be, to determine the credit ratings of the AMPS.


     "Sufficient Clearing Bids" has the meaning set forth on page 28 of this
prospectus.


     "Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30 day High Grade Index (the "Kenny
Index"), or any successor index made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., Eastern time, on
such date by Kenny Information Systems Inc. or any successor thereto, based upon
30-day yield evaluations at par of bonds the interest on which is excludable for
regular Federal income tax purposes under the Code of "high grade" component
issuers selected by Kenny Information Systems Inc. or any such successor from
time to time in its discretion, which component issuers shall include, without
limitation, issuers of general obligation bonds but shall exclude any bonds the
interest on which constitutes an item of tax preference under Section 57(a) (5)
of the Code, or successor provisions, for purposes of the "alternative minimum
tax," divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal);
provided, however, that if the Kenny Index is not made so available by 8:30
A.M., Eastern time, on such date by Kenny Information Systems Inc. or any
successor, the Taxable Equivalent of the Short-Term Municipal Bond Rate shall
mean the quotient of (A) the per annum rate expressed on an interest equivalent
basis equal to the most recent Kenny Index so made available for any preceding
Business Day, divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a
decimal). The Fund may not utilize a successor index to the Kenny Index unless
Moody's and S&P provide the Fund with written confirmation that the use of such
successor index will not adversely affect the then-current respective Moody's
and S&P ratings of the AMPS.


     "Treasury Bonds" has the meaning set forth on page 19 of the statement of
additional information.


     "U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent of
the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.

     "U.S. Treasury Note Rate" on any date means (i) the yield as calculated by
reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or

                                       49
<PAGE>   51

(ii) if such yield as so calculated is not available, the Alternate Treasury
Note Rate on such date. "Alternate Treasury Note Rate" on any date means the
yield as calculated by reference to the arithmetic average of the bid price
quotations of the actively traded, current coupon Treasury Note with a maturity
most nearly comparable to the length of the related Dividend Period, as
determined by the bid price quotations as of any time on the Business Day
immediately preceding such date, obtained from at least three recognized primary
U.S. Government securities dealers selected by the Auction Agent.


     "Valuation Date" has the meaning set forth on page 20 of this prospectus.


     "Variation Margin" means, in connection with an outstanding financial
futures contract owned or sold by the Fund, the amount of cash or securities
paid to or received from a broker (subsequent to the Initial Margin payment)
from time to time as the price of such financial futures contract fluctuates.


     "Winning Bid Rate" has the meaning set forth on page 26 of this prospectus.


                                       50
<PAGE>   52

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


                              $


                      MUNIHOLDINGS FLORIDA INSURED FUND V


                 AUCTION MARKET PREFERRED SHARES(R) ["AMPS(R)"]


                                   SHARES, SERIES A



                                   SHARES, SERIES B


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

                                   PROSPECTUS

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

                              MERRILL LYNCH & CO.


                                          , 1999


(R) Registered trademarks of Merrill Lynch & Co. Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   53

THE INFORMATION CONTAINED 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 A PROSPECTUS.

                             SUBJECT TO COMPLETION

      PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 30, 1999



STATEMENT OF ADDITIONAL INFORMATION

                                $




                      MUNIHOLDINGS FLORIDA INSURED FUND IV

                  AUCTION MARKET PREFERRED SHARES ["AMPS(R)"]

                                    SHARES, SERIES A


                                    SHARES, SERIES B

                    LIQUIDATION PREFERENCE $25,000 PER SHARE

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


     MuniHoldings Florida Insured Fund V (the "Fund") is a recently organized,
non-diversified, closed-end management investment company that seeks to provide
shareholders with current income exempt from Federal income tax and the
opportunity to own shares whose value is exempt from Florida intangible personal
property tax. The Fund seeks to achieve its objective by investing primarily in
a portfolio of long-term, investment grade municipal obligations the interest on
which, in the opinion of bond counsel to the issuer, is exempt from Federal
income tax and which enable shares of the Fund to be exempt from Florida
intangible personal property tax. The Fund intends to invest in municipal
obligations that are rated investment grade or, if unrated, are considered by
the Fund's investment adviser to be of comparable quality. Under normal
circumstances, at least 80% of the Fund's assets will be invested in municipal
obligations with remaining maturities of one year or more that are covered by
insurance guaranteeing the timely payment of principal at maturity and interest.
There can be no assurance that the Fund's investment objective will be realized.
For more information on the Fund's investment objective and policies, see
"Investment Objective and Policies."


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

     Certain capitalized terms not otherwise defined in this statement of
additional information have the meaning provided in the Glossary included as
part of the prospectus.

     This statement of additional information is not a prospectus, but should be
read in conjunction with the prospectus of the Fund, which has been filed with
the Securities and Exchange Commission (the "Commission") and can be obtained,
without charge, by calling (800) 637-3863. The prospectus is incorporated by
reference into this statement of additional information, and this statement of
additional information is incorporated by reference into the prospectus.
- ---------------

(R) Registered trademark of Merrill Lynch & Co., Inc.

                            ------------------------
                              MERRILL LYNCH & CO.
                            ------------------------


 The date of this statement of additional information is               , 1999.

<PAGE>   54

            TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION


<TABLE>
<S>                                                           <C>
Investment Objective and Policies...........................    2
Investment Restrictions.....................................    6
Description of AMPS.........................................    8
The Auction.................................................   15
Rating Agency Guidelines....................................   16
Trustees and Officers.......................................   24
Investment Advisory and Management Arrangements.............   26
Portfolio Transactions......................................   27
Taxes.......................................................   28
Net Asset Value.............................................   32
Additional Information......................................   33
Report of Independent Auditors..............................   34
Statement of Assets, Liabilities and Capital................   35
Financial Statements (Unaudited)............................   37
Appendix A -- Economic and Other Conditions in Florida......  A-1
Appendix B -- Ratings of Municipal Bonds....................  B-1
Appendix C -- Portfolio Insurance...........................  C-1
Appendix D -- Settlement Procedures.........................  D-1
Appendix E -- Auction Procedures............................  E-1
</TABLE>

<PAGE>   55

                       INVESTMENT OBJECTIVE AND POLICIES

     The Fund's investment objective is to provide shareholders with current
income exempt from Federal income tax and the opportunity to own shares whose
value is exempt from Florida intangible personal property tax. The Fund seeks to
achieve its investment objective by investing primarily in a portfolio of
long-term, investment grade municipal obligations issued by or on behalf of the
State of Florida, its political subdivisions, agencies and instrumentalities,
and other qualifying issuers, each of which pays interest which, in the opinion
of bond counsel to the issuer, is exempt from Federal income tax and which
enable shares of the Fund to be exempt from Florida intangible personal property
tax ("Florida Municipal Bonds"). The Fund intends to invest substantially all
(at least 80%) of its assets in Florida Municipal Bonds, except at times when
the Fund's investment adviser, Fund Asset Management, L.P. (the "Investment
Adviser"), considers that Florida Municipal Bonds of sufficient quality and
quantity are unavailable for investment at suitable prices by the Fund. To the
extent the Investment Adviser considers that suitable Florida Municipal Bonds
are not available for investment, the Fund may purchase other long-term
municipal obligations that are exempt from Federal income taxes but whose value
is not exempt from Florida intangible personal property taxes ("Municipal
Bonds"). The Fund will maintain at least 65% of its assets in Florida Municipal
Bonds and at least 80% of its assets in Florida Municipal Bonds and Municipal
Bonds, except during interim periods pending investment of the net proceeds of
public offerings of the Fund's securities and during temporary defensive
periods. Under normal circumstances, at least 80% of the Fund's assets will be
invested in municipal obligations with remaining maturities of one year or more
that are covered by insurance guaranteeing the timely payment of principal at
maturity and interest. The Fund's investment objective is a fundamental policy
that may not be changed without a vote of a majority of the Fund's outstanding
voting securities, as defined below under "Investment Restrictions." There can
be no assurance that the investment objective of the Fund will be realized. At
times the Fund may seek to hedge its portfolio through the use of options and
futures transactions to reduce volatility in the net asset value of its common
shares.


     The Fund ordinarily does not intend to realize significant interest income
that is subject to Federal income tax or have significant assets subject to
Florida intangible personal property tax. The Fund may invest all or a portion
of its assets in certain tax-exempt securities classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities) that may
subject certain investors in the Fund to a Federal alternative minimum tax.


     The Fund also may invest in securities not issued by or on behalf of a
state or territory or by an agency or instrumentality thereof, if the Fund
nevertheless believes such securities pay interest or distributions that are
exempt from Federal income taxation ("Non-Municipal Tax-Exempt Securities").
Non-Municipal Tax-Exempt Securities may include securities issued by other
investment companies that invest in Florida Municipal Bonds and Municipal Bonds,
to the extent such investments are permitted by the Investment Company Act of
1940, as amended (the "1940 Act"). Other Non-Municipal Tax-Exempt Securities
could include trust certificates or other instruments evidencing interests in
one or more long-term Florida Municipal Bonds or Municipal Bonds. Certain
Non-Municipal Tax-Exempt Securities may be characterized as derivative
instruments. Non-Municipal Tax-Exempt Securities are considered "Florida
Municipal Bonds" or "Municipal Bonds" for purposes of the Fund's investment
objective and policies.

DESCRIPTION OF FLORIDA MUNICIPAL BONDS AND MUNICIPAL BONDS


     Florida Municipal Bonds and Municipal Bonds include debt obligations issued
to obtain funds for various public purposes, including construction of a wide
range of public facilities, refunding of outstanding obligations and obtaining
funds for general operating expenses and loans to other public institutions and
facilities. In addition, certain types of private activity bonds ("PABs") are
issued by or on behalf of public authorities to finance various privately
operated facilities, including airports, public ports, mass commuting
facilities, multifamily housing projects, as well as facilities for water
supply, gas, electricity, sewage or solid waste disposal. For purposes of this
statement of additional information, such obligations are considered Municipal
Bonds if the interest paid thereon is exempt from Federal income tax and as
Florida Municipal Bonds if the interest thereon is exempt from Federal income
tax and the obligations are exempt from Florida intangible personal property
tax, even though such bonds may be PABs as discussed below. Also, for purposes
of this


                                        2
<PAGE>   56

statement of additional information, Non-Municipal Tax-Exempt securities as
discussed above will be considered Florida Municipal Bonds or Municipal Bonds.


     The two principal classifications of Florida Municipal Bonds and Municipal
Bonds are "general obligation" bonds and "revenue" bonds, which latter category
includes PABs and, for bonds issued on or before August 15, 1986, industrial
development bonds or "IDBs". General obligation bonds (other than those of the
State of Florida, which has limited taxing powers) are typically secured by the
issuer's pledge of faith, credit and taxing power for the repayment of principal
and the payment of interest. Revenue or special obligation bonds are typically
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as from the user of the facility being financed.
PABs are in most cases revenue bonds and do not generally constitute the pledge
of the credit or taxing power of the issuer of such bonds. The repayment of
principal and the payment of interest on such IDBs depends solely on the ability
of the user of the facility financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment. Florida Municipal Bonds and Municipal Bonds may also
include "moral obligation" bonds, which are normally issued by special purpose
public authorities. If an issuer of moral obligation bonds is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question.



     The Fund may purchase Florida Municipal Bonds and Municipal Bonds
classified as PABs. Interest received on certain PABs is treated as an item of
"tax preference" for purposes of the Federal alternative minimum tax and may
impact the overall tax liability of investors in the Fund. There is no
limitation on the percentage of the Fund's assets that may be invested in
Florida Municipal Bonds and Municipal Bonds the interest on which is treated as
an item of "tax preference" for purposes of the Federal alternative minimum tax.
See "Taxes -- General."



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



     Federal tax legislation has limited and may continue to limit the types and
volume of bonds the interest on which qualifies for a Federal income tax
exemption. Legislation that may be enacted in the future may affect the
availability of Florida Municipal Bonds and Municipal Bonds for investment by
the Fund.


OPTIONS AND FUTURES TRANSACTIONS

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

     Writing Covered Call Options.  The Fund may write (i.e., sell) covered call
options with respect to Florida Municipal Bonds and Municipal Bonds it owns,
thereby giving the holder of the option the right to buy the underlying security
covered by the option from the Fund at the stated exercise price until the
option expires. The Fund writes only covered call options, which means that so
long as the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option. The Fund may not write

                                        3
<PAGE>   57

covered call options on underlying securities in an amount exceeding 15% of the
market value of its total assets.

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

     Purchase of Options.  The Fund may purchase put options in connection with
its hedging activities. By buying a put the Fund has a right to sell the
underlying security at the exercise price, thus limiting the Fund's risk of loss
through a decline in the market value of the security until the put expires. The
amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction; profit or loss from the sale will depend on whether
the amount received is more or less than the premium paid for the put option
plus the related transaction costs. A closing sale transaction cancels out the
Fund's position as the purchaser of an option by means of an offsetting sale of
an identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options or on securities that it
intends to purchase. The Fund will not purchase options on securities if, as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.

     Financial Futures Contracts and Options.  The Fund is authorized to
purchase and sell certain financial futures contracts and options thereon solely
for the purpose of hedging its investments in Florida Municipal Bonds and
Municipal Bonds against declines in value and hedging against increases in the
cost of securities it intends to purchase. A financial futures contract
obligates the seller of a contract to deliver and the purchaser of a contract to
take delivery of the type of financial instrument covered by the contract or, in
the case of index-based financial futures contracts, to make and accept a cash
settlement, at a specific future time for a specified price. A sale of financial
futures contracts may provide a hedge against a decline in the value of
portfolio securities because such depreciation may be offset, in whole or in
part, by an increase in the value of the position in the financial futures
contracts. A purchase of financial futures contracts may provide a hedge against
an increase in the cost of securities intended to be purchased because such
appreciation may be offset, in whole or in part, by an increase in the value of
the position in the financial futures contracts.

     The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or received.
Instead, an amount of cash or securities acceptable to the broker equal to
approximately 5% of the contract amount must be deposited with the broker. This
amount is known as initial margin. Subsequent payments to and from the broker,
called variation margin, are made on a daily basis as the price of the financial
futures contract fluctuates making the long and short positions in the financial
futures contract more or less valuable.

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

     Subject to policies adopted by the Board of Trustees, the Fund also may
engage in transactions in other financial futures contracts, such as financial
futures contracts on other municipal bond indices that may become available, if
the Investment Adviser should determine that there is normally sufficient
correlation

                                        4
<PAGE>   58

between the prices of such financial futures contracts and the Florida Municipal
Bonds and Municipal Bonds in which the Fund invests to make such hedging
appropriate.

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

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

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

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

     When the Fund purchases a financial futures contract, or writes a put
option or purchases a call option thereon, it will maintain an amount of cash,
cash equivalents (e.g., commercial paper and daily tender adjustable notes) or
liquid securities in a segregated account with the Fund's custodian so that the
amount so segregated plus the amount of initial and variation margin held in the
account of its broker equals the market value of the financial futures contract,
thereby ensuring that the use of such financial futures contract is unleveraged.

     Certain risks are involved in options and futures transactions. The
Investment Adviser believes, however, that, because the Fund will engage in
options and futures transactions only for hedging purposes, the Fund's options
and futures portfolio strategies will not subject the Fund to those risks
associated with speculation in options and futures transactions.

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

                                        5
<PAGE>   59

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

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

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

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

                            INVESTMENT RESTRICTIONS

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

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

          2. Purchase or sell real estate, commodities or commodity contracts;
     provided that the Fund may invest in securities secured by real estate or
     interests therein or issued by entities that invest in real estate or
     interest therein, and the Fund may purchase and sell financial futures
     contracts and options thereon.

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

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

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

                                        6
<PAGE>   60

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

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

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

          b. Mortgage, pledge, hypothecate or in any manner transfer, as
     security for indebtedness, any securities owned or held by the Fund except
     as may be necessary in connection with borrowings mentioned in investment
     restriction (3) above or except as may be necessary in connection with
     transactions in financial futures contracts and options thereon.

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

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

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

     For so long as AMPS are rated by Moody's, the Fund will not change these
additional investment restrictions unless it receives written confirmation from
Moody's that engaging in such transactions would not impair the rating then
assigned to the AMPS by Moody's.

     The Fund has no intention to 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.

     The Investment Adviser of the Fund and Merrill Lynch are owned and
controlled by Merrill Lynch & Co. ("ML & Co."). Because of the affiliation of
Merrill Lynch with the Investment Adviser, the Fund is prohibited from engaging
in certain transactions involving Merrill Lynch except pursuant to an exemptive
order or otherwise in compliance with the provisions of the 1940 Act and the
rules and regulations thereunder. Included among such restricted transactions
will be purchases from or sales to Merrill Lynch of securities in transactions
in which it acts as principal. An exemptive order has been obtained that permits
the Fund to effect principal transactions with Merrill Lynch in high quality,
short-term, tax-exempt securities subject to conditions set forth in such order.
The Fund may consider in the future requesting an order permitting other
principal transactions with Merrill Lynch, but there can be no assurance that
such application will be made and, if made, that such order would be granted.

                                        7
<PAGE>   61

                              DESCRIPTION OF AMPS

     Certain of the capitalized terms used herein are defined in the Glossary
that appears at the back of the prospectus.

     The AMPS of each series will be preferred shares that entitle their holders
to receive dividends when, as and if declared by the Board of Trustees, out of
funds legally available therefor, at a rate per year that may vary for the
successive Dividend Periods for each such series. After the Initial Dividend
Period, each Subsequent Dividend Period for each series of AMPS generally will
be a 7-Day Dividend Period; provided, however, that prior to any Auction, the
Fund may elect, subject to certain limitations described herein, upon giving
notice to holders thereof, a Special Dividend Period. The Applicable Rate for a
particular Dividend Period 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 therefor,
although, except in the case of a Special Dividend Period, Beneficial Owners
desiring to continue to hold all of their AMPS regardless of the Applicable Rate
resulting from Auctions need not participate. For an explanation of Auctions and
the method of determining the Applicable Rate, see Appendix E -- "Auction
Procedures."

     Except as otherwise required by law or unless there is no Securities
Depository, all outstanding AMPS of each series will be represented by one or
more certificates registered in the name of the nominee of the Securities
Depository (initially expected to be Cede), and no person acquiring AMPS will be
entitled to receive a certificate representing such shares. See Appendix
E -- "Auction Procedures." As a result, the nominee of the Securities Depository
is expected to be the sole holder of record of the AMPS. Accordingly, each
purchaser 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, 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 AMPS.

     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 earned or declared) and will be fully paid and non-assessable.
See "Description of AMPS -- Liquidation Rights" in the prospectus. The AMPS will
not be convertible into common shares or other capital shares of the Fund, and
the holders thereof will have no preemptive rights. The AMPS of each series will
not be subject to any sinking fund but will be subject to redemption at the
option of the Fund at the Optional Redemption Price on any Dividend Payment Date
for such series (except during the Initial Dividend Period and during a Non-Call
Period) and, under certain circumstances, will be subject to mandatory
redemption by the Fund at the Mandatory Redemption Price stated in the
prospectus. See "Description of AMPS -- Redemption" in the prospectus.

     In addition to serving as the Auction Agent in connection with the Auction
Procedures described in the prospectus, IBJ Whitehall Bank & Trust Company will
be the transfer agent, registrar, dividend disbursing agent and redemption agent
for the AMPS. The Auction Agent, however, will serve merely as the agent of the
Fund, acting in accordance with the Fund's instructions, and will not be
responsible for any evaluation or verification of any matters certified to it.

     Except in an Auction, the Fund will have the right (to the extent permitted
by applicable law) to purchase or otherwise acquire any AMPS so long as the Fund
is current in the payment of dividends on AMPS and on any other capital shares
of the Fund ranking on a parity with the AMPS with respect to the payment of
dividends or upon liquidation.

     The following supplements the description of the terms of the AMPS set
forth in the prospectus. This description does not purport to be complete and is
subject to and qualified in its entirety by reference to the Fund's Charter and
Certificate of Designation, including the provisions thereof establishing the
AMPS. The Fund's Charter and the form of Certificate of Designation establishing
the terms of the AMPS have been filed as exhibits to the Registration Statement
of which this statement of additional information is a part.

                                        8
<PAGE>   62

DIVIDENDS

     General.  The holders of shares of each series of AMPS will be entitled to
receive, when, as and if declared by the Board of Trustees of the Fund, out of
funds legally available therefor, cumulative cash dividends on their shares, at
the Applicable Rate determined as set forth below under "Determination of
Dividend Rate," payable on the respective dates set forth below. Dividends on
the AMPS so declared and payable shall be paid (i) in preference to and in
priority over any dividends so declared and payable on the common shares, and
(ii) to the extent permitted under the Code and to the extent available, out of
net tax-exempt income earned on the Fund's investments. Generally, dividends on
AMPS, to the extent that they are derived from interest paid on Municipal Bonds,
will be exempt from Federal income taxes, subject to possible application of the
alternative minimum tax. See "Taxes."

     Notification of Dividend Period.  In determining whether the Fund should
issue a Notice of Special Dividend for a series of AMPS, 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, (v) the investment objective 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. If the
Broker-Dealers shall not give the Fund and the Auction Agent a Response by such
second Business Day or if the Response states that given the factors set forth
above it is not advisable that the Fund give a Notice of Special Dividend Period
for the AMPS, the Fund may not give a Notice of Special Dividend Period in
respect of such Request for Special Dividend Period. In the event the Response
indicates that it is advisable that the Fund give a Notice of Special Dividend
Period for the AMPS, 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 and each Broker-Dealer, which
notice will specify (i) the duration of the Special Dividend Period, (ii) the
Optional Redemption Price as specified in the related Response and (iii) the
Specific Redemption Provisions, if any, as specified in the related Response.
The Fund also shall provide a copy of such Notice of Special Dividend Period to
Moody's and S&P. The Fund shall not give a Notice of Special Dividend Period,
and, if such Notice of Special Dividend Period shall have been given already,
shall give telephonic and written notice of its revocation (a "Notice of
Revocation") to the Auction Agent, each Broker-Dealer, and the Securities
Depository on or prior to the Business Day prior to the relevant Auction Date if
(x) either the 1940 Act AMPS Asset Coverage is not satisfied or the Fund shall
fail to maintain S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value at least equal to the AMPS Basic Maintenance Amount,
in each case on each of the two Valuation Dates immediately preceding the
Business Day prior to the relevant Auction Date on an actual basis and on a pro
forma basis giving effect to the proposed Special Dividend Period (using as a
pro forma dividend rate with respect to such Special Dividend Period the
dividend rate which the Broker-Dealers shall advise the Fund is an approximately
equal rate for securities similar to the AMPS with an equal dividend period),
provided that, in calculating the aggregate Discounted Value of Moody's Eligible
Assets for this purpose, the Moody's Exposure Period shall be deemed to be one
week longer, (y) sufficient funds for the payment of dividends payable on the
immediately succeeding Dividend Payment Date have not been irrevocably deposited
with the Auction Agent by the close of business on the third Business Day
preceding the related Auction Date or (z) the Broker-Dealers jointly advise the
Fund that, after consideration of the factors listed above, they have concluded
that it is advisable to give a Notice of Revocation. The Fund also shall provide
a copy of such Notice of Revocation to Moody's and S&P. If the Fund is
prohibited from giving a Notice of Special Dividend Period as a result of the
factors enumerated in clause (x), (y) or (z) 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 will be a 7-Day Dividend Period. In
addition, in the event Sufficient Clearing Bids are not made in any Auction or
an Auction is not held for any reason, the next succeeding Dividend Period will
be a 7-Day Dividend Period, and the Fund may not again give a Notice of Special
Dividend Period (and any such attempted notice shall be null and void) until
Sufficient Clearing Bids have been made in an Auction with respect to a 7-Day
Dividend Period.

                                        9
<PAGE>   63

     Non-Payment Period; Late Charge.  A Non-Payment Period will commence if the
Fund fails to (i) declare, prior to the close of business on the second Business
Day preceding any Dividend Payment Date, for payment on or (to the extent
permitted as described below) within three Business Days after such Dividend
Payment Date to the persons who held such shares as of 12:00 noon, Eastern time,
on the Business Day preceding such Dividend Payment Date, the full amount of any
dividend on shares of AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, Eastern time, (A) on such Dividend Payment Date the full amount of
any cash dividend on such shares (if declared) payable on such Dividend Payment
Date or (B) on any redemption date for AMPS called for redemption, the Mandatory
Redemption Price per share of such AMPS or, in the case of an optional
redemption, the Optional Redemption Price per share. Such Non-Payment Period
will consist of the period commencing on and including the aforementioned
Dividend Payment Date or redemption date, as the case may be, and ending on and
including the Business Day on which, by 12:00 noon, Eastern time, all unpaid
cash dividends and unpaid redemption prices shall have been so deposited or
otherwise shall have been made available to the applicable holders in same-day
funds, provided that a Non-Payment Period for any series of AMPS will not end
unless the Fund shall have given at least five days' but no more than 30 days'
written notice of such deposit or availability to the Auction Agent, the
Securities Depository and all holders of AMPS of such series. Notwithstanding
the foregoing, the failure by the Fund to deposit funds as provided for by
clauses (ii)(A) or (ii)(B) above within three Business Days after any Dividend
Payment Date or redemption date, as the case may be, in each case to the extent
contemplated below, shall not constitute a "Non-Payment Period."

     The Applicable Rate for each Dividend Period for AMPS of any series,
commencing during a Non-Payment Period, will be equal to the Non-Payment Period
Rate; and each Dividend Period commencing after the first day of, and during, a
Non-Payment Period shall be a 7-Day Dividend Period. Any dividend on AMPS due on
any Dividend Payment Date for such shares (if, prior to the close of business on
the second Business Day preceding such Dividend Payment Date, the Fund has
declared such dividend payable on such Dividend Payment Date to the persons who
held such shares as of 12:00 noon, Eastern time, on the Business Day preceding
such Dividend Payment Date) or redemption price with respect to such shares not
paid to such persons when due may be paid to such persons in the same form of
funds by 12:00 noon, Eastern time, on any of the first three Business Days after
such Dividend Payment Date or due date, as the case may be, provided that such
amount is accompanied by a late charge calculated for such period of non-payment
at the Non-Payment Period Rate applied to the amount of such non-payment based
on the actual number of days comprising such period divided by 365. In the case
of a willful failure of the Fund to pay a dividend on a Dividend Payment Date or
to redeem any AMPS on the date set for such redemption, the preceding sentence
shall not apply and the Applicable Rate for the Dividend Period commencing
during the Non-Payment Period resulting from such failure shall be the
Non-Payment Period Rate. For the purposes of the foregoing, payment to a person
in same-day funds on any Business Day at any time will be considered equivalent
to payment to that person in New York Clearing House (next-day) funds at the
same time on the preceding Business Day, and any payment made after 12:00 noon,
Eastern time, on any Business Day shall be considered to have been made instead
in the same form of funds and to the same person before 12:00 noon, Eastern
time, on the next Business Day.

     The Non-Payment Period Rate initially will be 200% of the applicable
Reference Rate (or 275% of such rate if the Fund has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate for any
dividend that net capital gains or other taxable income will be included in such
dividend on AMPS), provided that the Board of Trustees of the Fund shall have
the authority to adjust, modify, alter or change from time to time the initial
Non-Payment Period Rate if the Board of Trustees of the Fund determines and
Moody's and S&P (and any Substitute Rating Agency in lieu of Moody's or S&P in
the event either of such parties shall not rate the AMPS) advise the Fund in
writing that such adjustment, modification, alteration or change will not
adversely affect their then-current ratings on the AMPS.

     Restrictions on Dividends and Other Payments.  For so long as any AMPS are
outstanding, the Fund will not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase, common
shares or

                                       10
<PAGE>   64

other shares, if any, ranking junior to AMPS as to dividends or upon
liquidation) in respect of common shares or any other shares of the Fund ranking
junior to or on a parity with AMPS as to dividends or upon liquidation, or call
for redemption, redeem, purchase or otherwise acquire for consideration any
common shares or any other such junior shares (except by conversion into or
exchange for shares of the Fund ranking junior to AMPS as to dividends and upon
liquidation) 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
dividends and upon liquidation), unless (A) immediately after such transaction,
the Fund would have S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount, and the 1940 Act AMPS Asset Coverage (see "Asset Maintenance" and
"Redemption" below) would be satisfied, (B) full cumulative dividends on 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, (C) any Additional Dividend required to be paid on or
before the date of such declaration or payment has been paid and (D) the Fund
has redeemed the full number of AMPS required to be redeemed by any provision
for mandatory redemption contained in the Certificate of Designation.

ASSET MAINTENANCE

     1940 Act AMPS Asset Coverage.  The Fund will be required under the
Certificate of Designation to maintain, with respect to AMPS, as of the last
Business Day of each month in which any AMPS are outstanding, asset coverage of
at least 200% with respect to senior securities which are shares, including the
AMPS (or such other asset coverage as in the future may be specified in or under
the 1940 Act as the minimum asset coverage for senior securities which are stock
of a closed-end investment company as a condition of paying dividends on its
common stock) ("1940 Act AMPS Asset Coverage"). If the Fund fails to maintain
1940 Act AMPS Asset Coverage and such failure is not cured as of the last
Business Day of the following month (the "1940 Act Cure Date"), the Fund will be
required under certain circumstances to redeem certain of the AMPS. See
"Redemption" in the prospectus and below.

     AMPS Basic Maintenance Amount.  So long as AMPS are outstanding, the Fund
will be required under the Certificate of Designation to maintain as of each
Business Day (a "Valuation Date") S&P Eligible Assets and Moody's Eligible
Assets each having in the aggregate a Discounted Value at least equal to the
AMPS Basic Maintenance Amount. If the Fund fails to meet such requirement as of
any Valuation Date and such failure is not cured on or before the sixth Business
Day after such Valuation Date (the "AMPS Basic Maintenance Cure Date"), the Fund
will be required under certain circumstances to redeem certain of the AMPS. Upon
any failure to maintain the required Discounted Value, the Fund will use its
best efforts to alter the composition of its portfolio to reattain a Discounted
Value at least equal to the AMPS Basic Maintenance Amount on or prior to the
AMPS Basic Maintenance Cure Date. See "Redemption" in the prospectus and below.

     The AMPS Basic Maintenance Amount as of any Valuation Date is defined as
the dollar amount equal to (i) the sum of (A) the product of the number of AMPS
outstanding on such Valuation Date multiplied by the sum of $25,000 and any
applicable redemption premium attributable to the designation of a Premium Call
Period; (B) the aggregate amount of cash dividends (whether or not earned or
declared) that will have accumulated for each share of AMPS outstanding to (but
not including) the end of the current Dividend Period that follows such
Valuation Date in the event the then-current Dividend Period will end within 49
calendar days of such Valuation Date or through the 49th day after such
Valuation Date in the event the then-current Dividend Period for each series of
AMPS will not end within 49 calendar days of such Valuation Date; (C) in the
event the then-current Dividend Period will end within 49 calendar days of such
Valuation Date, the aggregate amount of cash dividends that would accumulate at
the Maximum Applicable Rate applicable to a Dividend Period of 28 or fewer days
on any AMPS outstanding from the end of such Dividend Period through the 49th
day after such Valuation Date, multiplied by the larger of the Moody's
Volatility Factor and the S&P Volatility Factor determined from time to time by
Moody's and S&P, respectively (except that if such Valuation Date occurs during
a Non-Payment Period, the cash dividend for purposes of calculation would
accumulate at the then-current Non-Payment Period Rate); (D) the amount of
anticipated Fund

                                       11
<PAGE>   65

expenses for the 90 days subsequent to such Valuation Date (including any
premiums payable with respect to a Policy); (E) the amount of the Fund's Maximum
Potential Additional Dividend Liability as of such Valuation Date; and (F) any
current liabilities as of such Valuation Date to the extent not reflected in any
of (i)(A) through (i)(E) (including, without limitation, and immediately upon
determination, any amounts due and payable by the Fund pursuant to repurchase
agreements, any amounts payable for Florida Municipal Bonds or Municipal Bonds
purchased as of such Valuation Date) less (ii) either (A) the Discounted Value
of any Fund assets, or (B) the face value of any of the Fund's assets if such
assets mature prior to or on the date of redemption of AMPS or payment of a
liability and are either securities issued or guaranteed by the United States
Government or Deposit Securities, in both cases irrevocably deposited by the
Fund for the payment of the amount needed to redeem AMPS subject to redemption
or to satisfy any of (i)(B) through (i)(F). For Moody's and S&P the Fund shall
include as a liability an amount calculated semi-annually equal to 150% of the
estimated cost of obtaining other insurance guaranteeing the timely payment of
interest on a Moody's Eligible Asset or S&P Eligible Asset and principal thereof
to maturity with respect to Moody's Eligible Assets and S&P Eligible Assets that
(i) are covered by a Policy which provides the Fund with the option to obtain
such other insurance and (ii) are discounted by a Moody's Discount Factor or S&P
Discount Factor, as the case may be, determined by reference to the insurance
claims-paying ability rating of the issuer of such Policy. For purposes of the
foregoing, "Maximum Potential Additional Dividend Liability," as of any
Valuation Date, means the aggregate amount of Additional Dividends that would be
due if the Fund were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Fund, as of the end of the calendar month immediately preceding such Valuation
Date and assuming such Additional Dividends are fully taxable.

     The Discount Factors and guidelines for determining the market value of the
Fund's portfolio holdings have been based on criteria established in connection
with rating the AMPS. These factors include, but are not limited to, the
sensitivity of the market value of the relevant asset to changes in interest
rates, the liquidity and depth of the market for the relevant asset, the credit
quality of the relevant asset (for example, the lower the rating of a debt
obligation, the higher the related discount factor) and the frequency with which
the relevant asset is marked to market. In no event shall the Discounted Value
of any asset of the Fund exceed its unpaid principal balance or face amount as
of the date of calculation. The Discount Factor relating to any asset of the
Fund and the AMPS Basic Maintenance Amount, the assets eligible for inclusion in
the calculation of the Discounted Value of the Fund's portfolio and certain
definitions and methods of calculation relating thereto may be changed from time
to time by the Fund, without shareholder approval, but only in the event the
Fund receives written confirmation from S&P, Moody's and any Substitute Rating
Agency that any such changes would not impair the ratings then assigned to the
AMPS by S&P or Moody's or any Substitute Rating Agency.


     On or before the third Business Day after a Valuation Date on which the
Fund fails to maintain S&P Eligible Assets and Moody's Eligible Assets each with
an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount, the Fund is required to deliver to the Auction Agent,
Moody's and S&P a report with respect to the calculation of the AMPS Basic
Maintenance Amount and the value of its portfolio holdings as of the date of
such failure (an "AMPS Basic Maintenance Report"). Additionally, on or before
the third Business Day after the first day of a Special Dividend Period, the
Fund will deliver an AMPS Basic Maintenance Report to S&P and the Auction Agent.
The Fund also will deliver an AMPS Basic Maintenance Report as of the
twenty-fifth day of the last month of each fiscal quarter of the Fund (or, if
such day is not a Business Day, the next succeeding Business Day) on or before
the third Business Day after such day. Within ten Business Days after delivery
of such report relating to the twenty-first day of the last month of each fiscal
quarter of the Fund, the Fund will deliver a letter prepared by the Fund's
independent accountants regarding the accuracy of the calculations made by the
Fund in its most recent AMPS Basic Maintenance Report. Also, on or before 5:00
p.m., Eastern time, on the first Business Day after common shares are
repurchased by the Fund, the Fund will complete and deliver to S&P and Moody's
an AMPS Basic Maintenance Report as of the close of business on such date that
common shares are repurchased. If any such letter prepared by the Fund's
independent accountants shows that an error was made in the most recent


                                       12
<PAGE>   66

AMPS Basic Maintenance Report, the calculation or determination made by the
Fund's independent accountants will be conclusive and binding on the Fund.

REDEMPTION

     Mandatory Redemption.  The number of AMPS to be redeemed will be equal to
the lesser of (a) the minimum number of AMPS the redemption of which, if deemed
to have occurred immediately prior to the opening of business on the Cure Date,
together with all other preferred shares subject to redemption or retirement,
would result in the Fund having S&P Eligible Assets and Moody's Eligible Assets
each with an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the
case may be, on such Cure Date (provided that, if there is no such minimum
number of shares the redemption of which would have such result, all AMPS then
outstanding will be redeemed), and (b) the maximum number of AMPS, together with
all other preferred shares subject to redemption or retirement, that can be
redeemed out of funds expected to be legally available therefor on such
redemption date. In determining the number of AMPS required to be redeemed in
accordance with the foregoing, the Fund shall allocate the number required to be
redeemed which would result in the Fund having S&P Eligible Assets and Moody's
Eligible Assets each with an aggregate Discounted Value equal to or greater than
the AMPS Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset
Coverage, as the case may be, pro rata among AMPS and other preferred shares
subject to redemption pursuant to provisions similar to those set forth below;
provided that, AMPS which may not be redeemed at the option of the Fund due to
the designation of a Non-Call Period applicable to such shares (A) will be
subject to mandatory redemption only to the extent that other shares are not
available to satisfy the number of shares required to be redeemed and (B) will
be selected for redemption in an ascending order of outstanding number of days
in the Non-Call Period (with shares with the lowest number of days to be
redeemed first) and by lot in the event of shares having an equal number of days
in such Non-Call Period. The Fund is required to effect such a mandatory
redemption not later than 35 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 AMPS which are subject to mandatory redemption or the Fund otherwise
is unable to effect such redemption on or prior to 35 days after such Cure Date,
the Fund will redeem those AMPS which it was unable to redeem on the earliest
practicable date on which it is able to effect such redemption.


     Notice of Redemption.  If AMPS of any series are to be redeemed, a notice
of redemption will be mailed to each record holder of such AMPS (initially Cede
as nominee of the Securities Depository) and to the Auction Agent not less than
17 nor more than 60 days prior to the date fixed for the redemption thereof.
Each notice of redemption will include a statement setting forth: (i) the
redemption date, (ii) the aggregate number of AMPS of such series to be
redeemed, (iii) the redemption price, (iv) the place or places where AMPS of
such series are to be surrendered for payment of the redemption price, (v) a
statement that dividends on the shares to be redeemed will cease to accumulate
on such redemption date (except that holders may be entitled to Additional
Dividends) and (vi) the provision of the Certificate of Designation pursuant to
which such shares are being redeemed. The notice also will be published in The
Wall Street Journal. No defect in the notice of redemption or in the mailing or
publication thereof will affect the validity of the redemption proceedings,
except as required by applicable law.


     In the event that less than all of the outstanding shares of any series of
AMPS are to be redeemed, the shares to be redeemed will be selected by lot or
such other method as the Fund shall deem fair and equitable, and the results
thereof will be communicated to the Auction Agent. The Auction Agent will give
notice to the Securities Depository, whose nominee will be the record holder of
all AMPS, and the Securities Depository will determine the number of shares to
be redeemed from the account of the Agent Member of each Existing Holder. Each
Agent Member will determine the number of shares to be redeemed from the account
of each Existing Holder for which it acts as agent. An Agent Member may select
for redemption shares from the accounts of some Existing Holders without
selecting for redemption any shares from the accounts of other Existing Holders.
Notwithstanding the foregoing, if neither the Securities Depository nor its
nominee is the record holder of all of the shares of such series, the particular
shares to be redeemed shall be selected by the Fund by lot or by such other
method as the Fund shall deem fair and equitable.

                                       13
<PAGE>   67

     If the Fund gives notice of redemption, and concurrently or thereafter
deposits in trust with the Auction Agent, or segregates in an account at the
Fund's custodian bank for the benefit of the Auction Agent, Deposit
Securities(with a right of substitution) having an aggregate Discounted Value
(utilizing in the case of S&P and S&P Exposure Period of 22 Business Days) equal
to the redemption payment for the AMPS as to which notice of redemption has been
given, with irrevocable instructions and authority to pay the redemption price
to the record holders thereof, then upon the date of such deposit or, if no such
deposit is made, upon such date fixed for redemption (unless the Fund shall
default in making payment of the redemption price), all rights of the holders of
such shares called for redemption will cease and terminate, except the right of
such holders to receive the redemption price thereof and any Additional
Dividends, but without interest, and such shares no longer will be deemed to be
outstanding. The Fund will be entitled to receive, from time to time, the
interest, if any, earned on such Deposit Securities deposited with the Auction
Agent, and the holders of any shares so redeemed will have no claim to any such
interest. Any funds so deposited which are unclaimed at the end of one year from
such redemption date will be repaid, upon demand, to the Fund, after which the
holders of the AMPS of such series so called for redemption may look only to the
Fund for payment thereof.

     So long as any AMPS are held of record by the nominee of the Securities
Depository (initially Cede), the redemption price for such shares will be paid
on the redemption date to the nominee of the Securities Depository. The
Securities Depository's normal procedures now provide for it to distribute the
amount of the redemption price to Agent Members who, in turn, are expected to
distribute such funds to the persons for whom they are acting as agent.

     Notwithstanding the provisions for redemption described above, no AMPS
shall be subject to optional redemption (i) unless all dividends in arrears on
the outstanding AMPS, and all capital shares of the Fund ranking on a parity
with the AMPS with respect to the payment of dividends or upon liquidation, have
been or are being contemporaneously paid or declared and set aside for payment
and (ii) if redemption thereof would result in the Fund's failure to maintain
Moody's Eligible Assets or S&P Eligible Assets with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount.

VOTING RIGHTS

     In connection with the election of the Fund's Trustees, holders of AMPS and
any other preferred shares, voting as a separate class, shall be entitled at all
times to elect two of the Fund's Trustees, and the remaining Trustees will be
elected by holders of common shares and AMPS and any other preferred shares,
voting together as a single class. In addition, if at any time dividends on
outstanding AMPS shall be unpaid in an amount equal to at least two full years'
dividends thereon or if at any time holders of any preferred shares are
entitled, together with the holders of AMPS, to elect a majority of the Trustees
of the Fund under the 1940 Act, then the number of Trustees constituting the
Board of Trustees automatically shall be increased by the smallest number that,
when added to the two Trustees elected exclusively by the holders of AMPS and
any other preferred shares as described above, would constitute a majority of
the Board of Trustees as so increased by such smallest number, and at a special
meeting of shareholders which will be called and held as soon as practicable,
and at all subsequent meetings at which Trustees are to be elected, the holders
of AMPS and any other preferred shares, voting as a separate class, will be
entitled to elect the smallest number of additional Trustees that, together with
the two Trustees which such holders in any event will be entitled to elect,
constitutes a majority of the total number of Trustees of the Fund as so
increased. The terms of office of the persons who are Trustees 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 AMPS and
any other preferred shares for all past Dividend Periods, the additional voting
rights of the holders of AMPS and any other preferred shares as described above
shall cease, and the terms of office of all of the additional Trustees elected
by the holders of AMPS and any other preferred shares (but not of the Trustees
with respect to whose election the holders of common shares were entitled to
vote or the two Trustees the holders of AMPS and any other preferred shares have
the right to elect in any event) will terminate automatically.

     The affirmative vote of a majority of the votes entitled to be cast by
holders of outstanding AMPS and any other preferred shares, voting as a separate
class, will be required to (i) authorize, create or issue any class or series of
shares ranking prior to the AMPS or any other series of preferred shares with
respect to the

                                       14
<PAGE>   68

payment of dividends or the distribution of assets on liquidation, or (ii)
amend, alter or repeal the provisions of the Declaration of Trust, whether by
merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Declaration of Trust of holders of
AMPS or any other preferred shares. To the extent permitted under the 1940 Act,
in the event shares of more than one series of AMPS are outstanding, the Fund
shall not approve any of the actions set forth in clause (i) or (ii) which
adversely affects the contract rights expressly set forth in the Declaration of
Trust of a holder of shares of a series of AMPS differently than those of a
holder of shares of any other series of AMPS without the affirmative vote of at
least a majority of votes entitled to be cast by holders of the AMPS of each
series adversely affected and outstanding at such time (each such adversely
affected series voting separately as a class). The Board of Trustees, however,
without shareholder approval, may amend, alter or repeal any or all of the
various rating agency guidelines described herein in the event the Fund receives
confirmation from the rating agencies that any such amendment, alteration or
repeal would not impair the ratings then assigned to AMPS. Unless a higher
percentage is provided for under "Description of Capital Shares -- Certain
Provisions of the Declaration of Trust" in the prospectus, the affirmative vote
of a majority of the votes entitled to be cast by holders of outstanding AMPS
and any other preferred shares, voting as a separate 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 including, among other things, changes in the
Fund's investment objective or changes in the investment restrictions described
as fundamental policies under "Investment Objective and Policies." The class
vote of holders of AMPS and any other preferred shares described above in each
case will be in addition to a separate vote of the requisite percentage of
shares of common shares and shares of AMPS and any other preferred shares,
voting together as a single class, necessary to authorize the action in
question.

     The foregoing voting provisions will not apply to any series of AMPS if, at
or prior to the time when the act with respect to which such vote otherwise
would be required shall be effected, such shares shall have been (i) redeemed or
(ii) called for redemption and sufficient funds shall have been deposited in
trust to effect such redemption.

                                  THE AUCTION

AUCTION AGENT AGREEMENT

     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
Agent 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 Agent 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 Agent Agreement upon notice to
the Fund, which termination may be no earlier than 60 days following delivery of
such notice. If the Auction Agent resigns, 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 Agent Agreement. The Fund may
terminate the Auction Agent Agreement, provided that prior to such termination
the Fund shall have entered into such an agreement with respect thereto with a
successor Auction Agent.

BROKER-DEALER AGREEMENTS

     The Auctions require the participation of one or more broker-dealers. A
Broker-Dealer Agreement may be terminated by the Auction Agent or a
Broker-Dealer on five days' notice to the other party, provided that the
Broker-Dealer Agreement with Merrill Lynch may not be terminated without the
prior written consent of the Fund, which consent may not be unreasonably
withheld.

                                       15
<PAGE>   69

AUCTION PROCEDURES

     Separate auctions will be conducted for each series of AMPS. The Auction
Procedures are set forth in Appendix E to this statement of additional
information. The Settlement Procedures to be used with respect to Auctions are
set forth in Appendix D to this statement of additional information.

                            RATING AGENCY GUIDELINES

S&P AAA RATING GUIDELINES

     The Discounted Value of the Fund's S&P Eligible Assets is calculated on
each Valuation Date. See "Description of AMPS -- Asset Maintenance -- AMPS Basic
Maintenance Amount." S&P Eligible Assets include cash, Receivables for Florida
Municipal Bonds Sold (as defined below) and Florida Municipal Bonds or Municipal
Bonds eligible for consideration under S&P's current guidelines. For purposes of
calculating the Discounted Value of the Fund's portfolio under current S&P
guidelines, the fair market value of Florida Municipal Bonds or Municipal Bonds
eligible for consideration under such guidelines must be discounted by the
applicable S&P Discount Factor set forth in the table below. The Discounted
Value of a Florida Municipal Bond or Municipal Bond eligible for consideration
under S&P guidelines is the fair market value thereof divided by the S&P
Discount Factor. The S&P Discount Factor used to discount a particular Florida
Municipal Bond or Municipal Bond will be determined by reference to (a)(i) the
rating by S&P, Moody's or Fitch on such Bond or (ii) in the event the Florida
Municipal Bond is insured under a Policy and the terms of the Policy permit the
Fund, at its option, to obtain other permanent insurance guaranteeing the timely
payment of interest on such Florida Municipal Bond and principal thereof to
maturity, the S&P insurance claims-paying ability rating of the issuer of the
Policy or (iii) in the event the Florida Municipal Bond is insured under an
insurance policy which guarantees the timely payment of interest on such Florida
Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer of the insurance policy and (b) the
S&P Exposure Period. The S&P Exposure Period is the maximum period of time
following a Valuation Date, including the Valuation Date and the AMPS Basic
Maintenance Cure Date, that the Fund has to cure any failure to maintain, as of
such Valuation Date, a Discounted Value for its portfolio at least equal to the
AMPS Basic Maintenance Amount.

     S&P Discount Factors applicable to Florida Municipal Bonds for a range of
S&P Exposure Periods are set forth below:

<TABLE>
<CAPTION>
                                                              S&P DISCOUNT FACTORS
                                                                    RATING C
                                                              ---------------------
                      EXPOSURE PERIOD                         AAA   AA     A    BBB
                      ---------------                         ---   ---   ---   ---
<S>                                                           <C>   <C>   <C>   <C>
45 Business Days............................................  205%  210%  225%  265%
25 Business Days............................................  185   190   205   245
10 Business Days............................................  170   175   190   230
 7 Business Days............................................  165   170   185   225
 3 Business Days............................................  145   150   165   205
</TABLE>

     Since the S&P Exposure Period currently applicable to the Fund is seven
Business Days, the S&P Discount Factors currently applicable to Municipal Bonds
eligible for consideration under S&P guidelines will be determined by reference
to the factors set forth opposite the exposure period line entitled "7 Business
Days." Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Florida Municipal Bonds will be 115%, so long as such Florida Municipal Bonds
are rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
in 30 days or less, or 120% so long as such Florida Municipal Bonds are rated
A-1 or SP-1 by S&P and mature or have a demand feature exercisable in 30 days or
less, or 125% if such Florida Municipal Bonds are not rated by S&P but are rated
VMIG-1, P-1 or MIG-1 by Moody's or F-1+ by Fitch; provided, however, such
short-term Florida Municipal Bonds rated by Moody's or Fitch but not rated by
S&P having a demand feature exercisable in 30 days or less must be backed by a
letter of credit, liquidity facility or guarantee from a bank or other financial
institution having a short-term rating of at least A-1+ from S&P; and

                                       16
<PAGE>   70

further provided that such short-term Florida Municipal Bonds rated by Moody's
or Fitch but not rated by S&P may comprise no more than 50% of short-term
Florida Municipal Bonds that qualify as S&P Eligible Assets, (ii) the S&P
Discount Factor for Receivables for Florida Municipal Bonds Sold that are due in
more than five Business Days from such Valuation Date will be the S&P Discount
Factor applicable to the Florida Municipal Bonds sold, and (iii) no S&P Discount
Factor will be applied to cash or to Receivables for Florida Municipal Bonds
Sold if such receivables are due within five Business Days of such Valuation
Date. "Receivables for Florida Municipal Bonds Sold," for purposes of
calculating S&P Eligible Assets as of any Valuation Date, means the book value
of receivables for Florida Municipal Bonds sold as of or prior to such Valuation
Date. The Fund may adopt S&P Discount Factors for Municipal Bonds other than
Florida Municipal Bonds provided that S&P advises the Fund in writing that such
action will not adversely affect its then current rating on the AMPS. For
purposes of the foregoing, Anticipation Notes rated SP-1 or, if not rated by
S&P, rated VMIG-1 by Moody's or F-1+ by Fitch, which do not mature or have a
demand feature exercisable in 30 days and which do not have a long-term rating,
shall be considered to be short-term Florida Municipal Bonds.

     The S&P guidelines require certain minimum issue size and geographical
diversification and impose other requirements for purposes of determining S&P
Eligible Assets. In order to be considered S&P Eligible Assets, Municipal Bonds
must:

          (i) be interest bearing and pay interest at least semi-annually;

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

          (iii) be publicly rated BBB or higher by S&P or, except in the case of
     Anticipation Notes that are grant anticipation notes or bond anticipation
     notes, which must be rated by S&P to be included in S&P Eligible Assets, if
     not rated by S&P but rated by Moody's or Fitch, be rated at least A by
     Moody's or Fitch (provided that such Moody's-rated or Fitch-rated Florida
     Municipal Bonds will be included in S&P Eligible Assets only to the extent
     the fair market value of such Florida Municipal Bonds does not exceed 50%
     of the aggregate fair market value of the S&P Eligible Assets. For purposes
     of determining the S&P Discount Factors applicable to any such
     Moody's-rated or Fitch-rated Municipal Bonds, such Florida Municipal Bonds
     will be deemed to have an S&P rating that is one full rating category lower
     than its Moody's rating or Fitch rating);

          (iv) not be subject to a covered call or covered put option written by
     the Fund;

          (v) except for inverse floating obligations, not be part of a private
     placement of Municipal Bonds; and

          (vi) except for inverse floating obligations, be part of an issue with
     an original issue size of at least $10 million or, if of an issue with an
     original issue size below $10 million (but in no event below $5 million),
     be either (a) issued by an issuer with a total of at least $25 million of
     securities outstanding or (b) rated at least A by S&P with all such Florida
     Municipal Bonds not constituting more than 20% of the aggregate market
     value of S&P Eligible Assets.

     Notwithstanding the foregoing:

          (i) Florida Municipal Bonds of any one issuer or guarantor (excluding
     bond insurers) will be considered S&P Eligible Assets only to the extent
     the fair market value of such Bonds does not exceed 10% of the aggregate
     fair market value of the S&P Eligible Assets, provided that 2% is added to
     the applicable S&P Discount Factor for every 1% by which the fair market
     value of such Florida Municipal Bonds exceeds 5% of the aggregate fair
     market value of the S&P Eligible Assets;

          (ii) Florida Municipal Bonds of any one issue type category (as
     described below) will be considered S&P Eligible Assets only to the extent
     the market value of such Florida Municipal Bonds does not exceed 25% of the
     aggregate market value of S&P Eligible Assets, except that Florida
     Municipal Bonds falling within the utility issue type category will be
     broken down into three sub-categories (as described below) and such Florida
     Municipal Bonds will be considered S&P Eligible Assets to the extent the
     market value of such Florida Municipal Bonds in each such sub-category does
     not exceed 25% of the aggregate market

                                       17
<PAGE>   71

     value of S&P Eligible Assets, except that Florida Municipal Bonds falling
     within the transportation issue type category will be broken down into two
     sub-categories (as described below) and such Florida Municipal Bonds will
     be considered S&P Eligible Assets to the extent the market value of such
     Bonds in both sub-categories combined (as described below) does not exceed
     40% of the aggregate market value of S&P Eligible Assets and except that
     Florida Municipal Bonds falling within the general obligation issue type
     category will be considered S&P Eligible Assets to the extent the market
     value of such Florida Municipal Bonds does not exceed 50% of the aggregate
     market value of S&P Eligible Assets. For purposes of the issue type
     category requirement described above, Florida Municipal Bonds will be
     classified within one of the following categories: health care issues,
     housing issues, educational facilities issues, student loan issues,
     transportation issues, industrial development bond issues, utility issues,
     general obligation issues, lease obligations, escrowed bonds and other
     issues not falling within one of the aforementioned categories. The general
     obligation issue type category includes any issuer that is directly or
     indirectly guaranteed by the State of Florida or its political
     subdivisions. Utility issuers are included in the general obligation issue
     type category if the issuer is directly or indirectly guaranteed by the
     State of Florida or its political subdivisions. For purposes of the issue
     type category requirement described above, Florida Municipal Bonds in the
     utility issue type category will be classified within one of the three
     following sub-categories: (1) electric, gas and combination issues (if the
     combination issue includes an electric issue), (2) water and sewer
     utilities and combination issues (if the combination issue does not include
     an electric issue), and (3) irrigation, resource recovery, solid waste and
     other utilities, provided that Florida Municipal Bonds included in this
     sub-category (iii) must be rated by S&P in order to be included in S&P
     Eligible Assets. For purposes of the issue type category requirement
     described above, Florida Municipal Bonds in the transportation issue type
     category will be classified within one of the two following sub-categories:
     (i) streets and highways, toll roads, bridges and tunnels, airports and
     multi-purpose port authorities (multiple revenue streams generated by toll
     roads, airports, real estate, bridges), (ii) mass transit, parking,
     seaports and others. Exposure to transportation sub-category (1) in the
     preceding sentence is limited to 25% of the aggregate market value of S&P
     Eligible Assets, provided, however, exposure to transportation sub-category
     (2) in the preceding sentence can exceed the 25% limit to the extent that
     exposure to transportation sub-category (2) is reduced, for a total
     exposure up to and not exceeding 40% of the aggregate market value of S&P
     Eligible Assets for the transportation issue type category; and

          (iii) Florida Municipal Bonds which are escrow bonds or defeased bonds
     may compose up to 100% of the aggregate market value of S&P Eligible Assets
     if such Florida Municipal Bonds initially are assigned a rating by S&P in
     accordance with S&P's legal defeasance criteria or rerated by S&P as
     economic defeased escrow bonds and assigned an AAA rating. Florida
     Municipal Bonds may be rated as escrow bonds by another nationally
     recognized rating agency or rerated as an escrow bond and assigned the
     equivalent of an S&P AAA rating, provided that such equivalent rated
     Florida Municipal Bonds are limited to 50% of the aggregate market value of
     S&P Eligible Assets and are deemed to have an AA S&P rating for purposes of
     determining the S&P Discount Factor applicable to such Florida Municipal
     Bonds. The limitations on Florida Municipal Bonds of any one issuer in
     clause (i) above is not applicable to escrow bonds, however, economically
     defeased bonds that are either initially rated or rerated by S&P or another
     nationally recognized rating agency and assigned the same rating level as
     the issuer of the Florida Municipal Bonds will remain in its original issue
     type category set forth in clause (ii) above. Florida Municipal Bonds that
     are legally defeased and secured by securities issued or guaranteed by the
     United States Government are not required to meet the minimum issuance size
     requirement set forth above.

     The Fund may include Municipal Bonds other than Florida Municipal Bonds as
S&P Eligible Assets pursuant to guidelines and restrictions to be established by
S&P, provided that S&P advises the Fund in writing that such action will not
adversely affect its then-current rating on the AMPS.

     As discussed in the prospectus, the Fund may engage in options or futures
transactions. For so long as any AMPS are rated by S&P, the Fund will not
purchase or sell financial futures contracts, write, purchase or sell options on
financial futures contracts or write put options (except covered put options) or
call options (except covered call options) on portfolio securities unless it
receives written confirmation from S&P that engaging in

                                       18
<PAGE>   72

such transactions will not impair the ratings then assigned to the AMPS by S&P,
except that the Fund may purchase or sell financial futures contracts based on
the Bond Buyer Municipal Bond Index (the "Municipal Index") or United States
Treasury Bonds or Notes ("Treasury Bonds") and write, purchase or sell put and
call options on such contracts (collectively "S&P Hedging Transactions"),
subject to the following limitations:

          (i) the Fund will not engage in any S&P Hedging Transaction based on
     the Municipal Index (other than transactions that terminate a financial
     futures contract or option held by the Fund by the Fund's taking an
     opposite position thereto ("Closing Transactions")), that would cause the
     Fund at the time of such transaction to own or have sold the least of (A)
     more than 1,000 outstanding financial futures contracts based on the
     Municipal Index, (B) outstanding financial futures contracts based on the
     Municipal Index exceeding in number 25% of the quotient of the fair market
     value of the Fund's total assets divided by $1,000 or (C) outstanding
     financial futures contracts based on the Municipal Index exceeding in
     number 10% of the average number of daily traded financial futures
     contracts based on the Municipal Index in the 30 days preceding the time of
     effecting such transaction as reported by The Wall Street Journal;


          (ii) the Fund will not engage in any S&P Hedging Transaction based on
     Treasury Bonds (other than Closing Transactions) that would cause the Fund
     at the time of such transaction to own or have sold the lesser of (A)
     outstanding financial futures contracts based on Treasury Bonds exceeding
     in number 50% of the quotient of the fair market value of the Fund's total
     assets divided by $100,000 ($200,000 in the case of the two-year United
     States Treasury Note) or (B) outstanding financial futures contracts based
     on Treasury Bonds exceeding in number 10% of the average number of daily
     traded financial futures contracts based on Treasury Bonds in the 30 days
     preceding the time of effecting such transaction as reported by The Wall
     Street Journal;


          (iii) the Fund will engage in Closing Transactions to close out any
     outstanding financial futures contract that the Fund owns or has sold or
     any outstanding option thereon owned by the Fund in the event (A) the Fund
     does not have S&P Eligible Assets with an aggregate Discounted Value equal
     to or greater than the AMPS Basic Maintenance Amount on two consecutive
     Valuation Dates and (B) the Fund is required to pay Variation Margin on the
     second such Valuation Date;

          (iv) the Fund will engage in a Closing Transaction to close out any
     outstanding financial futures contract or option thereon in the month prior
     to the delivery month under the terms of such financial futures contract or
     option thereon unless the Fund holds the securities deliverable under such
     terms; and

          (v) when the Fund writes a financial futures contract or an option
     thereon, it will either maintain an amount of cash, cash equivalents or
     high grade (rated A or better by S&P) fixed-income securities in a
     segregated account with the Fund's custodian, so that the amount so
     segregated plus the amount of Initial Margin and Variation Margin held in
     the account of or on behalf of the Fund's broker with respect to such
     financial futures contract or option equals the fair market value of the
     financial futures contract or option, or, in the event the Fund writes a
     financial futures contract or option thereon that requires delivery of an
     underlying security, it shall hold such underlying security in its
     portfolio.

     For purposes of determining whether the Fund has S&P Eligible Assets with a
Discounted Value that equals or exceeds the AMPS Basic Maintenance Amount, the
Discounted Value of cash or securities held for the payment of Initial Margin or
Variation Margin shall be zero and the aggregate Discounted Value of S&P
Eligible Assets shall be reduced by an amount equal to (i) 30% of the aggregate
settlement value, as marked to market, of any outstanding financial futures
contracts based on the Municipal Index that are owned by the Fund plus (ii) 25%
of the aggregate settlement value, as marked to market, of any outstanding
financial futures contracts based on Treasury Bonds which contracts are owned by
the Fund.

MOODY'S "aaa" Rating Guidelines

     The Discounted Value of the Fund's Moody's Eligible Assets is calculated on
each Valuation Date. See "Description of AMPS -- Asset Maintenance -- AMPS Basic
Maintenance Amount" herein. Moody's

                                       19
<PAGE>   73

Eligible Assets include cash, Receivables for Florida Municipal Bonds or
Municipal Bonds (as defined below), and Florida Municipal Bonds or Municipal
Bonds eligible for consideration under Moody's guidelines. For purposes of
calculating the Discounted Value of the Fund's portfolio under current Moody's
guidelines, the fair market value of Municipal Bonds eligible for consideration
under such guidelines must be discounted by the applicable Moody's Discount
Factor set forth in the table below. The Discounted Value of a Municipal Bond
eligible for consideration under Moody's guidelines is the lower of par and the
quotient of the fair market value thereof divided by the Moody's Discount
Factor. The Moody's Discount Factor used to discount a particular Florida
Municipal Bond or Municipal Bond will be determined by reference to (a)(i) the
rating by Moody's or S&P on such Bond or (ii) in the event the Moody's Eligible
Asset is insured under a Policy and the terms of the Policy permit the Fund, at
its option, to obtain other insurance guaranteeing the timely payment of
interest on such Moody's Eligible Asset and principal thereof to maturity, the
Moody's insurance claims-paying ability rating of the issuer of the Policy or
(iii) in the event the Moody's Eligible Asset is insured under an insurance
policy which guarantees the timely payment of interest on such Moody's Eligible
Asset and principal thereof to maturity, the Moody's insurance claims-paying
ability rating of the issuer of the insurance policy (provided that for purposes
of clauses (ii) and (iii) if the insurance claims-paying ability of an issuer of
a Policy or insurance policy is not rated by Moody's but is rated by S&P, such
issuer shall be deemed to have a Moody's insurance claims-paying ability rating
which is two full categories lower than the S&P insurance claims-paying ability
rating) and (b) the Moody's Exposure Period. Moody's Discount Factors for a
range of Moody's Exposure Periods are set forth below:

<TABLE>
<CAPTION>
                                                             Moody's Discount Factors Rating Category
                                                 ----------------------------------------------------------------
                                                                                               VMIG-
            MOODY'S EXPOSURE PERIOD              Aaa(1)   Aa(1)   A(1)   Baa(1)   Other(2)     1(3)      SP-1+(3)
            -----------------------              ------   -----   ----   ------   --------     -----     --------
<S>                                              <C>      <C>     <C>    <C>      <C>        <C>         <C>
7 weeks or less................................   151%     159%   168%    202%      229%        136%       148%
8 weeks or less but greater than seven weeks...   154      164    173     205       235         137        149
9 weeks or less but greater than eight weeks...   158      169    179     209       242         138        150
</TABLE>

- ---------------
(1) Moody's rating.

(2) Florida Municipal Bonds and Municipal Bonds not rated by Moody's but rated
    BBB or BBB+ by S&P.

(3) Florida Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-1 or P-1 or,
    if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do not mature or
    have a demand feature at par exercisable within the Moody's Exposure Period
    and which do not have a long-term rating. For the purposes of the definition
    of Moody's Eligible Assets, these securities will have an assumed rating of
    A by Moody's.

provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the applicable
rating category and (b) the percentage set forth in the foregoing table under
the rating category which is one category lower than the applicable rating
category.


     Since the Moody's Exposure Period currently is 49 days, the Moody's
Discount Factors currently applicable to Municipal Bonds eligible for
consideration under Moody's guidelines will be determined by reference to the
factors set forth opposite the exposure period line entitled "7 weeks or less."
Notwithstanding the foregoing, (i) a 102% Moody's Discount Factor will be
applied to short-term Florida Municipal Bonds and short-term Municipal Bonds, so
long as such Florida Municipal Bonds and Municipal Bonds are rated at least
MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and the Moody's Discount Factor
for such Bonds will be 125% if such Bonds are not rated by Moody's but are rated
A-1+, SP-1+ or AA by S&P and mature or have a demand feature at par exercisable
within the Moody's Exposure Period, and (ii) no Moody's Discount Factor will be
applied to cash or to Receivables for Florida Municipal Bonds or Municipal Bonds
Sold. "Receivables for Florida Municipal Bonds or Municipal Bonds Sold," for
purposes of calculating Moody's Eligible Assets as of any Valuation Date, means
no more than the aggregate of the following: (i) the book value of receivables
for Florida Municipal Bonds or Municipal Bonds sold as of or prior to such
Valuation Date if such receivables are due within five Business Days of such
Valuation Date, and if the trades which generated such receivables are (A)
settled through clearing house firms with respect to which the Fund has received
prior written authorization from Moody's or (B) with counterparties having a
Moody's long-term debt rating of at least


                                       20
<PAGE>   74

Baa3; and (ii) the Moody's Discounted Value of Florida Municipal Bonds or
Municipal Bonds sold as of or prior to such Valuation Date that generated
receivables, if such receivables are due within five Business Days of such
Valuation Date but do not comply with either of conditions (A) or (B) of the
preceding clause (i).

     The Moody's guidelines impose certain requirements as to minimum issue
size, issuer diversification and geographical concentration, as well as other
requirements for purposes of determining whether Florida Municipal Bonds or
Municipal Bonds constitute Moody's Eligible Assets, as set forth in the table
below:

<TABLE>
<CAPTION>
                                                          MAXIMUM                       MAXIMUM STATE
                         MINIMUM         MAXIMUM        ISSUE TYPE     MAXIMUM COUNTY   OR TERRITORY
                        ISSUE SIZE      UNDERLYING     CONCENTRATION   CONCENTRATION    CONCENTRATION
       RATING          ($ MILLIONS)   OBLIGOR (%)(1)     (%)(1)(3)       (%)(1)(4)        (%)(1)(5)
       ------          ------------   --------------   -------------   --------------   -------------
<S>                    <C>            <C>              <C>             <C>              <C>
Aaa..................       10             100              100             100              100
Aa...................       10              20               60              60               60
A....................       10              10               40              40               40
Baa..................       10               6               20              20               20
Other(2).............       10               4               12              12               12
</TABLE>

- ---------------
(1) The referenced percentages represent maximum cumulative totals for the
    related rating category and each lower rating category.
(2) Florida Municipal Bonds and Municipal Bonds not rated by Moody's but rated
    BBB or BBB+ by S&P.
(3) Does not apply to general obligation bonds.
(4) Applicable to general obligation bonds only.
(5) Does not apply to Florida Municipal Bonds. Territorial bonds (other than
    those issued by Puerto Rico and counted collectively) are each limited to
    10% of Moody's Eligible Assets. For diversification purposes, Puerto Rico
    will be treated as a state.

     For purposes of the maximum underlying obligor requirement described above,
any Florida Municipal Bond or Municipal Bond backed by the guaranty, letter of
credit or insurance issued by a third party will be deemed to be issued by such
third party if the issuance of such third party credit is the sole determinant
of the rating on such Bond. For purposes of the issue type concentration
requirement described above, Florida Municipal Bonds and Municipal Bonds will be
classified within one of the following categories: health care issues (teaching
and non-teaching hospitals, public and private), housing issues (single- and
multi-family), educational facilities issues (public and private schools),
student loan issues, resource recovery issues, transportation issues (mass
transit, airport and highway bonds), industrial revenue/pollution control bond
issues, utility issues (including water, sewer and electricity), general
obligation issues, lease obligations/certificates of participation, escrowed
bonds and other issues ("Other Issues") not falling within one of the
aforementioned categories (includes special obligations to crossover, excise and
sales tax revenue, recreation revenue, special assessment and telephone revenue
bonds). In no event shall (a) more than 10% of Moody's Eligible Assets consist
of student loan issues, (b) more than 10% of Moody's Eligible Assets consist of
recovery issues or (c) more than 10% of Moody's Eligible Assets consist of Other
Issues.


     Current Moody's guidelines also require that Florida Municipal Bonds or
Municipal Bonds constituting Moody's Eligible Assets pay interest in cash, be
publicly rated Baa or higher by Moody's or, if not rated by Moody's but rated by
S&P, that they be rated at least BBB by S&P, not have suspended ratings by
Moody's and be part of an issue of Florida Municipal Bonds or Municipal Bonds of
at least $10,000,000. For purposes of determining the Moody's Discount Factors
applicable to any such S&P-rated Florida Municipal Bonds or S&P-rated Municipal
Bonds, such Florida Municipal Bonds or Municipal Bonds (excluding any short-term
Municipal Bonds) will be deemed to have a Moody's rating that is one full rating
category lower than its S&P rating. When the Fund sells a Florida Municipal Bond
or Municipal Bond and agrees to repurchase it at a future date, the Discounted
Value of such Municipal Bond will constitute a Moody's Eligible Asset and the
amount the Fund is required to pay upon repurchase of such bond will count as a
liability for purposes of calculating the AMPS Basic Maintenance Amount. For so
long as the AMPS are rated by Moody's, the Fund will not enter into any such
reverse repurchase agreements unless it has received written confirmation from
Moody's that such transactions would not impair the rating then assigned the
AMPS by Moody's. When the Fund purchases a Florida Municipal Bond or Municipal
Bond and agrees to sell it at a future date to another party, cash receivable by
the Fund thereby will constitute a Moody's Eligible Asset if the long-term debt
of


                                       21
<PAGE>   75

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 Bond will constitute
a Moody's Eligible Asset.

     Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset if it is (i) held in a margin account, (ii) subject to any
material lien, mortgage, pledge, security interest or security agreement of any
kind, (iii) held for the purchase of a security pursuant to a Forward Commitment
or (iv) irrevocably deposited by the Fund for the payment of dividends or
redemption.

     For so long as AMPS are rated by Moody's, in managing the Fund's portfolio,
the Investment Adviser will not alter the composition of the Fund's portfolio
if, in the reasonable belief of the Investment Adviser, the effect of any such
alteration would be to cause the Fund to have Moody's Eligible Assets with an
aggregate Discounted Value, as of the immediately preceding Valuation Date, less
than the AMPS Basic Maintenance Amount as of such Valuation Date; provided,
however, that in the event that, as of the immediately preceding Valuation Date,
the aggregate Discounted Value of Moody's Eligible Assets exceeded the AMPS
Basic Maintenance Amount by five percent or less, the Investment Adviser will
not alter the composition of the Fund's portfolio in a manner reasonably
expected to reduce the aggregate Discounted Value of Moody's Eligible Assets
unless the Fund shall have confirmed that, after giving effect to such
alteration, the aggregate Discounted Value of Moody's Eligible Assets would
exceed the AMPS Basic Maintenance Amount.

     For so long as any AMPS are rated by Moody's, the Fund will not buy or sell
financial futures contracts, write, purchase or sell call options on financial
futures contracts or purchase put options on financial futures contracts or
write call options (except covered call options) on portfolio securities unless
it receives written confirmation from Moody's that engaging in such transactions
would not impair the ratings then assigned to the AMPS by Moody's, except that
the Fund may purchase or sell exchange-traded financial futures contracts based
on the Municipal Index or Treasury Bonds, and purchase, write or sell
exchange-traded put options on such financial futures contracts, and purchase,
write or sell exchange-traded call options on such financial futures contracts
(collectively "Moody's Hedging Transactions"), subject to the following
limitations:


          (i) the Fund will not engage in any Moody's Hedging Transaction based
     on the Municipal Index (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 the Municipal Index
     exceeding in number 10% of the average number of daily traded financial
     futures contracts based on the Municipal Index in the 30 days preceding the
     time of effecting such transaction as reported by The Wall Street Journal
     or (B) outstanding financial futures contracts based on the Municipal Index
     having a fair market value exceeding 50% of the fair market value of all
     Municipal Bonds constituting Moody's Eligible Assets owned by the Fund
     (other than Moody's Eligible Assets already subject to a Moody's Hedging
     Transaction);


          (ii) the Fund will not engage in any Moody's Hedging Transaction based
     on Treasury Bonds (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 having an aggregate
     Market Value exceeding 20% of the aggregate Market Value of Moody's
     Eligible Assets owned by the Fund and rated Aa by Moody's (or, if not rated
     by Moody's but rated by S&P, rated AAA by S&P) or (B) outstanding financial
     futures contracts based on Treasury Bonds having an aggregate fair market
     value exceeding 40% of the aggregate fair market value of all Municipal
     Bonds constituting Moody's Eligible Assets owned by the Fund (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 A or AA by S&P) (for purposes of the foregoing clauses (i) and
     (ii), the Fund shall be deemed to own the number of financial futures
     contracts that underlie any outstanding options written by the Fund);

          (iii) the Fund will engage in Closing Transactions to close out any
     outstanding financial futures contract based on the Municipal Index if the
     amount of open interest in the Municipal Index as reported by The Wall
     Street Journal is less than 5,000;

          (iv) the Fund 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

                                       22
<PAGE>   76

     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 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;

          (v) the Fund will not engage in options and futures transactions for
     leveraging or speculative purposes 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

          (vi) the Fund will not enter into an option or futures transaction
     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 AMPS 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 AMPS Basic
Maintenance Amount, the Discounted Value of Moody's Eligible Assets that the
Fund is obligated to deliver or receive pursuant to an outstanding futures
contract or option shall be as follows: (i) assets subject to call options
written by the Fund that are either exchange-traded and "readily reversible" or
that expire within 49 days after the date as of which such valuation is made
shall be valued at the lesser of (A) Discounted Value and (B) the exercise price
of the call option written by the Fund; (ii) assets subject to call options
written by the Fund not meeting the requirements of clause (i) of this sentence
shall have no value; (iii) assets subject to put options written by the Fund
shall be valued at the lesser of (A) the exercise price and (B) the Discounted
Value of the subject security; (iv) futures contracts shall be valued at the
lesser of (A) settlement price and (B) the Discounted Value of the subject
security, provided that, if a contract matures within 49 days after the date as
of which such valuation is made, where the Fund is the seller the contract may
be valued at the settlement price and where the Fund is the buyer the contract
may be valued at the Discounted Value of the subject securities; and (v) where
delivery may be made to the Fund with any security of a class of securities, the
Fund shall assume that it will take delivery of the security with the lowest
Discounted Value.

     For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the following amounts shall be subtracted from the aggregate
Discounted Value of the Moody's Eligible Assets held by the Fund: 10% of the
exercise price of a written call option; (ii) the exercise price of any written
put option; (iii) where the Fund is the seller under a financial futures
contract, 10% of the settlement price of the financial futures contract; (iv)
where the Fund is the purchaser under a financial futures contract, the
settlement price of assets purchased under such financial futures contract; (v)
the settlement price of the underlying financial futures contract if the Fund
writes put options on a financial futures contract; and (vi) 105% of the fair
market value of the underlying financial futures contracts if the Fund writes
call options on a financial futures contract and does not own the underlying
contract.

     For so long as any shares of AMPS are rated by Moody's, the Fund will not
enter into any contract to purchase securities for a fixed price at a future
date beyond customary settlement time (other than such contracts that constitute
Moody's Hedging Transactions), except that the Fund may enter into such
contracts to purchase newly-issued securities on the date such securities are
issued ("Forward Commitments"), subject to the following limitations:

          (i) the Fund will maintain in a segregated account with its custodian
     cash, cash equivalents or short term, fixed-income securities rated P-1,
     MIG-1 or VMIG-1 by Moody's and maturing prior to the date of the Forward
     Commitment with a fair market value that equals or exceeds the amount of
     the Fund's obligations under any Forward Commitments to which it is from
     time to time a party or long-term, fixed income securities with a
     Discounted Value that equals or exceeds the amount of the Fund's
     obligations under any Forward Commitment to which it is from time to time a
     party, and

          (ii) 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 AMPS
     Basic Maintenance Amount.

                                       23
<PAGE>   77

     For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of all Forward Commitments to which the
Fund is a party and of all securities deliverable to the Fund pursuant to such
Forward Commitments shall be zero.

     For so long as AMPS are rated by S&P or Moody's, the Fund, unless it has
received written confirmation from S&P and/or Moody's, as the case may be, that
such action would not impair the ratings then assigned to the AMPS by S&P and/or
Moody's, as the case may be, will not (i) borrow money except for the purpose of
clearing transactions in portfolio securities (which borrowings under any
circumstances shall be limited to the lesser of $10 million and an amount equal
to 5% of the fair 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 and S&P Eligible Assets to be less than the AMPS Basic
Maintenance Amount), (ii) engage in short sales of securities, (iii) lend any
securities, (iv) 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 Fund,
(v) reissue any AMPS previously purchased or redeemed by the Fund, (vi) merge or
consolidate into or with any other corporation or entity, (vii) change the
Fund's pricing service or (viii) engage in reverse repurchase agreements.

                             TRUSTEES AND OFFICERS

     Information about the Trustees, executive officers and the portfolio
managers of the Fund, including their ages and their principal occupations
during the last five years is set forth below. Unless otherwise noted, the
address of each Trustee, executive officer and the portfolio manager is 800
Scudders Mill Road, Plainsboro, New Jersey 08536.


     TERRY K. GLENN (58) -- President and Trustee(1)(2) -- Executive Vice
President of the Investment Adviser and Merrill Lynch Asset Management, L.P.
("MLAM") (which terms as used herein include their predecessors) since 1983;
Executive Vice President and Director of Princeton Services, Inc. ("Princeton
Services") since 1993; President of Princeton Funds Distributor, Inc. ("PFD")
since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.



     RONALD W. FORBES (58) -- Trustee(2) -- 1400 Washington Avenue, Albany, New
York 12222. Professor of Finance, School of Business, State University of New
York at Albany since 1989; Consultant, Urban Institute, Washington, D.C. since
1995.


     CYNTHIA A. MONTGOMERY (46) -- Trustee(2) -- Harvard Business School,
Soldiers Field Road, Boston, Massachusetts 02163. Professor, Harvard Business
School since 1989; Associate Professor, J.L. Kellogg Graduate School of
Management, Northwestern University from 1985 to 1989; Assistant Professor,
Graduate School of Business Administration, The University of Michigan from 1979
to 1985; Director, UNUM Corporation since 1990 and Director of Newell Co. since
1995.

     CHARLES C. REILLY (67) -- Trustee(2) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, The University of Pennsylvania from 1989 to
1990.

     KEVIN A. RYAN (66) -- Trustee(2) -- 127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. Founder and current Director of The Boston University
Center for the Advancement of Ethics and Character; Professor of Education at
Boston University since 1982; Formerly taught on the faculties of The University
of Chicago, Stanford University and Ohio State University.


     RICHARD R. WEST (61) -- Trustee(2) -- Box 604, Genoa, Nevada 89411,
Professor of Finance since 1984, and Dean from 1984 to 1993, and currently Dean
Emeritus of New York University, Leonard N. Stern


                                       24
<PAGE>   78

School of Business Administration; Director of Bowne & Co., Inc., Vornado Realty
Trust, Inc., Vornado Operating Company and Alexander's Inc.


     ARTHUR ZEIKEL (66) -- Trustee(1)(2) -- Chairman of the Investment Adviser
and MLAM from 1997 to 1999; President of the Investment Adviser and MLAM from
1977 to 1997; Chairman of Princeton Services from 1997 to 1999, Director thereof
from 1993 to 1999, and President thereof from 1993 to 1997; Executive Vice
President of ML&Co. from 1990 to 1999.



     VINCENT R. GIORDANO (54) -- Senior Vice President(1)(2) -- Senior Vice
President of the Investment Adviser and MLAM since 1984; Senior Vice President
of Princeton Services since 1993.



     KENNETH A. JACOB (48) -- Vice President(1)(2) -- First Vice President of
MLAM since 1997; Vice President of MLAM from 1984 to 1997; Vice President of the
Investment Adviser since 1984.


     ROBERT A. DIMELLA, CFA (32) -- Vice President and Portfolio
Manager(1)(2) -- Vice President of MLAM since 1997; Assistant Vice President of
MLAM from 1995 to 1997; Assistant Portfolio Manager of MLAM from 1993 to 1995.


     ROBERT D. SNEEDEN, JR. (46) -- Vice President and Portfolio
Manager(1)(2) -- Assistant Vice President and Portfolio Manager of MLAM since
1994.



     DONALD C. BURKE (38) -- Vice President and Treasurer(1)(2) -- Senior Vice
President and Treasurer of the Investment Adviser and MLAM since 1999; Senior
Vice President and Treasurer of Princeton Services since 1999; Vice President of
PFD since 1999; First Vice President of MLAM from 1997 to 1999; Vice President
of MLAM from 1990 to 1997; Director of Taxation of MLAM since 1990.



     WILLIAM E. ZITELLI, JR.(30) -- Secretary(1)(2) -- Attorney associated with
the Investment Adviser since 1998; Attorney associated with Pepper Hamilton LLP
from 1997 to 1998; Attorney associated with Reboul, MacMurray, Hewitt, Maynard
and Kristal from 1994 to 1997.

- ---------------
(1) Interested person, as defined in the 1940 Act, of the Fund.
(2) Such Trustee or officer is a director, trustee, officer of one or more
    additional investment companies for which the Investment Adviser or its
    affiliate, MLAM, acts as investment adviser or manager.

     In connection with the election of the Fund's Trustees, holders of AMPS and
other preferred shares, voting as a separate class, are entitled to elect two of
the Fund's Trustees, and the remaining Trustees will be elected by holders of
common shares and preferred shares voting together as a single class. Messrs.
Reilly and West have been designated as the Trustees to be elected by holders of
the preferred shares. See "Description of Capital Shares" in the prospectus.

COMPENSATION OF TRUSTEES

     Pursuant to an Investment Advisory Agreement with the Fund, the Investment
Adviser pays all compensation of officers and employees of the Fund as well as
the fees of all Trustees who are affiliated persons of ML&Co. or its
subsidiaries.


     The Fund pays each Trustee not affiliated with the Investment Adviser (each
a "non-affiliated Trustee") a fee of $     per year plus $   per meeting
attended, and pays all Trustees' out-of-pocket expenses relating to attendance
at meetings. The Fund also pays members of the Board's audit and nominating
committee (the "Committee"), which consists of all the non-affiliated Trustees,
an annual fee of $   . The Chairman of the Committee receives an additional
annual fee of $     .


     The following table sets forth compensation to be paid by the Fund to the
non-affiliated Trustees projected through the end of the Fund's first full
fiscal year and for the calendar year ended December 31,

                                       25
<PAGE>   79

1998 the aggregate compensation paid by all investment companies advised by the
Investment Adviser and its affiliate, MLAM ("FAM/MLAM Advised Funds"), to the
non-affiliated Trustees.


<TABLE>
<CAPTION>
                                                                                            TOTAL
                                                                                         COMPENSATION
                                                                     PENSION OR         FROM FUND AND
                                                                     RETIREMENT            FAM/MLAM
                                                   AGGREGATE          BENEFITS          ADVISED FUNDS
                                                  COMPENSATION   ACCRUED AS PART OF          PAID
                NAME OF TRUSTEE                    FROM FUND        FUND EXPENSE         TO TRUSTEES
                ---------------                   ------------   ------------------   ------------------
<S>                                               <C>            <C>                  <C>
Ronald W. Forbes(1).............................     $                  None               $192,567
Cynthia A. Montgomery(1)........................     $                  None               $192,567
Charles C. Reilly(1)............................     $                  None               $362,858
Kevin A. Ryan(1)................................     $                  None               $192,567
Richard R. West(1)..............................     $                  None               $334,125
</TABLE>


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

(1) The Trustees serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
    Forbes (37 registered investment companies consisting of 50 portfolios); Ms.
    Montgomery (37 registered investment companies consisting of 50 portfolios);
    Mr. Reilly (56 registered investment companies consisting of 69 portfolios);
    Mr. Ryan (37 registered investment companies consisting of 48 portfolios);
    and Mr. West (58 registered investment companies consisting of 83
    portfolios).


                INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS

     The Fund has entered into an Investment Advisory Agreement with the
Investment Adviser. The Fund pays the Investment Adviser a monthly fee at an
annual rate of 0.55 of 1% of the Fund's average weekly net assets (i.e., the
average weekly value of the total assets of the Fund, including proceeds from
the issuance of preferred shares, minus the sum of accrued liabilities of the
Fund and accumulated dividends on the preferred shares).

     The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the compensation of all Trustees of the Fund who are affiliated persons of the
Investment Adviser or any of its affiliates. The Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, expenses
for legal and auditing services, taxes, costs of printing proxies, listing fees,
if any, share certificates and shareholder reports, charges of the custodian and
the transfer and dividend disbursing agent and registrar, fees and expenses with
respect to the issuance of preferred shares, Securities and Exchange Commission
fees, fees and expenses of non-interested Trustees, accounting and pricing
costs, insurance, interest, brokerage costs, litigation and other extraordinary
or non-recurring expenses, mailing and other expenses properly payable by the
Fund. Accounting services are provided to the Fund by the Investment Adviser,
and the Fund reimburses the Investment Adviser for its costs in connection with
such services.

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

     Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Investment Adviser or its affiliates act as an adviser. Because of different
objectives or other factors, a particular security may be bought for an advisory
client when other clients are selling the same security. If purchases or sales
of securities by the Investment Adviser for the Fund or other funds for which it
acts as investment adviser or for other advisory clients arise for consideration
at or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds and clients in a manner deemed equitable
to all. Transactions effected by the Investment Adviser (or its

                                       26
<PAGE>   80

affiliates) on behalf of more than one of its clients during the same period may
increase the demand for securities being purchased or the supply of securities
being sold, causing an adverse effect on price.

CODE OF ETHICS

     The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to
Rule 17j-1 under the 1940 Act that incorporates the Code of Ethics of the
Investment Adviser (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on Fund
investment personnel.

     The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as U.S. Government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading
securities. In addition, no employee may purchase or sell any security that at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" that prohibit trading by investment personnel of the Fund within
periods of trading by the Fund in the same (or equivalent) security (15 or 30
days depending upon the transaction).

                             PORTFOLIO TRANSACTIONS

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

     The Fund has no obligation to deal with any broker or dealer in the
execution of transactions in portfolio securities. Subject to providing the best
price and execution, securities firms that provide investment research to the
Investment Adviser, including Merrill Lynch, may receive orders for transactions
by the Fund. Research information provided to the Investment Adviser by
securities firms is supplemental. It does not replace or reduce the level of
service performed by the Investment Adviser and the expenses of the Investment
Adviser will not necessarily be reduced because it receives supplemental
research information.

     The Fund invests in securities traded in the over-the-counter markets, and
the Fund intends to deal directly with dealers who make markets in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Under the 1940 Act, except as permitted by
exemptive order, persons affiliated with the Fund, including Merrill Lynch, are
prohibited from dealing with the Fund as principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principals for their own accounts, the Fund
does not deal with Merrill Lynch and its affiliates in connection with such
transactions except that, pursuant to exemptive orders obtained by the
Investment Adviser, the Fund may engage in principal transactions with the
Underwriter in high quality, short-term, tax-exempt securities. See "Investment
Restrictions." However, affiliated persons of the Fund, including Merrill Lynch,
may serve as its brokers in certain over-the-counter transactions conducted on
an agency basis.

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

                                       27
<PAGE>   81

PORTFOLIO TURNOVER

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

                                     TAXES

GENERAL

     The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). As long as it so qualifies, in any taxable
year in which it distributes at least 90% of its taxable net income and 90% of
its tax-exempt net income (see below), the Fund (but not its shareholders) will
not be subject to Federal income tax to the extent that it distributes its net
investment income and net realized capital gains. The Fund intends to distribute
substantially all of such income.

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

     The Internal Revenue Service (the "IRS"), in a revenue ruling, held that
certain auction rate preferred stock would be treated as stock for Federal
income tax purposes. The terms of the AMPS are substantially similar, but not
identical, to the auction rate preferred stock discussed in the revenue ruling,
and in the opinion of Brown & Wood LLP, counsel to the Fund, the AMPS will
constitute stock of the Fund and distributions with respect to AMPS (other than
distributions in redemption of AMPS subject to Section 302(b) of the Code) will
constitute dividends to the extent of the Fund's current and accumulated
earnings and profits as calculated for Federal income tax purposes.
Nevertheless, it is possible 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 they exceeded the earnings and profits of
the Fund, would be included in full in the income of the recipient and would be
taxed as ordinary income. Counsel believes that such a position, if asserted by
the IRS, would be unlikely to prevail.

     The Fund intends to qualify to pay "exempt-interest dividends" as defined
in Section 852(b)(5) of the Code. Under such section if, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations exempt from Federal income tax ("tax-exempt
obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the Fund shall be qualified
to pay exempt-interest dividends to its shareholders. Exempt-interest dividends
are dividends or any part thereof paid by the Fund which are attributable to
interest on tax-exempt obligations and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders within 60 days
after the close of its taxable year. To the extent that the dividends
distributed to the Fund's shareholders are derived from interest income exempt
from tax under Code Section 103(a) and are properly designated as
exempt-interest dividends, they will be excludable from a shareholder's gross
income for Federal tax purposes. Exempt-interest dividends are included,
however, in determining the portion, if any, of a person's social security and
railroad retirement benefits subject to Federal income taxes. Each shareholder
is advised to

                                       28
<PAGE>   82

consult a tax adviser with respect to whether exempt-interest dividends retain
the exclusion under Code Section 103(a) if such shareholder would be treated as
a "substantial user" or "related person" under Code Section 147(a) with respect
to property financed with the proceeds of an issue of "industrial development
bonds" or "private activity bonds," if any, held by the Fund.

     The Fund has applied for a ruling from the Florida Department of Revenue
that shares of the Fund will be exempt from Florida intangible personal property
tax in the following year, if, on the last business day of any calendar year,
the Fund's assets consist solely of assets exempt from Florida intangible
personal property tax ("asset requirement"). Although there is no assurance that
the Florida Department of Revenue will issue a favorable ruling on this issue,
the Florida Department of Revenue has previously issued similar rulings. The
Florida Department of Revenue has the authority to revoke or modify a previously
issued ruling; however, if a ruling is revoked or modified, the revocation or
modification is prospective only. Prior to receipt of the ruling from the
Florida Department of Revenue, the Fund will rely on an opinion of Florida
counsel for the Fund, Holland & Knight LLP, stating that Fund shares will be
exempt from Florida intangible personal property tax if the asset requirement is
met. This opinion is based on existing Florida law and interpretive authority
which could be changed at any time retroactively. While the opinion represents
the best judgment of Holland & Knight LLP, the legal conclusions reached therein
are not binding on the Florida Department of Revenue, and there is no assurance
that the legal conclusions will not be challenged by the Department of Revenue
or in judicial or administrative proceedings. Thus, under Florida counsel's
opinion or if a favorable ruling is issued, and if the asset requirement is met,
shares of the Fund owned by Florida residents will be exempt from Florida
intangible personal property tax. Assets exempt from Florida intangible personal
property tax include Florida Municipal Bonds, obligations of the United States
Government or its agencies, and cash.

     The Fund may from time to time hold assets that are not exempt from Florida
intangible personal property tax. It is possible that the Fund may not be able
to fully dispose of all of its assets subject to Florida intangible personal
property tax by the last business day of the calendar year. This would subject
shares of the Fund to Florida intangible personal property tax. If shares of the
Fund are subject to Florida intangible personal property tax because the asset
requirement is not met, only that portion of the value of Fund shares equal to
the portion of the net asset value of the Fund that is attributable to
obligations of the United States Government will be exempt from taxation. The
Fund will attempt to monitor its portfolio so that on the last business day of
each calendar year the Fund's assets consist solely of assets exempt from
Florida intangible personal property tax.

     Dividends paid by the Fund to individuals who are Florida residents are not
subject to personal income taxation by Florida, because Florida does not impose
a personal income tax. Distributions of investment income and capital gains by
the Fund will be subject to Florida corporate income taxes, state taxes in
states other than Florida and local taxes in cities other than those in Florida.
Shareholders not subject to taxation by Florida do not benefit from the fact
that shares of the Fund will be exempt from the Florida intangible personal
property tax. Interest on indebtedness incurred or continued to purchase or
carry Fund shares is not deductible for Federal income tax purposes to the
extent attributable to exempt-interest dividends.


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


                                       29
<PAGE>   83

     All or a portion of the Fund's gain from the sale or redemption of
tax-exempt obligations purchased at a market discount will be treated for
Federal income tax purposes as ordinary income rather than capital gain. This
rule may increase the amount of ordinary income dividends received by
shareholders. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset). Any loss upon the sale
or exchange of Fund shares held for six months or less will be disallowed to the
extent of any exempt-interest dividends received by the shareholder. In
addition, any such loss that is not disallowed under the rule stated above will
be treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. If the Fund pays a dividend in January which was
declared in the previous October, November or December to shareholders of record
on a specified date in one of such months, then such dividend will be treated
for tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.

     The IRS has taken the position in a revenue ruling that if a RIC has two or
more classes of shares, it may designate distributions made to each class in any
year as consisting of no more than such class's proportionate share of
particular types of income, including exempt interest and net long-term capital
gains. A class's proportionate share of a particular type of income is
determined according to the percentage of total dividends paid by the RIC during
such year that was paid to such class. Thus, the Fund is required to allocate a
portion of its net capital gains and other taxable income to the AMPS of each
series. The Fund generally will notify the Auction Agent of the amount of any
net capital gains and other taxable income to be included in any dividend on
AMPS prior to the Auction establishing the Applicable Rate for such dividend.
Except for the portion of any dividend that it informs the Auction Agent will be
treated as capital gains or other taxable income, the Fund anticipates that the
dividends paid on the AMPS will constitute exempt-interest dividends. The amount
of net capital gains and ordinary income allocable to AMPS (the "taxable
distribution") will depend upon the amount of such gains and income realized by
the Fund and the total dividends paid by the Fund on common shares and shares of
the two series of AMPS during a taxable year, but the taxable distribution
generally is not expected to be significant.

     In the opinion of Brown & Wood LLP, counsel to the Fund, under current law
the manner in which the Fund intends to allocate items of tax-exempt income, net
capital gains and other taxable income, if any, among common shares and shares
of the two series of AMPS will be respected for Federal income tax purposes.
However, the tax treatment of Additional Dividends may affect the Fund's
calculation of each class' allocable share of capital gains and other taxable
income. See "Tax Treatment of Additional Dividends." In addition, there is
currently no direct guidance from the IRS or other sources specifically
addressing whether the Fund's method for allocating tax-exempt income, net
capital gains and other taxable income among common shares and shares of the two
series of AMPS will be respected for Federal income tax purposes, and it is
possible that the IRS could disagree with counsel's opinion and attempt to
reallocate the Fund's net capital gains or other taxable income. In the event of
a reallocation, some of the dividends identified by the Fund as exempt-interest
dividends to holders of AMPS may be recharacterized as additional capital gains
or other taxable income. In the event of such recharacterization, the Fund would
not be required to make payments to such shareholders to offset the tax effect
of such reallocation. In addition, a reallocation may cause the Fund to be
liable for income tax and excise tax on any reallocated taxable income. Brown &
Wood LLP has advised the Fund that, in its opinion, if the IRS were to challenge
in court the Fund's allocations of income and gain, the IRS would be unlikely to
prevail. A holder should be aware, however, that the opinion of Brown & Wood LLP
represents only its best legal judgment and is not binding on the IRS or the
courts.


     The Code subjects interest received on certain otherwise tax-exempt
securities to a Federal alternative minimum tax. The Federal alternative minimum
tax will apply to interest received on "private activity bonds" issued after
August 7, 1986. Private activity bonds are bonds which, although tax-exempt, are
used for purposes other than those generally performed by governmental units and
which benefit non-governmental entities (e.g., bonds used for industrial
development or housing purposes). Income received on such bonds is classified as
an item of "tax preference" which could subject certain investors in such bonds,
including shareholders of the Fund, to an increased Federal alternative minimum
tax. The Fund intends to purchase such "private activity bonds" and will report
to shareholders within 60 days after calendar year-end the portion


                                       30
<PAGE>   84


of its dividends declared during the year which constitutes an item of tax
preference for Federal alternative minimum tax purposes. The Code further
provides that corporations are subject to a Federal alternative minimum tax
based, in part, on certain differences between taxable income as adjusted for
other tax preferences and the corporation's "adjusted current earnings", which
more closely reflect a corporation's economic income. Because an exempt-interest
dividend paid by the Fund will be included in adjusted current earnings, a
corporate shareholder may be required to pay a Federal alternative minimum tax
on exempt-interest dividends paid by the Fund.


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

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

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

     Under certain Code provisions, some taxpayers may be subject to a 31%
withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.

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

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

                                       31
<PAGE>   85

TAX TREATMENT OF ADDITIONAL DIVIDENDS

     If the Fund makes a Retroactive Taxable Allocation, it will pay Additional
Dividends to holders of AMPS who are subject to the Retroactive Taxable
Allocation. See "Description of AMPS -- Dividends -- Additional Dividends" in
the prospectus. The Federal income tax consequences of Additional Dividends
under existing law are uncertain. The Fund intends to treat a holder as
receiving a dividend distribution in the amount of any Additional Dividend only
as and when such Additional Dividend is paid. An Additional Dividend generally
will be designated by the Fund as an exempt-interest divided except as otherwise
required by applicable law. However, the IRS may assert that all or part of an
Additional Dividend is a taxable dividend either in the taxable year for which
the Retroactive Taxable Allocation is made or in the taxable year in which the
Additional Dividend is paid.

TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS

     The Fund may purchase or sell municipal bond index financial futures
contracts and interest rate financial futures contracts on U.S. Government
securities. The Fund may also purchase and write call and put options on such
financial futures contracts. In general, unless an election is available to the
Fund or an exception applies, such options and financial futures contracts that
are "Section 1256 contracts" will be "marked to market" for Federal income tax
purposes at the end of each taxable year, i.e., each such option or financial
futures contract will be treated as sold for its fair market value on the last
day of the taxable year, and any gain or loss attributable to Section 1256
contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by the Fund may alter
the timing and character of distributions to shareholders. The mark-to-market
rules outlined above, however, will not apply to certain transactions entered
into by the Fund solely to reduce the risk of changes in price or interest rates
with respect to its investments.

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

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

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

                                NET ASSET VALUE

     Net asset value per common share is determined as of 15 minutes after the
close of business on the New York Stock Exchange (the "NYSE") (generally, the
NYSE closes at 4:00 p.m. Eastern time) on the last Business Day of each week.
For purposes of determining the net asset value of a common share, the value of
the securities held by the Fund plus any cash or other assets (including
interest accrued but not yet received) minus all liabilities (including accrued
expenses) and the aggregate liquidation value of the outstanding AMPS is divided
by the total number of common shares outstanding at such time. Expenses,
including the fees payable to the Investment Adviser, are accrued daily.

     The Florida Municipal Bonds and Municipal Bonds in which the Fund invests
are traded primarily in the over-the-counter markets. In determining net asset
value, the Fund utilizes the valuations of portfolio securities furnished by a
pricing service approved by the Board of Trustees. The pricing service typically
values portfolio securities at the bid price or the yield equivalent when
quotations are readily available. Florida Municipal Bonds and Municipal Bonds
for which quotations are not readily available are valued at fair market value
on a consistent basis as determined by the pricing service using a matrix system
to determine valuations.

                                       32
<PAGE>   86

The procedures of the pricing service and its valuations are reviewed by the
officers of the Fund under the general supervision of the Board of Trustees. The
Board of Trustees has determined in good faith that the use of a pricing service
is a fair method of determining the valuation of portfolio securities. Positions
in futures contracts are valued at closing prices for such contracts established
by the exchange on which they are traded, or if market quotations are not
readily available, are valued at fair value on a consistent basis using methods
determined in good faith by the Board of Trustees.

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

                             ADDITIONAL INFORMATION

     The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith is required to
file reports, proxy statements and other information with the Commission. Any
such reports, proxy statements and other information can be inspected and copied
at the public reference facilities of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: Regional Office, at Seven World Trade
Center, Suite 1300, New York, New York 10048; Pacific Regional Office, at 5670
Wilshire Boulevard, 11th Floor, Los Angeles, California 90036; and Midwest
Regional Office, at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such materials can be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
at http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Fund, that file
electronically with the Commission. Reports, proxy statements and other
information concerning the Fund can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.

     Additional information regarding the Fund and the AMPS is contained in the
Registration Statement on Form N-2, including amendments, exhibits and schedules
thereto, relating to such shares filed by the Fund with the Commission in
Washington, D.C. This statement of additional information and the prospectus do
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 statement of
additional information and the prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.

                                       33
<PAGE>   87

REPORT OF INDEPENDENT AUDITORS


To the Board of Trustees and Shareholder
MuniHoldings Florida Insured Fund V:



     We have audited the accompanying statement of assets, liabilities and
capital of MuniHoldings Florida Insured Fund V as of            , 1999. This
statement of assets, liabilities and capital is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this statement of
assets, liabilities and capital based on our audit.


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


     In our opinion, the statement of assets, liabilities and capital referred
to above presents fairly, in all material respects, the financial position of
MuniHoldings Florida Insured Fund V at            , 1999 in conformity with
generally accepted accounting principles.




                                       34
<PAGE>   88


                      MUNIHOLDINGS FLORIDA INSURED FUND V


                  STATEMENT OF ASSETS, LIABILITIES AND CAPITAL

                                          , 1999



<TABLE>
<S>                                                             <C>
ASSETS
     Cash...................................................    $100,005
     Offering costs (Note 1)................................
                                                                --------
          Total assets......................................
                                                                --------
LIABILITIES
     Liabilities and accrued expenses (Note 1)..............
                                                                --------
NET ASSETS..................................................    $100,005
                                                                ========
CAPITAL
     Common Shares, par value $.10 per share; unlimited
      shares authorized; 6,667 shares issued and outstanding
      (Note 1)..............................................    $    667
     Paid-in Capital in excess of par.......................      99,338
                                                                --------
     Total Capital-Equivalent to $15.00 net asset value per
      common share (Note 1).................................    $100,005
                                                                ========
</TABLE>


             NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL

NOTE 1.  ORGANIZATION


     The Fund was organized under the laws of the Commonwealth of Massachusetts
on May 10, 1999 as a closed-end, non-diversified management investment company
and has had no operations other than the sale to Fund Asset Management, L.P.
(the "Investment Adviser") of an aggregate of 6,667 Common Shares for $100,005
on            , 1999. The General Partner of the Investment Adviser is an
indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc.



     The Investment Adviser, on behalf of the Fund, will incur organizational
costs estimated at $      . Direct costs relating to the public offering of the
Fund's shares will be charged to capital at the time of issuance of shares.


NOTE 2.  MANAGEMENT ARRANGEMENTS


     The Fund has engaged the Investment Adviser to provide investment advisory
and management services to the Fund. The Investment Adviser will receive a
monthly fee for advisory services, at an annual rate equal to 0.55 of 1% of the
average weekly net assets of the Fund, including any proceeds from the issuance
of Preferred Shares. The Investment Adviser or an affiliate will pay Merrill
Lynch, Pierce, Fenner & Smith Incorporated a commission in the amount of     %
of the price to the public per share in connection with the initial public
offering of the Fund's Common Shares.


NOTE 3.  FEDERAL INCOME TAXES

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

                                       35
<PAGE>   89


                      MUNIHOLDINGS FLORIDA INSURED FUND V



                      SCHEDULE OF INVESTMENTS (UNAUDITED)



                                          , 1999
                                 (IN THOUSANDS)
                         [TO BE PROVIDED BY AMENDMENT]


                                       36
<PAGE>   90


                      MUNIHOLDINGS FLORIDA INSURED FUND V



                  STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
                       AS OF           , 1999 (UNAUDITED)



<TABLE>
<CAPTION>
<S>                                                           <C>           <C>
ASSETS:
Investments, at value (identified cost--$       ) (Note
  1a).......................................................                $
Cash........................................................
Receivables:
     Capital shares sold....................................  $
     Interest...............................................
     Investment adviser (Note 2)............................
                                                              -----------
Other assets................................................
                                                                            -----------
Total assets................................................
                                                                            -----------
LIABILITIES:
Payable for securities purchased............................
Accrued expenses and other liabilities......................
                                                                            -----------
Total liabilities...........................................
                                                                            -----------
NET ASSETS:
Net assets..................................................                $
                                                                            ===========
CAPITAL:
Capital Shares (unlimited number of shares of beneficial
  interest authorized) (Note 4):
     Common Shares, par value $.10 per share (       shares
      issued and outstanding)...............................                $
Paid-in capital in excess of par............................
Undistributed investment income--net........................
Unrealized appreciation on investments--net.................
                                                                            -----------
Total capital--Equivalent to $     net asset value per
  Common Share..............................................                $
                                                                            ===========
</TABLE>



                       See Notes to Financial Statements.


                                       37
<PAGE>   91


                      MUNIHOLDINGS FLORIDA INSURED FUND V

                   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES:


     MuniHoldings Florida Insured Fund V (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. Prior to commencement of operations on
           , 1999 the Fund had no operations other than those relating to
organizational matters and the sale of 6,667 shares of Common Shares on
           , 1999, to Fund Asset Management, L.P. ("FAM") for $100,005. The Fund
determines and makes available for publication the net asset value of its Common
Shares on a weekly basis. The Fund's Common Shares are listed on the New York
Stock Exchange under the symbol FDM. The following is a summary of significant
accounting policies followed by the Fund.


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

     (b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its portfolio
against adverse movements in the debt markets. Losses may arise due to changes
in the value of the contract or if the counterparty does not perform under the
contract.

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

     - Options -- The Fund is authorized to write covered call options and
       purchase call and put options. When the Fund writes an option, an amount
       equal to the premium received by the Fund is reflected as an asset and an
       equivalent liability. The amount of the liability is subsequently marked
       to market to reflect the current market value of the option written. When
       a security is purchased or sold through an exercise of an option, the
       related premium paid (or received) is added to (or deducted from) the
       basis of the security acquired or deducted from (or added to) the
       proceeds of the security sold. When an option expires (or the Fund enters
       into a closing transaction), the Fund realizes a gain or loss on the
       option to the extent of the premiums received or paid (or gain or loss to
       the extent the cost of the closing transaction exceeds the premium paid
       or received).

     Written and purchased options are non-income producing investments.

                                       38
<PAGE>   92

                      MUNIHOLDINGS FLORIDA INSURED FUND V


            NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)


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

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

     (e) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.

2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:

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


     FAM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee at an annual rate of 0.55% of the Fund's average weekly net assets.
For the period ended            , 1999, FAM earned fees of $     , all of which
was voluntarily waived. FAM also reimbursed the Fund additional expenses of
$     .


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

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

3. INVESTMENTS:


     Purchases of investments, excluding short-term securities, for the period
ended            , 1999 were $            . There were no long-term sales.



     Net unrealized gains as of            , 1999 were as follows:



<TABLE>
<CAPTION>
                                                              UNREALIZED
                                                                GAINS
                                                              ----------
<S>                                                           <C>
Long-term investments.......................................   $
                                                               --------
          Total.............................................   $
                                                               ========
</TABLE>



     As of            , 1999, net unrealized appreciation for Federal income tax
purposes aggregated $        , of which $        related to appreciated
securities and $      related to depreciated securities. The aggregate cost of
investments at            , 1999 for Federal income tax purposes was
$            .


4. BENEFICIAL INTEREST TRANSACTIONS:

     The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of capital without approval of
holders of Common Shares.

Common Shares


     Shares issued and outstanding increased by           as a result of the
initial offering during the period ended            , 1999.


                                       39
<PAGE>   93

                      MUNIHOLDINGS FLORIDA INSURED FUND V


            NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONCLUDED)


5. GENERAL:


     As of            , 1999, the Fund had only     days of investment
operations and had not yet declared dividends (whereas it will ordinarily do so
on a monthly basis). As a result, the Fund believes that more extensive interim
financial statements would not be indicative of the Fund's current and ongoing
operations. The Fund believes that such financial statements may be misleading
to potential investors and, accordingly, believes that inclusion of such
financial statements would be inappropriate. For the period ended            ,
1999, the Fund had net investment income of $      . FAM voluntarily waived all
expenses.


                                       40
<PAGE>   94

                                   APPENDIX A
                    ECONOMIC AND OTHER CONDITIONS IN FLORIDA


     The following information is a brief summary of factors affecting the
economy of the State of Florida (the "State") and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based upon one or more publicly available offering statements
relating to debt offerings of the State, however, it has not been updated. The
Fund has not independently verified the information.


     Throughout the 1980s, the State's unemployment rate has, generally, tracked
below that of the nation. In the nineties, the trend was reversed, until 1995
and 1996, when the State's unemployment rate again tracked below the national
average. The State's unemployment rate is projected to be 4.7% in 1997-98 and
5.0% in 1998-99. The average rate of unemployment for the State was 4.8% while
the nation's was 4.9%. (The projections set forth in this Appendix were obtained
from a report, prepared by the Revenue and Economic Analysis Unit of the
Executive Office of the Governor for the State of Florida, contained within a
recent official statement, dated August 18, 1998, for a State of Florida debt
offering.)

     Personal income in the State has grown at a strong pace and has generally
outperformed both the nation as a whole and the Southeast in particular. From
1992 through 1997, the State's per capita income expanded approximately 25.9%,
while the national per capita income increased by 24.1%. Real personal income in
Florida is estimated to increase 5.2% in 1997-98 and 3.7% in 1998-99 while real
personal income per capita is projected to grow at 3.2% in 1997-98 and 1.8% in
1998-99.

     The structure of Florida's income differs from that of the nation and the
Southeast. Because Florida has a proportionally greater retirement age
population, property income (dividends, interest, and rent) and transfer
payments (social security and pension benefits, among other sources of income)
are a relatively more important source of income. For example, Florida's
employment income in 1997 represented 59.8% of total personal income, while the
nation's share of total personal income in the form of wages and salaries and
other labor benefits was 70.4%. Florida's income is dependent upon transfer
payments controlled by the federal government.

     The State's strong population growth is one fundamental reason why its
economy has typically performed better than the nation as a whole. In 1980, the
State was ranked seventh among the 50 states with a population of 9.7 million
people. The State has grown dramatically since then and as of April 1, 1997
ranked fourth with an estimated population of 14.7 million. Since 1990, the
State's average annual rate of population increase has been approximately 1.8%
as compared to an approximately 1.0% for the nation as a whole. While annual
growth in the State's population is expected to decline somewhat, it is still
expected to grow close to 230,000 new residents per year throughout the 1990s.

     Tourism is one of the State's most important industries. 47 million people
visited the State in 1997, according to the Florida Department of Commerce.
Tourism arrivals are expected to increase by 2.1% this fiscal year and 4.7% next
year. By the end of the fiscal year, 43.8 million domestic and international
tourists are expected to have visited the State. In 1998-99, tourist arrivals
should approximate 45.6 million. Florida tourism appears to be recovering from
the effects of negative publicity regarding crime against tourists in the state.
Factors such as "product maturity" of a Florida vacation package, higher prices,
and more aggressive marketing by competing vacation destinations, could
contribute to a tourism slowdown.

     Florida's dependency on the highly cyclical construction and
construction-related manufacturing sectors has declined. For example, total
contract construction employment as a share of total non-farm employment was a
little over 5.7% in 1997. Florida, nevertheless, has had a dynamic construction
industry, with single and multi-family housing starts accounting for
approximately 9.2% of total U.S. housing starts, while the State's population
was 5.5% of the nation's population. Total housing starts were 132,813 in 1997.
A driving force behind Florida's construction industry is its rapid growth in
population. In Florida, single and multi-family housing starts in 1997-98 are
projected to reach a combined level of 129,500, while increasing 131,300 next
year. Multi-family starts have been slow to recover, but are showing stronger
growth now and should maintain a level of nearly 38,200 in 1997-98 and 37,200 in
1998-99. Total construction expenditures are forecasted to increase 13.2% in
this year and increase 6.5% next year.

                                       A-1
<PAGE>   95

     Financial operations of the State covering all receipts and expenditures
are maintained through the use of four funds -- the General Revenue Fund, Trust
Funds, the Working Capital Fund, and beginning in fiscal year 1994-95, the
Budget Stabilization Fund. In fiscal year 1996-97, the State derived
approximately 67% of its total direct revenues to these funds from State taxes
and fees. Federal funds and other special revenues accounted for the remaining
revenues. Major sources of tax revenues to the General Revenue Fund are the
sales and use tax, corporate income tax, intangible personal property tax,
beverage tax, and estate tax which amounted to 68%, 8%, 4% and 3%, respectively,
of total General Revenue Funds available. State expenditures are categorized for
budget and appropriation purposes by type of fund and spending unit, which are
further subdivided by line item. In fiscal year 1996-97, expenditures from the
General Revenue Fund for education, health and welfare, and public safety
amounted to approximately 53%, 26% and 14%, respectively, of total General
Revenues.

     The Sales and Use Tax is the greatest single source of tax receipts in the
State. For the State fiscal year ended June 30, 1997, receipts from this source
were $12,089 million, an increase of 5.5% from fiscal year 1995-96. The second
largest source of State tax receipts is the Motor Fuel Tax. The collections from
this source during the fiscal year ending June 30, 1997, were $2,012 million.
Alcoholic beverage tax revenues totalled $447.2 million for the State fiscal
year ending June 30, 1997, an increase of $5.7 million from the previous year.
The receipts of corporate income tax for the fiscal year ended June 30, 1997
were $1,362.3 million, an increase of 17.2% from fiscal year 1995-96. Gross
Receipt tax collections for fiscal year 1996-97 totalled $575.7 million, an
increase of 6.0% over the previous fiscal year. Documentary stamp tax
collections totalled $844.2 million during fiscal year 1996-97, posting an 8.9%
increase from the previous fiscal year. The intangible personal property tax is
a tax on stocks, bonds, notes, governmental leaseholds, certain limited
partnership interests, mortgages and other obligations secured by liens on
Florida realty, and other intangible personal property. Total collections from
intangible personal property taxes were $952.4 million during the fiscal year
ending June 30, 1997, a 6.3% increase from the previous fiscal year. Severance
taxes totalled $39.2 million during fiscal year 1995-96, up 26.1% from the
previous fiscal year. In November 1986, the voters of the State approved a
constitutional amendment to allow the State to operate a lottery. Fiscal year
1996-97 produced ticket sales of $2.09 billion of which education received
approximately $792.3 million.

     For fiscal year 1998-99 the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $19,113.2 million, a 2.6%
increase over 1997-98. The $16,887.6 million in estimated revenues represent a
7.2% increase over the analogous figure in 1997. With combined General Revenue,
Working Capital Fund and Budget Stabilization Fund appropriations at $17,207.0
million, unencumbered reserves at the end of 1998-99 are estimated at $1,414.8
million.

     The State Constitution does not permit a state or local personal income
tax. An amendment to the State Constitution by the electors of the State would
be required in order to impose a personal income tax in the State.

     Property valuations for homestead property are subject to a growth cap.
Growth in the just (market) value of property qualifying for the homestead
exemption is limited to 3% or the change in the Consumer Price Index, whichever
is less. If the property changes ownership or homestead status, it is to be
re-valued at full just value on the next tax roll. Although the impact of the
growth cap cannot be determined, it may have the effect of causing local
government units in the State to rely more on non-ad valorem tax revenues to
meet operating expenses and other requirements normally funded with ad valorem
tax revenues.

     An amendment to the State Constitution was approved by statewide ballot in
the November 8, 1994 general election which is commonly referred to as the
"Limitation on State Revenues Amendment." This amendment provides that State
revenues collected for any fiscal year shall be limited to State revenues
allowed under the amendment for the prior fiscal year plus an adjustment for
growth. Growth is defined as an amount equal to the average annual rate of
growth in State personal income over the most recent twenty quarters times the
State revenues allowed under the amendment for the prior fiscal year. State
revenues collected for any fiscal year in excess of this limitation are required
to be transferred to the Budget Stabilization Fund until the fund reaches the
maximum balance specified in Section 19(g) of Article III of the State
Constitution, and thereafter is required to be refunded to taxpayers as provided
by general law. The

                                       A-2
<PAGE>   96

limitation on State revenues imposed by the amendment may be increased by the
Legislature, by a two-thirds vote of each house.

     The term "State revenues," as used in the amendment, means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, the term "State
revenues" does not include: (i) revenues that are necessary to meet the
requirements set forth in documents authorizing the issuance of Bonds by the
State; (ii) revenues that are used to provide matching funds for the federal
Medicaid program with the exception of the revenues used to support the Public
Medical Assistance Trust Fund or its successor program and with the exception of
State matching funds used to fund elective expansions made after July 1, 1994;
(iii) proceeds from the State lottery returned as prizes; (iv) receipts of the
Florida Hurricane Catastrophe Fund; (v) balances carried forward from prior
fiscal years; (vi) taxes, licenses, fees and charges for services imposed by
local, regional, or school district governing bodies; or (vii) revenue from
taxes, licenses, fees and charges for services required to be imposed by any
amendment or revision to the State Constitution after July 1, 1994. The
amendment took effect on January 1, 1995 and is applicable to State fiscal year
1995-96.

     It should be noted that many of the provisions of the amendment are
ambiguous, and likely will not be clarified until State courts have ruled on
their meanings. Further, it is unclear how the Legislature will implement the
language of the amendment and whether such implementing legislation will itself
be the subject of court interpretation.

     The Fund cannot predict the impact of the amendment on State finances. To
the extent local governments traditionally receive revenues from the State which
are subject to, and limited by, the amendment, the future distribution of such
State revenues may be adversely affected by the amendment.

     Hurricanes continue to endanger the coastal and interior portions of
Florida. Substantial damage resulted from Hurricane Andrew in 1992. During the
1995 hurricane season, a record number of tropical storms and hurricanes also
caused substantial damages. The 1996 and 1997 hurricane seasons were uneventful
with considerably less damage than in 1992 and 1995. During the 1998 hurricane
season, which ended November 30, two hurricanes caused significant damage to
several coastal communities in Florida. The Fund cannot predict the economic
impact, if any, of future hurricanes and storms.

     As of December 2, 1998, the State had a high bond rating from Moody's
Investors Service, Inc. (Aa2), Standard & Poor's (AA+) and Fitch IBCA, Inc. (AA)
on all of its general obligation bonds. Outstanding general obligation bonds at
June 30, 1997 totalled almost $7.9 billion and were issued to finance capital
outlay for educational projects of both local school districts, community
colleges and state universities, environmental protection and highway
construction. The State has issued over $1,340 billion of general obligation
bonds since July 1, 1997.

     Due to investments in certain derivatives, Escambia County, Florida in 1994
sustained notable losses which may in the future affect their operations. As
reported in the local press, several lawsuits have resulted regarding such
investments.

     In late October, 1996, the Florida Auditor General notified the Governor's
office that seventeen municipalities or special districts are in a state of
financial emergency (including the Orlando-Orange County Expressway Authority
and the Pinellas Suncoast Transit Authority) and that another twenty-five
municipalities or special districts might be in a state of financial emergency
(including the City of Miami). For these purposes, a state of emergency is
considered two consecutive years of budget deficits. Municipalities or special
districts that may be in a state of financial emergency are those that the
Auditor General was unable to conclude had sufficient revenues to cover their
deficits. The operations of all these entities mentioned in the Auditor
General's communication may be adversely affected by their financial condition.

                                       A-3
<PAGE>   97

                                   APPENDIX B

                           RATINGS OF MUNICIPAL BONDS

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") MUNICIPAL BOND
RATINGS

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

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

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

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

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

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

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

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

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

     Note:  These bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, Al, Baal, Bal and B1.

     Short-term Notes:  The three ratings of Moody's for short-term notes are
MIG 1/VMIG 1, MIG 2/VMIG 2, and MIG 3/VMIG 3; MIG 1/VMIG 1 denotes "best
quality, enjoying strong protection from established cash flows"; MIG 2/VMIG 2
denotes "high quality" with "ample margins of protection"; MIG 3/VMIG 3
instruments are of "favorable quality . . . but . . . lacking the undeniable
strength of the preceding grades."

                                       B-1
<PAGE>   98

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

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

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

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

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

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

DESCRIPTION OF STANDARD & POOR'S, A DIVISION OF THE MCGRAW-HILL COMPANIES, INC.
("STANDARD & POOR'S"), MUNICIPAL DEBT RATINGS

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

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

     The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.

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

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

     II. Nature of and provisions of the obligation;

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

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

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

                                       B-2
<PAGE>   99

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

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

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

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

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

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

A-1            This designation indicates that the degree of safety regarding
               timely payment is strong. Those issues determined to possess
               extremely strong safety characteristics are denoted with a plus
               sign (+) designation.

A-2            Capacity for timely payment on issues with this designation is
               satisfactory. However, the relative degree of safety is not as
               high as for issues designated "A-1."

A-3            Issues carrying this designation have adequate capacity for
               timely payment. They are, however, more vulnerable to the adverse
               effects of changes in circumstances than obligations carrying the
               higher designations.

B              Issues rated "B" are regarded as having only speculative capacity
               for timely payment.

C              This rating is assigned to short-term debt obligations with a
               doubtful capacity for payment.

D              Debt rated "D" is in payment default. The "D" rating category is
               used when interest payments or principal payments are not made on
               the date due, even if the applicable grace period has not expired
               unless Standard & Poor's believes that such payments will be made
               during such grace period.

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

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

     -- Amortization schedule -- the larger the final maturity relative to other
        maturities, the more likely it will be treated as a note.
                                       B-3
<PAGE>   100

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

     Note rating symbols are as follows:

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

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

SP-3           Speculative capacity to pay principal and interest.

DESCRIPTION OF FITCH IBCA, INC.'S ("FITCH") INVESTMENT GRADE BOND RATINGS

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

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

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

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

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

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

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

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

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

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

                                       B-4
<PAGE>   101

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

NR             Indicates that Fitch does not rate the specific issue.

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

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

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

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


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


DESCRIPTION OF FITCH'S SPECULATIVE GRADE BOND RATINGS

     Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.

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

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

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

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

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

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

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

                                       B-5
<PAGE>   102

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

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

DESCRIPTION OF FITCH'S SHORT-TERM RATINGS

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

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

     Fitch short-term ratings are as follows:

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

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

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

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

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

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

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

                                       B-6
<PAGE>   103

                                   APPENDIX C

                              PORTFOLIO INSURANCE

     Set forth below is further information with respect to the insurance
policies (the "Policies") that the Fund may obtain from several insurance
companies with respect to insured Florida Municipal Bonds and Municipal Bonds
held by the Fund. The Fund has no obligation to obtain any such Policies, and
the terms of any Policies actually obtained may vary significantly from the
terms discussed below.

     In determining eligibility for insurance, insurance companies will apply
their own standards. These standards correspond generally to the standards such
companies normally use in establishing the insurability of new issues of Florida
Municipal Bonds and Municipal Bonds and are not necessarily the criteria that
would be used in regard to the purchase of such bonds by the Fund. The Policies
do not insure (i) municipal securities ineligible for insurance and (ii)
municipal securities no longer owned by the Fund.

     The Policies do not guarantee the market value of the insured Florida
Municipal Bonds and Municipal Bonds or the value of the shares of the Fund. In
addition, if the provider of an original issuance insurance policy is unable to
meet its obligations under such policy or if the rating assigned to the
insurance claims-paying ability of any such insurer deteriorates, the insurance
company will not have any obligation to insure any issue held by the Fund that
is aversely affected by either of the above described events. In addition to the
payment of premium, the policies may require that the Fund notify the insurance
company as to all Florida Municipal Bonds and Municipal Bonds in the Fund's
portfolio and permit the insurance company to audit their records. The insurance
premiums will be payable monthly by the Fund in accordance with a premium
schedule to be furnished by the insurance company at the time the Policies are
issued. Premiums are based upon the amounts covered and the composition of the
portfolio.

     The Fund will seek to utilize insurance companies that have insurance
claims-paying ability ratings of AAA from Standard & Poor's ("S&P") or Fitch
IBCA, Inc. ("Fitch") or Aaa from Moody's Investors Service ("Moody's"). There
can be no assurance however, that insurance from insurance carriers meeting
these criteria will be at all times available.

     An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by S&P.
Capacity to honor insurance contracts is considered by S&P to be extremely
strong and highly likely to remain so over a long period of time. A Fitch
insurance claims-paying ability rating provides an assessment of an insurance
company's financial strength and, therefore, its ability to pay policy and
contract claims under the terms indicated. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by Fitch.
The ability to pay claims is adjudged by Fitch to be extremely strong for
insurance companies with this highest rating. In the opinion of Fitch,
foreseeable business and economic risk factors should not have any material
adverse impact on the ability of these insurers to pay claims. In Fitch's
opinion, profitability, overall balance sheet strength, capitalization and
liquidity are all at very secure levels and are unlikely to be affected by
potential adverse underwriting, investment or cyclical events. A Moody's
insurance claims-paying ability rating is an opinion of the ability of an
insurance company to repay punctually senior policyholder obligations and
claims. An insurer with an insurance claims-paying ability rating of Aaa is
considered by Moody's to be of the best quality. In the opinion of Moody's, the
policy obligations of an insurance company with an insurance claims-paying
ability rating of Aaa carry the smallest degree of credit risk and, while the
financial strength of these companies is likely to change, such changes as can
be visualized are most unlikely to impair the company's fundamentally strong
position.

     An insurance claims-paying ability rating of S&P, Fitch or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment; nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).

                                       C-1
<PAGE>   104

     The assignment of ratings by S&P, Fitch or Moody's to debt issues that are
fully or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.

                                       C-2
<PAGE>   105

                                   APPENDIX D

                             SETTLEMENT PROCEDURES

     The following summary of Settlement Procedures sets forth the procedures
expected to be followed in connection with the settlement of each Auction and
will be incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. Nothing contained in this Appendix D constitutes a
representation by the Fund that in each Auction each party referred to herein
actually will perform the procedures described herein to be performed by such
party. Capitalized terms used herein shall have the respective meanings
specified in the glossary of this Prospectus or Appendix E hereto, as the case
may be.

     (a) On each Auction Date, the Auction Agent shall notify by telephone or
through the Auction Agent's Processing System the Broker-Dealers that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of any 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, if any, of
     AMPS 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, if any, of AMPS 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

                                       D-1
<PAGE>   106

     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

                                       D-2
<PAGE>   107

which shall represent any departure from the results of an Auction, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the provisions of the Auction Agent Agreement and the
Broker-Dealer Agreements.

                                       D-3
<PAGE>   108

                                   APPENDIX E

                               AUCTION PROCEDURES

     The following procedures will be set forth in provisions of the Certificate
of Designation relating to the AMPS, and will be incorporated by reference in
the Auction Agent Agreement and each Broker-Dealer Agreement. The terms not
defined below are defined in the forepart of this Prospectus. Nothing contained
in this Appendix E constitutes a representation by the Fund that in each Auction
each party referred to herein actually will perform the procedures described
herein to be performed by such party.

     PARAGRAPH 10(a) Certain Definitions.

     As used in this Paragraph 10, the following terms shall have the following
meanings, unless the context otherwise requires:

          (i) "AMPS" shall mean the shares of AMPS being auctioned pursuant to
     this Paragraph 10.

          (ii) "Auction Date" shall mean the first Business Day preceding the
     first day of a Dividend Period.

          (iii) "Available AMPS" shall have the meaning specified in Paragraph
     10(d)(i) below.

          (iv) "Bid" shall have the meaning specified in Paragraph 10(b)(i)
     below.

          (v) "Bidder" shall have the meaning specified in Paragraph 10(b)(i)
     below.

          (vi) "Hold Order" shall have the meaning specified in Paragraph
     10(b)(i) below.

          (vii) "Maximum Applicable Rate" for any Dividend Period will be the
     Applicable Percentage of the Reference Rate. The Applicable Percentage will
     be determined based on (i) the lower of the credit rating or ratings
     assigned on such date to such shares by Moody's and S&P (or if Moody's or
     S&P or both shall not make such rating available, the equivalent of either
     or both of such ratings by a Substitute Rating Agency or two Substitute
     Rating Agencies or, in the event that only one such rating shall be
     available, such rating) and (ii) whether the Fund has provided modification
     to the Auction Agent prior to the Auction establishing the Applicable Rate
     for any dividend that net capital gains or other taxable income will be
     included in such dividend on AMPS as follows:

<TABLE>
<CAPTION>
                   CREDIT RATING                       APPLICABLE      APPLICABLE
- ----------------------------------------------------  PERCENTAGE OF   PERCENTAGE OF
                                   REFERENCE RATE --  -------------   -------------
REFERENCE RATE -- NO NOTIFICATION    NOTIFICATION        MOODY'S           S&P
- ---------------------------------  -----------------  -------------   -------------
<S>                                <C>                <C>             <C>
"aa3" or higher                    AA- or Higher           110%            150%
"a3" or "a1"                       A- to A+                125%            160%
"baa3" to "baa1"                   BBB- to BBB+            150%            250%
Below "baa3"                       Below BBB-              200%            275%
</TABLE>

             The Fund shall take all reasonable action necessary to enable S&P
        and Moody's to provide a rating for the AMPS. If either S&P or Moody's
        shall not make such a rating available, or if neither S&P nor Moody's
        shall make such a rating available, Merrill Lynch, Pierce, Fenner &
        Smith Incorporated or its affiliates and successors, after consultation
        with the Fund, shall select a nationally recognized statistical rating
        organization or two nationally recognized statistical rating
        organizations to act as a Substitute Rating Agency or Substitute Rating
        Agencies, as the case may be.

          (viii) "Order" shall have the meaning specified in Paragraph 10(b)(i)
     below.

          (ix) "Sell Order" shall have the meaning specified in Paragraph
     10(b)(i) below.

          (x) "Submission Deadline" shall mean 1:00 p.m., Eastern time, on any
     Auction Date or such other time on any Auction Date as may be specified by
     the Auction Agent from time to time as the time by which each Broker-Dealer
     must submit to the Auction Agent in writing all Orders obtained by it for
     the Auction to be conducted on such Auction Date.

                                       E-1
<PAGE>   109

          (xi) "Submitted Bid" shall have the meaning specified in Paragraph
     10(d)(i) below.

          (xii) "Submitted Hold Order" shall have the meaning specified in
     Paragraph 10(d)(i) below.

          (xiii) "Submitted Order" shall have the meaning specified in Paragraph
     10(d)(i) below.

          (xiv) "Submitted Sell Order" shall have the meaning specified in
     Paragraph 10(d)(i) below.

          (xv) "Sufficient Clearing Bids" shall have the meaning specified in
     Paragraph 10(d)(i) below.

          (xvi) "Winning Bid Rate" shall have the meaning specified in Paragraph
     10(d)(i) below.

     PARAGRAPH 10(b) Orders by Beneficial Owners, Potential Beneficial Owners,
Existing Holders and Potential Holders.

     (i) Unless otherwise permitted by the Fund, Beneficial Owners and Potential
Beneficial Owners may only participate in Auctions through their Broker-Dealers.
Broker-Dealers will submit the Orders of their respective customers who are
Beneficial Owners and Potential Beneficial Owners to the Auction Agent,
designating themselves as Existing Holders in respect of shares subject to
Orders submitted or deemed submitted to them by Beneficial Owners and as
Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold AMPS in its own
account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:

          (A) each Beneficial Owner may submit to its Broker-Dealer information
     as to:

             (1) the number of outstanding AMPS, if any, held by such Beneficial
        Owner which such Beneficial Owner desires to continue to hold without
        regard to the Applicable Rate for the next succeeding Dividend Period;

             (2) the number of outstanding AMPS, if any, held by such Beneficial
        Owner which such Beneficial Owner desires to continue to hold, provided
        that the Applicable Rate for the next succeeding Dividend Period shall
        not be less than the rate per annum specified by such Beneficial Owner,
        and/or

             (3) the number of outstanding AMPS, if any, held by such Beneficial
        Owner which such Beneficial Owner offers to sell without regard to the
        Applicable Rate for the next succeeding Dividend Period; and

          (B) each Broker-Dealer, using a list of Potential Beneficial Owners
     that shall be maintained in good faith for the purpose of conducting a
     competitive Auction, shall contact Potential Beneficial Owners, including
     Persons that are not Beneficial Owners, on such list to determine the
     number of outstanding AMPS, if any, which each such Potential Beneficial
     Owner offers to purchase, provided that the Applicable Rate for the next
     succeeding Dividend Period shall not be less than the rate per annum
     specified by such Potential Beneficial Owner.

     For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this Paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this Paragraph
10(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this Paragraph 10(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this Paragraph 10(b)(i) is hereinafter referred
to as a "Sell Order." Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all

                                       E-2
<PAGE>   110

discussion herein relating to the consequences of an Auction for Existing
Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.

     (ii) (A) A Bid by an Existing Holder shall constitute an irrevocable offer
to sell:

             (1) the number of outstanding AMPS specified in such Bid if the
        Applicable Rate determined on such Auction Date shall be less than the
        rate per annum specified in such Bid; or

             (2) such number or a lesser number of outstanding AMPS to be
        determined as set forth in Paragraph 10(e)(i)(D) if the Applicable Rate
        determined on such Auction Date shall be equal to the rate per annum
        specified therein; or

             (3) a lesser number of outstanding AMPS to be determined as set
        forth in Paragraph 10(e)(ii)(C) if such specified rate per annum shall
        be higher than the Maximum Applicable Rate and Sufficient Clearing Bids
        do not exist.

          (B) A Sell Order by an Existing Holder shall constitute an irrevocable
     offer to sell:

             (1) the number of outstanding AMPS specified in such Sell Order, or

             (2) such number or a lesser number of outstanding AMPS to be
        determined as set forth in Paragraph 10(e)(ii)(C) if Sufficient Clearing
        Bids do not exist.

          (C) A Bid by a Potential Holder shall constitute an irrevocable offer
     to purchase:

             (1) the number of outstanding AMPS specified in such Bid if the
        Applicable Rate determined on such Auction Date shall be higher than the
        rate per annum specified in such Bid; or

             (2) such number or a lesser number of outstanding AMPS to be
        determined as set forth in Paragraph 10(e)(i)(E) if the Applicable Rate
        determined on such Auction Date shall be equal to the rate per annum
        specified therein.

     PARAGRAPH 10(c) Submission of Orders By Broker-Dealers to Auction Agent.

     (i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
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 specifying with
respect to each Order:

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

          (B) the aggregate number of outstanding AMPS that are the subject of
     such Order;

          (C) to the extent that such Bidder is an Existing Holder

             (1) the number of outstanding AMPS, if any, subject to any Hold
        Order placed by such Existing Holder;

             (2) the number of outstanding AMPS, if any, subject to any Bid
        placed by such Existing Holder and the rate per annum specified in such
        Bid; and

             (3) the number of outstanding AMPS, if any, subject to any Sell
        Order placed by such Existing Holder; and

          (D) to the extent such Bidder is a Potential Holder, the rate per
     annum specified in such Potential Holder's Bid.

     (ii) If any rate per annum specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one-thousandth (.001) of 1%.

                                       E-3
<PAGE>   111

     (iii) If an Order or Orders covering all of the outstanding AMPS held by an
Existing Holder are not submitted to the Auction Agent prior to the Submission
Deadline, the Auction Agent shall deem a Hold Order (in the case of an Auction
relating to a Dividend Period which is not a Special Dividend Period of 28 days
or more) and a Sell Order (in the case of an Auction relating to a Special
Dividend Period of 28 days or more) to have been submitted on behalf of such
Existing Holder covering the number of outstanding AMPS held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.

     (iv) If one or more Orders on behalf of an Existing Holder covering in the
aggregate more than the number of outstanding AMPS held by such Existing Holder
are submitted to the Auction Agent, such Orders shall be considered valid as
follows and in the following order of priority:

          (A) any Hold Order submitted on behalf of such Existing Holder shall
     be considered valid up to and including the number of outstanding AMPS held
     by such Existing Holder; provided that if more than one Hold Order is
     submitted on behalf of such Existing Holder and the number of 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
     shall be reduced pro rata so that such Hold Orders, in the aggregate, cover
     exactly the number of outstanding AMPS held by such Existing Holder;

          (B) any Bids submitted on behalf of such Existing Holder shall be
     considered valid, in the ascending order of their respective rates per
     annum if more than one Bid is submitted on behalf of such Existing Holder,
     up to and including the excess of the number of outstanding AMPS held by
     such Existing Holder over the number of AMPS subject to any Hold Order
     referred to in Paragraph 10(c)(iv)(A) above (and if more than one Bid
     submitted on behalf of such Existing Holder specifies the same rate per
     annum and together they cover more than the remaining number of shares that
     can be the subject of valid Bids after application of Paragraph
     10(c)(iv)(A) above and of the foregoing portion of this Paragraph
     10(c)(iv)(B) to any Bid or Bids specifying a lower rate or rates per annum,
     the number of shares subject to each of such Bids shall be reduced pro rata
     so that such Bids, in the aggregate, cover exactly such remaining number of
     shares); and the number of shares, if any, subject to Bids not valid under
     this Paragraph 10(c)(iv)(B) shall be treated as the subject of a Bid by a
     Potential Holder; and

          (C) any Sell Order shall be considered valid up to and including the
     excess of the number of outstanding AMPS held by such Existing Holder over
     the number of AMPS subject to Hold Orders referred to in Paragraph
     10(c)(iv)(A) and Bids referred to in Paragraph 10(c)(iv)(B); provided that
     if more than one Sell Order is submitted on behalf of 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 shall be
     reduced pro rata so that such Sell Orders, in the aggregate, cover exactly
     the number of AMPS equal to such excess.

     (v) If more than one Bid is submitted on behalf of any Potential Holder,
each Bid submitted shall be a separate Bid with the rate per annum and number of
AMPS therein specified.

     (vi) 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.

     PARAGRAPH 10(d) Determination of Sufficient Clearing Bids, Winning Bid Rate
and Applicable Rate.

     (i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as
a "Submitted Order") and shall determine:

          (A) the excess of the total number of outstanding shares of AMPS over
     the number of outstanding AMPS that are the subject of Submitted Hold
     Orders (such excess being hereinafter referred to as the "Available AMPS");

                                       E-4
<PAGE>   112

          (B) from the Submitted Orders whether the number of outstanding AMPS
     that are the subject of Submitted Bids by Potential Holders specifying one
     or more rates per annum equal to or lower than the Maximum Applicable Rate
     exceeds or is equal to the sum of:

             (1) the number of outstanding AMPS that are the subject of
        Submitted Bids by Existing Holders specifying one or more rates per
        annum higher than the Maximum Applicable Rate, and

             (2) the number of outstanding AMPS that are subject to Submitted
        Sell Orders (if such excess or such equality exists (other than because
        the number of outstanding AMPS in clauses (1) and (2) above are each
        zero because all of the outstanding AMPS are the subject of Submitted
        Hold Orders), such Submitted Bids by Potential Holders hereinafter being
        referred to collectively as "Sufficient Clearing Bids"); and

          (C) if Sufficient Clearing Bids exist, the lowest rate per annum
     specified in the Submitted Bids (the "Winning Bid Rate") that if:

             (1) each Submitted Bid from Existing Holders specifying the Winning
        Bid Rate and all other submitted Bids from Existing Holders specifying
        lower rates per annum were rejected, thus entitling such Existing
        Holders to continue to hold the AMPS that are the subject of such
        Submitted Bids, and

             (2) each Submitted Bid from Potential Holders specifying the
        Winning Bid Rate and all other Submitted Bids from Potential Holders
        specifying lower rates per annum were accepted, thus entitling the
        Potential Holders to purchase the AMPS that are the subject of such
        Submitted Bids, would result in the number of shares subject to all
        Submitted Bids specifying the Winning Bid Rate or a lower rate per annum
        being at least equal to the Available AMPS.

     (ii) Promptly after the Auction Agent has made the determinations pursuant
to Paragraph 10(d)(i), the Auction Agent shall advise the Fund of the Maximum
Applicable Rate and, based on such determinations, the Applicable Rate for the
next succeeding Dividend Period as follows:

          (A) if Sufficient Clearing Bids exist, that the Applicable Rate for
     the next succeeding Dividend Period shall be equal to the Winning Bid Rate;

          (B) if Sufficient Clearing Bids do not exist (other than because all
     of the outstanding AMPS are the subject of Submitted Hold Orders), that the
     Applicable Rate for the next succeeding Dividend Period shall be equal to
     the Maximum Applicable Rate; or

          (C) if all of the outstanding AMPS are the subject of Submitted Hold
     Orders, that the Dividend Period next succeeding the Auction automatically
     shall be the same length as the immediately preceding Dividend Period and
     the Applicable Rate for the next succeeding Dividend Period shall be equal
     to 40% of the Reference Rate (or 60% of such rate if the Fund has provided
     notification to the Auction Agent prior to the Auction establishing the
     Applicable Rate for any dividend that net capital gains or other taxable
     income will be included in such dividend on the AMPS) on the date of the
     Auction.

     PARAGRAPH 10(e) Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders And Allocation of Shares.

     Based on the determinations made pursuant to Paragraph 10(d)(i), the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the
Auction Agent shall take such other action as set forth below:

          (i) If Sufficient Clearing Bids have been made, subject to the
     provisions of Paragraph 10(e)(iii) and Paragraph 10(e)(iv), Submitted Bids
     and Submitted Sell Orders shall be accepted or rejected in the following
     order of priority and all other Submitted Bids shall be rejected:

             (A) the Submitted Sell Orders of Existing Holders shall be accepted
        and the Submitted Bid of each of the Existing Holders specifying any
        rate per annum that is higher than the Winning Bid Rate

                                       E-5
<PAGE>   113

        shall be accepted, thus requiring each such Existing Holder to sell the
        outstanding AMPS that are the subject of such Submitted Sell Order or
        Submitted Bid;

             (B) the Submitted Bid of each of the Existing Holder specifying any
        rate per annum that is lower than the Winning Bid Rate shall be
        rejected, thus entitling each such Existing Holder to continue to hold
        the outstanding AMPS that are the subject of such Submitted Bid;

             (C) the Submitted Bid of each of the Potential Holders specifying
        any rate per annum that is lower than the Winning Bid Rate shall be
        accepted;

             (D) the Submitted Bid of each of the Existing Holders specifying a
        rate per annum that is equal to the Winning Bid Rate shall be rejected,
        thus entitling each such Existing Holder to continue to hold the
        outstanding AMPS that are the subject of such Submitted Bid, unless the
        number of outstanding AMPS subject to all such Submitted Bids shall be
        greater than the number of outstanding AMPS ("Remaining Shares") equal
        to the excess of the Available AMPS over the number of outstanding AMPS
        subject to Submitted Bids described in Paragraph 10(e)(i)(B) and
        Paragraph 10(e)(i)(C), in which event the Submitted Bids of each such
        Existing Holder shall be accepted, and each such Existing Holder shall
        be required to sell outstanding AMPS, but only in an amount equal to the
        difference between (1) the number of outstanding AMPS then held by such
        Existing Holder subject to such Submitted Bid and (2) the number of AMPS
        obtained by multiplying (x) the number of Remaining Shares by (y) a
        fraction the numerator of which shall be the number of outstanding
        shares of AMPS held by such Existing Holder subject to such Submitted
        Bid and the denominator of which shall be the sum of the numbers of
        outstanding AMPS subject to such Submitted Bids made by all such
        Existing Holders that specified a rate per annum equal to the Winning
        Bid Rate; and

             (E) the Submitted Bid of each of the Potential Holders specifying a
        rate per annum that is equal to the Winning Bid Rate shall be accepted
        but only in an amount equal to the number of outstanding AMPS obtained
        by multiplying (x) the difference between the Available AMPS and the
        number of outstanding AMPS subject to Submitted Bids described in
        Paragraph 10(e)(i)(B), Paragraph 10(e)(i)(C) and Paragraph 10(e)(i)(D)
        by (y) 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 sum of the number of outstanding AMPS subject to such
        Submitted Bids made by all such Potential Holders that specified rates
        per annum equal to the Winning Bid Rate.

          (ii) If Sufficient Clearing Bids have not been made (other than
     because all of the outstanding AMPS are subject to Submitted Hold Orders),
     subject to the provisions of Paragraph 10(e)(iii), Submitted Orders shall
     be accepted or rejected as follows in the following order of priority and
     all other Submitted Bids shall be rejected:

             (A) the Submitted Bid of each Existing Holder specifying any rate
        per annum that is equal to or lower than the Maximum Applicable Rate
        shall be rejected, thus entitling such Existing Holder to continue to
        hold the outstanding AMPS that are the subject of such Submitted Bid;

             (B) the Submitted Bid of each Potential Holder specifying any rate
        per annum that is equal to or lower than the Maximum Applicable Rate
        shall be accepted, thus requiring such Potential Holder to purchase the
        outstanding AMPS that are the subject of such Submitted Bid; and

             (C) the Submitted Bids of each Existing Holder specifying any rate
        per annum that is higher than the Maximum Applicable Rate shall be
        accepted and the Submitted Sell Orders of each Existing Holder shall be
        accepted, in both cases only in an amount equal to the difference
        between (1) the number of outstanding AMPS then held by such Existing
        Holder subject to such Submitted Bid or Submitted Sell Order and (2) the
        number of AMPS obtained by multiplying (x) the difference between the
        Available AMPS and the aggregate number of outstanding AMPS subject to
        Submitted Bids described in Paragraph 10(e)(ii)(A) and Paragraph
        10(e)(ii)(B) by (y) a fraction the numerator of which shall be the
        number of outstanding AMPS held by such Existing Holder

                                       E-6
<PAGE>   114

        subject to such Submitted Bid or Submitted Sell Order and the
        denominator of which shall be the number of outstanding AMPS subject to
        all such Submitted Bids and Submitted Sell Orders.

          (iii) If, as a result of the procedures described in Paragraph
     10(e)(i) or Paragraph 10(e)(ii), any Existing Holder would be entitled or
     required to sell, or any Potential Holder would be entitled or required to
     purchase, a fraction of a share of AMPS on any Auction Date, the Auction
     Agent shall, in such manner as in its sole discretion it shall determine,
     round up or down the number of shares of AMPS to be purchased or sold by
     any Existing Holder or Potential Holder on such Auction Date so that each
     outstanding AMPS purchased or sold by each Existing Holder or Potential
     Holder on such Auction Date shall be a whole share of AMPS.

          (iv) If, as a result of the procedures described in Paragraph
     10(e)(i), any Potential Holder would be entitled or required to purchase
     less than a whole share of AMPS on any Auction Date, the Auction Agent, in
     such manner as in its sole discretion it shall determine, shall allocate
     shares of AMPS for purchase among Potential Holders so that only whole
     shares of AMPS are purchased on such Auction Date by any Potential Holder,
     even if such allocation results in one or more of such Potential Holders
     not purchasing any AMPS on such Auction Date.

          (v) Based on the results of each Auction, the Auction Agent shall
     determine, with respect to each Broker-Dealer that submitted Bids or Sell
     Orders on behalf of Existing Holders or Potential Holders, the aggregate
     number of the outstanding AMPS to be purchased and the aggregate number of
     outstanding AMPS to be sold by such Potential Holders and Existing Holders
     and, to the extent that such aggregate number of outstanding shares to be
     purchased and such aggregate number of outstanding shares to be sold
     differ, the Auction Agent shall determine to which other Broker-Dealer or
     Broker-Dealers acting for one or more purchasers such Broker-Dealer shall
     deliver, or from which other Broker-Dealer or Broker-Dealers acting for one
     or more sellers such Broker-Dealer shall receive, as the case may be,
     outstanding AMPS.

     PARAGRAPH 10(f) Miscellaneous.

     The Fund may interpret the provisions of this Paragraph 10 to resolve any
inconsistency or ambiguity, remedy any formal defect or make any other change or
modification that does not substantially adversely affect the rights of
Beneficial Owners of AMPS. A Beneficial Owner or an Existing Holder (A) may
sell, transfer or otherwise dispose of AMPS only pursuant to a Bid or Sell Order
in accordance with the procedures described in this Paragraph 10 or to or
through a Broker-Dealer, provided that in the case of all transfers other than
pursuant to Auctions such Beneficial Owner or Existing Holder, its
Broker-Dealer, if applicable, or its Agent Member advises the Auction Agent of
such transfer and (B) except as otherwise required by law, shall have the
ownership of the AMPS held by it maintained in book entry form by the Securities
Depository in the account of its Agent Member, which in turn will maintain
records of such Beneficial Owner's beneficial ownership. Neither the Fund nor
any Affiliate (other than Merrill Lynch, Pierce, Fenner & Smith Incorporated)
shall submit an Order in any Auction. Any Beneficial Owner that is an Affiliate
(other than Merrill Lynch, Pierce, Fenner & Smith Incorporated) shall not sell,
transfer or otherwise dispose of AMPS to any Person other than the Fund. All of
the outstanding AMPS of a Series shall be represented by a single certificate
registered in the name of the nominee of the Securities Depository unless
otherwise required by law or unless there is no Securities Depository. If there
is no Securities Depository, at the Fund's option and upon its receipt of such
documents as it deems appropriate, any AMPS may be registered in the Stock
Register in the name of the Beneficial Owner thereof and such Beneficial Owner
thereupon will be entitled to receive certificates therefor and required to
deliver certificates thereof or upon transfer or exchange thereof.

                                       E-7
<PAGE>   115

                           PART C.  OTHER INFORMATION

ITEM 24.  FINANCIAL STATEMENTS AND EXHIBITS.

     (1) Financial Statements


        Report of Independent Auditors


        Statement of Assets, Liabilities and Capital as of            , 1999


        Schedule of Investments as of            , 1999 (unaudited)


        Statement of Assets, Liabilities and Capital as of            , 1999
         (unaudited)


     (2) Exhibits:


<TABLE>
<CAPTION>
                                           DESCRIPTION
                                           -----------
      <S>     <C>  <C>
      (a)(1)  --   Declaration of Trust of the Registrant.(a)
      (2)     --   Form of Certificate of Designation creating the Series A
                   AMPS and Series B AMPS.
      (b)     --   By-Laws of the Registrant.(a)
      (c)     --   Not applicable.
      (d)(1)  --   Portions of the Declaration of Trust, By-Laws and the
                   Certificate of Designation of the Registrant defining the
                   rights of holders of shares of the Registrant.(b)
      (2)     --   Form of specimen certificate for the AMPS of the Registrant.
      (e)     --   Form of Automatic Dividend Reinvestment Plan.(c)
      (f)     --   Not applicable.
      (g)     --   Form of Investment Advisory Agreement between the Registrant
                   and Fund Asset Management, L.P.(c)
      (h)(1)  --   Form of Purchase Agreement for the AMPS.
      (2)     --   Merrill Lynch Standard Dealer Agreement.(c)
      (i)     --   Not applicable.
      (j)     --   Form of Custodian Contract between the Registrant and
                   .*
      (k)(1)  --   Form of Transfer Agency, Dividend Disbursing Agency and
                   Shareholder Servicing Agency Agreement between the
                   Registrant and                                         .*
      (2)     --   Form of Auction Agent Agreement between the Registrant and
                   IBJ Schroder Bank & Trust Company.
      (3)     --   Form of Broker-Dealer Agreement.
      (4)     --   Form of Letter of Representations.
      (l)     --   Opinion and Consent of Brown & Wood LLP, counsel to the
                   Registrant.*
      (m)     --   Not applicable.
      (n)     --   Consent of                     , independent auditors for
                   the Registrant.*
      (o)     --   Not applicable.
      (p)     --   Certificate of Fund Asset Management, L.P.*
      (q)     --   Not applicable.
      (r)     --   Financial Data Schedule.*
</TABLE>


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

(a) Reference is made to the Registrant's registration statement on Form N-2,
    File Nos. 333-78141 and 811-09331 (the "Common Shares Registration
    Statement") filed with the Securities and Exchange Commission on May 10,
    1999.



(b) Reference is made to Section 3.4, Article V, Article VI (sections 1, 2, 4, 5
    and 7), Article VIII, Article IX and Article X of the Registrant's
    Declaration of Trust, previously filed as Exhibit (a) to the Common Shares
    Registration Statement; and to Article II, Article III (sections 1, 2, 3, 5
    and 17), Article VI, Article VII, Article XII, Article XIII and Article XIV
    of the Registrant's By-Laws, previously filed as Exhibit (b) to the Common
    Shares Registration Statement. Reference is also made to the Form of
    Certificate of Designation filed hereto as Exhibit (a)(2).



(c) Reference is made to Pre-Effective Amendment No. 1 to Registrant's Common
    Shares Registration Statement filed with the Securities and Exchange
    Commission on May 18, 1999.


                                       C-1
<PAGE>   116


  * To be filed by amendment.


ITEM 25.  MARKETING ARRANGEMENTS.

     See Exhibit (h).

ITEM 26.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

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


<TABLE>
<S>                                                           <C>
Registration fees...........................................  $      *
Printing....................................................         *
Legal fees and expenses.....................................         *
Accounting fees and expenses................................         *
Rating Agency fees..........................................         *
Miscellaneous...............................................         *
                                                              --------
          Total.............................................  $      *
                                                              ========
</TABLE>


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

     * To be filed by amendment.


ITEM 27.  PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

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

ITEM 28.  NUMBER OF HOLDERS OF SECURITIES.

<TABLE>
<CAPTION>
                                                                   NUMBER OF
                                                                RECORD HOLDERS
                       TITLE OF CLASS                         AT           , 1999
                       --------------                         -------------------
<S>                                                           <C>
Common Shares, $.10 par value...............................           2
Preferred Shares, $.10 par value............................           0
</TABLE>

ITEM 29.  INDEMNIFICATION.

     Section 5.3 of the Registrant's Declaration of Trust provides as follows:

          "The Trust shall indemnify each of its Trustees, officers, employees,
     and agents (including persons who serve at its request as directors,
     officers or trustees of another organization in which it has any interest
     as a shareholder, creditor or otherwise) against all liabilities and
     expenses (including amounts paid in satisfaction of judgments, in
     compromise, as fines and penalties, and as counsel fees) reasonably
     incurred by him in connection with the defense or disposition of any
     action, suit or other proceeding, whether civil or criminal, in which he
     may be involved or with which he may be threatened, while in office or
     thereafter, by reason of his being or having been such a trustee, officer,
     employee or agent, except with respect to any matter as to which he shall
     have been adjudicated to have acted in bad faith, willful misfeasance,
     gross negligence or reckless disregard of his duties; provided, however,
     that as to any matter disposed of by a compromise payment by such person,
     pursuant to a consent decree or otherwise, no indemnification either for
     said payment or for any other expenses shall be provided unless the Trust
     shall have received a written opinion from independent legal counsel
     approved by the Trustees to the effect that if either the matter of willful
     misfeasance, gross negligence or reckless disregard of duty, or the matter
     of good faith and reasonable belief as to the best interests of the Trust,
     had been adjudicated, it would have been adjudicated in favor of such
     person. The rights accruing to any person under these provisions shall not
     exclude any other right to which he may be lawfully entitled; provided that
     no person may satisfy any right of indemnity or reimbursement granted
     herein or in Section 5.1 or to which he may be otherwise entitled except
     out of the property of the Trust, and no Shareholder shall be personally
     liable to any person with respect to any claim for indemnity or
     reimbursement or otherwise. The Trustees may

                                       C-2
<PAGE>   117

     make advance payments in connection with indemnification under this Section
     5.3, provided that the indemnified person shall have given a written
     undertaking to reimburse the Trust in the event it is subsequently
     determined that he is not entitled to such indemnification."

     The Registrant's By-Laws provide that insofar as the conditional advancing
of indemnification moneys pursuant to Section 5.3 of the Declaration of Trust
for actions based upon the Investment Company Act of 1940 may be concerned, such
payments will be made only on the following conditions: (i) the advances must be
limited to amounts used, or to be used, for the preparation or presentation of a
defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a written promise by,
or on behalf of, the recipient to repay that amount of the advance which exceeds
the amount to which it is ultimately determined he is entitled to receive from
the Registrant by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be found
entitled to indemnification.

     In Section 8 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "1933 Act"), against certain types of civil
liabilities arising in connection with the Registration Statement or Prospectus.


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


     Reference is made to Section Six of the Purchase Agreement, a form of which
will be filed as Exhibit (h)(1) hereto, for provisions relating to the
indemnification of the underwriter.

ITEM 30.  BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.


     Fund Asset Management, L.P. (the "Investment Adviser"), acts as investment
adviser for the following open-end registered investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc., and The Municipal Fund Accumulation Program, Inc., and for the
following closed-end registered investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II,
Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund,
Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured


                                       C-3
<PAGE>   118


Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida
Insured Fund III, MuniHoldings Florida Insured Fund IV, MuniHoldings Insured
Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Michigan Insured
Fund, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey
Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund III, Inc.,
MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund, Inc.,
MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York Insured Fund
III, Inc., MuniHoldings Pennsylvania Insured Fund, MuniInsured Fund, Inc.,
MuniVest Florida Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield
Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc., and Worldwide DollarVest Fund, Inc.


     Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the
Investment Adviser, acts as the investment adviser for the following open-end
registered investment companies: Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill
Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc., Merrill
Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund,
Inc., Merrill Lynch Variable Series Funds, Inc. and Hotchkis and Wiley Funds
(advised by Hotchkis and Wiley, a division of MLAM); and for the following
closed-end registered investment companies: Merrill Lynch High Income Municipal
Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts
as sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Equity Portfolio, two investment portfolios of EQ Advisors Trust.

     The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of the Investment Adviser, MLAM, Princeton Services, Inc. ("Princeton
Services") and Princeton Administrators, L.P. is also P.O. Box 9011, Princeton,
New Jersey 08543-9011. The address of Princeton Funds Distributor, Inc. ("PFD")
and of Merrill Lynch Funds Distributor ("MLFD") is P.O. Box 9081, Princeton, New
Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is
World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281-1201.


     Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged for
the past two years for his or her or its own account or in the capacity of
director, officer, employee, partner or trustee. In addition, Mr. Glenn is
President and Mr. Burke is Treasurer of all or substantially all of the
investment companies described in the first two paragraphs of this Item 30 and
also


                                       C-4
<PAGE>   119

hold the same positions with all or substantially all of the investment
companies advised by MLAM as they do with those advised by the Investment
Adviser. Messrs. Giordano, Harvey, Kirstein and Monagle are directors or
officers of one or more of such companies.


<TABLE>
<CAPTION>
                                               POSITION(S) WITH           OTHER SUBSTANTIAL BUSINESS,
                 NAME                         INVESTMENT ADVISER       PROFESSION, VOCATION OR EMPLOYMENT
                 ----                    ----------------------------  ----------------------------------
<S>                                      <C>                           <C>
ML & Co................................  Limited Partner               Financial Services Holding
                                                                       Company; Limited Partner of MLAM
Princeton Services.....................  General Partner               General Partner of MLAM
Jeffrey M. Peek........................  President                     Executive Vice President of MLAM;
                                                                       Executive Vice President and
                                                                       Director of Princeton Services;
                                                                       President and Director of PFD;
                                                                       Director of Financial Data
Terry K. Glenn.........................  Executive Vice President      Executive Vice President of MLAM;
                                                                       Executive Vice President and
                                                                       Director of Princeton Services;
                                                                       President and Director of PFD;
                                                                       Director of FDS; President of
                                                                       Princeton Administrators, L.P.
Donald C. Burke........................  Senior Vice President,        Senior Vice President and
                                         Treasurer and Director of     Treasurer of MLAM; Senior Vice
                                         Taxation                      President and Treasurer of
                                                                       Princeton Services; Vice President
                                                                       of PFD; First Vice President of
                                                                       the Investment Adviser from 1997
                                                                       to 1999; Vice President of the
                                                                       Investment Adviser from 1990 to
                                                                       1997
Michael G. Clark.......................  Senior Vice President         Senior Vice President of MLAM;
                                                                       Senior Vice President of Princeton
                                                                       Services; Treasurer and Director
                                                                       of PFD; First Vice President of
                                                                       the Investment Adviser from 1997
                                                                       to 1999; Vice President of the
                                                                       Investment Adviser from 1996 to
                                                                       1997
Linda L. Federici......................  Senior Vice President         Senior Vice President of MLAM;
                                                                       Senior Vice President of Princeton
                                                                       Services
Vincent R. Giordano....................  Senior Vice President         Senior Vice President of MLAM;
                                                                       Senior Vice President of Princeton
                                                                       Services
Michael J. Hennewinkel.................  General Counsel               Senior Vice President, General
                                         and Secretary                 Counsel of MLAM; Senior Vice
                                                                       President the MLAM International
                                                                       Group
Philip L. Kirstein.....................  Senior Vice President         Senior Vice President of MLAM;
                                                                       Senior Vice President, Director
                                                                       and Secretary of Princeton
                                                                       Services
Ronald M. Kloss........................  Senior Vice President         Senior Vice President of MLAM;
                                                                       Senior Vice President of Princeton
                                                                       Services
</TABLE>


                                       C-5
<PAGE>   120


<TABLE>
<CAPTION>
                                               POSITION(S) WITH           OTHER SUBSTANTIAL BUSINESS,
                 NAME                         INVESTMENT ADVISER       PROFESSION, VOCATION OR EMPLOYMENT
                 ----                    ----------------------------  ----------------------------------
<S>                                      <C>                           <C>
Debra W. Landsman-Yaros................  Senior Vice President         Senior Vice President of MLAM;
                                                                       Senior Vice President of Princeton
                                                                       Services; Vice President of PFD
Stephen M. M. Miller...................  Senior Vice President         Executive Vice President of
                                                                       Princeton Administrators, L.P.;
                                                                       Senior Vice President of Princeton
                                                                       Services
Joseph T. Monagle, Jr..................  Senior Vice President         Senior Vice President of MLAM;
                                                                       Senior Vice President of Princeton
                                                                       Services
Brian A. Murdock.......................  Senior Vice President         Senior Vice President of MLAM;
                                                                       Senior Vice President of Princeton
                                                                       Services; Director of PFD
Gregory D. Upah........................  Senior Vice President         Senior Vice President of MLAM;
                                                                       Senior Vice President of Princeton
                                                                       Services
</TABLE>


ITEM 31.  LOCATION OF ACCOUNT AND RECORDS.

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

ITEM 32.  MANAGEMENT SERVICES.

     Not applicable.

ITEM 33.  UNDERTAKINGS.

     Registrant undertakes:

          (1) For the purpose of determining any liability under the Securities
     Act of 1933, the information omitted from the form of prospectus filed as a
     part of a registration statement in reliance upon Rule 430A under the
     Securities Act of 1933 and contained in the form of prospectus filed by the
     Registrant pursuant to 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.

          (2) 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 such securities at that
     time shall be deemed to be the initial bona fide offering thereof.

                                       C-6
<PAGE>   121

                                   SIGNATURES


     Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and State of New Jersey, on the 30th
day of June, 1999.


                                         MUNIHOLDINGS FLORIDA INSURED FUND V
                                                   (Registrant)

                                          By:     /s/ TERRY K. GLENN

                                          --------------------------------------
                                               (Terry K. Glenn, President)

     Each person whose signature appears below hereby authorizes Terry K. Glenn,
Donald C. Burke or William E. Zitelli, Jr., or any of them, as attorney-in-fact,
to sign on his or her behalf, individually and in each capacity stated below,
any amendment to this Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto, with the Securities
and Exchange Commission.

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


<TABLE>
<CAPTION>
                    SIGNATURES                                    TITLE                     DATE
                    ----------                                    -----                     ----
<C>                                                  <S>                              <C>
                /s/ TERRY K. GLENN                   President (Principal Executive       June 30, 1999
- ---------------------------------------------------  Officer) and Trustee
                 (Terry K. Glenn)

                /s/ DONALD C. BURKE                  Treasurer (Principal Financial       June 30, 1999
- ---------------------------------------------------  and Accounting Officer)
                 (Donald C. Burke)

               /s/ RONALD W. FORBES                  Trustee                              June 30, 1999
- ---------------------------------------------------
                (Ronald W. Forbes)

             /s/ CYNTHIA A. MONTGOMERY               Trustee                              June 30, 1999
- ---------------------------------------------------
              (Cynthia A. Montgomery)

               /s/ CHARLES C. REILLY                 Trustee                              June 30, 1999
- ---------------------------------------------------
                (Charles C. Reilly)

                 /s/ KEVIN A. RYAN                   Trustee                              June 30, 1999
- ---------------------------------------------------
                  (Kevin A. Ryan)

                /s/ RICHARD R. WEST                  Trustee                              June 30, 1999
- ---------------------------------------------------
                 (Richard R. West)

                 /s/ ARTHUR ZEIKEL                   Trustee                              June 30, 1999
- ---------------------------------------------------
                  (Arthur Zeikel)
</TABLE>


                                       C-7
<PAGE>   122

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S>       <C>
(a)(2)    -- Form of Certificate of Designation
(d)(2)    -- Form of Specimen Certificate for AMPS
(h)(1)    -- Form of Purchase Agreement for AMPS
(k)(2)    -- Form of Auction Agent Agreement
(k)(3)    -- Form of Broker-Dealer Agreement
(k)(4)    -- Form of Letter of Representations
</TABLE>


<PAGE>   1
                                                                  EXHIBIT (a)(2)

                       MUNIHOLDINGS FLORIDA INSURED FUND V

                     CERTIFICATE OF DESIGNATION DATED, 1999
                   ESTABLISHING POWERS, QUALIFICATIONS, RIGHTS
                 AND PREFERENCES OF TWO SERIES OF AUCTION MARKET
                          PREFERRED SHARES ("AMPS(R)")

       WHEREAS the Board of Trustees of MuniHoldings Florida Insured Fund V (the
"Trust") is expressly empowered pursuant to Section 6.1 of the Trust's
Declaration of Trust to authorize the issuance of preferred shares of the Trust
in one or more series, with such preferences, powers, restrictions, limitations
or qualifications as determined by the Board of Trustees and as set forth in the
resolution or resolutions providing for the issuance of such preferred shares.

       AND WHEREAS the Board of Trustees has determined that it is in the best
interests of the Trust to issue two series of such preferred shares.

       NOW THEREFORE, the Board of Trustees does hereby authorize the issuance
of two series of preferred shares, par value $0.10 per share, liquidation
preference $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared), to be designated
respectively: Auction Market Preferred Shares, Series A; and Auction Market
Preferred Shares, Series B.

            The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the
preferred shares are as follows:

                                   DESIGNATION

       Series A: A series of ______ preferred shares, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, is hereby
designated "Auction Market Preferred Shares, Series A." Each Auction Market
Preferred Share, Series A (sometimes referred to herein as "Series A AMPS")
shall be issued on a date to be determined by the Board of Trustees of the Trust
or pursuant to their delegated authority; have an Initial Dividend Rate and an
Initial Dividend Payment Date as shall be determined in advance of the issuance
thereof by the Board of Trustees of the Trust or pursuant to their delegated
authority; and have such other preferences, voting powers, limitations as to
dividends, qualifications and terms and conditions of redemption


- ---------------------------
(R)  Registered trademark of Merrill Lynch & Co., Inc.

<PAGE>   2

as are set forth in this Certificate of Designation. The Auction Market
Preferred Shares, Series A shall constitute a separate series of preferred
shares of the Trust, and each Auction Market Preferred Share, Series A shall be
identical.

       Series B: A series of _______ preferred shares, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, is hereby
designated "Auction Market Preferred Shares, Series B." Each Auction Market
Preferred Share, Series B (sometimes referred to herein as "Series B AMPS")
shall be issued on a date to be determined by the Board of Trustees of the Trust
or pursuant to their delegated authority; have an Initial Dividend Rate and an
Initial Dividend Payment Date as shall be determined in advance of the issuance
thereof by the Board of Trustees of the Trust or pursuant to their delegated
authority; and have such other preferences, voting powers, limitations as to
dividends, qualifications and terms and conditions of redemption as are set
forth in this Certificate of Designation. The Auction Market Preferred Shares,
Series B shall constitute a separate series of preferred shares of the Trust,
and each Auction Market Preferred Share, Series B shall be identical.

       1. Definitions.    (a) Unless the context or use indicates another or
different meaning or intent, in this Certificate of Designation the following
terms have the following meanings, whether used in the singular or plural:

       "'AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by another nationally recognized rating agency,
as such rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date,
or (ii) in the event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the Interest Equivalent of
the rate on commercial paper placed on behalf of such issuers, as quoted on a
discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its successors that are Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial


                                       2
<PAGE>   3

Paper Rate will be determined on the basis of the quotation or quotations
furnished by any Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers selected by the Trust to provide such rate or rates not being
supplied by the Commercial Paper Dealer. If the number of Dividend Period days
shall be (i) 7 or more but fewer than 49 days, such rate shall be the Interest
Equivalent of the 30-day rate on such commercial paper; (ii) 49 or more but
fewer than 70 days, such rate shall be the Interest Equivalent of the 60-day
rate on such commercial paper; (iii) 70 or more days but fewer than 85 days,
such rate shall be the arithmetic average of the Interest Equivalent on the
60-day and 90-day rates on such commercial paper; (iv) 85 or more days but fewer
than 99 days, such rate shall be the Interest Equivalent of the 90-day rate on
such commercial paper; (v) 99 or more days but fewer than 120 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 90-day and
120-day rates on such commercial paper; (vi) 120 or more days but fewer than 141
days, such rate shall be the Interest Equivalent of the 120-day rate on such
commercial paper; (vii) 141 or more days but fewer than 162 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 120-day and
180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on
such commercial paper.

       "Accountant's Confirmation" has the meaning set forth in paragraph 7(c)
of this Certificate of Designation.

       "Additional Dividend" has the meaning set forth in paragraph 2(e) of this
Certificate of Designation.

       "Adviser" means the Trust's investment adviser which initially shall be
Fund Asset Management, L.P.

       "Affiliate" means any Person, other than Merrill Lynch, Pierce, Fenner &
Smith Incorporated or its successors, known to the Auction Agent to be
controlled by, in control of, or under common control with, the Trust.

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

       "AMPS" means, as the case may be, the Auction Market Preferred Shares,
Series A; or the Auction Market Preferred Shares, Series B.


                                       3
<PAGE>   4

       "AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of AMPS of
each series and Other AMPS Outstanding on such Valuation Date multiplied by the
sum of (a) $25,000 and (b) any applicable redemption premium attributable to the
designation of a Premium Call Period; (B) the aggregate amount of cash dividends
(whether or not earned or declared) that will have accumulated for each share of
AMPS and Other AMPS Outstanding, in each case, to (but not including) the end of
the current Dividend Period for each series of AMPS that follows such Valuation
Date in the event the then current Dividend Period will end within 49 calendar
days of such Valuation Date or through the 49th day after such Valuation Date in
the event the then current Dividend Period for each series of AMPS will not end
within 49 calendar days of such Valuation Date; (C) in the event the then
current Dividend Period will end within 49 calendar days of such Valuation Date,
the aggregate amount of cash dividends that would accumulate at the Maximum
Applicable Rate applicable to a Dividend Period of 28 or fewer days on any AMPS
and Other AMPS Outstanding from the end of such Dividend Period through the 49th
day after such Valuation Date, multiplied by the larger of the Moody's
Volatility Factor and the S&P Volatility Factor, determined from time to time by
Moody's and S&P, respectively (except that if such Valuation Date occurs during
a Non-Payment Period, the cash dividend for purposes of calculation would
accumulate at the then current Non-Payment Period Rate); (D) the amount of
anticipated expenses of the Trust for the 90 days subsequent to such Valuation
Date (including any premiums payable with respect to a Policy); (E) the amount
of the Trust's Maximum Potential Additional Dividend Liability as of such
Valuation Date; and (F) any current liabilities as of such Valuation Date to the
extent not reflected in any of (i)(A) through (i)(E) (including, without
limitation, and immediately upon determination, any amounts due and payable by
the Trust pursuant to repurchase agreements and any amounts payable for Florida
Municipal Bonds or Municipal Bonds purchased as of such Valuation Date) less
(ii) either (A) the Discounted Value of any of the Trust's assets, or (B) the
face value of any of the Trust's assets if such assets mature prior to or on the
date of redemption of AMPS or payment of a liability and are either securities
issued or guaranteed by the United States Government or Deposit Securities, in
both cases irrevocably deposited by the Trust for the payment of the amount
needed to redeem AMPS subject to redemption or to satisfy any of (i)(B) through
(i)(F). For Moody's and S&P, the Trust shall include as a liability an amount
calculated semi-annually equal to 150% of the estimated cost of obtaining other
insurance guaranteeing the


                                       4
<PAGE>   5

timely payment of interest on a Moody's Eligible Asset or S&P Eligible Asset and
principal thereof to maturity with respect to Moody's Eligible Assets and S&P
Eligible Assets that (i) are covered by a Policy which provides the Trust with
the option to obtain such other insurance and (ii) are discounted by a Moody's
Discount Factor or an S&P Discount Factor determined, as the case may be, by
reference to the insurance claims-paying ability rating of the issuer of such
Policy.

       "AMPS Basic Maintenance Cure Date," with respect to the failure by the
Trust to satisfy the AMPS Basic Maintenance Amount (as required by paragraph
7(a) of this Certificate of Designation) as of a given Valuation Date, means the
sixth Business Day following such Valuation Date.

       "AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Trust which sets forth, as of the related Valuation Date, the assets of the
Trust, the Market Value and the Discounted Value thereof (seriatim and in
aggregate), and the AMPS Basic Maintenance Amount.

       "Anticipation Notes" shall mean the following Florida Municipal Bonds:
revenue anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.

       "Applicable Percentage" has the meaning set forth in paragraph 10(a)(vii)
of this Certificate of Designation.

       "Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period.

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

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


                                       5
<PAGE>   6

       "Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of this Certificate of Designation.

       "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.

       "Broker-Dealer" means any broker-dealer, or other entity permitted by law
to perform the functions required of a Broker-Dealer in paragraph 10 of this
Certificate of Designation, that has been selected by the Trust 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 paragraph 10 of this Certificate of Designation.

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

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

       "Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the Trust may
from time to time appoint, or, in lieu of any thereof, their respective
affiliates or successors.

       "Common Shares" means the common shares of beneficial interest, par value
$.10 per share, of the Trust.

       "Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the Trust originally issues such share.

       "Declaration" means the Declaration of Trust, as amended and supplemented
(including this Certificate of Designation), of the Trust on file with the
office of the Secretary of State of the Commonwealth of Massachusetts.


                                       6
<PAGE>   7

       "Deposit Securities" means cash and Florida Municipal Bonds and Municipal
Bonds 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.

       "Discounted Value" means (i) with respect to an S&P Eligible Asset, the
quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.

       "Dividend Payment Date," with respect to AMPS, has the meaning set forth
in paragraph 2(b)(i) of this Certificate of Designation and, with respect to
Other AMPS, has the equivalent meaning.

       "Dividend Period" means the Initial Dividend Period, any 7-Day Dividend
Period and any Special Dividend Period.

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

       "Fitch" means Fitch IBCA, Inc. or its successors.

       "Florida Municipal Bonds" means Municipal Bonds issued by or on behalf of
the State of Florida, its political subdivisions, agencies and instrumentalities
and by other qualifying issuers that pay interest which, in the opinion of bond
counsel to the issuer, is exempt from Federal income taxes and Florida
intangible personal property taxes, and includes Inverse Floaters.

       "Forward Commitment" has the meaning set forth in paragraph 8(c) of this
Certificate of Designation.

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

       "Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Trust, an independent public
accountant or firm of independent public accountants under the Securities Act of
1933, as amended.

       "Initial Dividend Payment Date" means the Initial Dividend Payment Date
as determined by the Board of Trustees of the Trust with respect to each series
of AMPS or other AMPS, as the case may be.


                                       7
<PAGE>   8

       "Initial Dividend Period," with respect to each series of AMPS, has the
meaning set forth in paragraph 2(c)(i) of this Certificate of Designation and,
with respect to Other AMPS, has the equivalent meaning.

       "Initial Dividend Rate," with respect to each series of AMPS, means the
rate per annum applicable to the Initial Dividend Period for such series of AMPS
and, with respect to Other AMPS, has the equivalent meaning.

       "Initial Margin" means the amount of cash or securities deposited with a
broker as a margin payment at the time of purchase or sale of a futures
contract.

       "Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.

       "Inverse Floaters" means trust certificates or other instruments
evidencing interests in one or more Florida Municipal Bonds that qualify as S&P
Eligible Assets (and are not part of a private placement of Municipal Bonds and
satisfy the issuer and original issue size requirements of clause (vi) of the
definition of S&P Eligible Assets) the interest rates on which are adjusted at
short term intervals on a basis that is inverse to the simultaneous readjustment
of the interest rates on corresponding floating rate trust certificates or other
instruments issued by the same issuer, provided that the ratio of the aggregate
dollar amount of floating rate instruments to inverse floating rate instruments
issued by the same issuer does not exceed one to one at their time of original
issuance unless the floating instruments have only one reset remaining until
maturity.

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

       "Mandatory Redemption Price" means $25,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.

       "Marginal Tax Rate" means the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate, whichever is greater.

       "Market Value" of any asset of the Trust shall be the market value
thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the


                                       8
<PAGE>   9

quoted bid and asked price or the yield equivalent when quotations are not
readily available. Securities for which quotations are not readily available
shall be valued at fair value as determined by the Pricing Service using methods
which include consideration of: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The Pricing Service may
employ electronic data processing techniques and/or a matrix system to determine
valuations. In the event the Pricing Service is unable to value a security, the
security shall be valued at the lower of two dealer bids obtained by the Trust
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 Trustees.

       "Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 10(a)(vii) of this Certificate of Designation and, with
respect to Other AMPS, has the equivalent meaning.

       "Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Trust were to make Retroactive Taxable Allocations, with respect to any
fiscal year, estimated based upon dividends paid and the amount of undistributed
realized net capital gains and other taxable income earned by the Trust, as of
the end of the calendar month immediately preceding such Valuation Date and
assuming such Additional Dividends are fully taxable.

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

       "Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Florida Municipal Bond or Municipal Bond which
constitutes a Moody's Eligible Asset, the percentage determined by reference to
(a)(i) the rating by Moody's or S&P on such Bond or (ii) in the event the
Moody's Eligible Asset is insured under a Policy and the terms of the Policy
permit the Trust, at its option, to obtain other insurance guaranteeing the
timely payment of interest on such Moody's Eligible Asset and principal thereof
to maturity, the Moody's insurance claims-paying ability rating of the issuer of
the Policy or (iii) in the event the Moody's Eligible


                                       9
<PAGE>   10

Asset is insured under an insurance policy which guarantees the timely payment
of interest on such Moody's Eligible Asset and principal thereof to maturity,
the Moody's insurance claims-paying ability rating of the issuer of the
insurance policy (provided that for purposes of clauses (ii) and (iii) if the
insurance claims-paying ability of an issuer of a Policy or insurance policy is
not rated by Moody's but is rated by S&P, such issuer shall be deemed to have a
Moody's insurance claims-paying ability rating which is two full categories
lower than the S&P insurance claims-paying ability rating) and (b) the Moody's
Exposure Period, in accordance with the table set forth below:

<TABLE>
<CAPTION>
                                                                      Rating Category
                                                      --------------------------------------------------
        Moody's Exposure Period        Aaa*    Aa*      A*     Baa*    Other**   VMIG-1***    SP-1+***
        -----------------------        ----    ---      --     ----    -------   ---------    --------

<S>                                    <C>     <C>     <C>     <C>       <C>        <C>         <C>
7 weeks or less....................    151%    159%    168%    202%      229%       136%        148%
8 weeks or less but
greater than seven weeks...........    154     164     173     205       235        137         149
9 weeks or less but
greater than eight weeks...........    158     169     179     209       242        138         150
</TABLE>

- -----------
*   Moody's rating.

**  Florida Municipal Bonds and Municipal Bonds not rated by Moody's but rated
    BBB or BBB+ by S&P.

*** Florida Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-1 or P-1 or,
    if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do not mature or
    have a demand feature at par exercisable within the Moody's Exposure Period
    and which do not have a long-term rating. For the purposes of the definition
    of Moody's Eligible Assets, these securities will have an assumed rating of
    "A" by Moody's.

; provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the applicable
rating category and (b) the percentage set forth in the foregoing table under
the rating category which is one category lower than the applicable rating
category.

       Notwithstanding the foregoing, (i) a 102% Moody's Discount Factor will be
applied to short-term Florida Municipal Bonds and short-term Municipal Bonds, so
long as such Florida Municipal Bonds and Municipal Bonds are rated at least
MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and the Moody's Discount Factor
for such Bonds will be 125% if such Bonds are not rated by Moody's but are rated
A-1+ or SP-1+ or AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and (ii) no Moody's Discount
Factor will be applied to cash or to Receivables for Florida Municipal Bonds or
Municipal Bonds Sold.


                                       10
<PAGE>   11

"Receivables for Florida Municipal Bonds or Municipal Bonds Sold," for purposes
of calculating Moody's Eligible Assets as of any Valuation Date, means no more
than the aggregate of the following: (i) the book value of receivables for
Florida Municipal Bonds or Municipal Bonds sold as of or prior to such Valuation
Date if such receivables are due within five Business Days of such Valuation
Date, and if the trades which generated such receivables are (x) settled through
clearing house firms with respect to which the Trust has received prior written
authorization from Moody's or (y) with counterparties having a Moody's long-term
debt rating of at least Baa3; and (ii) the Moody's Discounted Value of Florida
Municipal Bonds or Municipal Bonds sold as of or prior to such Valuation Date
which generated receivables, if such receivables are due within five Business
Days of such Valuation Date but do not comply with either of conditions (x) or
(y) of the preceding clause (i).

       "Moody's Eligible Asset" means cash, Receivables for Florida Municipal
Bonds or Municipal Bonds Sold, a Florida Municipal Bond or a Municipal Bond that
(i) pays interest in cash, (ii) is publicly rated Baa or higher by Moody's or,
if not rated by Moody's but rated by S&P, is rated at least BBB by S&P (provided
that, for purposes of determining the Moody's Discount Factor applicable to any
such S&P-rated Florida Municipal Bond or S&P-rated Municipal Bond, such Florida
Municipal Bond or Municipal Bond (excluding any short-term Florida Municipal
Bond or Municipal Bond) will be deemed to have a Moody's rating which is one
full rating category lower than its S&P rating), (iii) does not have its Moody's
rating suspended by Moody's; and (iv) is part of an issue of Florida Municipal
Bonds or Municipal Bonds of at least $10,000,000. In addition, Florida Municipal
Bonds and Municipal Bonds in the Trust's portfolio must be within the following
diversification requirements in order to be included within Moody's Eligible
Assets:

<TABLE>
<CAPTION>
                Minimum             Maximum                 Maximum                      Maximum                    Maximum
               Issue Size          Underlying              Issue Type                    County               State or Territory
Rating        ($ Millions)      Obligor (%) (1)    Concentration (%) (1) (3)    Concentration (%) (1) (4)    Concentration (1) (5)
- ------        ------------      ---------------    -------------------------    -------------------------    ---------------------

<S>                <C>                 <C>                    <C>                           <C>                        <C>
Aaa.........       10                  100                    100                           100                        100
Aa..........       10                   20                     60                            60                         60
A...........       10                   10                     40                            40                         40
Baa.........       10                    6                     20                            20                         20
Other(2)....       10                    4                     12                            12                         12
</TABLE>

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

(1) The referenced percentages represent maximum cumulative totals for the
    related rating category and each lower rating category.

(2) Florida Municipal Bonds and Municipal Bonds not rated by Moody's but rated
    BBB or BBB+ by S&P.

(3) Does not apply to general obligation bonds.

(4) Applicable to general obligation bonds only.

(5) Does not apply to Florida Municipal Bonds. Territorial bonds (other than
    those issued by Puerto Rico and counted collectively) are each limited to
    10% of Moody's Eligible Assets. For diversification purposes, Puerto Rico
    will be treated as a state.


                                       11
<PAGE>   12

For purposes of the maximum underlying obligor requirement described above, any
Florida Municipal Bond or Municipal Bond backed by the guaranty, letter of
credit or insurance issued by a third party will be deemed to be issued by such
third party if the issuance of such third party credit is the sole determinant
of the rating on such Bond. For purposes of the issue type concentration
requirement described above, Florida Municipal Bonds and Municipal Bonds will be
classified within one of the following categories: health care issues (teaching
and non-teaching hospitals, public and private), housing issues (single- and
multi-family), educational facilities issues (public and private schools),
student loan issues, resource recovery issues, transportation issues (mass
transit, airport and highway bonds), industrial revenue/pollution control bond
issues, utility issues (including water, sewer and electricity), general
obligation issues, lease obligations/certificates of participation, escrowed
bonds and other issues ("Other Issues") not falling within one of the
aforementioned categories (includes special obligations to crossover, excise and
sales tax revenue, recreation revenue, special assessment and telephone revenue
bonds). In no event shall (a) more than 10% of Moody's Eligible Assets consist
of student loan issues, (b) more than 10% of Moody's Eligible Assets consist of
resource recovery issues or (c) more than 10% of Moody's Eligible Assets consist
of Other Issues.

       When the Trust sells a Florida Municipal Bond or Municipal Bond and
agrees to repurchase it at a future date, the Discounted Value of such Bond will
constitute a Moody's Eligible Asset and the amount the Trust is required to pay
upon repurchase of such Bond will count as a liability for purposes of
calculating the AMPS Basic Maintenance Amount. For so long as the AMPS are rated
by Moody's, the Trust will not enter into any such reverse repurchase agreements
unless it has received written confirmation from Moody's that such transactions
would not impair the ratings then assigned the AMPS by Moody's. When the Trust
purchases a Florida Municipal Bond or Municipal Bond and agrees to sell it at a
future date to another party, cash receivable by the Trust 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 Bond will constitute a Moody's Eligible
Asset.

       Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset if it is (i) held in a margin account, (ii) subject to any
material lien, mortgage, pledge, security


                                       12
<PAGE>   13

interest or security agreement of any kind, (iii) held for the purchase of a
security pursuant to a Forward Commitment or (iv) irrevocably deposited by the
Trust for the payment of dividends or redemption.

       "Moody's Exposure Period" means a period that is the same length or
longer than the number of days used in calculating the cash dividend component
of the AMPS Basic Maintenance Amount and shall initially be the period
commencing on and including a given Valuation Date and ending 48 days
thereafter.

       "Moody's Hedging Transactions" has the meaning set forth in paragraph
8(b) of this Certificate of Designation.

       "Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:

<TABLE>
<CAPTION>
                  % Change in
                  Marginal Tax               Moody's Volatility
                      Rate                         Factor
                 --------------              ------------------
<S>                 <C>                            <C>
                            <5%                    292%
                            -
                   >5% but <10%                    313%
                           -
                  >10% but <15%                    338%
                           -
                  >15% but <20%                    364%
                           -
                  >20% but <25%                    396%
                           -
                  >25% but <30%                    432%
                           -
                  >30% but <35%                    472%
                           -
                  >35% but <40%                    520%
                           -
</TABLE>

Notwithstanding the foregoing, the Moody's Volatility Factor may mean such other
potential dividend rate increase factor as Moody's advises the Trust in writing
is applicable.

       "Municipal Bonds" means "Municipal Bonds" as defined in the Trust's
Registration Statement on Form N-2 (File No. 333- ) relating to the AMPS on file
with the Securities and Exchange Commission, as such Registration Statement may
be amended from time to time, as well as short-term municipal obligations and
Inverse Floaters.

       "Municipal Index" has the meaning set forth in paragraph 8(a) of this
Certificate of Designation.

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


                                       13
<PAGE>   14

       "1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Trust which are shares of beneficial interest,
including all outstanding AMPS and Other AMPS (or such other asset coverage as
may in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of paying dividends on its common stock).

       "1940 Act Cure Date," with respect to the failure by the Trust to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of this
Certificate of Designation) as of the last Business Day of each month, means the
last Business Day of the following month.

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

       "Non-Payment Period" means, with respect to each series of AMPS, any
period commencing on and including the day on which the Trust shall fail to (i)
declare, prior to the close of business on the second Business Day preceding any
Dividend Payment Date, for payment on or (to the extent permitted by paragraph
2(c)(i) of this Certificate of Designation) within three Business Days after
such Dividend Payment Date to the Holders as of 12:00 noon, New York City time,
on the Business Day preceding such Dividend Payment Date, the full amount of any
dividend on AMPS payable on such Dividend Payment Date or (ii) deposit,
irrevocably in trust, in same-day funds, with the Auction Agent by 12:00 noon,
New York City time, (A) on such Dividend Payment Date the full amount of any
cash dividend on such shares payable (if declared) on such Dividend Payment Date
or (B) on any redemption date for any AMPS called for redemption, the Mandatory
Redemption Price per share of such AMPS or, in the case of an optional
redemption, the Optional Redemption Price per share, and ending on and including
the Business Day on which, by 12:00 noon, New York City time, all unpaid cash
dividends and unpaid redemption prices shall have been so deposited or shall
have otherwise been made available to Holders in same-day funds; provided that,
a Non-Payment Period shall not end unless the Trust shall have given at least
five days' but no more than 30 days' written notice of such deposit or
availability to the Auction Agent, all Existing Holders (at their addresses
appearing in the Share Books) and the Securities Depository. Notwithstanding the
foregoing, the failure by the Trust to deposit funds as provided for by clauses
(ii)(A) or (ii)(B)


                                       14
<PAGE>   15

above within three Business Days after any Dividend Payment Date or redemption
date, as the case may be, in each case to the extent contemplated by paragraph
2(c)(i) of this Certificate of Designation, shall not constitute a "Non-Payment
Period."

       "Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Trust has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate for any
dividend pursuant to paragraph 2(f) hereof that net capital gains or other
taxable income will be included in such dividend on AMPS), provided that the
Board of Trustees of the Trust shall have the authority to adjust, modify, alter
or change from time to time the initial Non-Payment Period Rate if the Board of
Trustees of the Trust determines and Moody's and S&P (and any Substitute Rating
Agency in lieu of Moody's or S&P in the event either of such parties shall not
rate the AMPS) advise the Trust in writing that such adjustment, modification,
alteration or change will not adversely affect their then-current ratings on the
AMPS.

       "Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of this Certificate of Designation.

       "Notice of Redemption" means any notice with respect to the redemption of
AMPS pursuant to paragraph 4 of this Certificate of Designation.

       "Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii)
of this Certificate of Designation.

       "Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of this Certificate of Designation.

       "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 and excluding Additional Dividends plus any applicable
redemption premium attributable to the designation of a Premium Call Period.

       "Other AMPS" means the auction rate preferred shares of the Trust, other
than the AMPS.

       "Outstanding" means, as of any date (i) with respect to AMPS, AMPS
theretofore issued by the Trust except, without duplication, (A) any AMPS
theretofore cancelled or delivered to the


                                       15
<PAGE>   16

Auction Agent for cancellation, or redeemed by the Trust, 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 Trust pursuant to paragraph 4(c)
and (B) any AMPS as to which the Trust or any Affiliate thereof shall be a
Beneficial Owner, provided that AMPS held by an Affiliate shall be deemed
outstanding for purposes of calculating the AMPS Basic Maintenance Amount and
(ii) with respect to other Preferred Shares, has the equivalent meaning.

       "Parity Shares" means the AMPS and each other outstanding series of
Preferred Shares the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.

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

       "Policy" means an insurance policy purchased by the Trust which
guarantees the payment of principal and interest on specified Florida Municipal
Bonds or Municipal Bonds during the period in which such Florida Municipal Bonds
or Municipal Bonds are owned by the Trust; provided, however, that, as long as
the AMPS are rated by Moody's and S&P, the Trust will not obtain any Policy
unless Moody's and S&P advise the Trust in writing that the purchase of such
Policy will not adversely affect their then-current rating on the AMPS.

       "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 Trust, including any Existing Holder, who may be
interested in acquiring AMPS (or, in the case of an Existing Holder, additional
AMPS).

       "Preferred Shares" means the preferred shares of beneficial interest, par
value $.10 per share, of the Trust, and includes AMPS and Other AMPS.


                                       16
<PAGE>   17

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

       "Pricing Service" means J.J. Kenny or any pricing service designated by
the Board of Trustees of the Trust provided the Trust obtains written
assurance from S&P and Moody's that such designation will not impair the rating
then assigned by S&P and Moody's to the AMPS.

       "Quarterly Valuation Date" means the twenty-fifth day of the last month
of each fiscal quarter of the Trust (or, if such day is not a Business Day, the
next succeeding Business Day) in each fiscal year of the Trust, commencing
      , 1999.

       "Receivables for Florida Municipal Bonds Sold" has the meaning set forth
under the definition of S&P Discount Factor.

       "Receivables for Florida Municipal Bonds or Municipal Bonds Sold" has the
meaning set forth under the definition of Moody's Discount Factor.

       "Reference Rate" means: (i) with respect to a Dividend Period or a Short
Term Dividend Period having 28 or fewer days, the higher of the applicable "AA"
Composite Commercial Paper Rate and the Taxable Equivalent of the Short-Term
Municipal Bond Rate, (ii) with respect to any Short Term Dividend Period having
more than 28 but fewer than 183 days, the applicable "AA" Composite Commercial
Paper Rate, (iii) with respect to any Short Term Dividend Period having 183 or
more but fewer than 364 days, the applicable U.S. Treasury Bill Rate and (iv)
with respect to any Long Term Dividend Period, the applicable U.S. Treasury Note
Rate.

       "Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of this Certificate of Designation.

       "Response" has the meaning set forth in paragraph 2(c)(iii) of this
Certificate of Designation.

       "Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of this Certificate of Designation.

       "Right," with respect to each series of AMPS, has the meaning set forth
in paragraph 2(e) of this Certificate of Designation and, with respect to Other
AMPS, has the equivalent meaning.


                                       17
<PAGE>   18

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

       "S&P Discount Factor" means, for purposes of determining the Discounted
Value of any Florida Municipal Bond which constitutes an S&P Eligible Asset, the
percentage determined by reference to (a)(i) the rating by S&P, Moody's or Fitch
on such Bond or (ii) in the event the Florida Municipal Bond is insured under a
Policy and the terms of the Policy permit the Trust, at its option, to obtain
other permanent insurance guaranteeing the timely payment of interest on such
Florida Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer of the Policy or (iii) in the event
the Florida Municipal Bond is insured under an insurance policy which guarantees
the timely payment of interest on such Florida Municipal Bond and principal
thereof to maturity, the S&P insurance claims-paying ability rating of the
issuer of the insurance policy and (b) the S&P Exposure Period, in accordance
with the tables set forth below:

<TABLE>
<CAPTION>
For Florida Municipal Bonds:
- ----------------------------
                                                                             Rating Category
                                             -------------------------------------------------------------------------------
S&P Exposure Period                               AAA*                  AA*                     A*                  BBB*
- -------------------                          -------------------------------------------------------------------------------

<S>                                               <C>                  <C>                     <C>                  <C>
45 Business Days..........................        205%                 210%                    225%                 265%
25 Business Days..........................        185                  190                     205                  245
10 Business Days..........................        170                  175                     190                  230
7  Business Days..........................        165                  170                     185                  225
3  Business Days..........................        145                  150                     165                  205
</TABLE>

- --------------
* S&P rating.

       Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Florida Municipal Bonds will be 115%, so long as such Florida Municipal Bonds
are rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
in 30 days or less, or 120% so long as such Florida Municipal Bonds are rated
A-1 or SP-1 by S&P and mature or have a demand feature exercisable in 30 days or
less, or 125% if such Florida Municipal Bonds are not rated by S&P but are rated
VMIG-1, P-1 or MIG-1 by Moody's or F-1 + by Fitch; provided, however, such
short-term Florida Municipal Bonds rated by Moody's or Fitch but not rated by
S&P having a demand feature exercisable in 30 days or less must be backed by a
letter of credit, liquidity facility or guarantee from a bank or other financial
institution having a short-term rating


                                       18
<PAGE>   19

of at least A-1+ from S&P; and further provided that such short-term Florida
Municipal Bonds rated by Moody's or Fitch but not rated by S&P may comprise no
more than 50% of short-term Florida Municipal Bonds that qualify as S&P Eligible
Assets, (ii) the S&P Discount Factor for Receivables for Florida Municipal Bonds
Sold that are due in more than five Business Days from such Valuation Date will
be the S&P Discount Factor applicable to the Florida Municipal Bonds sold, and
(iii) no S&P Discount Factor will be applied to cash or to Receivables for
Florida Municipal Bonds Sold if such receivables are due within five Business
Days of such Valuation Date. "Receivables for Florida Municipal Bonds Sold," for
purposes of calculating S&P Eligible Assets as of any Valuation Date, means the
book value of receivables for Florida Municipal Bonds sold as of or prior to
such Valuation Date. The Trust may adopt S&P Discount Factors for Municipal
Bonds other than Florida Municipal Bonds provided that S&P advises the Trust in
writing that such action will not adversely affect its then current rating on
the AMPS. For purposes of the foregoing, Anticipation Notes rated SP-1 or, if
not rated by S&P, rated VMIG-1 by Moody's or F-1 + by Fitch, which do not mature
or have a demand feature exercisable in 30 days and which do not have a
long-term rating, shall be considered to be short-term Florida Municipal Bonds.

       "S&P Eligible Asset" means cash, Receivables for Florida Municipal Bonds
Sold or a Florida Municipal Bond that (i) is interest bearing and pays interest
at least semi-annually; (ii) is payable with respect to principal and interest
in United States Dollars; (iii) is publicly rated BBB or higher by S&P or,
except in the case of Anticipation Notes that are grant anticipation notes or
bond anticipation notes which must be rated by S&P to be included in S&P
Eligible Assets, if not rated by S&P but rated by Moody's or Fitch, is rated at
least A by Moody's or Fitch (provided that such Moody's-rated or Fitch-rated
Florida Municipal Bonds will be included in S&P Eligible Assets only to the
extent the Market Value of such Florida Municipal Bonds does not exceed 50% of
the aggregate Market Value of the S&P Eligible Assets; and further provided
that, for purposes of determining the S&P Discount Factor applicable to any such
Moody's-rated or Fitch-rated Florida Municipal Bond, such Florida Municipal Bond
will be deemed to have an S&P rating which is one full rating category lower
than its Moody's rating or Fitch rating); (iv) is not subject to a covered call
or covered put option written by the Trust; (v) except for Inverse Floaters, is
not part of a private placement of Florida Municipal Bonds; and (vi) except for
Inverse Floaters, is part of an issue of Florida Municipal Bonds with an
original issue size of


                                       19
<PAGE>   20

at least $10 million or, if of an issue with an original issue size below $10
million (but in no event below $5 million), is either (a) issued by an issuer
with a total of at least $25 million of securities outstanding or (b) rated at
least A by S&P with all such Florida Municipal Bonds not constituting more than
20% of the aggregate Market Value of S&P Eligible Assets. Notwithstanding the
foregoing:

              (1) Florida Municipal Bonds of any one issuer or guarantor
       (excluding bond insurers) will be considered S&P Eligible Assets only to
       the extent the Market Value of such Florida Municipal Bonds does not
       exceed 10% of the aggregate Market Value of the S&P Eligible Assets,
       provided that 2% is added to the applicable S&P Discount Factor for every
       1% by which the Market Value of such Florida Municipal Bonds exceeds 5%
       of the aggregate Market Value of the S&P Eligible Assets;

              (2) Florida Municipal Bonds of any one issue type category (as
       described below) will be considered S&P Eligible Assets only to the
       extent the Market Value of such Bonds does not exceed 25% of the
       aggregate Market Value of S&P Eligible Assets, except that Florida
       Municipal Bonds falling within the utility issue type category will be
       broken down into three sub-categories (as described below) and such
       Florida Municipal Bonds will be considered S&P Eligible Assets to the
       extent the Market Value of such Bonds in each such sub-category does not
       exceed 25% of the aggregate Market Value of S&P Eligible Assets, except
       that Florida Municipal Bonds falling within the transportation issue type
       category will be broken down into two sub-categories (as described below)
       and such Florida Municipal Bonds will be considered S&P Eligible Assets
       to the extent the Market Value of such Bonds in both sub-categories
       combined (as described below) does not exceed 40% of the aggregate Market
       Value of S&P Eligible Assets and except that Florida Municipal Bonds
       falling within the general obligation issue type category will be
       considered S&P Eligible Assets to the extent the Market Value of such
       Bonds does not exceed 50% of the aggregate Market Value of S&P Eligible
       Assets. For purposes of the issue type category requirement described
       above, Florida Municipal Bonds will be classified within one of the
       following categories: health care issues, housing issues, educational
       facilities issues, student loan issues, transportation issues, industrial
       development bond issues, utility issues, general obligation issues, lease
       obligations, escrowed bonds and other issues not falling within


                                       20
<PAGE>   21

       one of the aforementioned categories. The general obligation issue type
       category includes any issuer that is directly or indirectly guaranteed by
       the State of Florida or its political subdivisions. Utility issuers are
       included in the general obligation issue type category if the issuer is
       directly or indirectly guaranteed by the State of Florida or its
       political subdivisions. For purposes of the issue type category
       requirement described above, Florida Municipal Bonds in the utility issue
       type category will be classified within one of the three following
       sub-categories: (i) electric, gas and combination issues (if the
       combination issue includes an electric issue), (ii) water and sewer
       utilities and combination issues (if the combination issue does not
       include an electric issue), and (iii) irrigation, resource recovery,
       solid waste and other utilities, provided that Florida Municipal Bonds
       included in this sub-category (iii) must be rated by S&P in order to be
       included in S&P Eligible Assets. For purposes of the issue type category
       requirement described above, Florida Municipal Bonds in the
       transportation issue type category will be classified within one of the
       two following sub-categories: (i) streets and highways, toll roads,
       bridges and tunnels, airports and multi-purpose port authorities
       (multiple revenue streams generated by toll roads, airports, real estate,
       bridges), (ii) mass transit, parking, seaports and others. Exposure to
       transportation sub-category (i) in the preceding sentence is limited to
       25% of the aggregate Market Value of S&P Eligible Assets, provided,
       however, exposure to transportation sub-category (ii) in the preceding
       sentence can exceed the 25% limit to the extent that exposure to
       transportation sub-category (ii) is reduced, for a total exposure up to
       and not exceeding 40% of the aggregate Market Value of S&P Eligible
       Assets for the transportation issue type category; and

              (3) Florida Municipal Bonds which are escrow bonds or defeased
       bonds may compose up to 100% of the aggregate Market Value of S&P
       Eligible Assets if such Bonds initially are assigned a rating by S&P in
       accordance with S&P's legal defeasance criteria or rerated by S&P as
       economic defeased escrow bonds and assigned an AAA rating. Florida
       Municipal Bonds may be rated as escrow bonds by another nationally
       recognized rating agency or rerated as an escrow bond and assigned the
       equivalent of an S&P AAA rating, provided that such equivalent rated
       Bonds are limited to 50% of the aggregate Market Value of S&P Eligible
       Assets and are deemed to have an AA S&P rating for purposes of
       determining the S&P Discount Factor applicable to such Florida


                                       21
<PAGE>   22

       Municipal Bonds. The limitations on Florida Municipal Bonds of any one
       issuer in clause (1) above are not applicable to escrow bonds, however,
       economically defeased bonds that are either initially rated or rerated by
       S&P or another nationally recognized rating agency and assigned the same
       rating level as the issuer of the Bonds will remain in its original issue
       type category set forth in clause (2) above. Florida Municipal Bonds that
       are legally defeased and secured by securities issued or guaranteed by
       the United States Government are not required to meet the minimum
       issuance size requirement set forth above.

       The Trust may include Municipal Bonds other than Florida Municipal Bonds
as S&P Eligible Assets pursuant to guidelines and restrictions to be established
by S&P provided that S&P advises the Trust in writing that such action will not
adversely affect its then current rating on the AMPS.

       "S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure
Date, that the Trust has under this Certificate of Designation to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the AMPS Basic Maintenance Amount (as described in
paragraph 7(a) of this Certificate of Designation).

       "S&P Hedging Transactions" has the meaning set forth in paragraph 8(a) of
this Certificate of Designation.

       "S&P Volatility Factor" means 277% or such other potential dividend rate
increase factor as S&P advises the Trust in writing is applicable.

       "Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Trust 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.

       "Service" means the United States Internal Revenue Service.

       "7-Day Dividend Period" means a Dividend Period consisting of seven days.

       "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.


                                       22
<PAGE>   23

       "Share Register" means the register of Holders maintained on behalf of
the Trust 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 (other than seven), evenly divisible by seven and
not fewer than seven nor more than 364.

       "Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).

       "Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Trustees of the Trust, 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
Trust and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years and determined by the Board of Trustees of the Trust, 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
Trust'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 Board of Trustees of the Trust after consultation with the Auction Agent and
the Broker-Dealers.

       "Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of this Certificate of Designation and, with respect
to Other AMPS, has the equivalent meaning.

       "Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Trust may from time to time appoint or, in lieu
of any thereof, their respective affiliates or successors.

       "Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Trust, to act as the substitute rating


                                       23
<PAGE>   24

agency or substitute rating agencies, as the case may be, to determine the
credit ratings of the AMPS.

       "Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30-day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 A.M., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (A) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (B) 1.00 minus the Marginal
Tax Rate (expressed as a decimal). The Trust may not utilize a successor index
to the Kenny Index unless Moody's and S&P provide the Trust with written
confirmation that the use of such successor index will not adversely affect the
then-current respective Moody's and S&P ratings of the AMPS.

       "Treasury Bonds" has the meaning set forth in paragraph 8(a) of this
Certificate of Designation.

       "U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the


                                       24
<PAGE>   25

Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on any
date means the Interest Equivalent of the yield as calculated by reference to
the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.

       "U.S. Treasury Note Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.

       "Valuation Date" means, for purposes of determining whether the Trust is
maintaining the AMPS Basic Maintenance Amount, each Business Day commencing with
the Date of Original Issue.

       "Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Trust, the amount of cash or securities paid to or
received from a broker (subsequent to the Initial Margin payment) from time to
time as the price of such futures contract fluctuates.

       (b) The foregoing definitions of Accountant's Confirmation, AMPS Basic
Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Inverse Floaters, Market Value, Maximum Potential Additional Dividend
Liability, Moody's Discount Factor, Moody's Eligible Asset, Moody's Exposure
Period, Moody's Hedging Transactions, Moody's Volatility Factor, S&P Discount
Factor, S&P Eligible Asset, S&P Exposure Period, S&P Hedging


                                       25
<PAGE>   26

Transactions, S&P Volatility Factor, Valuation Date and Variation Margin have
been determined by the Board of Trustees of the Trust in order to obtain a "aaa"
rating from Moody's and a AAA rating from S&P on the AMPS on their Date of
Original Issue; and the Board of Trustees of the Trust shall have the authority,
without shareholder approval, to amend, alter or repeal from time to time the
foregoing definitions and the restrictions and guidelines set forth thereunder
if Moody's and S&P or any Substitute Rating Agency advises the Trust in writing
that such amendment, alteration or repeal will not adversely affect their then
current ratings on the AMPS.

       2. Dividends. (a) The Holders shall be entitled to receive, when, as and
if declared by the Board of Trustees of the Trust, out of funds legally
available therefor, cumulative dividends each consisting of (i) cash at the
Applicable Rate, (ii) a Right to receive cash as set forth in paragraph 2(e)
below, and (iii) any additional amounts as set forth in paragraph 2(f) below,
and no more, payable on the respective dates set forth below. Dividends on the
AMPS so declared and payable shall be paid (i) in preference to and in priority
over any dividends declared and payable on the Common Shares, and (ii) to the
extent permitted under the Code and to the extent available, out of net
tax-exempt income earned on the Trust's investments. 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 Trust.

       (b) (i) Cash dividends on AMPS shall accumulate from the Date of Original
Issue and shall be payable, when, as and if declared by the Board of Trustees,
out of funds legally available therefor, commencing on the Initial Dividend
Payment Date with respect to each series of AMPS. Following the Initial Dividend
Payment Date for each series of AMPS, dividends on each series of AMPS will be
payable, at the option of the Trust, either (i) with respect to any 7-Day
Dividend Period and any Short Term Dividend Period of 35 or fewer days, on the
day next succeeding the last day thereof or (ii) 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 day next
succeeding the last day thereof (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


                                       26
<PAGE>   27

any particular Dividend Payment Date may not occur on the originally scheduled
date because of the exceptions discussed above, the next succeeding Dividend
Payment Date, subject to such exceptions, will occur on the next following
originally scheduled date. If for any reason a Dividend Payment Date cannot be
fixed as described above, then the Board of Trustees shall fix the Dividend
Payment Date. The Board of Trustees by resolution prior to authorization of a
dividend by the Board of Trustees may change a Dividend Payment Date if such
change does not adversely affect the contract rights of the Holders of AMPS set
forth in the Declaration. The Initial Dividend Period, 7-Day Dividend Periods
and Special Dividend Periods are hereinafter sometimes referred to as Dividend
Periods. Each dividend payment date determined as provided above is hereinafter
referred to as a "Dividend Payment Date."

       (ii)    Each dividend shall be paid to the Holders as they appear in the
Share Register as of 12:00 noon, New York City time, on the Business Day
preceding the Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as they appear on the Share Register on a
date, not exceeding 15 days prior to the payment date therefor, as may be fixed
by the Board of Trustees of the Trust.

       (c) (i) During the period from and including the Date of Original Issue
to but excluding the Initial Dividend Payment Date for each series of AMPS (the
"Initial Dividend Period"), the Applicable Rate shall be the Initial Dividend
Rate. Commencing on the Initial Dividend Payment Date for each series of AMPS,
the Applicable Rate for each subsequent dividend period (hereinafter referred to
as a "Subsequent Dividend Period"), which Subsequent Dividend Period shall
commence on and include a Dividend Payment Date and shall end on and include the
calendar day prior to the next Dividend Payment Date (or last Dividend Payment
Date in a Dividend Period if there is more than one Dividend Payment Date),
shall be equal to the rate per annum that results from implementation of the
Auction Procedures.

       The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period in the case of each series of AMPS.
Except in the case of the willful failure of the Trust to pay a dividend on a
Dividend Payment Date or to redeem any AMPS on the date set for such


                                       27
<PAGE>   28

redemption, any amount of any dividend due on any Dividend Payment Date (if,
prior to the close of business on the second Business Day preceding such
Dividend Payment Date, the Trust has declared such dividend payable on such
Dividend Payment Date to the Holders of such AMPS as of 12:00 noon, New York
City time, on the Business Day preceding such Dividend Payment Date) or
redemption price with respect to any AMPS not paid to such Holders when due may
be paid to such Holders in the same form of funds by 12:00 noon, New York City
time, on any of the first three Business Days after such Dividend Payment Date
or due date, as the case may be, provided that, such amount is accompanied by a
late charge calculated for such period of non-payment at the Non-Payment Period
Rate applied to the amount of such non-payment based on the actual number of
days comprising such period divided by 365. In the case of a willful failure of
the Trust to pay a dividend on a Dividend Payment Date or to redeem any AMPS on
the date set for such redemption, the preceding sentence shall not apply and the
Applicable Rate for the Dividend Period commencing during the Non-Payment Period
resulting from such failure shall be the Non-Payment Period Rate. For the
purposes of the foregoing, payment to a person in same-day funds on any Business
Day at any time shall be considered equivalent to payment to such person in New
York Clearing House (next-day) funds at the same time on the preceding Business
Day, and any payment made after 12:00 noon, New York City time, on any Business
Day shall be considered to have been made instead in the same form of funds and
to the same person before 12:00 noon, New York City time, on the next Business
Day.

       (ii)    The amount of cash dividends per share of any series of AMPS
payable (if declared) on the Initial Dividend Payment Date, each 7-Day Dividend
Period and each Dividend Payment Date of each Short Term Dividend Period shall
be computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and the denominator of
which will be 365, multiplying the amount so obtained by $25,000, and rounding
the amount so obtained to the nearest cent. During any Long Term Dividend
Period, the amount of cash dividends per share of AMPS payable (if declared) on
any Dividend Payment Date shall be computed by multiplying the Applicable Rate
for such Dividend Period by a fraction, the numerator of which will be such
number of days in such part of such Dividend Period that such share was
outstanding and for which dividends are payable on such Dividend Payment Date
and


                                       28
<PAGE>   29

the denominator of which will be 360, multiplying the amount so obtained by
$25,000, and rounding the amount so obtained to the nearest cent.

       (iii)   With respect to each Dividend Period that is a Special Dividend
Period, the Trust may, at its sole option and to the extent permitted by law, by
telephonic and written notice (a "Request for Special Dividend Period") to the
Auction Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of AMPS be a number of days (other than seven),
evenly divisible by seven, and not fewer than seven nor 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 Trust may not give a Request for Special Dividend
Period of greater than 28 days (and any such request shall be null and void)
unless, for any Auction occurring after the initial Auction, Sufficient Clearing
Bids were made in the last occurring Auction and unless full cumulative
dividends, any amounts due with respect to redemptions, and any Additional
Dividends payable prior to such date have been paid in full. Such Request for
Special Dividend Period, in the case of a Short Term Dividend Period, shall be
given on or prior to the second Business Day but not more than seven Business
Days prior to an Auction Date for a series of AMPS and, in the case of a Long
Term Dividend Period, shall be given on or prior to the second Business Day but
not more than 28 days prior to an Auction Date for the AMPS. Upon receiving such
Request for Special Dividend Period, the Broker-Dealer(s) shall jointly
determine whether, given the factors set forth below, it is advisable that the
Trust issue a Notice of Special Dividend Period for the series of AMPS as
contemplated by such Request for Special Dividend Period and the Optional
Redemption Price of the AMPS during such Special Dividend Period and the
Specific Redemption Provisions and shall give the Trust 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-Dealer(s) will consider (1) existing short-term and long-term market
rates and indices of such short-term and long-term rates, (2) existing market
supply and demand for short-term and long-term securities, (3) existing yield
curves for short-term and long-term securities comparable to the AMPS, (4)
industry and financial conditions which may affect the AMPS, (5) the investment
objective of the Trust, and (6) the Dividend Periods and dividend rates at which
current and potential beneficial holders of the AMPS would remain or become
beneficial holders. If the Broker-Dealer(s) shall not give the Trust and the
Auction Agent a


                                       29
<PAGE>   30

Response by such second Business Day or if the Response states that given the
factors set forth above it is not advisable that the Trust give a Notice of
Special Dividend Period for the series of AMPS, the Trust may not give a Notice
of Special Dividend Period in respect of such Request for Special Dividend
Period. In the event the Response indicates that it is advisable that the Trust
give a Notice of Special Dividend Period for the series of AMPS, the Trust may
by no later than the second Business Day prior to such Auction Date give a
notice (a "Notice of Special Dividend Period") to the Auction Agent, the
Securities Depository and each Broker-Dealer which notice will specify (i) the
duration of the Special Dividend Period, (ii) the Optional Redemption Price as
specified in the related Response and (iii) the Specific Redemption Provisions,
if any, as specified in the related Response. The Trust also shall provide a
copy of such Notice of Special Dividend Period to Moody's and S&P. The Trust
shall not give a Notice of Special Dividend Period and, if the Trust has given a
Notice of Special Dividend Period, the Trust is required to give telephonic and
written notice of its revocation (a "Notice of Revocation") to the Auction
Agent, each Broker-Dealer, and the Securities Depository on or prior to the
Business Day prior to the relevant Auction Date if (x) either the 1940 Act AMPS
Asset Coverage is not satisfied or the Trust shall fail to maintain S&P Eligible
Assets and Moody's Eligible Assets each with an aggregate Discounted Value at
least equal to the AMPS Basic Maintenance Amount, in each case on each of the
two Valuation Dates immediately preceding the Business Day prior to the relevant
Auction Date on an actual basis and on a pro forma basis giving effect to the
proposed Special Dividend Period (using as a pro forma dividend rate with
respect to such Special Dividend Period the dividend rate which the
Broker-Dealers shall advise the Trust is an approximately equal rate for
securities similar to the AMPS with an equal dividend period), provided that, in
calculating the aggregate Discounted Value of Moody's Eligible Assets for this
purpose, the Moody's Exposure Period shall be deemed to be one week longer, (y)
sufficient funds for the payment of dividends payable on the immediately
succeeding Dividend Payment Date have not been irrevocably deposited with the
Auction Agent by the close of business on the third Business Day preceding the
related Auction Date or (z) the Broker-Dealer(s) jointly advise the Trust that
after consideration of the factors listed above they have concluded that it is
advisable to give a Notice of Revocation. The Trust also shall provide a copy of
such Notice of Revocation to Moody's and S&P. If the Trust is prohibited from
giving a Notice of Special Dividend Period as a result of any of the factors
enumerated in clause (x), (y)


                                       30
<PAGE>   31

or (z) above or if the Trust gives a Notice of Revocation with respect to a
Notice of Special Dividend Period for any series of AMPS, the next succeeding
Dividend Period will be a 7-Day Dividend Period in the case of Series A AMPS and
Series B AMPS. In addition, in the event Sufficient Clearing Bids are not made
in the applicable Auction or such Auction is not held for any reason, such next
succeeding Dividend Period will be a 7-Day Dividend Period (in the case of
Series A AMPS and Series B AMPS) and the Trust may not again give a Notice of
Special Dividend Period for the AMPS (and any such attempted notice shall be
null and void) until Sufficient Clearing Bids have been made in an Auction with
respect to a 7-Day Dividend Period (in the case of Series A AMPS and Series B
AMPS).

       (d) (i) Holders shall not be entitled to any dividends, whether payable
in cash, property or shares, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the AMPS (except for Additional
Dividends as provided in paragraph 2(e) hereof and additional payments as
provided in paragraph 2(f) hereof). Except for the late charge payable pursuant
to paragraph 2(c)(i) hereof, no interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment on the AMPS that may be in
arrears.

       (ii) For so long as any share of AMPS is Outstanding, the Trust shall not
declare, pay or set apart for payment any dividend or other distribution (other
than a dividend or distribution paid in shares of, or options, warrants or
rights to subscribe for or purchase, Common Shares or other shares of beneficial
interest, if any, ranking junior to the AMPS as to dividends or upon
liquidation) in respect of the Common Shares or any other shares of the Trust
ranking junior to or on a parity with the AMPS as to dividends or upon
liquidation, or call for redemption, redeem, purchase or otherwise acquire for
consideration any shares of the Common Shares or any other such junior shares of
beneficial interest (except by conversion into or exchange for shares of the
Trust ranking junior to the AMPS as to dividends and upon liquidation) or any
other such Parity Shares (except by conversion into or exchange for shares of
the Trust ranking junior to or on a parity with the AMPS as to dividends and
upon liquidation), unless (A) immediately after such transaction, the Trust
shall have S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount and the Trust shall maintain the 1940 Act AMPS Asset Coverage, (B) full
cumulative dividends on AMPS and shares of Other 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


                                       31
<PAGE>   32

deposited with the Auction Agent, (C) any Additional Dividend required to be
paid under paragraph 2(e) below on or before the date of such declaration or
payment has been paid and (D) the Trust has redeemed the full number of AMPS
required to be redeemed by any provision for mandatory redemption contained
herein.

       (e) Each dividend shall consist of (i) cash at the Applicable Rate, (ii)
an uncertificated right (a "Right") to receive an Additional Dividend (as
defined below), and (iii) any additional amounts as set forth in paragraph 2(f)
below. Each Right shall thereafter be independent of the AMPS on which the
dividend was paid. The Trust shall cause to be maintained a record of each Right
received by the respective Holders. A Right may not be transferred other than by
operation of law. If the Trust retroactively allocates any net capital gains or
other income subject to regular Federal income taxes to AMPS without having
given advance notice thereof to the Auction Agent as described in paragraph 2(f)
hereof solely by reason of the fact that such allocation is made as a result of
the redemption of all or a portion of the outstanding AMPS or the liquidation of
the Trust (the amount of such allocation referred to herein as a "Retroactive
Taxable Allocation"), the Trust will, within 90 days (and generally within 60
days) after the end of the Trust's fiscal year for which a Retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent and to each
holder of a Right applicable to such AMPS (initially Cede & Co. as nominee of
The Depository Trust Company) during such fiscal year at such holder's address
as the same appears or last appeared on the Share Books of the Trust. The Trust
will, within 30 days after such notice is given to the Auction Agent, pay to the
Auction Agent (who will then distribute to such holders of Rights), out of funds
legally available therefor, an amount equal to the aggregate Additional Dividend
with respect to all Retroactive Taxable Allocations made to such holders during
the fiscal year in question.

       An "Additional Dividend" means payment to a present or former holder of
AMPS of an amount which, when taken together with the aggregate amount of
Retroactive Taxable Allocations made to such holder with respect to the fiscal
year in question, would cause such holder's dividends in dollars (after Federal
and Florida income tax consequences) from the aggregate of both the Retroactive
Taxable Allocations and the Additional Dividend to be equal to the dollar amount
of the dividends which would have been received by such holder if the amount of
the aggregate Retroactive Taxable Allocations would have been excludable from
the gross income of such holder. Such Additional Dividend shall be calculated
(i) without consideration


                                       32
<PAGE>   33

being given to the time value of money; (ii) assuming that no holder of AMPS is
subject to the Federal alternative minimum tax with respect to dividends
received from the Trust; and (iii) assuming that each Retroactive Taxable
Allocation would be taxable in the hands of each holder of AMPS at the greater
of: (x) the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (including any surtax); or (y) the maximum
combined marginal regular Federal and Florida corporate income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (taking into account in both (x) and (y) the
Federal income tax deductibility of state taxes paid or incurred but not any
phase out of, or provision limiting, personal exemptions, itemized deductions,
or the benefit of lower tax brackets and assuming the taxability of Federally
tax-exempt dividends for corporations for Florida income tax purposes).

       (f) Except as provided below, whenever the Trust intends to include any
net capital gains or other income subject to regular Federal income taxes in any
dividend on AMPS, the Trust will notify the Auction Agent of the amount to be so
included at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. The Trust may also
include such income in a dividend on shares of a series of AMPS without giving
advance notice thereof if it increases the dividend by an additional amount
calculated as if such income was a Retroactive Taxable Allocation and the
additional amount was an Additional Dividend, provided that the Trust will
notify the Auction Agent of the additional amounts to be included in such
dividend at least five Business Days prior to the applicable Dividend Payment
Date.

       (g) No fractional AMPS shall be issued.

       3. Liquidation Rights. Upon any liquidation, dissolution or winding up of
the Trust, whether voluntary or involuntary, the Holders shall be entitled to
receive, out of the assets of the Trust available for distribution to
shareholders, before any distribution or payment is made upon any Common Shares
or any other shares of beneficial interest ranking junior in right of payment
upon liquidation to the AMPS, the sum of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to the date of
distribution, and after such payment the Holders will be entitled to no other
payments other than Additional Dividends as


                                       33
<PAGE>   34

provided in paragraph 2(e) hereof. If upon any liquidation, dissolution or
winding up of the Trust, the amounts payable with respect to the AMPS and any
other Outstanding class or series of Preferred Shares of the Trust ranking on a
parity with the AMPS as to payment upon liquidation are not paid in full, the
Holders and the holders of such other class or series will share ratably in any
such distribution of assets in proportion to the respective preferential amounts
to which they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the Holders will not be entitled to any
further participation in any distribution of assets by the Trust except for any
Additional Dividends. A consolidation, merger or statutory share exchange of the
Trust with or into any other corporation or entity or a sale, whether for cash,
shares of stock, securities or properties, of all or substantially all or any
part of the assets of the Trust shall not be deemed or construed to be a
liquidation, dissolution or winding up of the Trust.

       4. Redemption. (a) Shares of AMPS shall be redeemable by the Trust as
provided below:

              (i)    To the extent permitted under the 1940 Act and
       Massachusetts law, upon giving a Notice of Redemption, the Trust at its
       option may redeem AMPS, in whole or in part, out of funds legally
       available therefor, at the Optional Redemption Price per share, on any
       Dividend Payment Date; provided that no share of AMPS may be redeemed at
       the option of the Trust during (A) the Initial Dividend Period with
       respect to a series of shares or (B) a Non-Call Period to which such
       share is subject. In addition, holders of AMPS which are redeemed shall
       be entitled to receive Additional Dividends to the extent provided
       herein. The Trust may not give a Notice of Redemption relating to an
       optional redemption as described in this paragraph 4(a)(i) unless, at the
       time of giving such Notice of Redemption, the Trust has available Deposit
       Securities with maturity or tender dates not later than the day preceding
       the applicable redemption date and having a value not less than the
       amount due to Holders by reason of the redemption of their AMPS on such
       redemption date.

              (ii)   The Trust shall redeem, out of funds legally available
       therefor, at the Mandatory Redemption Price per share, AMPS to the extent
       permitted under the 1940 Act, on a date fixed by the Board of Trustees,
       if the Trust fails to maintain S&P Eligible


                                       34
<PAGE>   35

       Assets and Moody's Eligible Assets each with an aggregate Discounted
       Value equal to or greater than the AMPS Basic Maintenance Amount as
       provided in paragraph 7(a) or to satisfy the 1940 Act AMPS Asset Coverage
       as provided in paragraph 6 and such failure is not cured on or before the
       AMPS Basic Maintenance Cure Date or the 1940 Act Cure Date (herein
       collectively referred to as a "Cure Date"), as the case may be. In
       addition, holders of AMPS so redeemed shall be entitled to receive
       Additional Dividends to the extent provided herein. The number of AMPS to
       be redeemed shall be equal to the lesser of (i) the minimum number of
       AMPS the redemption of which, if deemed to have occurred immediately
       prior to the opening of business on the Cure Date, together with all
       shares of other Preferred Shares subject to redemption or retirement,
       would result in the Trust having S&P Eligible Assets and Moody's Eligible
       Assets each with an aggregate Discounted Value equal to or greater than
       the AMPS Basic Maintenance Amount or satisfaction of the 1940 Act AMPS
       Asset Coverage, as the case may be, on such Cure Date (provided that, if
       there is no such minimum number of AMPS and of other Preferred Shares the
       redemption of which would have such result, all AMPS and other Preferred
       Shares then Outstanding shall be redeemed), and (ii) the maximum number
       of AMPS, together with all other Preferred Shares subject to redemption
       or retirement, that can be redeemed out of funds expected to be legally
       available therefor on such redemption date. In determining the number of
       AMPS required to be redeemed in accordance with the foregoing, the Trust
       shall allocate the number required to be redeemed which would result in
       the Trust having S&P Eligible Assets and Moody's Eligible Assets each
       with an aggregate Discounted Value equal to or greater than the AMPS
       Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset
       Coverage, as the case may be, pro rata among AMPS of all series, Other
       AMPS and other Preferred Shares subject to redemption pursuant to
       provisions similar to those contained in this paragraph 4(a)(ii);
       provided that, AMPS which may not be redeemed at the option of the Trust
       due to the designation of a Non-Call Period applicable to such shares (A)
       will be subject to mandatory redemption only to the extent that other
       shares are not available to satisfy the number of shares required to be
       redeemed and (B) will be selected for redemption in an ascending order of
       outstanding number of days in the Non-Call Period (with shares with the
       lowest number of days to be redeemed first) and by lot in the event of
       shares having


                                       35
<PAGE>   36

       an equal number of days in such Non-Call Period. The Trust shall effect
       such redemption on a Business Day which is not later than 35 days after
       such Cure Date, except that if the Trust does not have funds legally
       available for the redemption of all of the required number of AMPS and
       other Preferred Shares which are subject to mandatory redemption or the
       Trust otherwise is unable to effect such redemption on or prior to 35
       days after such Cure Date, the Trust shall redeem those AMPS which it is
       unable to redeem on the earliest practicable date on which it is able to
       effect such redemption out of funds legally available therefor.

       (b) Notwithstanding any other provision of this paragraph 4, no AMPS may
be redeemed pursuant to paragraph 4(a)(i) of this Certificate of Designation (i)
unless all dividends in arrears on all remaining outstanding Parity Shares shall
have been or are being contemporaneously paid or declared and set apart for
payment and (ii) if redemption thereof would result in the Trust's failure to
maintain Moody's Eligible Assets or S&P Eligible Assets with an aggregate
Discounted Value equal to or greater than the AMPS Basic Maintenance Amount. In
the event that less than all the outstanding shares of a series of AMPS are to
be redeemed and there is more than one Holder, the shares of that series of AMPS
to be redeemed shall be selected by lot or such other method as the Trust shall
deem fair and equitable.

       (c) Whenever AMPS are to be redeemed, the Trust, not less than 17 nor
more than 60 days prior to the date fixed for redemption, shall mail a notice
("Notice of Redemption") by first-class mail, postage prepaid, to each Holder of
AMPS to be redeemed and to the Auction Agent. The Trust shall cause the Notice
of Redemption to also be published in the eastern and national editions of The
Wall Street Journal. The Notice of Redemption shall set forth (i) the redemption
date, (ii) the amount of the redemption price, (iii) the aggregate number of
AMPS of such series to be redeemed, (iv) the place or places where AMPS of such
series are to be surrendered for payment of the redemption price, (v) a
statement that dividends on the shares to be redeemed shall cease to accumulate
on such redemption date (except that holders may be entitled to Additional
Dividends) and (vi) the provision of this Certificate of Designation pursuant to
which such shares are being redeemed. No defect in the Notice of Redemption or
in the mailing or publication thereof shall affect the validity of the
redemption proceedings, except as required by applicable law.


                                       36
<PAGE>   37

       If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Trust shall have deposited in trust with the
Auction Agent, or segregated in an account at the Trust's custodian bank for the
benefit of the Auction Agent, Deposit Securities (with a right of substitution)
having an aggregate Discounted Value (utilizing in the case of S&P an S&P
Exposure Period of 22 Business Days) equal to the redemption payment for the
AMPS as to which such Notice of Redemption has been given with irrevocable
instructions and authority to pay the redemption price to the Holders of such
shares, then upon the date of such deposit or, if no such deposit is made, then
upon such date fixed for redemption (unless the Trust shall default in making
the redemption payment), all rights of the Holders of such shares as
shareholders of the Trust by reason of the ownership of such shares will cease
and terminate (except their right to receive the redemption price in respect
thereof and any Additional Dividends, but without interest), and such shares
shall no longer be deemed outstanding. The Trust shall be entitled to receive,
from time to time, from the Auction Agent the interest, if any, on such Deposit
Securities deposited with it and the Holders of any shares so redeemed shall
have no claim to any of such interest. In case the Holder of any shares so
called for redemption shall not claim the redemption payment for his shares
within one year after the date of redemption, the Auction Agent shall, upon
demand, pay over to the Trust such amount remaining on deposit and the Auction
Agent shall thereupon be relieved of all responsibility to the Holder of such
shares called for redemption and such Holder thereafter shall look only to the
Trust for the redemption payment.

       5. Voting Rights. (a) General. Except as otherwise provided in the
Declaration or By-Laws, each Holder of AMPS shall be entitled to one vote for
each share held on each matter submitted to a vote of shareholders of the Trust,
and the holders of outstanding Preferred Shares, including AMPS, and of Common
Shares vote together as a single class; provided that, at any meeting of the
shareholders of the Trust held for the election of trustees, the holders of
outstanding Preferred Shares, including AMPS, shall be entitled, as a class, to
the exclusion of the holders of all other securities and classes of shares of
beneficial interest of the Trust, to elect two trustees of the Trust. Subject to
paragraph 5(b) hereof, the holders of outstanding shares of beneficial interest
of the Trust, including the holders of outstanding Preferred Shares, including
AMPS, voting as a single class, shall elect the balance of the trustees.


                                       37
<PAGE>   38

       (b) Right to Elect Majority of Board of Trustees. During any period in
which any one or more of the conditions described below shall exist (such period
being referred to herein as a "Voting Period"), the number of trustees
constituting the Board of Trustees shall be automatically increased by the
smallest number that, when added to the two trustees elected exclusively by the
holders of Preferred Shares, would constitute a majority of the Board of
Trustees as so increased by such smallest number; and the holders of Preferred
Shares shall be entitled, voting separately as one class (to the exclusion of
the holders of all other securities and classes of shares of beneficial interest
of the Trust), to elect such smallest number of additional trustees, together
with the two trustees that such holders are in any event entitled to elect. A
Voting Period shall commence:

              (i)    if at any time accumulated dividends (whether or not earned
       or declared, and whether or not funds are then legally available in an
       amount sufficient therefor) on the 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

              (ii)   if at any time holders of any other Preferred Shares are
       entitled to elect a majority of the trustees of the Trust under the 1940
       Act.

       Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).

       (c) Right to Vote with Respect to Certain Other Matters. So long as any
AMPS are outstanding, the Trust shall not, without the affirmative vote of the
holders of a majority of the Preferred Shares Outstanding at the time, voting
separately as one class: (i) authorize, create or issue any class or series of
shares ranking prior to the AMPS or any other series of Preferred Shares with
respect to payment of dividends or the distribution of assets on liquidation, or
(ii) amend, alter or repeal the provisions of the Declaration, whether by
merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Declaration of holders of AMPS or any
other Preferred Shares. To the extent permitted under the 1940 Act, in the event
shares of more than one series of AMPS are outstanding, the Trust shall not
approve any of the actions set forth in clause (i) or (ii) which adversely
affects the


                                       38
<PAGE>   39

contract rights expressly set forth in the Declaration of a Holder of shares of
a series of AMPS differently than those of a Holder of shares of any other
series of AMPS without the affirmative vote of the holders of at least a
majority of the AMPS of each series adversely affected and outstanding at such
time (each such adversely affected series voting separately as a class). The
Trust shall notify Moody's and S&P ten Business Days prior to any such vote
described in clause (i) or (ii). Unless a higher percentage is provided for
under the Declaration, the affirmative vote of the holders of a majority of the
outstanding Preferred Shares, including AMPS, voting together as a single class,
will be required to approve any plan of reorganization (including bankruptcy
proceedings) adversely affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act. The class vote of holders
of Preferred Shares, including AMPS, described above will in each case be in
addition to a separate vote of the requisite percentage of shares of beneficial
interest and Preferred Shares, including AMPS, voting together as a single class
necessary to authorize the action in question.

       (d) Voting Procedures.

       (i)    As soon as practicable after the accrual of any right of the
holders of Preferred Shares to elect additional trustees as described in
paragraph 5(b) above, the Trust shall call a special meeting of such holders and
instruct the Auction Agent to mail a notice of such special meeting to such
holders, such meeting to be held not less than 10 nor more than 20 days after
the date of mailing of such notice. If the Trust fails to send such notice to
the Auction Agent or if the Trust does not call such a special meeting, it may
be called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting held during a
Voting Period, such Holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of shares of beneficial interest of
the Trust), shall be entitled to elect the number of trustees prescribed in
paragraph 5(b) above. At any such meeting or adjournment thereof in the absence
of a quorum, a majority of such holders present in person or by proxy shall have
the power to adjourn the meeting without notice, other than by an announcement
at the meeting, to a date not more than 120 days after the original record date.


                                       39
<PAGE>   40

       (ii)    For purposes of determining any rights of the Holders to vote on
any matter or the number of shares required to constitute a quorum, whether such
right is created by this Certificate of Designation, by the other provisions of
the Declaration, by statute or otherwise, a share of AMPS which is not
Outstanding shall not be counted.

       (iii)   The terms of office of all persons who are trustees of the Trust
at the time of a special meeting of Holders and holders of other Preferred
Shares to elect trustees shall continue, notwithstanding the election at such
meeting by the Holders and such other holders of the number of trustees that
they are entitled to elect, and the persons so elected by the Holders and such
other holders, together with the two incumbent trustees elected by the Holders
and such other holders of Preferred Shares and the remaining incumbent trustees
elected by the holders of the Common Shares and Preferred Shares, shall
constitute the duly elected trustees of the Trust.

       (iv)  Simultaneously with the expiration of a Voting Period, the terms
of office of the additional trustees elected by the Holders and holders of other
Preferred Shares pursuant to paragraph 5(b) above shall terminate, the remaining
trustees shall constitute the trustees of the Trust and the voting rights of the
Holders and such other holders to elect additional trustees pursuant to
paragraph 5(b) above shall cease, subject to the provisions of the last sentence
of paragraph 5(b).

       (e) Exclusive Remedy. Unless otherwise required by law, the Holders of
AMPS shall not have any rights or preferences other than those specifically set
forth herein. The Holders of AMPS shall have no preemptive rights or rights to
cumulative voting. In the event that the Trust fails to pay any dividends on the
AMPS, the exclusive remedy of the Holders shall be the right to vote for
trustees pursuant to the provisions of this paragraph 5.

       (f) Notification to S&P and Moody's. In the event a vote of Holders of
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Trust shall, not later than ten Business Days prior to the date on which
such vote is to be taken, notify S&P and Moody's that such vote is to be taken
and the nature of the action with respect to which such vote is to be taken and,
not later than ten Business Days after the date on which such vote is taken,
notify S&P and Moody's of the result of such vote.


                                       40
<PAGE>   41

       6. 1940 Act AMPS Asset Coverage. The Trust shall maintain, as of the last
Business Day of each month in which any share of AMPS is outstanding, the 1940
Act AMPS Asset Coverage.

       7. AMPS Basic Maintenance Amount. (a) The Trust shall maintain, on each
Valuation Date, and shall verify to its satisfaction that it is maintaining on
such Valuation Date, (i) S&P Eligible Assets having an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Trust will use its best efforts to alter the
composition of its portfolio to reattain a Discounted Value at least equal to
the AMPS Basic Maintenance Amount on or prior to the AMPS Basic Maintenance Cure
Date.

       (b) On or before 5:00 p.m., New York City time, on the third Business Day
after a Valuation Date on which the Trust fails to satisfy the AMPS Basic
Maintenance Amount, the Trust shall complete and deliver to the Auction Agent,
and Moody's and S&P, as the case may be, a complete AMPS Basic Maintenance
Report as of the date of such failure, which will be deemed to have been
delivered to the Auction Agent if the Auction Agent receives a copy or telecopy,
telex or other electronic transcription thereof and on the same day the Trust
mails to the Auction Agent for delivery on the next Business Day the complete
AMPS Basic Maintenance Report. The Trust will deliver an AMPS Basic Maintenance
Report to the Auction Agent and Moody's and S&P, as the case may be, on or
before 5:00 p.m., New York City time, on the third Business Day after a
Valuation Date on which the Trust cures its failure to maintain Moody's Eligible
Assets or S&P Eligible Assets, as the case may be, with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount or on which the
Trust fails to maintain Moody's Eligible Assets or S&P Eligible Assets, as the
case may be, with an aggregate Discounted Value which exceeds the AMPS Basic
Maintenance Amount by 5% or more. The Trust will also deliver an AMPS Basic
Maintenance Report to the Auction Agent, Moody's and S&P as of each Quarterly
Valuation Date on or before the third Business Day after such date.
Additionally, on or before 5:00 p.m., New York City time, on the third Business
Day after the first day of a Special Dividend Period, the Trust will deliver an
AMPS Basic Maintenance Report to S&P and the Auction Agent. The Trust shall also
provide Moody's and S&P with an AMPS Basic Maintenance Report when specifically
requested by either Moody's or S&P. A


                                       41
<PAGE>   42

failure by the Trust to deliver an AMPS Basic Maintenance Report under this
paragraph 7(b) shall be deemed to be delivery of an AMPS Basic Maintenance
Report indicating the Discounted Value for S&P Eligible Assets and Moody's
Eligible Assets of the Trust is less than the AMPS Basic Maintenance Amount, as
of the relevant Valuation Date.

       (c) Within ten Business Days after the date of delivery of an AMPS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation Date, the Independent Accountant will confirm in writing to
the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other AMPS Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Trust during the quarter ending on such Quarterly Valuation Date), (ii)
that, in such Report (and in such randomly selected Report), the Trust correctly
determined the assets of the Trust which constitute S&P Eligible Assets or
Moody's Eligible Assets, as the case may be, at such Quarterly Valuation Date in
accordance with this Certificate of Designation, (iii) that, in such Report (and
in such randomly selected Report), the Trust determined whether the Trust had,
at such Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly selected Report) in accordance with this Certificate of Designation,
S&P Eligible Assets of an aggregate Discounted Value at least equal to the AMPS
Basic Maintenance Amount and Moody's Eligible Assets of an aggregate Discounted
Value at least equal to the AMPS Basic Maintenance Amount, (iv) with respect to
the S&P ratings on Florida Municipal Bonds or Municipal Bonds, the issuer name,
issue size and coupon rate listed in such Report, that the Independent
Accountant has requested that S&P verify such information and the Independent
Accountant shall provide a listing in its letter of any differences, (v) with
respect to the Moody's ratings on Florida Municipal Bonds or Municipal Bonds,
the issuer name, issue size and coupon rate listed in such 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),
(vi) 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
Trust's assets to the Trust for purposes of valuing securities in the Trust's
portfolio, the Independent Accountant has traced the price used in such Report
to the bid or mean price listed in such Report as provided to the Trust and
verified that such information agrees (in the event such information does not
agree, the Independent


                                       42
<PAGE>   43

Accountant will provide a listing in its letter of such differences) and (vii)
with respect to such confirmation to Moody's, that the Trust has satisfied the
requirements of paragraph 8(b) of this Certificate of Designation (such
confirmation is herein called the "Accountant's Confirmation").

       (d) Within ten Business Days after the date of delivery to the Auction
Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with
paragraph 7(b) above relating to any Valuation Date on which the Trust failed to
maintain S&P Eligible Assets with an aggregate Discounted Value and Moody's
Eligible Assets with an aggregate Discounted Value equal to or greater than the
AMPS Basic Maintenance Amount, and relating to the AMPS Basic Maintenance Cure
Date with respect to such failure, the Independent Accountant will provide to
the Auction Agent, S&P and Moody's an Accountant's Confirmation as to such AMPS
Basic Maintenance Report.

       (e) If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the AMPS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, of the Trust was determined by the
Independent Accountant, the calculation or determination made by such
Independent Accountant shall be final and conclusive and shall be binding on the
Trust, and the Trust shall accordingly amend and deliver the AMPS Basic
Maintenance Report to the Auction Agent, S&P and Moody's promptly following
receipt by the Trust of such Accountant's Confirmation.

       (f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of the AMPS, the Trust will complete and
deliver to S&P and Moody's an AMPS Basic Maintenance Report as of the close of
business on such Date of Original Issue. Within five Business Days of such Date
of Original Issue, the Independent Accountant will confirm in writing to S&P and
Moody's (i) the mathematical accuracy of the calculations reflected in such
Report and (ii) that the aggregate Discounted Value of S&P Eligible Assets and
the aggregate Discounted Value of Moody's Eligible Assets reflected thereon
equals or exceeds the AMPS Basic Maintenance Amount reflected thereon. Also, on
or before 5:00 p.m., New York City time, on the first Business Day after Common
Shares are repurchased by the Trust, the


                                       43
<PAGE>   44

Trust will complete and deliver to S&P and Moody's an AMPS Basic Maintenance
Report as of the close of business on such date that Common Shares are
repurchased.

       (g) For so long as AMPS are rated by Moody's, in managing the Trust's
portfolio, the Adviser will not alter the composition of the Trust's portfolio
if, in the reasonable belief of the Adviser, the effect of any such alteration
would be to cause the Trust to have Moody's Eligible Assets with an aggregate
Discounted Value, as of the immediately preceding Valuation Date, less than the
AMPS Basic Maintenance Amount as of such Valuation Date; provided, however, that
in the event that, as of the immediately preceding Valuation Date, the aggregate
Discounted Value of Moody's Eligible Assets exceeded the AMPS Basic Maintenance
Amount by five percent or less, the Adviser will not alter the composition of
the Trust's portfolio in a manner reasonably expected to reduce the aggregate
Discounted Value of Moody's Eligible Assets unless the Trust shall have
confirmed that, after giving effect to such alteration, the aggregate Discounted
Value of Moody's Eligible Assets would exceed the AMPS Basic Maintenance Amount.

       8. Certain Other Restrictions and Requirements. (a) For so long as any
AMPS are rated by S&P, the Trust will not purchase or sell futures contracts,
write, purchase or sell options on futures contracts or write put options
(except covered put options) or call options (except covered call options) on
portfolio securities unless it receives written confirmation from S&P that
engaging in such transactions will not impair the ratings then assigned to the
AMPS by S&P, except that the Trust may purchase or sell futures contracts based
on the Bond Buyer Municipal Bond Index (the "Municipal Index") or United States
Treasury Bonds or Notes ("Treasury Bonds") and write, purchase or sell put and
call options on such contracts (collectively, "S&P Hedging Transactions"),
subject to the following limitations:

              (i)    the Trust will not engage in any S&P Hedging Transaction
       based on the Municipal Index (other than transactions which terminate a
       futures contract or option held by the Trust by the Trust's taking an
       opposite position thereto ("Closing Transactions")), which would cause
       the Trust at the time of such transaction to own or have sold the least
       of (A) more than 1,000 outstanding futures contracts based on the
       Municipal Index, (B) outstanding futures contracts based on the Municipal
       Index exceeding in number 25% of the quotient of the Market Value of the
       Trust's total assets


                                       44
<PAGE>   45

       divided by $1,000 or (C) outstanding futures contracts based on the
       Municipal Index exceeding in number 10% of the average number of daily
       traded futures contracts based on the Municipal Index in the 30 days
       preceding the time of effecting such transaction as reported by The Wall
       Street Journal;

              (ii)   the Trust will not engage in any S&P Hedging Transaction
       based on Treasury Bonds (other than Closing Transactions) which would
       cause the Trust at the time of such transaction to own or have sold the
       lesser of (A) outstanding futures contracts based on Treasury Bonds
       exceeding in number 50% of the quotient of the Market Value of the
       Trust's total assets divided by $100,000 ($200,000 in the case of the
       two-year United States Treasury Note) or (B) outstanding futures
       contracts based on Treasury Bonds exceeding in number 10% of the average
       number of daily traded futures contracts based on Treasury Bonds in the
       30 days preceding the time of effecting such transaction as reported by
       The Wall Street Journal;

              (iii)  the Trust will engage in Closing Transactions to close out
       any outstanding futures contract which the Trust owns or has sold or any
       outstanding option thereon owned by the Trust in the event (A) the Trust
       does not have S&P Eligible Assets with an aggregate Discounted Value
       equal to or greater than the AMPS Basic Maintenance Amount on two
       consecutive Valuation Dates and (B) the Trust is required to pay
       Variation Margin on the second such Valuation Date;

              (iv)   the Trust will engage in a Closing Transaction to close out
       any outstanding futures contract or option thereon in the month prior to
       the delivery month under the terms of such futures contract or option
       thereon unless the Trust holds the securities deliverable under such
       terms; and

              (v)    when the Trust writes a futures contract or option thereon,
       it will either maintain an amount of cash, cash equivalents or high grade
       (rated A or better by S&P), fixed-income securities in a segregated
       account with the Trust's custodian, so that the amount so segregated plus
       the amount of Initial Margin and Variation Margin held in the account of
       or on behalf of the Trust's broker with respect to such futures contract
       or option equals the Market Value of the futures contract or option, or,
       in the event the Trust


                                       45
<PAGE>   46

       writes a futures contract or option thereon which requires delivery of an
       underlying security, it shall hold such underlying security in its
       portfolio.

       For purposes of determining whether the Trust has S&P Eligible Assets
with a Discounted Value that equals or exceeds the AMPS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be zero and the aggregate Discounted
Value of S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of
the aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Trust plus (ii)
25% of the aggregate settlement value, as marked to market, of any outstanding
futures contracts based on Treasury Bonds which contracts are owned by the
Trust.

       (b) For so long as any AMPS are rated by Moody's, the Trust will not buy
or sell futures contracts, write, purchase or sell call options on futures
contracts or purchase put options on futures contracts or write call options
(except covered call options) on portfolio securities unless it receives written
confirmation from Moody's that engaging in such transactions would not impair
the ratings then assigned to the AMPS by Moody's, except that the Trust may
purchase or sell exchange-traded futures contracts based on the Municipal Index
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 futures contracts (collectively, "Moody's Hedging Transactions"),
subject to the following limitations:

              (i)    the Trust will not engage in any Moody's Hedging
       Transaction based on the Municipal Index (other than Closing
       Transactions) which would cause the Trust at the time of such transaction
       to own or have sold (A) outstanding futures contracts based on the
       Municipal Index exceeding in number 10% of the average number of daily
       traded futures contracts based on the Municipal Index in the 30 days
       preceding the time of effecting such transaction as reported by The Wall
       Street Journal or (B) outstanding futures contracts based on the
       Municipal Index having a Market Value exceeding 50% of the Market Value
       of all Municipal Bonds constituting Moody's Eligible Assets owned by the
       Trust (other than Moody's Eligible Assets already subject to a Moody's
       Hedging Transaction);


                                       46
<PAGE>   47

              (ii)   the Trust will not engage in any Moody's Hedging
       Transaction based on Treasury Bonds (other than Closing Transactions)
       which would cause the Trust at the time of such transaction to own or
       have sold (A) outstanding futures contracts based on Treasury Bonds
       having an aggregate Market Value exceeding 20% of the aggregate Market
       Value of Moody's Eligible Assets owned by the Trust and rated Aa by
       Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by S&P)
       or (B) outstanding futures contracts based on Treasury Bonds having an
       aggregate Market Value exceeding 40% of the aggregate Market Value of all
       Municipal Bonds constituting Moody's Eligible Assets owned by the Trust
       (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 A or AA by S&P) (for purposes of the foregoing
       clauses (i) and (ii), the Trust shall be deemed to own the number of
       futures contracts that underlie any outstanding options written by the
       Trust);

              (iii)  the Trust will engage in Closing Transactions to close out
       any outstanding futures contract based on the Municipal Index if the
       amount of open interest in the Municipal Index as reported by The Wall
       Street Journal is less than 5,000;

              (iv)   the Trust will engage in a Closing Transaction to close out
       any outstanding futures contract by no later than the fifth Business Day
       of the month in which such contract expires and will engage in a Closing
       Transaction to close out any outstanding option on a futures contract by
       no later than the first Business Day of the month in which such option
       expires;

              (v)    the Trust will engage in Moody's Hedging Transactions only
       with respect to futures contracts or options thereon having the next
       settlement date or the settlement date immediately thereafter;

              (vi)   the Trust will not engage in options and futures
       transactions for leveraging or speculative purposes and will not write
       any call options or sell any futures contracts for the purpose of hedging
       the anticipated purchase of an asset prior to completion of such
       purchase; and

              (vii)  the Trust will not enter into an option or futures
       transaction unless, after giving effect thereto, the Trust would continue
       to have Moody's Eligible Assets with an


                                       47
<PAGE>   48

       aggregate Discounted Value equal to or greater than the AMPS Basic
       Maintenance Amount.

       For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of Moody's Eligible Assets which the
Trust is obligated to deliver or receive pursuant to an outstanding futures
contract or option shall be as follows: (i) assets subject to call options
written by the Trust which are either exchange-traded and "readily reversible"
or which expire within 49 days after the date as of which such valuation is made
shall be valued at the lesser of (a) Discounted Value and (b) the exercise price
of the call option written by the Trust; (ii) assets subject to call options
written by the Trust not meeting the requirements of clause (i) of this sentence
shall have no value; (iii) assets subject to put options written by the Trust
shall be valued at the lesser of (A) the exercise price and (B) the Discounted
Value of the subject security; (iv) futures contracts shall be valued at the
lesser of (A) settlement price and (B) the Discounted Value of the subject
security, provided that, if a contract matures within 49 days after the date as
of which such valuation is made, where the Trust is the seller the contract may
be valued at the settlement price and where the Trust is the buyer the contract
may be valued at the Discounted Value of the subject securities; and (v) where
delivery may be made to the Trust with any security of a class of securities,
the Trust shall assume that it will take delivery of the security with the
lowest Discounted Value.

       For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the following amounts shall be subtracted from the aggregate
Discounted Value of the Moody's Eligible Assets held by the Trust: (i) 10% of
the exercise price of a written call option; (ii) the exercise price of any
written put option; (iii) where the Trust is the seller under a futures
contract, 10% of the settlement price of the futures contract; (iv) where the
Trust is the purchaser under a futures contract, the settlement price of assets
purchased under such futures contract; (v) the settlement price of the
underlying futures contract if the Trust writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures contracts
if the Trust writes call options on a futures contract and does not own the
underlying contract.


                                       48
<PAGE>   49

       (c) For so long as any AMPS are rated by Moody's, the Trust will not
enter into any contract to purchase securities for a fixed price at a future
date beyond customary settlement time (other than such contracts that constitute
Moody's Hedging Transactions that are permitted under paragraph 8(b) of this
Certificate of Designation), except that the Trust may enter into such contracts
to purchase newly-issued securities on the date such securities are issued
("Forward Commitments"), subject to the following limitations:

              (i)    the Trust will maintain in a segregated account with its
       custodian cash, cash equivalents or short-term, fixed-income securities
       rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior to the date of
       the Forward Commitment with a Market Value that equals or exceeds the
       amount of the Trust's obligations under any Forward Commitments to which
       it is from time to time a party or long-term fixed income securities with
       a Discounted Value that equals or exceeds the amount of the Trust's
       obligations under any Forward Commitment to which it is from time to time
       a party; and

              (ii)   the Trust will not enter into a Forward Commitment unless,
       after giving effect thereto, the Trust would continue to have Moody's
       Eligible Assets with an aggregate Discounted Value equal to or greater
       than the AMPS Basic Maintenance Amount.

       For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of all Forward Commitments to which the
Trust is a party and of all securities deliverable to the Trust pursuant to such
Forward Commitments shall be zero.

       (d) For so long as AMPS are rated by S&P or Moody's, the Trust will not,
unless it has received written confirmation from S&P and/or Moody's, as the case
may be, that such action would not impair the ratings then assigned to AMPS by
S&P and/or Moody's, as the case may be, (i) borrow money except for the purpose
of clearing transactions in portfolio securities (which borrowings shall under
any circumstances be limited to the lesser of $10 million and an amount equal to
5% of the Market Value of the Trust'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
and S&P Eligible Assets to be less than the AMPS Basic Maintenance Amount), (ii)
engage in short sales of securities, (iii)


                                       49
<PAGE>   50

lend any securities, (iv) 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 Trust,
(v) reissue any AMPS previously purchased or redeemed by the Trust, (vi) merge
or consolidate into or with any other corporation or entity, (vii) change the
Pricing Service or (viii) engage in reverse repurchase agreements.

       (e) For so long as AMPS are rated by Moody's, the Trust agrees to provide
Moody's with the following, unless the Trust has received written confirmation
from Moody's that the provision of such information is no longer required and
that the current rating then assigned to the AMPS by Moody's would not be
impaired: a notification letter at least 30 days prior to any material change in
the Declaration; a copy of the AMPS Basic Maintenance Report prepared by the
Trust in accordance with this Certificate of Designation; and a notice upon the
occurrence of any of the following events: (i) any failure by the Trust to
declare or pay any dividends on the AMPS or successfully remarket the AMPS; (ii)
any mandatory or optional redemption of the AMPS effected by the Trust; (iii)
any assumption of control of the Board of Trustees of the Trust by the holders
of the AMPS; (iv) a general unavailability of dealer quotes on the assets of the
Trust; (v) any material auditor discrepancies on valuations; (vi) the dividend
rate on the AMPS equals or exceeds 95% of the Aaa Composite Commercial Paper
Rate; (vii) the occurrence of any Special Dividend Period; (viii) any change in
the Maximum Applicable Rate or the Reference Rate; (ix) the acquisition by any
person of beneficial ownership of more than 5% of the Trust's voting shares of
beneficial interest (inclusive of Common Shares and Preferred Shares); (x) the
occurrence of any change in Internal Revenue Service rules with respect to the
payment of Additional Dividends; (xi) any change in the Pricing Service employed
by the Trust; (xii) any change in the Investment Adviser; (xiii) any increase of
greater than 40% to the maximum marginal Federal income tax rate applicable to
individuals or corporations; and (xiv) the maximum marginal Federal income tax
rate applicable to individuals or corporations is increased to a rate in excess
of 50%.

       9. Notice. All notices or communications, unless otherwise specified in
the By-Laws of the Trust or this Certificate of Designation, shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid. Notice shall be deemed given on the earlier
of the date received or the date seven days after which such notice is mailed.


                                       50
<PAGE>   51

       10. Auction Procedures.

       (a) Certain definitions. As used in this paragraph 10, the following
terms shall have the following meanings, unless the context otherwise requires:

              (i)    "AMPS" means the AMPS being auctioned pursuant to this
       paragraph 10.

              (ii)   "Auction Date" means the first Business Day preceding the
       first day of a Dividend Period.

              (iii)  "Available AMPS" has the meaning specified in paragraph
       10(d)(i) below.

              (iv)   "Bid" has the meaning specified in paragraph 10(b)(i)
       below.

              (v)    "Bidder" has the meaning specified in paragraph 10(b)(i)
       below.

              (vi)  "Hold Order" has the meaning specified in paragraph 10(b)(i)
       below.

              (vii)  "Maximum Applicable Rate" for any Dividend Period will be
       the Applicable Percentage of the Reference Rate. The Applicable
       Percentage will be determined based on (i) the lower of the credit rating
       or ratings assigned on such date to such shares by Moody's and S&P (or if
       Moody's or S&P or both shall not make such rating available, the
       equivalent of either or both of such ratings by a Substitute Rating
       Agency or two Substitute Rating Agencies or, in the event that only one
       such rating shall be available, such rating) and (ii) whether the Trust
       has provided notification to the Auction Agent prior to the Auction
       establishing the Applicable Rate for any dividend pursuant to paragraph
       2(f) hereof that net capital gains or other taxable income will be


                                       51
<PAGE>   52


              included in such dividend on AMPS as follows:

<TABLE>
<CAPTION>
                                                Applicable            Applicable
                                                Percentage of         Percentage of
                  Credit Ratings                Reference             Reference
- -------------------------------------------     Rate -                Rate -
       Moody's                    S&P         No Notification         Notification
- ----------------------   ------------------   ---------------         -------------

<S>                      <C>                       <C>                    <C>
"aa3" or higher          AA- or higher             110%                   150%
"a3"  to "a1"            A-  to A+                 125%                   160%
"baa3" to "baa1"         BBB- to BBB+              150%                   250%
Below "baa3"             Below BBB-                200%                   275%
</TABLE>

       The Trust shall take all reasonable action necessary to enable S&P and
Moody's to provide a rating for each series of the AMPS. If either S&P or
Moody's shall not make such a rating available, or neither S&P nor Moody's shall
make such a rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated
or its affiliates and successors, after consultation with the Trust, shall
select a nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations to act as a Substitute Rating Agency
or Substitute Rating Agencies, as the case may be.

              (viii) "Order" has the meaning specified in paragraph 10(b)(i)
       below.

              (ix)   "Sell Order" has the meaning specified in paragraph
       10(b)(i) below.

              (x)    "Submission Deadline" means 1:00 P.M., New York City time,
       on any Auction Date or such other time on any Auction Date as may be
       specified by the Auction Agent from time to time as the time by which
       each Broker-Dealer must submit to the Auction Agent in writing all Orders
       obtained by it for the Auction to be conducted on such Auction Date.

              (xi)   "Submitted Bid" has the meaning specified in paragraph
       10(d)(i) below.

              (xii)  "Submitted Hold Order" has the meaning specified in
       paragraph 10(d)(i) below.

              (xiii) "Submitted Order" has the meaning specified in paragraph
       10(d)(i) below.

              (xiv)  "Submitted Sell Order" has the meaning specified in
       paragraph 10(d)(i) below.


                                       52
<PAGE>   53

              (xv)   "Sufficient Clearing Bids" has the meaning specified in
       paragraph 10(d)(i) below.

              (xvi)  "Winning Bid Rate" has the meaning specified in paragraph
       10(d)(i) below.

       (b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.

              (i)    Unless otherwise permitted by the Trust, Beneficial Owners
       and Potential Beneficial Owners may only participate in Auctions through
       their Broker-Dealers. Broker-Dealers will submit the Orders of their
       respective customers who are Beneficial Owners and Potential Beneficial
       Owners to the Auction Agent, designating themselves as Existing Holders
       in respect of shares subject to Orders submitted or deemed submitted to
       them by Beneficial Owners and as Potential Holders in respect of shares
       subject to Orders submitted to them by Potential Beneficial Owners. A
       Broker-Dealer may also hold AMPS in its own account as a Beneficial
       Owner. A Broker-Dealer may thus submit Orders to the Auction Agent as a
       Beneficial Owner or a Potential Beneficial Owner and therefore
       participate in an Auction as an Existing Holder or Potential Holder on
       behalf of both itself and its customers. On or prior to the Submission
       Deadline on each Auction Date:

              (A)    each Beneficial Owner may submit to its Broker-Dealer
       information as to:

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

                     (2)  the number of Outstanding shares, if any, of AMPS held
              by such Beneficial Owner which such Beneficial Owner desires to
              continue to hold, provided that the Applicable Rate for the next
              succeeding Dividend Period shall not be less than the rate per
              annum specified by such Beneficial Owner; and/or

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


                                       53
<PAGE>   54

              (B)    each Broker-Dealer, using a list of Potential Beneficial
       Owners that shall be maintained in good faith for the purpose of
       conducting a competitive Auction, shall contact Potential Beneficial
       Owners, including Persons that are not Beneficial Owners, on such list to
       determine the number of Outstanding shares, if any, of AMPS which each
       such Potential Beneficial Owner offers to purchase, provided that the
       Applicable Rate for the next succeeding Dividend Period shall not be less
       than the rate per annum specified by such Potential Beneficial Owner.

       For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this paragraph
10(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this paragraph 10(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this paragraph 10(b)(i) is hereinafter referred
to as a "Sell Order." Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.

       (ii)   (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:

                     (1)  the number of Outstanding AMPS specified in such Bid
              if the Applicable Rate determined on such Auction Date shall be
              less than the rate per annum specified in such Bid; or

                     (2)  such number or a lesser number of Outstanding AMPS to
              be determined as set forth in paragraph 10(e)(i)(D) if the
              Applicable Rate determined on such Auction Date shall be equal to
              the rate per annum specified therein; or


                                       54
<PAGE>   55

                     (3)  a lesser number of Outstanding AMPS to be determined
              as set forth in paragraph 10(e)(ii)(C) if such specified rate per
              annum shall be higher than the Maximum Applicable Rate and
              Sufficient Clearing Bids do not exist.

              (B)    A Sell Order by an Existing Holder shall constitute an
       irrevocable offer to sell:

                     (1)  the number of Outstanding AMPS specified in such Sell
              Order; or

                     (2)  such number or a lesser number of Outstanding AMPS to
              be determined as set forth in paragraph 10(e)(ii)(C) if Sufficient
              Clearing Bids do not exist.

              (C)    A Bid by a Potential Holder shall constitute an irrevocable
       offer to purchase:

                     (1)  the number of Outstanding AMPS specified in such Bid
              if the Applicable Rate determined on such Auction Date shall be
              higher than the rate per annum specified in such Bid; or

                     (2)  such number or a lesser number of Outstanding AMPS to
              be determined as set forth in paragraph 10(e)(i)(E) if the
              Applicable Rate determined on such Auction Date shall be equal to
              the rate per annum specified therein.

(c) Submission of Orders by Broker-Dealers to Auction Agent.

       (i)    Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Trust) as an Existing
Holder in respect of shares subject to Orders submitted or deemed submitted to
it by Beneficial Owners and as a Potential Holder in respect of shares subject
to Orders submitted to it by Potential Beneficial Owners, and specifying with
respect to each Order:


                                       55
<PAGE>   56

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

              (B)    the aggregate number of Outstanding AMPS that are the
subject of such Order;

              (C)    to the extent that such Bidder is an Existing Holder:

                     (1)  the number of Outstanding shares, if any, of AMPS
              subject to any Hold Order placed by such Existing Holder;

                     (2)  the number of Outstanding shares, if any, of AMPS
              subject to any Bid placed by such Existing Holder and the rate per
              annum specified in such Bid; and

                     (3)  the number of Outstanding shares, if any, of AMPS
              subject to any Sell Order placed by such Existing Holder; and

              (D)    to the extent such Bidder is a Potential Holder, the rate
       per annum specified in such Potential Holder's Bid.

              (ii)   If any rate per annum specified in any Bid contains more
       than three figures to the right of the decimal point, the Auction Agent
       shall round such rate up to the next highest one-thousandth (.001) of 1%.

              (iii)  If an Order or Orders covering all of the Outstanding AMPS
       held by an Existing Holder are not submitted to the Auction Agent prior
       to the Submission Deadline, the Auction Agent shall deem a Hold Order (in
       the case of an Auction relating to a Dividend Period which is not a
       Special Dividend Period of 28 days or more) and a Sell Order (in the case
       of an Auction relating to a Special Dividend Period of 28 days or more)
       to have been submitted on behalf of such Existing Holder covering the
       number of Outstanding AMPS held by such Existing Holder and not subject
       to Orders submitted to the Auction Agent.

              (iv)   If one or more Orders on behalf of an Existing Holder
       covering in the aggregate more than the number of Outstanding AMPS held
       by such Existing Holder are submitted to the Auction Agent, such Order
       shall be considered valid as follows and in the following order of
       priority:


                                       56
<PAGE>   57

              (A)    any Hold Order submitted on behalf of such Existing Holder
       shall 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 on behalf of 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 shall 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;

              (B)    any Bids submitted on behalf of such Existing Holder shall
       be considered valid, in the ascending order of their respective rates per
       annum if more than one Bid is submitted on behalf of such Existing
       Holder, up to and including the excess of the number of Outstanding AMPS
       held by such Existing Holder over the number of AMPS subject to any Hold
       Order referred to in paragraph 10(c)(iv)(A) above (and if more than one
       Bid submitted on behalf of such Existing Holder specifies the same rate
       per annum and together they cover more than the remaining number of
       shares that can be the subject of valid Bids after application of
       paragraph 10(c)(iv)(A) above and of the foregoing portion of this
       paragraph 10(c)(iv)(B) to any Bid or Bids specifying a lower rate or
       rates per annum, the number of shares subject to each of such Bids shall
       be reduced pro rata so that such Bids, in the aggregate, cover exactly
       such remaining number of shares); and the number of shares, if any,
       subject to Bids not valid under this paragraph 10(c)(iv)(B) shall be
       treated as the subject of a Bid by a Potential Holder; and

              (C)    any Sell Order shall be considered valid up to and
       including the excess of the number of Outstanding AMPS held by such
       Existing Holder over the number of AMPS subject to Hold Orders referred
       to in paragraph 10(c)(iv)(A) and Bids referred to in paragraph
       10(c)(iv)(B); provided that if more than one Sell Order is submitted on
       behalf of 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 shall be reduced pro rata so that such Sell Orders, in
       the aggregate, cover exactly the number of AMPS equal to such excess.


                                       57
<PAGE>   58

              (v)    If more than one Bid is submitted on behalf of any
       Potential Holder, each Bid submitted shall be a separate Bid with the
       rate per annum and number of AMPS therein specified.

              (vi)   Any Order submitted by a Beneficial Owner as 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.

       (d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.

              (i)    Not earlier than the Submission Deadline on each Auction
       Date, the Auction Agent shall assemble all Orders submitted or deemed
       submitted to it by the Broker-Dealers (each such Order as submitted or
       deemed submitted by a Broker-Dealer being hereinafter referred to
       individually as a "Submitted Hold Order," a "Submitted Bid" or a
       "Submitted Sell Order," as the case may be, or as a "Submitted Order")
       and shall determine:

              (A)    the excess of the total number of Outstanding AMPS over the
       number of Outstanding AMPS that are the subject of Submitted Hold Orders
       (such excess being hereinafter referred to as the "Available AMPS");

              (B)    from the Submitted Orders whether the number of Outstanding
       AMPS that are the subject of Submitted Bids by Potential Holders
       specifying one or more rates per annum equal to or lower than the Maximum
       Applicable Rate exceeds or is equal to the sum of:

                     (1)  the number of Outstanding AMPS that are the subject of
              Submitted Bids by Existing Holders specifying one or more rates
              per annum higher than the Maximum Applicable Rate, and

                     (2)  the number of Outstanding AMPS that are subject to
              Submitted Sell Orders (if such excess or such equality exists
              (other than because the number of Outstanding AMPS in clause (1)
              above and this clause (2) are each zero because all of the
              Outstanding AMPS are the subject of Submitted Hold Orders), such
              Submitted Bids by Potential Holders being hereinafter referred to
              collectively as "Sufficient Clearing Bids"); and


                                       58
<PAGE>   59

              (C)    if Sufficient Clearing Bids exist, the lowest rate per
       annum specified in the Submitted Bids (the "Winning Bid Rate") that if:

                     (1)  each Submitted Bid from Existing Holders specifying
              the Winning Bid Rate and all other Submitted Bids from Existing
              Holders specifying lower rates per annum were rejected, thus
              entitling such Existing Holders to continue to hold the AMPS that
              are the subject of such Submitted Bids, and

                     (2)  each Submitted Bid from Potential Holders specifying
              the Winning Bid Rate and all other Submitted Bids from Potential
              Holders specifying lower rates per annum were accepted, thus
              entitling the Potential Holders to purchase the AMPS that are the
              subject of such Submitted Bids, would result in the number of
              shares subject to all Submitted Bids specifying the Winning Bid
              Rate or a lower rate per annum being at least equal to the
              Available AMPS.

              (ii)   Promptly after the Auction Agent has made the
       determinations pursuant to paragraph 10(d)(i), the Auction Agent shall
       advise the Trust of the Maximum Applicable Rate and, based on such
       determinations, the Applicable Rate for the next succeeding Dividend
       Period as follows:

              (A)    if Sufficient Clearing Bids exist, that the Applicable Rate
       for the next succeeding Dividend Period shall be equal to the Winning Bid
       Rate;

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

              (C)    if all of the Outstanding AMPS are the subject of Submitted
       Hold Orders, that the Dividend Period next succeeding the Auction shall
       automatically be the same length as the immediately preceding Dividend
       Period and the Applicable Rate for the next succeeding Dividend Period
       shall be equal to 40% of the Reference Rate (or 60% of such rate if the
       Trust has provided notification to the Auction Agent prior to the Auction
       establishing the Applicable Rate for any dividend pursuant to paragraph
       2(f) hereof that


                                       59
<PAGE>   60

       net capital gains or other taxable income will be included in such
       dividend on AMPS) on the date of the Auction.

       (e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares. Based on the determinations made pursuant to paragraph
10(d)(i), the Submitted Bids and Submitted Sell Orders shall be accepted or
rejected and the Auction Agent shall take such other action as set forth below:

              (i)    If Sufficient Clearing Bids have been made, subject to the
       provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted
       Bids and Submitted Sell Orders shall be accepted or rejected in the
       following order of priority and all other Submitted Bids shall be
       rejected:

              (A)    the Submitted Sell Orders of Existing Holders shall be
       accepted and the Submitted Bid of each of the Existing Holders specifying
       any rate per annum that is higher than the Winning Bid Rate shall be
       accepted, thus requiring each such Existing Holder to sell the
       Outstanding AMPS that are the subject of such Submitted Sell Order or
       Submitted Bid;

              (B)    the Submitted Bid of each of the Existing Holders
       specifying any rate per annum that is lower than the Winning Bid Rate
       shall be rejected, thus entitling each such Existing Holder to continue
       to hold the Outstanding AMPS that are the subject of such Submitted Bid;

              (C)    the Submitted Bid of each of the Potential Holders
       specifying any rate per annum that is lower than the Winning Bid Rate
       shall be accepted;

              (D)    the Submitted Bid of each of the Existing Holders
       specifying a rate per annum that is equal to the Winning Bid Rate shall
       be rejected, thus entitling each such Existing Holder to continue to hold
       the Outstanding AMPS that are the subject of such Submitted Bid, unless
       the number of Outstanding AMPS subject to all such Submitted Bids shall
       be greater than the number of Outstanding AMPS ("Remaining Shares") equal
       to the excess of the Available AMPS over the number of Outstanding AMPS
       subject to Submitted Bids described in paragraph 10(e)(i)(B) and
       paragraph 10(e)(i)(C), in which event the Submitted Bids of each such
       Existing Holder shall be accepted, and each such


                                       60
<PAGE>   61

       Existing Holder shall be required to sell Outstanding AMPS, but only in
       an amount equal to the difference between (1) the number of Outstanding
       AMPS then held by such Existing Holder subject to such Submitted Bid and
       (2) the number of AMPS obtained by multiplying (x) the number of
       Remaining Shares by (y) a fraction the numerator of which shall be the
       number of Outstanding AMPS held by such Existing Holder subject to such
       Submitted Bid and the denominator of which shall be the sum of the number
       of Outstanding AMPS subject to such Submitted Bids made by all such
       Existing Holders that specified a rate per annum equal to the Winning Bid
       Rate; and

              (E)    the Submitted Bid of each of the Potential Holders
       specifying a rate per annum that is equal to the Winning Bid Rate shall
       be accepted but only in an amount equal to the number of Outstanding AMPS
       obtained by multiplying (x) the difference between the Available AMPS and
       the number of Outstanding AMPS subject to Submitted Bids described in
       paragraph 10(e)(i)(B), paragraph 10(e)(i)(C) and paragraph 10(e)(i)(D) by
       (y) 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 sum of the number of Outstanding AMPS subject to such Submitted Bids
       made by all such Potential Holders that specified rates per annum equal
       to the Winning Bid Rate.

              (ii)   If Sufficient Clearing Bids have not been made (other than
       because all of the Outstanding AMPS are subject to Submitted Hold
       Orders), subject to the provisions of paragraph 10(e)(iii), Submitted
       Orders shall be accepted or rejected as follows in the following order of
       priority and all other Submitted Bids shall be rejected:

              (A)    the Submitted Bid of each Existing Holder specifying any
       rate per annum that is equal to or lower than the Maximum Applicable Rate
       shall be rejected, thus entitling such Existing Holder to continue to
       hold the Outstanding AMPS that are the subject of such Submitted Bid;

              (B)    the Submitted Bid of each Potential Holder specifying any
       rate per annum that is equal to or lower than the Maximum Applicable Rate
       shall be accepted, thus requiring such Potential Holder to purchase the
       Outstanding AMPS that are the subject of such Submitted Bid; and



                                       61
<PAGE>   62

              (C)    the Submitted Bids of each Existing Holder specifying any
       rate per annum that is higher than the Maximum Applicable Rate shall be
       accepted and the Submitted Sell Orders of each Existing Holder shall be
       accepted, in both cases only in an amount equal to the difference between
       (1) the number of Outstanding AMPS then held by such Existing Holder
       subject to such Submitted Bid or Submitted Sell Order and (2) the number
       of AMPS obtained by multiplying (x) the difference between the Available
       AMPS and the aggregate number of Outstanding AMPS subject to Submitted
       Bids described in paragraph 10(e)(ii)(A) and paragraph 10(e)(ii)(B) by
       (y) a fraction the numerator of which shall be the number of Outstanding
       AMPS held by such Existing Holder subject to such Submitted Bid or
       Submitted Sell Order and the denominator of which shall be the number of
       Outstanding AMPS subject to all such Submitted Bids and Submitted Sell
       Orders.

              (iii)  If, as a result of the procedures described in paragraph
       10(e)(i) or paragraph 10(e)(ii), any Existing Holder would be entitled or
       required to sell, or any Potential Holder would be entitled or required
       to purchase, a fraction of a share of AMPS on any Auction Date, the
       Auction Agent shall, in such manner as in its sole discretion it shall
       determine, round up or down the number of AMPS to be purchased or sold by
       any Existing Holder or Potential Holder on such Auction Date so that each
       Outstanding share of AMPS purchased or sold by each Existing Holder or
       Potential Holder on such Auction Date shall be a whole share of AMPS.

              (iv)   If, as a result of the procedures described in paragraph
       10(e)(i), any Potential Holder would be entitled or required to purchase
       less than a whole share of AMPS on any Auction Date, the Auction Agent
       shall, in such manner as in its sole discretion it shall determine,
       allocate AMPS for purchase among Potential Holders so that only whole
       AMPS are purchased on such Auction Date by any Potential Holder, even if
       such allocation results in one or more of such Potential Holders not
       purchasing any AMPS on such Auction Date.

              (v)    Based on the results of each Auction, the Auction Agent
       shall determine, with respect to each Broker-Dealer that submitted Bids
       or Sell Orders on behalf of Existing Holders or Potential Holders, the
       aggregate number of Outstanding AMPS to be


                                       62
<PAGE>   63

       purchased and the aggregate number of the Outstanding AMPS to be sold by
       such Potential Holders and Existing Holders and, to the extent that such
       aggregate number of Outstanding shares to be purchased and such aggregate
       number of Outstanding shares to be sold differ, the Auction Agent shall
       determine to which other Broker-Dealer or Broker-Dealers acting for one
       or more purchasers such Broker-Dealer shall deliver, or from which other
       Broker-Dealer or Broker-Dealers acting for one or more sellers such
       Broker-Dealer shall receive, as the case may be, Outstanding AMPS.

       (f) Miscellaneous. The Trust may interpret the provisions of this
paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Beneficial Owners of AMPS. A Beneficial Owner or an
Existing Holder (A) may sell, transfer or otherwise dispose of AMPS only
pursuant to a Bid or Sell Order in accordance with the procedures described in
this paragraph 10 or to or through a Broker-Dealer, provided that in the case of
all transfers other than pursuant to Auctions such Beneficial Owner or Existing
Holder, its Broker-Dealer, if applicable, or its Agent Member advises the
Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the AMPS held by it maintained in book entry form by
the Securities Depository in the account of its Agent Member, which in turn will
maintain records of such Beneficial Owner's beneficial ownership. Neither the
Trust nor any Affiliate shall submit an Order in any Auction. Any Beneficial
Owner that is an Affiliate shall not sell, transfer or otherwise dispose of AMPS
to any Person other than the Trust. All of the Outstanding AMPS of a series
shall be represented by a single certificate registered in the name of the
nominee of the Securities Depository unless otherwise required by law or unless
there is no Securities Depository. If there is no Securities Depository, at the
Trust's option and upon its receipt of such documents as it deems appropriate,
any AMPS may be registered in the Share Register in the name of the Beneficial
Owner thereof and such Beneficial Owner thereupon will be entitled to receive
certificates therefor and required to deliver certificates therefor upon
transfer or exchange thereof.

       11. Securities Depository; Share Certificates. (a) If there is a
Securities Depository, one certificate for all of the AMPS of each series shall
be issued to the Securities Depository and registered in the name of the
Securities Depository or its nominee. Additional certificates may be issued as
necessary to represent AMPS. All such certificates shall bear a legend to the
effect


                                       63
<PAGE>   64

that such certificates are issued subject to the provisions restricting the
transfer of AMPS contained in this Certificate of Designation. Unless the Trust
shall have elected, during a Non-Payment Period, to waive this requirement, the
Trust will also issue stop-transfer instructions to the Auction Agent for the
AMPS. Except as provided in paragraph (b) below, the Securities Depository or
its nominee will be the Holder, and no Beneficial Owner shall receive
certificates representing its ownership interest in such shares.

       (b) If the Applicable Rate applicable to all AMPS of a series shall be
the Non-Payment Period Rate or there is no Securities Depository, the Trust may
at its option issue one or more new certificates with respect to such shares
(without the legend referred to in paragraph 11(a)) registered in the names of
the Beneficial Owners or their nominees and rescind the stop-transfer
instructions referred to in paragraph 11(a) with respect to such shares.

       12. Personal Liability. The Declaration of Trust establishing
MuniHoldings Florida Insured Fund V, dated May 10, 1999, a copy of which,
together with all amendments thereto, is on file in the office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "MuniHoldings
Florida Insured Fund V" refers to the trustees under the Declaration
collectively as trustees, but not as individuals or personally; and no trustee,
shareholder, officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of the Trust, but the "Trust Property" only shall be liable.


                                       64
<PAGE>   65


                       MUNIHOLDINGS FLORIDA INSURED FUND V

                                   CERTIFICATE

       The undersigned hereby certifies that he is the Secretary of MuniHoldings
Florida Insured Fund V, an unincorporated business trust organized and existing
under the laws of The Commonwealth of Massachusetts (the "Trust"), that annexed
hereto is the Certificate of Designation dated      , 1999, establishing the
powers, qualifications, rights and preferences of the Auction Market Preferred
Shares, Series A and the Auction Market Preferred Shares, Series B of the Trust,
which Certificate has been adopted by the Board of Trustees of the Trust in a
manner provided in the Trust's Declaration of Trust.

       Dated this  th day of , 1999.


                                           -----------------------------------
                                           William E. Zitelli, Jr.
                                           Secretary



<PAGE>   1

                                                                  Exhibit (d)(2)

                    Auction Market Preferred Shares, Series A

<TABLE>
<CAPTION>
NUMBER 1                                                     SHARES

                       MUNIHOLDINGS FLORIDA INSURED FUND V

<S>                                                         <C>
ORGANIZED AS A BUSINESS TRUST UNDER THE LAWS                 SEE REVERSE FOR
OF THE COMMONWEALTH OF MASSACHUSETTS                         CERTAIN DEFINITIONS

THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NY             CUSIP #

THIS CERTIFIES THAT
</TABLE>

                                   CEDE & CO.

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE AUCTION MARKET PREFERRED SHARES OF BENEFICIAL
INTEREST, PAR VALUE $.10 PER SHARE, LIQUIDATION PREFERENCE $25,000 PER SHARE
PLUS AN AMOUNT EQUAL TO ACCUMULATED BUT UNPAID DIVIDENDS THEREON (WHETHER OR NOT
EARNED OR DECLARED) OF

                       MUNIHOLDINGS FLORIDA INSURED FUND V

TRANSFERABLE ON THE BOOKS OF SAID TRUST IN PERSON OR BY DULY AUTHORIZED ATTORNEY
UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.

THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT AND
REGISTERED BY THE REGISTRAR.

This certificate and the shares represented hereby are issued and shall be held
subject to all provisions of the Declaration of Trust, dated November 25, 1998
(a copy of which has been filed with the Secretary of State of the Commonwealth
of Massachusetts), and of the By-Laws of the Trust and of all the amendments
from time to timer made thereto. The Declaration of Trust provides that the name
MuniHoldings Florida Insured Fund V refers to the Trustees under the Declaration
collectively as Trustees and not as individuals or personally, and no Trustee,
shareholder, officer, employee or agent of the Trust may be held to any personal
liability, nor may resort be had to their private property for the satisfaction
of any obligation or claim otherwise in connection with the affairs of the Trust
but the Trust property only shall be liable.

IN WITNESS WHEREOF, MUNIHOLDINGS FLORIDA INSURED FUND V HAS CAUSED ITS SEAL TO
BE HERETO AFFIXED AND THIS CERTIFICATE TO BE EXECUTED IN ITS NAME AND BEHALF BY
ITS DULY AUTHORIZED OFFICERS.

Dated:             , 1999

<TABLE>
<S>                                              <C>
Countersigned and Registered:
       IBJ WHITEHALL BANK & TRUST COMPANY         -----------------------------
       (New York)         Transfer Agent          Vice President

By:
   --------------------------------------         -----------------------------
     Authorized Signature                         Secretary
</TABLE>


<PAGE>   2


THE TRANSFER OF THE AUCTION MARKET PREFERRED SHARES REPRESENTED HEREBY IS
SUBJECT TO THE RESTRICTIONS CONTAINED IN THE TRUST'S CERTIFICATE OF DESIGNATION.
THE TRUST WILL FURNISH INFORMATION ABOUT SUCH RESTRICTIONS TO ANY SHAREHOLDER,
WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE TRUST.

                       MUNIHOLDINGS FLORIDA INSURED FUND V

       A full statement of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
class and series of shares of beneficial interest which the Trust is authorized
to issue and the differences in the relative rights and preferences between the
shares of each class and series to the extent that they have been set, and the
authority of the Board of Trustees to set the relative rights and preferences of
subsequent classes and series, will be furnished by the Trust to any
shareholder, without charge, upon request to the Secretary of the Trust at its
principal office.

       The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                          <C>                            <C>
TEN COM-- as tenants in common                 UNIF GIFT MIN ACT--           Custodian
                                                                  -------              ------
TEN ENT-- as tenants by the entireties                             (Cust)              (Minor)
JT TEN -- as joint tenants with right            under Uniform Gifts to
          of survivorship and not as             Minors Act
          tenants in common                                 ---------
                                                             (State)
</TABLE>

       Additional abbreviations also may be used though not in the above list.

For value received,                         hereby sell, assign and transfer
                    -----------------------
unto

Please insert social securities or other identifying number of assignee


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


- -------------------------------------------------------------------------------
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)

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

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

                                                                         shares
- -------------------------------------------------------------------------
of the shares of beneficial interest represented by the within Certificate, and
do hereby irrevocably constitute and appoint

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

Attorney to transfer the said shares on the books of the within named Trust with
full power of substitution in the premises.

Dated:
      ------------------------

      NOTICE:    The Signature to this assignment must correspond with the name
                 as written upon the face of the Certificate in every
                 particular, without alteration or enlargement or any change
                 whatsoever.

<PAGE>   3

                    Auction Market Preferred Shares, Series B

<TABLE>
<CAPTION>
NUMBER 1                                                         SHARES

                       MUNIHOLDINGS FLORIDA INSURED FUND V

<S>                                                         <C>
ORGANIZED AS A BUSINESS TRUST UNDER THE LAWS                 SEE REVERSE FOR
OF THE COMMONWEALTH OF MASSACHUSETTS                         CERTAIN DEFINITIONS

THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NY             CUSIP #

THIS CERTIFIES THAT
</TABLE>

                                   CEDE & CO.

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE AUCTION MARKET PREFERRED SHARES OF BENEFICIAL
INTEREST, PAR VALUE $.10 PER SHARE, LIQUIDATION PREFERENCE $25,000 PER SHARE
PLUS AN AMOUNT EQUAL TO ACCUMULATED BUT UNPAID DIVIDENDS THEREON (WHETHER OR NOT
EARNED OR DECLARED) OF

                       MUNIHOLDINGS FLORIDA INSURED FUND V

TRANSFERABLE ON THE BOOKS OF SAID TRUST IN PERSON OR BY DULY AUTHORIZED ATTORNEY
UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.

THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT AND
REGISTERED BY THE REGISTRAR.

This certificate and the shares represented hereby are issued and shall be held
subject to all provisions of the Declaration of Trust, dated November 25, 1998
(a copy of which has been filed with the Secretary of State of the Commonwealth
of Massachusetts), and of the By-Laws of the Trust and of all the amendments
from time to timer made thereto. The Declaration of Trust provides that the name
MuniHoldings Florida Insured Fund V refers to the Trustees under the Declaration
collectively as Trustees and not as individuals or personally, and no Trustee,
shareholder, officer, employee or agent of the Trust may be held to any personal
liability, nor may resort be had to their private property for the satisfaction
of any obligation or claim otherwise in connection with the affairs of the Trust
but the Trust property only shall be liable.

IN WITNESS WHEREOF, MUNIHOLDINGS FLORIDA INSURED FUND V HAS CAUSED ITS SEAL TO
BE HERETO AFFIXED AND THIS CERTIFICATE TO BE EXECUTED IN ITS NAME AND BEHALF BY
ITS DULY AUTHORIZED OFFICERS.

Dated:                 , 1999
      -----------------

Countersigned and Registered:

<TABLE>
<S>                                                   <C>
       IBJ WHITEHALL BANK & TRUST COMPANY              ------------------------
       (New York)         Transfer Agent               Vice President

By:
    ------------------------------------               ------------------------
      Authorized Signature                             Secretary
</TABLE>


<PAGE>   4

THE TRANSFER OF THE AUCTION MARKET PREFERRED SHARES REPRESENTED HEREBY IS
SUBJECT TO THE RESTRICTIONS CONTAINED IN THE TRUST'S CERTIFICATE OF DESIGNATION.
THE TRUST WILL FURNISH INFORMATION ABOUT SUCH RESTRICTIONS TO ANY SHAREHOLDER,
WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE TRUST.

                       MUNIHOLDINGS FLORIDA INSURED FUND V

       A full statement of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
class and series of shares of beneficial interest which the Trust is authorized
to issue and the differences in the relative rights and preferences between the
shares of each class and series to the extent that they have been set, and the
authority of the Board of Trustees to set the relative rights and preferences of
subsequent classes and series, will be furnished by the Trust to any
shareholder, without charge, upon request to the Secretary of the Trust at its
principal office.

       The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                          <C>                           <C>
TEN COM-- as tenants in common                UNIF GIFT MIN ACT--           Custodian
                                                                 -------              --------
TEN ENT-- as tenants by the entireties                            (Cust)               (Minor)
JT TEN -- as joint tenants with right            under Uniform Gifts to
          of survivorship and not as             Minors Act
          tenants in common                                 ---------
                                                            (State)
</TABLE>

       Additional abbreviations also may be used though not in the above list.

For value received,                         hereby sell, assign and transfer
                    -----------------------
unto

Please insert social securities or other identifying number of assignee


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


- -------------------------------------------------------------------------------
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)

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

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

                                                                        shares
- ------------------------------------------------------------------------
of the shares of beneficial interest represented by the within Certificate, and
do hereby irrevocably constitute and appoint

- -------------------------------------------------------------------------------
Attorney to transfer the said shares on the books of the within named Trust with
full power of substitution in the premises.

Dated:
      ------------------------



                     ------------------------------------------------
             NOTICE: The Signature to this assignment must correspond with the
                     name as written upon the face of the Certificate in every
                     particular, without alteration or enlargement or any change
                     whatsoever.



<PAGE>   1

                                                                  Exhibit (h)(1)

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



                       MUNIHOLDINGS FLORIDA INSURED FUND V

                        (A MASSACHUSETTS BUSINESS TRUST)




                               $
                                -----------------
                         AUCTION MARKET PREFERRED SHARES


                                    SHARES, SERIES A
                            -------
                                    SHARES, SERIES B
                            -------



                               PURCHASE AGREEMENT






Dated:                , 1999
       ---------------

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

<PAGE>   2


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
<S>        <C>                                                                                                   <C>
SECTION 1. Representations and Warranties....................................................................     2

    (a)               Representations and Warranties by the Fund and the Adviser.............................     2
    (b)               Additional Representations of the Adviser..............................................     7
    (c)               Officers' Certificates.................................................................     7

SECTION 2. Sale and Delivery to the Underwriter; Closing.....................................................     8

    (a)               Purchase Price.........................................................................     8
    (b)               Payment................................................................................     8
    (c)               Denominations; Registration............................................................     8

SECTION 3. Covenants of the Fund.............................................................................     8

    (a)               Compliance with Securities Regulations and Commission Requests.........................     8
    (b)               Filing of Amendments...................................................................     9
    (c)               Delivery of Registration Statements....................................................     9
    (d)               Delivery of Prospectus.................................................................     9
    (e)               Continued Compliance with Securities Laws..............................................    10
    (f)               Blue Sky Qualifications................................................................    10
    (g)               Rule 158...............................................................................    10
    (h)               Use of Proceeds........................................................................    10
    (i)               Subchapter M...........................................................................    10
    (j)               Restrictions on Sale of Shares.........................................................    11
SECTION 4. Covenants of the Underwriter......................................................................    11

SECTION 5. Payment of Expenses...............................................................................    11

   (a)               Expenses................................................................................    11
   (b)               Termination of Agreement................................................................    11

SECTION 6. Conditions of Underwriter's Obligations...........................................................    11

   (a)               Effectiveness of Registration Statement.................................................    12
   (b)               Opinion of Counsel for the Fund and the Underwriter.....................................    12
   (c)               Opinion of General Counsel of the Adviser...............................................    12
   (d)               Opinion of Special Florida Counsel to the Fund..........................................    12
   (e)               Officers' Certificates..................................................................    12
   (f)               Accountant's Comfort Letter.............................................................    13
   (g)               Bring-down Comfort Letter...............................................................    13
   (h)               Ratings Letters.........................................................................    13
   (i)               Additional Documents....................................................................    13
   (j)               Termination of Agreement................................................................    13
</TABLE>

                                      (i)
<PAGE>   3

<TABLE>
<S>     <C>                                                                                                     <C>
SECTION 7. Indemnification...................................................................................    13

   (a)               Indemnification of the Underwriter......................................................    13
   (b)               Indemnification of Fund, Adviser, Trustees, General Partner and
                         Officers............................................................................    14
   (c)               Actions against Parties, Notification...................................................    15
   (d)               Settlement without Consent if Failure to Reimburse......................................    15

SECTION 8. Contribution......................................................................................    15

SECTION 9. Representations, Warranties and Agreements to Survive Delivery....................................    17

SECTION 10. Termination of Agreement.........................................................................    17

   (a)               Termination; General....................................................................    17
   (b)               Liabilities.............................................................................    17

SECTION 11. Notices..........................................................................................    17

SECTION 12. Parties..........................................................................................    17

SECTION 13. Governing Law and Time...........................................................................    17

SECTION 14. Liability of Shareholders, Trustees and Officers.................................................    18

SECTION 15. Effect of Headings...............................................................................    18

SCHEDULE A. .................................................................................................    20

EXHIBITS

Exhibit A  -  Form of Opinion of Fund's Counsel..............................................................   A-1
Exhibit B  -  Form of Opinion of General Counsel of the Investment Adviser...................................   B-1
Exhibit C  -  Form of Opinion of Special Florida Counsel to the Fund.........................................   C-1
Exhibit D  -  Form of Accountants' Comfort Letter............................................................   D-1
</TABLE>


                                      (ii)
<PAGE>   4

                       MUNIHOLDINGS FLORIDA INSURED FUND V
                        (a Massachusetts business trust)

                                $
                                 ---------------


                         Auction Market Preferred Shares

                                    Shares, Series A
                             ------
                                    Shares, Series B
                             ------
                   (Liquidation Preference $25,000 per Share)

                               PURCHASE AGREEMENT

                                                                         , 1999
                                                             ------------


MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
              Incorporated
North Tower
World Financial Center
New York, New York  10281-1201

Ladies and Gentlemen:

       MuniHoldings Florida Insured Fund V, a Massachusetts business trust (the
"Fund"), and Fund Asset Management, L.P., a Delaware limited partnership (the
"Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Underwriter"), with respect to the
issue and sale by the Fund and the purchase by the Underwriter of _______
Auction Market Preferred Shares(R), Series A ("Series A AMPS") and ______
Auction Market Preferred Shares, Series B ("Series B AMPS"), each with a par
value of $.10 per share and a liquidation preference $25,000 per share plus an
amount equal to accumulated but unpaid dividends thereon (whether or not earned
or declared), of the Fund (together, the "Shares").

       The Fund understands that the Underwriter proposes to make a public
offering of the Shares as soon as the Underwriter deems advisable after this
Agreement has been executed and delivered.

- ---------------------
(R)    Registered trademark of Merrill Lynch & Co., Inc.

<PAGE>   5

       The Fund has filed with the Securities and Exchange Commission (the
"Commission") a notification on Form N-8A of registration of the Fund as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and a registration statement on Form N-2 (No.
333-78141), including the related preliminary prospectus and preliminary
statement of additional information, for the registration of the Shares under
the Securities Act of 1933, as amended (the "1933 Act"), the Investment Company
Act, and the rules and regulations of the Commission under the 1933 Act and the
Investment Company Act (together, the "Rules and Regulations"), and has filed
such amendments to such registration statement on Form N-2, if any, and such
amended preliminary prospectuses and preliminary statement of additional
information as may have been required to the date hereof. Promptly after
execution and delivery of this Agreement, the Fund will either (i) prepare and
file a prospectus and statement of additional information in accordance with the
provisions of paragraph (c) of Rule 497 ("Rule 497(c)") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations") or
a certificate in accordance with the provisions of paragraph (j) of Rule 497
("Rule 497(j)") of the 1933 Act Regulations, (ii) prepare and file a prospectus
and statement of additional information in accordance with the provisions of
Rule 430A ("Rule 430A") of the 1933 Act Regulations and paragraph (h) of Rule
497 ("Rule 497(h)") of the 1933 Act Regulations, or (iii) if the Fund has
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare
and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule
434 and Rule 497(h). The information included in any such prospectus and
statement of additional information or in any such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus and statement of
additional information used before such registration statement became effective,
and any prospectus and statement of additional information that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus/statement." Such
registration statement, including the exhibits thereto and schedules thereto, if
any, at the time it became effective and including the Rule 430A Information and
the Rule 434 Information, as applicable, is herein called the "Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933
Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final prospectus and final
statement of additional information in the form first furnished to the
Underwriter for use in connection with the offering of the Shares is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus/statement dated ____________, 1999, together
with the applicable Term Sheet and all references in this Agreement to the date
of such Prospectus shall mean the date of the applicable Term Sheet. For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus/statement, the Prospectus, or any Term Sheet or any
amendment or supplement to any of the foregoing shall be deemed to include the
copy filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR").

       All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any

                                       2
<PAGE>   6

preliminary prospectus/statement, or the Prospectus (or other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information which is incorporated by reference in the
Registration Statement, any preliminary prospectus/statement, or the Prospectus,
as the case may be.

       SECTION 1. Representations and Warranties.

       (a)    Representations and Warranties by the Fund and the Adviser. The
Fund and the Adviser each severally represents and warrants to the Underwriter
as of the date hereof, as of the Closing Time referred to in Section 2(c)
hereof and as of the Date of Delivery (if any) referred to in Section 2(b)
hereof, and agrees with the Underwriter, as follows:

              (i)     Compliance with Registration Requirements. The Fund meets
       the requirements for use of Form N-2 under the 1933 Act. Each of the
       Registration Statement and any Rule 462(b) Registration Statement has
       become effective under the 1933 Act and no stop order suspending the
       effectiveness of the Registration Statement or any Rule 462(b)
       Registration Statement has been issued under the 1933 Act and no
       proceedings for that purpose have been instituted or are pending or, to
       the knowledge of the Fund, are contemplated by the Commission, and any
       request on the part of the Commission for additional information has
       been complied with. If required, the Fund has received any orders
       exempting the Fund from any provisions of the Investment Company Act.

              (ii)    At the respective times the Registration Statement, any
       Rule 462(b) Registration Statement and any post-effective amendments
       thereto became effective and at the Closing Time the Registration
       Statement, the Rule 462(b) Registration Statement and any amendments or
       supplements thereto complied and will comply in all material respects
       with the requirements of the 1933 Act, the Investment Company Act and
       the Rules and Regulations and did not and will not contain an untrue
       statement of a material fact or omit to state a material fact required
       to be stated therein or necessary to make the statements therein not
       misleading. Neither the Prospectus, nor any amendments or supplements
       thereto, at the time the Prospectus or any amendments or supplements
       thereto were issued and at the Closing Time included or will include an
       untrue statement of a material fact or omitted or will omit to state a
       material fact necessary in order to make the statements therein, in the
       light of the circumstances under which they were made, not misleading.
       The representations and warranties in this subsection shall not apply to
       statements in or omissions from the Registration Statement or the
       Prospectus made in reliance upon and in conformity with information
       furnished to the Fund in writing by the Underwriter expressly for use in
       the Registration Statement or in the Prospectus. If Rule 434 is used,
       the Fund will comply with the requirements of Rule 434.

              (iii)   Each preliminary prospectus/statement and the prospectus
       and statement of additional information filed as part of the
       Registration Statement as originally filed or as part of any amendment
       thereto, or filed pursuant to Rule 497(c) or Rule 497(h) under the 1933
       Act, complied when so filed in all material respects with the Rules and
       Regulations and each preliminary prospectus/statement and the Prospectus
       delivered to the Underwriter for use in connection with this offering
       was identical to the electronically

                                       3
<PAGE>   7

       transmitted copies thereof filed with the Commission pursuant to EDGAR,
       except to the extent permitted by Regulation S-T.

              (iv)    Independent Accountants. The accountants who certified
       the financial statements and supporting schedules, if any, included in
       the Registration Statement are independent public accountants as
       required by the 1933 Act and the Rules and Regulations.

              (v)     Financial Statements. The financial statements, included
       in the Registration Statement and Prospectus, together with the related
       schedules and notes, present fairly the financial position of the Fund
       at the date indicated and said statements have been prepared in
       conformity with generally accepted accounting principles ("GAAP")
       applied on a consistent basis throughout the period involved. The
       supporting schedules, if any, included in the Registration Statement
       present fairly, in accordance with GAAP the information required to be
       stated therein. The information under the headings "Description of
       Capital Shares" and "Portfolio Composition" has been fairly presented.

              (vi)    No Material Adverse Change in Business. Since the
       respective dates as of which information is given in the Registration
       Statement and in the Prospectus, except as otherwise stated therein, (A)
       there has been no material adverse change in the condition, financial or
       otherwise, or in the earnings, business affairs or business prospects of
       the Fund, whether or not arising in the ordinary course of business (a
       "Material Adverse Effect"), (B) there have been no transactions entered
       into by the Fund, other than those in the ordinary course of business,
       which are material with respect to the Fund and (C) except for regular
       monthly dividends and special year end distributions related to the
       Fund's qualification as a regulated investment company under Subchapter
       M of the Internal Revenue Code of 1986, as amended ("Subchapter M of the
       Code"), on the outstanding common shares, par value $.10 per share (the
       "Common Shares") of the Fund, there has been no dividend or distribution
       of any kind declared, paid or made by the Fund on any class of its
       capital shares.

              (vii)   Good Standing of the Fund. The Fund has been duly
       organized and is validly existing as a voluntary association (commonly
       referred to as a business trust) under the laws of the Commonwealth of
       Massachusetts and has power and authority to own, lease and operate its
       properties and to conduct its business as described in the Prospectus
       and to enter into and perform its obligations under this Agreement; and
       the Fund is duly qualified to transact business and is in good standing
       in each jurisdiction in which such qualification is required, whether by
       reason of the ownership or leasing of property or the conduct of
       business, except where the failure so to qualify or to be in good
       standing would not result in a Material Adverse Effect.

              (viii)  Subsidiaries. The Fund has no subsidiaries.

              (ix)    Capitalization. The authorized, issued and outstanding
       capital shares of the Fund is as set forth in the Prospectus under the
       caption "Description of Capital Shares." The outstanding Common Shares
       have been duly authorized and validly issued

                                       4
<PAGE>   8

       and are fully paid and non-assessable and the Common Shares conforms to
       all statements relating thereto contained in the Prospectus and such
       description conforms to the rights set forth in the instruments defining
       the same.

              (x)      Investment Company Act. The Fund is registered with the
       Commission under the Investment Company Act as a closed-end,
       non-diversified, management investment company, and no order of
       suspension or revocation of such registration has been issued or
       proceedings therefor initiated or threatened by the Commission.

              (xi)     Authorization and Description of Shares. The Shares to be
       purchased by the Underwriter from the Fund have been duly authorized for
       issuance and sale to the Underwriter pursuant to this Agreement, and,
       when issued and delivered by the Fund pursuant to this Agreement against
       payment of the consideration set forth in this Agreement will be validly
       issued, fully paid and non-assessable (except for certain possible
       liability of shareholders described in the Prospectus under "Description
       of Capital Shares"); the Shares conform to all statements relating
       thereto contained in the Prospectus and such description conforms to the
       rights set forth in the instruments defining the same; no holder of the
       Shares will be subject to personal liability by reason of being such a
       holder (except for certain possible liability of shareholders described
       in the Prospectus under "Description of Capital Shares"); and the
       issuance of the Shares is not subject to the preemptive or other similar
       rights of any securityholder of the Fund.

              (xii)    Absence of Defaults and Conflicts. The Fund is not in
       violation of its declaration of trust or by-laws or in default in the
       performance or observance of any obligation, agreement, covenant or
       condition contained in any material contract, indenture, mortgage, deed
       of trust, loan or credit agreement, note, lease or other agreement or
       instrument to which the Fund is a party or by which it or its properties
       may be bound, or to which any of the property or assets of the Fund is
       subject (collectively, "Agreements and Instruments"), except for such
       defaults that would not result in a Material Adverse Effect; and the
       execution, delivery and performance of this Agreement, the Investment
       Advisory Agreement, the Custody Agreement, the Auction Agent Agreement
       and the Letter of Representations referred to in the Registration
       Statement (as used herein, the "Advisory Agreement", the "Custody
       Agreement," the "Auction Agreement" and the "Letter of Representations"
       respectively) and the consummation of the transactions contemplated in
       this Agreement and in the Registration Statement (including the issuance
       and sale of the Shares and the use of the proceeds from the sale of the
       Shares as described in the Prospectus under the caption "Use of
       Proceeds") and compliance by the Fund with its obligations under this
       Agreement have been duly authorized by all necessary corporate action
       and do not and will not, whether with or without the giving of notice or
       passage of time or both, conflict with or constitute a breach of, or a
       default or Repayment Event (as defined below) under, or result in the
       creation or imposition of any lien, charge or encumbrance upon any
       property or assets of the Fund pursuant to the Agreements and
       Instruments (except for such conflicts, breaches or defaults or liens,
       charges or encumbrances that would not result in a Material Adverse
       Effect), nor will such action result in any violation of the provisions
       of the declaration of trust or the by-laws of the Fund, or any
       applicable law, statute, rule, regulation, judgment, order, writ or
       decree of any government, government instrumentality or court, domestic

                                       5
<PAGE>   9

       or foreign, having jurisdiction over the Fund or any of its assets,
       properties or operations. As used herein, a "Repayment Event" means any
       event or condition which gives the holder of any note, debenture or other
       evidence of indebtedness (or any person acting on such holder's behalf)
       the right to require the repurchase, redemption or repayment of all or a
       portion of such indebtedness by the Fund.

              (xiii)  Authorization of Agreements. Each of this Agreement,
       the Advisory Agreement and the Custody Agreement has been duly
       authorized, executed and delivered by the Fund, and each complies with
       all applicable provisions of the Investment Company Act. Each of the
       Auction Agreement and the Letter of Representations has been duly
       authorized for execution and delivery by the Fund and, when executed and
       delivered by the Fund, will constitute a valid and binding obligation of
       the Fund, enforceable in accordance with its terms, subject, as to
       enforcement, to bankruptcy, insolvency, reorganization or other laws
       relating to or affecting creditors' rights and to general equitable
       principles.

              (xiv)   Absence of Proceedings. There is no action, suit,
       proceeding, inquiry or investigation before or brought by any court or
       governmental agency or body, domestic or foreign, now pending, or, to
       the knowledge of the Fund, threatened against or affecting the Fund,
       which is required to be disclosed in the Registration Statement (other
       than as disclosed therein), or which might reasonably be expected to
       result in a Material Adverse Effect, or which might reasonably be
       expected to materially and adversely affect the properties or assets
       thereof or the consummation of the transactions contemplated in this
       Agreement or the performance by the Fund of its obligations hereunder;
       the aggregate of all pending legal or governmental proceedings to which
       the Fund is a party or of which any of its respective property or assets
       is the subject which are not described in the Registration Statement,
       including ordinary routine litigation incidental to the business, could
       not reasonably be expected to result in a Material Adverse Effect.

              (xv)    Subchapter M Compliance. The Fund intends to, and will,
       direct the investment of the proceeds of the offering described in the
       Registration Statement in such a manner as to comply with the
       requirements of Subchapter M of the Code, and intends to qualify as a
       regulated investment company under Subchapter M of the Code.

              (xvi)   Accuracy of Exhibits. There are no contracts or
       documents which are required to be described in the Registration
       Statement or the Prospectus or to be filed as exhibits thereto which
       have not been so described and filed as required.

              (xvii)  Possession of Intellectual Property. The Fund owns or
       possesses, or can acquire on reasonable terms, adequate patents, patent
       rights, licenses, inventions, copyrights, know-how (including trade
       secrets and other unpatented and/or unpatentable proprietary or
       confidential information, systems or procedures), trademarks, service
       marks, trade names or other intellectual property (collectively,
       "Intellectual Property") necessary to carry on the business now operated
       by it, and the Fund has not received any notice or is otherwise aware of
       any infringement or conflict with asserted rights of others with respect
       to any Intellectual Property or of any facts or circumstances which
       would render any Intellectual Property invalid or inadequate to protect
       the interest of the Fund

                                       6
<PAGE>   10

       therein, and which infringement or conflict (if the subject of any
       unfavorable decision, ruling or finding) or invalidity or inadequacy,
       singly or in the aggregate, would result in a Material Adverse Effect.

              (xviii) Absence of Further Requirements. No filing with, or
       authorization, approval, consent, license, order, registration,
       qualification or decree of, any court or governmental authority or agency
       is necessary or required for the performance by the Fund of its
       obligations hereunder, in connection with the offering, issuance or sale
       of the Shares under this Agreement or the consummation of the
       transactions contemplated by this Agreement, except such as have been
       already obtained or as may be required under the 1933 Act or the 1940 Act
       or the Rules and Regulations and foreign or state securities or blue sky
       laws.

              (xix)   Possession of Licenses and Permits. The Fund possesses
       such permits, licenses, approvals, consents and other authorizations
       (collectively, "Governmental Licenses") issued by the appropriate
       federal, state, local or foreign regulatory agencies or bodies necessary
       to conduct the business now operated by it; the Fund is in compliance
       with the terms and conditions of all such Governmental Licenses, except
       where the failure so to comply would not, singly or in the aggregate,
       have a Material Adverse Effect; all of the Governmental Licenses are
       valid and in full force and effect, except when the invalidity of such
       Governmental Licenses or the failure of such Governmental Licenses to be
       in full force and effect would not have a Material Adverse Effect; and
       the Fund has not received any notice of proceedings relating to the
       revocation or modification of any such Governmental Licenses which,
       singly or in the aggregate, if the subject of an unfavorable decision,
       ruling or finding, would result in a Material Adverse Effect.

       (b)    Additional Representations of the Adviser. The Adviser represents
and warrants to the Underwriter as of the date hereof and as of the
Representation Date as follows:

              (i)    Organization and Authority of Adviser. The Adviser has
       been duly organized as a limited partnership under the laws of the State
       of Delaware, with power and authority to conduct its business as
       described in the Registration Statement and the Prospectus.

              (ii)    Investment Advisers Act. The Adviser is duly registered
       as an investment adviser under the Investment Advisers Act of 1940, as
       amended (the "Investment Advisers Act"), and is not prohibited by the
       Investment Advisers Act or the Investment Company Act, or the rules and
       regulations under such acts, from acting under the Advisory Agreement
       for the Fund as contemplated by the Registration Statement and the
       Prospectus.

              (iii)    Authorization of Agreements. This Agreement has been
       duly authorized, executed and delivered by the Adviser; the Advisory
       Agreement has been duly authorized, executed and delivered by the
       Adviser and constitutes a valid and binding obligation of the Adviser,
       enforceable in accordance with its terms, subject, as to enforcement, to
       bankruptcy, insolvency, reorganization or other laws relating to or


                                       7
<PAGE>   11

       affecting creditors' rights and to general equitable principles; and
       neither the execution and delivery of this Agreement or the Advisory
       Agreement, nor the performance by the Adviser of its obligations
       hereunder or thereunder will conflict with, or result in a breach of any
       of the terms and provisions of, or constitute, with or without the giving
       of notice or the lapse of time or both, a default under, any agreement or
       instrument to which the Adviser is a party or by which it is bound, or
       any law, order, rule or regulation applicable to it of any jurisdiction,
       court, Federal or state regulatory body, administrative agency or other
       governmental body, stock exchange or securities association having
       jurisdiction over the Adviser or its respective properties or operations.

              (iv)    Financial Resources. The Adviser has the financial
       resources available to it necessary for the performance of its services
       and obligations as contemplated in the Registration Statement and the
       Prospectus.

       (c)    Officers' Certificates. Any certificate signed by any officer of
the Fund or any officer of the Adviser delivered to the Underwriter or to
counsel for the Fund and the Underwriter shall be deemed a representation and
warranty by the Fund or the Adviser, as the case may be, to the Underwriter as
to the matters covered thereby.

       SECTION 2.  Sale and Delivery to the Underwriter; Closing.

       (a)    Purchase Price. On the basis of the representations and
warranties herein contained, and subject to the terms and conditions herein set
forth, the Fund agrees to sell to the Underwriter and the Underwriter agrees to
purchase from the Fund the Shares at the price per share set forth in Schedule
A.

       (b)    Payment. Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the offices of Brown & Wood LLP,
One World Trade Center, New York, New York 10048-0557, or at such other place
as shall be agreed upon by the Underwriter and the Fund, at 9:00 A.M. (Eastern
time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern
time) on any given day) business day following the date hereof, or such other
time not later than ten business days after such date as shall be agreed upon
by the Underwriter and the Fund (such time and date of payment and delivery
herein being referred to as "Closing Time").

       Payment shall be made to the Fund by wire transfer of immediately
available funds to a bank account designated by the Fund, against delivery to
the Underwriter of certificates for the Shares to be purchased by it.

       (c)    Denominations; Registration. The Shares shall be represented by
certificates registered in the name of Cede & Co., as nominee for The
Depository Trust Company. The certificates for the Shares will be made
available for examination by the Underwriter not later than 10:00 A.M. on the
last business day prior to Closing Time.

       SECTION 3. Covenants of the Fund. The Fund covenants with the Underwriter
as follows:

       (a)    Compliance with Securities Regulations and Commission Requests.
The Fund, subject to Section 3(b), will comply with the requirements of Rule
430A or Rule 434, as


                                       8
<PAGE>   12

applicable, and will notify the Underwriter immediately, and confirm the notice
in writing, (i) if any post-effective amendment to the Registration Statement
shall have become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus/statement, or of
the suspension of the qualification of the Shares for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes, and (v) of the issuance by the Commission of an order of
suspension or revocation of the notification on Form N-8A of registration of the
Fund as an investment company under the Investment Company Act or the initiation
of any proceeding for that purpose. The Fund will make every reasonable effort
to prevent the issuance of any stop order described in subsection (iv) hereunder
or any order of suspension or revocation described in subsection (v) hereunder
and, if any such stop order or order of suspension or revocation is issued, to
obtain the lifting thereof at the earliest possible moment. The Fund will
promptly effect the filings necessary pursuant to Rule 497(c), Rule 497(j) or
Rule 497(h) and will take such steps as it deems necessary to ascertain promptly
whether the certificate transmitted for filing under Rule 497(j) or the form of
prospectus and statement of additional information transmitted for filing under
Rule 497(c) or Rule 497(h) was received for filing by the Commission and, in the
event that it was not, it will promptly file such certificate or prospectus and
statement of additional information.

       (b)    Filing of Amendments. The Fund will give the Underwriter notice
of its intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment or filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus or
statement of additional information included in the Registration Statement at
the time it became effective or to the Prospectus, whether pursuant to the
Investment Company Act, the 1933 Act, or otherwise, and will furnish the
Underwriter with copies of any such documents a reasonable amount of time prior
to such proposed filing or use, as the case may be, and will not file or use
any such document to which the Underwriter or counsel to the Underwriter and
the Fund shall object.

       (c)    Delivery of Registration Statements. The Fund has furnished or
will deliver to the Underwriter and counsel to the Underwriter and the Fund,
without charge, signed copies of the notification of registration on Form N-8A
and Registration Statement as originally filed and of each amendment thereto,
(including exhibits filed therewith, or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will also
deliver to the Underwriter a conformed copy, without charge, of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) for the Underwriter. The copies of the Registration
Statement and each amendment thereto furnished to the Underwriter will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

       (d)    Delivery of Prospectus. The Fund has delivered to the
Underwriter, without charge, as many copies of each preliminary
prospectus/statement as the Underwriter reasonably requested, and the Fund
hereby consents to the use of such copies for purposes permitted by the


                                       9

<PAGE>   13
1933 Act. The Fund will furnish to the Underwriter, without charge, during the
period when the Prospectus is required to be delivered under the 1933 Act, such
number of copies of the Prospectus (as amended or supplemented) as the
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Underwriter will be identical to the
electronically transmitted copies thereof field with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.

       (e)    Continued Compliance with Securities Laws. The Fund will comply
with the 1933 Act, the Investment Company Act and the Rules and Regulations so
as to permit the completion of the distribution of the Shares as contemplated
in this Agreement and in the Prospectus. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Shares, any event shall occur or condition shall exist as a result of which it
is necessary, in the opinion of counsel to the Underwriter and the Fund, to
amend the Registration Statement or amend or supplement any Prospectus in order
that the Prospectus will not include any untrue statements of material fact or
omit to state a material fact necessary in order to make the statements therein
not misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of such
counsel, at any such time to amend the Registration Statement or amend or
supplement any Prospectus in order to comply with the requirements of the 1933
Act or the 1933 Act Regulations, the Fund will promptly prepare and file with
the Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Fund will
furnish to the Underwriter such number of copies of such amendment or
supplement as the Underwriter may reasonably request.

       (f)    Blue Sky Qualifications. The Fund will use its best efforts, in
cooperation with the Underwriter, to qualify the Shares for offering and sale
under the applicable securities laws of such states and other jurisdictions as
the Underwriter may designate and to maintain such qualifications in effect for
a period of not less than one year from the later of the effective date of the
Registration Statement and any Rule 462(b) Registration Statement; provided,
however, that the Fund shall not be obligated to file any general consent to
service of process or to qualify as a dealer in securities in any jurisdiction
in which it is not so qualified or to subject itself to taxation in respect of
doing business in any jurisdiction in which it is not otherwise so subject. In
each jurisdiction in which the Shares have been so qualified, the Fund will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any
Rule 462(b) Registration Statement.

       (g)    Rule 158. The Fund will timely file such reports pursuant to the
Investment Company Act as are necessary in order to make generally available to
its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.

       (h)    Use of Proceeds. The Fund will use the net proceeds received by
it from the sale of the Shares in the manner specified in the Prospectus under
"Use of Proceeds."


                                       10


<PAGE>   14

       (i)    Subchapter M. The Fund will use its best efforts to maintain its
qualification as a regulated investment company under Subchapter M of the Code.

       (j)    Restrictions on Sale of Shares. During a period of 180 days from
the date of the Prospectus, the Fund will not, without your prior written
consent, directly or indirectly (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or dispose
of any senior security of the Fund, as defined in Section 18 of the Investment
Company Act, or file any registration statement under the 1933 Act with respect
to any of the foregoing or (ii) enter into any swap or any other agreement or
any transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of senior securities, whether any such
swap or transaction described in clause (i) or (ii) above is to be settled by
delivery of senior securities, in cash or otherwise. The foregoing sentence
shall not apply to (A) the Shares to be sold hereunder or (B) transactions as
contemplated in the Registration Statement where the Fund has segregated cash,
cash equivalents or liquid securities at the Fund's custodian having a market
value at all times at least equal to the amount of such senior securities.

       SECTION 4. Covenants of the Underwriter. The Underwriter covenants and
agrees with the Fund that no later than the second business day succeeding
Closing Time, it will provide the Fund and the Auction Agent (as defined in the
Prospectus) with a listing of Existing Holders (as defined in the Prospectus) of
Shares, the number of Shares held by each such Existing Holder and the number of
Shares it is holding as Underwriter as of the date of such notice.

       SECTION 5. Payment of Expenses.

       (a)    Expenses. The Fund will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriter of this
Agreement and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Shares, (iii) the
preparation, issuance and delivery of the certificates for the Shares to the
Underwriter, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Shares to the
Underwriter, (iv) the fees and disbursements of the Fund's counsel, accountants
and other advisors, (v) the qualification of the Shares under the securities
laws in accordance with the provisions of Section 3(f) hereof, including filing
fees and the reasonable fees and disbursements of counsel to the Underwriter
and the Fund in connection therewith and in connection with the preparation of
the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery
to the Underwriter of copies of each preliminary prospectus/statement, any Term
Sheets and of the Prospectus and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriter of copies of the Blue
Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Shares, and (ix) the fees charged by rating
agencies rating the Shares.

       (b)    Termination of Agreement. If this Agreement is terminated by the
Underwriter in accordance with the provisions of Section 6 or Section 10(a)(i)
hereof, the Fund or the Adviser

                                       11
<PAGE>   15

shall reimburse the Underwriter for all of its out-of-pocket expenses, including
the reasonable fees and disbursements of counsel to the Fund and the
Underwriter.

       SECTION 6. Conditions of Underwriter's Obligations. The obligations of
the Underwriter hereunder are subject to the accuracy of the representations and
warranties of the Fund and the Adviser contained in Section 1 hereof, or in the
certificates of any officer of the Fund and the Adviser delivered pursuant to
the provisions hereof, to the performance by the Fund and the Adviser of their
respective covenants and obligations hereunder, and to the following further
conditions:

       (a)    Effectiveness of Registration Statement. The Registration
Statement including any Rule 462(b) Registration Statement has become effective
and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriter and the Fund. Either
(i) a certificate has been filed with the Commission in accordance with Rule
497(j) or a prospectus and statement of additional information have been filed
with the Commission in accordance with Rule 497(c), or (ii) a prospectus and
statement of additional information containing the Rule 430A Information shall
have been filed with the Commission in accordance with Rule 497(h) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if the
Fund has elected to rely upon Rule 434, a Term Sheet shall have been filed with
the Commission in accordance with Rule 497(h).

       (b)    Opinion of Counsel for the Fund and the Underwriter. At Closing
Time, the Underwriter shall have received the favorable opinion, dated as of
Closing Time, of Brown & Wood LLP, counsel to the Fund and the Underwriter, to
the effect set forth in Exhibit A hereto. In giving their opinion, Brown & Wood
LLP may rely as to matters involving the laws of the Commonwealth of
Massachusetts upon the opinion of Bingham Dana LLP.

       (c)    Opinion of General Counsel of the Adviser. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Michael J. Hennewinkel, Esq., General Counsel to the Adviser, or a
senior attorney of the Adviser, in form and substance satisfactory to counsel
to the Underwriter, to the effect set forth in Exhibit B hereto and to such
further effect as counsel to the Underwriter may reasonably request.

       (d)    Opinion of Special Florida Counsel to the Fund. At Closing Time,
the Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Holland & Knight LLP, special Florida counsel to the Fund, to the
effect set forth in Exhibit C hereto.

       (e)    Officers' Certificates. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Fund, whether or not arising in the ordinary course
of business, and the Underwriter shall have received (A) a certificate of the
President or a Vice President of the Fund, dated as of Closing Time, to the
effect that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true

                                       12
<PAGE>   16

and correct with the same force and effect as though expressly made at and as of
Closing Time, (iii) the Fund has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to Closing Time,
and (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission and (B) a
certificate of the President or a Vice President of the Adviser, dated as of
Closing Time, to the effect that (i) the representations and warranties in
Sections 1(a) and 1(b) hereof are true and correct with the same force and
effect as though expressly made at and as of Closing Time, and (ii) the Adviser
has complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time.

       (f)    Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Underwriter shall have received from ________________ a letter,
dated such date, in form and substance satisfactory to the Underwriter
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus, to the effect set forth in Exhibit D hereto and
to such further effect as counsel to the Underwriter may reasonably request.

       (g)    Bring-down Comfort Letter. At Closing Time, the Underwriter shall
have received from _________________ a letter, dated as of Closing Time, to the
effect that they reaffirm the statements made in the letter, furnished pursuant
to subsection (f) of this Section, except that the "specified date" referred to
shall be a date not more than three business days prior to Closing Time.

       (h)    Ratings Letters. At Closing Time, Standard & Poor's ("S&P") and
Moody's Investors Services, Inc. ("Moody's") shall have confirmed by letter
that the Shares have been rated AAA and "aaa," respectively, by such agencies.

       (i)    Additional Documents. At Closing Time, counsel to the Fund and
the Underwriter shall have been furnished with such documents and opinions as
it may require for the purpose of enabling it to pass upon the issuance and
sale of the Shares as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Fund in
connection with the issuance and sale of the Shares as herein contemplated
shall be satisfactory in form and substance to the Underwriter and counsel to
the Fund and the Underwriter.

       (j)    Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the Underwriter by notice to the Fund at
any time at or prior to Closing Time and such termination shall be without
liability of any party to any other party except as provided in Section 5 and
except that Sections 1, 7, 8 and 9 shall survive any such termination and
remain in full force and effect.

                                       13
<PAGE>   17

       SECTION 7. Indemnification.

       (a)    Indemnification of the Underwriter. (1) The Fund and the Adviser
jointly and severally agree to indemnify and hold harmless the Underwriter and
each person, if any, who controls the Underwriter within the meaning of Section
15 of the 1933 Act as follows:

              (i)    against any and all loss, liability, claim, damage and
       expense whatsoever, as incurred, arising out of any untrue statement or
       alleged untrue statement of a material fact contained in the
       Registration Statement (or any amendment thereto), including the Rule
       430A Information and the Rule 434 Information, if applicable, or the
       omission or alleged omission therefrom of a material fact required to be
       stated therein or necessary to make the statements therein not
       misleading or arising out of any untrue statement or alleged untrue
       statement of a material fact included in any preliminary
       prospectus/statement or the Prospectus (or any amendment or supplement
       thereto), or the omission or alleged omission therefrom of a material
       fact necessary in order to make the statements therein, in the light of
       the circumstances under which they were made, not misleading;

              (ii)    against any and all loss, liability, claim, damage and
       expense whatsoever, as incurred, to the extent of the aggregate amount
       paid in settlement of any litigation, or any investigation or proceeding
       by any governmental agency or body, commenced or threatened, or of any
       claim whatsoever based upon any such untrue statement or omission,
       provided that (subject to Section 7(d) below) any such settlement is
       effected with the written consent of the indemnifying party; and

              (iii)    against any and all expense whatsoever, as incurred
       (including the fees and disbursements of counsel chosen by the
       Underwriter) reasonably incurred in investigating, preparing or
       defending against any litigation, or any investigation or proceeding by
       any governmental agency or body, commenced or threatened, or any claim
       whatsoever based upon any such untrue statement or omission, or any such
       alleged untrue statement or omission, to the extent that any such
       expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund by the
Underwriter expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information, if
applicable, or any preliminary prospectus/statement or the Prospectus (or any
amendment or supplement thereto).

       (2)    Insofar as this indemnity agreement may permit indemnification
for liabilities under the 1933 Act of any person who is a partner of the
Underwriter or who controls the Underwriter within the meaning of Section 15 of
the 1933 Act and who, at the date of this Agreement, is a trustee or officer of
the Fund or controls the Fund within the meaning of Section

                                       14
<PAGE>   18

15 of the 1933 Act, such indemnity agreement is subject to the undertaking of
the Fund in the Registration Statement under Item 29 thereof.

       (b)    Indemnification of Fund, Adviser, Trustees, General Partner and
Officers. The Underwriter agrees to indemnify and hold harmless the Fund, the
Adviser, the trustees of the Fund, the general partner of the Adviser, each of
the Fund's officers who signed the Registration Statement, and each person, if
any, who controls the Fund or the Adviser within the meaning of Section 15 of
the 1933 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) including the Rule 430A Information and the Rule 434
Information, if applicable, or in any preliminary prospectus/statement or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Fund by the Underwriter
expressly for use in the Registration Statement (or any amendment thereto), or
any preliminary prospectus/statement or the Prospectus (or any amendment or
supplement thereto).

       (c)    Actions against Parties, Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it
is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. In the case of parties indemnified pursuant to
Section 7(a) above, counsel to the indemnified parties shall be selected by the
Underwriter, and, in the case of parties indemnified pursuant to Section 7(b)
above, counsel to the indemnified parties shall be selected by the Fund and the
Adviser. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties be
liable for the fees and expenses of more than one counsel (in addition to any
local counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 7 or Section 8 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.

       (d)    Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7 (a)(ii) effected without its written consent
if

                                       15
<PAGE>   19

(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.

       SECTION 8. Contribution. If the indemnification provided for in Section 7
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Fund and the
Adviser on the one hand and the Underwriter on the other hand from the offering
of the Shares pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Fund and the Adviser on the one hand
and of the Underwriter on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.

       The relative benefits received by the Fund and the Adviser on the one
hand and the Underwriter on the other hand in connection with the offering of
the Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Shares
pursuant to this Agreement (net of underwriting discounts and commissions but
before deducting expenses) received by the Fund, and the total underwriting
discount received by the Underwriter, in each case as set forth on the cover of
the Prospectus, or, if Rule 434 is used, the corresponding location on the Term
Sheet, bear to the aggregate initial public offering price of the Shares as set
forth on such cover.

       The relative fault of the Fund and the Adviser on the one hand and the
Underwriter on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Fund and the Adviser or by the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

       The Fund, the Adviser and the Underwriter agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.

       Notwithstanding the provisions of this Section 8, the Underwriter shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Shares

                                       16
<PAGE>   20

underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which the Underwriter has otherwise been
required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.

       No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

       For purposes of this Section 8, each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Underwriter, and each director of the Fund and the
Adviser, respectively, each officer of the Fund who signed the Registration
Statement and each person, if any, who controls the Fund and the Adviser within
the meaning of Section 15 of the 1933 Act, shall have the same rights to
contribution as the Fund and the Adviser.

       SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Fund or of the Adviser submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter or controlling
person, or by or on behalf of the Fund or the Adviser and shall survive delivery
of the Shares to the Underwriter.

       SECTION 10. Termination of Agreement.

       (a)    Termination; General. The Underwriter may terminate this
Agreement by notice to the Fund, at any time at or prior to Closing Time (i) if
there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Fund or the Adviser,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or the international financial markets, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political,
financial or economic conditions, in each case the effect of which is such as
to make it, in the judgment of the Underwriter, impracticable to market the
Shares or to enforce contracts for the sale of the Shares, or (iii) if trading
in any securities of the Fund has been suspended or materially limited by the
Commission or the New York Stock Exchange, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq
National Market has been suspended or materially limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices for securities
have been required, by any of said exchanges or by such system or by order of
the Commission, the National Association of Securities Dealers, Inc. or any
other governmental authority, or (iv) if a banking moratorium has been declared
by either Federal or New York authorities.

       (b)    Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in


                                       17
<PAGE>   21

Section 5 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive
such termination and remain in full force and effect.

       SECTION 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriter shall be directed to Merrill Lynch & Co. Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated at North Tower, World Financial Center, New
York, New York 10281-1201, Attention: Shauna Holahan, Director; notices to the
Fund or to the Adviser shall be directed to each of them at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, Attention: Terry K. Glenn, President.

       SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriter, the Fund, the Adviser and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriter, the Fund, the Adviser and their respective successors and the
controlling persons and officers, trustees and general partner referred to in
Sections 7 and 8 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the Underwriter,
the Fund and the Adviser and their respective successors, and said controlling
persons and officers, trustees and general partner and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Shares from the Underwriter shall be deemed to be a successor
merely by reason of such purchase.

       SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.

       SECTION 14. Liability of Shareholders, Trustees and Officers. This
Agreement is executed by or on behalf of the trustees of the Fund solely in
their capacity as such trustees, and shall not constitute their personal
obligation either jointly or severally in their individual capacities. No
trustee, officer or shareholder of the Fund shall be liable for any obligations
of the Fund under this instrument and the Fund shall be solely liable therefor;
all parties hereto shall look solely to the Fund property for the payment of any
claim, or the performance of any obligation, hereunder.

       SECTION 15. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.



                                       18
<PAGE>   22

       If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Fund a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriter and the Fund and the Adviser in accordance with its
terms.
                                    Very truly yours,

                                    MUNIHOLDINGS FLORIDA INSURED
                                    FUND V

                                    By:
                                        ------------------------
                                          Authorized Officer

                                    FUND ASSET MANAGEMENT, L.P.

                                    By:
                                        ------------------------
                                          Authorized Officer


CONFIRMED AND ACCEPTED,
   as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
             INCORPORATED


By:
    ---------------------------------
         Authorized Signatory



                                       19
<PAGE>   23

                                   SCHEDULE A

                       MUNIHOLDINGS FLORIDA INSURED FUND V

                        (a Massachusetts business trust)

                              $
                                --------------------

                         Auction Market Preferred Shares

                                    Shares, Series A
                            -------
                                    Shares, Series B
                            -------

                   (Liquidation Preference $25,000 per share)

       1.    The initial public offering price per share for the Shares,
determined as provided in Section 2 hereof shall be $25,000 plus accumulated
dividends, if any, from the date of original issue.

       2.    The purchase price per share for the Shares to be paid by the
Underwriter shall be $______________ plus accumulated dividends, if any, from
the date of original issue, being an amount equal to the initial offering price
set forth above less $___________ per share.

       3.    The dividend rate for the Series A AMPS for the initial dividend
period ending ___________, 1999 shall be ______% and the dividend rate for the
Series B AMPS for the initial dividend period ending __________, 1999 shall be
______%.


                                       20
<PAGE>   24

                                                                       Exhibit A

                        FORM OF OPINION OF FUND'S COUNSEL

                           TO BE DELIVERED PURSUANT TO

                                  SECTION 6(b)

       (i)    The Fund has been duly organized and is validly existing as a
voluntary association (commonly referred to as a business trust) under the laws
of the Commonwealth of Massachusetts.

       (ii)   The Fund has power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under the Purchase Agreement.

       (iii)  The Fund is duly qualified to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Fund, whether
or not arising in the ordinary course of business (a "Material Adverse
Effect").

       (iv)   The authorized, issued and outstanding capital shares of the
Fund is as set forth in the Prospectus under the caption "Description of
Capital Shares." The outstanding Common Shares of the Fund have been duly
authorized and validly issued and are fully paid and nonassessable.

       (v)    The Shares to be purchased by the Underwriter from the Fund have
been duly authorized for issuance and sale to the Underwriter pursuant to the
Purchase Agreement and, when issued and delivered by the Fund pursuant to the
Purchase Agreement against payment of the consideration set forth in the
Purchase Agreement, will be validly issued and fully paid and non-assessable
(except for certain possible liability of shareholders described in the
Prospectus under "Description of Capital Shares") and no holder of the Shares
is or will be subject to personal liability by reason of being such a holder
(except for certain possible liability of shareholders described in the
Prospectus under "Description of Capital Shares").

       (vi)   The issuance of the Shares is not subject to the preemptive or
other similar rights of any securityholder of the Fund.

       (vii)  To the best of our knowledge, the Fund does not have any
subsidiaries.

       (viii) The Purchase Agreement has been duly authorized, executed and
delivered by the Fund and complies with all applicable provisions of the
Investment Company Act.

       (ix)   The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the certificate pursuant to



                                      A-1
<PAGE>   25


Rule 497(j) or the Prospectus pursuant to Rule 497(c) or Rule 497(h), as the
case may be, has been made in the manner and within the time period required by
Rule 497(j), Rule 497(c) or Rule 497(h), as the case may be; and, to the best of
our knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.

       (x)     The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434 Information,
as applicable, the Prospectus, and each amendment or supplement to the
Registration Statement and the Prospectus, as of their respective effective or
issue dates (other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which we need express no opinion)
complied as to form in all material respects with the requirements of the 1933
Act, the Investment Company Act and the Rules and Regulations.

       (xi)    The form of certificate used to evidence the Shares complies in
all material respects with all applicable statutory requirements and with any
applicable requirements of the declaration of trust and by-laws of the Fund. To
the best of our knowledge, there is not pending or threatened any action, suit,
proceeding, inquiry or investigation, to which the Fund is a party, or to which
the property of the Fund is subject, before or brought by any court or
governmental agency or body, domestic or foreign, which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably be
expected to materially and adversely affect the properties or assets thereof or
the consummation of the transactions contemplated in the Purchase Agreement or
the performance by the Fund of its obligations thereunder, other than those
disclosed in the Prospectus.

       (xii)   The information in the Prospectus under "Description of AMPS,"
"Description of Capital Shares," "Taxes" (other than information related to
Florida law or legal conclusions involving matters of Florida law as to which
we express no opinion) and in the Registration Statement under Item 29, to the
extent that it constitutes matters of law, summaries of legal matters, the
Fund's declaration of trust and bylaws or legal proceedings, or legal
conclusions, has been reviewed by us and is correct in all material respects.

       (xiii)  To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that are not
described as required.

       (xiv)   All descriptions in the Prospectus of contracts and other
documents to which the Fund is a party are accurate in all material respects;
to the best of our knowledge, there are no franchises, contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments of the Fund
required to be described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred to therein or
filed or incorporated by reference as exhibits thereto, and the descriptions
thereof or references thereto are correct in all material respects.

       (xv)    To the best of our knowledge, the Fund is not in violation of
its declaration of trust or by-laws and no default by the Fund exists in the
due performance or observance of any material obligation, agreement, covenant
or condition contained in any contract, indenture,

                                      A-2
<PAGE>   26

mortgage, loan agreement, note, lease or other agreement or instrument that is
described or referred to in the Registration Statement or the Prospectus or
filed or incorporated by reference as an exhibit to the Registration Statement.

       (xvi)   No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act, the
Investment Company Act and the Rules and Regulations, which have been obtained,
or as may be required under the securities or blue sky laws of the various
states, as to which we need express no opinion) is necessary or required in
connection with the due authorization, execution and delivery of the Purchase
Agreement, the Advisory Agreement, the Custody Agreement, the Auction Agent
Agreement and the Letter of Representations or for the offering, issuance, sale
or delivery of the Shares.

       (xvii)  The Advisory Agreement and the Custody Agreement have each
been duly authorized and approved by the Fund and comply as to form in all
material respects with all applicable provisions of the Investment Company Act,
and each has been duly executed by the Fund.

       (xviii) Each of the Auction Agent Agreement and the Letter of
Representations has been duly authorized, executed and delivered by the Fund,
and each constitutes a valid and binding obligation of the Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other laws relating to or affecting creditors'
rights and to general equitable principles.

       (xix)   The Fund is registered with the Commission under the Investment
Company Act as a closed-end, non-diversified management investment company, and
all required action has been taken by the Fund under the 1933 Act, the
Investment Company Act and the Rules and Regulations to make the public
offering and consummate the sale of the Shares pursuant to the Purchase
Agreement; the provisions of the declaration of trust and the by-laws of the
Fund comply as to form in all material respects with the requirements of the
Investment Company Act; and, to the best of their knowledge and information, no
order of suspension or revocation of such registration under the Investment
Company Act, pursuant to Section 8(e) of the Investment Company Act, has been
issued or proceedings therefor initiated or threatened by the Commission.

       (xx)    The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement (including the issuance and sale of
the Shares, and the use of the proceeds from the sale of the Shares as
described in the Prospectus under the caption "Use of Proceeds") and compliance
by the Fund with its obligations under the Purchase Agreement do not and will
not, whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined in Section 1(a)(xi) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Fund pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to us, to which the Fund is a party or by which it may be
bound, or to which any of the property or assets of the Fund is subject (except
for such conflicts, breaches or

                                      A-3
<PAGE>   27

defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the declaration of trust or by-laws of the Fund, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Fund or any of its properties, assets or operations.

       Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included or incorporated by
reference therein or omitted therefrom, as to which we need make no statement),
at the time such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus or any amendment or supplement thereto
(except for financial statements and schedules and other financial data included
or incorporated by reference therein or omitted therefrom, as to which we need
make no statement), at the time the Prospectus was issued, at the time any such
amended or supplemented prospectus was issued or at the Closing Time, included
or includes an untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.

       In rendering such opinion, such counsel may rely as to matters involving
the laws of the Commonwealth of Massachusetts upon the opinion of Bingham Dana
LLP. Bingham Dana LLP and Brown & Wood LLP may rely, as to matter of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates
and written statements of responsible officers of and accountants for the Fund
and the Adviser and public officials. Such opinion shall not state that it is to
be governed or qualified by, or that it is otherwise subject to, any treatise,
written policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).


                                      A-4
<PAGE>   28

                                                                       Exhibit B

                    FORM OF OPINION OF GENERAL COUNSEL TO THE
                       INVESTMENT ADVISER TO BE DELIVERED
                            PURSUANT TO SECTION 6(c)

       (i)     The Adviser has been duly organized as a limited partnership
under the laws of the State of Delaware, with power and authority to conduct
its business as described in the Registration Statement and in the Prospectus.

       (ii)    The Adviser is duly registered as an investment adviser under
the Investment Advisers Act and is not prohibited by the Investment Advisers
Act or the Investment Company Act, or the rules and regulations under such
Acts, from acting under the Advisory Agreement for the Fund as contemplated by
the Prospectus.

       (iii)   This Agreement and the Advisory Agreement have been duly
authorized, executed and delivered by the Adviser, and the Advisory Agreement
constitutes a valid and binding obligation of the Adviser, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other laws relating to or affecting creditors'
rights and to general equity principles; and, to the best of his knowledge and
information, neither the execution and delivery of this Agreement or the
Advisory Agreement nor the performance by the Adviser of its obligations
hereunder or thereunder will conflict with, or result in a breach of, any of
the terms and provisions of, or constitute, with or without the giving of
notice or the lapse of time or both, a default under, any agreement or
instrument to which the Adviser is a party or by which the Adviser is bound, or
any law, order, rule or regulation applicable to the Adviser of any
jurisdiction, court, Federal or state regulatory body, administrative agency or
other governmental body, stock exchange or securities association having
jurisdiction over the Adviser or its properties or operations.

       (iv)    To the best of his knowledge and information, the description of
the Adviser in the Registration Statement and in the Prospectus does not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.


                                      B-1
<PAGE>   29

                                                                      Exhibit C

                           FORM OF OPINION OF SPECIAL
                           FLORIDA COUNSEL TO THE FUND
                            PURSUANT TO SECTION 6(d)

       (i)    The information in the Prospectus under the caption "Taxes", to
the extent that it constitutes matters of Florida law or legal conclusions
involving matters of Florida law, has been reviewed by us and is correct in all
material respects.

       (ii)   Nothing has come to our attention that would lead us to believe
that the information in the Registration Statement under the caption
"Investment Objective and Policies--Special Considerations Relating to Florida
Municipal Bonds and Municipal Bonds" and in Appendix I entitled "Economic and
Other Conditions in Florida", at the time such Registration Statement or any
amendment became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the information under such
caption and in such appendix in the Prospectus, at the time the Prospectus was
issued, at the time any amended or supplemented prospectus was issued or at
Closing Time, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.


                                      C-1
<PAGE>   30

                                                                       Exhibit D

                              FORM OF ACCOUNTANTS'
                     COMFORT LETTER PURSUANT TO SECTION 6(e)

       1.    We are independent public accountants with respect to the Company
within the meaning of the 1933 Act and the 1933 Act Regulations.

       2.    In our opinion the financial statements audited by us and included
in the Registration Statement and the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act,
the Investment Company Act and the Rules and Regulations.

       Such accountants shall also state that they have performed specified
procedures, not constituting an audit, including a reading of the latest
available interim financial statements of the Fund, a reading of the minute
books of the Fund, made inquiries of officials of the Fund responsible for
financial accounting matters and such other inquiries and procedures as may be
specified in such letter, and on the basis of such inquiries and procedures
nothing came to their attention that caused them to believe that (A) the
unaudited financial statements do not comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act, the
Investment Company Act and of the Rules and Regulations applicable to unaudited
interim financial statements included in registration statements or are not in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements included
in the Registration Statement, and (B) during the period from the date of the
unaudited financial statements included in the Registration Statement to a
specified date not more than three days prior to the date of the Purchase
Agreement, there was any change in the capital shares or net assets of the Fund
(other than by reason of the issuance of Common Shares in connection with the
Fund's dividend reinvestment plan, as specified in such letter) or any increase
in the long-term debt of the Fund, as compared with amounts shown on the
unaudited financial statements included in the Registration Statement, except
for changes which the Registration Statement discloses have occurred or may
occur; and in addition, they have performed other specified procedures, not
constituting an audit, with respect to certain amounts, percentages, numerical
data, financial information and financial statements appearing in the
Registration Statement, which previously have been specified by such
accountants and which shall be specified in such letter, and have compared
certain of such items with, and have found such items to be in agreement with,
the accounting and financial records of the Fund.



                                      D-1

<PAGE>   1
                                                                  EXHIBIT (k)(2)

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


                             AUCTION AGENT AGREEMENT

                                     between

                       MUNIHOLDINGS FLORIDA INSURED FUND V

                                       and

                       IBJ WHITEHALL BANK & TRUST COMPANY

                         Dated as of __________ __, 1999

                                   Relating to

                         AUCTION MARKET PREFERRED SHARES

                                  ("AMPS"(R)),

                                 Series A and B

                                       of

                       MUNIHOLDINGS FLORIDA INSURED FUND V

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



(R) Registered trademark of Merrill Lynch & Co., Inc.


<PAGE>   2


         THIS AUCTION AGENT AGREEMENT, dated as of ___________ __, 1999, is
between MUNIHOLDINGS FLORIDA INSURED FUND V, a Massachusetts business trust (the
"Fund"), and IBJ WHITEHALL BANK & TRUST COMPANY, a New York banking corporation.

         The Fund proposes to duly authorize and issue _____ Auction Market
Preferred Shares(R), Series A ("Series A AMPS"), and _____ Auction Market
Preferred Shares(R), Series B ("Series B AMPS"), each with a par value of $.10
per share and a liquidation preference of $25,000 per share plus an amount equal
to accumulated but unpaid dividends (whether or not earned or declared),
pursuant to the Fund's Certificate of Designation (as defined below). The Series
A AMPS and Series B AMPS are sometimes herein referred to together as the
"AMPS". A separate Auction (as defined below) will be conducted for each series
of AMPS. The Fund desires that IBJ Whitehall Bank & Trust Company perform
certain duties as agent in connection with each Auction of AMPS (in such
capacity, the "Auction Agent"), and as the transfer agent, registrar, dividend
disbursing agent and redemption agent with respect to the AMPS (in such
capacity, the "Paying Agent"), upon the terms and conditions of this Agreement,
and the Fund hereby appoints IBJ Whitehall Bank & Trust Company as said Auction
Agent and Paying Agent in accordance with those terms and conditions
(hereinafter generally referred to as the "Auction Agent", except in Sections 3
and 4 below).

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Fund and the Auction Agent agree as follows:

I.       DEFINITIONS AND RULES OF CONSTRUCTION.

         1.1. Terms Defined by Reference to
              Certificate of Designation.

         Capitalized terms not defined herein shall have the respective meanings
specified in the Certificate of Designation.

         1.2. Terms Defined Herein.

         As used herein and in the Settlement Procedures (as defined below), the
following terms shall have the following meanings, unless the context otherwise
requires:

              (a) "Affiliate" shall mean any Person, other than Merrill
         Lynch, Pierce, Fenner & Smith Incorporated, made known to the Auction
         Agent to be controlled by, in control of, or under common control with,
         the Fund or its successors.

              (b) "Agent Member" of any Person shall mean such Person's agent
         member of the Securities Depository that will act on behalf of a
         Bidder.

              (c) "Auction" shall have the meaning specified in Section 2.1
         hereof.

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

(R) Registered trademark of Merrill Lynch & Co., Inc.





                                       2
<PAGE>   3

                  (d) "Auction Procedures" shall mean the Auction Procedures
         that are set forth in Paragraph 10 of the Certificate of Designation.

                  (e) "Authorized Officer" shall mean each Senior Vice
         President, Vice President, Assistant Vice President, Fund Officer, and
         Assistant Secretary and Assistant Treasurer of the Auction Agent
         assigned to its Corporate Trust and Agency Group and every other
         officer or employee of the Auction Agent designated as an "Authorized
         Officer" for purposes hereof in a communication to the Fund.

                  (f) "Broker-Dealer Agreement" shall mean each agreement
         between the Auction Agent and a Broker-Dealer substantially in the form
         attached hereto as Exhibit A.

                  (g) "Certificate of Designation" shall mean the Certificate of
         Designation of the Fund, establishing the powers, preferences and
         rights of the AMPS, filed on February 17, 1999 in the Office of the
         Secretary of The Commonwealth of Massachusetts.

                  (h) "Fund Officer" shall mean the Chairman and Chief Executive
         Officer, the President, each Vice President (whether or not designated
         by a number or word or words added before or after the title "Vice
         President"), the Secretary, the Treasurer, each Assistant Secretary and
         each Assistant Treasurer of the Fund and every other officer or
         employee of the Fund designated as a "Fund Officer" for purposes hereof
         in a notice from the Fund to the Auction Agent.

                  (i) "Holder" shall be a holder of record of one or more AMPS,
         listed as such in the share register maintained by the Paying Agent
         pursuant to Section 4.6 hereof.

                  (j) "Settlement Procedures" shall mean the Settlement
         Procedures attached as Exhibit A to the Broker-Dealer Agreement.

         1.3.     Rules of Construction.

         Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of this Agreement:

                  (a) Words importing the singular number shall include the
         plural number and vice versa.

                  (b) The captions and headings herein are solely for
         convenience of reference and shall not constitute a part of this
         Agreement nor shall they affect its meaning, construction or effect.


                  (c) The words "hereof," "herein," "hereto," and other words of
         similar import refer to this Agreement as a whole.

                  (d) All references herein to a particular time of day shall be
         to New York City time.



                                       3
<PAGE>   4

II.      THE AUCTION.

         2.1.     Purpose; Incorporation by Reference of Auction
                  Procedures and Settlement Procedures.

                  (a) The Certificate of Designation provides that the
         Applicable Rate on shares of each series of AMPS, as the case may be,
         for each Dividend Period therefor after the Initial Dividend Period
         shall be the rate per annum that a commercial bank, trust company or
         other financial institution appointed by the Fund advises results from
         implementation of the Auction Procedures. The Board of Trustees of the
         Fund has adopted a resolution appointing IBJ Whitehall Bank & Trust
         Company as Auction Agent for purposes of the Auction Procedures. The
         Auction Agent hereby accepts such appointment and agrees that, on each
         Auction Date, it shall follow the procedures set forth in this Section
         2 and the Auction Procedures for the purpose of determining the
         Applicable Rate for the AMPS for the next Dividend Period therefor.
         Each periodic operation of such procedures is hereinafter referred to
         as an "Auction."

                  (b) All of the provisions contained in the Auction Procedures
         and in the Settlement Procedures are incorporated herein by reference
         in their entirety and shall be deemed to be a part hereof to the same
         extent as if such provisions were set forth fully herein.

         2.2.     Preparation for Each Auction; Maintenance
                  of Registry of Existing Holders.

                  (a) Pursuant to Section 2.5 hereof, the Fund shall not
         designate any Person to act as a Broker-Dealer without the prior
         written approval of the Auction Agent (which approval shall not be
         withheld unreasonably). As of the date hereof, the Fund shall provide
         the Auction Agent with a list of the Broker-Dealers previously approved
         by the Auction Agent and shall cause to be delivered to the Auction
         Agent for execution by the Auction Agent a Broker-Dealer Agreement
         signed by each such Broker-Dealer. The Auction Agent shall keep such
         list current and accurate and shall indicate thereon, or on a separate
         list, the identity of each Existing Holder, if any, whose most recent
         Order was submitted by a Broker-Dealer on such list and resulted in
         such Existing Holder continuing to hold or purchasing AMPS. Not later
         than five Business Days prior to any Auction Date for which any change
         in such list of Broker-Dealers is to be effective, the Fund shall
         notify the Auction Agent in writing of such change and, if any such
         change is the addition of a Broker-Dealer to such list, the Fund shall
         cause to be delivered to the Auction Agent for execution by the Auction
         Agent a Broker-Dealer Agreement signed by such Broker-Dealer. The
         Auction Agent shall have entered into a Broker-Dealer Agreement with
         each Broker-Dealer prior to the participation of any such Broker-Dealer
         in any Auction.

                  (b) In the event that the Auction Date for any Auction shall
         be changed after the Auction Agent shall have given the notice referred
         to in clause (vii) of Paragraph (a) of the Settlement Procedures, the
         Auction Agent, by such means as the Auction Agent





                                       4
<PAGE>   5

deems practicable, shall give notice of such change to the Broker-Dealers not
later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the
old Auction Date.

         (c) The provisions contained in paragraph 2 of the Certificate of
Designation concerning Special Dividend Periods and the notification of a
Special Dividend Period will be followed by the Fund and, to the extent
applicable, the Auction Agent, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were set forth
fully herein.

         (d) Except as otherwise provided in paragraph 2(f) of the Certificate
of Designation, whenever the Fund intends to include any net capital gains or
other income subject to regular Federal income tax in any dividend on AMPS, the
Fund will notify the Auction Agent of the amount to be so included at least five
Business Days prior to the Auction Date on which the Applicable Rate for such
dividend is to be established. Whenever the Auction Agent receives such notice
from the Fund, in turn it will notify each Broker-Dealer, who, on or prior to
such Auction Date, in accordance with its Broker-Dealer Agreement, will notify
its Beneficial Owners and Potential Beneficial Owners believed to be interested
in submitting an Order in the Auction to be held on such Auction Date. Whenever
the Fund includes any additional amounts in a dividend as provided in paragraph
2(f)of the Certificate of Designation, the Fund will notify the Auction Agent of
such additional amounts to be so included in such dividend at least five
Business Days prior to the applicable Dividend Payment Date. Whenever the
Auction Agent receives such notice from the Fund, in turn it will notify the
Securities Depository and each Broker-Dealer, who, on or prior to the applicable
Dividend Payment Date, in accordance with its Broker-Dealer Agreement, will
notify its Beneficial Owners.

         (i) If the Fund makes a Retroactive Taxable Allocation, the Fund,
within 90 days (and generally within 60 days) after the end of its fiscal year
for which a Retroactive Taxable Allocation is made, will provide notice thereof
to the Auction Agent and to each Holder (initially the Securities Depository)
during such fiscal year at such Holder's address as the same appears or last
appeared on the share books of the Fund. The Fund, within 30 days after such
notice is given to the Auction Agent, will pay to the Auction Agent (who then
will distribute to such Holders), out of funds legally available therefor, a
cash amount equal to the aggregate Additional Dividend with respect to all
Retroactive Taxable Allocations made to such Holders during the fiscal year in
question.

         (e) On each Auction Date, the Auction Agent shall determine the
Reference Rate and the Maximum Applicable Rate. If the Reference Rate is not
quoted on an interest basis but is quoted on a discount basis, the Auction Agent
shall convert the quoted rate to an Interest Equivalent, as set forth in
paragraph 1 of the Certificate of Designation; or, if the rate obtained by the
Auction Agent is not quoted on an interest or discount basis, the Auction Agent
shall convert the quoted rate to an interest rate after consultation with the
Fund as to the method of such conversion. Not later than 9:30 A.M. on each
Auction Date, the Auction Agent shall notify the Fund and the Broker-Dealers of
the Reference Rate so determined and of the Maximum Applicable Rate.




                                       5
<PAGE>   6



         (i) If the Reference Rate is the applicable "AA" Composite Commercial
Paper Rate and such rate is to be based on rates supplied by Commercial Paper
Dealers and one or more of the Commercial Paper Dealers shall not provide a
quotation for the determination of the applicable "AA" Composite Commercial
Paper Rate, the Auction Agent immediately shall notify the Fund so that the Fund
can determine whether to select a Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers to provide the quotation or quotations not
being supplied by any Commercial Paper Dealer or Commercial Paper Dealers. The
Fund promptly shall advise the Auction Agent of any such selection. If the Fund
does not select any such Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers, then the rates shall be supplied by the remaining
Commercial Paper Dealer or Commercial Paper Dealers.

         (ii) If, after the date of this Agreement, there is any change in the
prevailing rating of AMPS by either of the rating agencies (or substitute or
successor rating agencies) referred to in the definition of the Maximum
Applicable Rate, thereby resulting in any change in the corresponding applicable
percentage for the AMPS, as set forth in said definition (the "Percentage"), the
Fund shall notify the Auction Agent in writing of such change in the Percentage
prior to 9:00 A.M. on the Auction Date for AMPS next succeeding such change. The
Percentage for the AMPS on the date of this Agreement is as specified in
paragraph 10(a)(vii) of the Certificate of Designation. The Auction Agent shall
be entitled to rely on the last Percentage of which it has received notice from
the Fund (or, in the absence of such notice, the Percentage set forth in the
preceding sentence) in determining the Maximum Applicable Rate as set forth in
Section 2.2(e)(i) hereof.

         (f) The Auction Agent shall maintain a current registry of the Existing
Holders of the shares of each series of AMPS for purposes of each Auction. The
Fund shall use its best efforts to provide or cause to be provided to the
Auction Agent within ten Business Days following the date of the Closing a list
of the initial Existing Holders of each series of AMPS, and the Broker-Dealer of
each such Existing Holder through which such Existing Holder purchased such
shares. The Auction Agent may rely upon, as evidence of the identities of the
Existing Holders, such list, the results of each Auction and notices from any
Existing Holder, the Agent Member of any Existing Holder or the Broker-Dealer of
any Existing Holder with respect to such Existing Holder's transfer of any AMPS
to another Person.

         (i) In the event of any partial redemption of any series of AMPS, upon
notice by the Fund to the Auction Agent of such partial redemption, the Auction
Agent promptly shall request the Securities Depository to notify the Auction
Agent of the identities of the Agent Members (and the respective numbers of
shares) from the accounts of which shares have been called for redemption and
the person or department at such Agent Member to contact regarding such
redemption, and at least two Business Days prior to the Auction preceding the
date of redemption with respect to shares of the series being partially
redeemed, the Auction Agent shall request each Agent Member so identified to
disclose to the Auction Agent (upon selection by such Agent Member of the
Existing Holders whose shares are to be redeemed) the number of shares of such
series of AMPS of each such Existing Holder, if any, to be redeemed by the Fund,
provided that




                                       6
<PAGE>   7



         the Auction Agent has been furnished with the name and telephone number
         of a person or department at such Agent Member from which it is to
         request such information. In the absence of receiving any such
         information with respect to an Existing Holder, from such Existing
         Holder's Agent Member or otherwise, the Auction Agent may continue to
         treat such Existing Holder as having ownership of the number of shares
         of the series of AMPS shown in the Auction Agent's registry of Existing
         Holders.

                  (ii) The Auction Agent shall register a transfer of the
         ownership of shares of a series of AMPS from an Existing Holder to
         another Existing Holder, or to another Person if permitted by the Fund,
         only if (A) such transfer is made pursuant to an Auction or (B) if such
         transfer is made other than pursuant to an Auction, the Auction Agent
         has been notified of such transfer in writing in a notice substantially
         in the form of Exhibit C to the Broker-Dealer Agreements, by such
         Existing Holder or by the Agent Member of such Existing Holder. The
         Auction Agent is not required to accept any notice of transfer
         delivered for an Auction unless it is received by the Auction Agent by
         3:00 P.M. on the Business Day next preceding the applicable Auction
         Date. The Auction Agent shall rescind a transfer made on the registry
         of the Existing Holders of any AMPS if the Auction Agent has been
         notified in writing, in a notice substantially in the form of Exhibit D
         to the Broker-Dealer Agreement, by the Agent Member or the
         Broker-Dealer of any Person that (i) purchased any AMPS and the seller
         failed to deliver such shares or (ii) sold any AMPS and the purchaser
         failed to make payment to such Person upon delivery to the purchaser of
         such shares.

                  (g) The Auction Agent may request that the Broker-Dealers, as
         set forth in Section 3.2(c) of the Broker-Dealer Agreements, provide
         the Auction Agent with a list of their respective customers that such
         Broker-Dealers believe are Beneficial Owners of AMPS. The Auction Agent
         shall keep confidential any such information and shall not disclose any
         such information so provided to any Person other than the relevant
         Broker-Dealer and the Fund, provided that the Auction Agent reserves
         the right to disclose any such information if it is advised by its
         counsel that its failure to do so would be unlawful.

         2.3.     Auction Schedule.

         The Auction Agent shall conduct Auctions in accordance with the
schedule set forth below. Such schedule may be changed by the Auction Agent with
the consent of the Fund, which consent shall not be withheld unreasonably. The
Auction Agent shall give notice of any such change to each Broker-Dealer. Such
notice shall be received prior to the first Auction Date on which any such
change shall be effective.

<TABLE>
<CAPTION>
                 Time                                        Event
                 ----                                        -----
          <S>                      <C>
          By 9:30 A.M.              Auction Agent advises the Fund and the Broker-Dealers of the
                                    Reference Rate and the Maximum Applicable Rate as set forth
                                    in Section 2.2(e)(i).
</TABLE>




                                       7
<PAGE>   8

<TABLE>
         <S>                       <C>
          9:30 A.M. - 1:00 P.M.     Auction Agent assembles information communicated to it by
                                    Broker-Dealers as provided in Paragraph 10(c)(1) of the
                                    Certificate of Designation.  Submission deadline is 1:00 P.M.

          Not earlier than          Auction Agent makes determinations pursuant to
          1:00 P.M.                 Paragraph 10(d)(i) of the Certificate of Designation.

          By approximately          Auction Agent advises the Fund of the results of the
          3:00 P.M.                 Auction as provided in Paragraph 10(d)(ii) of the
                                    Certificate of Designation.

                                    Submitted Bids and Submitted Sell Orders are accepted
                                    and rejected in whole or in part and AMPS are allocated
                                    as provided in Paragraph 10(e) of the Certificate of
                                    Designation.

                                    Auction Agent gives notice of the Auction results as
                                    set forth in Section 2.4 hereof.
</TABLE>

         2.4.     Notice of Auction Results.

         On each Auction Date, the Auction Agent shall notify Broker-Dealers of
the results of the Auction held on such date by telephone or through the Auction
Agent's Auction Processing System as set forth in Paragraph (a) of the
Settlement Procedures.

         2.5.     Broker-Dealers.

                  (a) Not later than 12:00 noon on each Auction Date, the Fund
         shall pay to the Auction Agent in Federal Funds or similar same-day
         funds an amount in cash equal to (i) in the case of any Auction Date
         immediately preceding a 7-Day Dividend Period or 28-Day Dividend
         Period, the product of (A) a fraction the numerator of which is the
         number of days in such Dividend Period (calculated by counting the
         first day of such Dividend Period but excluding the last day thereof)
         and the denominator of which is 360, times (B) 1/4 of 1%, times (C)
         $25,000 times (D) the sum of the aggregate number of Outstanding AMPS
         for which the Auction is conducted and (ii) in the case of any Special
         Dividend Period, the amount determined by mutual consent of the Fund
         and the Broker-Dealers pursuant to Section 3.5 of the Broker-Dealer
         Agreements. The Auction Agent shall apply such moneys as set forth in
         Section 3.5 of the Broker-Dealer Agreements and shall thereafter remit
         to the Fund any remaining funds paid to the Auction Agent pursuant to
         this Section 2.5(a).

                  (b) The Fund shall not designate any Person to act as a
         Broker-Dealer, or permit a Existing Holder or a Potential Beneficial
         Owner to participate in Auctions through any Person other than a
         Broker-Dealer, without the prior written approval of the Auction Agent,
         which approval shall not be withheld unreasonably. The Fund may
         designate an Affiliate or Merrill Lynch, Pierce, Fenner & Smith
         Incorporated to act as a Broker-Dealer.




                                       8
<PAGE>   9

                  (c) The Auction Agent shall terminate any Broker-Dealer
         Agreement as set forth therein if so directed by the Fund.

                  (d) Subject to Section 2.5(b) hereof, the Auction Agent from
         time to time shall enter into such Broker-Dealer Agreements as the Fund
         shall request.

                  (e) The Auction Agent shall maintain a list of Broker-Dealers.

         2.6.     Ownership of AMPS and Submission of Bids
                  by the Fund and its Affiliates.

         Neither the Fund nor any Affiliate of the Fund may submit any Sell
Order or Bid, directly or indirectly, in any Auction, except that an Affiliate
of the Fund that is a Broker-Dealer may submit a Sell Order or Bid on behalf of
a Beneficial Owner or a Potential Beneficial Owner. The Fund shall notify the
Auction Agent if the Fund or, to the best of the Fund's knowledge, any Affiliate
of the Fund becomes a Beneficial Owner of any AMPS. Any AMPS redeemed, purchased
or otherwise acquired (i) by the Fund shall not be reissued, except in
accordance with the requirements of the Securities Act of 1933, as amended, or
(ii) by its Affiliates shall not be transferred (other than to the Fund). The
Auction Agent shall have no duty or liability with respect to enforcement of
this Section 2.6.

         2.7.     Access to and Maintenance of Auction Records.

         The Auction Agent shall afford to the Fund, its agents, independent
public accountants and counsel, access at reasonable times during normal
business hours to review and make extracts or copies (at the Fund's sole cost
and expense) of all books, records, documents and other information concerning
the conduct and results of Auctions, provided that any such agent, accountant or
counsel shall furnish the Auction Agent with a letter from the Fund requesting
that the Auction Agent afford such person access. The Auction Agent shall
maintain records relating to any Auction for a period of two years after such
Auction (unless requested by the Fund to maintain such records for such longer
period not in excess of four years, then for such longer period), and such
records, in reasonable detail, shall accurately and fairly reflect the actions
taken by the Auction Agent hereunder. The Fund agrees to keep confidential any
information regarding the customers of any Broker-Dealer received from the
Auction Agent in connection with this Agreement or any Auction, and shall not
disclose such information or permit the disclosure of such information without
the prior written consent of the applicable Broker-Dealer to anyone except such
agent, accountant or counsel engaged to audit or review the results of Auctions
as permitted by this Section 2.7, provided that the Fund reserves the right to
disclose any such information if it is advised by its counsel that its failure
to do so would (i) be unlawful or (ii) expose it to liability, unless the
Broker-Dealer shall have offered indemnification satisfactory to the Fund. Any
such agent, accountant or counsel, before having access to such information,
shall agree to keep such information confidential and not to disclose such
information or permit disclosure of such information without the prior written
consent of the applicable Broker-Dealer, provided that such agent, accountant or
counsel may reserve the right to disclose any such information if it is advised
by its counsel that its failure to do so would (i) be unlawful or (ii) expose it
to liability, unless the Broker-Dealer shall have offered indemnification
satisfactory to such agent, accountant or counsel.




                                       9
<PAGE>   10

III.     THE AUCTION AGENT AS PAYING AGENT.

         3.1.     The Paying Agent.

         The Board of Trustees of the Fund has adopted a resolution appointing
IBJ Whitehall Bank & Trust Company as transfer agent, registrar, dividend
disbursing agent and redemption agent for the Fund in connection with any AMPS
(in such capacity, the "Paying Agent"). The Paying Agent hereby accepts such
appointment and agrees to act in accordance with its standard procedures and the
provisions of the Certificate of Designation which are specified herein with
respect to the AMPS and as set forth in this Section 3.

         3.2.     The Fund's Notices to the Paying Agent.

         Whenever any AMPS are to be redeemed, the Fund promptly shall deliver
to the Paying Agent a Notice of Redemption, which will be mailed by the Fund to
each Holder at least five Business Days prior to the date such Notice of
Redemption is required to be mailed pursuant to the Certificate of Designation.
The Paying Agent shall have no responsibility to confirm or verify the accuracy
of any such Notice.

         3.3.     The Fund to Provide Funds for Dividends,
                  Redemptions and Additional Dividends.

                  (a) Not later than noon on each Dividend Payment Date, the
         Fund shall deposit with the Paying Agent an aggregate amount of Federal
         Funds or similar same-day funds equal to the declared dividends to be
         paid to Holders on such Dividend Payment Date, and shall give the
         Paying Agent irrevocable instructions to apply such funds to the
         payment of such dividends on such Dividend Payment Date.

                  (b) If the Fund shall give a Notice of Redemption, then by
         noon of the date fixed for redemption, the Fund shall deposit in trust
         with the Paying Agent an aggregate amount of Federal Funds or similar
         same-day funds sufficient to redeem such AMPS called for redemption and
         shall give the Paying Agent irrevocable instructions and authority to
         pay the redemption price to the Holders of AMPS called for redemption
         upon surrender of the certificate or certificates therefor.

                  (c) If the Fund provides notice to the Auction Agent of a
         Retroactive Taxable Allocation, the Fund, within 30 days after such
         notice is given and by noon of the date fixed for payment of an
         Additional Dividend, shall deposit in trust with the Paying Agent an
         aggregate amount of Federal Funds or similar same-day funds equal to
         such Additional Dividend and shall give the Paying Agent irrevocable
         instructions and authority to pay the Additional Dividend to Holders
         (or former Holders) entitled thereto.

         3.4.     Disbursing Dividends, Redemption Price
                  and Additional Dividends.

         After receipt of the Federal Funds or similar same-day funds and
instructions from the Fund described in Sections 3.3(a), (b) and (c) above, the
Paying Agent shall pay to the Holders (or former Holders) entitled thereto (i)
on each corresponding Dividend Payment Date, dividends


                                       10
<PAGE>   11

on the AMPS, (ii) on any date fixed for redemption, the redemption price of any
AMPS called for redemption and (iii) on the date fixed for payment of an
Additional Dividend, such Additional Dividend. The amount of dividends for any
Dividend Period to be paid by the Paying Agent to Holders will be determined by
the Fund as set forth in Paragraph 2 of the Certificate of Designation. The
redemption price to be paid by the Paying Agent to the Holders of any AMPS
called for redemption will be determined as set forth in Paragraph 4 of the
Certificate of Designation. The amount of Additional Dividends to be paid by the
Paying Agent in the event of a Retroactive Taxable Allocation to Holders will be
determined by the Fund pursuant to paragraph 2(e) of the Certificate of
Designation. The Fund shall notify the Paying Agent in writing of a decision to
redeem any AMPS on or prior to the date specified in Section 3.2 above, and such
notice by the Fund to the Paying Agent shall contain the information required to
be stated in a Notice of Redemption required to be mailed by the Fund to such
Holders. The Paying Agent shall have no duty to determine the redemption price
and may rely on the amount thereof set forth in a Notice of Redemption.

IV.      THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.

         4.1.     Original Issue of Share Certificates.

         On the Date of Original Issue for any AMPS, one certificate for each
series of AMPS shall be issued by the Fund and registered in the name of Cede &
Co., as nominee of the Securities Depository, and countersigned by the Paying
Agent. The Fund will give the Auction Agent prior written notice and instruction
as to the issuance and redemption of AMPS.

         4.2.     Registration of Transfer or Exchange of Shares.

         Except as provided in this Section 4.2, the shares of each series of
AMPS shall be registered solely in the name of the Securities Depository or its
nominee. If the Securities Depository shall give notice of its intention to
resign as such, and if the Fund shall not have selected a substitute Securities
Depository acceptable to the Paying Agent prior to such resignation, then upon
such resignation, the shares of each series of AMPS, at the Fund's request, may
be registered for transfer or exchange, and new certificates thereupon shall be
issued in the name of the designated transferee or transferees, upon surrender
of the old certificate in form deemed by the Paying Agent properly endorsed for
transfer with (a) all necessary endorsers' signatures guaranteed in such manner
and form as the Paying Agent may require by a guarantor reasonably believed by
the Paying Agent to be responsible, (b) such assurances as the Paying Agent
shall deem necessary or appropriate to evidence the genuineness and
effectiveness of each necessary endorsement and (c) satisfactory evidence of
compliance with all applicable laws relating to the collection of taxes in
connection with any registration of transfer or exchange or funds necessary for
the payment of such taxes. If the certificate or certificates for AMPS are not
held by the Securities Depository or its nominee, payments upon transfer of
shares in an Auction shall be made in Federal Funds or similar same-day funds to
the Auction Agent against delivery of certificates therefor.



                                       11
<PAGE>   12

         4.3.     Removal of Legend.

         Any request for removal of a legend indicating a restriction on
transfer from a certificate evidencing AMPS shall be accompanied by an opinion
of counsel stating that such legend may be removed and such shares may be
transferred free of the restriction described in such legend, said opinion to be
delivered under cover of a letter from a Fund Officer authorizing the Paying
Agent to remove the legend on the basis of said opinion.

         4.4.     Lost, Stolen or Destroyed Share Certificates.

         The Paying Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed, upon the
fulfillment of such requirements as shall be deemed appropriate by the Fund and
by the Paying Agent, subject at all times to provisions of law, the By-Laws of
the Fund governing such matters and resolutions adopted by the Fund with respect
to lost, stolen or destroyed securities. The Paying Agent may issue new
certificates in exchange for and upon the cancellation of mutilated
certificates. Any request by the Fund to the Paying Agent to issue a replacement
or new certificate pursuant to this Section 4.4 shall be deemed to be a
representation and warranty by the Fund to the Paying Agent that such issuance
will comply with provisions of applicable law and the By-Laws and resolutions of
the Fund.

         4.5.     Disposition of Canceled Certificates; Record Retention.

         The Paying Agent shall retain share certificates which have been
canceled in transfer or in exchange and accompanying documentation in accordance
with applicable rules and regulations of the Securities and Exchange Commission
for two calendar years from the date of such cancellation. The Paying Agent,
upon written request by the Fund, shall afford to the Fund, its agents and
counsel access at reasonable times during normal business hours to review and
make extracts or copies (at the Fund's sole cost and expense) of such
certificates and accompanying documentation. Upon request by the Fund at any
time after the expiration of this two-year period, the Paying Agent shall
deliver to the Fund the canceled certificates and accompanying documentation.
The Fund, at its expense, shall retain such records for a minimum additional
period of four calendar years from the date of delivery of the records to the
Fund and shall make such records available during this period at any time, or
from time to time, for reasonable periodic, special, or other examinations by
representatives of the Securities and Exchange Commission. The Fund also shall
undertake to furnish to the Securities and Exchange Commission, upon demand,
either at their principal office or at any regional office, complete, correct
and current hard copies of any and all such records. Thereafter, such records
shall not be destroyed by the Fund without the approval of the Paying Agent,
which approval shall not be withheld unreasonably, but will be safely stored for
possible future reference.

         4.6.     Share Register.

         The Paying Agent shall maintain the share register, which shall contain
a list of the Holders, the number of shares held by each Holder and the address
of each Holder. The Paying Agent shall record in the share register any change
of address of a Holder upon notice by such Holder. In case of any written
request or demand for the inspection of the share register or any



                                       12
<PAGE>   13

other books of the Fund in the possession of the Paying Agent, the Paying Agent
will notify the Fund and secure instructions as to permitting or refusing such
inspection. The Paying Agent reserves the right, however, to exhibit the share
register or other records to any person in case it is advised by its counsel
that its failure to do so would (i) be unlawful or (ii) expose it to liability,
unless the Fund shall have offered indemnification satisfactory to the Paying
Agent.

         4.7.     Return of Funds.

         Any funds deposited with the Paying Agent by the Fund for any reason
under this Agreement, including for the payment of dividends or the redemption
of shares of any series of AMPS, that remain with the Paying Agent after 12
months shall be repaid to the Fund upon written request by the Fund.

V.       REPRESENTATIONS AND WARRANTIES.

         5.1.     Representations and Warranties of the Fund.

         The Fund represents and warrants to the Auction Agent that:

                  (i) the Fund is duly organized and is validly existing as a
         voluntary association (commonly referred to as a business trust) in
         good standing under the laws of the Commonwealth of Massachusetts, and
         has full power to execute and deliver this Agreement and to authorize,
         create and issue the AMPS;

                  (ii) the Fund is registered with the Securities and Exchange
         Commission under the Investment Company Act of 1940, as amended, as a
         closed-end, non-diversified, management investment company;

                  (iii) this Agreement has been duly and validly authorized,
         executed and delivered by the Fund and constitutes the legal, valid and
         binding obligation of the Fund, enforceable against the Fund in
         accordance with its terms, subject as to such enforceability to
         bankruptcy, insolvency, reorganization and other laws of general
         applicability relating to or affecting creditors' rights and to general
         equitable principles;

                  (iv) the forms of the certificates evidencing the shares of
         each series of AMPS comply with all applicable laws of the Commonwealth
         of Massachusetts;

                  (v) the shares of each series of AMPS have been duly and
         validly authorized by the Fund and, upon completion of the initial sale
         of the shares of such series of AMPS and receipt of payment therefor,
         will be validly issued, fully paid and nonassessable;

                  (vi) at the time of the offering of the shares of each series
         of AMPS, the shares offered will be registered under the Securities Act
         of 1933, as amended, and no further action by or before any
         governmental body or authority of the United States or of any state
         thereof is required in connection with the execution and delivery of
         this Agreement or will be required in connection with the issuance of
         the AMPS, except such action as required by applicable state securities
         or insurance laws, all of which action will have been taken;



                                       13
<PAGE>   14

                  (vii) the execution and delivery of this Agreement and the
         issuance and delivery of the shares of each series of AMPS do not and
         will not conflict with, violate, or result in a breach of, the terms,
         conditions or provisions of, or constitute a default under, the
         Declaration of Trust or the By-Laws of the Fund, any law or regulation
         applicable to the Fund, any order or decree of any court or public
         authority having jurisdiction over the Fund, or any mortgage,
         indenture, contract, agreement or undertaking to which the Fund is a
         party or by which it is bound; and

                  (viii) no taxes are payable upon or in respect of the
         execution of this Agreement or will be payable upon or in respect of
         the issuance of the shares of each series of AMPS.

         5.2.     Representations and Warranties of the Auction Agent.

         The Auction Agent represents and warrants to the Fund that the Auction
Agent is duly organized and is validly existing as a banking corporation in good
standing under the laws of the State of New York, and has the corporate power to
enter into and perform its obligations under this Agreement.

VI.      THE AUCTION AGENT.

         6.1.     Duties and Responsibilities.

                  (a) The Auction Agent is acting solely as agent for the Fund
         hereunder and owes no fiduciary duties to any Person except as provided
         by this Agreement.

                  (b) The Auction Agent undertakes to perform such duties and
         only such duties as are set forth specifically in this Agreement, and
         no implied covenants or obligations shall be read into this Agreement
         against the Auction Agent.

                  (c) In the absence of bad faith or negligence on its part, the
         Auction Agent shall not be liable for any action taken, suffered or
         omitted by it or for any error of judgment made by it in the
         performance of its duties under this Agreement. The Auction Agent shall
         not be liable for any error of judgment made in good faith unless the
         Auction Agent shall have been negligent in ascertaining (or failing to
         ascertain) the pertinent facts.

         6.2.     Rights of the Auction Agent.

                  (a) The Auction Agent may rely upon, and shall be protected in
         acting or refraining from acting upon, any communication authorized
         hereby and any written instruction, notice, request, direction,
         consent, report, certificate, share certificate or other instrument,
         paper or document reasonably believed by it to be genuine. The Auction
         Agent shall not be liable for acting upon any telephone communication
         authorized hereby which the Auction Agent believes in good faith to
         have been given by the Fund or by a Broker-Dealer. The Auction Agent
         may record telephone communications with the Fund or with the
         Broker-Dealers or with both.



                                       14
<PAGE>   15

                  (b) The Auction Agent may consult with counsel of its choice,
         and the written advice of such counsel shall be full and complete
         authorization and protection in respect of any action taken, suffered
         or omitted by it hereunder in good faith and in reliance thereon.

                  (c) The Auction Agent shall not be required to advance, expend
         or risk its own funds or otherwise incur or become exposed to financial
         liability in the performance of its duties hereunder. The Auction Agent
         shall be under no liability for interest on any money received by it
         hereunder except as otherwise agreed in writing with the Fund.

                  (d) The Auction Agent may perform its duties and exercise its
         rights hereunder either directly or by or through agents or attorneys.

         6.3.     Auction Agent's Disclaimer.

         The Auction Agent makes no representation as to the validity or the
adequacy of this Agreement, the Broker-Dealer Agreements or the AMPS.

         6.4.     Compensation, Expenses and Indemnification.

                  (a) The Fund shall pay to the Auction Agent from time to time
         reasonable compensation for all services rendered by it under this
         Agreement and under the Broker-Dealer Agreements as shall be set forth
         in a separate writing signed by the Fund and the Auction Agent, subject
         to adjustments if the AMPS no longer are held of record by the
         Securities Depository or its nominee or if there shall be such other
         change as shall increase materially the Auction Agent's obligations
         hereunder or under the Broker-Dealer Agreements.

                  (b) The Fund shall reimburse the Auction Agent upon its
         request for all reasonable expenses, disbursements and advances
         incurred or made by the Auction Agent in accordance with any provision
         of this Agreement and of the Broker-Dealer Agreements (including the
         reasonable compensation, expenses and disbursements of its agents and
         counsel), except any expense, disbursement or advance attributable to
         its negligence or bad faith.

                  (c) The Fund shall indemnify the Auction Agent for, and hold
         it harmless against, any loss, liability or expense incurred without
         negligence or bad faith on its part arising out of or in connection
         with its agency under this Agreement and under the Broker-Dealer
         Agreements, including the costs and expenses of defending itself
         against any claim of liability in connection with its exercise or
         performance of any of its duties hereunder and thereunder, except such
         as may result from its negligence or bad faith.

VII.     MISCELLANEOUS.

         7.1.     Term of Agreement.

                  (a) The term of this Agreement is unlimited unless it shall be
         terminated as provided in this Section 7.1. The Fund may terminate this
         Agreement at any time by so

                                       15
<PAGE>   16

         notifying the Auction Agent, provided that if any AMPS remain
         outstanding the Fund shall have entered into an agreement in
         substantially the form of this Agreement with a successor auction
         agent. The Auction Agent may terminate this Agreement upon prior notice
         to the Fund on the date specified in such notice, which date shall be
         no earlier than 60 days after delivery of such notice. If the Auction
         Agent resigns while any AMPS remain outstanding, the Fund shall use its
         best efforts to enter into an agreement with a successor auction agent
         containing substantially the same terms and conditions as this
         Agreement.

                  (b) Except as otherwise provided in this Section 7.1(b), the
         respective rights and duties of the Fund and the Auction Agent under
         this Agreement shall cease upon termination of this Agreement. The
         Fund's representations, warranties, covenants and obligations to the
         Auction Agent under Sections 5 and 6.4 hereof shall survive the
         termination hereof. Upon termination of this Agreement, the Auction
         Agent shall (i) resign as Auction Agent under the Broker-Dealer
         Agreements, (ii) at the Fund's request, deliver promptly to the Fund
         copies of all books and records maintained by it in connection with its
         duties hereunder, and (iii) at the request of the Fund, transfer
         promptly to the Fund or to any successor auction agent any funds
         deposited by the Fund with the Auction Agent (whether in its capacity
         as Auction Agent or as Paying Agent) pursuant to this Agreement which
         have not been distributed previously by the Auction Agent in accordance
         with this Agreement.

         7.2.     Communications.

         Except for (i) communications authorized to be made by telephone
pursuant to this Agreement or the Auction Procedures and (ii) communications in
connection with Auctions (other than those expressly required to be in writing),
all notices, requests and other communications to any party hereunder shall be
in writing (including telecopy or similar writing) and shall be given to such
party at its address or telecopier number set forth below:

         If to the Fund,                    MuniHoldings Florida Insured Fund V
         addressed to:                      800 Scudders Mill Road
                                            Plainsboro, New Jersey 08536

                                            Attention:   Treasurer
                                            Telephone No.: (609) 282-2800
                                            Telecopier No.: (609) 282-3472

         If to the Auction                  IBJ Whitehall Bank & Trust Company
         Agent, addressed to:               One State Street
                                            New York, New York 10004

                                            Attention: Auction Window
                                                        Subcellar 1
                                            Telephone No.: (212) 858-2315
                                            Telecopier No.: (212) 797-1148

                                       16
<PAGE>   17

or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Fund by a Fund Officer and on
behalf of the Auction Agent by an Authorized Officer.

         7.3.     Entire Agreement.

         This Agreement contains the entire agreement between the parties
relating to the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or inferred,
between the parties relating to the subject matter hereof, except for agreements
relating to the compensation of the Auction Agent.

         7.4.     Benefits.

         Nothing herein, express or implied, shall give to any Person, other
than the Fund, the Auction Agent and their respective successors and assigns,
any benefit of any legal or equitable right, remedy or claim hereunder.

         7.5.     Amendment; Waiver.

                  (a) This Agreement shall not be deemed or construed to be
         modified, amended, rescinded, canceled or waived, in whole or in part,
         except by a written instrument signed by a duly authorized
         representative of the party to be charged. The Fund shall notify the
         Auction Agent of any change in the Certificate of Designation prior to
         the effective date of any such change. If any such change in the
         Certificate of Designation materially increases the Auction Agent's
         obligations hereunder, the Fund shall obtain the written consent to the
         Auction Agent prior to the effective date of such change.

                  (b) Failure of either party hereto to exercise any right or
         remedy hereunder in the event of a breach hereof by the other party
         shall not constitute a waiver of any such right or remedy with respect
         to any subsequent breach.

         7.6.     Successors and Assigns.

         This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Fund and the Auction Agent. This Agreement may not be assigned by either party
hereto absent the prior written consent of the other party, which consent shall
not be withheld unreasonably.

         7.7.     Severability.

         If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.


                                       17
<PAGE>   18

         7.8.     Liability of Shareholders, Trustees and Officers.

         This agreement is executed by and on behalf of the trustees of the Fund
solely in their capacity as such trustees, and shall not constitute their
personal obligation, either jointly or severally, in their individual
capacities. No trustee, officer or shareholder of the Fund shall be liable for
any obligations of the Fund under this instrument and the Fund shall be solely
liable therefor; all parties hereto shall look solely to the fund estate for the
payment of any claim, or the performance of any obligation, hereunder.

         7.9.     Execution in Counterparts.

         This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.

         7.10.    Governing Law.

         This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said State.



                                       18
<PAGE>   19


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.

                                            MUNIHOLDINGS FLORIDA INSURED FUND V

                                            By:
                                               ---------------------------------
                                            Title:


                                            IBJ WHITEHALL BANK & TRUST COMPANY

                                            By:
                                               ---------------------------------
                                            Title:



                                       19

<PAGE>   1
                                                                  EXHIBIT (k)(3)

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

                             BROKER-DEALER AGREEMENT

                                     between

                       IBJ WHITEHALL BANK & TRUST COMPANY

                                       and

                             [NAME OF BROKER-DEALER]

                         Dated as of _________ __, 1999

                                   Relating to

                       AUCTION MARKET PREFERRED SHARES(R)

                                  ("AMPS"(R)),

                                 Series A and B

                                       of

                       MUNIHOLDINGS FLORIDA INSURED FUND V

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

(R) Registered trademark of Merrill Lynch & Co., Inc.


<PAGE>   2


         BROKER-DEALER AGREEMENT dated as of ___________ __, 1999, between IBJ
WHITEHALL BANK & TRUST COMPANY, a New York banking corporation (the "Auction
Agent") (not in its individual capacity, but solely as agent of MuniHoldings
Florida Insured Fund V, a Massachusetts business trust (the "Fund"), pursuant to
authority granted to it in the Auction Agent Agreement dated as of _________ __,
1999 between the Fund and the Auction Agent (the "Auction Agent Agreement")) and
[NAME OF BROKER-DEALER] (together with its successors and assigns, "BD").

         The Fund proposes to duly authorize and issue _____ Auction Market
Preferred Shares(R), Series A ("Series A AMPS"), and _____ Auction Market
Preferred Shares(R), Series B ("Series B AMPS"), each with a par value of $.10
per share and a liquidation preference of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared), each pursuant to the
Fund's Certificate of Designation (as defined below). The Series A AMPS and
Series B AMPS are sometimes herein referred to together as the "AMPS."

         The Fund's Certificate of Designation provides that the dividend rate
on each series of AMPS for each Dividend Period therefor after the Initial
Dividend Period shall be the Applicable Rate therefor, which in each case, in
general shall be the rate per annum that a commercial bank, trust company or
other financial institution appointed by the Fund advises results from
implementation of the Auction Procedures (as defined below). The Board of
Trustees of the Fund has adopted a resolution appointing IBJ Whitehall Bank &
Trust Company as Auction Agent for purposes of the Auction Procedures, and
pursuant to Section 2.5(d) of the Auction Agent Agreement, the Fund has
requested and directed the Auction Agent to execute and deliver this Agreement.

         The Auction Procedures require the participation of one or more
Broker-Dealers.

         NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:

I.       DEFINITIONS AND RULES OF CONSTRUCTION.

         1.1. Terms Defined by Reference to the Certificate of Designation.
Capitalized terms not defined herein shall have the respective meanings
specified in the Certificate of Designation of the Fund.

         1.2. Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:

              (a) "Auction" shall have the meaning specified in Section 3.1
hereof.

<PAGE>   3

         (b) "Auction Procedures" shall mean the Auction Procedures that are set
forth in Paragraph 10 of the Certificate of Designation.(R)

         (c) "Authorized Officer" shall mean each Senior Vice President, Vice
President, Assistant Vice President, Fund Officer, Assistant Secretary and
Assistant Treasurer of the Auction Agent assigned to its Corporate Trust and
Agency Group and every other officer or employee of the Auction Agent designated
as an "Authorized Officer" for purposes of this Agreement in a communication to
BD.

         (d) "BD Officer" shall mean each officer or employee of BD designated
as a "BD Officer" for purposes of this Agreement in a communication to the
Auction Agent.

         (e) "Broker-Dealer Agreement" shall mean this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.

         (f) "Certificate of Designation" shall mean the Certificate of
Designation, as amended, of the Fund, establishing the powers, preferences and
rights of the AMPS filed on __________ __, 1999 in the office of the Secretary
of State of the Commonwealth of Massachusetts.

         (g) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit A.


    1.3. Rules of Construction. Unless the context or use indicates another
or different meaning or intent, the following rules shall apply to the
construction of this Agreement:

         (a) Words importing the singular number shall include the plural number
and vice versa.

         (b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.

         (c) The words "hereof," "herein," "hereto," and other words of similar
import refer to this Agreement as a whole.

         (d) All references herein to a particular time of day shall be to New
York City time.

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

(R) Registered trademark of Merrill Lynch & Co., Inc.


                                       2
<PAGE>   4
II.      NOTIFICATION OF DIVIDEND PERIOD AND ADVANCE NOTICE OF
         ALLOCATION OF TAXABLE INCOME.

         2.1. The provisions contained in paragraph 2 of the Certificate of
Designation concerning the notification of a Special Dividend Period will be
followed by the Auction Agent and BD, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were set forth
fully herein.

         2.2. Except as otherwise provided in paragraph 2(f) of the Certificate
of Designation, whenever the Fund intends to include any net capital gains or
other income subject to regular Federal income tax in any dividend on shares of
any series of AMPS, the Fund will notify the Auction Agent of the amount to be
so included at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Fund, in turn it will notify BD, who, on or
prior to such Auction Date, will notify its Beneficial Owners and Potential
Beneficial Owners believed to be interested in submitting an Order in the
Auction to be held on such Auction Date. Whenever the Fund intends to include
any additional amounts in a dividend as provided in paragraph 2(f) of the
Certificate of Designation, the Fund will notify the Auction Agent of such
additional amounts to be so included in such dividend at least five Business
Days prior to the applicable Dividend Payment Date. Whenever the Auction Agent
receives such notice from the Fund, in turn it will notify the Securities
Depository and BD, who, on or prior to the applicable Dividend Payment Date,
will notify its Beneficial Owners.

III.     THE AUCTION.

         3.1. Purpose; Incorporation by Reference of Auction Procedures and
              Settlement Procedures.

              (a) On each Auction Date, the provisions of the Auction Procedures
will be followed by the Auction Agent for the purpose of determining the
Applicable Rate for each series of AMPS, for the next Dividend Period therefor.
Each periodic operation of such procedures is hereinafter referred to as an
"Auction."

              (b) All of the provisions contained in the Auction Procedures and
the Settlement Procedures are incorporated herein by reference in their entirety
and shall be deemed to be a part of this Agreement to the same extent as if such
provisions were set forth fully herein.

              (c) BD agrees to act as, and assumes the obligations of and
limitations and restrictions placed upon, a Broker-Dealer under this Agreement.
BD understands that other Persons meeting the requirements specified in the
definition of "Broker-Dealer" contained in Paragraph _ of the Certificate of
Designation may execute a Broker-Dealer Agreement and participate as
Broker-Dealers in Auctions.


                                       3
<PAGE>   5

         (d) BD and other Broker-Dealers may participate in Auctions for their
own accounts. However, the Fund, by notice to BD and all other Broker Dealers,
may prohibit all Broker-Dealers from submitting Bids in Auctions for their own
accounts, provided that Broker-Dealers may continue to submit Hold Orders and
Sell Orders.

    3.2. Preparation for Each Auction.

         (a) Not later than 9:30 A.M. on each Auction Date for the AMPS, the
Auction Agent shall advise BD by telephone of the Reference Rate and the Maximum
Applicable Rate in effect on such Auction Date.

         (b) In the event that the Auction Date for any Auction shall be changed
after the Auction Agent has given the notice referred to in clause (vii) of
paragraph (a) of the Settlement Procedures, the Auction Agent, by such means as
the Auction Agent deems practicable, shall give notice of such change to BD not
later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the
old Auction Date. Thereafter, BD promptly shall notify customers of BD that BD
believes are Beneficial Owners of AMPS of such change in the Auction Date.

         (c) The Auction Agent from time to time may request BD to provide it
with a list of the respective customers BD believes are Beneficial Owners of
shares of each series of AMPS. BD shall comply with any such request, and the
Auction Agent shall keep confidential any such information, including
information received as to the identity of Bidders in any Auction, and shall not
disclose any such information so provided to any Person other than the Fund; and
such information shall not be used by the Auction Agent or its officers,
employees, agents or representatives for any purpose other than such purposes as
are described herein. The Auction Agent shall transmit any list of customers BD
believes are Beneficial Owners of shares of each series of AMPS and information
related thereto only to its officers, employees, agents or representatives in
the Corporate Trust and Agency Group who need to know such information for the
purposes of acting in accordance with this Agreement, and the Auction Agent
shall prevent the transmission of such information to others and shall cause its
officers, employees, agents and representatives to abide by the foregoing
confidentiality restrictions; provided, however, that the Auction Agent shall
have no responsibility or liability for the actions of any of its officers,
employees, agents or representatives after they have left the employ of the
Auction Agent.

    3.3. Auction Schedule; Method of Submission of Orders.

         (a) The Fund and the Auction Agent shall conduct Auctions for each
series of AMPS in accordance with the schedule set forth below. Such schedule
may be changed at any time by the Auction Agent with the consent of the Fund,
which consent shall not be withheld unreasonably. The Auction Agent shall give
notice of any such change to BD. Such notice shall be received prior to the
first Auction Date on which any such change shall be effective.


                                       4
<PAGE>   6

<TABLE>
<CAPTION>
                  Time                                        Event
                  ----                                        -----
       <S>                                        <C>
         By 9:30 A.M.                                Auction Agent advises the Fund and Broker-Dealers of the
                                                     Reference Rate and the Maximum Applicable Rate as
                                                     set forth in Section 3.2(a) hereof.

         9:30 A.M. - 1:00 P.M.                       Auction Agent assembles information communicated to it by
                                                     Broker-Dealers as provided in Paragraph 10(c)(i) of the
                                                     Certificate of Designation.  Submission Deadline is 1:00 P.M.

         Not earlier than                            Auction Agent makes determinations pursuant
         1:00 P.M.                                   to Paragraph 10(d)(i) of the Certificate of Designation.

         By approximately 3:00P.M.                   Auction Agent advises the Fund of the results of the
                                                     Auction as provided in Paragraph 10(d)(ii) of the
                                                     Certificate of Designation.

                                                     Submitted Bids and Submitted Sell Orders are accepted and
                                                     rejected in whole or in part and AMPS are allocated as
                                                     provided in Paragraph 10(e) of the Certificate of
                                                     Designation.

                                                     Auction Agent gives notice of the Auction results as
                                                     set forth in Section 3.4(a) hereof.
</TABLE>

         (b) BD agrees to maintain a list of Potential Beneficial Owners and to
contact the Potential Beneficial Owners on such list on or prior to each Auction
Date for the purposes set forth in Paragraph 10 of the Certificate of
Designation.

         (c) BD shall submit Orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit B. BD shall submit separate
Orders to the Auction Agent for each Potential Beneficial Owner or Beneficial
Owner on whose behalf BD is submitting an Order and shall not net or aggregate
the Orders of Potential Beneficial Owners or Beneficial Owners on whose behalf
BD is submitting Orders.

         (d) BD shall deliver to the Auction Agent (i) a written notice,
substantially in the form attached hereto as Exhibit C, of transfers of shares
of any series of AMPS, made through BD by an Existing Holder to another Person
other than pursuant to an Auction, and (ii) a written notice, substantially in
the form attached hereto as Exhibit D, of the failure of shares of any series of
any series of AMPS to be transferred to or by any Person that purchased or sold
shares of any series of AMPS through BD pursuant to an Auction. The Auction
Agent is not required to accept any notice delivered pursuant to the terms of
the foregoing sentence with


                                       5
<PAGE>   7

respect to an Auction unless it is received by the Auction Agent by 3:00 P.M. on
the Business Day next preceding the applicable Auction Date.

         3.4. Notice of Auction Results.

              (a) On each Auction Date, the Auction Agent shall notify BD by
telephone as set forth in paragraph (a) of the Settlement Procedures. On the
Business Day next succeeding such Auction Date, the Auction Agent shall notify
BD in writing of the disposition of all Orders submitted by BD in the Auction
held on such Auction Date.

              (b) BD shall notify each Beneficial Owner, Potential Beneficial
Owner, Existing Holder or Potential Holder on whose behalf BD has submitted an
Order as set forth in paragraph (b) of the Settlement Procedures, and take such
other action as is required of BD pursuant to the Settlement Procedures.

         If any Beneficial Owner or Existing Holder selling AMPS in an Auction
fails to deliver such shares, the BD of any Person that was to have purchased
shares of such series of AMPS in such Auction may deliver to such Person a
number of whole shares of such series of AMPS that is less than the number of
shares that otherwise was to be purchased by such Person. In such event, the
number of shares of such series of AMPS to be so delivered shall be determined
by such BD. Delivery of such lesser number of shares shall constitute good
delivery. Upon the occurrence of any such failure to deliver shares, such BD
shall deliver to the Auction Agent the notice required by Section 3.3(d)(ii)
hereof. Notwithstanding the foregoing terms of this Section 3.4(b), any delivery
or non-delivery of shares of any series of AMPS which represents any departure
from the results of an Auction, as determined by the Auction Agent, shall be of
no effect unless and until the Auction Agent shall have been notified of such
delivery or non-delivery in accordance with the terms of Section 3.3(d) hereof.
The Auction Agent shall have no duty or liability with respect to enforcement of
this Section 3.4(b).

         3.5. Service Charge to Be Paid to BD. On the Business Day next
succeeding each Auction Date, the Auction Agent shall pay to BD from moneys
received from the Fund an amount equal to: (a) in the case of any Auction Date
immediately preceding a 7-Day Dividend Period or 28-Day Dividend Period, the
product of (i) a fraction the numerator of which is the number of days in such
Dividend Period (calculated by counting the first day of such Dividend Period
but excluding the last day thereof) and the denominator of which is 360, times
(ii) 1/4 of 1%, times (iii) $25,000, times (iv) the sum of (A) the aggregate
number of AMPS placed by BD in the applicable Auction that were (x) the subject
of a Submitted Bid of a Beneficial Owner submitted by BD and continued to be
held as a result of such submission and (y) the subject of a Submitted Bid of a
Potential Beneficial Owner submitted by BD and were purchased as a result of
such submission plus (B) the aggregate number of AMPS subject to valid Hold
Orders (determined in accordance with Paragraph 10 of the Certificate of
Designation) submitted to the Auction Agent by BD plus (C) the number of AMPS
deemed to be subject to Hold Orders by Beneficial Owners pursuant to Paragraph
10 of the Certificate of Designation that were acquired by such Beneficial
Owners through BD; and (b) in the case of any Auction Date immediately



                                       6
<PAGE>   8

preceding a Special Dividend Period, that amount as mutually agreed upon by the
Fund and BD, based on the selling concession that would be applicable to an
underwriting of fixed or variable rate preferred shares with a similar final
maturity or variable rate dividend period, at the commencement of such Special
Dividend Period.

         For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any
Beneficial Owner who acquired shares of any series of AMPS through BD transfers
those shares to another Person other than pursuant to an Auction, then the
Broker-Dealer for the shares so transferred shall continue to be BD, provided,
however, that if the transfer was effected by, or if the transferee is, a
Broker-Dealer other than BD, then such Broker-Dealer shall be the Broker-Dealer
for such shares.

IV.      THE AUCTION AGENT.

         4.1. Duties and Responsibilities.

              (a) The Auction Agent is acting solely as agent for the Fund
hereunder and owes no fiduciary duties to any other Person by reason of this
Agreement.

              (b) The Auction Agent undertakes to perform such duties and only
such duties as are set forth specifically in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.

              (c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted by
it, or for any error of judgment made by it in the performance of its duties
under this Agreement. The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall have been negligent
in ascertaining (or failing to ascertain) the pertinent facts.

         4.2. Rights of the Auction Agent.

              (a) The Auction Agent may rely upon, and shall be protected in
acting or refraining from acting upon, any communication authorized by this
Agreement and any written instruction, notice, request, direction, consent,
report, certificate, share certificate or other instrument, paper or document
believed by it to be genuine. The Auction Agent shall not be liable for acting
upon any telephone communication authorized by this Agreement which the Auction
Agent believes in good faith to have been given by the Fund or by BD. The
Auction Agent may record telephone communications with BD.

              (b) The Auction Agent may consult with counsel of its own choice,
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.


                                       7
<PAGE>   9

              (c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.

              (d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys.

         4.3. Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement or the AMPS.

V.       MISCELLANEOUS.

         5.1. Termination. Any party may terminate this Agreement at any time
upon five days' prior written notice to the other party; provided, however, that
if BD is Merrill Lynch, Pierce, Fenner & Smith Incorporated, neither BD nor the
Auction Agent may terminate this Agreement without first obtaining the prior
written consent of the Fund to such termination, which consent shall not be
withheld unreasonably.

         5.2. Participant in Securities Depository; Payment of Dividends in
              Same-Day Funds.

              (a) BD is, and shall remain for the term of this Agreement, a
member of, or a participant in, the Securities Depository (or an affiliate of
such a member or participant).

              (b) BD represents that it (or if BD does not act as Agent Member,
one of its affiliates) shall make all dividend payments on the AMPS available in
same-day funds on each Dividend Payment Date to customers that use BD (or its
affiliate) as Agent Member.

         5.3. Agent Member. At the date hereof, BD is a participant of the
Securities Depository.

         5.4. Communications. Except for (i) communications authorized to be
made by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given to such party at its address or telecopier number set forth
below:

              If to BD:
                                  -------------------------------
                                  -------------------------------
                                  -------------------------------
                                  Attention:
                                             --------------------



                                       8
<PAGE>   10

                                            Telecopier No.:______________
                                            Telephone No.:______________

     If to the Auction                      IBJ Whitehall Bank & Trust Company
     Agent, addressed to:                   One State Street
                                            New York, New York  10004
                                            Attention:  Auction Window
                                                        Subcellar 1

                                            Telecopier No.: (212) 797-1148
                                            Telephone No.:  (212) 858-2135

or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
the Auction Agent by an Authorized Officer. BD may record telephone
communications with the Auction Agent.

         5.5. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.

         5.6. Benefits. Nothing in this Agreement, express or implied, shall
give to any person, other than the Fund, the Auction Agent and BD and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim under this Agreement.

         5.7. Amendment; Waiver.

              (a) This Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part, except by
a written instrument signed by a duly authorized representative of the party to
be charged.

              (b) Failure of either party to this Agreement to exercise any
right or remedy hereunder in the event of a breach of this Agreement by the
other party shall not constitute a waiver of any such right or remedy with
respect to any subsequent breach.

         5.8. Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of BD and the Auction Agent. This Agreement may not be
assigned by either party hereto absent the prior written consent of the other
party; provided, however, that this Agreement may be assigned by the Auction
Agent to a successor Auction Agent selected by the Fund without the consent of
BD.


                                       9
<PAGE>   11

         5.9. Severability. If any clause, provision or section of this
Agreement shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any remaining clause, provision or section hereof.

         5.10. Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.

         5.11. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed in said State.



                                       10
<PAGE>   12


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.

                                    IBJ WHITEHALL BANK & TRUST COMPANY


                                    -----------------------------------------
                                    By:
                                    Title:

                                    [NAME OF BROKER-DEALER]


                                    -----------------------------------------
                                    By:
                                    Title:



                                       11


<PAGE>   13

                                                                       EXHIBIT A

                              SETTLEMENT PROCEDURES

                                [From Prospectus]







                                       A-1




<PAGE>   14


                                                                       EXHIBIT B

                       IBJ WHITEHALL BANK & TRUST COMPANY
                                AUCTION BID FORM



Submit To:    IBJ Whitehall Bank & Trust Co.      Issue:   MuniHoldings Florida
              Securities Transfer Department               Insured Fund V
              One State Street                    Series: ______________________
              New York, New York 10004            Auction Date:_________________

              Attention: Auction Window
              Telephone: (212) 858-2272
              Facsimile: (212) 797-1148

The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:


Name of Bidder:
                 ---------------------------------------

                                      BENEFICIAL OWNER
Shares now held                         HOLD
               -----------------------                 -------------------------
                                        BID at rate of
                                                       -------------------------
                                        SELL
                                                       -------------------------

                                  POTENTIAL BENEFICIAL OWNER

                                        # of shares bid
                                                       -------------------------
                                        BID at rate of
                                                       -------------------------

Notes:

(1)     If submitting more than one Bid for one Bidder, use additional Auction
        Bid Forms.

(2)     If one or more Bids covering in the aggregate more than the number of
        outstanding shares held by any Beneficial Owner are submitted, such bid
        shall be considered valid in the order of priority set forth in the
        Auction Procedures on the above issue.

(3)     A Hold or Sell Order may be placed only by a Beneficial Owner covering a
        number of shares not greater than the number of shares currently held.

(4)     Potential Beneficial Owners may make only Bids, each of which must
        specify a rate. If more than one Bid is submitted on behalf of any
        Potential Beneficial Owner, each Bid submitted shall be a separate Bid
        with the rate specified.

(5)     Bids may contain no more than three figures to the right of the decimal
        point (.001 of 1%). Fractions will not be accepted.

NAME OF BROKER-DEALER
                         ----------------------------
Authorized Signature
                         ----------------------------

                                       B-1
<PAGE>   15

                                                                       EXHIBIT C

                    (Note: To be used only for transfers made
                       other than pursuant to an Auction)

                                  TRANSFER FORM

         Re:      MuniHoldings Florida Insured Fund V
                  Auction Market Preferred Shares(R),
                  Series [A][B] ("AMPS"(R))

        We are (check one):

[ ]     the Existing Holder named below;

[ ]     the Broker-Dealer for such Existing Holder; or

[ ]     the Agent Member for such Existing Holder.

        We hereby notify you that such Beneficial Owner has transferred
        AMPS _____ to. _____

                                                    ----------------------------
                                                    (Name of Existing Holder)

                                                    ----------------------------
                                                    (Name of Broker-Dealer)

                                                    ----------------------------
                                                    (Name of Agent Member)

                                           By:
                                                    ----------------------------
                                                    Printed Name:
                                                    Title:

                                       C-1
<PAGE>   16


                                                                       EXHIBIT D

                 (Note: To be used only for failures to deliver
                        AMPS sold pursuant to an Auction)

                         NOTICE OF A FAILURE TO DELIVER

Complete either I or II

        I.      We are a Broker-Dealer for _____________ (the "Purchaser"),
                which purchased _________ AMPS, Series [A][B], of MuniHoldings
                Florida Insured Fund V in the Auction held on
                _______________________ from the seller of such shares.

        II.     We are a Broker-Dealer for _____________ (the "Seller"), which
                sold ______ AMPS, Series [A][B], of MuniHoldings Florida Insured
                Fund V in the Auction held on ___________ to the Purchaser of
                such shares.

                We hereby notify you that (check one):

                      the Seller failed to deliver such shares to the Purchaser
                -----
                      the Purchaser failed to make payment to the Seller upon
                      delivery of such shares
                -----

                                       Name:
                                            ----------------------------
                                             (Name of Broker-Dealer)

                                       By:
                                            ----------------------------
                                             Printed Name:
                                             Title:

                                       D-1

<PAGE>   1
                                                                  EXHIBIT (k)(4)

- --------------------------------------------------------------------------------
        BOOK-ENTRY-ONLY AUCTION-RATE/MONEY MARKET PREFRRED/AND REMARKETED
                              PREFERRED SECURITIES
- --------------------------------------------------------------------------------

                            LETTER OF REPRESENTATIONS
                  [To be Completed by Issuer and Trust Company]

                       MuniHoldings Florida Insured Fund V
              -----------------------------------------------------
                                [Name of Issuer]

                       IBJ Whitehall Bank & Trust Company
              -----------------------------------------------------
                             [Name of Trust Company]

Attention:  General Counsel's Office                         ____________, 1999
THE DEPOSITORY TRUST COMPANY                                            [Date]
55 Water Street; 49th Floor
New York, NY  10041-0099

         Re:      MuniHoldings Florida Insured Fund V
                  -----------------------------------------------------

                  Issuance of Auction Market Preferred Shares ("AMPS")
                  -----------------------------------------------------

                  Series A (#               ) and Series B (#         )
                  ------------------------------------------------------
                       [Issue Description, including CUSIP number]

Ladies and Gentlemen:

         This letter sets forth our understanding with respect to certain
matters relating to the above-referenced issue (the "Securities"). Trust Company
will act as transfer agent, registrar, dividend disbursing agent, and redemption
agent with respect to the Securities. The Securities will be issued pursuant to
a prospectus, private placement memorandum, or other such document authorizing
the issuance of a Securities dated ___________________, 1999 (the "Document").
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
["Underwriter"] is distributing the Securities through the Depositary Trust
Company ("DTC").

         To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with respect to the Securities, Issue and Trust Company
make the following representations to DTC:

         1. Prior to closing on the Securities on ___________, 1999, there shall
be deposited with DTC one Security certificate registered in the name of DTC's
nominee, Cede & Co., which represents the total

<PAGE>   2

number of Securities issued. Said certificate shall remain in DTC's custody as
provided in the Document. If however, the aggregate principal amount of the
Securities exceed $200 million, one certificate will be issued with respect to
each $200 million of principal amount and an additional certificate will be
issued with respect to any remaining principal amount. Each Security certificate
shall bear the following legend:

                  Unless this certificate is presented by an authorized
         representative of The Depository Trust Company, a California
         corporation ("DTC"), to issuer or its agent for registration of
         transfer, exchange, or payment, and any certificate issued is
         registered in the name of Cede & Co., or in such other name as is
         requested by an authorized representative of DTC (and any payment is
         made to Cede & Co. or to such other entity as is requested by an
         authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
         HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGRUL inasmuch
         as the registered owner hereof, Cede & Co., has an interest therein.

         2. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.

         3. In the event of any solicitation of consents from or voting by
holders of the Securities, Issuer shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall send notice of such record date to DTC not less than 15
calendar days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be sent to DTC's Reorganization Department at (212)
709-6896 or (212) 709-6897, and receipt of such notices shall be confirmed by
telephoning (212) 709-6870. Notices to DTC pursuant to this Paragraph by mail or
by any other means shall be sent to DTC's Reorganization Department as indicated
in Paragraph 5.

         4. In the event of a full or partial redemption of the outstanding
Securities, Issuer or Trust Company shall send a notice to DTC specifying: (a)
the number of Securities to be redeemed; and (b) the date such notice is to be
distributed to Security holders or published (the "Publication Date"). Such
notice shall be sent to DTC by a secure means (e.g., legible telecopy,
registered or certified mail, overnight delivery) in a timely manner designed to
assure that such notice is in DTC's possession no later than the close of
business on the business day before or, if possible, two business days before
the Publication Date. Issuer or Trust Company shall forward such notice either
in a separate secure transmission for each CUSIP number or in a secure
transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The party
sending such notice shall have a method to verify subsequently the use of such
means and the timeliness of such notice.) The Publication date shall be not less
than 30 days nor more than 60 days prior to the redemption date. Notices to DTC
pursuant to this Paragraph by telecopy shall be sent to DTC's Call Notification
Department at (516) 227-4039 or (516) 227-4190. If the party sending the notice
does not receive a telecopy receipt from DTC confirming that the notice has been
received, such party shall telephone (516) 227-4070. Notices to DTC pursuant to
this Paragraph by mail or by any other means shall be sent to:

                           Manager; Call Notification Department
                           The Depository Trust Company
                           711 Stewart Avenue
                           Garden City, NY  11530-4719

         5. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Trust
Company to Security holder specifying the terms of the


                                       2
<PAGE>   3


tender and the Publication Date of such notice shall be sent to DTC by a secure
means in the manner set forth in the preceding Paragraph. Notices to DTC
pursuant to this Paragraph and notices of other corporate action by telecopy
shall be sent to DTC's Reorganization Department at (212) 709-1093 or (212)
709-1094, and receipt of such notices shall be confirmed by telephoning (212)
709-6884. Notices to DTC pursuant to the above by mail or by any other means
shall be sent to:

                           Manager; Reorganization Department
                           Reorganization Window
                           The Depository Trust Company
                           7 Hanover Square, 23rd Street
                           New York, NY  10004-2695

         6. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities (listed on Schedule A hereto) and the accompanying
description of such Security, which as of the date of this letter is "
____________________________________ ".

         7. The Document indicates that the dividend rate for the Securities may
vary from time to time. Absent other existing arrangements with DTC, Issuer or
Trust Company shall give DTC notice of each such change in the dividend rate, on
the same day that the new rate is determined, by telephoning the Supervisor of
DTC's Dividend Announcement Section at (212) 709-1270, or by telecopy sent to
(212) 709-1723. Such verbal or telecopy notice shall be followed by prompt
written confirmation sent by a secure means in the manner set forth in Paragraph
4 to:

                                    Manager; Announcements
                                    Dividend Department
                                    The Depository Trust Company
                                    7 Hanover Square, 22nd Floor
                                    New York, NY  10004-2695

         8. The Document indicates that each purchaser must sign a purchaser's
letter which contains provisions restricting transfer of the Securities
purchased. Issuer and Trust Company acknowledge that as long as Cede & Co. is
the sole record owner of the Securities, Cede & Co. shall be entitled to all
voting rights applicable to the Securities and to receive the full amount of all
dividends, liquidation proceeds, and redemption proceeds payable with respect to
the Securities, even if the credits of Securities to the DTC accounts of any DTC
Participant ("Participant") result from transfers or failures to transfer in
violation of the provisions of the purchaser's letter. Issuer and Trust Company
acknowledge that DTC shall treat any Participant having Securities credited to
its DTC accounts as entitled to the full benefits of ownership of such
Securities. Without limiting the generality of the preceding sentence, Issuer
and Trust Company acknowledge that DTC shall treat any Participant having
securities credited to its DTC accounts as entitled to receive dividends,
distributions, and voting rights, if any, in respect of Securities and, subject
to Paragraphs 12 and 13, to receive certificates evidencing Securities if such
certificates are to be issued in accordance with Issuer's certificate of
incorporation. (The Treatment by DTC of the effects of the crediting by it of
Securities to the accounts of Participants described in the preceding two
sentences shall not affect the rights of Issuer, participants in auctions
relating to the Securities, purchasers, sellers, or holders of Securities
against any Participant.) DTC shall not have any responsibility to ascertain
whether any transfer of Securities is made in accordance with the provisions of
the purchaser's letter.

         9. Issuer or Trust Company shall provide a written notice of dividend
payment and distribution information to a standard announcement service
subscribed to by DTC as soon as the information is available. In the unlikely
event that no such service exists, Issuer or Trust Company shall provide this
information directly to DTC electronically, as previously arranged by Issuer or
Trust Company and DTC,



                                       3
<PAGE>   4

as soon as the information is available. If electronic transmission has not been
arranged, absent any other arrangements between Issuer or Trust Company and DTC,
such information should be sent by telecopy to DTC's Dividend Department at
(212) 709-1723 or (212) 709-1686, and receipt of such notices shall be confirmed
by telephoning (212) 709-1270. Notices to DTC pursuant to the above by mail or
by any other means shall be addressed as follows:

                                    Manager; Announcements
                                    Dividend Department
                                    The Depository Trust Company
                                    7 Hanover Square, 22nd Floor
                                    New York, NY  10004-2695

         10. Issuer or Trust Company shall provide CUSIP-level detail for
dividend payments and distributions to DTC no later than noon (Eastern Time) on
the payment date.

         11. Dividend payments and distributions shall be received by Cede &
Co., as nominee of DTC, or its registered assignees in same-day funds no later
than 2:30 p.m. (Eastern Time) on each payment date. Absent any other
arrangements between Issuer or Trust Company and DTC, such funds shall be wired
as follow:

                                    The Chase Manhattan Bank
                                    ABA #021 000 21
                                    For credit to a/c Cede & Co.
                                    c/o The Depository Trust Company
                                    Dividend Deposit Account #066-026776

         12. Redemption payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns in same-day funds no later than 2:30 p.m.
(Eastern Time) on the payment date. Absent any other arrangements between Issuer
or Trust Company and DTC, such funds shall be wired as follows:

                                    The Chase Manhattan Bank
                                    ABA #021 000 21
                                    For credit to a/c Cede & Co.
                                    c/o The Depository Trust Company
                                    Redemption Deposit Account #066-027306

         13. Reorganization payments and CUSIP-level detail resulting from
corporate actions (such as tender offers, remarketings, or mergers) hall be
received by Cede & co., as nominee of DTC, or its registered assigns in same-day
funds no later than 2:30 p.m. (Eastern Time) on the first payment date. Absent
any other arrangement between Issuer or Trust Company and DTC, such funds shall
be wired as follows:

                                    The Chase Manhattan Bank
                                    ABA #021 000 21
                                    For credit to a/c Cede & Co.
                                    c/o The Depository Trust Company
                                    Redemption Deposit Account #066-027608

         14. DTC may direct Issuer or Trust Company to use any other number or
address as the number or address to which notices, payments of dividends,
distributions, or redemption proceeds may be sent.



                                       4
<PAGE>   5

         15. In the event of a redemption acceleration, or any similar
transaction (e.g., tender made and accepted in response to Issuer's or Trust
Company's invitation) necessitating a reduction in the number of Securities
outstanding, or an advance refunding of part of the Securities outstanding DTC,
in its discretion: (a) may request Issuer or Trust Company to issue and
authenticate a new Security certificate; or (b) may make an appropriate notation
on the Security certificate indicating the date and amount of such reduction in
the number of Securities outstanding, except in the case of final redemption, in
which case the certificate the certificate will be presented to Issuer or Trust
Company prior to payment, if required.

         16. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trust
company shall notify DTC of the availability of certificates. In such event,
Issuer or Trust Company shall issue, transfer, and exchange certificates in
appropriate amounts, as required by DTC and others.

         17. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Trust Company (at which time DTC will confirm with Issuer or Trust Company
the aggregate principal amount of Securities outstanding). Under such
circumstances, at DTC's request Issuer and Trust Company shall cooperate fully
with DTC by taking appropriate action to make available one or more separate
certificates evidencing Securities to any DTC Participant having Securities
credited to its DTC accounts.

         18. Issuer hereby authorized DTC to provide to Trust Company security
position listings of Participants with respect to the Securities from time to
time at the request of Trust Company. Issuer also authorizes DTC, in the event
of a partial redemption of Securities, to provide Trust Company, upon request,
with the names of those Participants whose positions in Securities have been
selected for redemption by DTC. DTC will use its best efforts to notify Trust
Company of those Participants whose positions in Securities have been selected
for redemption by DTC. Issuer authorizes and instructs Trust Company to provide
DTC with such signatures, examples of signatures, and authorizations to act as
may be deemed necessary or appropriate by DTC to permit DTC to discharge its
obligations to its Participants and appropriate regulatory authorities. Such
requests for security position listings shall be sent to DTC's Reorganization
Department in the manner set forth in Paragraph 5.

         This authorization, unless revoked by Issuer, shall continue with
respect to the Securities while any Securities are on deposit at DTC, until and
unless Trust Company shall no longer be acting. In such event, Issuer shall
provide DTC with similar evidence, satisfactory to DTC, of the authorization of
any successor thereto so to act.

         19. Nothing herein shall be deemed to require Trust Company to advance
funds on behalf of Issuer.

         20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together constitute but one and the same instrument.

         21. This Letter of Representations is governed by, and shall be
construed in accordance with, the laws of the State of Florida.



                                       5
<PAGE>   6

         22. The following riders, attached hereto, are hereby incorporated into
this Letter of Representations:

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

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




                                       6
<PAGE>   7

<TABLE>
<S>                                                      <C>
     NOTES:                                                      Very truly yours,
     -----
     A. If there is a Trust Company (as defined
in this Letter of Representations), Trust Company                MUNIHOLDINGS FLORIDA INSURED
as well as Issuer must sign this Letter. If                                      FUND V
there is no Trust Company, in signing this Letter                               (Issuer)
Issuer itself undertakes to perform all of the
obligations set forth herein.                                    By:
                                                                     ------------------------------------
     B. Schedule B contains statements that DTC                        (Authorized Officer's Signature)
believes accurately describe DTC, the method of
effecting book-entry transfers of securities                     IBJ WHITEHALL BANK & TRUST COMPANY
distributed through DTC, and certain related                                (Trust Company)
matters.
                                                                 By:
                                                                     ------------------------------------
                                                                       (Authorized Officer's Signature)


</TABLE>

Received and Accepted:
THE DEPOSITORY TRUST COMPANY

By:
    ------------------------------

cc: Underwriter
    Underwriter's Counsel




                                       7
<PAGE>   8


                                                                      SCHEDULE A

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

      ---------------------------------------------------------------------
                                (Describe Issue)


     CUSIP Number                 Share Total                   Value ($ Amount)



                                       8
<PAGE>   9


                     RIDER TO THE LETTER OF REPRESENTATIONS
                                       OF
                       MUNIHOLDINGS FLORIDA INSURED FUND V
                                       AND
                       IBJ WHITEHALL BANK & TRUST COMPANY
                              DATED         , 1999

1. This Rider supersedes any contradictory language set forth in the Letter of
Representations to which it is appended. Capitalized terms used and not defined
herein have the meaning set forth in the Letter of Representations to which this
Rider is appended.

2. The Prospectus indicates that in the event the Issuer retroactively allocates
any net capital gains or other income subject to regular Federal income tax to
AMPS without having given advance notice thereof to the Auction Agent as
described in the Prospectus solely by reason of the fact that such allocation is
made as a result of the redemption of all or a portion of the AMPS outstanding
or the liquidation of the Issuer (the amount of such allocation being referred
to herein as a "Retroactive Taxable Allocation"), the Issuer, within 90 days
(and generally within 60 days) after the end of the Issuer's fiscal year for
which a Retroactive Taxable Allocation is made, will provide notice thereof to
the Auction Agent and to each holder of AMPS (initially Cede & Co. as nominee of
DTC) during such fiscal year at such holder's address as the same appears or
last appeared on the stock books of the Issuer. The Issuer, within 30 days after
such notice is given to the Auction Agent, will pay to the Auction Agent (who
then will distribute to such holders of AMPS), out of funds legally available
therefor, an amount equal to the aggregate Additional Dividend with respect to
all Retroactive Taxable Allocations made to such holders during the fiscal year
in question.

3. The Issuer will notify DTC, at least 10 Business Days prior to the payment
date for any Additional Dividends, of (i) the record date for holders of AMPS
entitled to receive Additional Dividends, (ii) the amount of Additional
Dividends payable on a per share basis to such holders and (iii) the CUSIP
numbers set forth on the stock certificates representing such AMPS.

4. The Prospectus indicates that if the Issuer does not give advance notice of
the amount of net capital gains or other income subject to regular Federal
income tax to be included in a dividend on AMPS in the related Auction, the
Issuer may include such taxable income in a dividend on AMPS if it increases the
dividend by an additional amount calculated as if such income were a Retroactive
Taxable Allocation and the additional amount were an Additional Dividend. The
Issuer or the Auction Agent will notify DTC, at least five Business Days prior
to the applicable Dividend Payment Date, of the amount of such additional amount
to be included in the dividend on a per share basis.

5. The Prospectus indicates that in the event a Response (as defined in the
Prospectus) indicates that it is advisable that the Issuer give a Notice of
Special Dividend


                                       9
<PAGE>   10

Period (as defined in the Prospectus) for the AMPS, the Issuer, by no later than
the second Business Day prior to the relevant Auction Date (as defined in the
Prospectus), may give a Notice of Special Dividend Period to the Auction Agent,
DTC and each Broker-Dealer (as defined in the Prospectus), which notice will
specify (i) the duration of the Special Dividend Period (as defined in the
Prospectus), (ii) the Optional Redemption Price as specified in the related
Response and (iii) the Specific Redemption Provisions, if any, as specified in
the related Response. The Issuer is required to give telephonic and written
notice (a "Notice of Revocation") to the Auction Agent, each Broker-Dealer, and
DTC (as described in paragraph 6 hereof) on or prior to the Business Day prior
to the relevant Auction Date under the circumstances specified in the
Prospectus.



                                       10


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